Oasmia Pharmaceutical Blockbuster in the Making

Transcription

1 Blockbuster in the Making

2 Snapshot Recommendation BUY Target Price (SEK) Current Price (SEK) Upside Potential (%) Key Statistics Price (SEK) Shares O/S (mn) Market Cap (SEK mn) Market Cap (US$ mn) week High (SEK) Key Statistics Sector (P/E) Sector (P/B) 3.14 Sector (Price/ Cash flow) Company Beta 0.44 Avg. Daily Volume 62, week Low (SEK) P/S P/B 2.09 Sector Exchange Bloomberg/ Reuters Ticker Special Pharmaceutical Nasdaq Omx OASM.F Stock Price Performance Months YTD Price Performance (%) Source: Nasdaq Omx Nordic, Reuters and Bloomberg 2

3 Investment Summary is a Swedish company focused in human and veterinary cancer market. The two late-stage pipeline candidates of the company are Paccal Vet (targeted to treat the most common skin cancer in dogs - Mastocytoma) and Paclical (targeted to treat the fifth leading cause of death in women - ovarian cancer). The main ingredient of both these drugs is Paclitaxel (A Mitotic Inhibitor with Anti-Tumor Activity) which is one of the widely used anti-cancer agents in the world. The company has developed an innovative technology called XR-17 to alleviate the drawbacks of existing cancer drugs. The main advantages of the company s products are, that they are water soluble (as opposed to existing cancer drugs that need a high side effect causing solvent), and offers lesser side effect profile. The worldwide cancer-drug market is growing at the CAGR of 12-15% and the market is expected to grow to US$ 75-80bn by 2012 as per IMS Health Forecast. The Company aims to gain market approval for both Paccal Vet and Paclical in the near future. We feel that given the improved formulation and reduced side effect profile of the company s drugs, the company is well poised to gain a decent amount of cancer market share, which would further ensure an increase in its share price in future. The current share price of Oasmia on the Frankfurt Stock Exchange is SEK 14, but we feel that once these drugs are launched in the market, the share price of Oasmia will take an upward swing. Considering this fact we have given a valuation of SEK 64 to Oasmia, with an upside potential of 422.4%. We have suggested this kind of price because we feel that Oasmia s innovative technology that has made Paclitaxel soluble in water will be the main anchor behind Oasmia s growth in the coming years. These drugs are superior to that of its peer companies because these two anti-cancer drugs have got negligible side effects, even if the patient takes an overdose by oversight or mistake. The marketing partners of the Company such as Abbott Laboratories, Orion Corporation and Nippon Zenyaku Kogyo will help Oasmia to penetrate different regions of USA, Europe and Japan after the launch of Paccal Vet. Oasmia has also recently closed a license and distribution agreement with Medison Pharma, an Israel based company, for selling and distribution of Paclical in Israel and turkey. The company by which Oasmia benchmarks itself is US-based Abraxis Bioscience, which is the only company worldwide with an authorized infusion of 250mg/m 2 (2005 FDA). In October 2010, the USlisted Celgene Corporation acquired Abraxis for US$ 2.9bn, in the process evaluating it to have 9x sales and as a loss making company (-US$ 104mn). The CEO of Celgene declared that the only produced drug Abraxane (breast cancer drug) will achieve a blockbuster status of US$ 1bn by The stated reason for paying such an expensive price is the unique formulation of Abraxis. If Oasmia s pipeline is approved by the authorities within 2-3 years, as was suggested and assumed in the prospective outlook, Oasmia will be in the same capital market situation as Abraxis-Celgene was in Thus, just as was the case of Abraxis-Celgene in the past, when it got acquired for a huge price even when it was lossmaking, because of its unique formulations, similarly, Oasmia with its formulations is a target for acquisition for cash-rich pharmaceutical companies. This is so because, these cash-rich Pharma companies have very poor internal pipelines and their important patents are due for expiration, and thus they need new steady revenue streams in the coming few years. 3

4 Analysts stock ratings are defined as follows: BUY: If the fair value price is 10% or more above the market price, at the time of writing the report. HOLD: If the fair value price is in the range of [-10% to +10%] with respect to the current market price, at the time of writing the report. REDUCE: If the fair value price is 10% or more under the market price, at the time of writing the report. Disclaimer This research report (this "Report") has been prepared by ECOFIN Global Consulting for private circulation amongst select clientele for information purposes only and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. This Report is not directed to, or intended to be used by, any person or entity who (or which) is a citizen of (or domiciled) in any jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation or which would subject ECOFIN Global Consulting to any registration or licensing requirements within such jurisdiction. ECOFIN Global Consulting makes no representation that the presentation or distribution of this Report is in compliance with the legal requirements or regulations of any jurisdiction, and it disclaims all liability in case the preparation or distribution of this Report is found to be non-compliant with any such legal requirements or regulations. This Report has been prepared on the basis of information that is generally available and subject to change. Whilst ECOFIN Global Consulting assumes that such information is reliable, ECOFIN Global Consulting has not independently verified such information or the reliability of its sources. Consequently, ECOFIN Global Consulting makes no warranty as to the accuracy or completeness of the information or analysis contained in the Report. ECOFIN Global Consulting may have in the past, or may currently or in the future, perform services for or solicit business from the company covered in the report. In addition, ECOFIN Global Consulting may market in securities of the companies mentioned in the Report and also have acted upon or used the information or opinions presented herein, or the research or analysis on which they are based/ before this Report has been circulated. ECOFIN Global Consulting may have also have in the past served as manager or co-manager of a public offering of securities for one or more of the Companies mentioned in this Report. This Report is not to be relied upon in substitution for the exercise of independent judgment. ECOFIN Global Consulting recommends that before making any investment/disinvestment decision based on the contents of this Report, such decision is/be first vetted by an independent financial advisor who is equipped or authorized to provide investment advice. 4

