Karo Bio Quarterly Report April-June 2002
QUARTERLY REPORT April-june 2002
The partner projects continue to make progress in compound
characterization for selection of clinical development candidates.
The internal GR-inflammation and AR-prostate cancer projects have both
been strengthened by progress in lead compound identification and in
receptor structure determinations by crystallography.
Cash flows from operating activities amounted to MSEK -7.9 (-26.3). Cash
and cash equivalents and short-term investments amounted to MSEK 227.2
(263.2) at the end of the period.
Group net sales increased to MSEK 39.0 (27.2).
The loss after financial items decreased to MSEK 79.7 (92.5). Operating
loss excluding goodwill depreciation decreased to MSEK 26.1 (33.0).
Operations
Karo Bio is a leading drug discovery company in the field of nuclear
receptor biology and medicinal chemistry. The Company develops receptor-
selective and tissue-selective pharmaceuticals for treatment of major
disorders. Karo Bio has operations in Sweden and in USA.
Karo Bio has four strategic partnerships with international
pharmaceutical companies for development of new innovative therapies for
the treatment of common diseases. Karo Bio also runs several internal
projects in various clinical areas where the Company has competitive
advantages for discovery of new pharmaceuticals that target nuclear
receptors. Exploratory studies in novel nuclear receptor areas are
conducted in order to maintain a strong pipeline. These studies cover
new indications for classical receptors as well as discovery and
characterization of new receptors.
Strategic Partnerships
Atherosclerosis – Wyeth Pharmaceuticals
The collaboration with Wyeth Pharmaceuticals aims at development of new
treatments for atherosclerosis, with the liver X receptor (LXR) as drug
discovery target. LXR plays a key role in regulation of cholesterol
homeostasis and is therefore a new promising intervention point in
treatment of atherosclerosis. The collaboration with Wyeth
Pharmaceuticals started in September 2001 and has made considerable
progress. The project has accomplished screening of large compound
libraries, and promising lead structures are being investigated.
Diabetes – Abbott Laboratories
The collaboration with Abbott Laboratories is focused on a new treatment
for type 2 diabetes. The aim is to normalize the increased glucose
output from the liver by developing liver selective antagonists for the
glucocorticoid receptor. The project has made substantial progress and
preparations for selection of clinical development candidates are
ongoing.
Obesity – Bristol-Myers Squibb
Karo Bio and Bristol-Myers Squibb collaborate for development of a new
treatment for obesity by targeting the thyroid hormone receptor.
Convincing proof of principle has been obtained in various animal
models. Phase I clinical trials were discontinued in March this year for
the first compound after potentially toxic metabolites were discovered
in animals. The parties have launched a program for development of new
clinical candidates and significant progress has been made in
development of new candidates.
Women’s Health Care – Merck & Co., Inc.
Karo Bio and Merck & Co., Inc. have a broad collaboration in the field
of women’s health care. The estrogen receptors are important targets for
different clinical indications, which have been prioritized. The program
is progressing with further study and characterization of potential
clinical development candidates.
Technology Outlicensing
Karo Bio’s BioKey® technology is well suited for high throughput
screening of compound libraries to find drug candidates for new genomics
targets. Karo Bio takes the opportunity to license the technology
outside the field of nuclear receptors. Numerous assays have been
successfully developed for several companies, which use these assays
internally and when compounds identified in screening are further
developed, Karo Bio will receive milestones and royalties. Karo Bio has
delivered BioKey® assays to partners such as Bayer AG, Boehringer
Ingelheim Pharmaceuticals, Aventis Pharma, and GPC Biotech.
In June, GPC Biotech announced that the BioKey® molecular probe assays
developed for GPC Biotech are included in an outlicensing agreement with
PanTherix.
Internal Projects
Male Hormone Replacement Therapy and Prostate Cancer
The androgen receptor (AR) mediates physiological responses from male
sex hormones and is an important target for treatment of prostate cancer
as well as for male hormone replacement therapy. During the period
significant progress has been made regarding identification of lead
compounds in screening of compound libraries. Karo Bio has a dominating
patent position in Europe for the androgen receptor as a drug target,
and also has recently received patent protection in Canada.
Inflammatory Disorders
Anti-inflammatory steroids are very powerful anti-inflammatory
pharmaceuticals and act through the glucocorticoid receptor (GR). The
anti-inflammatory steroids also have serious side effects, thus, there
is a great need to improve on existing drugs. Karo Bio has a very strong
position in the field of drug discovery around the glucocorticoid
receptor. Unique technologies like receptor structures and Molecular
Braille® information gives Karo Bio strong competitive advantages. Karo
Bio has by using these technologies further strengthened its position in
the field.
Skin Disorders
Karo Bio has developed a product, KB002611, with a potential use for
treatment of various skin disorders. The product is an ointment
containing a thyroid hormone analog and Karo Bio has developed evidence
that KB002611 can prevent steroid induced skin atrophy. Recently a US
patent was granted for treatment and prevention of skin atrophy by use
of thyroid hormone analogs. Karo Bio intends to outlicense the product.
