KARO BIO ISSUES NEW SHARES TO CONTINUE DEVELOPMENT OF CLINICAL PROJECT PORTFOLIO

The Board of Directors of Karo Bio AB (TICKER: KARO) decided on March 26, 2007 to issue new shares with preferential rights. Assuming full subscription, the rights issue will generate MSEK 406 in new funds to the Company before transaction costs. The main purpose of the new share issue is to secure capital to continue the clinical development of the drug candidate KB2115 in dyslipidemia as well as the drug candidate KB3305 into clinical trials for the treatment of diabetes. The proceeds from the new share issue will also enable Karo Bio to create a scientific base for the outlicensing of the ER beta project in depression as well as developing additional preclinical and clinical projects from the ER beta platform.

The decision by the Board is subject to approval by a special general meeting to be held on April 11, 2007. Guarantee commitments and statements of intent to participate by major shareholders have been obtained corresponding to 95.8 percent of the rights issue.

”The strategy which was implemented in connection with the financing in 2005 and the results we achieved in 2006 give us confidence for the future” says Per Olof Wallström, President and Chief Executive Officer of Karo Bio.

”With this financing, Karo Bio takes another step towards our goal of developing the Company into a sustainably profitable pharmaceutical company.”

Terms in brief
Terms in brief and time table for the share issue are presented below.
• Every two existing shares entitle to subscribe for one new share
• The subscription price is SEK 10.50 per share
• Last date for trading in the Karo Bio share including rights to participate in the share issue is April 13, 2007
• Record date for participation in the rights issue is April 18, 2007
• The subscription period is from April 24 to May 8, 2007
• Trading in subscription rights will take place April 24 to May 3, 2007
• Prospectus, subscription form and issue statement will be distributed to Karo Bio’s shareholders around April 23, 2007.

Background and reasons
Karo Bio is an innovative research-based pharmaceutical company focusing on the development of novel pharmaceuticals mainly within the area of metabolic diseases. Karo Bio has a leading position in nuclear receptors, which are important drug targets for major diseases.

Karo Bio’s operations are based on a business model where projects targeting major patient populations in competitive market segments are outlicensed to partners in preclinical or early clinical stages of development. In addition to these partnerships, Karo Bio will develop selected compounds aimed at targeted patient populations to the late clinical stage. Such compounds will potentially be launched by the Company in selected markets.

Karo Bio has a project portfolio with three compounds in clinical trials, one of which is developed internally. Two candidate drugs are entering clinical trials and for one preclinical project the next milestone is the choice of a candidate drug. Two of the Company’s clinical projects are developed in collaboration with large pharmaceutical companies.

Karo Bio will conclude a clinical phase IIa trial in dyslipidemia for the compound KB2115 in the first half of 2007. After completing the phase II program, the Company will consider different options for the future development of KB2115. The compound may, dependent of the outcome of the data, be developed by Karo Bio for a niche indication or potentially be outlicensed to a partner.

Karo Bio also plans to advance its other drug candidate KB3305 for the treatment of diabetes to clinical development in 2007, as soon as a stable pharmaceutical formulation is in place.

Karo Bio’s competence and attraction are validated through the Company’s collaborations with major pharmaceutical companies such as Merck & Co and Wyeth Pharmaceuticals. These collaborations are focused on important clinical indications and global markets. Karo Bio does not incur any costs for these projects. Instead, Karo Bio, will receive payments for achieved milestones in accordance with agreed goals in the collaborations, as well as royalty payments on future potential revenues of drugs developed in these collaborations. Such revenues assume that development goals are reached and drugs are launched on the market. Both Merck and Wyeth entered clinical trials in the respective projects in August, 2006.

Karo Bio has committed large resources on its dyslipidemia project with the Thyroid Receptor (TR) as the target protein. The Company has chosen a candidate drug (KB5359) during 2006. Karo Bio intends to initiate a collaboration with a major pharmaceutical company in 2007 with this project.

During the autumn of 2005 Karo Bio raised MSEK 279 in a new share issue with the purpose of advancing defined projects into the clinical stage. Since then one internally developed project and two partnered projects have entered the clinic and major progress has been achieved in other projects. Karo Bio’s existing cash position is expected to last at least one year with the current cost level.

The Company wants to continue the development of KB2115 to late clinical stage to achieve ’proof of concept’ (positive effect on patients) for KB3305, which will enable a collaboration. Further, Karo Bio wants to create a financial base for the outlicensing of the ER beta project for depression as well as launching additional preclinical and clinical development projects from the ER beta platform. Therefore, there is a need to raise further capital in order to secure this development. The proceeds from the share issue are expected to sustain the Company to 2010.

The rights issue
The Board of Directors decided on March 26, subject to the approval by the special general meeting of the shareholders on April 11, 2007, on a new share issue of no more than 38,706,397 shares, each with a ratio value of SEK 0.50, with preferential rights for existing shareholders. Each two shares held entitle to subscription of one new share at a price of SEK 10.50 per share.

If fully subscribed, the rights issue will raise MSEK 406 before transaction costs. Assuming full subscription, the share capital will increase by no more than SEK 19,353,198.50.

A number of larger shareholders, together representing 40.4 percent of the share capital, have declared their intent to subscribe for their share of the rights issue. In addition Stena AB, Catella Healthcare Investments AB, AMF Pension, Third National Swedish Pension Fund, Bliwa Livförsäkring, Strand Kapitalförvaltning AB on behalf of clients and Fonden Pecunia have issued guarantee commitments to subscribe for shares corresponding to MSEK 225 of the share issue. Hence, statements of intent and guarantee commitments amounting to 95.8 percent of the issue amount have been obtained.

Karo Bio intends to use the net proceeds from the offering according to the following:
• Develop KB2115 to late clinical stage for one or several indications.
• Develop KB3305 through clinical phase II trials to ”proof of concept” in patients suffering from type 2-diabetes.
• Develop KB5359 with the intent to sign a development and marketing agreement during 2007.
• Continue development within the estrogen receptor (ER beta) area to the clinical stage with focus on depression. The potential for ER beta within other disease areas is also being evaluated.

Details on the offering will be presented in the prospectus on the new share issue. The prospectus will be made public around April 13, 2007 and available on Karo Bio’s website from this date.

Special general meeting
The Board of Directors’ decision on the rights issue is subject to approval by the special general meeting on April 11, 2007. Notice for the special general meeting will be announced on March 28 and be available on Karo Bio’s web site at www.karobio.com/sgm.

The Board of Directors
KARO BIO AB

For further information, please contact:
Per Olof Wallström, President & Chief Executive Officer
Telephone: +46 8 608 60 20

Bertil Jungmar, Chief Financial Officer
Telephone: +46 8 608 60 52.

Facts about Karo Bio
Karo Bio is an innovative drug discovery and development company specializing in nuclear receptors for the development of novel pharmaceuticals with focus on metabolic diseases. Karo Bio is listed on the Stockholm stock exchange (Reuters: KARO.ST) since 1998.

The Company has expanded from being a drug discovery company by adding in-house preclinical development resources and competence for development of drugs to treat metabolic diseases. The Company has a strong project portfolio primarily targeting diseases such as diabetes, obesity, atherosclerosis and dyslipidemia.

In addition, Karo Bio has two strategic collaborations with international pharmaceutical companies for development of innovative therapies for the treatment of common diseases.

This press release is also available online at: www.karobio.com and www.waymaker.net.