5 Content 1. Cytostatic: An Overview 6 2. About Strategy and Business Model Investment Positives: Why Oasmia? SWOT Analysis Investment Concern Financial Performance Analysis and Ratios Valuation and Recommendation 26 5

6 1. Cytostatic: An Overview Cytostatic therapies are anti-cancer drugs and are basically designed to deactivate the altered enzymes. These therapies are designed not to kill the cancerous cells but to simply prevent them from reproducing. Cytotoxic chemotherapy has been a backbone of medical approaches for the treatment of malignancies by directly killing the tumor cells. Over the past decade, the research and development of cytostatic therapies has been the subject of considerable medical debate. The drugs are commonly tested on patients who have late stage disease by administering optimal dose selection. 1.1 Animal Health A Growing Market The market for human medication is still larger than the pet medication market. The market for cancer therapies in the case of pets is not so huge, but the common view is that the market will take a bullish trend and expand strongly. Oasmia along with its partners is expected to address and cover a decent market for animal health care products in the near future. The Company has a license agreement with its marketing partners and has achieved substantial progress. The total size of the U.S. market for companion animals is US$ 50.84bn per year as estimated by APPA for 2012 Increasingly, people keep pets as additions to their families and it costs them a lot of money when the pets are detected with cancer and have to be treated for the disease. According to the APPA National Pet Owners Survey, 62% of U.S. households own a pet, which equates to 72.9mn homes. The total size of the U.S. market for companion animals is US$ 50.84bn per year as estimated by APPA for The history of the U.S. pet industry expenditure has shown an upward trend. According to APPA, the total market size in 2001 was US$ 28.5bn. It had reached US$ 45.5bn in 2009 and US$ 48.4bn in 2010 and is forecasted to increase by 4.5% in (This includes food, supplies/otc medications, veterinary care, live animal purchases and other services such as grooming, boarding, and pet sitting). Spending on Pets in U.S. (US$ bn) Breakdown of U.S. Expenditure on Pets Vet Care Live Animal Purchases Pet Services E Source: APPA, 2011 Supplies/ OTC Medicine Food Veterinary care has the largest anticipated growth of 8.5% that would result in an estimated US$ 14.11bn in spending at the end of 2011 as per APPA in

7 Consumer Spending on Veterinary Services in U.S. (US$ bn) Source: American Pet Products Association, 2009 According to Manimalis, the market size of veterinary services in Sweden was SEK 400mn in 1993 and it increased to SEK 2bn in Costs for Veterinary Procedures in Sweden (SEK mn) Source: Manimalis report 2004 & 2009 The differences between different countries as regards the ratio between dog and human populations are huge. The penetration rate is impressive in the U.S. and it accounts for 24 dogs per 100 people as per APPA. Germany accounts for 6, France 11, Japan 10, Sweden 8 and U.K 14 dogs per 100 people. If a comparative analysis for the population of dogs is made for the U.S and U.K, for the U.S there has been an increase by 35% in the last ten years and in the U.K, the dog population has been more or less stable. 7

8 Market Outlook for Companion Animal Cancer Products About 50% of dogs over 10 years of age will likely die of cancer as per APPA The European countries have 56mn dogs, Japan has 13mn, U.S. has 75mn and in the U.K. there are 10.5mn dogs % of dogs are affected by cancer during their lifetime. Around 1.5% of dogs are affected by cancer in an average life span of 13 years. About 50% of dogs over 10 years of age will likely die of cancer. Number of Vets Referring Cancer Cases to Oncologist Trends in Referring Cancer Cases Source: Vetnosis The first product to be launched by Oasmia is called Paccal Vet The population of dogs having cancer in the U.S. is around 1mn and it is 600,000 in EU. Chemotherapy could be an alternative treatment for 30-50% of these dogs. The number of dogs treated with different kinds of cancer drugs is about 10%. The first product to be launched by Oasmia is called Paccal Vet. The drug basically targets Mastocytoma (skin cancer) in dogs, representing 21% of cancers in dogs. The test drug was submitted for market authorization to the FDA (U.S.) and EMA (E.U.) in late Paccal Vet is used for a broad range of tumors. Paccal Vet will not address 100% (i.e. all) of the chemotherapy market for dogs, but it is true that the number of dogs with cancer administered chemotherapy is expected to increase even as new products tested and approved for dogs reach the market. There are several approved chemotherapy treatments for dogs, including Masivet (AB Science) and Palladia (Pfizer Animal Health). Both of these drugs were approved in Paccal Vet has been used with impressive results on a larger number of dogs in clinical trials, as compared to Masivet and Palladia Human Health An Improved Market Cancer: The Global Scenario Cancer is the second leading cause of death after heart disease The diagnosis and treatment of cancer has undergone several developments and improvements. As per Oasmia, the 5-year survival rate for men in Sweden has practically doubled over thirty years, from 36% to 67%. In the case of women, the survival rate has increased from 42% to 67%. The latest additions to the repertoire of cancer treatment and the use of targeted drugs in combination with cytostatics are the reasons for the increase in the survival rate. There were 7.6mn deaths, globally, due to cancer in 2007 and this is expected to increase between 13mn and 17mn, by In the U.S., 25% of all deaths are caused by cancer. This shows that cancer is the second leading cause of death after heart disease. About 50,000 new cases of cancer are diagnosed each year in Sweden. The reason attributed for the increase of cancer patients in Europe and Sweden is primarily due to the aging population, means that the demand for new and effective treatments will increase constantly. 8

