Semi-annual report 1 january 30 june 2000

SEMI-ANNUAL REPORT
1 JANUARY – 30 JUNE 2000

* Karo Bio has completed the acquisition of Novalon Pharmaceutical
Corporation (Karo Bio USA Inc.). The acquisition provides the Company with
technologies in the field of genomics that make discovery of new drugs
possible.

* The collaboration agreement with Bristol-Myers Squibb has been extended
for one year. Compounds for clinical development have been selected.

* Karo Bio has entered into a collaboration with GPC Biotech AG, one of
the largest biotechnology companies in Germany.

* Net sales for the period increased to SEK 55.0 million (30.6).
* The acquisition of Novalon brought acquisition goodwill in the amount of
SEK 963 million. Depreciation will be made, according to plan, over three
years beginning 1 May 2000.

* Cash flow from operating activities for the period increased to SEK -8.0
million (-14.8). However, net results after financial items for the period
declined to SEK -71.5 million (-21.1), due to depreciation of goodwill in
the amount of SEK 56.1 (2.6) million.

* An issue of 600,000 new shares directed at Swedish and international
institutional investors brought 196.9 MSEK. Liquid funds and short-term
investments amounted to SEK 366.0 million as of 30 June, to be compared
with SEK 187.8 million on 31 December 1999.

KARO BIO AB
NOVUM, HÄLSOVÄGEN 7, SE-141 57 Huddinge, Sweden
TELEPHONE: +46 8-608 60 00. FAX: +46 8-774 82 61; E-MAIL: info@karobio.se;
website: https://www.karobio.se/

OPERATIONS
Karo Bio is a drug discovery company working with the development of
receptor and tissue-selective drugs for the treatment of widespread
diseases that are responsive to nuclear receptors. The Company’s
competitive advantage is based on proprietary patented receptors,
proprietary three-dimensional receptor structures, receptor structures
complexed with pharmaceutical compounds, and response models developed by
the company that efficiently measure the properties of pharmaceutical
compounds.

By virtue of the acquisition of Novalon, the Company now also has
technologies making it possible to rapidly identify pharmaceutical
compounds that act through new proteins mapped via genomic research
(BioKey Assays ), as well as identification of tissue-selective compounds
(Molecular Braille ). Consequently, Karo Bio is well positioned to meet
the increased interest for new proteins as targets for drug development.

The Company conducts operations in its premises at Novum Research Park
outside of Stockholm and in Durham, North Carolina, USA. The Company
cooperates with international pharmaceutical companies and leading
academic institutions in Sweden and abroad. There were 115 employees as of
30 June, to be compared with 84 at year-end 1999 and 80 on 30 June 1999.
Thirty-one employees work in the United States and about 100 are directly
involved in research.

Karo Bio is presently engaged in six research programs:

* Estrogen receptors (ER):
Women’s health problems including menopausal symptoms, osteoporosis,
cardiovascular disease and cancer.
* Thyroid hormone receptors (THR):
Cardiac arrhythmia, metabolic disorders, glaucoma and skin diseases.

* Glucocorticoid receptor (GR):
Type 2 diabetes and inflammatory diseases.
* Orphan receptors:
Discovery and characterization of new nuclear receptors as targets for
development of new pharmaceuticals.
* Infectious diseases program:
Development of new antibiotics.
* Genomics:
Identification and development of pharmaceutical compounds that act via
new target proteins.

COLLABORATIVE PROJECTS
Abbott Laboratories – type 2 diabetes (GR)
The project with Abbott aims at the development of pharmaceuticals for
treatment of type 2 diabetes. The collaboration started in January 2000,
and is focused on development of liver selective antagonists targeting the
glucocorticoid receptor. The project has followed the plan and a number of
new chemical compounds from different lead structures have been identified
which currently are being characterized in different animal models.

Bristol-Myers Squibb – metabolic disorders (THR)
The research collaboration with Bristol-Myers Squibb (BMS) targets the
metabolic syndrome which includes obesity and hypercholesterolemia with
elevated risks for type 2 diabetes and hypertension. In this field, there
is a great need for improved therapies. The project has been very
successful in identifying and developing novel agonists for the Thyroid
Hormone Receptor (THR) which have the desired properties in various animal
models. Lead compounds have been selected for clinical trials and recently
BMS and Karo Bio announced an extension of their collaboration for one
additional year beyond October 1, 2000. The objective of the extended
collaboration is to develop additional pharmaceuticals for the treatment
of various metabolic disorders.

Merck & Co. – estrogen receptors (ER)
The Estrogen Receptors (ER) are important targets for treatment of breast
cancer, osteoporosis and a number of postmenopausal symptoms. The
discovery and isolation of the new estrogen receptor, ER beta, for which
Karo Bio holds a patent, has provided new opportunities for improvements
of a number of therapies affecting the estrogen receptors. The
collaboration with Merck covers all possible indications and so far a
couple of indications have been prioritized. Progress continues to be made
as planned on the program.

