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Karolinska Development

Interim / Quarterly Report Aug 23, 2012

3168_ir_2012-08-23_59e7fa08-ac6d-4580-9776-b4a9e6e054c8.pdf

Interim / Quarterly Report

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Karolinska Development AB (publ)

Corporate Identity Number 556707-5048

Interim report January – June 2012

CEO's comment

Karolinska Development aims to create value by developing and commercializing the projects in the portfolio companies. Ongoing efforts to find potential partners and licensees for selected portfolio companies remain intensive and are facilitated as the projects reach more mature development stages and positive data are generated. At this point, eleven of Karolinska Development's projects in the active company portfolio are in clinical trials to provide us with the necessary information prior to their further development.

During the second quarter, many of the companies progressed significantly in the clinical development of its products. Pharmanest took its SHACT project from preclinical development to Phase II within pain relief. To date, around half the patients have been dosed in Axelar's clinical Phase II trial with AXL1717 against lung cancer. Data from this trial is expected in 2013. In addition, in Pergamum's Phase II trial of DPK-060 against external otitis, the final patient recruitment is ongoing and data is expected by the end of 2012. The trials with sevuparin (Dilaforette) against malaria and AKN-028 (Akinion Pharmaceuticals) against acute myeloid leukemia are proceeding according to plan. Where studies produce positive outcomes, we expect to be able to sell the companies or license out the projects.

While the hope is naturally that the results of the clinical trials will increase the projects' attractiveness to potential licensing partners and buyers, negative outcomes are commonplace for research companies. We continue to closely evaluate the project portfolio, so that we can allocate our resources to the most promising projects and thereby maximize our long-term return. Our assessment is that we will be able to commercialize parts of our portfolio during 2012.

Torbjörn Bjerke Chief Executive Officer

Summary of significant events during and after the second quarter

  • Pharmanest initiates Phase I and Phase II trials with SHACT
  • Karolinska Development AB arranges a share ownership exchange with Industrifonden where Karolinska Development AB receives Industrifonden's shares in Aprea AB in exchange for Karolinska Development AB's shares in Oncopeptides AB
  • Pergamum reports top-line Phase II data from the clinical trial for prevention of post-surgical adhesions

Group

2012 2011 2012 2011
Amounts in SEKm Apr-Jun Apr-Jun Jan-Jun Jan-Jun
Income statement
Revenue 3.1 2.3 5.5 5.2
Profit/loss after tax -100.1 -93.2 -189.2 -130.8
Earnings per share before and after dilution (SEK) -1.83 -1.92 -3.52 -3.09
Balance sheet
Cash and cash equivalents 170.3 162.1
Short-term investments 291.1 577.5
Share information
Net asset value per share (SEK) (Note 5) 42.5 49.6
Share price, last trading day in the reporting period (SEK) 19.5 29.4
Portfolio information
Investments in portfolio companies* (Note 7) 37.7 190.6 115.7 226.2
Of which investments not affecting cash flow (Note 7) - 78.2 - 84.1
Valuation of total portfolio holdings (Note 2) 1,564.4 1,652.1

* Portfolio companies comprise subsidiaries, joint ventures, associated companies and other long-term securities holdings

Significant events during the second quarter

Pharmanest initiates Phase I and Phase II trials with SHACT

Pharmanest announced in April that the first patient had been dosed in an open label pharmacokinetic study with its drug candidate SHACT, a product developed for pain relief in connection with intrauterine device (IUD) insertion. The objective of the study is to establish the pharmacokinetic properties of SHACT when applied in the cervix and uterus of women receiving an IUD. Secondary objectives are to evaluate safety and tolerability.

In June, Pharmanest announced that the first patient had been dosed in a randomized, double blind Phase II study with SHACT. The objective of the Phase II study is to evaluate the efficacy of SHACT in connection with IUD insertion in women. The trial is expected enroll around 200 patients. Secondary objectives include evaluating safety and tolerability. Karolinska Development AB owns 59 percent of Pharmanest AB.

Karolinska Development AB arranges a share ownership exchange with Industrifonden

Karolinska Development AB and Industrifonden signed an agreement whereby Industrifonden will exchange Karolinska Development AB's shares in Oncopeptides AB for its shares in Aprea AB. After the transaction, Karolinska Development AB will own a total of 69.4 percent of Aprea AB. Through the transaction Karolinska Development AB will also receive 5 percent of Industrifonden's revenue from Oncopeptides up to SEK 80m, while Industrifonden receives 5 percent of any revenue Karolinska Development receives from Aprea AB up to SEK 80m.

Karolinska Development AB and Industrifonden have been majority shareholders in both Aprea AB and Oncopeptides AB for several years. During this time, both companies have reached Phase I/II stage of clinical development, and both have promising future potential.

Significant events after the end of the reporting period

Pergamum reports top-line Phase II data from the clinical trial for prevention of post-surgical adhesions

In July, Pergamum AB, a Karolinska Development portfolio company, announced top-line results from the randomized clinical Phase II trial of PXL-01 for prevention of post-surgical adhesions. The study showed that the drug was safe and well tolerated. Although the primary end point of the study was not met, the data suggests that PXL-01 may improve hand mobility following surgery. The patients are currently being monitored and an evaluation will be made after six and twelve months. During the reporting period, the carrying amount of the company was written down after the results of the trial proved inconclusive. Karolinska Development AB owns 62 percent of Pergamum.

