Company Quick10K Filing
Quick10K
Oasmia Pharmaceutical
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$1.97 75 $148
20-F 2018-04-30 Annual: 2018-04-30
20-F 2017-04-30 Annual: 2017-04-30
20-F 2016-04-30 Annual: 2016-04-30
GLNG Golar Lng 1,890
CLVS Clovis Oncology 1,030
ERII Energy Recovery 581
BHR Braemar Hotels & Resorts 428
SB Safe Bulkers 160
JASN Jason Industries 40
AWX Avalon Holdings 10
SWKH SWK Holdings 0
ATAO Altair 0
DMCI Diamond Cartel 0
OASM 2018-04-30
Part I
Item 1. Identity of Directors, Senior Management and Advisers
Item 2. Offer Statistics and Expected Timetable
Item 3. Key Information
Item 4. Information on The Company
Item 4A. Unresolved Staff Comments
Item 5. Operating and Finacial Review and Prospects
Item 6. Directors, Senior Management and Employees
Item 7. Major Shareholders and Related Party Transactions
Item 8. Financial Information
Item 9. The Offer and Listing
Item 10. Additional Information
Item 11 Quantitative and Qualitative Disclosure About Market Risk
Item 11 D. Safe Harbor
Item 12. Description of Securities Other Than Equity Securities
Part II
Item 13. Defaults, Dividend Arrearages and Delinquencies
Item 14. Material Modifications To The Rights of Security Holders and Use of Proceeds
Item 15. Controls and Procedures
Item 16 A. Audit Committee Financial Expert
Item 16 B. Code of Ethics
Item 16 C. Principal Accountant Fees and Services
Item 16D. Exemptions From The Listing Standards for Audit Committees
Item 16E. Purchases of Equity Securities By The Issuer and Affiliated Purchasers
Item 16F. Change in Registrant's Certifying Accountant
Item 16G. Corporate Governance
Item 16 H. Mine Safety Disclosure
Item 17. Financial Statements
Item 18. Financial Statements
Item 19Exhibits
Note 1 General Information
Note 2 Accounting Policies
Note 3 Significant Estimates and Assumptions for Accounting Purposes
Note 4 Segment Information
Note 5 Capitalized Development Costs
Note 6 Other Operating Income
Note 7 Inventories
Note 8 Remunerations To Auditors
Note 9 Leasing
Note 10 Employees and Remuneration
Note 11 Property, Plant and Equipment
Note 12 Other Intangible Assets
Note 13 Currency Differences - Net
Note 14 Operating Income
Note 15 Financial Income and Expenses
Note 16 Income Taxes
Note 17 Earnings per Share
Note 18 Financial Instruments and Financial Risks
Note 19 Prepaid Expenses and Accrued Income
Note 20 Other Current Receivables
Note 21 Share Capital
Note 22 Other Current Liabilities
Note 23 Accrued Expenses and Deferred Income
Note 24 Contingent Liabilities and Pledged Assets
Note 25 Cash Flow Analysis
Note 26 Transactions with Related Parties
Note 27 Holdings in Group Companies
Note 28 Allocation of Non-Restricted Equity
Note 29 Events After Balance Sheet Date of April 30, 2018
Note 30 Key Definitions
EX-8.1 tv502099_ex8-1.htm
EX-12.1 tv502099_ex12-1.htm
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EX-13.1 tv502099_ex13-1.htm
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Oasmia Pharmaceutical Earnings 2018-04-30

OASM 20F Annual Report

Balance SheetIncome StatementCash Flow

20-F 1 tv502099_20f.htm 20-F

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 20-F

 

(Mark One)

 

  ¨ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

 

OR

 

  x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended April 30, 2018

 

OR

 

  ¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

OR

 

  ¨ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Date of event requiring this shell company report. Not applicable

 

Commission file number 001-37604

 

Oasmia Pharmaceutical AB

 

 (Exact name of Registrant as specified in its charter)

 

Oasmia Pharmaceutical AB

 

 (Translation of Registrant's name into English)

 

Sweden

(Jurisdiction of incorporation or organization)

 

Vallongatan 1
SE-752 28 Uppsala
Sweden

 

(Address of principal executive offices)

 

Mikael Asp
Chief Executive Officer
Oasmia Pharmaceutical AB

 

Vallongatan 1
SE-752 28 Uppsala, Sweden

 

 (Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

 

Securities registered or to be registered pursuant to Section 12(b) of the Act.

 

Title of each class   Name of each exchange on which registered
American Depositary Shares, each representing three (3)   Nasdaq Capital Market
Ordinary Shares, par value SEK 0.10 per share    
Ordinary Shares, par value SEK 0.10 per share*   Not Applicable

 

* Not for trading, but only in connection with the registration of the American Depositary Shares pursuant to requirements of the Securities and Exchange Commission.

 

Securities registered or to be registered pursuant to Section 12(g) of the Act.

 

Not Applicable

(Title of Class)

 

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.

 

(Title of Class)

 

Indicate the number of outstanding shares of each of the issuer's classes of capital or common stock as of the close of the period covered by the annual report.

 

Ordinary shares: 179,309,596 as per July 31, 2018

 

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

 

¨  Yes     x  No

 

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

 

¨  Yes     x  No

 

Note—Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. 

x  Yes     ¨  No

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

 

x  Yes     ¨  No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. 

 

Large accelerated filer  ¨   Accelerated filer  ¨   Non-accelerated filer  x
        Emerging growth company  x

 

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. ¨

 

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

 

U.S. GAAP  ¨   International Financial Reporting Standards as issued
by the International Accounting Standards Board  x
  Other  ¨

 

If "Other" has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow. 

¨  Item 17     ¨  Item 18

 

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 

¨  Yes     x  No

 

 

 

 

 

 

Oasmia Pharmaceutical AB

 

TABLE OF CONTENTS

 

    Page
PART I    
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS 1
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE 1
ITEM 3. KEY INFORMATION 1
ITEM 4. INFORMATION ON THE COMPANY 29
ITEM 4A. UNRESOLVED STAFF COMMENTS 56
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS 56
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES 69
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS 74
ITEM 8. FINANCIAL INFORMATION 77
ITEM 9. THE OFFER AND LISTING 77
ITEM 10. ADDITIONAL INFORMATION 79
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK 85
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES 86
     
PART II   92
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES 92
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS 92
ITEM 15. CONTROLS AND PROCEDURES 92
ITEM 16. [RESERVED]  
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT 94
ITEM 16B. CODE OF ETHICS 94
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES 94
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES 94
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS 94
ITEM 16F. CHANGES IN REGISTRANT’S CERTIFYING ACCOUNTANT 94
ITEM 16G. CORPORATE GOVERNANCE 95
ITEM 16H. MINE SAFETY DISCLOSURE 96
   
PART III    
ITEM 17. FINANCIAL STATEMENTS 96
ITEM 18. FINANCIAL STATEMENTS 96
ITEM 19. EXHIBITS 96
SIGNATURES 99
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS F-1

 

 

 

  

Introduction

 

This document contains information required for the annual report on Form 20-F for the fiscal year ended April 30, 2018 of Oasmia Pharmaceutical AB (the “Form 20-F”). Unless the context specifically indicates otherwise, references in this Form 20-F to “Oasmia Pharmaceutical AB”, “Oasmia Pharmaceutical”, “Oasmia”, “we”, “our”, “ours”, “us”, the “Company” or similar terms refer to Oasmia Pharmaceutical AB.

 

Exchange rates

 

All references in this annual report to “$” are to U.S. dollars, all references to “SEK” are to Swedish krona and all references to “TSEK” are to Swedish krona in thousands. Solely for the convenience of the reader some, but not all, Swedish krona and Euro amounts have been translated into U.S. dollars at the relevant exchange rate posted by the Federal Reserve Bank. These translations should not be considered representations that any such amounts have been, could have been or could be converted into U.S. dollars at that or any other exchange rate as of that or any other date.

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This annual report contains estimates and forward-looking statements, principally in “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business.” Some of the matters discussed concerning our operations and financial performance include estimates and forward-looking statements within the meaning of the Securities Act and the Exchange Act.

 

These forward-looking statements are subject to known and unknown risks, uncertainties, assumptions and other factors that could cause our actual results of operations, financial condition, liquidity, performance, prospects, opportunities, achievements or industry results, as well as those of the markets we serve or intend to serve, to differ materially from those expressed in, or suggested by, these forward-looking statements. These forward-looking statements are based on assumptions regarding our present and future business strategies and the environment in which we expect to operate in the future. Important factors that could cause those differences include, but are not limited to:

  

increasing expenses related to clinical studies and development of our product candidates;

  

our ability to obtain funding on acceptable terms or at all;

  

the inherent uncertainty of product development/commercialization of our products;

 

manufacturing and commercialization;

  

patents, including, but not limited to, legal challenges;

  

government regulation and approval, including, but not limited to, the expected regulatory approval dates for Paccal Vet, Paclical, and our other product candidates;

  

current revenue being insufficient to fund operating expenses;

  

future revenue being lower than expected;

  

the level of pricing and reimbursement for our products;

  

increasing competitive pressures in the industry;

  

general economic conditions or conditions affecting demand for the services offered by us in the markets in which it operates, both domestically and internationally, being less favorable than expected;

 

fluctuations in the price of raw materials and utilities;

  

currency fluctuations and hedging risks;

  

worldwide economic and business conditions and conditions in the industries in which we operate;

  

our relationships with our customers and suppliers;

  

increased competition from other companies in the industries in which we operate;

 

changing technology;

 

 

 

 

serious adverse events or other safety risks related to our products;

 

claims for personal injury or death arising from the use of products produced by us;

 

the occurrence of accidents or other interruptions to our production processes;

 

changes in our business strategy or development plans, and our expected level of capital expenses;

 

our ability to attract and retain qualified personnel;

 

regulatory, environmental, legislative and judicial developments;

 

our ability to expand our pipeline of product candidates;

 

our intention to pay dividends; and

 

factors that are not known to us at this time.