Exploratory Studies
During the period Karo Bio has strengthened its pipeline of new projects
by discoveries of new treatment possibilities for common diseases.
Several patent applications for promising lead compounds have been
filed.
Organization
By the end of the period, Karo Bio had 135 employees (124). Of these, 37
(36) are based in the United States and 109 (103) are engaged in
research.
Result, Cash Flow and Financing
Group net sales for the second quarter increased by MSEK 11.8 to MSEK
39.0 compared to MSEK 27.8 for the same period last year. The increase
in revenue relates primarily to research funding and the period’s share
of the down payment from the research collaboration with Wyeth
Pharmaceuticals that was initiated in September 2001.
Group expenses increased by MSEK 4.9 to MSEK 125.5 (120.6). The increase
is an effect of the expansion of the research organization, the
strengthened management team, and depreciation of the license of
technology from Duke University in May 2001, which is included only for
one month in prior period figures.
The operating loss for the quarter amounted to MSEK 86.5 (93.4).
Operating loss excluding goodwill depreciation amounted to MSEK 26.1
(33.0).
Financial income for the second quarter amounted to MSEK 6.7 (0.9).
Currency exchange gains pertaining to liabilities in US dollars are
included in financial income, leading to a significant increase in
financial net. More favorable market conditions led to significantly
better development of Karo Bio’s short-term investments in the second
quarter 2002 compared to the same period 2001.
Cash flows from operating activities for the second quarter amounted to
MSEK -7.9
(-26.3). The change in cash flow is primarily an effect from reduced
operating loss excluding depreciation and changes in working capital.
Significant factors affecting change in working capital is the receipt
of research funding from one partner for both the second and third
quarter during the report period. Reduction of unearned revenue,
primarily from downpayments received but not yet recorded as revenue,
has a significant impact on the change in working capital.
Capital investments in equipment amounted to MSEK 1.8 (5.7). Capital
investments were mainly laboratory equipment to enhance capacity and
capabilities, such as screening instruments. A payment of MSEK 5.1,
treated as investment in licenses and similar rights, was made for the
licensing of technology in accordance the payment schedule as per the
May 2001 agreement with Duke University. Similar payments will be made
on each anniversary of the agreement for three more years.
Cash and cash equivalents and short-term investments amounted to MSEK
227.2 (263.2) at end of period.
Loss per share for the second quarter amounted to SEK 6.62 (7.70), based
on the weighted average number of shares outstanding. The Group’s equity
ratio as of period-end was 77.8% (89.2%) and equity per share at period-
end was SEK 32.67 (58.97).
Shareholders’ Equity
Shareholders’ equity increased during the second quarter by kSEK 92.2
from the exercise of warrants.
At period-end, warrants representing 361 144 shares were outstanding.
The warrants were issued in conjunction with the acquisition of Karo Bio
USA, Inc. in 2000 (21.144 warrants) and the implementation of the
Incentive Program 2001 (340 000 warrants). The outstanding warrants will
lead to no dilution of earnings per share in 2002, as a conversion to
shares would lead to an improvement of earnings per share.
The Company’s share capital amounted to SEK 60 251 450 at the end of the
period representing 12 050 290 shares at a par value of SEK 5. Total
consolidated shareholder’s equity amounted to MSEK 391.3 at the end of
the period.
Accounting and Valuation Principles
This quarterly report has been prepared in accordance with the Swedish
Financial Accounting Standards Council’s (the Council) standard RR 20
for interim reports. The accounting and valuation principles applied are
consistent with provisions of the Swedish Annual Accounts Act and
standards issued by the Council. The principles applied are unchanged
compared to what was applied in the Annual Report for 2001.
Amounts or figures in parentheses indicate comparative figures for the
corresponding period last year. Amounts are expressed in Swedish Kronor
(SEK) or thousands (kSEK) or millions (MSEK) of Kronor as indicated.
Scheduled Releases of Financial Information
Karo Bio intends to distribute financial reports as follows:
Quarterly Report July – September
October 16
Quarterly Report October – December
and Full Year Report 2002
February 7, 2003
Financial reports, press releases and other information is available on
Karo Bio’s website www.karobio.com
Huddinge, July 16, 2002
Björn Nilsson,
President & CEO
For further information, please contact
Per Otteskog, Senior Vice President Investor Relations & Corporate
Communications, tel. +46 8 608 60 18, or Bertil Jungmar, Vice President
Finance & Administration,
tel. +46 8 608 60 52.
This report has not been subject to review by the Company’s independent
auditor.
Legal disclaimer
This Quarterly Report includes statements that are forward looking and
actual results may differ materially from those stated. In addition to
the factors discussed, among other factors that may affect results are
developments within research programs, including development in pre-
clinical and clinical trials, the impact of competing research programs,
the effect of economic conditions, the effectiveness of the Company’s
intellectual property rights and preclusions of potential third party’s
intellectual property rights, technological development, exchange rate
and interest rate fluctuations, and political risks.
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