INTERIM REPORT JANUARY–SEPTEMBER 2012

The January-September period and the third quarter 2012 in brief

  · Net sales increased to MSEK 24.6 (0.0), whereof the third quarter increased
to MSEK 8.1 (0.0)
  · Net loss improved to MSEK 89.3 (176.0), whereof the third quarter improved
to MSEK 12.6 (51.1)
  · Loss per share was SEK 0.23 (0.45), whereof the third quarter SEK 0.03
(0.13)
  · Cash flow from operating activities was MSEK -107.7 (-160.4), whereof the
third quarter MSEK -25.1 (-47.7)
  · Cash and cash equivalents and other short-term investments totaled MSEK 50.0
(198.4) at the end of the period.

Significant events after end of the reporting period

  · Costs in the fourth quarter are expected to amount to MSEK 19-20. For the
full year 2013 costs are expected to amount to MSEK 75.
  · The Board of Directors has decided to call to an Extraordinary General
Meeting on November 19 to propose a rights issue which is expected to provide
MSEK 35 after transaction costs. The issue is underwritten to 73 percent.

Conference call/audiocast today at 9.30 CET
CEO Per Bengtsson presents the report today at 9.30 CET in an audiocast, held in
Swedish, available via a link on www.karobio.se and telephone: +46 8 505 598 09
or +44 203 364 5739.

CEO COMMENTARY
The "New Karo Bio" now taking shape is based on cutting edge expertise in
nuclear receptors accumulated over two decades. In the "New Karo Bio", this is
combined together with an active risk analysis and strong business focus early
on in projects, which is expected to contribute positively to our future
opportunities for revenue. The big pharmaceutical companies have an increasing
need to acquire innovative projects that have good future market potential, are
considered safer than others, and which are actually advancing in their
development. An important requirement for our capability to strike deals is that
we identify attractive projects early on.

Efforts to reduce Karo Bio’s expenses continued during the third quarter. The
layoffs decided on earlier in the year came into effect while we continued to
review all expenditures. Costs in the quarter amounted to SEKM 20.8, which was
60 percent lower than in the third quarter last year, when we also had
significant costs for eprotirome’s Phase III program. In the fourth quarter, we
estimate that Karo Bio’s costs will drop to MSEK 19-20 and the revenues are
expected to be on the same level as in the third quarter.

In order for Karo Bio to reach its goal of becoming self-financed, while also
efficiently advancing its development programs, costs must be balanced against
various possible sources of revenue. We are therefore working actively to seek
different types of financing. We believe that Karo Bio has the potential to
achieve a positive cash flow next year.

Nonetheless, we believe the business would benefit from stronger funding since
it would provide greater flexibility and stability, making it easier for us to
operate in a business-oriented manner. The Board has therefore decided to call
to a general meeting to propose a rights issue that is expected to raise MSEK 35
after transaction costs. The issue is underwritten to 73 percent.

The work with finding alternative funding for projects is on-going. In August,
Karo Bio submitted a grant application in the U.S. state of Texas for our
project in ERbeta focused on cancer. The state of Texas is investing significant
resources to create a cluster of commercial activity in the field of cancer
around the specialist hospitals and medical universities in the Houston area.
Karo Bio sees several advantages to relocating its development of ERbeta for
various forms of cancer to this area, including taking advantage of the
knowledge available here. Our application has now been reviewed and selected for
in-depth assessment. If the application is successful, a large part of our
ERbeta cancer project will receive funding for three years up to and including
Phase I/II.

I would also like to comment the discussions we are having on ERbeta for MS.
These discussions and the experiments planned have been delayed, but our
dialogue continues in a positive spirit. As soon as we have more information, I
will share this.

In summary, we have now established the "New Karo Bio", which through cutting
edge expertise will deliver innovative and value enhancing projects. We have
terminated the eprotirome project, and the important collaboration with Pfizer
continues according to plan. The organization is very productive and generates
new projects and results that strengthen Karo Bio's portfolio. We are in contact
with companies that are interested in our expertise and our projects and we
continue our efforts to reach additional agreements.

Per Bengtsson
CEO


For more information,     Henrik Palm, Chief Financial Officer
please contact:           Telephone: +46 8 608 60 76 or +46 70 540 4014
Per Bengtsson, Chief      E-mail: henrik.palm@karobio.se
Executive Officer
Telephone:+46 8 608 6020
or +46 76 002 6020
E-mail:
per.bengtsson@karobio.se

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 24, 2012, 08:30 CET.