INTERIM REPORT JANUARY-SEPTEMBER 2013

The January–September period and the third quarter 2013 in brief

  · Net sales amounted to MSEK 37.4 (24.6), whereof the third quarter amounted
to MSEK 21.2 (8.1)
  · Net loss for the group was reduced to MSEK 18.7 (89.3), with a profit for
the third quarter of MSEK 6.5 (-12.6)
  · Loss per share was SEK 0.04 (0.23), with a third quarter earnings per share
of SEK 0.01 (-0.03)
  · Cash flow from operating activities was MSEK -25.5 (-107.7), whereof the
third quarter MSEK -1.4 (-25.1)
  · Cash and cash equivalents and other short-term investments totaled
MSEK 32.1 (50.0) at the end of the period
  · Milestone of MUSD 2.0 reached in RORgamma project with Pfizer
  · Funding of MUSD 0.5 for ERbeta MS granted by US National MS Society in
September
  · Collaboration on fibrosis initiated with 4D Science and Dr Jörg Distler


Conference call / audiocast today at 9.30 a.m. CET
CEO Per Bengtsson will present the report today at 9.30 a.m. in an audiocast,
held in Swedish. The audiocast and slides are available through the corporate
website http://www.karobio.se/ or by telephone +468 505 564 82. Questions may be
submitted over the internet or orally by telephone.


PROFIT IN THE QUARTER
For the third quarter 2013, Karo Bio reports a profit, something that has not
happened more than once or twice in the company’s history. The quarter was
successful for us in several aspects. Following Pfizer’s exten­sion of the
collaboration on RORgamma in early summer, we reached a milestone in the project
in September that provided Karo Bio new revenue, as is clearly reflected in the
period’s positive results. More evident proof that the project is progressing
well is not to be had. The team has already moved on to the next stage in the
preclinical development. If everything goes as we hope, we will reach another
milestone next year. In less than two years, the project has generated revenues
of approximately 70 million kronor. By the end of next year, it may have
provided up to an additional 40 million kronor.

The success of this project strengthens us also in other areas. As many of you
know, ERbeta for MS is the project that we are currently putting the most effort
into garnering interest in among prospective partners. This project aims to
develop a drug that helps patients with progressive MS. Current MS drugs
addresses only inflammation and is thus suited to the early stages of MS
characterized by episodic attacks of inflammation. However, this is not
sufficient for patients who have had the disease longer. Therefore, attention
now turns to other treatment mechanisms that protect and repair damaged tissue.
In disease models, Karo Bio has shown that ERbeta agonists protect and repair
the myelin sheaths that surround nerve tissue in the brain, representing such a
novel treatment principle. If this can be achieved also in humans, it would
represent a leap forward in the treatment of progressive MS, the continuous and
relentless deterioration that most MS patients suffer after the initial
undulating inflammatory phase. For some time we have gradually received data
from animal studies that clearly show how these ERbeta agonists work. We
pre­sented such data on the main MS Congress this fall, ECTRIMS in Copenhagen.
Our data was well received and we perceive a good response and confidence in the
commercial discussions we have around this project.

In September, we were granted 0.5 million dollars in funding with conditional
repayment from the U.S. National MS Society for the project. In addition to
strengthening the image of our project, it also illustrates the interest in
contrib­uting to the development of new MS drugs. The financial support enables
us to continue the preclinical development a bit further on your own. It is also
the first time we are granted a larger financing through soft money, which is
another success to rejoice. We continue to actively seek soft money for several
of our projects.

Furthermore, at the end of the quarter, we signed an agreement on fibrotic
diseases with German 4D Science. The company is led by a prominent academic
researchers in the area of fibrosis , Dr. Jörg Distler who has recently shown
that a specific nuclear receptor plays a central role in this type of diseases.
This discovery, Dr. Distlers expertise and disease models on fibrosis built up
over years, and Karo Bio’s expertise in nuclear receptors form a strong
constella­tion that is seeking to develop completely novel drug concepts in
fibrosis. If we are fortunate and progress is rapid, we are likely to be able to
garner commercial interest in the project at an early stage. The collaboration
is a good illustration of how we want to work - early make important new
discoveries and with our expertise take them a few more steps further to enter
into early stage commercial partner agreement with big pharma. Given the risks
inherent in early drug development and, I want to stress that we are at an early
stage, where we benefit from our expertise but where things may happen that
cause us to abolish projects. Therefore, it is important that we take the
opportunity to engage in various projects or development lines. By selecting
projects for which early collaborations are possible, working cost efficiently
and by supplementing our funding with soft money, we enhance our chances for
commercial success.

Finally, it is very satisfying that we are able to report a profit for the third
quarter and cash in the bank in parity with what we had at the beginning of the
quarter. I hope that our new way of working will provide us many more such
quarters, although it would be too optimistic to expect that in the near future
we are able to achieve a permanent and stable surplus in our operations.

CEO Per Bengtsson


For further information, please contact        Karo Bio AB (publ)
Per Bengtsson, CEO                             Novum
Telephone: +46 8 608 6020                      141 57 Huddinge
E-mail: per.bengtsson@karobio.se               Sweden
Henrik Palm, CFO                               Telephone: +46 8 608 60 00
Telephone: +46 8 608 6076 or +46 70 540 40 14  Corp.reg.nr. 556309-3359
E-mail: henrik.palm@karobio.se                 Website: www.karobio.com

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 25, 2013 at 8.30 a.m. CET.