Karo Bio: Interim Report January-September 2013

Regulatory News:

Karo Bio (STO:KARO):

The January–September period and the third quarter 2013 in brief

· Net sales amounted to MSEK 37.4 (24.6), whereof the third quarter amounted to MSEK 21.2 (8.1)

· Net loss for the group was reduced to MSEK 18.7 (89.3), with a profit for the third quarter of MSEK 6.5 (-12.6)

· Loss per share was SEK 0.04 (0.23), with a third quarter earnings per share of SEK 0.01 (-0.03)

· Cash flow from operating activities was MSEK -25.5 (-107.7), whereof the third quarter MSEK -1.4 (-25.1)

· Cash and cash equivalents and other short-term investments totaled MSEK 32.1 (50.0) at the end of the period

· Milestone of MUSD 2.0 reached in RORgamma project with Pfizer

· Funding of MUSD 0.5 for ERbeta MS granted by US National MS Society in September

· Collaboration on fibrosis initiated with 4D Science and Dr Jörg Distler

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 through the corporate website http://www.karobio.se/ or by telephone +468 505 564 82. Questions may be submitted over the internet or orally by telephone.

PROFIT IN THE QUARTER

For the third quarter 2013, Karo Bio reports a profit, something that has not happened more than once or twice in the company’s history. The quarter was successful for us in several aspects. Following Pfizer’s exten­sion of the collaboration on RORgamma in early summer, we reached a milestone in the project in September that provided Karo Bio new revenue, as is clearly reflected in the period’s positive results. More evident proof that the project is progressing well is not to be had. The team has already moved on to the next stage in the preclinical development. If everything goes as we hope, we will reach another milestone next year. In less than two years, the project has generated revenues of approximately 70 million kronor. By the end of next year, it may have provided up to an additional 40 million kronor.

The success of this project strengthens us also in other areas. As many of you know, ERbeta for MS is the project that we are currently putting the most effort into garnering interest in among prospective partners. This project aims to develop a drug that helps patients with progressive MS. Current MS drugs addresses only inflammation and is thus suited to the early stages of MS characterized by episodic attacks of inflammation. However, this is not sufficient for patients who have had the disease longer. Therefore, attention now turns to other treatment mechanisms that protect and repair damaged tissue. In disease models, Karo Bio has shown that ERbeta agonists protect and repair the myelin sheaths that surround nerve tissue in the brain, representing such a novel treatment principle. If this can be achieved also in humans, it would represent a leap forward in the treatment of progressive MS, the continuous and relentless deterioration that most MS patients suffer after the initial undulating inflammatory phase. For some time we have gradually received data from animal studies that clearly show how these ERbeta agonists work. We pre­sented such data on the main MS Congress this fall, ECTRIMS in Copenhagen. Our data was well received and we perceive a good response and confidence in the commercial discussions we have around this project.

In September, we were granted 0.5 million dollars in funding with conditional repayment from the U.S. National MS Society for the project. In addition to strengthening the image of our project, it also illustrates the interest in contrib­uting to the development of new MS drugs. The financial support enables us to continue the preclinical development a bit further on your own. It is also the first time we are granted a larger financing through soft money, which is another success to rejoice. We continue to actively seek soft money for several of our projects.

Furthermore, at the end of the quarter, we signed an agreement on fibrotic diseases with German 4D Science. The company is led by a prominent academic researchers in the area of fibrosis , Dr. Jörg Distler who has recently shown that a specific nuclear receptor plays a central role in this type of diseases. This discovery, Dr. Distlers expertise and disease models on fibrosis built up over years, and Karo Bio’s expertise in nuclear receptors form a strong constella­tion that is seeking to develop completely novel drug concepts in fibrosis. If we are fortunate and progress is rapid, we are likely to be able to garner commercial interest in the project at an early stage. The collaboration is a good illustration of how we want to work - early make important new discoveries and with our expertise take them a few more steps further to enter into early stage commercial partner agreement with big pharma. Given the risks inherent in early drug development and, I want to stress that we are at an early stage, where we benefit from our expertise but where things may happen that cause us to abolish projects. Therefore, it is important that we take the opportunity to engage in various projects or development lines. By selecting projects for which early collaborations are possible, working cost efficiently and by supplementing our funding with soft money, we enhance our chances for commercial success.

Finally, it is very satisfying that we are able to report a profit for the third quarter and cash in the bank in parity with what we had at the beginning of the quarter. I hope that our new way of working will provide us many more such quarters, although it would be too optimistic to expect that in the near future we are able to achieve a permanent and stable surplus in our operations.

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 October 25, 2013 at 8.30 a.m. CET.

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