Portfolio (as of 22 August 2012)

PHARMACEUTICALS Ownership* Concept
development
Lead
discovery
Lead
optimization
Preclinical
development
Phase I Phase II Phase III Launch
ONCOLOGY
Axelar AB 45%
Aprea AB 41%
Oncopeptides AB 43%
KDev Oncology AB (AKN-028) 90%
KDev Oncology AB (GliGene) 29%
DERMATOLOGY AND WOUND HEALING
Pergamum AB (DPK-060, atopic dermatitis) 62%
Pergamum AB (DPK-060, external otitis) 62%
Pergamum AB (PXL01) 62%
Pergamum AB (LL-37) 62%
WOMEN'S HEALTH
Dilafor AB 55%
Pharmanest AB 59%
Umecrine Mood AB 43%
INFECTIOUS DISEASE
Dilaforette AB
62%
Biosergen AS 60%
CARDIOVASCULAR
Athera Biotechnologies AB (Annexin A5) 65%
Athera Biotechnologies AB (PC-mAb) 65%
CNS
BioChromix Pharma AB 70%
Umecrine Cognition AB 54%
INFLAMMATION
NovaSAID AB
89%
ProNoxis AB 22%
OPHTHALMOLOGY
Clanotech AB 88%
TECHNOLOGY Ownership* Concept development Prototype Development Product Sales
IMPLANTS
Promimic AB
28%
OSS-Q AB 16%
DIAGNOSTIKS
Athera Biotechnologies AB (CVDefine®) 65%
BioChromix AB 14%
PHARMACEUTICAL FORMULATION
Inhalation Sciences Sweden AB 72%
XSpray Microparticles AB 62%
Lipidor AB 46%
MEDICAL EQUIPMENT
NeoDynamics AB (Fourier/AS) 21%
NeoDynamics AB (Terapi/PRFA) 21%
FINANCIAL/PASSIVE INVESTMENTS
PHARMACEUTICALS Ownership* Concept
development
Lead
discovery
Lead
optimization
Preclinical
development
Phase I Phase II Phase III Launch

Solid colored area = completed phase *Includes indirect ownership Shaded colored area = ongoing phase

Financial overview – Group

Revenue

Consolidated revenue during the first half-year 2012 amounted to SEK 5.5m, compared with SEK 5.2m in the same period in 2011.

Results

The Group's operating loss for the first half-year amounted to SEK -202.5m (-131.6), a change of SEK -70.9m year-on-year. The increased loss was mainly due to the portion of the change in fair value affecting income, which amounted to SEK -123.4m (-62.9) during the six-month period, as well as increased development costs in subsidiaries. As indicated in Note 2, the value of companies reported as subsidiaries appreciated by SEK 25.3m (57.2) during the first half-year. Changes in the fair value of subsidiaries are not recognized in the consolidated income statement and statement of financial position, since the subsidiaries are consolidated and therefore are not measured at fair value.

The Group's loss before tax amounted to SEK -196.8m (-139.2) during the first half-year.

The Group's operating loss for the second quarter amounted to SEK -107.3m (-90.0), a change of SEK -17.3m year-on-year. The increased loss was mainly due to the portion of the change in fair value affecting income, which amounted to SEK -60.9m (-50.5) during the second quarter, as well as increased development costs in subsidiaries. As indicated in Note 2, the value of companies reported as subsidiaries appreciated by SEK 6.5m (53.0) during the second quarter.

The Group's loss before tax amounted to SEK -105.0m (-98.1) during the second quarter.

Investments in portfolio companies (Note 7)

The Group's investments for the first half-year 2012 amounted to SEK 115.7m (226.2).

The largest investments (SEKm) during the first half-year were in Axelar AB at SEK 25.0m, Athera Biotechnologies AB at SEK 19.0m and the KDev Oncology AB Group at SEK 18.0m (of which SEK 15.0m was invested in Akinion Pharmaceuticals AB and SEK 3.0m in GliGene AB).

The Group's investments during the second quarter amounted to SEK 37.7m (190.6).

The largest investments (SEKm) during the second quarter were in the KDev Oncology AB Group at SEK 18.0m, Inhalation Sciences Sweden AB at SEK 4.0m and Lipidor at SEK 4.0m.

Financial position*

The Group's equity to total assets ratio was 92 percent (93) on 30 June 2012 and equity amounted to SEK 1,986.3m (2,173.9).

Cash, cash equivalents and short-term investments amounted to SEK 461.4m (620.6) on 30 June 2012.

Total assets amounted to SEK 2,251.9m (2,345.9) on 30 June 2012.

* Comparable figures refer to 31 December 2011

Financial overview– Parent Company

Revenue

The Parent Company's revenue during the first half-year 2012 amounted to SEK 1.7m (1.4).

Results

The Parent Company's operating loss for the first half-year amounted to SEK -139.1m (-96.7), a change of SEK -42.4m year-on-year. The increased loss is mainly the result of impairment of the holdings in Pergamum AB (SEK -104.8m), KDev Exploratory AB (formerly Actar AB) (SEK -3.4m), Limone AB (SEK -2.2m) and Avaris AB (SEK -0.5m). The impairment related to Pergamum AB was recognized after the results of the randomized clinical Phase II trial of PXL-01 for prevention of post-surgical adhesions proved inconclusive.

The Parent Company's net loss amounted to SEK -132.9m (-104.7) during the first half-year.

The Parent Company's operating loss for the second quarter amounted to SEK -123.7m (-77.8), a change of SEK -45.9m year-on-year. The increased loss is mainly the result of higher impairment losses.

The Parent Company's net loss was SEK -121.4m (-86.3) during the second quarter.

Investments in portfolio companies (Note 7)

The Parent Company invested a total of SEK 66.8m (69.0) in subsidiaries during the first half-year. The largest investments (SEKm) were in Axelar AB at SEK 25,0, the KDev Oncology AB Group at SEK 18.0m (of which SEK 15.0m was invested in Akinion Pharmaceuticals AB and SEK 3.0m in GliGene AB) and KDev Exploratory AB (formerly Actar AB) at SEK 10.0m.

The Parent Company invested SEK 47.4m (154.2) in associated companies and joint ventures during the first half-year. The largest investments (SEKm) were in Athera Biotechnologies AB at SEK 19.0 and in Dilaforette Holding AB at SEK 10.0m (of which SEK 10.0m was invested in Dilaforette AB).

The Parent Company invested SEK 1.5m (3.0) in other long-term securities holdings during the first half-year.

During the second quarter, the Parent Company invested a total of SEK 37.7m (190.6). The largest investments (SEKm) were in the KDev Oncology AB Group at SEK 18.0m, Inhalation Sciences Sweden AB at SEK 4.0m and Lipidor at SEK 4.0m.

Information on risks and uncertainties

Parent Company and Group

Valuation risks

Companies active in pharmaceutical development and medical technology at an early phase are, by their very nature, difficult to value, as lead times are very long and the development risks are high. Due to the uncertainty in these assessments, the estimated value of the portfolio may deviate substantially from the future generated value.

