INTERIM REPORT JANUARY–SEPTEMBER 2012

The January-September period and the third quarter 2012 in brief

• Net sales increased to MSEK 24.6 (0.0), whereof the third quarter increased to MSEK 8.1 (0.0)
• Net loss improved to MSEK 89.3 (176.0), whereof the third quarter improved to MSEK 12.6 (51.1)
• Loss per share was SEK 0.23 (0.45), whereof the third quarter SEK 0.03 (0.13)
• Cash flow from operating activities was MSEK -107.7 (-160.4), whereof the third quarter MSEK -25.1 (-47.7)
• Cash and cash equivalents and other short-term investments totaled MSEK 50.0 (198.4) at the end of the period.

Significant events after end of the reporting period

• Costs in the fourth quarter are expected to amount to MSEK 19-20. For the full year 2013 costs are expected to amount to MSEK 75.
• The Board of Directors has decided to call to an Extraordinary General Meeting on November 19 to propose a rights issue which is expected to provide MSEK 35 after transaction costs. The issue is underwritten to 73 percent.

Conference call/audiocast today at 9.30 CET
CEO Per Bengtsson presents the report today at 9.30 CET in an audiocast, held in Swedish, available via a link on www.karobio.se and telephone: +46 8 505 598 09 or +44 203 364 5739.

CEO COMMENTARY
The "New Karo Bio" now taking shape is based on cutting edge expertise in nuclear receptors accumulated over two decades. In the "New Karo Bio", this is combined together with an active risk analysis and strong business focus early on in projects, which is expected to contribute positively to our future opportunities for revenue. The big pharmaceutical companies have an increasing need to acquire innovative projects that have good future market potential, are considered safer than others, and which are actually advancing in their development. An important requirement for our capability to strike deals is that we identify attractive projects early on.

Efforts to reduce Karo Bio’s expenses continued during the third quarter. The layoffs decided on earlier in the year came into effect while we continued to review all expenditures. Costs in the quarter amounted to SEKM 20.8, which was 60 percent lower than in the third quarter last year, when we also had significant costs for eprotirome’s Phase III program. In the fourth quarter, we estimate that Karo Bio’s costs will drop to MSEK 19-20 and the revenues are expected to be on the same level as in the third quarter.

In order for Karo Bio to reach its goal of becoming self-financed, while also efficiently advancing its development programs, costs must be balanced against various possible sources of revenue. We are therefore working actively to seek different types of financing. We believe that Karo Bio has the potential to achieve a positive cash flow next year.

Nonetheless, we believe the business would benefit from stronger funding since it would provide greater flexibility and stability, making it easier for us to operate in a business-oriented manner. The Board has therefore decided to call to a general meeting to propose a rights issue that is expected to raise MSEK 35 after transaction costs. The issue is underwritten to 73 percent.

The work with finding alternative funding for projects is on-going. In August, Karo Bio submitted a grant application in the U.S. state of Texas for our project in ERbeta focused on cancer. The state of Texas is investing significant resources to create a cluster of commercial activity in the field of cancer around the specialist hospitals and medical universities in the Houston area. Karo Bio sees several advantages to relocating its development of ERbeta for various forms of cancer to this area, including taking advantage of the knowledge available here. Our application has now been reviewed and selected for in-depth assessment. If the application is successful, a large part of our ERbeta cancer project will receive funding for three years up to and including Phase I/II.

I would also like to comment the discussions we are having on ERbeta for MS. These discussions and the experiments planned have been delayed, but our dialogue continues in a positive spirit. As soon as we have more information, I will share this.

In summary, we have now established the "New Karo Bio", which through cutting edge expertise will deliver innovative and value enhancing projects. We have terminated the eprotirome project, and the important collaboration with Pfizer continues according to plan. The organization is very productive and generates new projects and results that strengthen Karo Bio's portfolio. We are in contact with companies that are interested in our expertise and our projects and we continue our efforts to reach additional agreements.

Per Bengtsson
CEO
 

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 October 24, 2012, 08:30 CET.

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