9 September 2020 Oasmia is a specialty pharma company focused on developing improved

formulations of well-established cancer drugs through its proprietary XR-

17 platform technology. Its technology has received validation though a

global partnership deal for lead asset Apealea (Cremophor-free paclitaxel)

with Elevar Therapeutics across a variety of cancer indications. Apealea’s

initial indication is ovarian cancer (approved in Europe), and Elevar is in

discussions with the FDA for the pathway to US approval (we forecast

launch in FY23). Oasmia’s newly appointed management has defined a

strategy to realign the business, further leverage on its platform

competencies and expand its pipeline through acquisitions as it moves to

the ultimate goal of sustainable profitability. We value Oasmia at

SEK2.82bn or SEK6.29/share.

Year end Revenue (SEKm)

PBT* (SEKm)

EPS* (SEK)

DPS (SEK)

P/E (x)

Yield (%)

04/19 2.0 (168.5) (0.7) 0.00 N/A N/A

04/20 201.8 (43.4) 0.0 0.00 N/A N/A

04/21e 0.8 (137.2) (0.3) 0.00 N/A N/A

04/22e 96.9 (47.1) (0.1) 0.00 N/A N/A

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

Apealea: Ovarian cancer the tip of the iceberg

The deal terms with Elevar ($20m upfront plus up to $678m in milestones and

double-digit royalties on sales) are substantial. Apealea can be viewed as a

bioequivalent, cost-effective alternative to Abraxane (albumin-bound paclitaxel

formulation), which is approved for multiple cancer indications but not ovarian

cancer. We forecast Apealea global peak sales in ovarian cancer of $282m; the US

is key (~45%). Timing for global launches is dependent on the outcomes of

regulatory discussions and sub partnering deals. Apealea’s potential for use across

multiple cancers represents upside (additional clinical trials required) and is critical

for value maximisation. Beyond Apealea Oasmia is working on additional

nanoparticle formulations, including docetaxel micellar (Phase Ib prostate cancer),

and the development of innovative drugs (preclinical stage).

New vision to sustainable profitability

Following the outcome of the strategic review in May 2020, the new Oasmia is

concentrating on R&D, and aims to reduce operating expenses to SEK120m in

FY21. While Apealea is key, further leveraging the platform plus a potential sale of

the animal health business are other top-line levers. Net cash of SEK274m at 31

July 2020 implies funding through to profitability in FY23; our forecasts assume

$25m (SEK219m) in milestone payments in FY23 and $12.5m (SEK110m) in FY24.

Valuation: SEK2.82bn or SEK6.29/share

We initiate coverage with a valuation of SEK2.82bn or SEK6.29/share including net

cash of SEK274m, based on a risk-adjusted model of the future royalties and

milestones we expect for Apealea (ovarian cancer only), docetaxel micellar

(prostate cancer) and an indicative value for the animal health business. We do not

include the XR-17 platform, or other cancer indications in our valuation.

Oasmia Pharmaceutical Initiation of coverage

An appealing metamorphosis

Price SEK5.03

Market cap SEK2.26bn

$0.11/SEK

Net cash (SEKm) at 31 July 2020 (including short-term investments)

274

Shares in issue 448.4m

Free float 75%

Code OASM

Primary exchange Stockholm

Secondary exchange Frankfurt

Share price performance

% 1m 3m 12m

Abs (7.8) (26.4) 24.5

Rel (local) (9.1) (30.1) 8.7

52-week high/low SEK9.03 SEK2.65

Business description

Oasmia Pharmaceutical is a Swedish speciality

pharma company focusing on its proprietary XR-17

technology platform to develop novel formulations

of well-established cytostatic oncology treatments

for human and animal health. Key assets include

Apealea (partnered with Elevar) and Docetaxel

micellar.

Next events

Apealea US NDA filing 2020/21

Apealea US approval and launch 2022/23

Apealea EU commercialisation partner 2020/21

Analysts

Dr Susie Jana +44 (0)20 3077 5700

Dr John Priestner +44 (0)20 3077 5700

healthcare@edisongroup.com

Edison profile page

Pharma & biotech

Oasmia Pharmaceutical is a

research client of Edison

Investment Research Limited

Oasmia Pharmaceutical | 9 September 2020 2

Investment summary

Company description: On route to sustainable profitability

Oasmia Pharmaceuticals, founded in 1999, is headquartered in Uppsala, Sweden, and employs 59

personnel (post restructuring in 2021 there will be 27). Oasmia listed on the Nordic Growth Market

(Nordic MTF) in 2005 and has been listed on Nasdaq Stockholm since 2010. Oasmia has raised

SEK1.95bn to date. The company’s R&D innovation capabilities are centred on its XR-17

technology platform, which enables nano-sized particle formulations of active pharmaceutical

ingredients (APIs) to be water soluble. Its focus to date has been on widely available cytostatic

cancer drugs; lead assets include Apealea (paclitaxel micellar) and docetaxel micellar with the main

advantage of shorter administration time. With its promising technology platform applicable across

a broad range of drugs and a global commercial agreement for Apealea in place, the newly

appointed management has realigned its strategic focus to achieving profitability in the near term.

Oasmia is thus at a major inflection point; timely strategic and sales execution (through partners) is

critical to deliver on its vision to become a profitable company, which we forecast from FY23

onwards contingent on achieving milestone payments from Elevar. With a lack of visibility on the

amounts and timing of potential milestones, our forecasts are based on our assumption of $25m

(SEK219.3m based on current FX) in milestone payments from Elevar in FY23 relating to launches

in the US and additional countries in Europe. For FY24, we forecast $12.5m (SEK109.7m based on

current FX) in milestone payments relating to US sales and launches in additional European

countries.

Valuation: SEK2.82bn or SEK6.29/share

Assigning a fundamental valuation to Oasmia requires consideration of the inherent value of the

technology platform, potential clinical pipeline candidates and future partnership deals. However,

our valuation of SEK2.82bn or SEK6.29/share including net cash (plus short-term investments) of

SEK274m (at 31 July 2020) is exclusively based on a risk-adjusted model of the future royalties and

milestones we expect from the Elevar deal for Apealea in ovarian cancer only (SEK1.76bn),

docetaxel micellar in prostate cancer (SEK346.1m) plus an indicative value of the animal health

business (SEK443.7m), which is in late clinical stage and we expect to be divested. We have not

ascribed value at this point to the technology platform and unconfirmed candidates at an early

stage in preclinical development; consequently, we see uplift potential as the pipeline progresses

with potential out-licensing deals, and as Apealea moves into additional indications.

Sensitivities: Lower development risk, higher execution risk

Oasmia is subject to various sensitivities common to speciality pharmaceutical companies,

including commercialisation (pricing, reimbursement, uptake and competition) and financing risks.

The key sensitivities for Oasmia relate to successful commercialisation of Apealea by partner

Elevar (Apealea represents 62% of our Oasmia valuation) plus crystallising value from its earlier-

stage pipeline. Oasmia is a turnaround story thus the successful execution and delivery on the

strategic objectives by the new management is key. Our forecast profitability is dependent on

royalties on sales and more importantly milestone revenues from existing partners; delay or failure

to receive future milestones would compromise our premise that profitability is achievable in FY23.

The US is a key market and Elevar is in discussions with the FDA on the pathway to approval for

Apealea. Any need for additional clinical data could affect our approval timeframe and associated

milestones.

Oasmia Pharmaceutical | 9 September 2020 3

Financials: Funded to profitability

In FY20 (Oasmia financial year ends 30 April), net sales of SEK201.8m related to the upfront

payment of $20m from Elevar, and the operating loss was SEK30.1m. Net cash as of 31 July 2020

was SEK274m ($31.2m), following a SEK371.9m net capital raise in December 2019. Our net cash

calculation includes a deduction of SEK80m for the short-term liability relating to the MGC Capital

claim. However, we note this is largely offset by a counter claim held by Oasmia that has a face

value of SEK60m (book value SEK40m). We forecast total revenues of SEK0.8m in FY21

(SEK96.9m in FY22). With the tightening of the cost base post restructuring we expect that Oasmia

can break even in FY23, with profitability thereafter subject to regular milestone payments (we

forecast a net loss of SEK137.2m in FY21 and SEK47.1m FY22). Oasmia has guided cash burn of

SEK10m per month, which implies a cash runway into our break-even year of FY23.

