BioWorld International Correspondent

Shares in Karo Bio AB slid by more than 29 percent on the Stockholm Stock Exchange Monday on news that Merck & Co. Inc. halted clinical development of a candidate estrogen receptor modulator, following adverse findings in parallel animal studies.

The compound had entered a Phase I trial in January, an event that triggered a milestone payment to Huddinge, Sweden-based Karo Bio. The company's shares closed at SEK11.10 (US$1.57) Monday, down SEK4.70, in heavy trading.

The setback is the second to hit the program. An earlier compound was withdrawn in August 2003 during late preclinical development, also because of adverse findings. (See BioWorld International, Aug. 20, 2003.)

"What is comforting is that Merck is still committed to the program, and they are developing backup compounds," said Per Olof Wallström, who succeeded Björn Nilsson as Karo Bio's president last month. Merck, of Whitehouse Station, N.J., and Karo Bio entered an alliance in 1997, under which the Swedish firm could garner $80 million in up-front and milestone payments if two compounds were to gain approval.

The program is based around Karo Bio's knowledge of the estrogen receptor alpha and beta, which is associated with women's health.

"The area is of tremendous importance. It is connected with a multitude of major diseases," Wallström said. The research phase of the alliance ended in 2002.

The company has endured several other setbacks in alliances with other pharmaceutical partners. It has taken programs in obesity and diabetes back in-house following the withdrawal of respective partners Bristol-Myers Squibb Co., of New York, and Abbott Laboratories, of Abbott Park, Ill. Karo Bio aims to initiate a Phase I trial with its obesity drug, KB2115, a thyroid receptor antagonist, this summer, Wallström said. Its Type II diabetes drug, KB3305, also is nearing the clinic.

The company reported SEK181 million in cash and equivalents at the end of 2004. Wallström said it will seek additional finance in the fall.