9 Lung cancer accounts for about 13% of total cancer diagnoses. The Five Most Common Cancers in the World Lung Cancer According to American Cancer Society, Lung cancer remained the leading cause of cancer-related deaths in 2010 and it accounted for an average of 1.6mn new cases in It accounts for about 13% of total cancer diagnoses. In the case of men, the highest lung cancer incidence rates were in North America, Europe, Eastern Asia, Argentina and Uruguay and the lowest rates were in sub-saharan Africa. The highest lung cancer rates were in North America, Northern Europe, Australia, New Zealand and China among the women. As per the estimates of American Cancer Society, in 2008, a total of 215,020 people were diagnosed and 161,840 people died from lung cancer. Breast Cancer (in Women) Every year, 1.3mn women world-wide are diagnosed with breast cancer as per American Cancer Society. The most frequently diagnosed cancer in women worldwide is breast cancer, and in 2008 there were an average of 1.4mn new cases. The incidence rate varied internationally by more than 13-fold in 2008, ranging from 8.0 cases per 100,000 in Mongolia and per 100,000 in Bhutan. In 2008, the global patient population of breast cancer was 458,400. It is one of the most common diseases after lung cancer, among women. Colorectal Cancer Colorectal cancer develops in the colon or the rectum. Colorectal cancer is the third most commonly diagnosed cancer and the third most common cause of death in men and the second most common cause in women. In 2008, an average of 1.2mn cases of colorectal cancers occurred. The highest incidence rates were in North America, Australia, New Zealand, Europe and Japan. This type of cancer accounts for 8% of all the cancer deaths (608,700 in numbers) worldwide, in 2008 according to American Cancer Society. Ovarian Cancer Around 200,000 women are diagnosed with ovarian cancer, each year American Cancer Society s fact says that there were 225,000 new cases of ovarian cancer worldwide in 2008 and it accounts for around 4% of all cancers diagnosed in women. The rate for the disease in the developed regions of the world in 2008 was 9 per 100,000 and in the less developed regions, 5 per 100,000. Globally, around 200,000 women are diagnosed with ovarian cancer, each year. Prostate Cancer Prostate cancer is the most commonly diagnosed disease in the U.S. and the second most common cause of cancer death among men. As per the estimation of American Cancer Society, about 1 in 6 men in the U.S. will be diagnosed with prostate cancer during their lifetime and 1 in 36 will die from this disease. In 2010, approximately 32,050 men died from prostate cancer in the U.S. 9

10 2. About 2.1. Introduction: A Brief History Oasmia is a dual listed stock in NASDAQ OMX Stockholm and at the General Standard of the Frankfurt Stock Exchange AB is a Swedish pharmaceutical company located in Uppsala, in the north of Stockholm. The Company is mainly focused on drug development by using new forms of technology involving nanoparticles, which are patented till At present, the Company is developing drugs in the fields of human and veterinary oncology. The Company initiated in early 1990 and was registered in the year 2000 in Uppsala, Sweden. Oasmia s shares are traded at the NASDAQ OMX Stockholm and at the General Standard of the Frankfurt Stock Exchange, in a dual listing since June This makes Oasmia the first Swedish company to be listed on the regulated German market. In the year 2004, the R&D of Oasmia attained a remarkable milestone by successfully completing its research in the specialty area of oncology, based on the XR-17 technology. By the end of 2004, clinical trials were initiated on the Company's promising product Paclical. The Company has also developed a veterinary drug candidate called Paccal Vet to prevent Mastocytoma (a form of skin cancer) among dogs. The drug candidate is currently in the registration phase with both the EMA (Europe) and FDA (U.S.) and the Company is expecting an approval in H There will be a subsequent marketing launch in H in both Europe and the US. Oasmia has signed the marketing agreement for Paccal Vet with strong partners such as Abbot Laboratories in the U.S. and Canada, Orion Corporation in Europe and Nippon Zanyaku Kogyo in Japan. Solubility is the main factor, which actually separates Oasmia s drug candidate from the anti- cancer drug of the other companies. Oasmia s new technology makes it possible to enhance the solubility of poor soluble active compounds by enhancing their properties thus increasing the potential for the treatment of patients. Private Research Project about the ageing of the cell is initiated Snapshots of Oasmia s History Clinical Trials with Paclical in cancer patients begins Parallel imports in Qdoxx Pharma is initiated The company obtains SME status from EMEA The company acquires 51% of GlucoGene Pharma AB Clinical Phase III trials with Paccal Vet and Paclical commences The Company expands the corporation with Orion Pharma concerning Paccal Vet to include all of Europe Clinical Phase I/II studies with Doxophos Vet commences Positive Phase III results for Paccal Vet A Distribution agreement is signed with Nippon Zenyaku Kogyo Co. Ltd for Paccal Vet in Japan A SEDA agreement of MSEK 75 is signed with Yorkville Advisors Global LLC. FDA grants Paccal Orphan Drug designation for treatment of ovarian cancer in USA AB is founded under its current name Source: Oasmia Annual Report 10 Clinical Trials with Paccal Vet in dogs with cancer begins The company is listed on NGM Nordic The company changes stock list from NGM Nordic to NGM Equity A marketing and distribution agreement is signed with Orion Corporation, Finland, Concerning Paclical in the Nordic countries A License agreement is signed with Abbott Laboratories. USA, concerning Paccal Vet. In USA and Canada FDA Grants Paclical Orphan Drug Designation for treatment of Ovarian cancer in USA

