Press release February 7th, 2008

YEAR-END REPORT JANUARY–DECEMBER 2007

The year in brief

Net sales amounted to MSEK 7.5 (44.0)
Net loss amounted to MSEK 203.4 (126.1)
Loss per share amounted to SEK 1.92 (1.38)
Cash flow from operating activities amounted to MSEK -178.3 (-110.4). Cash, cash equivalents and other short-term investments totaled MSEK 432.3 (231.0) at December 31, 2007
A rights issue generating net proceeds of MSEK 387.2 was completed in the second quarter
In June, promising phase IIa clinical data were presented regarding the cholesterol lowering compound eprotirome (KB2115)
A phase IIb clinical study with eprotirome, where eprotirome is given to dyslipidemia patients on statin treatment, was initiated in December
In December, KB3305, for treatment of type 2 diabetes, entered clinical development. Phase I single and multiple ascending doses in healthy volunteers will be followed by a phase IIa study in patients
The development of KB5359 was discontinued due to compound-specific toxicological findings
Collaboration partner Merck discontinued a compound in phase I clinical development and selected a new compound for preclinical development
Collaboration partner Wyeth discontinued phase I development of a lead compound, but prolonged the collaboration agreement with the intention to identify new candidate drugs
In October it was announced that Karo Bio focuses operations and reduces staff by 14 people
In October, Leon E. Rosenberg was appointed interim Chairman of the Board of Directors, replacing Per-Olof Mårtensson who resigned for family reasons

Significant events after the end of the reporting period

• A research collaboration with Zydus Cadila has been initiated with the aim to develop novel antiinflammatory compounds targeting the glucocorticoid receptor

For further information, please contact:

Per Olof Wallström, President, tel. +46 8 608 60 20 Per Otteskog, Senior Vice President Investor Relations, tel. +46 8 608 60 18 Erika Johnson, Chief Financial Officer, tel. +46 8 608 60 52

Selected financial information in summary

(MSEK)	October-December		January-December
	2007	2006	2007	2006
Net sales	1.8	2.0	7.5	44.0
Operating expenses	-61.0	-56.2	-223.4	-176.0
- whereof of R&D expenses	-53.4	-46.2	-190.8	-145.0
Profit/loss for the period	-54.7	-53.0	-203.4	-126.1
Loss per share (SEK)	-0.47	-0.58	-1.92	-1.38
Cash flow for the period	-254.2	15.0	105.4	-213.5
Cash, cash equivalents and short term investments at end of period			432.3	231.0
Equity ratio (%)			86.9	83.5
Numbers of shares outstanding ('000)
- weighted average during the period	116,119	91,587	105,897	91,587
- at the end of the period, basic	116,119	91,587	116,119	91,587
- at the end of the period, fully diluted	117,315	92,787	117,315	92,787

About Karo Bio

Karo Bio is a drug discovery and development company specializing in nuclear receptors for the development of novel pharmaceuticals.

The Company has a strong project portfolio with innovative molecules that primarily target metabolic diseases such as diabetes, atherosclerosis and dyslipidemia. In all of these areas there are significant market opportunities and a need for new pharmaceuticals with new mechanisms of action. Karo Bio intends to bring selected compounds within niche therapeutic areas into late stage clinical development and, potentially, to the market. In addition to pursuing niche opportunities, Karo Bio continues to develop compounds aimed at treatment of broad patient populations to clinical proof of concept before out-licensing.

In addition to the proprietary projects, Karo Bio has three strategic collaborations with international pharmaceutical companies and one biotech collaboration for development of innovative therapies for the treatment of common diseases.

Karo Bio is listed on the OMX Nordic Exchange Stockholm since 1998 (Reuters: KARO.ST).