 

Additional factors that could cause actual results, financial condition, liquidity, performance, prospects, opportunities, achievements or industry results to differ materially include, but are not limited to, those discussed under “Risk Factors” in this annual report. Additional risks that we may currently deem immaterial or that are not presently known to us could also cause the forward-looking events discussed in this annual report not to occur. The words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “expect” and similar words are intended to identify estimates and forward-looking statements. Estimates and forward-looking statements speak only at the date they were made, and we undertake no obligation to update or to review any estimate and/or forward-looking statement because of new information, future events or other factors. Estimates and forward-looking statements involve risks and uncertainties and are not guarantees of future performance. Our future results may differ materially from those expressed in these estimates and forward-looking statements. In light of the risks and uncertainties described above, the estimates and forward-looking statements discussed in this annual report might not occur and our future results and our performance may differ materially from those expressed in these forward-looking statements due to, inclusive of, but not limited to, the factors mentioned above. Because of these uncertainties, you should not make any investment decision based solely on these estimates and forward-looking statements.

 

 

 

  

PART I

 

ITEM 1.    IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

 

Not applicable.

 

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

 

Not applicable.

 

ITEM 3. KEY INFORMATION

 

A. Selected financial information

 

You should read the following selected financial data in conjunction with our financial statements and the related notes thereto appearing elsewhere in this annual report and in the section of this annual report entitled “Item 5. Operating and financial review.”

 

The following table summarizes our consolidated financial data as of the dates and for the periods indicated. The selected consolidated financial data for the fiscal years presented have been derived from our consolidated financial statements, which have been prepared in accordance with International Financial Reporting Standards (“IFRS”) issued by the International Accounting Standards Board (“IASB”). Furthermore, the recommendation RFR 1, Supplementary accounting regulations for Groups, issued by the Swedish Financial Reporting Board, has been applied. We have prepared the consolidated financial information set forth below on the same basis as our audited consolidated financial statements.

 

Our consolidated financial statements are prepared and presented in Swedish krona “SEK”, which is our functional currency. All tables, if not expressly otherwise stated, in this annual report are therefore in Swedish krona.

 

Our historical results are not necessarily indicative of the results that may be expected in the future. The following summary consolidated financial data should be read in conjunction with the section “Item 5. Operating and financial review” and our consolidated financial statements included elsewhere in this annual report, including our discussions therein regarding the material weakness in our internal control over financial reporting identified by our independent registered public accounting firm and the Company’s future financing and going concern.

 

Key figures are translated into USD as additional information as a service to readers of this annual report in the US. The US Dollar is not the functional currency of Oasmia, which is SEK. The conversion of currency has been made by use of a convenience rate for all figures including those from previous periods. This rate is the closing rate as per September 7, 2018 which was 9.0813 SEK per one USD. 

 

 - 1 - 

 

  

Consolidated income statement data:

 

   2018   2018   2017   2016   2015 
   (TUSD)   (TSEK)   (TSEK)   (TSEK)   (TSEK) 
                     
Net sales   349    3,169    172    6,373    2,070 
Change in inventories of products in progress and finished goods   (160)   (1,450)   (1,405    9,509    - 
Capitalized development cost   1,008    9,157    7,023    16,727    16,797 
Other operating income   193    1,753    420    2    221 
Raw materials, consumables and goods for resale   (325)   (2,953)   (2,984)   (4,733)   (10,062)
Other external expenses   (6,633)   (60,235)   (79,904)   (98,104)   (60,740)
Employee benefit expenses   (5,326)   (48,371)   (59,295)   (57,661)   (50,530)
Depreciation, amortization and impairment   (528)   (4,794)   (4,508)   (4,804)   (5,190)
Other operating expenses   -    -    -    -    (792)
Operating income (loss)   (11,422)   (103,724)   (140,481)   (132,691)   (108,225)
Financial income   11    101    85    786    210 
Financial expenses   (1,585)   (14,390)   (19,847)   (9,634)   (9,482)
Financial income and expenses - net   (1,573)   (14,289)   (19,762)   (8,848)   (9,272)
Income (loss) before taxes   (12,995)   (118,013)   (160,243)   (141,539)   (117,497)
Income taxes   -    -    -    -    - 
Income (loss) for the period   (12,995)   (118,013)   (160,243)   (141,539)   (117,497)
                          
Earnings (loss) per share, before and after dilution, SEK (1)   (0.08)   (0.71)   (1.39)   (1.36)   (1.26)
Weighted average number of shares, in thousands before and after dilution (1)   166,196    166,196    112,994    101,753    91,655 

 

 

(1) Recalculation of historical figures has been performed with regards to capitalization issue components in the preferential rights share issue carried out in the fiscal quarters July 31, 2017 and January 31, 2015.

 

Consolidated statement of financial position data:

 

   2018   2018   2017   2016   2015 
   (TUSD)   (TSEK)   (TSEK)   (TSEK)   (TSEK) 
                     
Total non-current assets   53,689    487,565    471,464    443,010    427,879 
Liquid assets   1,716    15,580    28,001    46,214    76,990 
Total current assets   8,865    80,509    50,119    72,570    86,690 
Total assets   62,554    568,075    521,583    515,579    514,569 
Total equity   37,994    345,036    300,371    326,053    375,710 
Total non-current liabilities   0    0    0    0    0 
Total current liabilities   24,560    223,039    221,212    189,527    138,858 
Total liabilities   24,560    223,039    221,212    189,527    138,858 

 

 - 2 - 

 

  

Consolidated cash flow statement data:

 

   2018   2018   2017   2016   2015 
   (TUSD)   (TSEK)   (TSEK)   (TSEK)   (TSEK) 
                     
Cash flow from operating activities   (13,614)   (123,634)   (133,011)   (128,126)   (107,666)
Cash flow from investing activities   (2,362)   (21,452)   12,039    10,066    (69,755)
Cash flow from financing activities   14,608    132,656    122,755    117,449    156,017 

 

EXCHANGE RATE INFORMATION

 

Fluctuations in the exchange rate between the Swedish krona and the U.S. dollar will affect the U.S. dollar amounts received by owners of the ADSs on conversion of dividends, if any, paid in krona on the Ordinary Shares and will affect the U.S. dollar price of the ADSs on NASDAQ. The table below shows the period end, average, high and low exchange rates of kronor per U.S. dollar for the periods shown. Average rates are computed by using the noon buying rate of the Federal Reserve Bank of New York for the U.S. dollar on the last business day of each month during the relevant year indicated or each business day during the relevant month indicated. The rates set forth below are provided solely for your convenience and may differ from the actual rates used in the preparation of our consolidated financial statements included in this annual report and other financial data appearing in this annual report

 

   Period End   Average   High   Low 
Year Ended April 30:                
2014   6.5049    6.5244    6.8171    6.3237 
2015   8.3778    7.5000    8.8180    6.4864 
2016   8.0267    8.4162    8.7679    8.0267 
2017   8.8635    8.7399    9.4207    7.9761 
2018   8.7630    8.3062    8.9130    7.8549 
                     
Month Ended:                    
March 2018   8.3619    8.2406    8.3619    8.1707 
April 2018   8.7630    8.4596    8.7630    8.3157 
May 2018   8.8233    8.7555    8.9564    8.5912 
June 2018   8.9511    8.8010    9.0091    8.6059 
July 2018   8.7521    8.8225    8.9900    8.7038 
August 2018   9.1566    9.0690    9.2228    8.8083 
September 2018 (through September 7, 2018)   9.0813    9.0833    9.1118    9.0697 

 

B. Capitalization and indebtedness

 

Not applicable

 

C. Reason for the Offer and Use of Proceeds

 

Not applicable

 

D. Risk factors.

 

Our business faces significant risks and uncertainties. You should carefully consider the following risk factors and all other information set forth in this Annual Report on Form 20-F, including our consolidated financial statements, before making an investment decision regarding our securities. The risks and uncertainties described below are those significant risk factors, currently known and specific to us, which we believe are relevant to an investment in our securities. The risk factors are not placed in order of priority and should not be construed as comprehensive. Additional risks and uncertainties not currently known to us or those we now deem immaterial may also harm us and adversely affect your investment in the ADSs. If any of these risks materialize, our business, results of operations, financial condition and future prospects could suffer and the price of the ADSs could decline and you could lose part or all of your investment. In addition to the information disclosed in this annual report, investors should make their own assessment of each risk factor and its potential impact on our future development as well as an assessment of the impact of general conditions, including market conditions and world events.

 

 - 3 - 

 

  

Risks Related to Our Product and Product Candidates

 

We are substantially dependent on the success of our product and product candidates, none of which may receive full regulatory approval or be successfully commercialized.