Project development risks

Risks and uncertainties are primarily associated with investments in portfolio companies and the development of projects in these companies. The operations of the portfolio companies consist of the development of early stage pharmaceutical projects. By their very nature, such operations are distinguished by very high risk and great uncertainty in terms of results.

Financial risks

Financial risks consist of investments in portfolio companies as well as risks in the management of liquid assets.

Future financing needs

Future investments in new and current portfolio companies will require capital. There is no guarantee that such capital can be obtained on favorable terms or that such capital can be obtained at all.

For a description of other risks and uncertainties, refer to the annual report 2011.

The Board of Directors and the CEO hereby certify that this interim report gives a true and fair view of the operations, financial position and results of operations of the Parent Company and the Group and describes the material risks and uncertainties faced by the Parent Company and the companies included in the Group.

Solna, 22 August 2012

Chairman

Hans Wigzell Per–Olof Edin Rune Fransson

Charlotte Edenius Vlad Artamonov Klaus Wilgenbus

Raymond Hill Torbjörn Bjerke CEO

Dates for publication of financial information

Interim report January – September 2012 22 November 2012 Year-end report January – December 2012 February 2013 Annual report 2012 April 2013

Karolinska Development is required to make public the information in this interim report in accordance with the Securities Market Act. The information was released for publication on 23 August 2012.

This interim report, together with additional information, is available on Karolinska Development's website, www.karolinskadevelopment.com

For further information, please contact:

Torbjörn Bjerke, CEO +46 (0) 72 744 41 23

Robin Wright, CFO +44 7720 300 025

See also www.karolinskadevelopment.com

Karolinska Development AB (publ) Fogdevreten 2A, SE-171 65 Solna, Sweden

This interim report has not been subject to review by the Company's auditors.

NB: This report is a translation of the Swedish interim report. In case of any discrepancies, the Swedish version shall prevail.

Financial reports

Condensed consolidated income statement

2012 2011 2012 2011 2011
Amounts in SEK 000 Note Apr-Jun Apr-Jun Jan-Jun Jan-Jun Full-year
Revenue 3,074 2,278 5,549 5,179 10,479
Other external expenses -32,927 -24,212 -52,931 -42,370 -104,056
Personnel costs -15,684 -16,350 -29,760 -29,981 -59,871
Depreciation and amortization of tangible and intangible
non-current assets
-957 -1,193 -1,948 -1,599 -3,431
Change in fair value of shares in joint ventures and
associated companies
2 -60,126 -57,360 -122,509 -65,895 -236,621
Change in fair value of other long-term securities
holdings
2 -726 6,822 -925 3,031 -7,175
Operating loss -107,346 -90,015 -202,524 -131,635 -400,675
Financial net 3 2,324 -8,128 5,722 -7,587 -4,985
Loss before tax 2 -105,022 -98,143 -196,802 -139,222 -405,660
Deferred taxes 4,936 4,921 7,597 8,456 19,987
Current taxes 0 0 0 0 0
NET LOSS FOR THE PERIOD -100,086 -93,222 -189,205 -130,766 -385,673
Attributable to:
Parent Company's shareholders -88,912 -86,612 -170,813 -121,149 -354,147
Non-controlling interests -11,174 -6,610 -18,392 -9,617 -31,526
TOTAL -100,086 -93,222 -189,205 -130,766 -385,673

Earnings per share

2012 2011 2012 2011 2011
Amounts in SEK 000 Note Apr-Jun Apr-Jun Jan-Jun Jan-Jun Full-year
Earnings per share attributable to Parent Company's
shareholders, weighted average, before and after
dilution
-1.83 -1.92 -3.52 -3.09 -8.07
Number of shares, weighted average 5 48,531,417 45,023,025 48,531,417 39,209,870 43,908,951

Consolidated statement of comprehensive income

2012 2011 2012 2011 2011
Amounts in SEK 000
Note
Apr-Jun Apr-Jun Jan-Jun Jan-Jun Full-year
Net loss for the period -100,086 -93,222 -189,205 -130,766 -385,673
Total comprehensive income for the period -100,086 -93,222 -189,205 -130,766 -385,673
Attributable to:
Parent Company's shareholders -88,912 -86,612 -170,813 -121,149 -354,147
Non-controlling interests -11,174 -6,610 -18,392 -9,617 -31,526
TOTAL -100,086 -93,222 -189,205 -130,766 -385,673

Condensed consolidated statement of financial position

Amounts in SEK 000 Note 30 June 2012 30 June 2011 31 Dec 2011
Assets
Non-current assets
Intangible non-current assets 702,305 702,809 702,957
Tangible non-current assets 4,779 2,194 1,663
Shares in joint ventures and associated companies 2,4 905,090 1,101,526 980,276
Other long-term securities holdings 2,4 25,122 33,880 24,587
Loans receivable joint ventures and associated companies 40 323 14,325 3,675
Total non-current assets 1,677,619 1,854,734 1,713,158
Current assets
Accounts receivable 990 1,206 1,462
Other short-term receivables 6,210 11,912 8,757
Prepaid expenses and accrued income 5,629 3,832 1,886
Short-term investments 291,102 577,540 457,249
Cash and cash equivalents 170,329 162,115 163,347
Total current assets 474,260 756,605 632,701
TOTAL ASSETS 2,151,879 2,611,339 2,345,859
Equity and liabilities
Equity
Share capital 5 24,266 24,266 24,266
Share premium 1,768,179 1,768,062 1,768,179
Retained earnings including current period result -78,264 323,267 86,442
Equity attributable to Parent Company's shareholders 1,714,181 2,115,595 1,878,887
Non-controlling interests 272,091 312,730 295,041
Total equity 1,986,272 2,428,325 2,173,928
Long-term liabilities
Deferred taxes 135,989 155,118 143,586
Interest-bearing liabilities 0 2,000 2,000
Total long-term liabilities 135,989 157,118 145,586
Current liabilities
Interest-bearing liabilities 1,900 0 0
Accounts payable 12,323 6,511 9,563
Other short-term liabilities 3,557 5,378 2,796
Accrued expenses and prepaid income 11,838 14,007 13,986
Total current liabilities 29,618 25,896 26,345
Total liabilities 165,607 183,014 171,931
TOTAL EQUITY AND LIABILITIES 2,151,879 2,611,339 2,345,859