Outlook: Multiple facets to transformation

Oasmia is at a major inflection point as it focuses on its transformation into an R&D-driven,

profitable, speciality pharmaceutical company with commercially available assets developed in-

house. The deal with Elevar Therapeutics means the worldwide commercialisation of Apealea (ex

Nordic, Baltics, Kazakhstan and the Russian Federation) is now mainly in the hands of a partner,

which will enable Oasmia to focus on its core drug development competencies and new strategic

focuses. The Elevar deal terms consist of a $20m upfront licence payment, double-digit royalties on

sales and up to $678m in sales, clinical development and regulatory milestones; this reflects

Apealea’s potential value across multiple cancer indications beyond its initial approval for ovarian

cancer (we assume $130m of the milestones relate to ovarian cancer). Newly appointed

management (including CEO Dr Francois Martelet, plus board members) have outlined its vision for

a new Oasmia and the steps required to complete the transformation. Importantly, management

has started to deliver in a short space of time and in June 2020 set out a defined plan to realign the

business through organic growth and strategic acquisitions, in addition to significant cost control (by

moving away from direct commercialisation activities requiring operational cash) to focus on drug

development and a partnering business model to extract optimal value.

Platform technology de-risks investment case

Apealea was developed through Oasmia’s proprietary XR-17 platform technology, which solubilises

water insoluble substances and can be applied to a wide range of compounds (including

established drugs such as paclitaxel). De novo drug development is both costly and time-

consuming. This is magnified by the high rates of attrition during clinical trials and the difficulty of

meeting rising safety standards while maintaining clinical efficacy and an overall disease benefit.

Oasmia is able to significantly de-risk this development process by using its proprietary XR-17

platform technology to reformulate currently approved drugs that are off patent and already have

proven safety and efficacy. These reformulated drugs are in principle patentable. Although the usual

preclinical and clinical trials are still required for regulatory approval, in the US Oasmia may be able

to take advantage of the 505(b)(2) regulatory pathway, allowing it to submit clinical data for the

original legacy drug as part of the new drug application (NDA) submission, which may reduce R&D

costs and may also reduce the time to the US market.

Paclitaxel nanoformulation market defined by Abraxane

Apealea is a nano-sized particle formulation of paclitaxel, the API in Bristol-Myers Squibb’s (BMS’s)

Taxol, which was the world’s first blockbuster oncology treatment. Today, paclitaxel is one of the

most widely used chemotherapy agents in a variety of indications. Oasmia has utilised its

proprietary XR-17 technology to formulate a water-soluble formulation of paclitaxel that is

Oasmia Pharmaceutical | 9 September 2020 4

Cremophor EL-free and human albumin-free so that it has the potential to confer specific

advantages to available paclitaxel formulations (including branded and generic Taxol in terms of

improved tolerability, shorter infusion times and no mandatory corticosteroid premedication).

Apealea is bioequivalent to market leader (by value) Abraxane, which ended Taxol’s monopoly with

an improved formulation (and resulting tangible benefits of improved survival and quality of life to

patients).

Other cancer indications key to full monetisation

Apealea for the treatment of second-line (2L) ovarian cancer launched in Nordic regions in

February 2020, and in the near term the focus will be on the potential for US NDA filing (through

global partner Elevar). The full commercial supply on a pan-European basis will depend on Elevar

finding a sub partner (although some patients will have early access via the agreement between

Tanner Pharma and Elevar). The market opportunity for improved paclitaxel formulations has been

established by human albumin-bound paclitaxel Abraxane (BMS/Celgene); consensus forecast

peak sales for 2020 of $1.6bn encompasses a range of cancers. Initially Apealea will launch for

second-line ovarian cancer, an indication Abraxane is not approved for. In order to crystallise the

significant deal economics of the Elevar deal, the approval and commercialisation of Apealea in

additional cancer indications is necessary. In terms of resource allocation Elevar will need to

optimise investment into two or three value driving indications, (we believe Apealea will not be

developed for indications for which Abraxane is approved) and we note combination studies with

targeted therapies and/or PD-1 inhibitors will be a critical element of its future success. We do not

include other indications in our forecasts and valuation as we have no visibility on future

development plans.

Apealea (and Elevar deal) full validation of XR-17 technology

Apealea is a water-soluble, iv formulation of paclitaxel that is solvent-free (no Cremophor EL

solubilising agent used in Taxol). This is a particularly attractive value proposition as it significantly

improves on the profile of a widely utilised chemotherapeutic agent with lower infusion time and

removal of mandatory corticosteroid premedication vs conventional paclitaxel (Taxol). Apealea

received approval in the EU for the treatment of second-line platinum-sensitive ovarian cancer in

2018. Additionally, Oasmia is developing docetaxel micellar (solvent-free formulation of Taxotere) in

prostate cancer, a market that could potentially be larger than Taxol. We expect Oasmia to expand

its pipeline offering as it looks to identify APIs to reformulate and advance into clinical development

in core therapeutic areas, and additionally extract value from the platform by the potential out-

licensing of non-core assets. Furthermore, XR-17 will also be utilised to explore combination drug

formulations (XR-19); this is important as oncological therapeutic regimens move increasingly

toward double/triple drug strategies; key to this is tolerable individual drugs and water soluble,

solvent-free formulations lend themselves extremely well to such approaches.

Execution is critical, patience is a virtue

In February 2020, Oasmia’s newly appointed board appointed Francois Martelet as CEO. A

biotech/pharma industry veteran, Dr Martelet has a proven track record of delivering on strategic

biotech turnarounds. This was followed by the appointment of Peter Selin as chief business officer

in August and the appointment of Fredrik Järrsten as CFO in September (to start before 8 March

2021). In June 2020 management set out clear strategic goals for an operational and financial

course to realising its aim to be cash flow positive in FY23. During 2020 Oasmia signed two

collaboration agreements including the major commercial deal with Elevar and also a partnership

with the Swiss Group for Clinical Cancer Research (SAKK) to conduct the first clinical trial of

docetaxel micellar in advanced prostate cancer. Execution is critical; however, we believe the goals

are sensible and achievable in the near term. Exhibit 1 highlights Oasmia’s strategic priorities.

Oasmia Pharmaceutical | 9 September 2020 5

Exhibit 1: Strategic priorities

Notes

◼ Explore additional opportunities to apply the company’s proprietary XR-17 solubility-enhancing technology platform in oncology and other therapeutic areas, including out-licensing of non-core applications.

The XR-17 technology is applicable to any solubility-limited API, which includes 10-15 different cytostatic agents. Oasmia is in advanced discussions with a number of companies. Likely divestment of the animal health business.

◼ Continue to drive the development of Oasmia’s existing pipeline of XR-17-based products, including docetaxel micellar (docetaxel) in prostate cancer.

Docetaxel micellar Phase Ib study in prostate cancer is expected to initiate in early 2021.

◼ Leverage the company’s GMP manufacturing facilities for R&D and clinical trial production.

Greater focus on R&D and clinical trial GMP manufacturing as opposed to commercial manufacturing.

◼ Expand Oasmia’s pipeline through potential acquisitions or in-licensing deals with a focus on late-stage assets that will move the company towards positive cash flow.

Multiple potential opportunities to strengthen its clinical pipeline with XR-17 compatible late-stage assets to drive long-term growth.

◼ Undertake a comprehensive cost control programme designed to maximise resources and enable it to invest in areas which can deliver the greatest return.

Annualised cost savings of more than SEK100m through ~50% reduction in the cash burn rate to below SEK10m a month.

Source: Oasmia Pharmaceutical company presentation, Edison Investment Research.

Apealea for ovarian cancer and beyond

Oasmia launched Apealea in Russia and Kazakhstan in 2015 and Nordic countries (Sweden,

Denmark, Norway) in early 2020 and future launches will now be led by global commercialisation

partner Elevar Therapeutics. Elevar has in-licenced rights globally (with the exception of Oasmia

territories). The pathway and timing to US approval and launch are key given that Elevar plans to

launch in this territory (Elevar will need to establish a commercial team in the US). Worldwide

opportunities start with the European roll out (Apealea received CHMP approval for ovarian cancer

in 2018) and Elevar is seeking to establish a partner for European commercialisation.

Elevar is building its oncology expertise

Elevar Therapeutics is a US based wholly owned subsidiary of publicly listed HLB, a Korean

conglomerate. Elevar focuses on the development of oncology treatments with a view to

commercialisation in the US. Its key assets in development include Apatinib (rivoceranib), a

selective VEGFR2 inhibitor approved in China for gastric cancer and a BTK/JAK3 inhibitor

(hematologic malignancies and rheumatoid arthritis). Elevar hold the worldwide rights for Apatinib,

excluding China. Data from the global Phase III registration monotherapy study (ANGEL) in patients

with metastatic gastric cancer, its most advanced indication, were announced in September 2019.

With Apatinib progressing to US NDA submission, the in-licensing of Apealea should enable Elevar

to establish its US oncology commercialisation team and enable further synergies on the launch of

Apatinib (if approved).