11 2.2. Management: Key Persons behind Oasmia s Success CEO is an economist by profession rather than a medical doctor with a research background has an impressive management team with several years of experience in the Pharmaceutical Sector. One of the most interesting facts about Oasmia s management is that the CEO of the Company Mr. Aleksov is an economist by profession rather than a medical doctor with a research background. This is different from how it is with most of the start-up pharmaceutical and biotech companies. We feel that this could be a distinct advantage as Mr. Aleksov can take account of financial information and related facts rather than just medical information etc. at the time of decision making regarding the Company s financials. A brief introduction about the Management of the Company is provided below: Julian Aleksov (CEO): Mr. Julian Aleksov was born in the year 1965 and is the CEO as well as the co-founder of the Company. He has an extensive background in project management of research activities as well as strategic management. He also serves as the chairman of the board of Qdoxx Pharma AB and Gluco Gene AB. Weine Nejdemo (CFO): Born in 1948, Mr. Weine Nejdemo has extensive international experience at the corporate management level in companies in the life sciences arena, mostly in stock listed companies. He has also worked as a management consultant since 1997, mostly in companies dealing with life sciences disciplines, catering to both suppliers and customers. Hans Sundin (Executive Vice President Operations): Born in 1945, Mr. Hans Sundin has more than 30 years of experience in pharmaceutical development, quality assurance and project management. He also has extensive international experience in upper management positions in Swedish pharmaceutical companies. Annette Ljungmark (Head of Accounting and HR): Born in 1950, she has previously worked in the Pharmaceutical Industry dealing with and handling monthly and annual reports, financial analyses, and VAT, pensions and personnel issues Technology: Innovative Technology Leading to an Upcoming Blockbuster Drug XR-17 technology has the ability to form micellar nanoparticles without the presence of solubilizers The drugs that exist today in Oasmia s portfolio are all based on the Company s unique technology, XR-17, and protected by patents in various markets and pending patents in additional markets. This nanotechnology offers a new treatment alternative in Oncology and other therapeutic areas. The main characteristic of Oasmia s drug formulation based on XR-17 technology is its ability to form micellar nanoparticles without the presence of solubilizers. This leads to fewer side effects as compared to currently marketed drug products which contain Active Pharmaceutical Ingredients (API). Less severe side effects also imply that a high dosage of the drug may be tolerated by the patient, which can be advantageous from a treatment point of view. 11

12 Micelle Consist of XR-17 and Paclitaxel. Hydrophilic polar head Hydrophilic non-polar chain Active Pharma Ingredients Source: Company Annual Report Oasmia s XR-17 technology can be applied to a number of substances to enhance their profile and effect, especially those substances that are difficult to dissolve. The drug candidates that are in the Company s portfolio today are based on Oasmia s unique derivate-based excipient XR-17, it s a vitamin A based set of compounds that encapsulates the active substance and forms nanoparticles when reconstituted. With the use of nanoparticles, a controlled release of the active substance can be achieved when it is administered into the body. The formulation XR17 is already patented up to Product Pipeline Oasmia Product Range Test Product (Human Health) Indication Clinical Phase Expected Launch Paclical Ovarian Cancer Phase /13 Docecal Prostate Cancer Pre-clinical 2014/15 Doxophos Breast Cancer Pre-clinical 2014/15 Carbomexx Comb. Therapy Pre-clinical 2015/16 Test Product (Animal Health) Indication Clinical Phase Expected Launch Paccal Vet Mastocytoma Phase Doxophos Vet Lymphoma Pre-clinical Docecal Vet Mammary tumor Pre-clinical 2014/15 Carbomexx Vet Osteosarcoma Pre-clinical 2015/16 Source: Oasmia Report Animal Drug: Pipeline Details We know that the real driver of Oasmia s growth will accelerate when the human anti-cancer drug candidate Paclical will introduce in the market, because the human drug market is much larger in terms of patient population. But, currently, the Company is trying to penetrate the animal drugs market because this market has been, so far, less competitive and also because, gradually, the roles of companion animals Paccal Vet is going to be launched in H for the treatment of Mastocytoma are also becoming prominent within their owner s family. The new drug candidate which is going to be launched in H is Paccal Vet for the treatment of Mastocytoma (skin cancer) among dogs. The other candidates, who are currently in the pipeline for animals are Doxophos Vet for the treatment of Lymphoma, which is currently in the preclinical stage and Carbomexx Vet, which is aimed for the treatment of Osteosarcoma among dogs. Since all these drugs are in the pre-clinical stage, it is hard to predict whether the treatment benefits from these drugs will be validated and get the regulatory approval of the concerned authorities in various markets down the line. 12