PROJECT	TARGET VALIDATION	DRUG DISCOVERY	PRECLINICAL DEVELOPMENT	PHASE I	PHASE II	PHASE III	NDA
Eprotirome (KB2115) Dyslipidemia
KB3305 Type 2 Diabetes
Selective ERß Agonists Depression, Cancer, Inflammation
Karo Bio/Wyeth LXR Atherosclerosis
Karo Bio/Merck ER Women's Health
Karo Bio/Radius SARM Osteoporosis
Karo Bio/Zydus Cadila Selective GR agonists, Inflammation

Project portfolio

Karo Bio AB Novum, 141 57 Huddinge, Sweden Telephone +46 8 608 60 00 Faximile: +46 8 774 82 61 www.karobio.com

CEO'S COMMENTS ON 2007

In 2007 Karo Bio had set backs in some of the projects. Our partners Merck and Wyeth discontinued development of phase I clinical candidates. However, these collaborations continue with the aim to replace the discontinued compounds with new clinical candidates. Karo Bio also discontinued the development of KB5359 which was intended as a follow-on compound for eprotirome (KB2115). However, Karo Bio's two internal compounds eprotirome and KB3305 have advanced according to plan. In June 2007, a phase IIa clinical study with eprotirome was successfully completed. Later in the year, eprotirome also entered a phase IIb clinical study. In addition, a phase I clinical study was initiated with KB3305, which is intended for treatment of type 2 diabetes.

Good progress with eprotirome

Our compound eprotirome for treatment of dyslipidemia (high blood lipids) showed results in the first phase II study that exceeded our expectations. There was always the risk that the therapeutic window would be small, or that tolerance in patients would be an issue. In spite of giving eprotirome in high doses to patients, tolerance was good and the efficacy profile is very promising.

Our data show that eprotirome gives significant effects, not only on total and LDL cholesterol, but also on triglycerides and lipoprotein(a), an independent risk factor for development of heart disease that have been very difficult to affect with other types of medications.

Recent debate about the value of existing add-on agents to statins highlights that there are significant market opportunities for eprotirome. We are now advancing eprotirome in phase IIb clinical studies where we are adding eprotirome on top of statin treatment. This study will be finalized in the third quarter of 2008 and will be of great importance for partnering and phase III development.

KB3305 has entered phase I/IIa clinical studies

Our compound KB3305, for treatment of type 2 diabetes, has entered clinical development. The formulation has been difficult to make but we made good progress in 2007 regarding bioavailability. By the end of 2008, we expect to have the first results in patients with type 2 diabetes.

Discovery opportunities

The ERbeta receptor offers many clinical opportunities in areas like depression, inflammation and cancer. The objective is to develop orally active and highly selective ERbeta agonists. We are making good progress with competitive compound selectivity, but bioavailability remains a challenge. We are aiming for a candidate drug selection in 2008.

Karo Bio has recently entered into research collaboration with the pharmaceutical company Zydus Cadila, with the purpose to develop anti-inflammatory agents based on modulation of the glucocorticoid receptor. This represents an example of a partnering strategy in discovery where pooling resources and competencies in discovery will mitigate risk and allow Karo Bio to run a larger project portfolio.

Per Olof Wallström President

SIGNIFICANT EVENTS AFTER THE END OF THE REPORTING PERIOD

Karo Bio in new research collaboration with Zydus Cadila

In early 2008, Karo Bio has entered into a research collaboration with Zydus Cadila with the aim to develop new anti-inflammatory compounds with an improved safety and efficacy profile over currently used glucocorticoids. Zydus Cadila discovers, develops, manufactures and markets a broad range of healthcare products. Zydus Cadila is headquartered in Ahmedabad, India, and has 8,000 employees world wide.

RESEARCH AND DEVELOPMENT

Eprotirome (KB2115) – Dyslipidemia

Eprotirome, for treatment of dyslipidemia, is an innovative and first in class liver selective agonist for the thyroid hormone receptor (TR). Eprotirome induces pharmacological effects in the liver, while a normal thyroid state is preserved in the rest of the body. The compound is very potent and apart from liver selectivity, it also has a relative selectivity for TRbeta over TRalpha.

Promising phase IIa data

So far, more than 190 patients have been treated with eprotirome in phase I and phase II clinical studies and the data are consistent. The compound induces a significant lowering of LDL cholesterol in the range of 25-30% and is well tolerated. In addition to LDL lowering, eprotirome also has positive effects on other risk factors such as triglycerides and lipoprotein (a).