FDA pathway under discussion

In the US Elevar is in discussions with the FDA for Apealea; as such the exact timing of an NDA

filing is not clear. Discussions may centre around whether the Apealea NDA can be prepared under

the 505(b)(2) regulatory pathway; this is a hybrid between a new molecule entity (NME) regulatory

pathway 505(b)(1) NDA and the abbreviated new drug application (ANDA) 505(j) regulatory

pathway. Filing via the 505(b)(2) pathway means the NDA submission can include originator drug

trial data, data that establishes pharmaceutical bioequivalence and demonstrates bioequivalence to

paclitaxel. We note that the 505(b)(2) pathway benefits include shortened development time and

lower costs, plus the potential for three to five years of market exclusivity but not necessarily shorter

review time to approval (in 2017 Tufts published a review suggesting approval time for 505(b)(2) is

nearly five months longer than NME). Elevar is engaged in the pre-NDA meeting with the FDA and

we expect the US NDA to be filed based on the EU data. We forecast US launch in FY23, but note

that if the FDA requests additional data or clinical trials, this would materially impact on our approval

and associated milestone assumptions and, if this is the case, we would need to reassess our

profitability forecast year of FY23. We note that in 2018 the FDA issued several guidelines

pertaining to the application of nanotechnology in FDA-regulated products.

Oasmia Pharmaceutical | 9 September 2020 6

Global named patient programme to provide early access to Apealea

In July Elevar announced a partnership agreement with US based Tanner Pharma, a global

provider of integrated specialty access solutions, that will facilitate access to Apealea on a named

patient basis ex US in countries where Apealea is not commercially available. In Europe patients

could benefit initially from early access (excluding the Nordic region, where Oasmia launched

Apealea in February 2020). The launch of Apealea in the Nordics was hampered by COVID-19 and

as a result no sales have been made to date. Under the named patient programme (early or

expanded access programme), physicians can prescribe investigational or approved drugs prior to

their commercial availability to patients with no therapeutic alternatives. In the near term we expect

a partnering deal for Europe to be announced by Elevar to enable full launches across Europe with

the accompanying country by country reimbursement negotiations.

Deal economics cover multiple cancer indications globally

The global paclitaxel market is dominated in value terms by BMS/Celgene’s Abraxane (approved

for non-small-cell lung carcinoma (NSCLC), breast cancer, and pancreatic cancer), which reported

$1.6bn global sales in 2019, while Taxol and its generic versions make up significant volumes.

Despite a slew of novel cancer drug treatments transforming care for many oncology indications,

established chemotherapy regimens remain a cornerstone of treatment that is unlikely to be fully

displaced given cost effectiveness, broad applicability, accessibility globally and efficacy as

monotherapy and in combination therapy. Reformulations are appealing for use in patients who

experience adverse events on Taxol, or in those where a higher tolerated dose of drug is required

(particularly in the resistant patient populations that Apealea is targeting). Apealea’s profile is

differentiated to Taxol (shorter infusion time, no mandatory steroid premedication and no solvent-

related adverse reactions) and combined with an optimal pricing strategy (vs Abraxane as opposed

to competing with generic paclitaxel pricing) should enable significant uptake across its primary

indication of second-line platinum-sensitive ovarian cancer, an indication not included on

Abraxane’s prescribing label. Further sales and valuation uplift will be defined once we have clarity

on additional indications sought, and clinical trials (including combination with PD-1 inhibitors and/or

targeted therapies) are initiated and funded by Elevar. We note that Apealea is not being positioned

to take on Abraxane indications.

Peak sales potential of $282m in ovarian cancer

Our valuation of the Elevar deal largely focuses on the potential milestone payments in the near

term, with tiered royalties on sales (15–18%) for Apealea in ovarian cancer. We forecast global

peak sales of $282m in this indication. Ovarian cancer is the eighth most commonly occurring

cancer in women with c 300,000 new cases in 2018 globally. The US market is the largest and in

2017, 233,364 women in the US were living with ovarian cancer. Ovarian cancer incidence rates

are c 11/100,000, and 70% of patients relapse after first-line treatment. We assume Apealea could

be used in 10% of eligible US patients (second-line relapsed ovarian cancer) at its peak and pricing

of $1,000 a cycle (six cycles) represents a significant discount to the $1,500 Abraxane pricing per

injection. In Europe we assume a 10% peak penetration rate and pricing of $500 per cycle (six

cycles). With opportunities in the rest of the world (RoW) including China, our RoW assumptions

may prove conservative with pricing at $250 per cycle (six cycles) and 10% penetration. This leads

to our peak sales forecast in 2028 of $282m (US $128m, EU5 $62m and RoW $92m).

Ovarian cancer typically presents in women over age 50 and treatment options, depending on

stage at diagnosis, include surgical resection, chemotherapy, radiotherapy and novel cancer

targeted therapies including VEGFR inhibitors. The standard of care first-line chemotherapy for

epithelial ovarian cancer is a combination of paclitaxel and carboplatin. Approximately 70% of

advanced-stage ovarian cancer relapses despite a raft of novel cancer drugs now available

including VEGF inhibitors, PI3K/AKT/mTOR inhibitors and PARP inhibitors, and in these patients

Oasmia Pharmaceutical | 9 September 2020 7

paclitaxel in combination with a platinum-based agent (eg carboplatin) remains the standard of

care. Apealea is approved in Europe for 2L platinum-sensitive epithelial ovarian cancer, primary

peritoneal cancer and fallopian tube cancer.

Ovarian cancer potentially the tip of the oncology iceberg

A critical outcome in a more tolerable formulation of paclitaxel is enhanced therapeutic benefit

combined with improved tolerability, which lends itself to combination trials, increasingly important

in the treatment strategies for cancer. Abraxane has been evaluated across various cancer

indications and combination studies include with T cell checkpoint inhibitors, atezolizumab (NSCLC,

triple neg BC). According to Evaluate Pharma, the sales split in 2019 was $545m in pancreatic

cancer, $867m in breast cancer and $182m in NSCLC. With Abraxane dominating breast cancer

and pancreatic cancer, it makes sense for Elevar/Oasmia to focus on other indications not covered

by Abraxane and pursue combination strategies.

Paclitaxel nanoformulation market defined by Abraxane

Apealea is a nano-sized particle formulation of paclitaxel, the API in Taxol, a naturally derived (from

the bark of the Pacific yew tree, Taxus brevifolia) chemotherapy agent and a member of the taxane

family of drugs that was discovered in 1962 by the US National Cancer Institute and then

commercially developed by BMS. Paclitaxel acts as a mitotic inhibitor; it prevents rapidly growing

cancer cells from dividing by attaching to scaffold-like structures of the cells called microtubules.

This results in the blockage of the metaphase‐anaphase transitions, the inhibition of mitosis and

induction of apoptosis (cell death) in a wide spectrum of cancer cells (and non-cancerous cells, thus

a wide spectrum of side effects are observed with chemotherapy agents).

Taxol multiple cancer indication drove success

Taxol was the revolutionary cancer treatment of its time. Approved for ovarian cancer in 1992, Taxol

went on to become one of the most successful chemotherapy agents, reporting sales of $1.6bn at

its peak in 2000, before generic paclitaxel products became available in 2001. Peak sales of Taxol

reflect approved indications for ovarian, breast and lung cancer, plus off-label to treat other cancers.

One of the biggest issues of Taxol is its poor solubility in water, which was overcome by dissolving

the API in ethanol, with the addition of a castor oil derivative known as Cremophor EL.

Challenges with conventional paclitaxel formulations

Despite its success, one of the main drawbacks of Taxol is its side effects that relate to the solvents

used as excipients (as opposed to the API paclitaxel), which may cause life-threatening

hypersensitivity reactions, which can include fatal anaphylaxis. While pre-medication with

corticosteroids, diphenhydramine and H2 antagonists and slow infusion times have improved the

severity of hypersensitivity reactions, there remains an unmet need for an improved paclitaxel

formulation. Abraxis BioScience, recognising the need, went on to develop and successfully

commercialise Abraxane (human albumin-bound paclitaxel) by carving out a market for the higher

priced reformulation despite the availability of generic paclitaxel. The impressive uptake of

Abraxane highlights the willingness to prescribe for a subset of patients who experience side effects

with solvent-based paclitaxel, despite the significantly higher price.

Abraxane consensus for 2021 estimates $1.7bn

To improve on Taxol’s formulation, work was initiated on compound ABI-007 (license to kill cancer),

which combined paclitaxel with natural human albumin utilising nanoparticle technology to enable a

solvent-free formulation. Abraxane (human albumin-bound paclitaxel particles for injectable

suspension) had lower hypersensitivity reaction, and reduced infusion time compared to generic

paclitaxel. Furthermore, the clinical data that led to Abraxane approval demonstrated superiority in

Oasmia Pharmaceutical | 9 September 2020 8

reduction of toxicity vs Taxol leading to a significantly higher MTD for Abraxane. Abraxane received

initial FDA approval in 2005 for metastatic breast cancer with later approvals for NSCLC and

pancreatic cancer, and EMA approval in 2008.

