Pipeline failure hits Karo Bio hard

Sweden's Karo Bio has been hit hard by the news that it will discontinue development of lead drug candidate eprotirome because of toxicity issues.

The company has also drawn back from earlier plans to sell or spin out its preclinical development programmes into a separate company, and will now retain them.

Animal tests have indicated that treatment of a year or more with the drug - in development to treat an inherited form of high cholesterol - was associated with damage to cartilage in 100 per cent of animals treated with high doses, and a proportion of those in lower dose groups.

"These unexpected findings mean that it cannot be excluded that also humans may suffer from similar cartilage damage," said Karo Bio in a statement, which indicated it had spent around 100m krona ($15m) on the eprotirome programme to date, with another 55m krona still to come in wind-up costs.

Shares in the company had been suspended on the Stockholm Stock Exchange ahead of the announcement, which leaves Karo Bio without a clinical development programme and only a preclinical portfolio to fall back on.

At present the company has around 12 months' operating cash in reserve, said chief executive Per Bengtsson. At the end of 2011 Karo Bio had cash and short-term investments of 159m krona.

One preclinical programme - focusing on a drug target called RORgamma with potential in the treatment of autoimmune diseases - was licensed to Pfizer at the end of 2011 and will provide Karo Bio with a lifeline revenue stream of $10m-14m over the next two years.

It also offers potential milestone payments of up to $217m and a royalty stream.

A second programme targeting estrogen receptor beta (ERbeta) - with broad applications in cancer, multiple sclerosis and inflammation - is subject to negotiations with a potential licensing partner, according to Karo Bio.

The company has already been working with Merck & Co in this area but suffered a disappointment in 2010 when Merck decided to discontinue a phase II study of lead candidate MK-6913 for treating hot flushes in menopausal women.