INTERIM REPORT JANUARY - MARCH 2012

The January–March 2012 period in brief

  · Net sales amounted to MSEK 8.3
(0.0)
  · Net loss was MSEK 54.0 (47.7)
  · Loss per share was SEK 0.14
(0.12)
  · Cash flow from operating activities was MSEK -41.6 (-47.5)
  · Cash
and cash equivalents and other short-term investments totaled MSEK 117.0 (312.1)
at the end of the period, which is deemed to suffice to finance operations for
more than 12 months
  · Closure costs for the eprotirome program amounted to
MSEK 31.6 in the first quarter
  · Operations will be adjusted to shrink
negative cash flow to 50-60 MSEK annually
  · Discussions on ERbeta and MS
indication has continued during the period
  · The collaboration with Pfizer on
RORgamma and autoimmune diseases commenced
  · Karo Bio continues the
development program on GR Inflammation on its own

  

Conference call 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 20 153 9156.

 

CEO COMMENTARY
On
February 14, news that Karo Bio terminates the phase III study with eprotirome
reached the stock market. The reaction was immediate and the share price fell
sharply. The cause was a supplementary pre-clinical long-term study in dogs
showing that eprotirome causes cartilage damage, which means that the risk of
similar damage in humans is unacceptably large. Dosing of the nearly patients
enrolled in the study seized and no patient was given eprotirome for longer than
has previously been shown to be safe. The net cost of terminating eprotirome’s
phase III program is estimated to about 40 million kronor. The termination of
the study means that Karo Bio’s budgeted costs decrease with a total of 160
million kronor.
Even before the termination of the project, the Board had
initiated a review of Karo Bio's strategy. Savings totaling 17 million had been
implemented, including the redundancy of 16 employees. Together with research
funding through the Pfizer agreement, the assessment is that Karo Bio is funded
for well over a year. We are not through,  and will continue to adjust
operations that operations will be organized in the most cost efficient way.
Karo Bio will also make far better use of public research and development
grants. The company's objective is to limit the negative cash flow to an annual
rate of 50-60 million kronor. To achieve this, we will present a new cost
cutting program before the annual general meeting.
The main conclusion from the
strategy review is that the business must be imbued with a more commercial
mindset and that risk must be taken into account much more clearly when
prioritizing projects. To achieve this we have altered the way we organize and
conduct the work. The Pfizer agreement shows that we have the ability to do
business when we prioritize right. It also shows that we have commercially
valuable projects in the field of nuclear receptors.
In order to achieve better
resource utilization in our organization, we will openly and without prejudice
evaluate opportunities to complement our current operations. This means that we
will consider options outside the field of nuclear receptors. Although, to come
into effect, such additions must help create value for shareholders.
The
agreement with Pfizer on RORgamma concluded in December 2011 is for the
development of a new class of drugs for treating autoimmune diseases, such as
rheumatoid arthritis and psoriasis. The agreement provides us with at least 10
million dollars during this year and next. The total value of future milestone
payments may exceed 1 billion dollars and Karo Bio is also entitled to royalties
on future product sales. The agreement is good for Karo Bio in several ways. It
allows us to continue to develop our world-leading expertise in the nuclear
receptor field RORgamma. Apart from cost cover and opportunities for significant
income, it shows that Karo Bio’s skills and knowledge are attractive to one of
the world's largest companies.
Karo Bio is now working to conclude similar
agreements in other areas. The most current opportunity available is within the
ERbeta receptor in the field of multiple sclerosis (MS). With additional animal
studies that we are conducting in the near future, a few more pieces in the
puzzle may fall into place which confirms the potential in the MS indication.
Successful results may lead to another development and license
agreement.
Another option we are actively pursuing is the ERbeta project in
cancer that we are considering locating to Texas, USA. The state is investing
significant resources to create a life science center in Houston, which already
has one of America's most renowned cancer clusters centering around the MD
Anderson Cancer Center and The Methodist Hospital. There are several
opportunities for financing that would allow us to advance ERbeta in the cancer
field. Today we have a compound, KB9520, which has showed good preclinical
results in some cancers. Our current assessment is that Karo Bio may establish
such a cooperation towards the end of the year.
Furthermore, our anti
-inflammatory project around the glucocorticoid receptor is worth mentioning.
Since it is modeled on the well-established drug class corticosteroids, the
project arguably has lower risk in the clinical phase than the average drug
development project. When the joint development with Zydus Cadila expired, we
chose to follow the development path we consider most attractive. In addition to
our assessment that the development risk decreases with the selected route, we
do not have to share future revenues with Zydus Cadila. The project is in early
stages and it is a challenge for us to finance it until a commercial agreement
can be reached. The time has not yet come, but we think this is a project that
will be licensed out at a relatively early stage.
All in all, there are several
bright spots after eprotirome. The Pfizer deal inspires and indicates
opportunities for us to do new business. At the same time, we must adapt to new
ways of doing business. We face this situation with an open attitude and an
unbiased approach to opportunities.
Per Bengtsson
CEO

 

For more
information, please contact:
Per Bengtsson, Chief Executive
Officer
Telephone:+46 8 608 6020 or +46 734 474 128
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 April 27, 2012, 08:30 CET.