BioWorld International Correspondent

Karo Bio AB is laying off 20 staff members as part of an overall effort to re-orient the company toward clinical development.

The cuts primarily affect drug discovery research staff, but employees from other parts of the organization also will go. The company said it plans to hire staff with clinical development skills, although it also will outsource part of its drug development requirements.

The company is raising funds in parallel with the restructuring. It had SEK126 million at June 30, enough to fund operations until the end of the first quarter. It is offering shareholders about 11.2 million new shares, priced at SEK8.50. Existing shareholders can subscribe for two new shares for every three shares held. Trading in subscription rights runs from Sept. 13-28, while the subscription period is Sept. 1-Oct. 1.

If fully subscribed, the transaction would yield proceeds of about SEK96 million (US$13 million). The Huddinge, Sweden-based company already has received letters of intent and guarantees corresponding to 85 percent of the total. In the event that the offering is oversubscribed, it also has made provision for issuing an additional about 2.8 million shares, which would represent 10 percent of the total number of shares outstanding after completing the rights issue. That would generate about SEK24 million more.

Mattias H ggblom, analyst at Alfred Berg Fondkommission in Stockholm, said the restructuring was necessitated by the company's need to change its business model.

"Historically, the company has been focused on very early drug discovery with no in-house clinical development competence," he said. But within the past year, two of its pharmaceutical partners - Bristol-Myers Squibb Co., of New York, and Abbott Laboratories, of Abbott Park, Ill. - returned preclinical lead compounds in development for obesity and Type II diabetes, respectively. "I guess the company now realized they need to do more work on those projects before out-licensing them again.

"Companies that would potentially in-license these compounds could be a bit skeptical given the compounds' history before seeing additional data," he added.

The current fund raising is the company's second within the past 18 months. It raised about SEK120 million last spring. "The progress during the last one and a half years has not been what the company had hoped for," H ggblom said.

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