Karo Bio secures financing of approximately SEK 530 million for phase III trials of eprotirome

Summary

• Following scientific advice from the European Medicines Agency, EMA, Karo Bio can estimate the investment for eprotirome’s phase III program for HeFH in the EU to approximately SEK 400 million.
   
• Karo Bio has secured the financing of the phase III program for eprotirome and its other activities through an Equity Credit Facility of approximately SEK 230 million and a fully guaranteed rights issue of approximately SEK 300 million.
   
• The development plan for eprotirome for the indication HeFH in the EU is considered to be a capital efficient way to take the product to market. The investment is expected to yield satisfactory return on its own merits, while at the same time enabling the long-term realization of eprotiromes full potential on other geographic markets and for other indications.
   
• A telephone conference will be held today at 11.00 am CET.

Fredrik Lindgren, Chief Executive Officer of Karo Bio, comments:
“It is very positive that we now have secured the financing for eprotirome - our most important project. I am convinced that our focus on developing eprotirome for the niche indication HeFH is the right strategy for Karo Bio. Taking eprotirome through a phase III program is a considerable investment for the company, but it also represents great opportunities. Should we succeed in taking eprotirome to the European market for HeFH, I believe that we also create prospects to later on launch eprotirome on other geographic markets and for broader indications.”
 

Background and reasons

Karo Bio AB (publ) (“Karo Bio” or the “Company”) views eprotirome as its most important project at present and top priority is being given to make sure that this product is given the best possibilities to reach the market.

Early in 2010, based on a long dialogue with the American pharmaceutical agency U.S Food and Drug Administration (“FDA”) and potential development partners, Karo Bio came to the conclusion that the clinical phase III program for the development of eprotirome for the primary care indication polygenic dyslipidemia, would be subject to rigorous requirements. This would have led to an unreasonably large investment, not only for the Company but also for a potential development partner.

During the first six months of 2010, Karo Bio therefore investigated a niche indication with large unmet medical needs among patients, and that had the possibility to be achieved with a reasonable investment. In conjunction with the second quarter report in July this year, Karo Bio announced that the Company has chosen to focus on heterozygous familial hypercholesterolemia (“HeFH”) as the first indication for eprotirome. During the third quarter, the Company focused on detailed planning of the development of eprotirome for HeFH in the EU and has anchored the development plans with pharmaceutical authorities in several European countries as well as the central European Medicines Agency (“EMA”). After scientific advice from EMA, Karo Bio can estimate the investment for the phase III program for eprotirome for HeFH in the EU to approximately SEK 400 million.

HeFH and the market potential for eprotirome
HeFH is a hereditary condition that causes patients to suffer from very high blood lipids already in their youth. The prevalence is approximately three million people globally, of which one million in the EU alone. However, less than 15 percent of patients are diagnosed today, most likely due to the lack of efficacious and specific pharmaceuticals for HeFH. Today, only about 20-30 percent of patients diagnosed and treated reach their treatment goals. At present, the direct target group for eprotirome is close to 100,000 patients in the EU. Market research indicate that eprotirome’s annual sales potential for HeFH in the EU can be estimated to approximately USD 100 million with the current diagnosis rate. If the diagnosis rate and thus the patient population increase, the annual sales potential could increase to several hundred million USD.

Phase III program for eprotirome
The Company’s plan for eprotirome is to conduct a phase III program with the objective of obtaining market approval for the indication HeFH in the EU. The main part of the program is clinical trials involving up to 1,150 patients for treatment during 12-18 months. The primary objective is to demonstrate a clinically relevant reduction of LDL-cholesterol in addition to existing treatment alternatives, which mainly are statins. The trials will be conducted at 30-50 medical centres in 8-10 countries and are planned to commence during 2011. Provided that the development program progresses as planned, an application for market approval is expected to be submitted to EMA in late 2013 or during 2014.

Great potential for eprotirome in the long term
Eprotirome has a novel mechanism of action and a unique efficacy profile providing new treatment opportunities compared to currently available pharmaceuticals for dyslipidemia. The forthcoming phase III program is considered a first step in the continued development of eprotirome with HeFH as the first indication. Based on the phase III program for HeFH in the EU, the Company hopes to be able to apply for registration in other markets as well.

It is Karo Bio’s conviction that eprotirome in the long term has the potential to be a valuable treatment for many conditions of high blood lipids, including the primary care indication polygenic dyslipidemia where eprotirome can become an add-on treatment for the very large number of patients that do not reach their treatment goals with currently available pharmaceuticals. However, it is the Company’s belief that substantial and extensive safety trials will be required for the registration for a primary care indication, and thus, such registration is regarded as a more long-term goal.
 

Capital need and financing

The cost of conducting the planned clinical phase III program for eprotirome is estimated to approximately SEK 400 million. During the coming 12-month period, the Company will evaluate the strategy regarding its projects in earlier development phases, where focus will be on development partnerships and cost efficiency with the purpose to limit the capital need for these projects. Through an Equity Credit Facility (“ECF”) of approximately SEK 230 million[1] and a guaranteed rights issue of approximately SEK 300 million after transaction costs, the Company will have sufficient financial resources, together with its existing liquid assets, to finance the phase III program for eprotirome as well as the Company’s other operations and other projects.