 

Up until today, we have invested nearly all of our resources in the research and development of our product candidates, which consist of Paccal Vet (“Paccal Vet”) for cancer in dogs, Paclical or Apealea for ovarian cancer and other cancers in humans, Docecal for breast cancer in humans, Doxophos Vet for lymphoma in dogs, Doxophos for breast cancer and other cancers in humans, and OAS-19 for various cancers in humans. Two of product candidates, Paclical and Doxophos, have been approved for full commercial distribution in Russia. Another of our product candidates, Paccal Vet-CA1 (“Paccal Vet”) was previously conditionally approved by FDA. However this conditional approval was withdrawn by the Company in January 2017. Our near-term prospects, including our ability to finance our company and to enter into strategic collaborations and generate revenue, are directly dependent upon the successful development and commercialization of our product and product candidates, particularly Paclical, Doxophos, Doxophos Vet and Paccal Vet.

 

Paclical is the name used in Russia and Kazakhstan hence the name Apealea will be used in Europe and in the U.S.

 

The development and commercial success of our product and product candidates will depend on a number of factors, including, without limitation, the following:

 

  timely initiation and successful completion of preclinical studies and clinical trials for our product candidates;

 

  demonstration to the satisfaction of the United States Food and Drug Administration (“FDA”) and other applicable regulatory authorities of the safety and efficacy of our product and product candidates, as well as to obtain regulatory and marketing approval for our product and product candidates in the U.S. and elsewhere;

 

  continued compliance with all clinical and regulatory requirements applicable to our product and product candidates;

 

  maintenance of an acceptable safety profile of our products following regulatory approval;

 

  competition with other treatments;

 

  creation, maintenance and protection of our intellectual property portfolio, including patents and trade secrets, and regulatory exclusivity for our product and product candidates;

 

  effectiveness of our and our partners’ marketing, sales and distribution strategy and operations;

 

  ability of our third-party manufacturers to manufacture supplies of our product and product candidates and to develop, validate and maintain commercially viable manufacturing processes;

 

  ability to launch commercial sales of our product and product candidates following regulatory approval, whether alone or in collaboration with others;

 

  acceptance of our animal health product and product candidates by veterinarians, pet owners and the animal health community; and

 

  acceptance of our human health product candidates from physicians, health care payers, patients and the medical community.

   

Since many of these factors are beyond our control, we cannot assure you that we will ever be able to generate sufficient revenue or any revenue from the sale of our product and product candidates. Our failure in any of the above-mentioned factors or in successfully commercializing one or more of our product and product candidates, or any significant delay in doing so, could have a material adverse effect on our business, results of operations and financial condition, and the value of your investment could substantially decline.

 

Our product and product candidates may not achieve market acceptance, which could limit our ability to generate revenue from new products.

 

Even if we develop our product and product candidates and gain regulatory approvals for our products, unless veterinarians, physicians, and patients accept our products, we may not be able to sell our products and generate significant revenue. We cannot assure you that our current product and product candidates or any other planned products will achieve market acceptance and revenue if and when they obtain the requisite regulatory approvals. Market acceptance of any product depends on a number of factors, including but not limited to:

 

  the indication and warnings approved by regulatory authorities in the product label;

 

  continued demonstration of efficacy and safety in commercial use;

 

  physicians’ or veterinarians’ willingness to prescribe the product;

 

  reimbursement from third-party payors such as government health care systems and insurance companies;

 

 - 4 - 

 

  

  the price of the product, including pet owners’ willingness to pay for treatment;

 

  the nature of any post-approval risk management plans mandated by regulatory authorities;

 

  competition; and

 

  the effectiveness of marketing and distribution support.

 

Any failure by our product and product candidates to achieve market acceptance or commercial success could have a material adverse effect on our business, results of operations and financial condition.

 

Problems in our manufacturing process, failure to comply with manufacturing regulations or unexpected increases in our manufacturing costs could harm our business, results of operations and financial condition.

 

We are responsible for the manufacture and supply of Apealea, Doxophos and our other product candidates for our commercial partners and for use in clinical trials. The manufacturing of our product and product candidates necessitates compliance with the US FDA, EU EMA and international current Good Manufacturing Practice (“cGMP”) and other international regulatory requirements. Although we contract with third parties such as Baxter Oncology GmbH for a certain amount of the manufacturing of Apealea, Paccal Vet and our other product candidates, the market authorization for Apealea and Doxophos remains with us. As such, even if we could potentially have a claim against one or more third parties, we are legally liable for any noncompliance related to Apealea and Doxophos and we expect to retain legal responsibility for future product candidates as well.

 

If we are unable to manufacture, or contract to manufacture, our product and product candidates in accordance with regulatory specifications, or if there are disruptions in the manufacturing process due to damage, loss or failure to pass regulatory inspections of manufacturing facilities, we may not be able to meet the demand for our products or supply sufficient product for use in clinical trials, and this may harm our ability to commercialize Apealea, Doxophos and our other product candidates on a timely or cost-competitive basis, or preclude us from doing so at all. In addition, we are in the process of expanding and changing parts of our manufacturing facilities in order to meet future demand and FDA requirements, a program which requires significant time and resources. We also expect to expand and upgrade other parts of our manufacturing facilities in the future. These activities may lead to delays, interruptions in supply, or may prove to be more costly than we currently anticipate. Any problems in our manufacturing process could have a material adverse effect on our business, results of operations and financial condition.

   

In addition, under our license agreements, we expect to generate revenue from the supply of commercial products to our partners at a fixed percentage of our cost of goods sold, and thus any increases in our manufacturing costs could materially and adversely affect our margins and our financial condition.

 

Before we can begin commercial manufacture of Paccal Vet, Apealea or our other product candidates for sale in the U.S., we must obtain FDA regulatory approval for the product, which requires a successful FDA inspection of our manufacturing facilities, processes and quality systems in addition to other product-related approvals. Although we successfully passed an FDA Pre-Approval Inspection and a FDA routine GMP inspection of our manufacturing facility in Uppsala, Sweden, our pharmaceutical facilities are continuously subject to inspection by the FDA and foreign (EMA) regulatory authorities, even after product approval. Due to the complexity of the processes used to manufacture our product and product candidates, we may be unable to pass federal, state or international regulatory inspections in a cost effective manner, whether initially on at any time thereafter. If we are unable to comply with manufacturing regulations, we may be subject to fines, unanticipated compliance expenses, recall or seizure of any approved products, or legal actions such as injunctions or criminal or civil prosecution. These possible sanctions could materially and adversely affect our business, results of operations and financial condition. See also “— Risks Related to Development and Regulatory Approval of Our Product and Product Candidates — The regulatory approval process is uncertain, requires us to utilize significant resources, and may prevent us or our commercial partners from obtaining approvals for the commercialization of some or all of our drug candidates.”

 

We expect to face substantial competition, which may result in others discovering, developing or commercializing products before, or more successfully than, we do.

 

The development and commercialization of new drug products is highly competitive. We face competition with respect to our current product and product candidates, and will face competition with respect to any product candidates that we may seek to develop or commercialize in the future, from major pharmaceutical companies, specialty pharmaceutical companies and biotechnology companies worldwide. In addition to existing therapeutic treatments for the indications we are targeting with our product and product candidates, we also face potential competition from other drug candidates in development by other companies. Our potential competitors include large health care companies, such as Celgene, Merck & Co., Inc., Sanofi S.A., Eli Lilly and Company, Roche, Bayer AG, Novartis AG and Boehringer Ingelheim GmbH. Several of these companies also has a presence in animal health. We also know of several smaller early stage companies that are developing products for use in the animal or human health products market. We expect that Paccal Vet and Doxophos Vet will face competition from Palladia, made by Zoetis. We may also face competition from generic medicines and products approved for use in humans that are used off-label for pets. Some of the potential competitive compounds referred to above are being developed by large, well-financed and experienced pharmaceutical and biotechnology companies or have been partnered with such companies, which may give them development, regulatory and marketing advantages over our products.

   

 - 5 - 

 

 

Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize products that are safer, more effective, have fewer or less severe side effects, are more convenient or are less expensive than any products that we may develop. Our competitors also may obtain FDA or other regulatory approval for their products more rapidly than we may obtain approval for ours, which could result in our competitors establishing a strong market position before we are able to enter the market. In addition, our ability to compete may be affected in many cases by insurers or other third-party payers seeking to encourage the use of generic products. Generic products are currently on the market for the indications that we are pursuing. If our product candidates achieve marketing approval, we expect that they will be priced at a significant premium over competing generic products.

 

Some of the companies against which we are competing or against which we may compete in the future have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals and marketing approved products than we do. Mergers and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentrated among a smaller number of our competitors. Smaller and other early stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These third parties compete with us in recruiting and retaining qualified scientific and management personnel, establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs.

 

If we are unable to compete successfully, we may be unable to grow and sustain our revenue, which could materially and adversely affect our business, results of operations and financial condition.

 

Generic products may be more cost-effective than our products.

 

In addition to the competition that we may face from products produced by other companies in general, we may also face competition from generic alternatives to our products. For example, Apealea is expected to compete with the generic form of Taxol. Generic alternatives are generally less expensive, and competitors who market generic drugs are becoming more aggressive in terms of pricing. Consequently, generic products constitute an increasing percentage of both overall human and animal health sales in certain regions. If human and animal health care customers increase their use of new or existing generic products, or if we are unable to compete with existing generic products, our business, results of operations and financial condition could be materially and adversely affected.

 

Serious adverse events or other safety risks could require us to abandon development and preclude, delay or limit approval of our product and product candidates, or limit the scope of any approved label or market acceptance.