Condensed consolidated statement of changes in equity

Equity attributable to Parent Company's shareholders
Retained
earnings
incl. Non
Amounts in SEK 000 Note Share capital Share
premium
current
year result
Total controlling
interests
Total
equity
Opening equity at 1 Jan 2012 24,266 1,768,179 86,442 1,878,887 295,041 2,173,928
Net loss for the period -170,813 -170,813 -18,392 -189,205
Total comprehensive income for the
period 0 0 -170,813 -170,813 -18,392 -189,205
Change in non-controlling interests 6,107 6,107 -4,558 1,549
Closing equity at 30 June 2012 5 24,266 1,768,179 -78,264 1,714,181 272,091 1,986,272
Opening equity at 1 Jan 2011 16,666 1,212,611 454,484 1,683,761 33,414 1,717,175
Net loss for the period -121,149 -121,149 -9,617 -130,766
Total comprehensive income for the
period 0 0 -121,149 -121,149 -9,617 -130,766
Business combinations 0 222,834 222,834
Change in non-controlling interests -10,068 -10,068 66,099 56,031
New share issue 7,600 600,400 608,000 608,000
Issue costs -44,949 -44,949 -44,949
Closing equity at 30 June 2011 5 24,266 1,768,062 323,267 2,115,595 312,730 2,428,325
Opening equity at 1 Jan 2011 16,666 1,212,611 454,484 1,683,761 33,414 1,717,175
Net loss for the year -354,147 -354,147 -31,526 -385,673
Total comprehensive income for the year 0 0 -354,147 -354,147 -31,526 -385,673
Business combinations 0 222,834 222,834
Change in non-controlling interests -13,895 -13,895 70,319 56,424
New share issue 7,600 600,400 608,000 608,000
Issue costs -44,949 -44,949 -44,949
Warrants 117 117 117
Closing equity at 31 Dec 2011 5 24,266 1,768,179 86,442 1,878,887 295,041 2,173,928

Consolidated statement of cash flows

2012 2011
Amounts in SEK 000 Note Jan-Jun Jan-Jun
Operating activities
Operating loss -202,524 -131,635
Adjustments for depreciation, amortization and
impairment losses
1,948 1,599
Adjustments for changes in fair value 2 123,434 62,864
Realized changes in value of short-term investments 3 763 0
Interest paid -20 -39
Interest received 881 879
Cash flow from operating activities before changes in
working capital
-72,518 -66,332
Cash flow from changes in working capital
Increase (-)/Decrease (+) in operating receivables -3,025 -1,856
Increase (+)/Decrease (-) in operating liabilities 1,375 3,638
Cash flow from operating activities -74,168 -64,550
Investing activities
Investments in intangible non-current assets -711 -1,136
Investments in tangible non-current assets -3,642 -247
Acquired liquid assets in subsidiaries 0 12,878
Investments in shares in joint ventures and associated companies 7 -47,371 -70,165
Investments in other long-term securities -1,460 -3,002
Change in short-term investments 166 247 -437,111
Sale of shares in joint ventures and associated companies 3,217 21,811
Sale of other long-term securities 0 540
Loans provided to associated companies -36,648 -20,400
Cash flow from investing activities 79,632 -496,832
Financing activities
Non-controlling interests' share of subsidiary issue 1,618 53,121
New share issue 0 608,000
Issue costs 0 -44,949
Amortization of interest-bearing liabilities -100 0
Cash flow from financing activities 1,518 616,172
Cash flow for the period 6,982 54,790
Cash and cash equivalents at beginning of period 163,347 107,325
CASH AND CASH EQUIVALENTS AT END OF PERIOD¹ 170,329 162,115

¹ In addition to cash and cash equivalents, the Group has at its disposal short-term investments amounting to SEK 291,102 thousand (577,540)

Condensed income statement for the Parent Company

2012 2011 2012 2011 2011
Amounts in SEK 000
Note
Apr-Jun Apr-Jun Jan-Jun Jan-Jun Full-year
Net sales 891 544 1,725 1,396 2,467
Revenue 891 544 1,725 1,396 2,467
Other external expenses -7,611 -10,943 -15,510 -20,351 -32,174
Personnel costs -8,075 -8,994 -14,381 -16,583 -32,066
Depreciation of tangible non-current assets -2 -16 -3 -33 -67
Impairment losses on shares in subsidiaries, joint
ventures, associated companies and other long-term
securities holdings -108,998 -58,360 -110,935 -61,157 -125,961
Result from sale of shares 47 0 47 0 6,239
Operating loss -123,748 -77,769 -139,057 -96,728 -181,562
Financial net
3
2,339 -8,492 6,192 -7,956 -6,183
NET LOSS FOR THE PERIOD -121,409 -86,261 -132,865 -104,684 -187,745

Statement of comprehensive income for the Parent Company

2012 2011 2012 2011 2011
Amounts in SEK 000
Note
Apr-Jun Apr-Jun Jan-Jun Jan-Jun Full-year
Net loss for the period -121,409 -86,261 -132,865 -104,684 -187,745
Total comprehensive income for the period -121,409 -86,261 -132,865 -104,684 -187,745
Attributable to:
Parent Company's shareholders -121,409 -86,261 -132,865 -104,684 -187,745
TOTAL -121,409 -86,261 -132,865 -104,684 -187,745

