BioWorld International Correspondent

With a deal for its preclinical treatment for tackling dyslipidemia, KB-5359, thought to be imminent, Karo Bio AB strengthened its hand in partnering negotiations by completing a discounted rights offering that grossed SEK406 million (US$59.6 million). The cash is intended to fund the company through 2009 and into 2010.

The outcome of the transaction was never in doubt, as Huddinge, Sweden-based Karo Bio had obtained advance commitments covering 95.8 percent of the total share issue by late March. Accordingly, it issued 38,706,397 new shares, priced at SEK10.50 per share, following a subscription period that closed last Friday. Its stock closed at SEK15.90 the same day. The company's shares had closed at SEK18.00 on the Stockholm Stock Exchange on March 26, immediately prior to the launch of the share issue.

For Per Olof Wallström, president and CEO of Karo Bio, the main investment focus for the company is clear: "KB-2115 in a continued and expanded Phase II program over the next 18 to 24 months - that's the primary priority," he told BioWorld International.

The compound, a selective thyroid hormone receptor-beta agonist in development for treating severe dyslipidemia - that is, disordered lipid metabolism - currently is undergoing a dose-finding Phase II clinical trial in 100 subjects, which is due to report top-line data in June. In a previous Phase Ib clinical study of healthy but overweight individuals with high blood cholesterol, the compound lowered levels of low-density lipoprotein (LDL) by 40 percent.

KB-2115 emerged from a drug discovery agreement with New York-based Bristol-Myers Squibb Co., but the latter withdrew from the collaboration in 2004 and returned all rights to the Swedish firm.

"The reason why BMS decided not to pursue [further development] was due to chemical instability under acidic conditions," Wallström said.

Karo Bio has encased the tablet in an enteric coating so that the drug substance is released in the small intestine instead of in the stomach. "It's a pretty simple solution, but it seems to work very nicely," he said.

The company now wants to develop the compound through Phase IIb clinical trials "to erase any lingering doubt about the compound," Wallström said. After that, it may seek to out-license the compound or to develop it in house in a niche indication within the field of lipid disorders. "We're looking at several of them at the moment," he said.

Karo Bio also plans to move a follow-up compound, KB-5359, into the clinic in the fall. That has a similar mode of action but a cleaner safety profile because it is active only in liver tissue, the primary site of lipid metabolism in the body. The company is seeking to out-license the compound immediately, however. It has a wider therapeutic window than KB-2115 and can address a wider patient population.

"Negotiations are ongoing, and I cannot really comment on anything more than that," Wallström said. "We are talking to more than one potential partner."

Björn Andersson, analyst at Stockholm-based equity research firm Redeye AB, has high expectations for the compound.

"They will have a deal in this quarter, I believe," he told Bioworld International. And he said that any deal could be worth up to $600 million in potential milestones. "There have been a lot of setbacks within this area in the last 12 months. A lot of pharmaceutical companies are trying to find substances that can replace the statins or be combined with the statins," he said. "I believe they have generated so much data they can strike a very, very good deal." Andersson is among the most bullish of the analysts following the stock, and has a target price of SEK25.

The company is actively seeking to expand its pipeline, and a partnering deal also could offer it an opportunity to in-license niche development projects from a large pharmaceutical partner, he added.

Karo Bio's second in-house development priority is KB-3305, a liver-selective glucocorticoid antagonist in development for Type II diabetes. It, too, is expected to enter the clinic in the fall, having encountered a delay due to problems with bioavailability. An excipient used in the original formulation caused the gelatin capsule containing the drug to become brittle and leaky, Wallström said. "We believe we have succeeded with that - we have good animal data. We obviously hope to repeat that in man."

The company, a longtime specialist in targeting nuclear receptors, has another two partnered programs that are already in the clinic. Wyeth, of Madison, N.J., is developing agonists of liver receptor X for treating atherosclerosis. Merck & Co. Inc., of Whitehouse Station, N.J., is developing modulators of estrogen receptor for applications in women's health care.

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