Apealea profile: Equivalent efficacy and shorter infusion time

Like Abraxane, Apealea offers a Cremophor EL-free formulation of conventional paclitaxel, and its

improved profile means improved stability and pharmacokinetics (PK), and reduced infusion times

compared to Taxol, as determined by the Phase III OAS-07OVA study in ovarian cancer (Exhibit 2).

No toxicity has been observed with XR-17 doses of up to 200μg/ml (the maximum concentration

tested) providing a fourfold safety margin. Importantly there is no evidence of the retinoid

derivatives that constitute the XR-17 platform interacting with retinoid receptors and incurring the

associated side effects. Apealea therefore exhibits an improved tolerability as well as reduced need

for corticosteroid premedication always required with Taxol.

Exhibit 2: Efficacy data from OAS-07OVA study in ovarian cancer

Apealea* (n=311)

Taxol* (n=333)

Median progression-free survival (PFS), months (95% CI) 10.3 (10.1-10.7) 10.1 (9.9-10.2)

Hazard ratio (HR)** (95% CI) 0.86 (0.72–1.03)

Median overall survival (OS), months (95% CI) 25.7 (22.9-28.1) 24.8 (21.7-27.1)

Hazard ratio (HR)** (95% CI) 0.95 (0.78–1.16)

Source: Oasmia Pharmaceutical. Note: *In combination with carboplatin. **A longer PFS or OS for Apealea

compared to Taxol (Cremophor EL formulated) is indicated by an HR less than 1.0.

Preclinical studies of Abraxane show a higher dose of drug can be administered without

corticosteroid premedication. In November 2015 Oasmia confirmed that the final data from the

Apealea H2H comparison study vs Abraxane (both Cremophor EL-free) demonstrated

superimposable paclitaxel PK profiles in patients with metastatic breast cancer. The cross-over

study demonstrated virtually identical plasma levels of total and unbound drugs for the two

formulations such that they are bioequivalent with regards to unbound paclitaxel concentrations.

The latter is important as it is the unbound concentration that relates to clinical effect.

Global competitive landscape limited to Abraxane

Despite multiple companies pursuing reformulations of Taxol, the marketplace globally remains

dominated by Abraxane. Exhibit 3 highlights the different formulations of paclitaxel approved

regionally or globally. For Apealea, pricing will be key to determining market share, as will be rolling

out beyond the ovarian cancer indication.

We note competitors such as Lipusu and Cynviloq appear to be focused on their domestic markets.

Besides Apealea, Sun Pharma Advanced Research Company’s (SPARC) Taclantis appeared to

represent the biggest threat to Abraxane’s global monopoly over the reformulated paclitaxel market.

Currently approved in India, this product boasts a higher maximum threshold dose than Abraxane

(325mg vs 300mg), potentially allowing higher doses and improved efficacy. However, in February

2020 the US FDA issued a complete response letter rejecting Taclantis’s NDA in its current form.

The company is working to address the concerns raised.

To date, no clinical studies have directly compared the efficacy of Apealea and Abraxane. However,

Apealea does exhibits a similar PK profile to Abraxane. The absence of human albumin in this

formulation is beneficial as Apealea does not require an albumin donor and has a reduced risk of

microbial growth and viral transmission relative to Abraxane. Additionally, the relative simplicity of

the XR-17 technology enables efficient and cost-effective manufacturing of Apealea, which should

allow Apealea to be priced competitively vs reformulated paclitaxel brands. The particularly low ratio

of excipient to API for Apealea also reduces the risk of excipient-based side effects and offers the

Oasmia Pharmaceutical | 9 September 2020 9

opportunity for higher drug load capacities. We note that Elevar has not clarified its plans for which

future indications and the related clinical trials it is planning for Apealea.

Exhibit 3: Differentiation of Apealea vs other paclitaxel formulations

Product Apealea Abraxane Taxol Lipusu Taclantis Cynviloq (Genexol-PM)

Company Oasmia/Elevar Celgene/BMS BMS Luye Pharma Sun Pharma/SPARC Samyang/NantPharma

Market status Approved in Europe and Russia

Approved globally Approved globally Approved in China Approved in India (trade name Bevetex)

US NDA CRL

Approved in South Korea

Indications Ovarian cancer Breast cancer,

pancreatic cancer,

NSCLC

Ovarian cancer,

breast cancer,

NSCLC

Ovarian cancer,

breast cancer,

NSCLC

Ovarian cancer,

breast cancer

bladder cancer

Ovarian cancer,

breast cancer,

NSCLC

Nanotechnology Micellar solution Human Albumin-based Nanoparticle

Emulsion Liposome Polymeric-lipidic nanoparticle

Polymeric Micelle

Excipient XR-17 Human albumin Cremophor EL Lecithin/Cholesterol Nanotecton Polymer/lipid

PEG-PDLLA

Excipient ratio 1.3:1 9:1 88:1 N/A Not disclosed 5:1

Particle size (nm) 20–60 130 10–22 130 100 25

Dose (mg/m2) 250 260 175 175 260 260

Infusion time (mins) 60 <60 180 180 25 30

AUC (h*g/ml) 17.8

(at 275mg/m2)

16.7-19.1

(at 300mg/m2)

23.2

(at 210mg/m2)

TBD 15.6

(at 260mg/m2)

11.6

(at 300mg/m2)

Pre-medication required?

Not mandatory No Yes Yes No No

Hypersensitivity No No Yes Yes No No

Important considerations

Safe excipient with

similar PK to Abraxane

Requires albumin

donor and risk of microbial growth

Hypersensitivity

reactions due to Cremophor EL

Limited PK data Similar effectiveness to Abraxane

Higher MTD than

Abraxane and reduced neuropathy

Source: Company websites, Edison Investment Research

Abraxane patent expiry could disrupt the market

A potential disruption to the paclitaxel market could come after the patent expiry of Abraxane in the

US in 2026 and Europe in 2022. Celgene (BMS) has been rigorously protecting Abraxane’s

intellectual property from infringement and in 2015 filed a Citizen Petition to the FDA requesting the

need for clinically demonstrated safety and efficacy for any ANDA or 505(b)(2) application that

references Abraxane. This could potentially delay approvals of nano-formulations of paclitaxel. In

March 2016, Allegan submitted a paragraph IV ANDA claiming its generic version of Abraxane did

not infringe on Celgene’s patents. However, we note a generic version of Abraxane is yet to be

approved in the US. In February 2019 the EMA approved Teva’s Pazenir as the first generic version

of Abraxane in Europe for the treatment of metastatic breast cancer and NSCLC. We expect the

emergence of generic versions of Abraxane to be slow due to the stringent manufacturing

requirements necessary to prevent potential microbial and viral transmission from the human

albumin component. However, we note that Abraxane could come under pricing pressures as

competition increases.

Docetaxel micellar next opportunity emerging

Sanofi’s Taxotere is one of the most commercially successful and widely used chemotherapies,

generating global sales in excess of €2.2bn in 2009, prior to the expiration of the patent in 2010.

Taxotere is approved for the treatment of prostate, breast, head and neck, stomach and NSCLC.

Docetaxel micellar (previously known as Docecal) is a nanoparticulate formulation (utilising

Oasmia’s XR-17 platform technology) of docetaxel, the pharmaceutically active ingredient of

Taxotere. Docetaxel has an inherently low aqueous solubility. To enable iv administration, docetaxel

is solubilised through micelle formation with polysorbate 80 and ethanol as Taxotere. However,

premedication with prednisone corticosteroid is always required to manage the severe side effects

of these solubilising agents and this can have a detrimental impact on the therapeutic performance

Oasmia Pharmaceutical | 9 September 2020 10

of the chemotherapy. Oasmia’s solubility enhancing XR-17 technology enables the iv administration

of docetaxel without the need for the solubilising agents, and thus no mandatory requirement for

steroid premedication.

Docetaxel micellar Phase Ib in prostate cancer to initiate

Oasmia is evaluating docetaxel micellar in metastatic castrate-resistant patients, as such treatment

involves a one-hour iv infusion of Taxotere every three weeks, with continuous exposure to

prednisone (orally twice a day). Oasmia believes that this small patient population would benefit

most from the use of docetaxel micellar, reducing the need to preload corticosteroids. In June 2020,

Oasmia signed a partnership agreement with SAKK to conduct the first clinical trial of docetaxel

micellar in patients with advanced prostate cancer in Switzerland. SAKK will be responsible for the

management of the Phase Ib trial (n=18), while Oasmia will supply docetaxel micellar and fund the

costs of the trial, which are not deemed material. The trial is expected to initiate in early 2021, with

top-line results expected within the next 12–18 months that will determine the future development

path. The dossier prepared from the Phase Ib Switzerland trial will be US compatible, allowing

Oasmia to launch into a global Phase II study if the results are positive.