Condensed statement of financial position for the Parent Company

Amounts in SEK 000 Note 30 June 2012 30 June 2011 31 Dec 2011
Assets
Non-current assets
Tangible non-current assets 12 76 42
Shares in subsidiaries, joint ventures, associated companies and other
long-term securities holdings 4 884,533 870,487 879,819
Loans receivable joint ventures and associated companies 40,323 14,325 3,675
Other financial assets 2,252 1,853 2,080
Total non-current assets 927,120 886,741 885,616
Current assets
Accounts receivable 6 243 49
Group receivables 303 38 74
Other receivables 2,802 7,056 5,766
Prepaid expenses and accrued income 3,278 2,284 881
Short-term investments 291,102 577,540 457,249
Cash and cash equivalents 61,761 31,491 68,319
Total current assets 359,252 618,652 532,338
TOTAL ASSETS 1,286,372 1,505,393 1,417,954
Equity and liabilities
Equity
Restricted equity
Share capital 5 24,266 24,266 24,266
Unrestricted equity
Share premium reserve 1,778,253 1,778,136 1,778,253
Retained earnings -395,026 -207,281 -207,281
Net loss for the period -132,865 -104,684 -187,745
Total equity 1,274,628 1,490,437 1,407,493
Long-term liabilities
Pension obligations 2,252 1,853 2,080
Total long-term liabilities 2,252 1,853 2,080
Current liabilities
Accounts payable 2,049 1,935 807
Group liabilities 0 952 0
Other current liabilities 1,870 3,736 1,530
Accrued expenses and deferred income 5,573 6,480 6,044
Total current liabilities 9,492 13,103 8,381
Total liabilities 11,744 14,956 10,461
TOTAL EQUITY AND LIABILITIES 1,286,372 1,505,393 1,417,954

Pledged assets and contingent liabilities

Amounts in SEK 000 Note 30 June 2012 30 June 2011 31 Dec 2011
Pledged assets 6 2,252 4,690 2,080
Contingent liabilities 6 26,200 26,900 26,900
Total 28,452 31,590 28,980
Restricted equity Unrestricted equity
Net
Share profit/loss
Amounts in SEK 000 Note Share capital premium
reserve
Retained
earnings
for the
period
Total equity
Opening equity at 1 Jan 2012 24,266 1,778,253 -207,281 -187,745 1,407,493
Appropriation of loss -187,745 187,745 0
Net loss for the period -132,865 -132,865
Closing equity at 30 June 2012 5 24,266 1,778,253 -395,026 -132,865 1,274,628
Opening equity at 1 Jan 2011 16,666 1,222,685 -95,932 -111,349 1,032,070
Appropriation of loss -111,349 111,349 0
Net loss for the period -104,684 -104,684
Total 16,666 1,222,685 -207,281 -104,684 927,386
New share issue 7,600 600,400 608,000
Issue costs -44,949 -44,949
Closing equity at 30 June 2011 5 24,266 1,778,136 -207,281 -104,684 1,490,437
Opening equity at 1 Jan 2011 16,666 1,222,685 -95,932 -111,349 1,032,070
Appropriation of loss -111,349 111,349 0
Net loss for the year -187,745 -187,745
Total 16,666 1,222,685 -207,281 -187,745 844,325
New share issue 7,600 600,400 608,000
Issue costs -44,949 -44,949
Warrants 117 117
Closing equity at 31 Dec 2011 5 24,266 1,778,253 -207,281 -187,745 1,407,493

Condensed statement of changes in equity for the Parent Company

Notes to the financial reports

Note 1 Accounting principles

This report has been prepared in accordance with the International Accounting Standard (IAS) 34 Interim Financial Reporting and the Annual Accounts Act. The accounting principles applied to the Group and the Parent Company correspond, unless otherwise stated below, to the accounting principles and valuation methods applied in the preparation of the previous annual report.

New and revised accounting principles 2012

The new or revised IFRS standards and interpretations by IFRIC have had no impact on the Group or, to the extent that these recommendations are applied to legal entities, on the Parent Company's income or financial position.

Definition of key ratios

Net asset value per share: Estimated fair value of the total portfolio, cash and cash equivalents, and financial assets less interestbearing liabilities in relation to the number of shares outstanding on the closing date.

Other definitions

First In Class: The first approved medicine with a defined mechanism for a specific target or a specific disease.

Portfolio companies: Companies owned fully or in part by Karolinska Development (subsidiaries, joint ventures, associated companies and other long-term securities holdings) which are active in pharmaceuticals, medtech, theranostics and formulation technology.

Fair value: The NASDAQ OMX regulations for issuers require companies listed on NASDAQ OMX to apply the International Financial Reporting Standards, IFRS, in their consolidated financial statements. The application of the standards allows groups of an investment company nature to apply so-called fair value in the calculation of the carrying amount of certain assets. These calculations are made on the basis of established principles and are not included in the opening accounts of the Group's legal entity, nor do they affect cash flows.

Fair value is estimated according to the International Private Equity and Venture Capital Valuation Guidelines. According to these guidelines, fair value can be calculated using different methods, depending on which is considered to provide the best estimate of market value in each case. For Karolinska Development, this means that the fair value of many portfolio companies is determined using a model to calculate the value of discounted and risk-adjusted cash flows. In other cases, Karolinska Development's total investment is used as the best estimation of fair value. In one other case, the valuation at the time of the last capital contribution is used.

Interim period: The period from the beginning of the financial year through the closing date.

Reporting period: Current quarter.

Note 2 Operating segments

The Board of Directors is the function that determines the allocation of resources to investments in portfolio companies and to the Parent Company. The Board of Directors monitors each investment at the project level as well as the Parent Company's results and financial position.

Karolinska Development's investments are primarily steered to companies that yield the best returns. Regardless of a project's maturity, therapeutic area and whether the company is active within pharmaceuticals or medical technology, each company's projects are evaluated by Karolinska Development in the same manner, because of which Karolinska Development has aggregated all the portfolio companies into a single reportable segment.

Karolinska Development's measure of profit is the aggregate change in the fair value of its shares in the portfolio companies, including those consolidated as subsidiaries. The Board of Directors and management monitor the investments based on changes in their fair value independently of the company's level of influence. Consequently, the Board of Directors and management monitor subsidiaries, associated companies, joint ventures and other holdings based on changes in their fair value and not on their historical acquisition costs as subsidiaries recognized in the consolidated financial statements. The accounting principles applied in the internal reporting otherwise correspond to the Group's accounting principles as described in Note 1.