 

If any of Apealea, Doxophos, or any of our other product candidates, prior to or after any approval for commercial sale, causes serious or unexpected side effects, or become associated with other safety risks such as misuse, abuse or diversion, a number of potentially significant negative consequences could result, including, without limitation:

 

  regulatory authorities may interrupt, delay or halt clinical trials;

 

  regulatory authorities may deny regulatory approval of our product candidates;

 

  regulatory authorities may require certain labeling statements, such as warnings or contraindications or limitations on the indications for use, or impose restrictions on distribution in the form of a Risk Evaluation and Mitigation Strategy (“REMS”), in connection with approval, if any;

 

  regulatory authorities may withdraw their approval, require more onerous labeling statements or impose a more restrictive REMS of any product that is approved;

 

  we may be required to change the way the product is administered or conduct additional clinical trials;

 

  our relationships with our commercial partners may suffer;

 

  we could be sued and held liable for harm caused to patients; and

 

  our reputation may suffer.

   

We may voluntarily suspend or terminate our clinical trials if at any time we believe that they present an unacceptable risk to participants or if preliminary data demonstrate that our product and product candidates are unlikely to receive regulatory approval or are unlikely to be successfully commercialized. In addition, regulatory agencies, an Institutional Review Board (“IRB”), or data safety monitoring boards may at any time recommend the temporary or permanent discontinuation of our clinical trials or request that we cease using investigators in the clinical trials if they believe that the clinical trials are not being conducted in accordance with applicable regulatory requirements, or that they present an unacceptable safety risk to participants. Although we have never been asked by a regulatory agency, IRB or data safety monitoring board to temporarily or permanently discontinue a clinical trial, if we elect or are forced to suspend or terminate a clinical trial of Apealea, Doxophos or any of our other product candidates, the commercial prospects for that product may be harmed and our ability to generate product revenue from that product may be delayed or eliminated. Furthermore, any of these events could prevent us or our partners from achieving or maintaining market acceptance of the affected product and could substantially increase the costs of commercializing our product and product candidates and materially impair our ability to generate revenue from the commercialization of these products either by us or by our commercial partners and could have a material adverse effect on our reputation, business, results of operations and financial condition.

 

 - 6 - 

 

  

If we fail to obtain and sustain an adequate level of reimbursement for our products by third-party payers, sales and profitability will be adversely affected.

 

The course of medical treatment for human patients is, and will continue to be, expensive. We expect that most patients and their families will not be capable of paying for our products themselves. Accordingly, it is unlikely that there will be a commercially viable market for Apealea or our other human health care product candidates without reimbursement from third-party payors. Additionally, even if there is a commercially viable market, if the level of third-party reimbursement is insufficient from the patient’s perspective, our revenue and gross margins will be materially and adversely affected.

 

A current trend in the U.S. health care industry, as well as in other countries around the world, is towards cost containment. Large public and private payers, managed care organizations, group purchasing organizations and similar organizations are exerting increasing influence on decisions regarding the use of, and reimbursement levels for, particular treatments. Third-party payors, such as government programs, including Medicare in the U.S. and private health care insurers, carefully review and have increasingly been challenging the coverage of, and prices charged for, medical products and services. Many third-party payers limit coverage of or reimbursement for newly-approved health care products. Reimbursement rates from private health insurance companies vary depending on the company, the insurance plan and other factors. Cost-control initiatives could decrease the price we or our partners establish for products, which could result in lower product revenue and profitability.

 

Reimbursement systems in international markets vary significantly by country and by region, and reimbursement approvals must be obtained on a country-by-country basis. Our partners may elect to reduce the price of our products in order to increase the likelihood of obtaining reimbursement approvals. In many countries, products cannot be commercially launched until reimbursement is approved and the negotiation process in some countries can exceed 12 months. In addition, pricing and reimbursement decisions in certain countries can be affected by decisions taken in other countries, which can lead to mandatory price reductions and/or additional reimbursement restrictions across a number of other countries, which may thereby adversely affect our sales and profitability. If countries set prices that are not sufficient to allow us or our partners to generate a profit, our partners may refuse to launch the product in such countries or withdraw the product from the market, which would adversely affect our sales and profitability and could materially and adversely affect our business, results of operations and financial condition.

 

We may not be successful in our efforts to expand our pipeline of product candidates.

 

One element of our strategy is to expand our pipeline of pharmaceuticals based on our XR17 technology and advance these product candidates through clinical development for the treatment of a variety of indications. Although our research and development efforts to date have resulted in a number of development programs based on XR17 technology, we may not ultimately be able to develop product candidates that are safe and effective. Even if we are successful in continuing to expand our pipeline, the potential product candidates that we identify may not be suitable for clinical development, including as a result of being shown to have harmful side effects or other characteristics that indicate that they are unlikely to receive marketing approval and achieve market acceptance. In addition, if we attempt to apply XR17 technology to develop product candidates for indications outside of cancer, we will need to conduct genotoxicity, carcinogenicity and immunotoxicity trials, in which the results may be uncertain. If we do not successfully develop and commercialize product candidates based upon our technological approach, we will not be able to obtain product revenue in future periods, which would make it unlikely that we would ever achieve profitability.

  

The veterinary market we are seeking to enter with Paccal Vet and Doxophos Vet is untested.

 

The market for cancer drugs for dogs is nascent and changing. Consequently, it is difficult to assess to what extent cancer drugs might be accepted by veterinarians, which complicates both the estimate of the market size as well as our share thereof, if any. If a market does not develop, or our share thereof is not meaningful, it could have a material adverse effect on our business, results of operations and financial condition.

 

For our animal health products, changes in distribution channels could negatively impact our market share and distribution of our animal health products.

 

Since our animal health product and product candidates are designed to be given intravenously by veterinarians, pet owners will not be able to obtain our products over-the-counter or via the internet. Increasingly, pet owners purchase animal health products from sources other than veterinarians, such as internet-based retailers, “big-box” retail stores or other over-the-counter distribution channels. This trend has been demonstrated by the significant shift away from the veterinarian distribution channel in the sale of parasiticides and vaccines in recent years. Pet owners also could decrease their reliance on, and visits to, veterinarians as they rely more on internet-based animal health information. Since we market our animal health products through the veterinarian distribution channel, any decrease in visits to veterinarians by pet owners could reduce our market share for such products and materially and adversely affect our operating results and financial condition.

 

 - 7 - 

 

  

Business interruptions could delay us in the process of developing our product and product candidates and could disrupt our product sales.

 

Loss of our manufacturing facilities, stored inventory or laboratory facilities through accidents, fire or other causes could have a materially adverse effect on our ability to meet demand for our products, to continue product development activities and to conduct our business. Failure to supply our partners with commercial products may lead to adverse consequences, including the right of certain partners to take over responsibility for product supply. We have insurance coverage to compensate us for such business interruptions, but should such coverage prove insufficient to fully compensate us for damage to our business resulting from any significant property or casualty loss to our inventory or facilities, it could have a material adverse effect on our business, results of operations and financial condition.

 

Product recalls or inventory losses caused by unforeseen events, cold chain interruption and testing difficulties may adversely affect our operating results and financial condition.

 

Apealea, Doxophos and our other product candidates are manufactured and distributed using technically complex processes requiring specialized facilities, highly specific raw materials and other production constraints. The complexity of these processes, as well as the strict company and government standards for the manufacture of our products, subjects us to production risks. While product batches released for use in clinical trials or for commercialization undergo sample testing, some defects may only be identified following product release. In addition, process deviations or unanticipated effects of approved process changes may result in these intermediate products not complying with stability requirements or specifications. Most of our products must be stored and transported at temperatures within a certain range, which is known as “strict cold chain” storage and transportation. If these environmental conditions deviate, our products’ remaining shelf lives could be impaired or their efficacy and safety could become adversely affected, making them no longer suitable for use. The occurrence or suspected occurrence of production and distribution difficulties can lead to lost inventories, and in some cases product recalls, with consequential reputational damage and the risk of product liability. The investigation and remediation of any identified problems can cause production delays, substantial expense, lost sales and delays of new product launches, any of which could have a material adverse effect on our business, results of operations and financial condition.

    

Risks Related to Our Financial Position and Capital Needs

 

Our independent registered public accounting firm included an explanatory paragraph relating to our ability to continue as a going concern in its report on our audited consolidated financial statements included in this annual report.

 

Our audited consolidated financial statements were prepared assuming that we will continue as a going concern. However, the report of our independent registered public accounting firm included elsewhere in this annual report contains an explanatory paragraph on our consolidated financial statements casting substantial doubt about our ability to continue as a going concern, meaning that we may not be able to continue in operation for the foreseeable future or be able to realize assets and discharge liabilities in the ordinary course of operations. Such an opinion could materially limit our ability to raise additional funds through the issuance of new debt or equity securities or otherwise. There is no assurance that sufficient financing will be available when needed to allow us to continue as a going concern.

 

Oasmia has two products approved, but they do not yet create a sufficient cash flow for its business. Consequently, Oasmia continuously pursues various financing alternatives. This work includes the fact that the Company is in discussions with potential partners for licensing of distribution and sales rights, negotiations with new and existing investors, financiers and lenders and that the Company ensures enough resources to secure that forecasted future revenue streams from regions where the company's products registered, are realized.

 

Available consolidated liquid assets and unutilized credit facilities as of April 30, 2018 are not sufficient to provide the required capital to pursue the planned activities during the next 12 months. In light of available financing alternatives and the recent developments in the Company, the Board of Directors assesses that the prospects for financing of the Company´s operations in the coming year are good. Should funding not be obtained in sufficient quantities there is a risk that the conditions for continued operation do not exist.

 

Our independent registered public accounting firm has advised us that it has identified a material weakness in our internal control over financial reporting relating to revenue recognition from profit sharing agreements and inadequate financial statement preparation and review procedures.