Equity Credit Facility (”ECF”)
Karo Bio has entered into a so called ECF agreement (the “Facility”) with Azimuth Opportunity, Ltd. (“Azimuth”) for up to USD 35 million (corresponding to approximately SEK 230 million at the current exchange rate). The agreement is subject to approval at the Extraordinary General Meeting that is planned to be held on November 24, 2010. Azimuth is an international business company based in the British Virgin Islands. The Canadian company Acqua Capital Management Inc. acts as adviser to Azimuth.

In brief, the ECF agreement enables Karo Bio to, during a 36 month period on not more than 36 occasions, issue shares to Azimuth. Karo Bio is not obliged to utilise this possibility and decides in its sole discretion the time, issue size and the so called “floor price” per share under the agreement, conditioned upon certain defined limitations.

If and when Karo Bio chooses to utilise the Facility, a so called “drawdown” of a certain amount, the price per share will amount to 95 percent of the volume-weighted average price of the Karo Bio shares during each of the five trading days on NASDAQ OMX Stockholm included in the pricing period. Hence, the agreement gives Azimuth a predetermined discount of five percent. After each drawdown, the Board of Directors will resolve to issue the relevant number of new shares. Such resolution will be announced through a press release.

A one-time fee of 1.0 percent of the Facility’s entire amount is payable for the Facility, as well as a 1.0 percent fee on each respective drawdown. The one-time fee can be paid in cash or with shares, while the drawdown fee is paid in cash. The agreement stipulates that Karo Bio can limit Azimuth’s ownership to not more than 9.99 percent of the share capital and votes in Karo Bio.

Rights issue
On October 25, 2010, the Board of Directors of Karo Bio resolved to, subject to approval from an Extraordinary General Meeting (“EGM”), carry out new issue of shares with preferential rights for the Company’s existing shareholders (the “Rights Issue”) of approximately SEK 300 million after transaction costs. The Rights Issue is fully underwritten, subject to customary conditions, by Carnegie Investment Bank AB (“Carnegie”) and external underwriters. The EGM is planned to be held on November 24, 2010.

The Board of Directors intends to announce the final terms for the Rights Issue, including maximum increase in share capital and the number of shares to be issued as well as the issue price for the new shares, on or about November 22, 2010. The Board of Directors will decide the final terms after consultation with its financial advisors.

Azimuth, Storford Limited (Volati), Ponderus Invest AB and Carnegie have guaranteed the Rights Issue, under certain conditions. In addition, Karo Bio’s chairman Bo Håkansson and CEO Fredrik Lindgren have declared their intentions to subscribe for their respective proportions of the Rights Issue.
 

Preliminary timetable for the Rights Issue

Financial and legal advisors

Carnegie is Lead manager and Bookrunner in the Rights Issue. Carnegie and HDR Partners are financial advisors to Karo Bio. Fredersen Advokatbyrå acts as legal advisor to Karo Bio. Gernandt & Danielsson acts as legal advisor to Carnegie and HDR Partners.

For further information please contact:

Fredrik Lindgren, Chief Executive Officer, +46 (0) 8-608 60 20

Erika Söderberg Johnson, CFO, VP Finance and Investor Relations, +46 (0) 8-608 60 52

For further information about Karo Bio, please visit; www.karobio.se

Karo Bio may be required to disclose the information provided herein pursuant to the Swedish Securities Markets Act and/or the Swedish Financial Instruments Trading Act. The information was published on October 26, 2010 at 08.25 CET.

About Karo Bio

Karo Bio is a pharmaceutical company focused on the research and development of innovative drugs for unmet medical needs. Karo Bio’s vision is to become a pharmaceutical company with sustainable profitability, commercial products and a competitive project portfolio.

Karo Bio runs a number of drug development projects within the indication areas cardiovascular and metabolic diseases, neuropsychiatry, inflammation, cancer and women’s health. An important foundation for the company’s activities is its unique knowledge of nuclear receptors as target proteins for the development of novel pharmaceuticals, as well as related mechanisms of action. Important processes and competencies within the company include structurally based research, drug discovery, pre-clinical and clinical development, and medical and regulatory expertise.

Karo Bio has the capacity to process select compounds for niche indications through the whole development chain, while compounds addressing large patient groups require development collaborations or outlicensing at some stage in the process. In addition to proprietary projects, Karo Bio has three strategic collaborations with international pharmaceutical companies.

Karo Bio, headquartered in Huddinge, has 70 employees, and is listed on NASDAQ OMX Stockholm since 1998 (Reuters: KARO.ST).

This press release is also available online at: www.karobio.com and www.newsroom.cision.com

[1] USD 35 million converted into SEK based on current exchange rates.

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