1

FULL YEAR REPORT 2016

THE FULL YEAR AND THE FOURTH QUARTER

o Net sales amounted to MSEK 347.3 (69.1), whereof the fourth quar-

ter MSEK 96.5 (57.4)

o EBITDA was MSEK 51.7 (-71.7), whereof the fourth quarter MSEK

28.9 (-22.3)

o Earnings per share amounted to SEK 1.51 (-1.46), whereof the fourth

quarter SEK 1.36 (-0.46)

o Cash and cash equivalents at period end amounted to MSEK 121.3

(76.5)

o Acquisition of BioPhausia with a well established portfolio of drugs

o A long term credit facility has been signed in conjunction with the

acquisition of BioPhausia

o KB9520 was outlicensed to the cancer research company Oasmia

o Decision on a rights issue of MSEK 374

SIGNIFICANT EVENTS AFTER PERIOD END

o The rights issue raised a total of MSEK 374 and was oversubscribed

at 132 percent, of which 98.5 percent by subscription rights

o Karo Pharma transferred from Nasdaq Stockholm Small Cap to

Nasdaq Stockholm Mid Cap

AUDIOCAST TODAY AT 11.00 A.M. CET

A presentation of the report (in Swedish) will take place today at 11

a.m. The presentation can be attended through the corporate web-

site www.karopharma.se or by telephone +46 8 505 564 74. Ques-

tions may be submitted over the internet or by the telephone.

2

COMMENT ON OPERATIONS

ACQUISITIONS RAISE KARO PHARMA

TO THE NEXT LEVEL

In 2016, Karo Pharma continued to develop

well, with rising sales and improved cash

flow.

Towards the end of the year, BioPhausia

with an established drug portfolio was ac-

quired. The acquisition provides Karo

Pharma further improved profitability and

strengthened cash flow.

The acquisition of BioPhausia is a large and

important step. Since the products are well

established and fit into our range, all profit-

ability parameters improve and our cash

flow strengthens. Through the acquisition,

Karo Pharma aims to achieve significant im-

provements in EBITDA.

Furthermore, the acquisition is strategically

important because it brings us one big step

closer to our vision to lead the consolidation

in the Health Care sector in Sweden. Efforts

to identify and evaluate various acquisition

opportunities continues.

In October, we licenced our project KB 9520

to the cancer research company Oasmia.

The deal provided Karo Pharma a down

payment of 3 080 000 shares in Oasmia and

20 percent of all Oasmia’s future revenue

from the project

Acquisitions raises Karo Pharma to a new

level with stable earnings, and agreements

with partners for development projects pro-

vide opportunities for milestones and royal-

ties.

Most of the major product groups acquired

in 2015, such as Mabs, Hospital supply and

Allevo have during in 2016 seen strong

growth of 5 to 15 percent.

We have also incurred costs in the fourth

quarter in order to become even more cost

efficient in 2017.

Karo Pharma is an interesting alternative for

shareholders who wish to invest in the

Healthcare field. We are confident of our

capability to continue delivering good

shareholder returns.

Anders Lönner

Executive Chairman

3

KEY FINANCIAL DATA

(MSEK) Full year Oct - Dec

2016 2015 2016 2015

Net sales 347.3 69.1 96.5 57.4

Gross earnings 148.7 28.6 39.4 22.1

Gross margin, % 42.8 41.4 40.8 38.5

Operating expenses -119.2 -103.5 -18.6 -46.5

Earnings/Loss before tax 51.7 -71.7 28.9 -22.3

EBITDA, % 14.9 -108.4 29.9 -42.4

Earnings before tax 19.8 -75.7 14.7 -24.8

Earnings per share (SEK) 1.51 -1.46 1.36 -0.46

Cash flow from operating activities1) -36.1 -52.2 9.6 -5.5

Cash and cash equivalents 121.3 76.5 121.3 76.5

1) Excluding settlement of current liabilities during the second quarter of MSEK 26affecting comparability, cash flow from operating activities during January to December 2016 amounted to MSEK -10

SALES AND EARNINGS

Net sales in 2016 was MSEK 347.3 (69.1),

whereof the fourth quarter MSEK 96.5

(57.4). Since September 2015, net sales com-

prise mainly of product sales in acquired

companies.

Cost of goods sold was MSEK 198.6 (40.5),

whereof the fourth quarter MSEK 57.1

(41.3), resulting in gross earnings of MSEK

148.7 (28.6), whereof the fourth quarter

MSEK 39.4 (22.1) and a gross margin of 42.8

(41.4) per cent for the period and 40.8

(38.5) per cent for the quarter.