Phase IIb ongoing

Preclinical data indicate that eprotirome will be efficacious in combination with statins. A phase IIb clinical study in patients on statin treatment was initiated in the fourth quarter of 2007. The results will be available in the third quarter of 2008.

KB3305 – Type 2 diabetes

Fasting blood glucose levels are elevated in type 2 diabetic patients due to excessive hepatic glucose production. KB3305 is a liver selective glucocorticoid antagonist that suppresses hepatic glucose production, resulting in decreased fasting blood glucose levels and improved levels of HbA1c, a generally accepted marker for diabetes activity. This novel mechanism of action for improvement of glycemic control has the potential to become an important contribution to the treatment of type 2 diabetes.

Attractive compound profile

In preclinical pharmacodynamic and toxicity studies, KB3305 has shown to be both efficacious and safe. In addition to glucose lowering, KB3305 also lowers other important risk factors for type 2 diabetics such as triglyceride and free fatty acid levels in plasma.

Phase I clinical trials progressing

New and improved pharmaceutical formulations have been developed and a phase I/IIa clinical study was initiated in December 2007. The study is conducted in three parts. First, single ascending doses are given to healthy volunteers followed by multiple ascending doses. In the third part of this study, the compound is given repeatedly to patients with type 2 diabetes. This study design will provide preliminary data on efficacy and safety in the target population already in the first clinical study. The study is anticipated to be completed during 2008.

ERbeta selective compounds – Depression, cancer, inflammation

While current anti-depressant drugs are effective for a great number of patients, they are also associated with a delayed onset of action and side effects which limit their use. New therapies are therefore needed. A number of clinical studies indicate that estrogen has anti-depressive effects.

There is also evidence that suggest that estrogen has effects on a number of pathways in the mammalian brain which could lead to a rapid anti-depressant effect. The ERbeta receptor subtype appears to be mediating these effects.

Several clinical opportunities

Karo Bio has shown that ERbeta selective compounds are effective in preclinical depression models. There is also evidence for ERbeta effects in inflammatory conditions and in cancer. Highly selective compounds have been developed and currently the intention is to improve bioavailability. The goal is to select a candidate drug in 2008. Karo Bio is also evaluating additional clinical applications for its ERbeta compounds.

Atherosclerosis – Wyeth Pharmaceuticals

The collaboration with Wyeth Pharmaceuticals, initiated in 2001, is aimed at new treatments of atherosclerosis with the liver X receptor (LXR) as a target. Preclinical studies have shown that compounds which stimulate LXR have anti-atherogenic effects.

Collaboration extended

During clinical phase I it was concluded that the first clinical candidate had an unfavorable profile for further development and it was therefore discontinued in September 2007. Karo Bio and Wyeth remain committed to the research partnership and to advancing a new lead compound under the terms of the collaboration, which in 2007 was extended until August 31, 2008. Other clinical opportunities for LXR agonists will also be explored.

Estrogen Receptors – Merck & Co., Inc.

Estrogen receptors are important targets for several diseases in the field of women's health. The collaboration with Merck was initiated in 1997. The joint drug discovery phase in the collaboration with Merck was concluded in 2002, with Merck responsible for development of selected compounds.

New compound in development

The candidate compound from the collaboration that entered Phase I clinical development in 2006 was discontinued in 2007 due to an unsuitable profile. A back-up compound has been selected for preclinical development with the intention to resume clinical trials.

Osteoporosis – Radius Health, Inc.

In 2006, Karo Bio announced a licensing agreement with Radius, a privately held US based biotech company. Under the terms of the agreement, Radius acquired the exclusive worldwide rights, excluding the Nordic and Baltic countries, to a new class of Selective Androgen Receptor Modulators (SARMs) discovered by Karo Bio, along with specific know-how. Radius is evaluating these SARM compounds in preclinical studies for the treatment of osteoporosis and frailty associated with loss of muscle mass.

