INTERIM REPORT JANUARY-JUNE 2013

The January–June period and the second quarter 2013 in brief

• Net sales amounted to MSEK 16.2 (16.5), whereof the second quarter amounted to MSEK 8.1 (8.2)
• Net loss for the group was MSEK 25.3 (76.7), whereof the second quarter MSEK 14.6 (22.6)
• Loss per share was SEK 0.05 (0.20), whereof the second quarter SEK 0.03 (0.06)
• Cash flow from operating activities was MSEK -24.2 (-82.6), whereof the second quarter MSEK -14.3 (-41.0)
• Cash and cash equivalents and other short-term investments totaled MSEK 33.8 (75.4) at the end of the period
• The research agreement with Pfizer on RORgamma was extended one year until 2015

Conference call / audiocast today at 9.30 a.m. CET
CEO Per Bengtsson will present the report today at 9.30 a.m. in an audiocast, held in Swedish. The audiocast and slides are available via a link on the corporate website http://www.karobio.se/ or by telephone +46850556477. It is possible to ask questions both over internet and telephone

Pfizer agreement extended until 2015
The most important event in the second quarter was that Pfizer decided to extend our research collaboration on RORgamma a year further until 2015. Previously this year, we have communicated that the project progresses well, but due to our non-disclosure agreement, it has been difficult to provide any details on the progress. The extension is a meaningful confirmation that RORgamma retains its status as a hot target in the development of novel pharmaceuticals for ​​autoimmune diseases. The area is very interesting since there are observations in man that reduce development risk. We can now look forward to continue collaborating with Pfizer in this project for another year.

The extension also provides us with significant revenues next year to finance a significant portion of our operations. Furthermore, provided the project advances as planned, it will start to generate milestones, whereof the first is expected in the second half of 2013. Thereafter, we may receive further milestones under the agreement. Total milestones amount to 220 million dollars, which makes the agreement Karo Bio’s largest ever.

Alongside RORgamma, we also work diligently on our ERbeta platform. The preclinical work is primarily focused on the MS area, where we in the second quarter started to receive interim results from the new study we commissioned to further improve our understanding of the effect. I am happy to report that these indicate that our assumption are correct, that the compound act through other mechanisms than existing compound and therefore should be attractive for MS therapy. We are still awaiting key findings from the studies that were due before mid-year, though. Thereafter, we will compile the new data in a presentation to be used in discussions with potential partners and funders. Our work with ERbeta in the field of cancer, advanced during the quarter. We now know much more about ERbeta’s effect on tumor cells and these findings are expected to make the project more attractive to potential partners.

Discussions with Merck about the conditions and opportunities to regain the drug candidate MK-6913 continued in the quarter. Our aim is to explore the possibility to access a compound that has been in phase II clinical trials in order to determine if it could be developed for other indications.

Work on NURR1 and the new receptor Nur77 continued. There are synergies in exploring the receptors in parallel allowing us to work cost efficiently on the two in tandem. Albeit work is early stage in both receptors, there are interesting results suggesting that they may develop into hot targets, highly interesting for drug development. Work on GR continued and we have a ways to go in terms of further development of molecules before we can move forward and make further preclinical testing.

In parallel with working on our projects, we continue to reduce our costs. In the second quarter, net costs rolling 12 months fell to 47 million, which is significantly lower than the 100 million reported for the full-year 2012, of which 33 million related to the termination of the eprotirome project. Furthermore, we implemented additional savings during the second quarter, mainly in staff, facilities and administration, which will gradually come into effect during the latter half of the year. These are important measures bringing us closer to our long term goal of a neutral cash flow.

As some of you are aware, we are testing new ways of telling a bit more about our activities in a CEO blog on our website. The idea is to provide some more information on a current topic around once a month. The blog can be found here: http://www.karobio.se/investormedia/vd-bloggen. In parallel, we also started a Twitter account in the name KaroBio AB.

CEO Per Bengtsson

The information in this report is such that Karo Bio is required to disclose under the Swedish Securities Market Act. The information was disclosed on July 12, 2013 at 8.30 a.m. CET.