 

In connection with the audit of our financial statements as of and for the fiscal year ended April 30, 2018 our independent registered public accounting firm reported to our audit committee that it had identified a material weakness in our internal control over financial reporting related to internal controls designed to ensure that profit-sharing revenue is properly recognized were not carried out effectively. Although management corrected the misstatement for the year ended April 30, 2018, we concur with our independent registered public accounting firm that a material weakness exists in our internal control over financial reporting as of April 30, 2018.

 

Also, in connection with the audit of our financial statements as of and for the fiscal year ended April 30, 2017 our independent registered public accounting firm reported to our audit committee that it had identified a material weakness in our internal control over financial reporting related to inadequate financial statement preparation and review procedures. During the year ended April 30, 2018, we have performed the remedial activities described below to address the material weakness identified by our independent registered public accounting firm. However due to lack of resources there has not yet been a sufficient time period to allow management to assess whether these actions have been implemented successfully, and determine that the newly-designed controls will operate as designed, both routinely and effectively. Accordingly, we cannot yet conclude that the material weakness previously identified has been fully remediated. Under standards established by the Public Company Accounting Oversight Board (United States), a material weakness is a deficiency or combination of deficiencies in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected and corrected on a timely basis. Specifically, our independent registered public accounting firm determined that we did not have adequate procedures and controls to ensure that accurate financial statements could be prepared and reviewed on a timely basis, including:

  

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sufficient resources and processes in place, including controls in the finance and accounting department, to adequately perform a timely financial statement close process resulting in errors in period-end accruals related to capitalized research and development expenses.

 

adequate internal review processes in place over critical accounting areas including timely operation whereby management identifies and resolves significant or complex accounting matters.

 

sufficient resources and processes in place, including controls in the sales/finance and accounting department, to ensure that profit-sharing revenue is properly recognized were not carried out effectively.

 

To remediate the material weaknesses in our internal control over financial reporting described above, we are implementing new control procedures to provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with IFRS. The changes to the control environment include, but are not limited to, the following:

 

• For future assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with IFRS, we intend to retain third-party specialists and utilize additional internal resources to update internal control procedures, including having all changes in writing regarding 20-F confirmed by two senior managers before filing the financial statements with the SEC. Such resources will be retained by management at the direction of the audit committee.

 

• For future assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with IFRS, we intend to prepare an accounting and internal control memorandum to address the matter as necessary, as well as further educate our management regarding internal control and accounting through related accounting literature, which will be reviewed by the Chief Financial Officer and presented to the audit committee.

 

These remediation initiatives are intended to enhance our ability to provide accurate and timely internal control by establishing a formal process and specific control activities. Management believes that these measures, which are currently being implemented, will remediate the identified weakness. Other than as noted above, other changes may be implemented in the future to enhance and improve our internal control over financial reporting measures to prevent this weakness from recurring.

 

We concurred with the findings from our independent registered public accounting firm. We have been working to remediate the material weaknesses. However, the material weakness will not be considered remediated until the applicable remedial controls operate for a sufficient period and management has concluded, through testing, that these controls are operating effectively.

 

We will be required to disclose changes made in our internal control over financial reporting and procedures on a semi-annual basis and our management will be required to assess the effectiveness of these controls annually. However, for as long as we are an “emerging growth company” under the JOBS Act, our independent registered public accounting firm will not be required to attest to the effectiveness of our internal control over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act. We could be an “emerging growth company” for up to five years. An independent assessment of the effectiveness of our internal control over financial reporting could detect problems that our management’s assessment might not. Additional undetected material weaknesses in our internal control over financial reporting could lead to financial statement restatements and require us to incur additional expenses of remediation, and adversely affect our reputation, financial condition and operating results.

 

We face litigation risks as a result of the material weakness in our internal control over financial reporting identified by our independent registered public accounting firm.

 

In connection with the audit of our financial statements as of and for the fiscal years ended April 30, 2018 and April 30, 2017 our independent registered public accounting firm reported to our audit committee that it had identified material weaknesses in internal control over financial reporting related to inadequate financial statement preparation and review procedures. See “— Our independent registered public accounting firm has advised us that it has identified a material weakness in our internal control over financial reporting relating to revenue recognition from profit sharing agreements and inadequate financial statement preparation and review procedures.”

 

As a result of such material weaknesses and our disclosure thereof, we face the potential for litigation by current or former shareholders based on their purported inability to accurately evaluate our financial performance from reviewing our audited financial statements, based on an alleged material statement or omission contained in our audited financial statements or based on other claims arising from our inadequate financial statement preparation and review procedures. As of the date of this annual report, we have no knowledge of any such shareholder litigation. However, we can provide no assurance that such shareholder litigation will not arise in the future. Any such shareholder litigation, whether successful or not, could have a material adverse effect on our business, results of operations and financial condition.

  

 - 9 - 

 

  

Our concentration of ownership could be disadvantageous to shareholders.

 

Alceco International S.A. (“Alceco”) owned approximately 10.8 percent of our shares as of July 31, 2018. Per Arwidsson, through Arwidsro Investment AB and in his own name, owned approximately 16.9 percent of our shares as of July 31, 2018. Alceco and Per Arwidsson can thus exercise significant influence over all matters requiring shareholder approval, and may be able to prevent a change in control or preclude Oasmia from taking other measures that may benefit other shareholders. Moreover, the sale of a substantial number of our shares by Alceco and/or Mr. Arwidsson within a short period of time could cause our share price to decrease, making it more difficult for us to raise funds through future offerings of our shares or acquire other businesses using our shares as currency. Additionally, Alceco and Mr. Arwidsson may have interests that conflict with ours and/or our unaffiliated shareholders. See “— There are relationships among our directors and our largest shareholders that could pose a conflict of interest.”

 

There are relationships among our directors and our largest shareholders that could pose a conflict of interest.

 

There are relationships among some of the members of our board of directors with each other that could pose a conflict of interest. Two of our directors, our Executive Chairman Julian Aleksov and Bo Cederstrand are co-owners of Alceco, a holding company based in Luxembourg that conducts no business and exists only for financial management. Alceco owns 19,417,801 of the Ordinary Shares as of July 31, 2018 and is our second largest shareholder. In addition to being partners in Alceco, Messrs. Aleksov and Cederstrand also have a familial relationship. Mr. Aleksov is the father of two of Mr. Cederstrand’s grandchildren. Alceco has also extended a credit facility of SEK 40 million to the Company, which as of the date of this annual report has not been drawn upon.

  

These directors may have actual or apparent conflicts of interest with respect to matters involving or affecting us and Alceco. Examples of possible conflicts include:

 

  issues or disputes could arise under the commercial agreements that exist between us and Alceco;

 

  under the terms of Alceco’s loan agreements, one or more Alceco creditors could become shareholders and could exercise their voting rights in a manner that could conflict with your interests; and

 

  given the close relationship between Messrs. Cederstrand and Aleksov, Mr. Cederstrand could be conflicted as to any board decision on the compensation and employment status of Mr. Aleksov.

 

See also “Related Party Transactions.”

 

Apart from the conflicts of interest policy contained in our Code of Ethics and Business Conduct, we and Alceco and Arwidsro Investment AB have not established any formal procedures for us, Alceco and Arwidsro Investment AB to resolve potential or actual conflicts of interest between us. There can be no assurance that any of the foregoing conflicts will be resolved in a manner that does not adversely affect our business, financial condition or results of operations.

      

U.S. investors may have difficulty enforcing civil liabilities against us, our directors or members of senior management and the experts named in this annual report.

 

With one exception are all our directors and officers named in this annual report are non-residents of the U.S., and all or a substantial portion of the assets of such persons are located outside the U.S. As a result, it may not be possible to serve process on such persons or our company in the U.S. or to enforce judgments obtained in U.S. courts against them or us based on civil liability provisions of the securities laws of the U.S. There is doubt as to whether Swedish courts would enforce certain civil liabilities under U.S. securities laws in original actions or judgments of U.S. courts based upon these civil liability provisions. In addition, awards of punitive damages in actions brought in the U.S. or elsewhere may be unenforceable in Sweden. An award for monetary damages under the U.S. securities laws would be considered punitive if it does not seek to compensate the claimant for loss or damage suffered and is intended to punish the defendant. The enforceability of any judgment in Sweden will depend on the particular facts of the case as well as the laws and treaties in effect at the time. The U.S. and Sweden do not currently have a treaty providing for recognition and enforcement of judgments (other than arbitration awards) in civil and commercial matters.

 

We have incurred significant losses since our inception. We expect to incur losses over the next several years and may never achieve or maintain profitability.

 

Since our inception on April 15, 1988, we have incurred significant operating losses. We incurred net losses of SEK 118.01 million, SEK 160.24 million and SEK 141.54 million for the fiscal years ended April 30, 2018, April 30, 2017 and April 30, 2016. To date, we have financed our operations primarily through private placements of shares in our company, through loans (including convertible debt instruments) and through one-time milestone payments from our commercial partners. We have devoted substantially all of our financial resources and efforts to research and development, including preclinical studies and clinical trials. We expect to continue to incur significant expenses and operating losses over the next few years. Our net losses may fluctuate significantly from quarter to quarter and year to year. We anticipate that our expenses will increase substantially as we:

  

 - 10 - 

 

  

  finalize a Phase I/II program for Docecal for the treatment of breast cancer;

 

  conduct additional efficacy studies in dogs to collect all the necessary efficacy data for full FDA approval of Doxophos Vet and Paccal Vet;

 

  continue research and development for and commence pre-clinical and clinical trials of Apealea, Docecal, Doxophos and OAS-19;

 

  seek to discover and develop additional product candidates;

 

  seek regulatory approvals for any product candidates that successfully complete clinical trials;

 

  ultimately establish a sales, marketing and distribution infrastructure and scale up external manufacturing capabilities to commercialize any products that we choose not to license to a third party and for which we may obtain regulatory approval;

 

  maintain, expand and protect our intellectual property portfolio;

 

  hire additional clinical and scientific personnel; and

 

  add operational, financial and management information systems and personnel, including personnel to support our product development and planned future commercialization efforts.

