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.

For further information, please contact Per Bengtsson, CEO Telephone: +46 8 608 6020 E-mail: [email protected] Henrik Palm, CFO Telephone: +46 8 608 6076 or +46 70 540 40 14 E-mail: [email protected]

Karo Bio AB (publ) Novum 141 57 Huddinge Sweden Telephone: +46 8 608 60 00 Corp.reg.nr. 556309-3359 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.

Summary of key financial data

(MSEK)		July-September		January -September	January-December
	2013	2012	2013	2012	2012
Net sales	21.2	8.1	37.4	24.6	33.2
Operating expenses	-14.7	-20.9	-56.2	-115.3	-132.9
- of which R&D expenses	-9.8	-16.4	-40.7	-95.0	-107.9
Net earnings for the period	6.5	-12.6	-18.7	-89.3	-98.3
Earnings per share (SEK)	0.01	-0.03	-0.04	-0.23	-0.25
Cash flow from operating activities	-1.4	-25.1	-25.5	-107.7	-127.8
Cash and cash equivalents and other short term investments at the period end	32.1	50.0	32.1	50.0
					54.1

About Karo Bio

Karo Bio is a research and development company focused on innovative drugs for important medical needs. The world-leading knowledge of nuclear receptors as target proteins for the development of pharmaceuticals and their related mechanisms of action, are utilized for developing novel, more effective and safer pharmaceuticals. Karo Bio is active in preclinical development focused on the areas of neuropsychiatry, inflammation, autoimmune diseases and cancer. Karo Bio is based in Huddinge, Sweden. The company has around 39 employees and is listed on NASDAQ OMX Stockholm.

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

PROJECT PORTFOLIO

ERbeta selective compounds – a platform with many opportunities

The estrogen receptor (ER) is activated by estrogen and regulates a number of functions in the body. Estrogen has several positive effects but its medical use has been limited by the associated increased risk for uterine and breast cancer as well as thrombosis. These risks are mainly linked to the estrogen receptor's ERalpha subtype, while ERbeta, which Karo Bio was involved in discovering in the 1990's, seems to account for many of the positive effects of estrogen without the side effects. For ERbeta selective compounds there are clinical opportunities within a number of fields.

Karo Bio's efforts in the field have resulted in a world-leading position and a platform with many promising ERbeta selective compounds. These have slightly different properties and may thus be suitable for different indications.

The first drug candidate within the program KB9520, has shown good efficacy in preclinical models for some forms of cancers. Karo Bio is actively seeking financing to continue the development of the project, primarily through public grants.

Since 2011, Karo Bio has a development project for ERbeta focused on the autoimmune disease multiple sclerosis (MS). In preclinical models, ERbeta agonists have demonstrated protective effects on nerve cells, which is very promising since damaged myelin are involved in the symptoms of the disease and disability in MS. If treatment with ERbeta agonists proves capable of repairing damaged myelin also in patients this will represent a significant breakthrough in the treatment of patients with progressive MS, since current therapies only aim at reducing inflammation at early stages of the disease.

To further investigate ER-beta agonists therapeutic effect, Karo Bio performed additional studies in disease models in the beginning of 2013. The new results indicate that ERbeta has positive effect by protecting and repairing nerve tissue. An enhanced presentation has been put together that is used when presenting the project to potential partners.

In parallel, Karo Bio continues the preclinical development of the project and in September the U.S. National MS Society granted the project 0.5 million dollars in funding with conditional repayment.

ER Women's Health / MK-6913 – collaboration with Merck & Co., Inc.

A collaboration with Merck (known as MSD outside the US and Canada) regarding estrogen receptors was initiated in 1997 and the joint drug discovery phase was concluded in 2002. In 2010, Merck terminated the development of MK-6913 for hot flashes in postmenopausal women due to lack of efficacy, and in the fourth quarter of 2012 Merck informed that it does not intend to continue the development of the compound. There have not been any safety related issues reported for the compound. Karo Bio is exploring the possibility to regain the rights to the compound in connection with the termination of the contractual relationship with Merck.

RORgamma – a new opportunity to treat autoimmune diseases

Recent research reveals that the nuclear receptor RORgamma may play a critical role in the development of autoimmune disease, such as rheumatoid arthritis, inflammatory bowel disease and psoriasis. In 2010, Karo Bio initiated a research program to develop and evaluate compounds that inhibit RORgamma activity, which may prove to be a novel concept for a potential new treatment alternative for autoimmune diseases. RORgamma has been shown to control the maturation of, and activity in, a certain type of immune cell, believed to drive inflammatory and debilitating processes in such diseases.

