Karo Pharma AB — Interim / Quarterly Report 2016

Jul 15, 2016

INTERIM REPORT JANUARY – JUNE 2016

THE PERIOD AND THE SECOND QUARTER

• o Net sales amounted to MSEK 165.6 (2.3), whereof the second quarter MSEK 83.3 (1.8)
• o Earnings before depreciation were MSEK 12.6 (-36.1), whereof the second quarter MSEK 3.3 (-21.2). The second quarter includes oneoff costs for cost reductions in acquired companies amounting to MSEK 6.
• o Earnings per share amounted to SEK 0.00 (-0.91), whereof the second quarter SEK -0.04 (-0.53)
• o Cash and cash equivalents at period end amounted to MSEK 157.6 (19.1)
• o A share issue of MSEK 250 was carried out and, due to the high interest garnered, a further share issue of MSEK 30 was implemented
• o The Board of Directors proposes an incentive program to be resolved upon on an extra ordinary general meeting on 21 July

SIGNIFICANT EVENTS AFTER PERIOD END

o No significant events after period end

COMMENT ON OPERATIONS KARO PHARMA CONTINUES TO SHOW PROFITS

Karo Pharma has achieved an established business with stable earnings potential, which is also reflected in the accounts for the second quarter. The previously acquired companies and products have been integrated, which is shown in the cost level of the quarter. Implemented cost adjustments and synergies achieved have created an organization well equipped to manage further products. Therefore, we continue the work to identify and evaluate different types of potential acquisitions.

The intention is to create a balance between pre-clinical projects, innovative business ventures close to market and established operations with stable earnings potential. New products are expected to be sourced mainly through acquiring companies and product rights as well as through collaborations with other pharmaceutical and development companies. In the Health Care area both in Sweden and abroad, there are a large number of attractive acquisition opportunities that may fit Karo Pharma's new direction.

During the second quarter, Karo Pharma carried out a share issue amounting to MSEK 250 that were over-subscribed at 210 percent. Due to the high interest in the

share issue, a further share issues of MSEK 30 was performed. This means that the company is well positioned to continue the transformation to become a company with both product development and sales and marketing of products. In the future, we expect to be able to combine bank financing with cash flow to finance acquisitions.

In the preclinical projects, Cancer and Multiple Sclerosis, the focus is on advancing the commercial discussions ongoing. We still expect to be able to tie partners to us. The RORgamma project is advancing according to plan. Karo Pharma is entitled to compensation of up to more than MUSD 200 when the project reaches certain development and sales milestones. Moreover, several other product development projects may reach the market during next year.

The Board of Directors considers it beneficial for the company and its shareholders that Group employees have a long term interest in increasing the value of the company's shares and focuses its work on promoting such a development. In order to strengthen this interest, the Board proposes an incentive program for employees and senior executives. An Extraordinary General Meeting will be held on July 21 to resolve on the issue.

Anders Lönner Executive Chairman

KEY FINANCIAL DATA

(MSEK)	April-June			January-June
	2016	2015	2016	2015	2015
Net sales	83.3	1.8	165.6	2.3	69.1
Gross earnings	38.1	1.8	75.5	2.3	28.6
Operating expenses	-34.8	-23.0	-62.9	-38.3	-100.3
Earnings before depreciation	3.3	-21.2	12.6	-36.1	-71.7
Earnings before depreciation %	4.0	N.A.	7.6	N.A.	N.A.
Earnings before tax	-2.9	-21.5	-1.0	-36.9	-75.3
Earnings per share (SEK)	-0.04	-0.53	0.00	-0.91	-1.46
Cash flow from operating activities 1)	-39.7	-13.0	-41.7	-32.4	-52.2
Cash and cash equivalents at the period end	157.6	19.1	157.6	19.1	76.5

1) Excluding settlement of non-recurrent liabilities, cash flow from operating activities

from January to June 2016 amounted MSEK -15

SALES AND EARNINGS

Net sales for the first six months were MSEK 165.6 (2.3), whereof the second quarter MSEK 83.3 (1.8). Since September 2015, net sales comprise mainly of product sales in acquired companies.

Cost of goods sold during the period was MSEK 90.2 (-), whereof the second quarter MSEK 45.2 (-), resulting in gross earnings of MSEK 75.5 (2.3), whereof the second quarter MSEK 38.1 (1.2) and a gross margin of 45.6 per cent for the period and 45.7 per cent for the quarter.

Operating costs amounted to MSEK 62.9 (38.3), whereof the second quarter MSEK 34.8 (23.0). Selling expenses was MSEK 46.0 (-), whereof the second quarter MSEK 25.7 (-). Research and development, which previously represented the majority of costs, decreased to MSEK 2.5 (24.7), whereof the second quarter MSEK 0.9 (16.9).

Earnings before deprecations and net earnings were MSEK 12.6 (-36.1) and MSEK -0,1 (-36.9) respectively, whereof the second quarter MSEK 3.3 (-21.2) and MSEK 2.9 (-21.5), respectively. In conjunction with cost reductions in acquired companies, the result for the second quarter has been charged with one-off costs of MSEK 6.