Inflammatory diseases - Zydus Cadila

Early in 2008, Karo Bio entered into a research collaboration with Zydus Cadila with the aim to develop new anti-inflammatory glucocorticoid compounds with an improved safety profile.

RESULT AND FINANCIAL POSITION

The operations of the Group are mainly conducted in the parent company. The parent company holds only one subsidiary with assets of MSEK 0.1 (0.1), liabilities of MSEK 0.0 (0.0) and shareholders' equity of 0.1 (0.1). The subsidiary has had no revenue or expenses. During 2006, the former subsidiary Karo Bio USA, Inc. was liquidated resulting in a liquidation gain of MSEK 6.5. The Group's accounts correspond, in all material respects, with that of the parent company why this is not separately disclosed.

Revenue

Net sales for 2007 decreased to MSEK 7.5 as compared to MSEK 44.0 for 2006. The reported net sales for 2007 consist of research payment from collaborations. In 2006, Karo Bio received milestone payments from Wyeth Pharmaceuticals and a technology access payment from Radius Health, Inc.

Net sales for the fourth quarter amounted to MSEK 1.8 as compared to MSEK 2.0 for the same period last year.

Expenses

Operating expenses for the year increased by MSEK 47.4 to MSEK 223.4 (176.0). The increase is mainly attributable to research and development expenses, reflecting that Karo Bio's drug development projects have been advanced further in clinical development. The MSEK 1.5 increase in administrative expenses is mainly attributable to business development activities. Reported expenses for 2007 include one-off restructuring costs in relation to staff reductions of in total MSEK 10.2.

Other operating income and expenses include government grants of MSEK 0.7 from research collaborations within the European Commission's 6th Framework Program.

Operating expenses for the fourth quarter increased by MSEK 4.8 to MSEK 61.0 (56.2). The MSEK 7.2 increase in research and development expenses, which reflects the advancement of the project pipeline, was partly offset by a MSEK 2.3 decrease in administrative expenses. The latter reflects an overall reduction of the Company's internal cost base that was initiated in the fourth quarter. For 2007, about one third of total operating expenses was external sub-contractor and consultant costs. Expenses for the fourth quarter include one-off restructuring costs in relation to staff reductions of in total MSEK 8.0.

Profit/loss

Operating loss for the year amounted to MSEK 215.8 (132.0). The MSEK 83.8 increase is a combined effect of the MSEK 36.5 decrease in net sales and MSEK 47.4 increase in operating expenses. Financial net improved to MSEK 12.4 (5.9). The reported loss for the year increased with MSEK 77.3 to MSEK 203.4 (126.1).

Operating loss for the fourth quarter amounted to MSEK 59.2 (54.2). The reported loss for the quarter amounted to MSEK 54.7 (53.0).

Capital investments

Capital investments in equipment amounted to MSEK 2.4 (1.1) for the year and to MSEK 0.2 (0.1) for the fourth quarter. A follow-on investment of MSEK 3.5 (-) was made in a license from Duke University.

Cash flow

Cash flow from operating activities for the year amounted to MSEK -178.3 (-110.4). The corresponding figure for the fourth quarter amounted to MSEK -39.1 (-36.1).

Financial position

Cash and cash equivalents amounted to MSEK 199.2 (93.8) at the end of the year. Including other short-term investments with duration exceeding 90 days, these assets amounted to MSEK 432.3 (231.0). Net proceeds from the rights issue completed in 2007 was MSEK 387.2, which secures funding of the operations to 2010.

Shareholders equity and per share data

The share capital at the end of the year amounted to MSEK 58.1. The total number of shares amounted to 116,119,192 shares with a ratio value of SEK 0.50. Total consolidated shareholders' equity amounted to MSEK 394.3 after taking into account the loss for the year.

Loss per share for the year, based on the weighted average number of shares outstanding, amounted to SEK 1.92 (1.38). The Group's equity ratio at the end of the year was 86.9 percent (83.5) and equity per share, based on fully diluted number of shares at year end, was SEK 3.36 (2.27).