13 Classification of Canine Cancers among Dogs Mammary 1% Hemangioma 5% Others 20% Lymphoma 27% Melanoma 6% Fibrosarcoma 6% SCC 6% Osteosarcoma 8% Mastocytoma 21% Source: Oasmia s report Product Description: Animal Health Paccal Vet Until now, it has been difficult to give Paclitaxel (A Mitotic Inhibitor with Anti-Tumor Activity) to pets due to its severe side effects, caused by Excipient Cremophor EL. In Oasmia s formulation, Paclitaxel has been made water soluble by Oasmia using the technology XR-17. In a water solution, XR-17 forms micelles with Paclitaxel. With Paccal Vet, dogs can be treated with higher Paclitaxel doses, with a shorter infusion time. This is accomplished without administering any prior medication and without the risk of hypersensitive reaction associated with Cremophor EL. Doxophos Vet Doxophos Vet is a new form of Doxorubicin, an extremely effective and well used substance for the treatment of various cancer forms within veterinary medicine. The medicine Doxophos vet is aimed at the treatment of Lymphoma among dogs. Treatment with Doxophos vet has shown reduced cardiac side effects as compared to standard treatments with Doxorubicin, in pre-clinical studies on rats. Currently, Doxophos is at the pre-clinical stage. Docecal Vet Docecal Vet is a new formulation of a well-known active substance called Docetaxel that is structurally the same as Paclitaxel and blocks Mitosis in a similar manner. Carbomexx Vet Carbomexx Vet has the potential to become the most used pharmaceutical drug for the treatment of skeletal cancer (osteosarcoma) in dogs. Osteosarcoma is extremely common among dogs. Without chemotherapy in combination with surgery, it leads to death within three months. Oasmia hopes that Carbomexx Vet will create new therapeutic possibilities with an improved safety profile 13

14 Competitive Landscape of Paccal Vet Product Company Description Palladia Masivet Kinavet Oncept Paccal Vet Pfizer AB Science Merial Oasmia Tyrosine Kinase Inhibitor Tyrosine Kinase Inhibitor DNA-based Vaccine Antimicrotubule Source: Oasmia Company Presentation Mode of Administration Oral Oral Subcutaneous Injection Infusion Indication Dosage Status Canine Mast Cell Tumor Canine Mast Cell Tumor Canine Oral Melanoma Canine Mast Cell Tumor Every Day Every Day Monthly for 4 Doses Plus 6 Months Booster 4 Infusions, Every 3 Weeks FDA/CVM and Canadian Approved, Pending EU EU-approved, Pending FDA-CVM USDA Approved Pending FDA/CVM & EU Human Drugs: Pipeline Details Apart from the canine cancer drugs for dogs, the Company is also targeting the human market. Oasmia The upcoming test drug of Oasmia for the ovarian cancer market is Paclical which is currently in the phase 3 trial currently focuses on improving chemotherapeutic drugs for human consumption, especially for those patients who are suffering from ovarian cancer. The upcoming test drug of Oasmia for the ovarian cancer market is Paclical which is currently in the phase 3 trial. The other drugs in the pipeline of Oasmia are Docecal for the treatment of prostate cancer, Doxophos for breast cancer and Carbomexx which is aimed for the treatment of combination therapy, using XR-technology. All the upcoming drugs which are in the pipeline incorporate different chemotherapeutic agents. But apart from Paclical, all the other human chemotherapeutic drugs are also in the pre-clinical stage, and hence, we have not included revenues from these drugs in our model. Product Description: Human Health Paclical Paclical is aimed at the treatment of ovarian cancer among patients. Paclical is a new formulation of the active substance Paclitaxel which is practically insoluble in water. In most of the drugs such as Taxol (manufactured by Bristol-Myers Squibb), Cremophor EL and ethanol are used as solvents for Paclitaxel, which actually creates hypersensitive side effects among the patients. But Oasmia has made Paclitaxel soluble in water by using its innovative XR-17 technology. The number of hypersensitive effects is also expected to be less in number with Paclical because the drug does not contain Cremophor EL. Doxophos Doxophos is a new formulation of doxorubicin aimed at the treatment of breast cancer. In Doxophos, doxorubicin is encapsulated in the form of nanoparticles each of a size of nanometers. These nanoparticles were developed to optimize therapeutic potential and increase doxorubicin s applicability of use for cancer treatment. 14

15 Docecal Docecal will be used for the treatment of prostate cancer. It is a formulation of Taxane Docetaxel. The substance is poorly soluble in water but Oasmia has made it soluble with the help of XR-17.The product is expected to have the same benefits as Paclical. Carbomexx The formulation consists of a new active substance in combination with XR-17. The new substance is closely related to the so-called alkylating agents such as carboplatin, cisplatin and oxaliplatin, which comprise an extremely important group of cytostatics. Oasmia hopes that Carbomexx will provide additional benefits with the inclusion of XR-17 and will create new therapeutic possibilities for patients and physicians. Competitive Scenario: Human Health Oasmia is coming out with human medication, which will enhance its cash flows and revenue at the same time. The filing of the patent for Paclical drug in the European and U.S. markets is anticipated during Competition in the Taxane market is extensive and is made up of Taxol, Taxotere, Abraxane and Paclitaxel-based generics. The details of the competitors of Paclical are given below. Taxol Manufactured by Bristol Myers Squibb Taxol is another type of medication for ovarian cancer. It is made up of Paclitaxel dissolved in ethanol and Cremophor. Taxol has various side effects when it is administered and used in patients. Because of its serious side effects, patients were even losing their healthy working cells. The patent for Taxol has expired and it has many generic versions. Comparison of Taxol vs. Paclical Properties Paclical Taxol Excipient XR-17 Cremophor EL Dilution Ratio 1:1.3 1:88 Max. Dosage 250mg/m^2 175mg/ m^2 Hypersensitivity 0% 34% Infusion Time 1 hour 3 hour Pre-medication No Yes Indication Ovarian Cancer Lung, Ovarian, Breast, Head & Neck etc. Source: Ltd Paclical is superior to Taxol in the treatment of cancer patients as it does not have hypersensitive effects even if the dosage is high. Abraxane Manufactured by Abraxis Bioscience The existing drug candidate for breast cancer in the Taxane market is Abraxane, a block buster drug introduced by Abraxis Bioscience, which is taken over by Celgene for US$2.9 bn in