Operating costs, including depreciation

and excluding other operating income

amounted to MSEK 148.0 (103.5), whereof

the fourth quarter MSEK 47.5 (46.5). Selling

expenses was MSEK 112.8 (26.7), whereof

the fourth quarter MSEK 35.3 (25.7).

Research and development amounted to

MSEK 5.3 (35.0), whereof the fourth quarter

MSEK 0.6 (5.4). Partners continue the de-

velopment of projects and assume respon-

sibility for related costs.

Operating profit was MSEK 29.6 (-74.9),

whereof the fourth quarter MSEK 20.8

(-24.7). Items affecting comparability in the

form of among others relocation of inven-

tory, and costs for restructuring in combi-

nation with currency losses of MSEK 1, have

negatively impacted operating earnings

during the fourth quarter with MSEK 12.8. Furthermore, the sale of KB 9520 had a

positive impact of MSEK 28.9 on operating

profit. Net profit amounted to MSEK 95.6 (-

78.2), and MSEK 91.4 (-24.7) respectively.

Net income was positively affected by

MSEK 75 million from a recognized tax re-

ceivable attributable to parent company's

losses, which in part can be utilized due to

acquisitions.

Earnings per share was SEK 1.51 (-1.46),

whereof the fourth quarter SEK 1.36 (-0.46).

CASH FLOW AND FINANCIAL

POSITION

Cash flow from operating activities, inclu-

ding settlement in the second quarter of

short term liabilities of MSEK 26 affecting

comparability, was MSEK -36.1 (-52.2),

4

whereof the fourth quarter MSEK 9.6 (-5.5).

Cash and cash equivalents at period end

amounted to MSEK 121.3 (76.5). The acqui-

sition of BioPhausia contributed signifi-

cantly to the increase in balance sheet turn-

over to MSEK 1 773.8 (642.5). Intangible as-

sets amounted to MSEK 1 432.0 (475.7).

Due to the acquisition, long term debt in-

creased to MSEK 449.5 (21.0) and short

term liabilities to MSEK 546.9 (225.2).

Total shareholders’ equity taking into ac-

count the period’s earnings, amounted to

MSEK 717.0 (364.6), translating into equity

per share of SEK 11.97 (7.30). The equity ra-

tio was 40.2 (56.7) percent.

THE PARENT COMPANY

Net sales for the Parent Company for 2016

amounted to MSEK 48.9 (3.9), whereof the

fourth quarter MSEK 33.1. (1.0). Earnings af-

ter financial items was MSEK 0.9 (-61.7),

whereof the fourth quarter MSEK 18.5 (-

10.8). Parent company cash and cash equiv-

alents at period end amounted to MSEK

85.7 (68.7).

SIGNIFICANT EVENTS

At the end of the year, Karo Pharma ac-

quired all shares in BioPhausia for MSEK

908 on a debt and cash free basis. The deal

included some 10 well-known drugs, for ex-

ample Mollipect, Lithionit, Citodon, Para-

flex, Laxabon and Solvezink. The acquisi-

tion also included rights to license MIV-

802, a project developed for the treatment

of hepatitis C, in certain European markets

including the Nordic region.

In October, a collaboration was entered

into with the cancer research company

Oasmia, regarding the cancer project

KB9520 that has shown favorable effects in

preclinical models in a variety of cancers.

Oasmia acquired the project from Karo

Pharma for a purchase price in the form of

3,080,000 shares in Oasmia, which Karo

Pharma's Board of Directors decided to

propose the Annual General Meeting to

distribute to shareholders. Karo Pharma is

also entitled to 20 percent of all Oasmia’s

future revenues that may be generated

from the project.

Oasmia assumes responsibility for the con-

tinued development of the project, as well

as its costs.

SIGNFICANT EVENTS AFTER PERIOD

END

An Extraordinary General Meeting on Janu-

ary 18 resolved on a rights issue of MSEK

374 before transaction costs of approx.

MSEK 24, to repay part of the loan raised in

connection with the acquisition of Bio-

Phausia. The rights issue was oversub-

scribed at approximately 132 percent, with

98.5 percent of the new shares subscribed

for with subscription rights. The share capi-

tal increased by SEK 7,303,599 through the

issuance of 18,259,198 shares. After sound-

ing out possible guarantors, Executive

Chairman Anders Lönner agreed to under-

write 92 percent of the rights issue of MSEK

374 and will receive a fee of 5 percent of the

guaranteed amount equivalent to about

MSEK 17 in underwriting compensation. In

addition, Anders Lönner committed in ad-

vance to without compensation subscribe

to his own holding of 5 percent, which also

board member Per-Anders Johansson did

for his 3 percent holding.