In December 2011, Karo Bio entered into a research collaboration with Pfizer for RORgamma to discover and develop new compounds for the treatment of autoimmune diseases. Pfizer has exclusive

rights for products developed as a result of the collaboration.

Initially, Pfizer assumed responsibility to fully fund research for two years. In June 2013, Pfizer decided to extend the research funding agreement one year further until 2015. In September 2013, Karo Bio achieved a project milestone, triggering a compensation of 2 million USD. The agreement is expected to provide Karo Bio total revenue of 7 million USD in 2013, equivalent to SEK 44 million. To date during 2013, Karo Bio has recognized revenue of approximately SEK 37 million from the collaboration. The project is advancing.

GR inflammation – potentially a new broad anti-inflammatory drug

Glucocorticoids are used to treat various inflammatory diseases such as rheumatoid arthritis, inflammatory bowel disease, psoriasis and asthma. Glucocorticoids are powerful antiinflammatory drugs but negative side effects on for example metabolism and bone have restricted their use. The separation of the beneficial effects from the other side effects of glucocorticoids has long been regarded as medically important but at the same time hard to achieve. Hence there is a large need for safer treatments and a significant commercial market.

Karo Bio's project aims to design novel selective glucocorticoids that have as powerful antiinflammatory properties as conventional glucocorticoid steroids, such as cortisone and other similar substances, but with significantly lower side effects and thereby the potential for broader use. Karo Bio has discovered a previously undescribed mechanism of glucocorticoid regulation that may have desired properties. The development work is focusing on this discovery and evaluation is ongoing to identify compounds suited for further development as candidate drugs.

NURR1 – a new way to treat autoimmune diseases

In the spring of 2012, Karo Bio started preparatory development work on the receptor NURR1. The receptor controls the development of regulatory T cells (Treg) that monitor and control other T cell activity. A low number of Treg cells has been associated with autoimmune diseases such as multiple sclerosis, rheumatoid arthritis, type 1 diabetes and lupus. A drug that stimulates the NURR1 receptor and therefore also regulatory T cells can be expected to have positive impact on autoimmune diseases. There is a biological drug (antibody) under development in clinical phase II by Biotest AG in collaboration with Abbott that demonstrates the potential of activating regulatory T cells for patients with autoimmune diseases. Initial discussions with large pharmaceutical companies verify that there is a clear commercial interest in NURR1 and Karo Bio's assessment is that it may have potential to develop into a hot spot, creating an opportunity to enter into a license agreement at an early stage. The work on this receptor is at a very early stage.

Nur77

In parallel with NURR1, Karo Bio has also initiated some investigations of Nur77, a similar receptor to NURR1. There are substantial synergies with working in parallel with the mechanisms of these receptors. It is estimated that there are good prospects for Nur77 to become a commercially viable area at an early stage of development.

Collaboration with 4D Science on Fibrosis

In September 2013, Karo Bio AB and 4D Science GmbH initiated a research collaboration to develop novel treatments for fibrotic diseases, based on a finding by Dr Jörg Distler, CEO of the German company. At outset, the collaboration focus on the generation of additional data to validate a specific nuclear receptor as a target at fibrosis, and to demonstrate that this receptor is druggable, thus enabling pharmaceutical treatment. Karo Bio will conduct the collaboration within its present operations. The parties will share costs for the collaboration as well as any resulting income.

LXR inflammation – collaboration with Pfizer

The collaboration with Wyeth LCC, today a wholly owned subsidiary of Pfizer Inc., was initiated in 2001 and targets the liver X receptor (LXR) for the treatment of inflammatory disorders. From September 2009, Wyeth took on full responsibility for all research and development activities under the collaboration.

FINANCIAL REPORT

Consolidated earnings

Net sales for the nine month period were MSEK 37.4 (24.6), whereof the third quarter MSEK 21.2 (8.1). Sales are in essence attributable to the collaboration with Pfizer on RORgamma. The funding from U.S. National MS Society will be recognized as revenue as the project progress, starting in the fourth quarter.