16 Taxotere Manufactured by Sanofi-Aventis This well established brand is based on Taxane docetaxel. It consists of docetaxel dissolved in polysorbate 80 and is primarily used for the treatment of patients having breast cancer and lung cancer. The patent of Taxotere in the US and EU has expired in 2010, and the generics for this drug are expected to be introduced in the market Clinical Studies: Paccal Vet Phase I/II Study: Safety and Efficacy In an initial Phase I/II study, the safety of Paccal Vet was studied among 32 dogs. Micellar Paclitaxel in Paccal Vet showed a rapid and extensive distribution with a pattern close to that for human subjects. The efficacy was complete or partial in 67% of the dogs. The first dog to be treated was Bella, which lived for three years after treatment, without any new tumors. She died of old age. Phase III study: Safety and Efficacy This phase, Phase III for the study of safety and efficacy was undertaken after the convincing results obtained in the initial phase I/II study on solid tumors and lymphomas with a Cremophor-free Nanoparticle solution of Paclitaxel (Paccal Vet). The Company implemented this Phase III study on Mastocytoma grade 2 and 3 condition. The study was undertaken in eight sites; six in Sweden, one in Austria and one in Germany. International Multi-center Phase III Study: Safety and Efficacy In this study, 26 of the most renowned clinics, specializing in veterinary oncology in Europe and US participated. The study included 243 patients. This documentation formed the basis for the registration application that has been filed with EMA and FDA. Clinical Studies: Paclical for Ovarian Cancer Phase I/II The primary objective was to define the Maximum Tolerable Dose (MTD) of Paclical in patients with recurrent solid tumors. The other main objectives were to investigate the pharmacokinetic pattern, safety and tolerability. Thirty four patients with malignant tumors, for which no standard palliative therapy was available, were enrolled. Paclical was given without any premedication as a one-hour infusion every 3 weeks. The treatment was well tolerated by most patients. The MTD was 250 mg/m2. Pharmacokinetic data showed a rapid distribution of Paclitaxel into the tissues. No hypersensitivity reactions could be observed and no unexpected adverse effects were noted after repeated administrations. 16

17 Phase III The primary objective was to investigate the efficacy and safety of Paclical in ovarian cancer patients. The trial was an open, randomized and controlled multi-center study. In the trial, Paclical was compared to the well-known pharmaceutical drug Taxol. 650 patients were involved in that phase 3 trial. Advantages of Paclical Found at the Time of Clinical Study: No premedication is required Higher doses were tolerated Short infusion time No hypersensitive reactions 2.6. License Agreement: Paccal Vet Oasmia has signed its license agreement for its sales rights in the United States and Canada, Europe and Japan. North America In July 2009, Oasmia had signed a license agreement to market its product Paccal Vet with Abbott Laboratories in the North American market. The agreement contains an initial contract term of 15 years from the date on which Oasmia obtains the marketing license. Under this agreement, Abbott Laboratories will buy the product from Oasmia at a pre-determined price. The snapshots of the license agreement with Abbott Laboratories are given below: Licensing of sales rights in the US and Canada for Paccal Vet Initial contract term of 15 years Total payment of US$ 19.0mn from the marketing partners o US$ 5.0mn received in up-front payment o US$ 5.0mn to be received on market authorization o US$ 9.0mn to be realized when sales commence Europe In 2008, Oasmia signed an agreement with a Finnish company, Orion Pharmaceuticals to market its product in the European zone. The initial contract term was 15 years with a total payment of 10.25mn. 17

18 The snapshots of the license agreement with Orion Corporation are given below: Licensing of sales rights in Europe for Paccal Vet Initial contract term of 15 years Total payment of 10.25mn o 4.0mn received in up-front payment o 2.0mn to be received on market authorization o 4.25mn to be realized when sales commence Orion Corporation will bear all the expenses for sales and marketing Japan Oasmia has also signed an agreement with Nippon Zanyaku Kogyo in Japan for licensing the sales rights of Paccal Vet there. The snapshots of the contract are given below: Licensing of sales rights in Japan for Paccal Vet Initial contract term of 10 years Total payment on the achievement of a target of 3.25mn Nippon Zanyaku Kogyo responsible for clinical development License Agreement: Paclical The only agreement that Oasmia has signed so far for Paclical is with Orion Corporation for selling the human ovarian cancer drug in the Nordic region. Oasmia has signed the agreement in 2007 after agreeing on a payment of 4mn, of which Oasmia has received 2mn as down payment. The snapshots of the license agreement of Oasmia related to Paclical are given below: Licensing the sales rights of Paclical in the Nordic countries Total payment of 4mn o 2mn received in up-front payment o 2mn to be realized on market authorization Orion Corporation will bear all the expenses for sales and marketing Oasmia has recently expanded their portfolio by signing a license agreement with Madison Pharma to penetrate the oncology market of Israel and Turkey for their upcoming ovarian drug candidate Paclical. The company received an amount of 400,000 in upfront and milestone payment and additional royalties on sales in those regions. Medison Pharma receives exclusive sales and marketing rights. 18