Breast cancer trials fast-track prostate cancer development

Clinical trials conducted in breast cancer validate the improved safety and tolerability of docetaxel

micellar. The product was able to bypass a Phase Ia clinical trial and go straight into Phase Ib on

the merit of safety, tolerability and PK data previously acquired from Phase I and II trials (230

patients treated in total) in metastatic breast cancer, prior to discontinuing its development in this

indication. Oasmia recently presented data from both of these trials at ASCO20. The Phase I trial

showed that docetaxel micellar is bioequivalent with Taxotere and exhibits a similar PK profile, in

terms of both the maximum concentration and duration of exposure (Cmax and AUC). The Phase II

trial was a multicentre, randomised, open-label study comparing docetaxel micellar vs standard of

care Taxotere. Patients receiving Taxotere also received standard mandated premedication

(corticosteroids), while those receiving docetaxel micellar did not. Fewer serious adverse events

were reported with docetaxel micellar, which included side effects of neutropenia (52.0% vs 83.0%),

leukopenia (15.3% vs 27.0%) and febrile neutropenia (14.3% vs 23.0%). Almost twice as many

patients (12.2% vs 24.0%) required dose reduction due to the severity of these adverse events in

the Taxotere arm. The primary endpoint of objective response rate was not reached and non-

inferiority of docetaxel micellar in terms of efficacy could not be confirmed. This resulted in

development of docetaxel micellar being discontinued in metastatic breast cancer.

We forecast peak sales of ~$240m in prostate cancer

Prostate cancer is the most common cancer in men. The American Cancer Society estimates there

will be 191,300 new cases of prostate cancer diagnosed in the US in 2020. Almost all prostate

cancers are adenocarcinomas, and established risk factors include increased age and specific

inherited genetic conditions (such as Lynch syndrome and BRCA1/BRCA2 mutations). Around 76%

of new cases are diagnosed at an early stage when the disease is still localised to the prostate. For

many of these patients, active surveillance is the initial course of action. Treatment options for

early-stage disease includes surgery and whole gland radiation therapy (side effects include

impotence and incontinence). Hormone therapy that suppresses the production of androgens that

drive tumour cell growth is used for patients with progressive disease, but this is not a curative

treatment.

Prostate cancer that has progressed on hormone therapy is referred to as castrate-resistant

prostate cancer. Despite receiving a combination of treatments 30–40% of patients have

progressive disease. Chemotherapy remains a commonly used treatment for patients with late-

stage, metastatic and castrate-resistant prostate cancer. The current standard of care for these

Oasmia Pharmaceutical | 9 September 2020 11

patients involves a combination of the cytostatic agent Taxotere with prednisone (corticosteroid)

premedication. However, many patients with advanced disease have bone metastases, and the use

of additional steroids as premedication with solvent-based Taxotere may increase the incidence of

skeletal-related events such as fractures that affect quality of life and survival. We expect docetaxel

micellar approval and launch in both the US and Europe in FY25 with peak penetration of 30% in

this small and specific subset of patients with advanced prostate cancer who have very limited

treatment options. We assume pricing of $1,000 per cycle in the US and $500 per cycle in Europe,

with six cycles per treatment. This leads to our peak sales forecasts of $239m in FY30. We assume

Oasmia will continue to fund the clinical development cost into Phase II/III in prostate cancer.

XR-17 technology applicable to a range of compounds

The success of Oasmia’s XR platform has been validated by Apealea. While Oasmia’s focus has

been on oncology and chemotherapeutics, its XR-17 technology is applicable to APIs in other

therapeutic areas and we expect to see Oasmia move into non-oncology indications in the near

future. Management has stated that it is looking to grow the current pipeline through strategic

acquisitions and in-licensing of late-stage assets, with Nordic-based oncology companies expected

to be the likely targets (we expect a deal to be announced by the end of 2020). Oasmia also has

the opportunity to out-license its XR-17 technology and forge partnerships with companies that

have promising APIs that could benefit from its proven solubility-enhancing technology. The XR-17

technology is compatible with 10–15 different cytostatic therapies and Oasmia is in advanced

discussions with a number of companies. Oasmia has indicated it is also looking to build

collaborations with prominent academic groups to generate novel APIs in oncology and other

therapeutic areas, as well as further develop its XR-17 technology platform.

Solution to poor drug solubility

Poor aqueous solubility is a key driver of clinical attrition during drug development. As only the

soluble fraction of the drug is available for absorption, poor solubility can lead to inadequate and

variable bioavailability (drug exposure), hampering the drug’s efficacy and potentially limiting the

beneficial disease response. For iv administered treatments, precipitation of the API from solution is

a key safety concern. Approximately 40% of marketed drugs and 90% of clinical candidates in

development are considered poorly soluble, and these percentages are expected to continue to

increase.

A range of techniques have been developed to improve the solubility of drugs by modifying their

chemical composition and physical properties. For chemotherapeutics more specifically, emulsifying

agents such as Cremophor EL (polyoxyethylated castor oil) and polysorbate 80 have successfully

been used to improve the solubility of cytostatic drugs for intravenous administration. These agents

often cause adverse side effects that can be severe but have been accepted in the oncology arena

given the limited treatment options. More recently, new solubilising technologies that aim to avoid

these side effects have emerged, involving the use of lipids, proteins, polymers, nanoparticles and

micelles.

XR-17 platform technology

Oasmia’s proprietary XR-17 solubility-enhancing technology enables water soluble nanoparticulate

formulations of previously insoluble APIs that can be intravenously administered to patients. This

technology can be applied to any poorly soluble iv dosed API and the reformulated drugs are

patentable, giving Oasmia freedom to operate and many opportunities for development. In 2018 a

new manufacturing patent was granted in the US for the XR-17 technology and all products that are

manufactured using it. This is a key market for Oasmia, and the patent is valid until 2036. Oasmia

Oasmia Pharmaceutical | 9 September 2020 12

has 56 patents protecting combinations of APIs with XR-17 in key territories. The company has also

applied for supplementary protection certificates in Europe, which if granted would extend patents

by five years.

The in-house developed XR-17 technology utilises two chemically identical vitamin A (retinol)

derivatives, XMeNa and 13XMeNa, to encapsulate a poorly soluble API in a highly soluble

nanoparticle sized spherical structure called a micelle, Exhibit 4. These micelles are 20–60nm in

size (by comparison a human hair is c 70,000nm wide) and have a water-soluble exterior formed by

the hydrophilic head groups of the XR-17 derivatives and an API-solubilising hydrophobic

(lipophilic) interior formed by the long hydrocarbon tails of the XR-17 derivatives. This infers water

soluble properties to the micelle-drug nanoparticles, enabling iv administration without the need for

solvent-based emulsifying agents.

Exhibit 4: XR-17 platform technology

Source: Oasmia Pharmaceutical company presentation

Once in the blood, the micelle disintegrates releasing the API. Oasmia has shown that the XR-17

excipient is well tolerated by the body and the reformulated API exhibits a similar PK profile to the

legacy unmodified API. The XR-17 solubility-enhancing technology offers a number of potential

advantages that include:

◼ Shorter infusion times, enhancing convenience for patients and hospital throughput.

◼ Easily administrable and more predictable dosing with XR-17.

◼ Removes the risk of severe hypersensitivity, allowing for a larger therapeutic dosing window

with potentially higher doses.

◼ Removes the need for pre/post-medication.

◼ Increased drug load capacity due to a higher API to cosolvent ratio (higher dosing potential).

◼ Improved dosing profiles of combination therapies by dual encapsulation of both water soluble

and insoluble APIs in one micelle.

XR-19 combination technology platform

During the last decade combination therapies have revolutionised the relapsed and refractory

treatment paradigm and continue to advance into earlier lines of treatment. Oasmia’s XR-19

technology is an extension of the XR-17 platform, using the same vitamin A derivatives to

encapsulate two APIs in to one solubility-enhancing micelle.

Initially it is likely that Oasmia will focus on chemotherapeutics, where a combination of two

commonly paired cytostatic agents could potentially enable a single infusion instead of two

consecutive infusions. If successful, this could significantly reduce infusion times and treatment

costs while increasing hospital patient throughput. Dual encapsulation also has the potential to

improve the dosing profiles of combination therapies. Pre-clinical studies have so far shown

encouraging results and Oasmia is evaluating potential combinations to progress for further

development.