Profit/loss per segment and reconciliation between aggregate result from change in fair value of portfolio companies and consolidated loss before tax

Profit/loss from change in fair value of portfolio companies
2012 2011 2012 2011 2011
Amounts in SEK 000 Apr-Jun Apr-Jun Jan-Jun Jan-Jun Full-year
Subsidiaries
Change in fair value 6,454 52,972 25,345 57,213 67,819
Joint ventures and associated companies
Change in fair value 45,153 1,140 -17,230 -7,395 -118,789
Impairment losses -105,279 -58,500 -105,279 -58,500 -117,832
Other long-term securities holdings
Change in fair value -726 6,822 -925 3,031 -4,675
Impairment losses 0 0 0 0 -2,500
Change in fair value of total portfolio holdings -54 398 2,434 -98,089 -5,651 -175,977
Group eliminations
Less change in fair value of subsidiaries -6 454 -52,972 -25,345 -57,213 -67,819
Net loss from changes in fair value -60,852 -50,538 -123,434 -62,864 -243,796
Consolidated revenue and other expenses (including
financial net) -44,170 -47,605 -73,368 -76,358 -161,864
Consolidated loss before tax -105,022 -98,143 -196,802 -139,222 -405,660

The aggregate loss from changes in the fair value of the portfolio companies amounted to SEK -98.1m (-5.7) during the six-month period after accounting for a positive change in the fair value of subsidiaries of SEK 25.3m (57.2). The change in the fair value of subsidiaries is not recognized in the consolidated income statement or statement of financial position, since the subsidiaries are consolidated and therefore are not measured at fair value. The Group's net loss from changes in the fair value of joint ventures, associated companies and other long-term securities holdings amounted to SEK -123.4m (-62.9).

Assets per segment

Fair value of portfolio companies
30 June 30 June 31 Dec
Amounts in SEK 000 2012 2011 2011
Fair value of total portfolio holdings
Subsidiaries 634,165 516,684 542,001
Joint ventures and associated companies 905,090 1,101,526 980,276
Other long-term securities holdings 25,122 33,880 24,587
Fair value of total portfolio holdings 1,564,377 1,652,090 1,546,864
Less fair value in subsidiaries -634,165 -516,684 -542,001
Group 930,212 1,135,406 1,004,863

Shares in portfolio companies at fair value

Joint
ventures/
Associated
Other long
term
Total
portfolio
Amounts in SEK 000 Subsidiaries companies securities holdings
Accumulated fair value
Opening balance at 1 Jan 2011 209,108 1,220,791 24,761 1,454,660
Acquisitions during the year (Note 7) 69,000 154,240 3,002 226,242
Reclassifications 182,173 -185,799 3,626 0
Sale of shares -810 -21,811 -540 -23,161
Changes in fair value and impairment losses 57,213 -65,895 3,031 -5,651
Closing balance at 30 June 2011 516,684 1,101,526 33,880 1,652,090
Opening balance at 1 Jan 2011 209,108 1,220,791 24,761 1,454,660
Acquisitions during the year (Note 7) 83,711 209,955 3,915 297,581
Reclassifications 182,173 -185,799 3,626 0
Sale of shares -810 -28,050 -540 -29,400
Changes in fair value and impairment losses 67,819 -236,621 -7,175 -175,977
Closing balance at 31 Dec 2011 542,001 980,276 24,587 1,546,864
Opening balance at 1 Jan 2012 542,001 980,276 24,587 1,546,864
Acquisitions during the period (Note 7) 66,819 47,371 1,460 115,650
Sale of shares 0 -48 0 -48
Changes in fair value 25,345 -122,509 -925 -98,089
Closing balance at 30 June 2012 634,165 905,090 25,122 1,564,377
Reconciliation between the aggregate fair value of portfolio companies for segments and consolidated total assets
30 June 30 June 31 Dec
Amounts in SEK 000 2012 2011 2011
Aggregate fair value of total portfolio holdings 1,564,377 1,652,090 1,546,864
Less fair value of consolidated subsidiaries -634,165 -516,684 -542,001
Other consolidated assets 1,221,667 1,475,933 1,340,996
Consolidated total assets 2,151,879 2,611,339 2,345,859

Note 3 Financial net

Group
2012 2011 2012 2011 2011
Amounts in SEK 000 Apr-Jun Apr-Jun Jan-Jun Jan-Jun Full-year
Interest income 1,131 3,009 2,005 3,396 6,247
Interest expenses -8 -24 -20 -39 -36
Change in value of short-term investments 1,438 914 4,709 4,102 10,036
Exchange rate gains and losses -237 -27 -972 -249 -2
Impairment of receivables from joint ventures and
associated companies
0 -12,000 0 -12,000 -21,230
Profit share from KCIF Co-Investment Fund KB 0 0 0 -2,797 0
Financial net 2,324 -8,128 5,722 -7,587 -4,985
Parent Company
2012 2011 2012 2011 2011
Amounts in SEK 000 Apr-Jun Apr-Jun Jan-Jun Jan-Jun Full-year
Interest income 1,082 78 1,664 437 5,017
Interest expenses -4 0 -4 0 -6
Change in value of short-term investments 1,261 3,430 4,532 3,821 10,036
Exchange rate gains and losses 0 0 0 -214 0
Impairment of receivables from joint ventures and
associated companies 0 -12,000 0 -12,000 -21,230
Financial net 2,339 -8,492 6,192 -7,956 -6,183

Note 4 Shares in subsidiaries, joint ventures, associated companies and other long-term securities holdings

