BioWorld International Correspondent

Karo Bio AB is looking to net SEK120 million (US$14.1 million) from a discounted rights issue.

The Huddinge, Sweden-based drug discovery firm is issuing up to 4.8 million shares priced at SEK26, which represents a 25 percent discount to the company's average share price from April 2 through April 8. Existing shareholders are entitled to acquire two new shares for every five shares they hold.

The subscription period runs from Thursday through May 8, but the cash is already more or less in the bag. The initiative has received support from shareholders representing 29 percent of its equity base, while three of Karo Bio's biggest shareholders have undertaken to purchase up to SEK70 million of unallocated shares.

The final amount, however, will fall somewhere below the upper limit Karo Bio envisaged when it disclosed the fund-raising plan last month. Based on its trading price at that time, the transaction would have realized SEK160 million.

"We took some altitude in that assessment. Realizing the volatility in the market, we are quite pleased with the result of this share issue," company President and CEO Björn Nilsson told BioWorld International.

The fund-raising will boost the company's cash reserves by more than 50 percent. It exited 2002 with SEK201.2 million in cash, cash equivalents and short-term investments.

"It's a bear market out there," Nilsson said. "Even so, we wanted to make sure we had the cash to march on with our very promising R&D portfolio." The main motivation for the share issue is a loss of research income as several big pharma collaborations - based around finding modulators of nuclear hormone receptors - draw to a close, combined with uncertainty regarding the timing of milestone payments triggered by their progress in clinical trials.

An agreement focused on finding modulators of estrogen receptors with Merck & Co. Inc., of Whitehouse Station, N.J., ended in October, but the latter firm has not yet signaled its intentions with respect to commencing clinical development. A collaboration with Bristol-Myers Squibb Co., of New York, to find modulators of thyroid hormone receptors for treatment of obesity finished at the end of last month, although it now has entered a "tail period," Nilsson said. "We may have some kind of nonexclusive arrangement with them. We're looking into that right now." A discovery agreement with Abbott Laboratories, of Abbott Park, Ill., for Type II diabetes is approaching lead selection. A more recent atherosclerosis collaboration, with the Wyeth Pharmaceuticals arm of Madison, N.J.-based Wyeth, is at an earlier stage.

The company is seeking deals for internal projects that have not yet been partnered. It has made progress in discovering selective modulators of the glucocorticoid receptor that do not have the side effects associated with the current generation of anti-inflammatory steroids. "That's kind of a holy grail in this nuclear receptor business," Nilsson said. The company has solved the 3-D structure of the glucocorticoid receptor ligand-binding domain and plans shortly to publish its data, he said. The company also is seeking androgen receptor modulators for treatment of prostate cancer. And, it is free to enter new alliances in the estrogen receptor and thyroid hormone receptor fields.