 

To become and remain profitable, we must succeed in developing and eventually commercializing products that generate significant revenue. This will require us to be successful in a range of challenging activities, including completing preclinical testing and clinical trials of our product candidates, discovering additional product candidates, potentially entering into collaboration and license agreements, obtaining regulatory approval for product candidates and manufacturing, marketing and selling any products for which we may obtain regulatory approval. We are only in the preliminary stages of most of these activities. We may never succeed in these activities and, even if we do, may never achieve profitability.

   

Because of the numerous risks and uncertainties associated with pharmaceutical product development, we are unable to accurately predict the timing or amount of increased expenses or when, or if, we will be able to achieve profitability. If we are required by the FDA or by other regulatory authorities outside of the U.S. to perform studies in addition to those currently expected, or if there are any delays in completing our clinical trials or the development of any of our product candidates, our expenses could increase.

 

Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become and remain profitable would depress the value of our company and could impair our ability to raise capital, expand our business, maintain our research and development efforts, diversify our product offerings or even continue our operations. A decline in the value of our company could also cause you to lose all or part of your investment.

 

We may need substantial additional funding, which may not be available to us on acceptable terms, or at all. If we are unable to raise capital when needed, we could be forced to delay, reduce or eliminate our product development programs or our commercialization efforts.

 

Our operations have consumed substantial cash since inception. Excluding receipts from milestone fees, our cash flow used for operating activities for the fiscal years ended April 30, 2018, 2017 and 2016 was SEK 123.63 million, SEK 133.01 million and SEK 128.13 million respectively, with development costs, which are capitalized, for those years totaling SEK 9.16 million, SEK 7.02 million and SEK 16.73 million respectively. We expect our operating and management and administrative expenses and cash used for operations to continue to be significant and to increase substantially in connection with our planned research, development and continued product commercialization efforts. We may need to raise additional capital to fund our operations and continue to conduct clinical trials to support potential regulatory approval of marketing applications. If we are unable to raise capital when needed or on attractive terms, we could be forced to:

 

  delay, reduce or eliminate our research and development programs or any future commercialization efforts;

 

  relinquish or license on unfavorable terms our rights to technologies, our product, or product candidates that we otherwise would seek to develop or commercialize ourselves;

 

  seek collaborators for our product or one or more of our product candidates at an earlier stage than otherwise would be desirable or on terms that are less favorable than might otherwise be available; or

 

  cease operations altogether.

 

 - 11 - 

 

  

We do not expect our existing capital resources to enable us to conduct Phase II development of Apealea for the treatment of metastatic breast cancer, continue research and development for and commence clinical trials of Docecal, Doxophos Vet, Paccal Vet, Doxophos and OAS-19. Accordingly, we expect that we will need to raise substantial additional funds in the future. Our future capital requirements will depend on many factors, including:

 

  the revenue, if any, related to commercial sales of our product and product candidates for which we receive marketing approval;

 

  the Phase II clinical program for Paclical for the treatment metastatic breast cancer;

 

  the scope, progress, results and costs of preclinical development, laboratory testing and clinical trials for our other product candidates, including those of Docecal, Doxophos Vet, Doxophos and OAS-19;

 

  our ability to enter into collaborative agreements for the development and commercialization of our product candidates;

   

  the number and development requirements of other product candidates that we pursue;

 

  the costs, timing and outcome of regulatory review of our product candidates or any future product candidates, both in the U.S. and outside the U.S.;

 

  the costs and timing of future commercialization activities, including product manufacturing, marketing, sales and distribution, for our product or any of our product candidates for which we receive marketing approval;

 

  any product liability or other lawsuits related to our products;

 

  the expenses needed to attract and retain skilled personnel; and

 

  the costs involved in preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending any intellectual property-related claims, both in the U.S. and outside the U.S.

 

Identifying potential product candidates and conducting preclinical testing and clinical trials is a time-consuming, expensive and uncertain process that takes years to complete, and we may never generate the necessary data or results required to obtain regulatory approval and achieve product sales. In addition, our product and our product candidates, if approved, may not achieve commercial success. Our commercial revenue, if any, will be derived from sales of products that we do not expect to be commercially available for several months, if at all. Accordingly, we will need to continue to rely on additional financing to achieve our business objectives. Adequate additional financing may not be available to us on acceptable terms, or at all. In addition, we may seek additional capital due to favorable market conditions or strategic considerations, even if we believe we have sufficient funds for our current or future operating plans.

 

The Company may need substantial additional funding, which may not be available to the Company on acceptable terms, or at all. If the Company is unable to raise capital when needed, or to extend or replace current credits, the Company could be forced to delay, reduce or eliminate its product development programs or its commercialization efforts.

 

Our operations have consumed substantial cash since inception. Excluding receipts from milestone fees, our cash flow used for operating activities for the fiscal years ended April 30, 2018, 2017 and 2016 was SEK 123.63 million, SEK 133.01 million and SEK 128.13 million respectively, with development costs, which are capitalized, for those years totaling SEK 9.16 million, SEK 7.02 million and SEK 16.73 million respectively.

 

The Company’s cash flow, excluding revenue from milestone payments, which are used for operating activities, for the year ended 30 April 2018, amounted to approximately SEK (123.63) million, with capitalized development costs for the period totaling approximately SEK 9.16 million. The Company expects the operating, management and administrative expenses of the business to remain significant and even to increase sharply as a result of the Company’s planned research and development and continued product commercialization. Even if the proceeds from the Rights Issue is received as planned, Oasmia will have limited financial resources. The Company may need to raise additional capital, including by extending existing or replacing credits following this Offer to obtain financing for continued clinical trials in support of potential marketing approvals. If the Company is unable to raise capital when needed or on beneficial terms, or to extend or replace current credits, the Company could be forced to:

 

  delay, reduce or eliminate its research and development programs or any future commercialization efforts;

 

  relinquish or license on unfavorable terms the Company’s rights to technologies, products, or product candidates that the Company otherwise would seek to develop or commercialize itself;

  

  seek collaborators for the Company’s product or one or more of its product candidates at an earlier stage than otherwise would be desirable or on terms that are less favorable than might otherwise be available; or

 

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  cease operations altogether, in which case all shareholders would lose their entire investment in us.

 

In view of the current liquidity position, the Company’s current credit facilities, the proceeds from the Rights Issue in July 2017 of SEK 147.9 million net after issue expenses cash outflow, the Company’s loan from Nexttobe AB, the Company’s debt in the form of non-negotiable promissory notes and convertible loans, the Board of Directors believe that the Company is not sufficiently funded and able to carry out its operating plan for the coming twelve months. The Company could be required to expend its capital resources sooner than the Company currently expects. The Company does not expect its presently available capital resources to be sufficient to fully commercialize its products and product candidates. The Company therefore expects it will have to raise further capital in the future. The Company’s future capital requirements depend on many factors, including: 

 

  potential revenue relating to commercial sales of the Company’s products and product candidates for which the Company has received marketing approval, including royalties and milestone payments from existing and future commercial partners;

 

  the scope, progress, results and costs of preclinical development, laboratory testing and clinical trials for the Company’s other product candidates, including Docecal, Doxophos, OAS-19 and KB 9520;

 

  the Company’s ability to enter into collaborative agreements for the development and commercialization of the Company’s product candidates;

 

  the number of product candidates, and their development requirements, that the Company is trying to develop;

 

  the costs, timing and outcome of regulatory review of the Company’s product candidates or any future product candidates;

 

  the costs and timing of future commercialization activities including manufacturing, marketing, sales and distribution of the Company’s products or any of its product candidates for which the Company receives marketing approval;

 

  any product liability or other legal proceedings relating to the Company’s products;

 

  the expenses necessary to attract and retain skilled personnel; and ·

 

  the costs involved in preparing, filing and prosecuting patent applications, maintaining and enforcing the Company’s intellectual property rights and defending any intellectual property-related claims, both in the the U.S. and outside the U.S..

 

Identifying potential product candidates and conducting preclinical testing and clinical trials is a time-consuming, expensive and uncertain process that takes years to complete. The Company may never generate the necessary data or results required to obtain regulatory approval and achieve product sales. In addition, the Company’s products and its product candidates, if approved, may not achieve commercial success. The Company’s potential commercial revenues will come from future sales of products and these can be difficult to predict. Therefore, the Company must continue to rely on additional funding to achieve its business goals. Adequate additional financing may not be available to the Company on acceptable terms, or at all. In addition, the Company may seek additional capital due to favorable market conditions or strategic considerations, even if the Company believes it has sufficient funds for its current or future operating plans.

 

We do not currently intend to pay dividends on the Ordinary Shares or make any other distribution of earnings to holders of the Ordinary Shares.