Oasmia Pharmaceutical | 9 September 2020 13

As far as we are aware, Oasmia is currently the only company pursuing the dual encapsulation of

combination therapies in this way and will have broad freedom to operate through patent protection.

If effective, in the long term, XR-19 technology could potentially be used to combine any two

solubility-limited small molecule APIs or even larger therapies such as monoclonal antibodies.

Key result of the platform; Apealea and docetaxel micellar

The company’s lead asset Apealea is a patented formulation of paclitaxel in combination with a

50:50 mixture of solubility-enhancing XR-17 derivatives XMeNa and 13XMeNa. The recommended

dose of Apealea (250mg/m2) can be administered in one hour, which is significantly faster than the

three hours required for the current standard of care Taxol (175mg/m2). The XR-17 nanoparticulate

formulation of Apealea is freeze-dried following manufacturing and is provided as a solid powder

that can be reconstituted at the bedside within 30 minutes and administered. The solid powder has

a shelf life of three years, which is in line with industry standards but Oasmia believes it can

improve this and is undertaking further development work. Apealea is currently only approved at a

single strength (60mg) and a typical dose requires eight of these vials to be reconstituted and

administered. Oasmia is looking to develop a second-generation Apealea product at a higher dose.

Next in the pipeline, is docetaxel micellar, a patented nano-size micelle formulation of docetaxel in

combination with Oasmia’s solubility enhancing XR-17 derivative XMeNa.

Potential API candidates

Oasmia’s ‘new API’ candidate is an in-house developed asset that has progressed through

preclinical laboratory testing and is now being evaluated for the strength of its intellectual property

and the freedom to operate. If sufficient, Oasmia will file an IND and progress this asset into clinical

trials. The target indication of the new API is undisclosed but is very likely in the oncology arena.

Animal health: Potential for divestment

Oasmia is also using its XR-17 solubility-enhancing technology to develop new formulations of

chemotherapeutics for use in the treatment of veterinary oncology indications; its two most

advanced assets remain in clinical stage development. The US is the largest market in the field of

veterinary medicine and represents the main market for Oasmia’s products. Total expenditure on

pets has risen steadily over the last decade and the American Pet Products Association (APPA)

estimates that total expenditures were in excess of $75bn in 2019 (Exhibit 5). Medical treatments

represent c 30% of these expenditures, which suggests the animal health market was worth more

than $20bn in 2019 and is expected to keep growing in line with the historical trend. This is mainly

driven by an ageing pet population, a growing number of insured animals and an increased

willingness from owners to pay for high-quality veterinary care.

There are 89.7m domestic dogs in the US and c 6m are diagnosed with cancer each year. Cancer

in animals has many similarities with cancer in humans such as prevalence, pathogenesis and

treatment. Current treatment options include surgery, chemotherapy and radiation therapy.

Chemotherapy is the mainstay of cancer treatment for dogs and due to the lack of available

treatments specifically approved for dogs, the standard of care is predominately off-label use of iv

administered cytostatic agents approved for human use. However, these therapies often employ

solubilising agents that cause severe side effects or vehicles that are not compatible with use in

dogs.

Oasmia Pharmaceutical | 9 September 2020 14

Exhibit 5: Total US pet industry expenditures

Source: American Pet Products Association – 2019-2020 National Pet Owners Survey

US conditional approval under MUMS designation

For treatments being developed for veterinary purposes in the US, the Minor Use and Minor

Species (MUMS) designation is a status similar to orphan drug designation for human drugs.

MUMS designation makes a sponsor eligible for financial incentives to support FDA approval

(Phase III development costs) as well as seven years of market exclusivity. It also provides the

opportunity of conditional approval, which allows the company to market the drug after completing

Phase II clinical studies. A Phase III (field study) study is required to achieve full approval before the

conditional approval expires (five years).

Animal health pipeline: Focus on two key assets

Oasmia has two clinical candidates in its animal health pipeline, Paccal Vet for mammary

carcinoma in dogs and Doxophos Vet for lymphoma in dogs. These assets employ the same XR-17

technology that is utilised for the human health products and benefit from the same advantages

previously described (page 12).

Paccal Vet in mammary carcinoma

Paccal Vet is a patented formulation of paclitaxel using Oasmia’s XR-17 technology that is intended

to treat mammary carcinoma in dogs. Paccal Vet is identical to Oasmia’s lead asset Apealea, which

has been approved in Europe for the treatment of second-line ovarian cancer. Mammary tumours

are the most common type of cancer in female dogs with 36,000–41,250 dogs treated annually in

the US alone. Paccal Vet has successfully completed both Phase I and II studies and was marketed

in the US under MUMS designation between 2014 and 2017. Oasmia is evaluating the

development strategy of Paccal Vet at a lower dose to improve its tolerability and expand patient

access. Currently there are no iv administered chemotherapeutics that are specifically approved for

use in pets, although drugs approved for human use are commonly used off-label. We also note

that the paclitaxel containing chemotherapeutics Taxol and Abraxane are not safe for use in dogs

due to the solubilising agents utilised. Taxol exhibits intolerable side effects that are associated with

Cremophor EL, while dogs have a resistance to the human albumin vehicle used in Abraxane. We

believe Paccal Vet potentially offers significant advantages over current treatment options and will

command a sizeable portion of the market share.

Doxophos Vet in lymphoma

Doxorubicin is the active ingredient in Pfizer’s Adriamycin, which is approved for a plethora of

indications in humans. Doxophos Vet is a patented nanoparticulate micelle formulation of

doxorubicin in combination with Oasmia’s solubility-enhancing XR-17 technology that is being

developed for the treatment of lymphoma in dogs. Lymphoma is the most prevalent cancer in dogs,

29.5 32.4 34.4 36.3 38.5 41.2 43.2 45.5 48.4 51.0 53.3 55.7 58.0 60.366.8 69.5 72.6 75.4

0

10

20

30

40

50

60

70

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2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

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Oasmia Pharmaceutical | 9 September 2020 15

accounting for 15–20% of new cases in the US each year, which represents c 1m dogs. Oasmia

has already completed both a Phase I and II study that confirmed the product’s safety and efficacy

in a small number of dogs, which could form part of an FDA application for conditional approval. A

larger Phase III study is required for full approval.

Animal health: Indicative valuation of SEK443.7m

We place an indicative value of SEK443.7m on Oasmia’s animal health business. For simplicity we

value the US market opportunity alone for each indication but note that the EU market (87.5m dogs)

represents significant upside to our valuation if accessed. Both assets have already successfully

completed Phase II studies and require Phase III studies for full approval. We forecast launches in

FY24 for both assets, which results in a valuation of the animal health business of SEK443.7m. Our

valuation for Paccal Vet only includes mammary carcinoma but we acknowledge that continued

development in both squamous cell carcinoma and mastocytoma could provide potential upside. In

addition to the development and commercialisation of Paccal Vet for dogs, Oasmia may also look to

investigate its use in cats, providing further potential upside to our valuation.

Management has indicated that the veterinary business is under strategic review and multiple

outcomes are possible, including in-house development, partnering, licensing, spinoff or

divestment. We believe divestment is the strategy that maximises shareholder value as cash

proceeds could be reinvested in building out the human health pipeline (potentially through in-

licensing opportunities), the company’s primary business.

Sensitivities

Oasmia is subject to various sensitivities common to speciality pharmaceutical companies,

including commercialisation (pricing, reimbursement, uptake and competition) and financing risks.

The key sensitivities for Oasmia relate to execution risk; our sales forecasts and valuation are

dependent on the successful US and European commercialisation of Apealea (subject to approval

by the US FDA). Furthermore, with the focus on one asset in the short term, the valuation is

skewed to and dependent on Apealea (which represents 62% of our valuation). We also

acknowledge that Elevar is building its commercial infrastructure (compliance and medical staff) in

anticipation of a potential launch of its lead asset Apatinib, contingent on NDA acceptance and

approval by the FDA. Any delays in this process could negatively affect the US launch of Apealea.

Elevar does not have a proven track record in commercialisation of products, thus there remains

significant sales execution risk.

Financing needs depend on milestone revenues from existing partners and potential new partnering

activities; delay or failure to receive future milestones, peak sales expectations and sales growth

trajectory would compromise our premise that profitability is achievable in FY23. Additionally, a

number of companies are pursuing solubility-enhancing technologies and Oasmia’s products and

candidates will likely face competition.