The Group's holdings of shares in portfolio companies

Total ownership interest, %¹
30 June 2012 30 June 2011 31 Dec 2011
Subsidiaries
Axelar AB 45.29 40.03 40.03
ClanoTech AB 87.39 86.32 86.94
Daffodil AB (dormant) 100.00 - -
HBV Theranostica AB (dormant) 100.00 - -
Inhalation Sciences Sweden AB 74.72 68.75 72.11
KCIF Fund Management AB 37.50 37.50 37.50
KD Incentive AB 100.00 100.00 100.00
KDev Exploratory AB (formerly Actar AB) 100.00 99.96 100.00
KDev Oncology AB 100.00 100.00 100.00
Akinion Pharmaceuticals AB 90.32 88.09 88.09
GliGene AB 29.44 - 10.13
Limone AB 100.00 100.00 100.00
NovaSAID AB 88.91 88.91 88.91
Pharmanest AB 59.03 53.57 56.53
Joint ventures
Aprea AB 41.12 41.12 41.12
Athera Biotechnologies AB 64.57 62.10 62.19
Avaris AB 94.87 68.40 68.40
BioChromix Pharma AB 70.35 58.96 68.77
Bioneris AB (in liquidation) 26.31 26.31 26.31
Biosergen AS 60.26 54.29 60.26
Dilafor AB 54.76 54.76 54.76
Dilaforette Holding AB 62.12 54.02 57.96
Dilaforette AB 62.12 54.02 57.96
Eribis AB (divested) - 43.14 -
HBV Theranostica AB (dormant) - 72.52 72.52
IMED AB (divested) - 57.38 -
Lipidor AB 46.13 39.98 39.98
NeoDynamics AB 20.72 25.74 25.74
Oncopeptides AB 43.36 42.32 43.36
OncoReg AB (liquidated) - 88.91 -
Pergamum AB 61.93 61.75 61.93
DermaGen AB 61.93 61.75 61.93
Laurantis Pharma OY 6.07 6.07 6.07
Lipopeptide AB 61.93 61.75 61.93
PharmaSurgics in Sweden AB 61.93 61.75 61.93
Ximmune AB 5.36 6.18 5.36
ProNoxis AB 21.76 17.60 19.83
Umecrine Cognition AB 54.17 46.25 54.17
Umecrine Mood AB 42.88 42.87 42.87
XSpray Microparticles AB 61.81 59.81 60.80
Associated companies
KCIF Co-Investment Fund KB 26.00 26.00 26.00
Oss-Q AB 15.63 - 15.63
Promimic AB 28.42 24.50 24.50
Other long-term securities holdings
BioArctic NeuroScience AB 3.17 3.17 3.17
BioChromix AB 13.94 6.40 9.34
BioResonator AB (in liquidation) 7.62 7.62 7.62
CytoGuide ApS 9.06 9.06 9.06
Independent Pharmaceutica AB (liquidated) - 5.98 -
NephroGenex Inc. 0.58 0.58 0.58
Umecrine AB 10.41 10.41 10.41

¹ Including indirect ownership through KDev Oncology AB, Dilaforette Holding AB, Pergamum AB, KCIF Co-Investment Fund KB, BioChromix AB and Umecrine AB

Book value in Parent Company

Amounts in SEK 000
30 June 2012
30 June 2011
31 Dec 2011
Subsidiaries
Axelar AB
73,343
48,343
48,343
ClanoTech AB
39,194
34,695
37,194
Daffodil AB (dormant)
50
-
-
HBV Theranostica AB (dormant)
50
-
-
Inhalation Sciences Sweden AB
28,238
19,738
24,238
KCIF Fund Management AB
43
43
43
KD Incentive AB
200
100
200
KDev Exploratory AB (formerly Actar AB)
10,288
6,844
3,679
KDev Oncology AB
67,070
0
1,000
Akinion Pharmaceuticals AB
-
48,070
48,070
Limone AB
2,049
1,500
296
NovaSAID AB
74,407
74,407
74,407
Pharmanest AB
18,794
9,966
15,075
Total book value subsidiaries
313,726
243,706
252,545
Joint ventures
Aprea AB
46,199
46,199
46,199
Athera Biotechnologies AB
93,787
74,797
74,797
Avaris AB
1
53,650
0
BioChromix Pharma AB
19,350
12,350
19,350
Bioneris AB (in liquidation)
0
0
0
Biosergen AS
21,370
15,114
21,370
Dilafor AB
88,831
88,831
88,831
Dilaforette Holding AB
17,188
188
7,188
Eribis AB (divested)
-
0
-
HBV Theranostica AB (dormant)
-
0
0
IMED AB (divested)
-
0
-
Lipidor AB
12,998
9,000
9,000
NeoDynamics AB
11,097
11,097
11,097
Oncopeptides AB
22,914
18,536
22,914
OncoReg AB (liquidated)
-
0
-
Pergamum AB
106,012
198,643
210,850
ProNoxis AB
6,500
4,500
5,500
Umecrine Cognition AB
14,700
8,200
14,700
Umecrine Mood AB
27,850
25,112
25,112
XSpray Microparticles AB
36,628
27,872
33,708
Associated companies
KCIF Co-Investment Fund KB
12,791
8,624
10,527
Oss-Q AB
3,650
-
3,650
Promimic AB
13,100
8,100
8,100
Total book value joint ventures and associated companies
554,966
610,813
612,893
Total fair value joint ventures and associated companies
905,090
1,101,526
980,276
Other long-term securities holdings
BioArctic NeuroScience AB
600
600
600
BioChromix AB
3,834
1,461
2,374
BioResonator AB (in liquidation)
0
2,500
0
CytoGuide ApS
3,300
3,300
3,300
Book value in Parent Company
Independent Pharmaceutica AB (liquidated)
-
0
-
NephroGenex Inc.
709
709
709
Umecrine AB
7,398
7,398
7,398
Total book value other long-term securities holdings
15,841
15,968
14,381
Total fair value other long-term securities holdings
25,122
33,880
24,587

Note 5 Changes in share capital

The number of shares has changed as follows:

Year Transaction Number of
shares
Increase in
share capital
Share
capital
Number
of A
shares
Number of
B shares
Subscription
price
Par
value
Total as of 1 Jan 2011 33,331,417 16,665,709 1,503,098 31,828,319 0.5
New share
April 2011 issue 15,200,000 7,600,000 24,265,709 15,200,000 40 0.5
Total as of 31 Dec 2011 48,531,417 24,265,709 1,503,098 47,028,319 0.5
Total as of 30 June 2012 48,531,417 24,265,709 1,503,098 47,028,319 0.5

Calculation of net asset value

Group
Amounts in SEK 000 30 June 2012 30 June 2011 31 Dec 2011
Net assets
Cash and cash equivalents 170,329 162,115 163,347
Short-term investments 291,102 577,540 457,249
Loans receivable joint ventures and associated companies 40,323 17,162¹ 3,675
Financial liabilities -1,900 -2,000 -2,000
Total net assets 499,854 754,817 622,271
Estimated fair value of portfolio companies including subsidiaries 1 564 377 1 652 090 1,546,864
Total net asset value 2,064,231 2,406,907 2,169,135
Number of shares 48,531,417 48,531,417 48,531,417
Net asset value per share* 42.53 49.59 44.70

¹The amount includes a restricted account with a balance of SEK 2,837 thousand. In the statement of financial position, the amount is included in other current receivables

Note 6 Pledged assets and contingent liabilities

Karolinska Development has entered into an investment commitment of SEK 25.0m related to Axelar AB. Additional financing commitments in portfolio companies also relate exclusively to Axelar AB.