19 3. Strategy and Business Model Oasmia is developing a new generation drug candidate by using its unique and innovative XR-17 technology on the oncology platform. In addition to the strategic focus in the area of oncology, the Company is also conducting and following up on basic research in other therapeutic areas such as infection, asthma and neurology. Business Concept Oasmia s main business mission is to develop pharmaceuticals that will improve the treatment of severe diseases in the oncology, infection, asthma and neurological areas. The Company is aware of the fact that it requires a lot of time to penetrate the different product markets and that is why, currently, the Company is more focused on the oncology market. In order to access various therapeutic markets across the globe, the Company has entered into and established marketing contracts with various renowned companies. Strategy AB has closed an agreement with Baxter Oncology for contract manufacturing. The main strategy of Oasmia is to extend the life cycle of the existing drug candidate by developing new formulations and using new technologies that will improve the properties of the drug or broaden its area of use. Oasmia s production strategy for large scale manufacturing involves the use of a contract manufacturer. AB has closed an agreement with Baxter Oncology for contract manufacturing. The agreement involves commercial volume manufacturing of the tested products Paclical and Paccal Vet for the global market. Business Model: Oasmia Contract Manufacturing Global Pharmaceutical Research and Development Large Scale Manufacturing Sales and Distribution Research and Development Large Scale Manufacturing Sales and Distribution Customers in the Human market Customers in the veterinary market Source: Annual Report From Oasmia s business model, we can ascertain that the Company has set its main focus on research and development. To execute the envisaged large scale production, the Company will enhance its capacity through a contract manufacturer. The Company will also sign selling and distribution agreements with global pharmaceutical companies to penetrate different pharmaceutical markets across the globe in the near future for its product in the pipeline. Goals and Objectives Oasmia's objective is to improve and facilitate the treatment of severe diseases in order to contribute to improving the quality of life for both humans and animals. 19

20 4. Investment Positives: Why Oasmia? AB develops a new generation of drugs within human and veterinary oncology. Product development is based on in-house research in the area of nanotechnology and the Company expects to obtain many new patents. In addition to strategic investments in research in the field of oncology, Oasmia conducts research in the areas of infection, asthma and neurology. is a very good pick for any investor with a short-term as well as a long-term outlook. This is because the two upcoming drugs of Oasmia, Paccal Vet and Paclical are expected to be launched in the market within 18 months. This will surely enhance the value of Oasmia in the near term. We expect that the initial revenue generator of Oasmia will come from the veterinary drug called Paccal Vet. This is because the veterinary market in US, Europe and Japan is very lucrative and also less competitive. There are currently approximately 140mn dogs in the USA, EU and Japan together. The number of dogs and cats is growing much faster than the number of inhabitants in these countries. Just as in the case of humans, the frequency of cancer in dogs increases with age. An estimated 40% to 50% of dogs older than 8 years suffer from cancer. But the real revenue driver of Oasmia will come from the human Oncology market after the introduction of Paclical -- which is currently in the phase 3 trials -- for ovarian cancer patients and is expected to be in the market by An investor of a pharmaceutical company has to be somewhat different from the investor in other sectors, and this is because apart from many aspects of the financial domain, there are other important facets which are also to be considered by the investor. Some of these important non-financial factors are given below: Both Paccal Vet and Paclical are soluble in water and do not need Cremophor EL etc. as solvents, which have hypersensitive side effects Product Potential - We feel that the company has one of the most advanced products in the oncology therapeutic platform. The candidates, both Paccal Vet and Paclical are new formulations of a well-known active substance called Paclitaxel, a natural product which induces anti-tumor activity. But it is also true that Paclitaxel is insoluble in water and that is why most of the pharmaceutical companies in the oncology market use special kinds of solvents such as Cremophor EL (polyethoxylated castor oil) and ethanol to make Paclitaxel soluble in water. But the new products of Oasmia, both Paccal Vet and Paclical are soluble in water and do not need Cremophor EL etc. as solvents, which have hypersensitive side effects. Oasmia makes this possible through its innovative and advanced technology called XR-17. Innovative Technology - The Company is using a very advanced technology called XR-17 which is a new form of semi-synthetic retinoid that is used as an excipient with active compounds. This technology helps Paclical to dissolve easily in water, without the need for any kind of special solvents. 20

21 Marketing Partners - The Company has also signed marketing deals with some of the big players such as Abbott Laboratories, Orion Corporation and Nippon Zanyaku Kogyo to sell their products in USA, Europe and Japan. The Company has also signed a deal with Baxter for large-scale manufacturing. Recently Oasmia has signed a selling and distribution agreement with Medison Pharma of Israel to sell their upcoming Ovarian cancer drug candidate, Paclical in Israel and Turkey. Oasmia has recently signed a selling and distribution agreement with Medison Pharma for Paclical The company is also discussing with different big players in India and Middle East as their marketing partners to sell their products in the Oncology therapeutic market of these regions. However, since those discussions are not yet finalized, on a conservative basis, we have not factored this in our valuation exercise. From the financial point of view, we feel that Oasmia will be able to capture at least 15% of the veterinary as well as the Human Nano-Taxane market by We feel that the two upcoming drug candidates, Paccal Vet and Paclical can surely become block-buster drugs like Abraxane (a breast cancer drug of Abraxis Bioscience, the company acquired by Celgene, in October 2010, at a price of US$ 2.9bn). After the introduction of both the new drug candidate of Oasmia, our estimation is that the revenue generated from royalty along with the growing market share will increase the value per share of Oasmia, from SEK 14 to SEK 64, with an upside potential of 422.4%. So, we feel that there is a high probability of earning a substantial capital gain from this Company even if the investor has a short-term target, because both the drug candidate will very soon hit the market. There is also a prudent opportunity for the long-term investor, as well, because the Company has a very strong product pipeline with an ambition to diversify itself on to different therapeutic platforms. 21