Operating expenses for the first nine months decreased by MSEK 59.1 to MSEK 56.2 (115.3). Research and development expenses accounted for 72 per cent of the costs for the nine month period, after a decrease to MSEK 40.7 (95.0), whereof the third quarter MSEK 9.8 (16.4). The cost reduction is attributable partly to decreased external project expenses as a result of the termination of the eprotirome program, and partly to the cost reductions. Administrative expenses for the nine month period decreased to MSEK 15.3 (20.4), whereof the third quarter MSEK 4.3 (4.5).

The consolidated operating loss for the nine month period decreased to MSEK 18.9 (90.7). The third quarter produced an operating profit of MSEK 6.5 (-12.8). Financial net for the nine month period amounted to MSEK 0.1 (1.4). Net loss for the nine month period improved to MSEK 18.7 (89.3), with a profit for the third quarter of MSEK 6.5 (-12.6).

Capital investments and consolidated cash flow

Capital investments for the nine month period amounted to MSEK 0.7 (0.6) and comprise mainly investments in laboratory and IT equipment.

Cash flow from operating activities for the nine month period amounted to MSEK -25.5 (-107.7), whereof the third quarter MSEK -1.4 (-25.1).

Financial position

Consolidated cash and cash equivalents amounted to MSEK 32.1 (5.0) at the end of the period. Including other short-term investments with durations exceeding 90 days, liquid assets amounted to MSEK 32.1 (50.0), which corresponds to a change in total cash position and other short-term investments of MSEK -22.0 (-108.5) in the year. A milestone from the collaboration with Pfizer and an installment of the grant from the U.S. National MS Society amounting to MSEK 14.4 was received during the period.

The company's equity credit facility can be utilized when the share price amounts to or exceeds SEK 0.75, a condition which was not fulfilled at the time of the report. The option to use the credit facility expires in the fourth quarter.

Total shareholders' equity amounted to MSEK 27.2 (26.6) taking into account the period's earnings. In total, there were 495,947,369 shares outstanding, each with a pair value of SEK 0.02.

Loss per share amounted to SEK 0.04 (0.23). The Group's equity ratio at the end of the period was 58.8 (41.3) per cent and equity per share, based on fully diluted number of shares at the end of the period, was SEK 0.05 (0.07).

Employees

At period end, Karo Bio had 39 (44) employees, of whom 34 (38) are engaged in research and development and 5 (6) in administrative roles.

CONSOLIDATED INCOME STATEMENT SUMMARY (KSEK)

		July-September		January -September
	2013	2012	2013	2012	2012
Net sales	21,168	8,143	37,377	24,619	33,173
Operating expenses
Administration	-4,329	-4,492	-15,330	-20,407	-25,116
Research and development	-9,802	-16,404	-40,697	-95,000	-107,857
Other operating income/expenses	-530	1	-207	79	51
	-14,661	-20,895	-56,234	-115,328	-132,922
Operating profit/loss	6,507	-12,752	-18,857	-90,709	-99,749
Financial net	12	112	125	1,409	1,495
Earnings after financial items	6,519	-12,640	-18,732	-89,300	-98,254
Tax	-	-	-	-	-
NET EARNINGS FOR THE PERIOD	6,519	-12,640	-18,732	-89,300	-98,254
Net earnings for the period attributable to:
Shareholders of the parent company	6,519	-12,640	-18,732	-89,300	-98,254
Depreciation included in operating expenses	-345	-405	-1,016	-1,375	-1,748
Earnings per share (SEK) 1)	0.01	-0,03	-0.04	-0.23	-0.25
Number of shares outstanding (000)	495,947	389,812	495,947	389,812	389,812

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (KSEK)

	July-September		January -September		January December
	2013	2012	2013	2012	2012
NET EARNINGS FOR THE PERIOD	6,519	-12,640	-18,732	-89,300	-98,254

Other comprehensive income for the year, net of tax	-	-	-	-	-
TOTAL COMPREHENSIVE INCOME FOR THE
PERIOD	6,519	-12,640	-18,732	-89,300	-98,254

Total comprehensive income attributable to:
Shareholders of the parent company	6,519	-12,640	-18,732	-89,300	-98,254

CONSOLIDATED STATEMENT OF FINANCIAL POSITION (KSEK)

		September 30
	2013	2012	2012
Assets
Equipment	3,476	4,268	3,771
Other current assets	10,670	10,169	19,893
Financial assets at fair value through profit or loss	-	44,990	26,049
Cash and cash equivalents	32,119	5,012	28,024
TOTAL ASSETS	46,265	64,439	77,737