Earnings per share was SEK 0.00 (-0.91), whereof the second quarter SEK -0.04 (-0.53).

CASH FLOW AND FINANCIAL POSITION

Cash flow from operating activities, including settlement of non-recurrent liabilities of MSEK 26, was MSEK -41.7 (-32.4), whereof the second quarter MSEK -39.7 (-13.0). The net investment in intangible assets of MSEK 62,3 is mainly related to payment of the rights to Allevo. Cash and cash equivalents at period end amounted to MSEK 157.6 (19.1).

Total shareholders' equity amounted to MSEK 621.6 (24.0) taking into account the period's earnings, translating into equity per share of SEK 9.77 (0.59). The equity ratio was 82.9 (52.7) percent.

THE PARENT COMPANY

Net sales for the Parent Company for the first six months amounted to MSEK 14.0 (2.3), whereof the second quarter MSEK 4.9 (1.8). Loss after financial items was MSEK

-11.4 (-36.8), whereof the second quarter MSEK -7.3 (-21.5). Cash and cash equivalents at period end amounted to MSEK 141.6 (18.9).

SIGNIFICANT EVENTS AFTER PERIOD END

No significant events after period end.

RISKS

The Group is exposed to a number of risks and insecurities. Wrongful, delayed or missing deliveries form the Group's suppliers mean that the Group's deliveries also may be delayed, inadequate or wrong. The Group is also exposed to exchange rate fluctuations. It is not guaranteed that Group operations will not be subject to restrictions from governmental agencies or that the Group will receive necessary future authority approvals. There is a risk that the Group's ability to develop products decreases or that the products will not be launched according to set schedules. These risks may involve decreased sales and a negative effect on Group earnings.

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 ac

counting and valuation principles applied are unchanged compared to those applied in 2014.

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.

AUDITOR'S REVIEW

This interim report has not been subject to review by Karo Pharma's auditors.

TELEPHONE CONFERENCE /

AUDIOCAST

Next telephone conference / audiocast will be held on October 27, 2016 in connection with the presentation of the report for the third quarter.

FINANCIAL REPORTS

Interim Report Jan-Sept Oct 27, 2016 Year-End Report 2016 Feb 16, 2017

Assurance

The Board of Directors and the President and CEO certify that the Interim Report gives a true and fair overview of the Parent Company's and Group's operations, their financial position and results of operations, and describes significant risks and uncertainties facing the Parent Company and other companies in the Group.

Stockholm on July 15, 2016

Anders Lönner Maria Sjöberg Executive Chairman CEO

Thomas Hedner Per-Anders Johansson Jean Lycke Board member Board member Board member

FOR FURTHER INFORMATION, PLEASE CONTACT:

Henrik Palm, CFO, +46 70 540 4014 or henrik.palm@karopharma.se

ABOUT KARO PHARMA

Karo Pharma is a healthcare company that develops and markets products to pharmacies and directly to healthcare providers. The share is listed on Nasdaq Stockholm.

The information in this report is such that Karo Pharma is required to disclose under the Swedish Securities Market Act. The information was disclosed on July 15, 2016 at 8.00 a.m. CET.

					Full
		April-June		January-June
	2016	2015	2016	2015	2015
Net sales	83 310	1 833	165 643	2 258	69 095
Cost of sales	-45 171	-	-90 178	-	-40 494
Gross earnings	38 139	1 833	75 465	2 258	28 601
Operating expenses
Distribution costs	-25 725	-	-46 042	-	-25 414
Administration	-8 095	-6 076	-14 279	-13 593	-27 060
Research and development	-935	-16 883	-2 484	-24 650	-33 198
Other operating income/expenses	-78	-51	-72	-99	-14 639
	-34 833	-23 010	-62 877	-38 342	-100 311
Earnings before depreciation	3 306	-21 177	12 588	-36 084	-71 710
Depreciation	-4 741	-369	-9 460	-815	-3 153
Earnings after depreciation	-1 435	-21 546	3 128	-36 899	-74 863
Financial net	-1 420	1	-3 227	9	-434
Earnings before Tax	-2 855	-21 545	-99	-36 890	-75 297
Tax	-	-	-	-	-2 894
NET EARNINGS	-2 855	-21 545	-99	-36 890	-78 191
Net earnings attributable to:
Shareholders in the parent company	-2 842	-21 545	-77	-36 890	-77 632
Non-controlling interests	-13	-	-22	-	-559
Earnings / loss per share (SEK)	-0,04	-0,53	0,00	-0,91	-1,46
Number of shares issued (000)	63 604	40 385	63 604	40 385	53 465

CONSOLIDATED INCOME STATEMENT SUMMARY (KSEK)

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (KSEK)

	April-June		January-June		Full year
	2016	2015	2016	2015	2015
NET EARNINGS FOR THE YEAR	-2 855	-21 545	-99	-36 890	-78 191
Other comprehensive income for the year, net of tax
Exchange rate differences	-634	-	-414	-	-315
TOTAL COMPREHENSIVE INCOME	-3 489	-21 545	-513	-36 890	-78 506
Total comprehensive income attributable to:
Shareholders of the parent company	-3 476	-21 545	-491	-36 890	-77 947
Non-controlling interests	-13	-	-22	-	-556