Organization

By the end of the year, Karo Bio had 62 (73) employees, of which 57 (64) are engaged in research and development. During the forth quarter it was announced that 14 employees had been made redundant in the process of focusing the Company's operations.

Risk factors

There is no guarantee that Karo Bio's research and development will result in commercial success.

There is no guarantee that the clinical trials conducted by Karo Bio, whether independently or in collaboration with its partners, can demonstrate sufficient safety and efficacy to obtain the necessary approvals from regulatory authorities, or that they will result in marketable products.

There can be no guarantee that Karo Bio will develop products that can be patented, that granted patents can be retained, that future inventions will lead to patents, or that granted patents will be sufficient to protect Karo Bio's rights.

There may be a need to turn to the capital market in the future. Both the size and the timing of the Company's potential future capital requirements are dependent on a number of factors, including opportunities to enter into collaboration or licensing agreements and the possibility of achieving success in research and development projects undertaken.

CONDENSED CONSOLIDATED INCOME STATEMENTS (KSEK)

	October-December		January-December
	2007	2006	2007	2006
Net sales	1,811	1,994	7,534	44,021
Operating expenses
Administrative expenses	-7,506	-9,796	-33,320	-31,828
Research and development expenses	-53,438	-46,225	-190,754	-144,969
Other operating income and expenses	-38	-183	712	782
	-60,982	-56,204	-223,362	-176,015
Operating profit/loss	-59,171	-54,210	-215,828	-131,994
Financial net	4,516	1,179	12,393	5,878
Profit/loss after financial items	-54,655	-53,031	-203,435	-126,116
Tax	-	-	-	-
PROFIT/LOSS FOR THE PERIOD	-54,655	-53,031	-203,435	-126,116
Depreciation included in operating expenses	-1,525	-1,267	-5,531	-5,559
Loss per share (SEK) *) - based on weighted average number of shares outstanding, basic and diluted	0.47	0.58	1.92	1.38
Number of shares outstanding (000)
- weighted average during the period	116,119	91,587	105,897	91,587
- at end of period, basic	116,119	91,587	116,119	91,587
- at end of period, fully diluted	117,315	92,787	117,315	92,787

*) The outstanding warrants lead to no dilution of loss per share, as a conversion to shares would lead to a reduced reported loss per share

CONDENSED CONSOLIDATED BALANCE SHEETS (KSEK)

	December 31
	2007	2006
Assets
Licenses and similar rights	2,851	-
Equipment	5,884	8,632
Other current assets	12,580	12,291
Other short-term investments	233,093	137,270
Cash and cash equivalents	199,164	93,779
TOTAL ASSETS	453,572	251,972

Shareholders' equity and liabilities
Shareholders' equity	394,263	210,503
Non-current liabilities	225	712
Current liabilities	59,084	40,757
TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES	453,572	251,972

Karo Bio AB Novum, 141 57 Huddinge, Sweden Telephone +46 8 608 60 00 Faximile: +46 8 774 82 61 www.karobio.com

	October-December		January-December
	2007	2006	2007	2006
Operating activities
Operating profit/loss before financial items	-59,171	-54,210	-215,828	-131,994
Depreciation	1,525	1,267	5,531	5,559
Other items not affecting cash flows	46	45	154	180
	-57,600	-52,898	-210,143	-126,255
Financial items received and paid	5,930	3,227	16,029	7,686
Cash flow from operating activities before changes in working capital	-51,670	-49,671	-194,114	-118,569
Changes in working capital	12,532	13,602	15,818	8,210
Cash flow from operating activities	-39,138	-36,069	-178,296	-110,359
Investing activities
Investment in licenses and similar rights	-	-	-3,460	-
Net investment in equipment	-230	-345	-3,087	-2,043
Net investment in other short-term investments	-214,839	51,430	-96,933	-101,089
Cash flow from investing activities	-215,069	51,085	-103,480	-103,132
Financing activities
Proceeds from new share issues	-	-	387,161	-
Cash flow from financing activities	-	-	387,161	-
Cash flow for the period	-254,207	15,016	105,385	-213,491
Cash and cash equivalents at the end of the period	199,164	93,779	199,164	93,779