TRANSACTIONS WITH RELATED

PARTIES

During the period of Karo Pharma's subsid-

iary sold two products licensed from a com-

pany owned by Anders Lönner, for which

5

the subsidiary received commissions worth

about KSEK 300.

RISKS

The Group is exposed to a number of risks

and insecurities. Wrongful, delayed or

missing deliveries form the Group’s suppli-

ers mean that the Group’s deliveries also

may be delayed, inadequate or wrong. The

Group is also exposed to exchange rate

fluctuations. It is not guaranteed that

Group operations will not be subject to re-

strictions from governmental agencies or

that the Group will receive necessary future

authority approvals. There is a risk that the

Group’s ability to develop products de-

creases or that the products will not be

launched according to set schedules. These

risks may involve decreased sales and a

negative effect on Group earnings.

ANNUAL GENERAL MEETING

The annual general meeting will be held in

Stockholm om 11 May.

DIVIDEND

The Board has decided to propose to the

AGM a dividend equivalent to the value of

the shares in Oasmia that Karo Pharma re-

ceived as a down payment on the sale of

the company's cancer project.

ACCOUNTING AND VALUATION

PRINCIPLES

This interim report has been prepared in

accordance with International Accounting

Standards (IAS) 34 for interim reports and

International Financial Reporting Stand-

ards IFRS as adopted by the EU. The ac-

counting and valuation principles applied

are unchanged compared to those applied

in 2014.

For the parent company, this interim report

has been prepared in accordance with the

Swedish Annual Accounts Act and compli-

ance with RFR 2 Accounting for legal enti-

ties. The accounting principles applied for

the parent company differ from those ap-

plied for the Group only regarding account-

ing of leasing agreements.

AUDIOCAST

The report will be presented (in Swedish)

today at. 11:00 at an audiocast with slides

that can be followed on

www.karopharma.se as well as over tele-

phone + 46 8-505564 74. Questions can be

both over the Internet and over the phone.

AUDITORS REVIEW

This yearend report has not been subject for re-

view by the company’s auditors

FINANCIAL REPORTS

Annual report 2016 April 7 2017

Annual General Meeting May 11, 2017

Interim Report Jan-March May 10, 2017

Interim Report Jan-June Aug 24, 2017

Interim Report Jan-Sept Nov 2, 2017

Full-year Report 2017 Feb 22, 2018

Stockholm on February 28, 2017

Anders Lönner Executive Chairman

6

FOR FURTHER INFORMATION, PLEASE CONTACT:

Henrik Palm, CFO, +46 70 540 4014 or henrik.palm@karopharma.se

ABOUT KARO PHARMA

Karo Pharma is a specialty pharma company that develops and markets products to pharmacies and di-

rectly to healthcare providers. The share is listed on Nasdaq Stockholm in the Mid Cap segment.

The information in this report is such that Karo Pharma is obliged to make public pursuant to the EU Mar-

ket Abuse Regulation and the Securities Markets Act. The information was submitted for publication,

through the agency of the contact person set out above, on February 28, 2017 at 8.00 a.m. CET.

7

CONSOLIDATED INCOME STATEMENT SUMMARY (KSEK)

Oct – Dec Full year

2016 2015 2016 2015

Net sales 96 454 57 431 347 261 69 095

Cost of sales -57 078 -35 325 -198 536 -40 494

Gross earnings 39 376 22 106 148 725 28 601

Operating expenses

Distribution costs -35 339 -25 729 -112 787 -26 718

Administration -10 165 -7 941 -28 689 -27 150

Research and development -586 -5 365 -5 259 -34 957

Other operating income/expenses 27 497 -7 427 27 583 -14 639

-18 593 -46 462 -119 152 -103 464

Operating result 20 783 -24 356 29 573 -75 297

Financial net -6 105 -430 -9 735 -434

Earnings before Tax 14 678 -24 786 19 838 -75 297

Tax 76 741 68 75 718 -2 894

NET EARNINGS 91 419 -24 718 95 556 -78 191

Net earnings attributable to:

Shareholders in the parent company 91 367 -24 159 95 555 -77 632

Non-controlling interests 52 -559 1 -559

Earnings / loss per share (SEK) 1 1.36 -0.46 1.51 -1.46

Number of shares issued (000) 63 907 53 465 63 907 53 465

1 Taking into account the bonus element of the rights issue

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (KSEK)