		30 June
	2016	2015	2015
Intangible assets	472 506	19 767	475 655
Equipment	5 272	1 871	5 701
Other financial assets	21	21	21
Other current assets	108 339	4 858	84 670
Cash and cash equivalents	157 644	19 087	76 490
TOTAL ASSETS	743 782	45 604	642 537
Shareholders' equity	621 635	24 017	364 581
Deferred tax 1)	31 661	-	31 740
Non-current liabilities	21 026	-	21 026
Current liabilities	69 460	21 587	225 190
TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES	743 782	45 604	642 537

1) Attributable to depreciable product rights in connection with business acquisitions

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (KSEK)

Attributable to shareholders of	Share	Other contributed	Accumulated	Non-con trolling in
the parent company	capital	capital	losses	terest	Total
Amount at January 1, 2015	13 525	1 079 562	-1 052 180	-	40 907
Total comprehensive income for the period	-	-	-36 890	-	-36 890
Issue of shares related to business combination	270	19 730	-	-	20 000
Amount at June 30, 2015	13 795	1 099 292	-1 089 070	0	24 017
Amount at January 1, 2016	19 970	1 473 614	-1 130 127	1 124	364 581
Total comprehensive income for the period	-	-	-491	-13	-504
Rights issue, net of transaction costs	5 592	251 966	-	-	257 558
Amount at June 30, 2016	25 562	1 725 580	-1 130 618	1 111	621 635

CONSOLIDATED STATEMENT OF CASH FLOWS (KSEK)

	April-June		January-June		Full year
	2016	2015	2016	2015	2015
Operating activities
Operating income/loss before financial items	-1 435	-21 546	3 128	-36 899	-74 863
Depreciation	4 741	369	9 460	815	3 153
Other items not affecting liquid assets	-705	1 381	-587	1 386	4 996
	2 601	-19 796	12 001	-34 698	-66 714
Financial items received and paid	-3 072	3	-3 227	7	-322
Cash flow from operating activities before changes in
working capital	-471	-19 793	8 774	-34 691	-67 036
Changes in working capital	-39 206	6 817	-50 515	2 327	14 825
Cash flow from operating activities	-39 677	-12 976	-41 741	-32 364	-52 211
Investing activities
Net investment in company acquisitions	-	-	-1 557	-	-220 570
Net investment in intangible assets	-2 596	-	-62 319	-	-
Net investment in other financial instruments	-	-4	-	-7	-6
Net investment in equipment	-361	-131	-787	-151	-261
Cash flow from investing activities	-2 957	-135	-64 663	-158	-220 837
Financing activities
Net proceeds from share issues	279 628	-	279 628	-	249 919
Transaction costs share issue 1)	-22 070	-	-22 070	-	-17 545
Borrowings	-	-	-	-	67 055
Repayment of borrowings	-68 500	-	-70 000	-	-1 500
Cash flow from financing activities	189 058	0	187 558	0	297 929
Cash flow for the period	146 427	-13 111	81 154	-32 522	24 881
Cash at the beginning of the period	11 220	32 198	76 490	51 609	51 609
Cash at the end of the period	157 644	19 087	157 644	19 087	76 490

1) Comprises the portion of transaction related costs that has been paid during the period.

	April-June		January-June		Full year
	2016	2015	2016	2015	2015
Net sales	4 921	1 833	14 003	2 258	3 923
Cost of sales	-4 987	-	-9 120	-	-
Gross earnings	-66	1 833	4 883	2 258	3 923
Operating expenses
Distribution costs	-18	-	-74	-	-
Administration	-4 098	-6 076	-8 619	-13 593	-25 264
Research and development	-935	-16 847	-2 484	-24 628	-33 112
Other operating income/expenses	12	-51	8	-99	-141
	-5 039	-22 974	-11 169	-38 320	-58 517
Earnings before depreciation	-5 105	-21 141	-6 286	-36 062	-54 594
Depreciation	-1 209	-362	-2 368	-794	-1 829
Earnings after depreciation	-6 314	-21 503	-8 654	-36 856	-56 423
Financial net	-975	3	-2 738	12	-5 263
Earnings before Tax	-7 289	-21 500	-11 392	-36 844	-61 686
Tax	-	-	-	-	-
NET EARNINGS	-7 289	-21 500	-11 392	-36 844	-61 686

PARENT COMPANY INCOME STATEMENT SUMMARY (KSEK)

PARENT COMPANY BALANCE SHEET SUMMARY (KSEK)

	30 June	31 dec
	2016	2015	2015
Intangible assets	73 402	-	73 965
Equipment	1 019	1 871	1 372
Other financial assets	21	21	21
Shares in group companies	399 345	20 150	397 788
Other current assets	37 933	4 807	9 301
Cash and cash equivalents	141 601	18 900	68 732
TOTAL ASSETS	653 321	45 749	551 179
Total restricted equity	25 563	13 795	19 970
Total non-restricted equity	600 331	10 278	359 758
Non-current liabilities	15 650	90	15 341
Current liabilities	11 777	21 586	156 110
TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES	653 321	45 749	551 179