The company relies on its proprietary XR-17 technology platform for value generation. Oasmia

holds patents in all countries that it deems important. Its US manufacturing patent that covers the

XR-17 technology and all products manufactured using it is valid until 2036. Oasmia is subject to

the usual patent risks that include legal disputes and applications being rejected. We note that

Ardenia Investment has transferred its patents to Oasmia but has not yet registered these patents

in accordance with the transfer agreement. The company’s legal adviser has concluded that all of

the patents in question are owned by Oasmia and the company has initiated recordation of the

assignment in key geographies (the US and many European countries).

Oasmia Pharmaceutical | 9 September 2020 16

Litigation risks are ongoing. MGC Capital presented a claim for compensation as a result of not

being allowed to subscribe for shares by means of 23.2m warrants. The claim is set at c SEK80m

plus interest and additional claims for damages that amount to SEK230m. Oasmia strongly refutes

that MGC Capital ever had possession of these warrants and has acquired a SEK60m payment

claim (plus interest) against MGC Capital from Arwidsro for SEK40m. We also note the labour law

lawsuits filed by previous working chairman Julian Aleksov and previous CFO Anders Blom have

been contested by Oasmia and the final hearing is expected to be held after the end of 2021.

Valuation

Our valuation of Oasmia Pharmaceuticals is SEK2.82bn or SEK6.29/share (Exhibit 6) and is based

on a risk-adjusted NPV model of Apealea for treatment of ovarian cancer (US, EU5 and RoW) and

docetaxel micellar in prostate cancer. Our valuation does not include Oasmia’s proprietary

technology platform and unconfirmed candidates at an early stage in preclinical development;

consequently, we see uplift potential as the pipeline progresses with potential out licensing deals

and as Apealea moves into additional indications. Our NPV calculation is based on Apealea in

ovarian cancer achieving peak sales of $282m in FY28 globally; given its commercial availability,

we utilise a 10% discount rate and risk adjust the US opportunity accordingly (90%). We forecast

docetaxel micellar peak sales of SEK239m and place an indicative NPV of SEK1.33bn, which risk

adjusted at 25% contributes and rNPV of SEK346.1m to our Oasmia valuation. Adding in net cash

of SEK274m (at 31 July 2020), we reach our risk-adjusted NPV of SEK2.82bn. Additional

indications for Apealea and docetaxel micellar plus bringing new candidates into the clinic would

provide further upside.

Exhibit 6: Oasmia SOTP NPV

Product Indication Launch Peak sales ($m)

Value (SEKm)

Probability rNPV (SEKm)

NPV/share (SEK/share)

Apealea US Ovarian cancer 2023 128 914.4 90% 824.7 1.84

Apealea EU5 Ovarian cancer 2020/21 62 541.9 100% 541.9 1.21

Apealea RoW Ovarian cancer 2020 92 432.8 90% 389.5 0.87

Docetaxel micellar Global Prostate cancer 2025 239 1,333.7 25% 346.1 0.77

Animal health Multiple cancers 2024 163 887.4 50% 443.7 0.99

Net cash at 31 July 2020

274.0 100% 274.0 0.61

Valuation

4,384.2

2,819.9 6.29

Source: Edison Investment Research

◼ Our forecasts are derived from a bottom-up, epidemiology-based approach for the patient

population in which we believe Apealea will be marketed; we rationalised this with a top-down

view on the Abraxane and Taxol sales. We have priced the product at $1000 per cycle in the

US, $500 per cycle in EU, $250 per cycle in RoW and assume six cycles per treatment. We

apply a 10% penetration rate in the US, EU and RoW. We assume tiered royalty on sales

between 15–18% in sales in ovarian cancer and we include $130m in regulatory and sales

milestones in this indication alone (cumulative and reflects all territories). Under this

assumption, a further $548m in milestones would be eligible for other indications (monotherapy

and combinations). We note that as part of the Elevar deal there is a potential pay away to the

third party that brokered the deal and include a 5% pay away on milestones in our valuation of

Apealea.

◼ For docetaxel micellar, we assume a 30% blended royalty rate on sales to capture both sales

milestones and royalties from a potential partnership deal for valuation purposes, which is risk

adjusted at 25% to reflect its Phase Ib status and discounted at 12.5%. We model both US and

European sales to composition of matter patent expiry in 2036. We assume Oasmia will

continue to fund the clinical development costs into Phase II/III in prostate cancer. We do not

value docetaxel micellar in any additional indications that have not yet been announced.

Oasmia Pharmaceutical | 9 September 2020 17

◼ We place an indicative value on the animal health business, which comprises Paccal Vet and

Doxophos Vet. For simplicity we only value the US market opportunity for mammary carcinoma

and lymphoma in dogs, respectively. We forecast launch in FY24 and peak penetration of 7.5%

for both assets. We assume pricing of $875 per cycle with four cycles per treatment with Paccal

Vet and two with Doxophos Vet. We assign a 17.5% operating margin to gross sales and

discount at 50% as both assets have successfully completed Phase II studies.

Oasmia’s valuation is sensitive to the contribution from Apealea. Given Elevar’s intention to fund

and conduct additional clinical trials (Phase II/III required for other indications), we illustrate the

potential value to Oasmia shareholders. Assuming $350m peak sales in ‘another cancer’ with

Phase III starting in FY21, approval in FY24 and launch in FY25, with 15–20% tiered royalties on

sales and cumulative $100m milestones across lifecycle duration (development, regulatory

approval and sales milestones) yields an NPV of SEK2.01bn discounted at 75% (appropriate for

Phase III assets) gives a risk-adjusted NPV of SEK1.52bn or SEK3.38/share. We note all trial costs

will be funded by Elevar.

Multiple levers to profitability

There are multiple levers that can enable Oasmia to realise its strategic goal of being cash positive

and operational profitability from our forecast year of FY23. Timings of cash flows are difficult to

predict as they are dependent on differing factors; however, our base case scenario assumes

Apealea US launch in FY23. Assuming a stable operating cost base (~SEK120m per year, this

leads us to forecast FY23 for maiden profitability. Sustainable profitability is contingent on expected

milestones (regulatory and sales) and, to a lesser extent, royalties on sales. Multiple levers to

profitability include:

◼ Apealea royalty on sales contributions. This is likely to be a slow ramp up as the product

launches and reimbursement procedures will vary by country in Europe. Elevar will launch

Apealea in the US but this is subject to ongoing dialogue with FDA; in Europe Elevar has

indicated it will look for partnering opportunities. We note that Elevar has no regulatory or

commercial presence in Europe.

◼ Apealea milestone contributions. We forecast a $10m milestone on US approval in FY22 and

$20m on US launch in FY23, with smaller milestones in additional countries in Europe and

RoW (we forecast smaller but more consistent milestones reflecting launch in individual

countries) plus sales-related milestones. We forecast total milestones of $25m in FY23 and

$12.5m in FY24. If Apealea is not launched in our forecast year, the company will be loss

making and cash consumptive until approval takes place as forecast profitability in FY23 is

reliant on achieving approval and launch milestones.

◼ We believe the animal health business should be divested so the company can focus on

expanding and leveraging on its human oncology presence. Our indicative valuation of the

animal health business is SEK443.7m and includes peak sales forecasts for Paccal Vet and

Doxophos Vet based on an operating margin assumption of 17.5%.

Financials

Oasmia reported consolidated net sales of SEK201.8m (vs SEK2.0m FY19) for financial year

ending 30 April 2020 (FY20), which consisted largely of the upfront licence income of SEK201.0m

from Elevar relating to the global licensing of Apealea. Oasmia capitalises development costs under

IAS38 relating to the Phase III clinical trials for the product candidate Apealea, which were reported

as SEK4.4m (vs SEK8.4m FY19), but with the Elevar deal in place this will no longer be capitalised

and the Apealea portion of the capitalised development on the balance sheet (SEK323.9m) will be

amortised (we assume over the life of the US patent, which expires in 2036). The remaining

Oasmia Pharmaceutical | 9 September 2020 18

SEK109.4m capitalised development costs on the balance sheet relate to Paccal Vet. Research

and development costs that were not capitalised amounted to SEK84.8m in FY20 (vs SEK55.7m

FY19). Employee benefit expenses reported at SEK63.8m (vs SEK52.1m in FY19), we note the

number of employees at end of the year was 63. Other operating expenses during FY20 increased

significantly to SEK162.5m versus SEK68.2m in FY19 reflecting legal costs (including litigation

fees) plus transaction and adviser costs in connection with the agreement with Elevar. Oasmia

reported an operating loss of SEK30.1m in FY20 (vs SEK150.2m in FY19) as the upfront payment

from Elevar offset the significant increase in costs.

