Earnings report january – december 1999

EARNINGS REPORT JANUARY – DECEMBER 1999

* New collaboration with Abbott Laboratories in the field of diabetes
started on January 1, 2000.

* First milestone in the Bristol-Myers Squibb collaboration obtained.

* The Merck collaboration has entered into a new phase and the project
has been given higher priority by Merck.

* A clinical phase II trial will be started during the spring within the
skin disorders program.

* Group income amounted to SEK 73.0 million (62.9).

* Group cash flow from operations was improved to SEK -21.3 million
(-28.6), while net results after financial items declined to SEK -35.1
million (-24.3) due to progress and increased investments in the research
programs.

* Liquid funds and short-term investments amounted to SEK 187.8 million
(209.1).

COLLABORATIVE PROJECTS

Bristol-Myers Squibb – metabolic disorders (THR)

This collaboration is aimed at developing drugs according to a new method
for the treatment of obesity and elevated cholesterol. The treatment
method was confirmed in October 1999, which trigged the first milestone
payment. The pharmaceutical compounds tested reduce body weight and lower
cholesterol without increasing heart rate. Compounds to be brought to
clinical trials are selected thereafter.

Merck & Co. – estrogen receptors (ER)

The aim of the project is to develop drugs targeting the estrogen
receptors Alfa and Beta. The collaboration may thus result in several
products targeting different clinical applications. The first indications
were prioritized during 1999. Merck assigned higher priority and allocated
additional total resources to the project during the year.

In 1999, Karo Bio was granted patents on the estrogen receptor Beta in
Europe and the United States.

Abbott Laboratories – Type 2 diabetes (GR)

Karo Bio has in collaboration with Karolinska Institutet developed a new
method for the treatment of type 2 diabetes. A number of compounds of
various classes were developed during the year, which showed the desired
properties in animal models.

Karo Bio entered into a collaboration agreement with Abbot Laboratories in
November 1999. Karo Bio received a down payment in January 2000 and will
receive research funding for three years. Abbott will retain world
marketing rights for the products developed and Karo Bio will be paid
royalties on sales. In addition, Karo Bio will receive milestone payments
as the compounds undergo the various stages of development. If two
products are developed, total income will amount to USD 54 million, before
royalties.

Corresponding amounts for the BMS and Merck collaborations are USD 40
million and USD 80 million respectively.

INTERNAL PROJECTS

Skin disorders- THR

Patients treated with steroids are at risk for developing skin atrophy.
This can be counteracted by compounds that affect the thyroid hormone
receptors, in accordance with a method developed by Karo Bio. A pre-study
was conducted during the year on healthy human subjects. Active compounds
and a formulation have been developed for clinical trials. A clinical
phase II study is planned to start in April.

Cardiac arrhythmia-THR
Discussions are in progress with potential licensees for the preclinical
drug candidate KB 130 015. The compound has shown promising properties in
animal trials, with significantly fewer side effects than the drug
currently available, amiodarone. The company is concentrating internal
resources on a new generation of thyroid hormone antagonists. New
compounds are continuously tested in animal models.

Glaucoma-THR
Additional animal tests were carried out during the year, which supported
Karo Bio’s patent-applied method to treat glaucoma by lowering pressure in
the eye with thyroid hormone agonists. Development of eye drops is in
progress. Animal trials of the eye drops will begin in spring 2000. An
additional application for patent on the treatment method was submitted
during the year.

New project and exploratory research
Karo Bio has identified new potential clinical applications within the
orphan receptor field. Evaluation of those and a number of known nuclear
receptors is in progress, aimed at starting new research programs during
2000.

In pace with the progress of the projects and as a result of the year’s
new collaboration, Karo Bio has expanded its activities within chemistry.
A new chemistry lab was completed during the year and additional chemists
were recruited.

There were 84 employees at the end of the year, to be compared with 74 at
the end of 1998. Of these, 76 individuals are engaged in research.

RESULTS AND FINANCING
Net sales for the year for the group and parent company amounted to SEK
73.0 million (62.9), made up of research funding from the company’s
partners and a milestone payment from BMS. Group costs increased according
to plan to SEK 115.5 million (96.2), including SEK 7 million in personnel
costs, mainly attributable to the expanded R&D organization. Other
significant cost increases were SEK 4 million for external academic R&D
collaborations, preclinical trials and patents, SEK 2 million for IT
expenditures and consultants, and SEK 2 million in depreciation.

Group cash flow from operations improved to SEK -21.3 (-28.6) million but
net results for the group declined to SEK -35.1 million (-24.3). The
parent company is reporting a net loss of SEK -29.8 (-19.8). The
difference between the group and parent company is primarily made up of
depreciation on goodwill in the amount of SEK 5.2 million (5.2).

Investments in equipment were made during the year in the amount of SEK
6.5 million (12.4) for the group and the parent company. The largest item
was for the medicinal chemistry laboratory built in the company’s premises
in Novum.

Liquid funds and short-term investments amounted to SEK 187.8 million
(209.1) at year-end for the group and 187.8 (208.9) for the parent
company.

SHAREHOLDERS’ EQUITY
In February 1999, the remaining 164,224 series C shares were converted to
series B, pursuant to an agreement with the former owners of Serra
Pharmaceuticals Inc. Thereafter, all outstanding shares were of series B.
Accordingly, the annual general meeting voted on April 22, 1999 to convert
all B shares to shares with no series designation. Consequently, the
company’s share capital of SEK 45,885,860 is now divided among 9,177,172
shares at par value of SEK 5.

EVENTS AFTER THE END OF THE FINANCIAL YEAR
On February 1, the Board of Directors of Karo Bio decided to appoint
Torben Jørgensen as new President, as of the annual general meeting on
April 26th. The board is recommending that the current president Per-Olof
Mårtensson be appointed Chairman of the Board.

FUTURE DEVELOPMENT
The international pharmaceutical industry has a continuous need for new
products to compensate for declining sales of products for which patent
has expired and in order to maintain stable sales and earnings growth. As
a result, there will be a strong future demand for research collaborations
and drug candidates that may result in innovative pharmaceuticals.

Karo Bio’s projects are developing successfully. Conditions for entering
into new collaboration agreements and outlicensing drug candidates within
the next few years are favorable. In order to meet the needs of internal
projects and to prepare for new collaborations, about ten researchers will
be recruited in 2000. Additional premises in Novum (600 square meters)
were rented beginning in 2000.

ANNUAL GENERAL MEETING AND FINANCIAL REPORTS
The board of directors intends to convene the annual general meeting on
Wednesday 26 April 2000 at 4 p.m. Since there are no distributable
profits, the board shall recommend that no dividend be paid for 1999.
Karo Bio intends to distribute financial reports as follows:

* Annual Report, 20 March.

* Quarterly Reports, 26 April, 12 July and 17 October.

* Earnings report, 8 February 2001.

————————————————————
Please visit https://www.bit.se for further information
The following files are available for download:
https://www.bit.se/bitonline/2000/02/09/20000209BIT00670/bit0001.doc
https://www.bit.se/bitonline/2000/02/09/20000209BIT00670/bit0002.pdf
https://www.bit.se/bitonline/2000/02/09/20000209BIT00670/bit0003.xls Tables
https://www.bit.se/bitonline/2000/02/09/20000209BIT00670/bit0004.xls Tables