Group and Parent Company
Amounts in SEK 000 30 June 2012 30 June 2011 31 Dec 2011
Pledged assets
Restricted account 0 2,837 0
Endowment insurance 2,252 1,853 2,080
Total pledged assets 2,252 4,690 2,080
Investment commitments
Biocelex 0 500 500
Uminova 200 400 400
Other contingent liabilities
Axelar 26,000 26,000 26,000
Total contingent liabilities 26,200 26,900 26,900
Total 28,452 31,590 28,980

Other contingent liabilities

Axelar

If its project is transferred, Axelar is obligated to pay a maximum of SEK 26m to the project's previous owners as contingent consideration.

Note 7 Investments in portfolio companies

2012 2012 2011 2011 2011
Amounts in SEK 000 Apr-Jun Jan-Jun Apr-Jun Jan-Jun Full-year
Investments in subsidiaries
Akinion Pharmaceuticals AB 0 0 20,000 30,000 30,000
Axelar AB 0 25,000 20,000 20,000 20,000
ClanoTech AB 0 2,000 0 0 2,499
Daffodil AB 0 50 0 0 0
HBV Theranostica AB 50 50 0 0 0
Inhalation Sciences Sweden AB 4,000 4,000 0 2,500 7,000
KD Incentive AB 0 0 0 0 100
KDev Exploratory AB (formerly Actar AB) 0 10,000 0 0 2
KDev Oncology AB 18,000 18,000 0 0 1,000
Limone AB 2,000 4,000 0 1,500 3,000
NovaSAID AB 0 0 8,000 12,000 12,000
Pharmanest AB 69 3,719 3,000 3,000 8,110
Total investments in subsidiaries 24,119 66,819 51,000 69,000 83,711
Investments in joint ventures and associated companies
Aprea AB 0 0 6,570 12,470 12,470
Athera Biotechnologies AB 0 18,991 8,760 8,760 8,760
Avaris AB 444 444 0 1,800 1,800
BioChromix Pharma AB 0 0 3,000 3,000 10,000
Biosergen AS 0 0 0 0 6,256
Dilafor AB 0 0 5,000 9,000 9,000
Dilaforette Holding AB 0 10,000 188 188 7,188
Eribis Pharmaceuticals AB 0 0 2,490 2,490 2,490
HBV Theranostica AB 0 0 200 200 200
KCIF Co-Investment Fund KB 0 2,280 1,186 3,946 5,834
Lipidor AB 3,998 3,998 4,997 4,997 4,997
NeoDynamics AB 0 0 3,546 3,546 3,546
Oncopeptides AB 0 0 0 0 4,378
Oss-Q AB 0 0 0 0 3,650
Pergamum AB 0 0 95,629 95,857 108,065
Promimic AB 2,000 5,000 0 0 0
ProNoxis AB 0 1,000 1,500 1,500 2,500
Umecrine Cognition AB 0 0 1,200 1,200 7,700
Umecrine Mood AB 2,738 2,738 5,286 5,286 5,286
XSpray Microparticles AB 2,920 2,920 0 0 5,835
Total investments in joint ventures and associated companies 12,100 47,371 139,552 154,240 209,955
Investments in other long-term securities holdings
BioChromix AB 1,460 1,460 0 2,002 2,915
Umecrine AB 0 0 0 1,000 1,000
Total investments in other long-term securities holdings 1,460 1,460 0 3,002 3,915
Total investments 37,679 115,650 190,552 226,242 297,581

Investments not affecting cash flow during the period

2012 2012 2011 2011 2011
Amounts in SEK 000 Apr-Jun Jan-Jun Apr-Jun Jan-Jun Full-year
Conversions of previously issued loans
Aprea AB 0 0 0 5,900 5,900
Biosergen AS 0 0 0 0 2,425
Dilaforette Holding AB 0 0 0 0 4,000
NeoDynamics AB 0 0 546 546 546
Oncopeptides AB 0 0 0 0 4,378
Pergamum AB 0 0 77,629 77,629 77,629
Total investments not affecting cash flow during the period 0 0 78,175 84,075 94,878

Note 8 Related parties

During the reporting period, the Group did not have any material transactions with or commitments to related parties beyond the normal business transactions described in the annual report for 2011 and as indicated in Note 6.

Note 9 Performance Share Program 2012 (PSP 2012)

On 23 May 2012, the Annual General Meeting resolved on a Performance Share Program for management based on the participants acquiring shares ("Saving Shares") on the open market. Under certain conditions, the participants will be allotted, free of charge, a maximum of five Performance Share Rights and one Matching Share Right by the company for each Saving Share they acquire. The Matching and Performance Share Rights will be allotted after three years. The total number of Performance and Matching Share Rights is 480,000. The program comprises a maximum of ten participants.

There are no performance conditions for the Matching Share Rights, but each participant must remain an employee on the allotment date. The conditions for the Performance Share Rights are related to Karolinska Development's share price performance and a comparison between what are called the Start Price and the End Price. The Start Price is measured as the average over ten trading days. The Board of Directors determines the measurement period. However, the measurement must be made not later than 23 November 2012. The End Price is measured as the average over ten trading days beginning on 2 May 2015. For an allotment to be made at all, the share price must rise by six percent annually. For a maximum allotment (five Performance Shares per Saving Share), the share price must rise by 30 percent. Within this span, allotments will be made proportionately. Allotments are capped at ten times the Start Price, after which the number of allotted Performance Share Rights is reduced. The participants will be compensated in cash for dividends paid during the period.

The company intends to cover the social security contributions related to the program by acquiring and transferring not more than 150,800 of its own shares. As of 30 June 2012, no Saving Shares had been acquired. The Performance Share Program has not had any impact on the company's results and financial position as of 30 June 2012.

Karolinska Development AB (publ) Interim Report 30 June 2012

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