We forecast net sales of SEK0.8m and SEK96.9m in FY21 and FY22, the ramp-up reflecting small

contribution of royalties on sales of Apealea and a US approval milestone in the latter period. As

part of its strategic overhaul new management have targeted annual cost savings of SEK100m and

a reduction in the cash burn rate per annum by 50% to below SEK10m per month. With the

significant reduction in head count (target number of employees 27 in 2021), plus a new

management team whose compensation includes share-based renumeration, we expect a

reduction in employee expenses. Furthermore, other opex should reduce significantly reflecting

lower legal costs. We forecast SEK127.8m and SEK37.7m in operating losses in FY21 and FY22

respectively. Our FY22 forecast includes a $10m (SEK87.7m based on current FX) milestone

payment on Apealea US approval. We forecast breakeven from FY23 and sustainable growth in

profits thereafter. Our forecasts are based on our assumption of $25m (SEK219.3m based on

current FX) in milestone payments from Elevar in FY23 relating to launches in the US and

additional countries in Europe. For FY24 we forecast $12.5m (SEK109.7m based on current FX) in

milestone payments relating to US sales and launches in additional European countries.

During FY20 Oasmia repaid its outstanding convertible bonds of SEK59.6m leaving short-term

borrowings of SEK80.0m and raised net funds of SEK371.9m in December from an equity placing.

Q120/21 results

Oasmia reported flat consolidated net sales of SEK0.208m in Q120/21 (SEK0.182m in Q119/20),

which comprised largely of sales of supplies of SEK0.171m (SEK0.072m in Q119/20) as the launch

of Apealea in the Nordics was hampered by COVID-19. Operating expenses increased to

SEK51.7m (vs SEK39.4m in Q119/20) due to higher employee benefit expenses (SEK21.9m vs

SEK14.6m) attributable to a larger average number of employees and severance costs relating to

the strategic cost-reduction programme. The number of employees at the end of Q120/21 was 59.

Operating loss for the quarter amounted to SEK49.2m (SEK35.8m in Q119/20).

Taking into consideration cash and cash equivalents plus short-term investments of SEK354m,

Oasmia had a net cash position of SEK274m at 31 July 2020. Our net cash calculation includes a

deduction of SEK80m for the short-term liability relating to the MGC Capital claim. However, we

note that this is largely offset by a counter claim held by Oasmia that has a face value of SEK60m

(book value SEK40m). This is sufficient to fund Oasmia through to our forecast breakeven year of

FY23, given our expectations of costs to stabilise at a lower run rate and the top line to start

contributing meaningfully.

Oasmia Pharmaceutical | 9 September 2020 19

Exhibit 7: Financial summary

Accounts: IFRS, year-end: 30 April, SEK000s 2018 2019 2020 2021e 2022e

PROFIT & LOSS

Operating revenues 3,169 1,980 201,843 827 96,932

Licensing revenues 2,377 417 201,442 327 96,182

Other revenues 792 1,563 401 500 750

Total operating expenses* (102,099) (121,211) (211,897) (104,073) (110,459)

EBITDA (reported) (98,930) (119,231) (10,054) (103,246) (13,527)

Depreciation and amortisation (4,794) (31,005) (20,032) (24,587) (24,150)

Reported Operating Income (103,724) (150,236) (30,086) (127,833) (37,676)

Operating Margin % N/A N/A N/A N/A N/A

Finance income/(expense) excl lease expense (14,289) (18,240) (12,267) (8,321) (8,400)

Leasing expense 0 0 (1,003) (1,003) (1,003)

Exceptionals and adjustments 0 0 0 0 0

Reported PBT (118,013) (168,476) (43,356) (137,158) (47,079)

Income tax expense (includes exceptionals) 0 (32,822) 32,822 0 0

Reported net income (118,013) (201,298) (10,534) (137,158) (47,079)

Basic average number of shares, m 166.2 253.3 398.4 448.4 448.4

Year-end number of shares, m 176.4 294.6 448.4 448.4 448.4

Basic EPS (SEK) (0.7) (0.8) (0.0) (0.3) (0.1)

Adjusted EPS (SEK) (0.7) (0.7) 0.0 (0.3) (0.1)

Dividend per share (SEK) 0 0 0 0 0

BALANCE SHEET

Property, plant and equipment 15,527 14,701 28,014 26,014 24,451

Intangible assets 35,697 10,497 9,759 13,919 18,079

Capitalised development costs 426,079 433,130 433,357 413,110 392,863

Other non-current assets 2 2,002 2,002 2,002 2,002

Total non-current assets 477,305 460,330 473,132 455,045 437,395

Cash and equivalents 15,580 116,272 201,018 92,953 63,726

Short-term investments 0 0 234,080 234,080 234,080

Inventories 9,746 7,420 28,837 8,247 8,630

Trade and other receivables 35,949 6,545 43,907 43,875 43,889

Other current assets 17,807 14,472 24,372 24,372 24,372

Total current assets 79,082 144,709 532,214 403,527 374,697

Non-current loans and borrowings 0 0 0 0 0

Long-term leasing liabilities 0 0 8,845 8,845 8,845

Other non-current liabilities 0 32,822 0 0 0

Total non-current liabilities 0 32,822 8,845 8,845 8,845

Trade and other payables 9,256 17,666 22,524 12,906 13,506

Current loans and borrowings 187,260 139,568 80,001 80,001 80,001

Short-term leasing liabilities 0 0 5,320 5,320 5,320

Other current liabilities 26,523 31,485 69,268 69,268 69,268

Total current liabilities 223,039 188,719 177,113 167,495 168,095

Equity attributable to company 333,349 383,498 819,390 682,232 635,153

CASH FLOW STATEMENT

Operating Profit/(loss) (103,724) (150,236) (30,086) (127,833) (37,676)

Depreciation and amortisation 4,768 6,005 13,651 24,587 24,150

Share based payments 0 0 120 0 0

Other adjustments 1,652 32,086 12,738 0 0

Movements in working capital (16,305) (3,657) 1,065 11,004 203

Interest paid / received (10,025) (3,037) (4,354) (6,321) (6,400)

Income taxes paid 0 0 0 0 0

Other financing charges 0 0 0 (3,003) (3,003)

Cash from operations (CFO) (123,634) (118,839) (6,866) (101,566) (22,727)

Capex** (21,452) (12,031) (12,873) (6,500) (6,500)

Acquisitions & disposals net 0 0 0 0 0

Other investing activities 0 (2,000) (275,251) 0 0

Cash used in investing activities (CFIA) (21,452) (14,031) (288,124) (6,500) (6,500)

Net proceeds from issue of shares 147,456 151,852 401,863 0 0

Movements in debt (15,000) 81,648 0 0 0

Other financing activities 199 0 (22,141) 0 0

Cash from financing activities (CFF) 132,655 233,500 379,722 0 0

Cash and equivalents at beginning of period 28,001 15,580 116,272 201,019 92,953

Increase/(decrease) in cash and equivalents (12,431) 100,630 84,732 (108,066) (29,227)

Effect of FX on cash and equivalents 10 62 15 0 0

Cash and equivalents at end of period 15,580 116,272 201,019 92,953 63,726

Net (debt)/cash (171,680) (23,296) 355,097 247,032 217,805

Source: Company accounts, Edison Investment Research. Note: *Includes non-capitalised R&D costs of SEK84.8m in FY20.

**Includes capitalised development costs of SEK4.4m in FY20.

Oasmia Pharmaceutical | 9 September 2020 20

Contact details Revenue by geography

Vallongatan 1 752 28 Uppsala Sweden +46 018-50 54 40 www.oasmia.com/en/

N/A

Management team

CEO: Dr Francois Martelet CFO: Fredrik Järrsten

Dr Francois Martelet was appointed as CEO of Oasmia Pharmaceuticals in

2020. Prior to this he was CEO of Avax and Topotarget. He has held executive roles at senior level at Roche, Eli Lilly, Novartis and MSD. He has been based in six countries in Europe (including Sweden) and in the US. Dr Martelet is a French medical doctor, with a master’s degree in business. He speaks four languages, among them Swedish.

Fredrik Järrsten has over 25 years of experience across the financial, medical

technology and life sciences sectors in the Nordic region and internationally. He serves as CFO and deputy CEO at Karolinska Development and previously held executive roles at Bactiguard and Aleris. He holds a degree in accounting and finance from the Stockholm School of Economics and an international business degree from the University of Michigan. He is expected to start before 8 March 2021.

Acting CMO: Reinhard Koenig

Reinhard Koenig has more than 30 years of pharma and biotechnology experience. He has extensive experience of leading positions within global pharmaceutical companies. Previous companies he has worked at include Genentech, Boehringer Mannheim and Piramal Critical Care.

Principal shareholders (%)

Per Arwidsson with related parties 24.84

Avanza Pension 7.01

Mastan AB (Håkan Lagerberg) 1.78

Nordnet Pension Insurance 1.60

Swedbank Insurance 1.40

Oasmia Pharmaceutical | 9 September 2020 21

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