HUDDINGE, Sweden, April 24, 2002 (PRIMEZONE) -- Karo Bio:
-- Clinical development for the first obesity compound discontinued.
The project continues and a program to replace the compound is in
place.
-- European patent obtained for the LXR beta.
-- U.S. grant obtained for prostate cancer research.
-- Group net sales increased to MSEK 37.4 (23.8). Cash flows from
operating activities amounted to MSEK -38.7 (-20.5).
-- The loss after financial items decreased to MSEK 79.5 (80.6).
Operating loss excluding goodwill depreciation decreased to
MSEK 21.4 (23.5).
-- Cash and cash equivalents and short-term investments amounted to
MSEK 241.9 (305.8) at the end of the period.
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 U.S.A.
Karo Bio has four strategic partnerships with international pharmaceutical companies for development of new innovative therapies for 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 LXR beta is a new and important target for treatment and prevention of atherosclerosis. There are reasons to believe that the LXR beta is an important target for other metabolic disorders. Karo Bio has a strong technology and patent position in the LXR beta field.
The project with Wyeth Pharmaceuticals (previously named American Home Products) has progressed very well since the initiation in September 2001. New scientific findings further support the importance of LXR beta as a drug target in development of new treatments for atherosclerosis. Interesting lead compounds have been identified in the screening process and significant progress has been made regarding the determination of the three-dimensional LXR beta structure. Karo Bio has also during the period received European patent protection for LXR beta as a drug target.
Diabetes - Abbott Laboratories
Karo Bio collaborates with Abbott Laboratories for research on the treatment of type 2 diabetes. The aim of the collaboration is to develop liver-selective antagonists that will normalize the elevated output of glucose from the liver in type 2 diabetes. The project is progressing and is currently focused on lead optimization for selection of drug candidates.
Obesity - Bristol-Myers Squibb
The collaboration with Bristol-Myers Squibb targets the thyroid hormone receptor for treatment of metabolic disorders. The prioritized indication is obesity and very promising results have been obtained in animal models, which includes overweight monkeys. The first candidate drug entered phase I clinical trials in September 2001 but further clinical development was discontinued in March 2002. The decision was based on findings in toxicology studies where metabolites with a potential toxic effect were discovered. A program to replace this candidate drug is in place.
Women's Health Care - Merck & Co., Inc.
Karo Bio has an on-going collaboration with Merck & Co., Inc. in the field of women's health care. The targets are estrogen receptors and important clinical indications have been prioritized. The project is broad and covers several different indications. Further progress continues to be made in the characterization of compounds with potential utility to address unmet medical needs.
Technology Outlicensing
Karo Bio's BioKey(r) technology is well suited for high throughput screening of compound libraries with the aim 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. Assay development is now conducted for Aventis and NovImmune.
Internal Projects
Skin Disorders
Collagen is a protein that is an important structural component in the skin. Skin collagen content decreases with aging and after topical steroid treatment of various skin disorders e.g. eczema and psoriasis. Karo Bio is developing an ointment containing a thyroid hormone analogue that stimulates collagen production. This product, KB002611, counteracts negative effects of steroids on collagen production. This effect has been demonstrated in animals and during fall 2001 this was also the conclusion from a human clinical study. Studies on humans with already established skin atrophy were also finalized during fall 2001. This study aimed to measure effects on both skin thickness and collagen content. All biopsies have now been analyzed and the results are inconclusive. No statistically significant changes can be registered due to the low number of patients that have finalized the study. Karo Bio is now in the process of seeking a partner for further clinical development of the product.
Male Hormone Replacement Therapy and Prostate Cancer
The androgen receptor (AR) is an important target for treatment of prostate cancer and in male hormone replacement therapy. Karo Bio has a strong patent position for the androgen receptor and aims to develop new and improved compounds that target the androgen receptor. The project has made important progress with establishment of a strong drug discovery technology base. Screening of compound libraries is also making progress. Karo Bio has during the period received a grant from the U.S. Army for prostate cancer research.
Inflammatory Disorders
The glucocorticoid receptor (GR) is the receptor through which anti- inflammatory steroids work and these are associated with many side effects. Karo Bio seeks to develop new improved anti-inflammatory steroids and has established a strong position in the field with access to a leading technology, including x-ray crystallographic structures of the receptor, giving Karo Bio unique competitive advantages. Significant progress continues to be made regarding our understanding of the relationship between compound structures and their effects on receptor conformation and biological responses.
Exploratory Studies
Karo Bio conducts exploratory studies regarding several receptors and numerous different indications. These studies are to a great deal conducted as collaborations with the scientific network and with contract research organizations. Explorative activities include indications such as cardiac arrhythmia, glaucoma and other indications.
Organization
By the end of the period, Karo Bio had 138 employees (119). Of these, 37 (33) are based in the United States and 112 (101) are engaged in research.
Result, Cash Flow and Financing
Group net sales increased to MSEK 37.4 compared to the same period last year (23.8). 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 (previously American Home Products).
Group expenses increased by MSEK 11.5 to MSEK 119.2 (107.8). The increase is an effect of the increase in the research organization, the strengthened management team, and depreciation of the license of technology from Duke University in May 2001, which is not included in prior period figures.
The operating loss amounted to MSEK 81.9 (84.0). Operating loss excluding goodwill depreciation amounted to MSEK 21.4 (23.5). Financial income amounted to MSEK 2. (3.4).
Cash flows from operating activities amounted to MSEK -38.7 (-20.5). The change in cash flow is primarily an effect from changes in working capital. Most significant factors leading to the change in working capital is a payment of research funding for the second quarter that was not received until after the end of the report period, as opposed to previous quarter. A reduction in accounts payable lead to increased cash outflow. The 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 (2.7). Capital investments were mainly laboratory and IT equipment to enhance capacity and capabilities, such as screening equipment.
Cash and cash equivalents and short-term investments amounted to MSEK 241.9 (305.8) at end of period.
Loss per share for the period amounted to SEK 6.61 (6.71), based on the weighted average number of shares outstanding. The Group's equity ratio as of period-end was 81.5% (93.2%) and equity per share at period-end was SEK 39.69 (66.72).
Shareholders' Equity
Shareholders' equity increased during the period by kSEK 29 from the exercise of warrants.
At period-end, warrants representing 379 575 shares were outstanding. The warrants were issued in conjunction with the acquisition of Karo Bio U.S.A, Inc. in 2000 (39 575 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 60 159 295 at the end of the period representing 12 031 859 shares at a par value of SEK 5. Total consolidated shareholder's equity amounted to MSEK 477.6 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 Swedish Kronor as indicated.
Scheduled Releases of Financial Information
Karo Bio intends to distribute financial reports as follows:
Quarterly Report, April - June July 16 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
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