 

Since our inception, we have not declared or paid any dividends on the Ordinary Shares. We intend to retain any earnings for use in our business and do not currently intend to pay dividends on the Ordinary Shares. The declaration and payment of any future dividends will be at the discretion of our board of directors and will depend upon our results of operations, cash requirements, financial condition, contractual restrictions, restrictions imposed by our indebtedness, any future debt agreements or applicable laws and other factors that our board of directors may deem relevant. This policy may have a material adverse effect on the value of your Ordinary Shares. See “Dividend Policy.”

 

The milestone payments we receive are not reliable sources of income and in some cases may be required to be returned at a later date.

 

Much of our income has consisted of, and may in the future take the form of, milestone payments, which are contractual one-time payments from our partners as we reach certain targets. There have been cases in which we have not reached the targets and there is no guarantee that we will be able to reach such targets in the future. We may also be required to repay already obtained milestone payments if the agreed upon schedules are not kept or if the required marketing approvals are not obtained. Further, milestone payments often occur irregularly over time, causing fluctuations in our sales and earnings. Milestone payments are not sustainable earnings and any dependence on milestone payments could have a material adverse effect on our business, results of operations and financial condition. See also “Business — Strategic Alliances and Collaborations.”

  

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Our limited operating history may make it difficult for you to evaluate the success of our business to date and to assess our future viability.

 

We commenced active operations in 1999, and our operations thus far have been limited to organizing and staffing our company, business planning, raising capital, identifying potential product candidates, undertaking preclinical studies and conducting clinical trials. To date we have had no commercial operations. All but three of our product candidates are still in preclinical development. We have not yet demonstrated our ability to successfully complete later stage clinical trials, obtain full regulatory approvals, manufacture a commercial scale product, or arrange for a third party to do so on our behalf, or conduct sales and marketing activities necessary for successful product commercialization. Consequently, any predictions you make about our future success or viability may not be as accurate as they could be if we had a longer operating history.

   

In addition, as a business with a limited operating history, we may encounter unforeseen expenses, difficulties, complications, delays and other known and unknown factors. We will need to expand our capabilities to support commercial activities. We may not be successful in adding such capabilities.

 

We expect our financial condition and operating results to continue to fluctuate significantly from quarter to quarter and year to year due to a variety of factors, many of which are beyond our control. Accordingly, you should not rely upon the results of any past annual or interim periods as indications of future operating performance.

 

Risks Related to Development and Regulatory Approval of Our Product and Product Candidates

 

There is a high rate of failure for drug candidates proceeding through clinical trials.

 

Generally, there is a high rate of failure for drug candidates proceeding through clinical trials. We may suffer significant setbacks in our later stage clinical trials similar to the experience of a number of other companies in the pharmaceutical and biotechnology industries, even after receiving promising results in earlier trials. Further, even if we view the results of a clinical trial to be positive, the FDA or other regulatory authorities may disagree with our interpretation of the data. For instance, because a large percentage of subjects in our pivotal trials for Apealea and our other product candidates in cancer treatment, are being enrolled at sites outside the U.S., differences in efficacy results between U.S. and non-U.S. sites could cause the FDA to require additional trials. In the event that:

 

  we obtain negative results from the Docecal and/or Doxophos Vet trials,

 

  we receive poor clinical results for our other product candidates,

 

  the FDA places a clinical hold on our Phase III trials due to potential chemistry, manufacturing and controls issues or other hurdles, or

 

  the FDA does not approve our New Animal Drug Application (“NADA”) for Paccal Vet or our New Drug Application (“NDA”) for Apealea or for our other product candidates,

 

then:

 

  we may not be able to generate sufficient revenue or obtain financing to continue our operations,

 

  our ability to execute our current business plan will be materially impaired,

 

  our reputation in the industry and in the investment community would likely be significantly damaged, and

 

  the price of the Ordinary Shares would likely decrease significantly.

 

Any of these results could materially and adversely affect our business, results of operations or financial condition.

   

Clinical trials for our product candidates are expensive, time consuming, uncertain and susceptible to change, delay or termination.

 

Clinical trials are expensive, time consuming and difficult to design and implement. The result of a clinical trial may be undesirable and can result in a clinical trial cancellation or the need for re-evaluation and supplementation. Even if the results of our clinical trials are favorable, the clinical trials for several of our product candidates are expected to continue for several years and may even take significantly longer to complete. In addition, we, the FDA, other regulatory authorities or ethical review boards in the U.S., EU or elsewhere, may suspend, delay or terminate our clinical trials at any time, for various reasons, including:

  

  lack of effectiveness of any product candidate during clinical trials;

 

  discovery of serious or unexpected toxicities or side effects experienced by trial participants or other safety issues;

 

  slower than expected rates of subject recruitment and enrollment rates in clinical trials;

 

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  difficulty in retaining subjects who have initiated a clinical trial but may have withdrawn due to adverse side effects from the therapy, insufficient efficacy, fatigue with the clinical trial process or for any other reason;

 

  delays or inability in manufacturing or obtaining sufficient quantities of materials for use in clinical trials due to manufacturing or regulatory constraints;

 

  inadequacy of or changes in our manufacturing process or product formulation;

 

  delays in obtaining regulatory authorization to commence a trial, including experiencing “clinical holds” or delays requiring suspension or termination of a trial by a regulatory agency, such as the FDA, before or after a trial is commenced;

 

  changes in applicable regulatory policies and regulations;

 

  delays or failure in reaching agreement on acceptable terms in clinical trial contracts or protocols with prospective clinical trial sites;

 

  delay or failure to supply product for use in clinical trials which conforms to regulatory specification;

 

  unfavorable results from ongoing pre-clinical studies and clinical trials;

 

  failure of our contract research organizations (“CROs”), or other third-party contractors to comply with all contractual requirements or to perform their services in a timely or acceptable manner;

 

  failure by us, our employees, our CROs or their employees to comply with all applicable FDA or other regulatory requirements relating to the conduct of clinical trials;

 

  scheduling conflicts with participating clinicians and clinical institutions;

 

  failure to design appropriate clinical trial protocols; or

 

  regulatory concerns with pharmaceutical products generally and the potential for abuse.

 

Any of the foregoing could have a material adverse effect on our business, results of operations and financial condition.

   

The regulatory approval process is uncertain, requires us to utilize significant resources, and may prevent us or our commercial partners from obtaining approvals for the commercialization of some or all of our drug candidates.

 

The research, testing, manufacturing, labeling, approval, sale, marketing and testing of our product and product candidates are subject to extensive regulation by regulatory authorities in the U.S. and Europe, and regulatory requirements applicable to our product and product candidates differ from country to country. Neither we nor any commercial partner is permitted to market any of our current or future product candidates in the U.S. until we receive approval from the FDA of a NADA for our animal health products or an NDA for our human health products. We received conditional approval for Paccal Vet from the FDA in February 2014, with the condition to perform additional follow-up efficacy studies for full approval. However, this conditional approval was withdrawn in in January 2017 in order to investigate another dosage regimen. We have not yet received any type of approval for any of our other current product candidates. Obtaining approval of either an NADA or an NDA can be an uncertain process that requires us to utilize significant resources. Furthermore, regulatory authorities possess broad discretion regarding processing time and usually request additional information and raise questions, which have to be answered. There is considerable uncertainty regarding the times at which products may be approved. In addition, failure to comply with FDA and other applicable U.S. and foreign regulatory requirements may subject us to administrative or judicially imposed sanctions including; warning letters, civil and criminal penalties, injunctions, withdrawal of approved products from the market, product seizure or detention, product recalls, total or partial suspension of production, and refusal to approve pending applications or supplements to approved applications.

 

The process required by the FDA and most foreign regulatory authorities before human health care pharmaceuticals may be marketed generally involves nonclinical laboratory and animal tests; submission of an Investigational New Drug (“IND”) application, which must become effective before clinical trials may begin; adequate and well-controlled human clinical trials to establish the safety and efficacy of the proposed drug for its intended use or uses; pre-approval inspection of manufacturing facilities and clinical trial sites; and FDA approval of an NDA, which must occur before a drug can be marketed or sold.

 

In order to gain approval to market a veterinary drug product for a particular animal species, we must provide the FDA and foreign regulatory authorities with acceptable data from animal safety and efficacy studies in the target animal for the intended indication applied for in the NADA or other regulatory filing. Conditional approval is available under the FDA Minor Use and Minor Species (“MUMS”) designation, which gives the sponsor the right to promote a product before all the efficacy data necessary for full approval are available. If approved, this provides the sponsor with seven years of market exclusivity. Even for conditional approval, the development of animal health products is a lengthy, expensive and uncertain process, and delay or failure can occur at any stage of any of our development efforts. Success in prior target animal studies or even in the treatment of humans with a product candidate does not ensure that our studies will be successful and the results of development efforts by other parties may not be indicative of the results of our studies and other development efforts.

 

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Regulatory approval of a NADA or an NDA, or any supplements of either, is not guaranteed, and the approval process requires us to utilize significant resources, could take several years, and is subject to the substantial discretion of the FDA. Despite the time and expense exerted, failure can occur at any stage, and we could encounter problems that cause us to abandon or have to repeat or perform additional studies. If our product or any of our current or future product candidates fails to demonstrate safety and efficacy in our studies, or for any other reason does not gain regulatory approval, our business and results of operations will be materially and adversely harmed.