Shareholders' equity and liabilities
Shareholders' equity	27,185	26,622	45,917
Current liabilities	19,080	37,817	31,820
TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES	46,265	64,439	77,737

CONSOLIDATED STATEMENT OF CASH FLOWS (KSEK)

	July-September			January -September
	2013	2012	2013	2012	2012
Operating activities
Operating income/loss before financial items	6,507	-12,752	-18,857	-90,709	-99,749
Depreciation	345	405	1,016	1,375	1,748
	6,852	-12,347	-17,841	-89,334	-98,001

Financial items received and paid	-4	246	31	1,915	1,907
Cash flow from operating activities before changes in working capital	6,848	-12,101	-17,810	-87,419	-96,094
Changes in working capital	-8,201	-13,015	-7,719	-20,292	-31,706
Cash flow from operating activities	-1,353	-25,116	-25,529	-107,711	-127,800
Investing activities
Net investment in equipment	-302	-153	-785	-282	-184
Net investment in other short-term investments	10,000	15,842	26,096	69,252	88,319
Cash flow from investing activities	9,698	15,689	25,311	68,970	88,135
Financing activities
Net proceeds from rights issue	-	-	7,665	-	25,000
Transaction costs rights issue 1)	-	-	-3,352	-	-1,064
Cash flow from financing activities	-	-	4,313	-	23,936

Cash flow for the period	8,345	-9,427	4,095	-38,741	-15,729
Cash and cash equivalents at the beginning of the period	23,774	14,439	28,024	43,753	43,753
Cash and cash equivalents at the end of the period	32,119	5,012	32,119	5,012	28,024

1) Comprises the portion of transaction related costs that have been paid in the period.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (KSEK)

Attributable to shareholders of the parent company	Share capital	Other contributed capital	Accumulated losses	Total
Amount at January 1, 2012	193,532	980,747	-1,058,357	115,922
Loss for the period	-	-	-89,300	-89,300
Reduction of share capital	-185,791	-	185,791	0
Amount at September 30, 2012	7,741	980,747	-961,866	26,622

Amount at January 1, 2013	7,741	1,008,996	-970,820	45,917
Loss for the period	-	-	-18,732	-18,732
Current rights issue	2,178	-2,178	-	0
Amount at September 30, 2013	9,919	1,006,818	-989,552	27,185

KEY EQUITY DATA

	September 30		December 31
	2013	2012	2012
Equity ratio	58.8%	41.3%	59.1%
Equity per share at the end of period – basic, SEK	0.05	0.07	0.12
Equity per share at the end of period - diluted, SEK	0.05	0.07	0.12

The Parent Company

Net sales for the Parent Company for the nine month period amounted to MSEK 37.4 (24.6), whereof the third quarter MSEK 21.2 (8.1). Loss after financial items for the parent company was MSEK 18.7 (89.6) for the nine month period, with a profit for the third quarter of MSEK 6.5 (-12.6).

The Parent Company's capital investments in equipment for the nine month period amounted to MSEK 0.7 (0.6). Cash, cash equivalents and other short term investments for the parent company amounted to MSEK 32.1 (49.9) at the end of the period.

PARENT COMPANY INCOME STATEMENT SUMMARY (KSEK)

	July-September			January -September
	2013	2012	2013	2012	2012
Net sales	21,168	8,143	37,377	24,619	33,173
Operating expenses
Administration	-4,329	-4,492	-15,330	-20,407	-25,116
Research and development	-9,801	-16,405	-40,715	-95,351	-108,207
Other operating income/expenses	-530	1	-207	79	51
	-14,660	-20,896	-56,252	-115,679	-133,272
Operating income/loss	6,508	-12,753	-18,875	-91,060	-100,099
Financial net	16	118	137	1,417	1,507
Earnings after financial items	6,524	-12,635	-18,738	-89,643	-98,592
Tax	-	-	-	-	-
NET EARNINGS FOR THE PERIOD	6,524	-12,635	-18,738	-89,643	-98,592

Depreciation included in operating expenses	-325	-376	-956	-1,171	-1,515

PARENT COMPANY BALANCE SHEET SUMMARY (KSEK)

	September 30	December 31
	2013	2012	2012
Assets
Equipment	3,272	3,976	3,509
Shares in group companies	150	150	150
Other current assets	10,670	10,169	19,893
Financial assets at fair value through profit or loss	-	44,990	26,049
Cash and cash equivalents	32,059	4,952	27,964
TOTAL ASSETS	46,151	64,237	77,565