Oct – Dec Full year

2016 2015 2016 2015

NET EARNINGS FOR THE YEAR 91 419 -24 718 95 556 -78 191

Other comprehensive income for the year, net of tax

Exchange rate differences 58 -52 357 -315

TOTAL COMPREHENSIVE INCOME 91 477 -24 770 95 913 -78 506

Total comprehensive income attributable to:

Shareholders of the parent company 91 425 -24 211 95 911 -77 947

Non-controlling interests 52 -559 2 -559

8

CONSOLIDATED STATEMENT OF FINANCIAL POSITION (KSEK)

31 Dec

2016 2015

Intangible assets 1 432 012 475 655

Equipment 12 297 5 701

Other financial assets 38 801 21

Other current assets 169 742 84 670

Cash and cash equivalents 121 346 76 490

TOTAL ASSETS 1 773 198 642 537

Shareholders’ equity and liabilities

Equity 717 012 364 581

Deferred tax 1) 59 723 31 740

Long term debt 449 526 21 026

Current liabilities 546 937 225 190

TOTAL SHAREHOLDERS’ EQUITY AND LIABILITIES 1 773 198 642 537

1) Attributable to depreciable product rights in connection with business acquisitions

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (KSEK)

Attributable to shareholders of the parent company

Share capital

Other contributed

capital Accumulated

losses

Non- controlling

interest Total

Amount at January 1, 2015 13 525 1 079 562 -1 052 180 - 40 907

Total comprehensive income for the period - - -77 947 -559 -78 506

Acquisition of non-controlling interest - - - 1 683 1 683

Issue of shares at acquisition of operations 270 19 730 - - 20 000

Issue of shares at acquisition of operations 1 020 130 820 - - 131 840

Issue of shares related to reverse split 4 - - - 4

Rights issue at acquisition of operations 153 16 130 - - 16 283

Rights issue, net of transaction costs 4 998 227 372 - - 232 370

Amount at December 31, 2015 19 970 1 473 614 -1 130 127 1 124 364 581

Amount at January 1, 2016 19 970 1 473 614 -1 130 127 1 124 364 581

Total comprehensive income for the period - - 95 911 2 95 913

Acquistion of non-controlling interest - - -557 -1 004 -1 561

Rights issue, net of transaction costs 5 593 251 966 - - 257 559

Warrants - 520 - - 520

Amount at September 31, 2016 25 563 1 726 100 -1 034 773 122 717 012

9

CONSOLIDATED STATEMENT OF CASH FLOWS (KSEK)

Oct - Dec Full year

2016 2015 2016 2015

Operating activities

Operating income/loss before financial items 20 783 -24 356 29 573 -74 863

Depreciation 8 067 2 056 22 110 3 153

Other items not affecting liquid assets -26 749 8 -26 652 4 996

2 101 -22 292 25 031 -66 714

Financial items received and paid --13 447 -316 -17 077 -322

Cash flow from operating activities before changes in working capital -11 346 -22 608 7 954 -67 036

Changes in working capital 20 919 17 096 -44 072 14 825

Cash flow from operating activities 9 573 -5 512 -36 118 -52 211

Investing activities

Net investment in company acquisitions -530 -115 633 -2 087 -220 570

Net investment in intangible assets -863 699 - -926 183 -

Net investment in other financial instruments - - -6

Net investment in equipment -62 152 16 -67 656 -261

Cash flow from investing activities -926 382 -115 617 -995 927 -220 837

Financing activities

Net proceeds from share issues - - 279 628 249 919

Transaction costs share issue 1) - - -22 070 -17 545

Warrants -60 - 460 -

Borrowings 900 000 67 055 900 000 67 055

Repayment of borrowings -8 555 -1 500 -80 055 -1 500

Transactions with minorities -1 561 -1 561

Cash flow from financing activities 889 824 65 555 1 076 402 297 929

Cash flow for the period --26 985 -55 574 44 357 24 881

Cash at the beginning of the period 147 832 132 064 76 490 51 609

Currency exchange in cash 499 - 499

Cash at the end of the period 121 346 76 490 121 346 76 490

1) Comprises the portion of transaction related costs that has been paid during the period.