Other collaborative projects
The powerful screening technologies BioKey Assays and Molecular Braille
have become important elements of Karo Bio’s research programs. Most
projects have been strengthened considerably through the integration with
Karo Bio USA. However, the technologies have a broader field of
application why they continue to create new business opportunities. For
example, the company recently entered into a cooperation agreement with
GPC Biotech AG, one of the leading biotechnology companies in Germany. The
alliance is aimed at developing a new generation of broad-spectrum
antibiotics. There are also on-going BioKey Assays collaborations with
Bayer, Ares-Serono, Novartis and NovImmune.

INTERNAL PROJECTS
Skin diseases – THR
The clinical phase II study for treatment of skin atrophy caused by
steroid therapy is proceeding according to plan. The treatment is based on
the use of thyroid hormone agonists. Skin atrophy was the first indication
selected for the skin program.

Karo Bio is also investigating other opportunities. A study of healthy
volunteer subjects was recently begun in order to study the causes of the
positive effects on the skin of thyroid hormone.

Cardiac arrhythmia – THR
Thyroid hormone antagonists have the potential to become important drugs
to treat cardiac arrhythmia. Karo Bio is holding continued discussions
with potential licensees of the pharmaceutical compound KB 130 015 and is
concentrating internal resources on the design of a new generation of
compounds. Compounds based on various basic structures were developed
during the period and animal studies are in progress.

Glaucoma – THR
Animal studies with eye drops containing various thyroid hormone agonists
are in progress and will be concluded this summer.

The infectious disease program
The objective of the infectious diseases program is to identify new
antibacterial compounds that act through novel bacterial proteins. New
target proteins have been identified and BioKey Assays developed for
about twenty of them. Large-scale screening has led to the identification
of many potential lead compounds.

Exploratory research
The company’s exploratory research has significantly facilitated rapid
identification of new target proteins.

Karo Bio’s collaboration with Karolinska Institutet and other
international academic institutions continue to be highly significant to
ongoing and new projects alike.

Applications for patent were submitted during the year concerning new
therapies acting through the estrogen receptor Beta.

Karo Bio has also begun development of new methods of treating
inflammation, hypertension and heart failure using the glucocorticoid and
mineralo-corticoid receptors as target proteins.

KARO BIO USA INC.
The acquisition of Novalon Pharmaceutical Corporation (Karo Bio USA Inc.)
was completed on 10 May through a non-cash issue approved by the Annual
General Meeting on 26 April. The acquisition was carried out through the
issue of 2,206,198 new shares and 88,064 warrants, which corresponded to
20 percent of the outstanding shares in Karo Bio following full dilution.

The recorded purchase price, including transaction expenses, was SEK 971
million. The acquisition brought goodwill of SEK 963 million. In light of
the rapid pace of development in the pharmaceutical field, Karo Bio
intends to depreciate the goodwill over a period of three years beginning
1 May 2000, the date the company was consolidated.

The company’s two key technologies, BioKey Assays and Molecular Braille ,
are now being integrated in Karo Bio projects, through which Karo Bio is
cementing its leading position in the field of nuclear receptors.

INCOME AND PROFIT/LOSS
Net sales for the Group during the period amounted to SEK 55.0 (30.6)
million, with net sales for the Parent Company of SEK 54.0 (30.6) million.
Income included a down payment from Abbott in January. Costs for the Group
rose to SEK 130.9 (56.2) million. The largest items are attributable to
the depreciation of goodwill relating to the acquisition of Karo Bio USA,
the company´s costs from May 1th – the date the company was consolidated –
, payroll costs due to increases in the work force since 1999, software
for the chemistry activities and various success fees. The last item was
reported under “other operating expenses.” It should also be mentioned
that the Company took possession of new premises at the beginning of the
year and that heightened research activity has led to increased purchases
of chemicals and consumable material.

The Group´s cash flow from operating activities during the period improved
to SEK -8.0 (-14.8) million. However, net results for the group declined

to SEK -71.5 (-21.1) million, as a result of depreciation of goodwill
relating to the acquisition of Novalon in the amount of SEK 53.5 million.
The Parent Company is reporting net results of SEK -8.3 (-18.5) million.
The difference between the Group and the Parent Company consists mainly of
the depreciation of goodwill totaling SEK 56.1 (2.6) million.

Earnings per share for the period were SEK -7:30 (-2:30), computed on the
average number of shares. As a result of the negative result and the
consolidated losses carried forward for the Group of SEK 496 million,
income for the period was not taxable.

LIQUIDITY AND SHAREHOLDERS’ EQUITY
An issue of 600,000 new shares with no preferential rights for existing
shareholders was carried out in May, following authorization by the Annual
General Meeting of 26 April. The issue was subscribed on market terms by
international and Swedish institutional investors, raising capital of SEK
196.9 million after transaction expenses.

The Annual General Meeting also voted in favor of issuing 85,000 warrants
as part of an incentive program directed at employees of Karo Bio. Karo
Bio Research AB subscribed the warrants on market terms for resale to
eligible personnel.