22 5. SWOT Analysis Strengths The Company s technology, XR-17, a new nanotechnology method, eases the risk/limitation of drugs used in standard chemotherapeutic treatment The Company s product portfolio is based on the Paclitaxel compound, which is the most effective and common chemotherapeutic cancer drug and possesses huge potential in the oncology pharmaceuticals market Strategic alliances are with the leading marketing companies in the U.S, Europe and Japan Agreement with Baxter Oncology, a leading player in the oncology market for the commercial production of Oasmia's candidates, Paccal Vet and Paclical Modern and fully equipped production plant for chemical synthesis and pharmaceutical manufacturing Presence of a strong internal R&D department/team Limited competition for the Company s products Experienced management team Weaknesses The Company s drug candidates are still not in the market, limiting the awareness about the Company Products are based on the same technology, offering limited diversification All but two of the Company s products still under clinical trials Opportunities Increase in cancer-related ailments in both humans and veterinary markets Two of the company s high potential drug candidate Paccal Vet and Paclical are likely to get an approval and hit the market in the near future The Company s products, which are based on the latest technology (XR-17) are expected to grab a handsome share in the cytostatic market Increase in the number of pet/companion dogs in target markets such as U.S and Europe augurs well for the Company s veterinary candidate Paccal Vet, where it has no competition as such The products which are in the clinical trial phase may add to the growth in the long run Big market in India and also in the Middle East along with Israel and Turkey. Threats The development of new technologies and drugs by competitor companies may lead to a decreasing demand for the Company s products High health awareness in target markets leading to a decrease in cancer cases in the future The pricing of the products may get affected by a decrease in health spending and regulatory pressures Delays in approvals may have an impact on the future revenue generation capacity as the marketing contracts of the Company with the partners may get affected 22

23 6. Investment Concerns High R&D Expenditure The Company has to incur high R&D expenditure in the development of new products/drugs. These are at various stages of development and testing, the outcome of which is uncertain and might lead to unfavorable results. Dependence on Paccal Vet and Paclical A large part of Oasmia s estimated asset value is attributable to the development, market approval and commercialization of Paccal Vet and Paclical. This kind of more or less exclusive dependence could result in a risk, if development and commercialization of these two product candidates do not go as planned. Ongoing Developments in the Field of Oncology The oncology market is witnessing constant developments and new research being undertaken which may have an effect on the Company, if some competitors come up with a better product and a new technology in the future. Availability of Finance The Company might face a situation of a lack of funding for the development of new products in the future, due to the presence of adverse market conditions. Government Legislation The drugs developed by the pharmaceutical companies have to go through strict trials and regulatory compliances/permits, requirements etc. of various regulatory bodies/agencies, before being granted the necessary approvals. This may have a bearing on the Company s results. 23

24 Revenue (SEK'mn) Profit (SEK' mn) Initial Coverage Report 7. Financial Performance: Royalty, the Major Driver of Revenue Oasmia s Revenue and Net Profit Trend 5,000 4,374 2,500 4,000 2,000 3,000 2,980 1,924 1,500 2,000 1, ,308 1, (7) (17) 6 (74) , (500) Revenue Net Profit Revenue is expected to jump to SEK 386mn in 2012, due to the launch of Paccal Vet in the veterinary oncology market with an expected market share of 4% Source: Ecofin Research and Company Reports Oasmia witnessed net sales in amounting to SEK 79mn consisting mostly of revenue from license agreements. The total revenue in the fiscal year witnessed a massive decline, mainly due to the reduction of imported pharmaceuticals from its subsidiary Qdoxx Pharma AB, which Company s main operation was to import pharmaceuticals from other European Union countries, for sale in Sweden. The basis for such a business was price differences within EU, but due to changes in the currency values, this business was terminated and which resulted in a substantial fall of revenue in the fiscal year Since in current fiscal year, Oasmia has signed a license agreement with Medison Pharma to sell their phase 3 candidate Paclical in the oncology market of Israel and Turkey, we expect the revenue of Oasmia to reach SEK 42mn at the end of 2011 out which SEK 3.6mn was already received by the company as an upfront payment from Medison Pharma. We believe that the revenue will jump to SEK 386mn in 2012, due to the launch of Paccal Vet in the veterinary oncology market with an expected market share of 4%. But the real surge in revenue will be experienced by the Company, after the introduction of Paclical and this will be due to the increase in the royalty streams from both the Veterinary and Human Medicine candidates, with a royalty level of 40% from their licensing partners. By 2013 to 2015, we expect the total revenue of Oasmia to reach SEK 1.54bn to SEK 4.37bn respectively, with an annual CAGR of about 68%. We are also looking forward to the initial response of the product in the market. We expect Oasmia Paclical s phase 3 results to come in the fiscal year and these will be very important for the company and also for the investors to understand the expected potentiality of the upcoming drug candidate. 24