Shareholders' equity and liabilities
Total restricted equity	9,919	7,741	9,919
Total non-restricted equity	17,275	18,891	36,013
Current liabilities	18,957	37,605	31,633
TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES	46,151	64,237	77,565

OTHER INFORMATION

Going concern

The company believes that there is a basis for continuing as a going concern for 12 months from the balance sheet date. Without additional funding or revenue, existing cash are expected to finance the current scope of operations until approximately the end of the second quarter 2014. Under these same conditions, deemed equity at the end of the first quarter 2014 may be less than 50 per cent of the registered share capital.

The company believes that there are opportunities for additional revenue during the upcoming quarters. Should this not occur, be postponed or be of limited size, the operations will require additional injection of capital during the first quarter 2014.

Significant events after the end of the reporting period

There have been no significant events to report on after the end of the reporting period.

Annual General Meeting 2014

Karo Bio's Annual General Meeting will be held in Huddinge, Sweden on May 8, 2014.

Nominating Committee

According to the principles established by the Annual General Meeting for appointment of Nominating Committee, the individuals named below have been assigned to comprise the Nominating Committee for the 2014 Annual General Meeting.

Lars Magnusson
Per-Anders Johansson
Thomas Andersson
Jan Lundström
Göran Wessman

Shareholders may submit their proposals to the Nominating Committee in writing, addressed to: Nominating Committee, Karo Bio AB, Novum, 141 57 Huddinge. The Nominating Committee's mandate is in effect until a new Nominating Committee has been appointed, in accordance with the decision to appoint Nominating Committee at the 2014 Annual General Meeting.

Risk factors

There is no guarantee that Karo Bio's research and development will result in commercial success. 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 is no guarantee that Karo Bio will obtain approvals on its clinical trials applications or 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. It cannot be excluded that the approval process at regulatory level will involve requirements for increased documentation and thereby increased costs and delays in the projects or even discontinuation of projects. Increased total development costs and development time of a project could result in an increased project risk and reduce the product's potential to successfully reach the commercial stage or reduce the time from product launch to patent expiry.

There may be a need to turn to the capital market for additional funding 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 progress made in research and development projects undertaken. There is a risk that the required funding of the operations will not be available when needed or at a reasonable cost.

Accounting and valuation principles

This interim report has been prepared in accordance with International Accounting Standards (IAS) 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 2012. A number of new or updated accounting standards and interpretations are applicable for financial years beginning January 1, 2013 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.

For the Parent Company this interim report has been prepared in accordance with the Swedish Annual Accounts Act and compliance with RFR 2 Accounting for legal entities. The accounting principles applied for the parent company differ from those applied for the Group only regarding accounting of leasing agreements.

Amounts are expressed in KSEK, an abbreviation for 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.

Scheduled releases of financial information

Year-end report 2013	February 13, 2014
Annual Report 2013	March 2014
Annual General Meeting	May 8, 2014
Interim Report January-March 2014	May 8, 2014

Financial reports, press releases and other financial 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.

Legal disclaimer

This financial report includes statements that are forward looking and actual future 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.

October 24, 2013

Per Bengtsson

CEO

Report of Review of Interim Financial Information

Introduction

We have reviewed this report for the period 1 January 2013 to 30 September 2013 for Karo Bio AB (publ). The board of directors and the CEO are responsible for the preparation and presentation of this interim report in accordance with IAS 34 and the Swedish Annual Accounts Act. Our responsibility is to express a conclusion on this interim report based on our review.

Scope of Review

We conducted our review in accordance with the Swedish Standard on Review Engagements SÖG 2410, Review of Interim Report Performed by the Independent Auditor of the Entity. A review consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing, ISA, and other generally accepted auditing standards in Sweden. The procedures performed in a review do not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the interim report is not prepared, in all material respects, in accordance with IAS 34 and the Swedish Annual Accounts Act, regarding the Group, and with the Swedish Annual Accounts Act, regarding the Parent Company.

Emphasis of matter

Without qualifying our conclusion above, we draw attention to page 11 of the interim report, which describes that, e g, the addition of sufficient funds in the form of additional revenue or capital injections is necessary to continue as a going concern.

Stockholm, 24 October 2013

PricewaterhouseCoopers

Håkan Malmström

Authorised Public Accountant