10

PARENT COMPANY INCOME STATEMENT SUMMARY (KSEK)

Oct-Dec Full Year

2016 2015 2016 2015

Net sales 33 067 992 48 885 3 923

Cost of sales -1 812 - -12 567 -

Gross earnings 31 255 992 36 318 3 923

Operating expenses

Distribution costs -995 - -4 079 -

Administration -8 013 -6 145 -20 126 -25 354

Research and development -586 -5 364 -5 259 -34 851

Other operating income/expenses 28 939 -50 28 956 -141

19 345 -11 559 -508 -60 346

Operating result 50 600 -10 567 35 810 -56 423

Financial net -31 486 -277 -34 322 -5 263

Earning after financial items 18 498 -10 844 872 -61 686

Group contributions paid -1 260 - -1 260 -

Tax 75 000 - 75 000 -

NET EARNINGS 92 238 -10 844 74 612 -61 686

PARENT COMPANY BALANCE SHEET SUMMARY (KSEK)

31 Dec

2016 2015

Intangible assets 76 328 73 965

Equipment 666 1 372

Deferred tax assets 75 000

Other financial assets 28 973 21

Shares in group companies 1 308 367 397 788

Other current assets 61 283 9 301

Cash and cash equivalents 85 743 68 732

TOTAL ASSETS 1 635 744 551 179

Equity and liabilities

Total restricted equity 25 563 19 970

Total non-restricted equity 686 855 359 758

Non-current liabilities 448 450 15 341

Current liabilities 474 876 156 110

TOTAL SHAREHOLDERS’ EQUITY AND LIABILITIES 1 635 744 551 179

11

ACQUISITION

On December 15, 2016, Karo Pharma ac-

quired all shares in the drug company Bio-

Phausia AB. The acquisition includes a

portfolio of 13 well-known Nordic drug

brands. The brand portfolio is character-

ized by a long history of stable sales, strong

expected cash flows and low marketing and

maintenance costs.

Information on purchase price, the ac-

quired net assets and goodwill are shown

below (all amounts, unless otherwise

stated, are expressed in thousands of SEK

(KSEK)):

For consideration - cash outflow, see below.

The assets and liabilities arising from the

acquisition are as follows:

Assets and liabilities Real value

Product rights 479 241

Tangible fixed assets 153

Inventory 24 302

Receivables 30 745

Tax claims 1 066

Cash 764

Accounts payable -3 785

VAT liabilities -2 025

Deferred taxes -85 954

Deferred costs and prepayed income -548

Acquired identifiable net assets 443 959

Goodwill 485 005

Acquired net assets 928 964

Goodwill is attributable to the flows and

processes that has arisen in BioPhausia and

thereby created an excellent platform for

further expansion. No part of the recog-

nized goodwill is expected to be tax de-

ductible.

Fair value of acquired receivables

amounted to MSEK 30,7.

The acquired business contributed reve-

nues of MSEK 8.9 and earnings after finan-

cial net of KSEK 3.5 to the Group for the pe-

riod from December 15 to December 31,

2016. Had the acquisition been completed

on January 1, 2016, a consolidated pro forma

shows revenue and net profit at December

31, 2016, at MSEK 193.8 and earnings after

financial items of MSEK 68.5. These

amounts have been calculated based on the

subsidiary's results, adjusted for:

- The change in depreciation that would have occurred provided the adjustment to fair value and the change in the depreciation period for product licenses had been ap-plied from January 1, 2016 together with the related tax effects.

- The additional interest expenses for debt financing, net after proceeds from the rights issue as if the debt financing and the rights issue were completed on January 1, 2016.

Acquisition-related costs of MSEK 1 are in-

cluded in other operating expenses in the

income statement and in operating activi-

ties in the cash flow statement.

Consideration - cash outflow is shown in

the table below:

Cash outflow to acquire subsidiaries, after de-duction of acquired liq-uid funds

2016 (KSEK)

2015 (KSEK)

Cash consideration 928 964 227 515

Liquid funds in acquired companies

-764 -2 390

Net outflow of liquid funds – investment ac-tivities

928 200 225 125

The acquisition analysis of BioPhausia AB is

preliminary until the final allocation be-

tween goodwill, product rights and other

intangible assets have been established.

The Company is currently evaluating the

pre-acquired products' future potential and

longevity. The valuation of product rights

in the acquisition analysis is based on a

12

preliminary estimate of the various pro-

ducts future sales and economic life. Once

this thorough analysis is completed, the ac-

quisition analysis will be determined which

may cause the breakdown between the

product rights and goodwill to change. A

change in the valuation of product rights-

would also affect the amount of deferred

tax liabilities.

The preliminary acquisition analysis for ac-

quisitions in 2015 were established in 2016

without adjustments.