CONDENSED CONSOLIDATED CASH FLOW STATEMENTS (KSEK)

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (KSEK)

	October-December		January-December
Equity at the beginning of the period	2007 448,909	2006 263,516	2007 210,503	2006 336,548
Currency translation difference	-	1	-	1
Employee stock option program - value of employee services	9	17	34	70
Share issuances	-	-	387,161	-
Profit/loss for the period	-54,655	-53,031	-203,435	-126,116
Equity at the end of the period	394,263	210,503	394,263	210,503

EQUITY DATA

		December 31
	2007	2006
Equity ratio	86.9%	83.5%
Equity per share at the end of period – basic, SEK	3.40	2.30
Equity per share at the end of period - diluted, SEK	3.36	2.27

Accounting and valuation principles

This interim report has been prepared in accordance with International Accounting Standards 34 for interim reports and International Financial Reporting Standards IFRS as adopted by the EU. The accounting and valuation principles applied are unchanged compared to those applied in the Annual Report for 2006. A number of new or updated accounting standards and interpretations are applicable for financial years beginning January 1, 2007 or later. These accounting standards and interpretations are deemed not to have a significant impact on the consolidated financial statements other than presentational or disclosures presented in the reports. In addition, there are certain accounting standards and interpretations that are not relevant to Karo Bio.

Amounts are expressed in KSEK (thousands of Swedish Kronor) unless otherwise indicated. MSEK is an abbreviation for millions of Swedish Kronor. Amounts or figures in parentheses indicate comparative figures for the corresponding period last year.

Annual general meeting

The Board of Directors intends to convene the annual general meeting on Friday April 25, 2008 at 2:00 p.m. in Wenströmsalen at IVA, Royal Swedish Academy of Engineering Sciences, on Grev Turegatan 16, Stockholm, Sweden. Notice for the meeting will be available on Karo Bio's website at www.karobio.com/agm.

In accordance with the Board's policy for dividend, the Board of Directors will propose that no dividend be paid for the financial year 2007.

Scheduled releases of financial information

•	Annual report 2007 on web site	April 7, 2008
•	Annual general meeting	April 25, 2008
•	Interim report January - March 2008	April 24, 2008
•	Interim report April - June 2008	August 5, 2008
•	Interim report July - September 2008	October 23, 2008
•	Year-end report 2008	February 6, 2009

Distribution of the annual report to shareholders who have so requested is planned to start on April 7, 2008. Financial reports, press releases and other information are available on Karo Bio's web site www.karobio.com. It is also possible to download and subscribe to Karo Bio's financial reports and press releases on the web site at www.karobio.com/finance. Financial reports are available on the web site upon release.

Legal disclaimer

This financial report includes statements that are forward looking and actual results may differ materially from those stated. In addition to the factors discussed, among other factors that may affect results are development within research programs, including development in preclinical and clinical trials, the impact of competing research programs, the effect of economic conditions, the effectiveness of the Company's intellectual property rights and preclusions of potential third party's intellectual property rights, technological development, exchange rate and interest rate fluctuations, and political risks.

Huddinge February 7th, 2008

The Board of Directors

This year-end report has not been subject to review by the Company's auditors.

Analyst coverage

ABG Sundal Collier, Stockholm Alexander Lindström

Danske Markets, Stockholm Mattias Häggblom

D. Carnegie, Stockholm Camilla Oxhamre

Handelsbanken Capital Markets, Stockholm Erik Hultgård

Kaupthing Bank, Stockholm Benjamin Nordin

Redeye, Stockholm Björn Andersson

Karo Bio AB (publ.), Novum, 141 57 Huddinge, Sweden Telephone: 08-608 60 00 Faximile: 08-774 82 61 Corporate registration number 556309-3359 Website: www.karobio.com

The information is of a nature which Karo Bio shall need to disclose according to the Exchange and Clearings Operations Act and/or the law covering trade with financial instruments. The information was disclosed February 7, 2008, 08:30 am