Liquid funds in the Group, including short-term investments, amounted to
SEK 366.0 million as of 30 June 2000 (187.8 as of 31 December 1999).
Shareholders’ equity was SEK 1,287.7 million as of 30 June (SEK 209.2
million as of 31 December 1999).

The Company’s share capital of SEK 59,916,850 was distributed among
11,983,370 shares with par value of SEK 5 each. In addition, there are
warrants outstanding corresponding to 173,064 shares.

INVESTMENTS
Investments in equipment by the Group and the Parent Company during the
period amounted to SEK 3.7 million (2.1) and SEK 3.5 million (2.1),
respectively. Investments were mainly for X-ray crystallography equipment
and software purchased for chemistry operations. The X-ray crystallography
equipment is now in full operation and will give Karo Bio the opportunity
to rapidly determine receptor structures in-house

OTHER INFORMATION
In conjunction with the Annual General Meeting of 26 April, Torben
Jørgensen was installed as president of Karo Bio. He succeeded Per-Olof
Mårtensson who was appointed chairman of the board.

SCHEDULED RELEASES OF FINANCIAL INFORMATION

Interim report, January-September 2000 17 October 2000
Earnings report for 2000 8 February, 2001

The Company’s independent auditor has not reviewed this report.

CONSOLIDATED INCOME STATEMENT (SEK k)

J A N U A R Y – J U N E WHOLE YEAR
2000 1999 1999
Net sales 54 995 30 645 72 979
Operating expenses
Marketing expenses -4 203 -3 009 -6 614
Administration expenses -9 160 -6 162 -11 721
Research and development expenses -115 782 -46 997 -95 694
Other costs -1 781 – -1 485
-130 926 -56 168 -115 514

Operating result -75 931 -25 523 -42 535

Financial items 4 414 4 377 7 405

Operating result after financial -71 517 -21 146 -35 130
items

Tax – – –

NET LOSS -71 517 -21 146 -35 130

Depreciation according to plan included in
operating expenses 59 923 6 086 12 193
(of which depreciation on gooodwill 56 094 2 578 5156)

CONSOLIDATED BALANCE SHEET (SEK k)
Assets 30 June 30 June 1999 31 Dec 1999
2000
Intangible fixed assets 938 707 34 190 31 558
Equipment 23 724 16 715 17 155
Operating receivables 15 021 11 659 8 966
Liquid funds and short-term 366 017 192 261 187 846
investments
TOTAL ASSETS 1 343 469 254 825 245 525

Shareholders’ equity and liabilities
Shareholders’ equity 1 287 737 223 161 209 175
Loans and leasing debt 4 301 – –
Operating liabilities 51 431 31 664 36 350
TOTAL EQUITY AND LIABILITIES 1 343 469 254 825 245 525

CONSOLIDATED CASH-FLOW STATEMENT (SEK k)

J A N U A R Y – J U N E WHOLE YEAR
2000 1999 1999

Operating result before financial -75 931 -25 523 -42 535
items
Depreciation 59 923 6 086 12 193
Other items not affecting liquid -50 – -10
assets
-16 058 -19 437 -30 352

Financial income received 2 928 3 212 11 300
Financial expenses paid -545 -113 -488
2 383 3 099 10 812

Change in operating capital 5 647 1 520 4 204
CASH FLOW FROM
OPERATING ACTIVITIES -8 028 -14 818 -15 336

Investments in tangible fixed -3 697 -2 051 -5 948
assets
Investments in subsidiaries -6 972 – –
CASH FLOW FROM INVESTING
ACTIVITIES -10 669 -2 051 -5 948

New share issue 196 868 – –
CASH FLOW FOR THE PERIOD 178 171 -16 869 -21 284

LIQUID FUNDS AT END OF PERIOD 366 017 192 261 187 846

KEY RATIOS
Equity ratio, % 96 88 85
Equity per share, SEK 107:46 24:32 22:79
Earnings (-loss per share),

average number
of shares, SEK -7:30 -2:30 -3:83
Earnings (-loss per share), after
exercise of
all warrants, SEK -7:27 -2:30 -3:83
Average number of shares* 9 796 9 177 9 177
Number of shares, end of period* 11 983 9 177 9 177
Number of shares, average number
after
exercise of all warrants* 9 838 9 177 9 177
Number of shares, end of period
after
exercise of all warrants* 12 156 9 177 9 177
*000

Huddinge, July 12, 2000

Torben Jørgensen
President

For further information, please contact Torben Jørgensen, phone +46 8 608
6020, 070-7490811 or
Håkan Hallberg, Vice President Finance & Administration, phone
+46 8 608 6006, 070-483 38 11
Website: https://www.karobio.se

————————————————————
This informatin was brought to you by BIT https://www.bit.se
The following files are available for download:
https://www.bit.se/bitonline/2000/07/12/20000712BIT00580/bit0001.doc
https://www.bit.se/bitonline/2000/07/12/20000712BIT00580/bit0002.pdf