 

In addition, separate regulatory approvals are required in order to market any product in many jurisdictions, including the U.S., the European Economic Area, which consists of the 28 Member States of the European Union plus Norway, Iceland and Liechtenstein, and many others. Approval procedures vary among countries and can involve additional studies and testing, and the time required to obtain approval may differ from that required to obtain FDA approval. Studies conducted in one country may not be accepted by regulatory authorities in other countries. Approval by the FDA does not ensure approval by regulatory authorities in other countries, and approval by one or more foreign regulatory authorities does not ensure approval by regulatory authorities in other foreign countries or by the FDA. However, a failure or delay in obtaining regulatory approval in one country may have a negative effect on the regulatory process in others. The foreign regulatory approval process may include all of the risks associated with obtaining FDA approval. We may be unable to file for regulatory approvals or do so on a timely basis and, even if we were able to, we may not receive necessary approvals to commercialize our products in any market. Any of these results could have a material adverse effect on our business, results of operations and financial condition.

   

Even if we receive regulatory approval for any of our current or future product candidates, we will be subject to ongoing FDA and other regulatory body obligations and continued regulatory review, which may result in significant additional expense. Additionally, our product and any product candidates, if approved, will be subject to labeling and manufacturing requirements and could be subject to other restrictions. Failure to comply with these regulatory requirements or the occurrence of unanticipated problems with our products could result in significant penalties.

 

Any regulatory approvals that we or any of our collaborators receive for any of our current or future product candidates may be subject to conditions of approval or limitations on the approved indicated uses for which the product may be marketed, or may contain requirements for potentially costly surveillance to monitor the safety and efficacy of the product candidate. In addition, our product and any of our current or future product candidates, if approved by the FDA or other regulatory bodies, will be subject to extensive and ongoing regulatory requirements regarding the manufacturing processes, labeling, packaging, distribution, adverse event reporting, storage, advertising, promotion and recordkeeping. These requirements will include submissions of safety and other post-marketing information and reports, registration, as well as continued compliance with cGMP, Good Laboratory Practice and Good Clinical Practice for any studies that we conduct post-approval. Later discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or with our third-party manufacturers or manufacturing processes, or failure to comply with regulatory requirements, may result in, among other things:

 

  restrictions on the marketing or manufacturing of the product, withdrawal of the product from the market, or voluntary or mandatory product recalls;

 

  fines, warning letters or holds on target studies;

 

  refusal by the FDA or other applicable regulatory body to approve pending applications or supplements to approved applications filed by us or our strategic collaborators, or suspension or revocation of product license approvals;

 

  product seizure or detention, or refusal to permit the import or export of products; and

 

  injunctions or the imposition of civil or criminal penalties

 

The policies of the FDA and other regulatory bodies may change, and additional government regulations may be promulgated that could prevent, limit or delay regulatory approval of our product candidates. We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action, either in the U.S. or elsewhere. If we are slow or unable to adapt to changes in or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing approval that we may have obtained and we may not achieve or sustain profitability, which would materially and adversely affect our business, results of operations and financial condition.

  

Our product and any of our current or future product candidates, if approved, may cause or contribute to adverse medical events that we are required to report to the FDA and regulatory authorities in other countries and, if we fail to do so, we could be subject to sanctions that would materially harm our business.

 

If we are successful in commercializing our product and any of our current or future product candidates, regulations of the FDA and of the regulatory authorities in other countries require that we report certain information about adverse medical events if those products may have caused or contributed to those adverse events. The timing of our obligation to report would be triggered by the date we become aware of the adverse event as well as the nature of the event. We may fail to report adverse events we become aware of within the prescribed timeframe. We may also fail to appreciate that we have become aware of a reportable adverse event, especially if it is not reported to us as an adverse event or if it is an adverse event that is unexpected or removed in time from the use of our products. If we fail to comply with our reporting obligations, the FDA and regulatory authorities in other countries could take action including criminal prosecution, the imposition of civil monetary penalties, seizure of our products, or delay in approval or clearance of future products, which could have a material adverse effect on our business, results of operations and financial condition.

   

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Legislative or regulatory reforms with respect to human or animal health products may make it more difficult and costly for us to obtain regulatory clearance or approval of any of our current or future product candidates and to produce, market, and distribute our products after clearance or approval is obtained.

 

From time to time, new legislation is drafted and introduced in the U.S. Congress and lawmaking bodies in other countries that could significantly change the statutory provisions governing the testing, regulatory clearance or approval, manufacture, and marketing of regulated products. In addition, FDA regulations and guidance are often revised or reinterpreted by the FDA in ways that may significantly affect our business and our products. Similar changes in laws or regulations can occur in other countries Any new regulations or revisions or reinterpretations of existing regulations in the U.S. or in other countries may impose additional costs or lengthen review times of our product applications and any of our current or future product candidates. We cannot determine what effect changes in regulations, statutes, legal interpretation or policies, when and if promulgated, enacted or adopted may have on our business in the future. Such changes could, among other things, require:

 

  requests for additional endpoints or studies;

 

  changes to manufacturing methods;

 

  recall, replacement, or discontinuance of certain products; and

 

  additional record keeping.

 

Each of these would likely entail substantial time and cost and could have a material adverse effect on our financial results. In addition, delays in receipt of or failure to receive regulatory clearances or approvals for any future products could materially and adversely affect our business, results of operations and financial condition.

 

Our ability to market our product and product candidates in the U.S., if approved, will be limited to use for the treatment of the indications for which they are approved, and if we want to expand the indications for which we may market our product and product candidates, we will need to obtain additional FDA approvals, which may not be granted.

 

We plan to seek full FDA approval in the U.S. for Paccal Vet for mastocytoma, Apealea for ovarian cancer in humans, Docecal for breast cancer in humans, Doxophos Vet for lymphoma in dogs, and OAS-19 for various cancers in humans. If our product candidates are approved, the FDA will restrict our ability to market or advertise them for anything other than the indications for which they are approved, which could limit their use. If we decide to attempt to develop, promote and commercialize new treatment indications and protocols for our product and product candidates in the future, we could not predict when, or if, we would ever receive the approvals required to do so. We would be required to conduct additional studies to support such applications for additional use, which would consume additional resources and may produce results that do not result in FDA approvals. If we do not obtain additional FDA approvals, our ability to expand our business in the U.S. would be adversely affected, which could materially and adversely affect our business, results of operations and financial condition.

     

The anticipated development of a Risk Evaluation and Mitigation Strategy (REMS) for Apealea and our other human health product candidates could cause delays in the approval process and would add additional layers of regulatory requirements that could impact our ability to commercialize our human health product candidates in the U.S. and reduce their market potential.

 

As a condition of approval of an NDA, the FDA may require a REMS to ensure that the benefits of the drug outweigh the potential risks. REMS elements can include medication guides, communication plans for health care professionals, and elements to assure safe use (“ETASU”). ETASU can include, but are not limited to, special training or certification for prescribing or dispensing, dispensing only under certain circumstances, special monitoring, and the use of patient registries. Moreover, product approval may require substantial post-approval testing and surveillance to monitor the drug’s safety or efficacy. We may be required to adopt a REMS for Apealea and our other human health product candidates to ensure that the benefits outweigh the risks of abuse, misuse, diversion and other potential safety concerns. Even if the risk of abuse, misuse or diversion are not as high as for some other products, there can be no assurance that the FDA will approve a manageable REMS for Apealea and our other human health product candidates, which could create material and significant limits on our ability to successfully commercialize our human health product candidates in the U.S. Delays in the REMS approval process could result in delays in the NDA approval process. In addition, as part of the REMS, the FDA could require significant restrictions, such as restrictions on the prescription, distribution and patient use of the product, which could significantly impact our ability to effectively commercialize Apealea and our other human health candidates, and dramatically reduce their market potential thereby adversely impacting our business, financial condition and results of operations. Even if initial REMS are not highly restrictive, if, after launch, Apealea or our other human health product candidates were to be subject to significant abuse/non-medical use or diversion from licit channels, this could lead to negative regulatory consequences, including a more restrictive REMS, which could materially and adversely affect our business, results of operations and financial condition.

 

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If we are found in violation of “fraud and abuse” laws, we may be required to pay a penalty and/or be suspended from participation in government-run health care programs, which may adversely affect our business, financial condition and results of operations.

 

If we are successful in obtaining marketing approval for our products in the U.S. and elsewhere, we will be subject to various health care “fraud and abuse” laws, including anti-kickback laws, false claims laws and other laws intended to reduce fraud and abuse in government-run health care programs, which could affect us, particularly upon successful commercialization of our products in the U.S. For example, the Medicare and Medicaid Patient Protection Act of 1987 (otherwise known as the federal “Anti-Kickback Statute”) makes it illegal for any person, including a prescription drug manufacturer (or a party acting on its behalf), to knowingly and willfully solicit, receive, offer or pay any remuneration that is intended to induce the referral of business, including the purchase, order or prescription of a particular drug for which payment may be made under a U.S. health care program such as Medicare or Medicaid. Under U.S. federal government regulations, some arrangements, known as safe harbors, are deemed not to violate the Anti-Kickback Statute. Although we seek to structure our business arrangements in compliance with all applicable requirements, these laws are broadly written, and it is often difficult to determine precisely how the law will be applied in specific circumstances. Accordingly, it is possible that our practices may be challenged under the Anti-Kickback Statute and similar laws in other jurisdictions. False claims laws prohibit anyone from knowingly and willfully presenting or causing to be presented for payment to third-party payers, including government payers, reimbursement claims for drugs or services that are false or fraudulent, claims for items or services that were not provided as claimed, or claims for medically unnecessary items or services. Cases have been brought under false claims laws alleging that off-label promotion of pharmaceutical products or the payment of kickbacks to pharmaceutical providers has resulted in the submission of false claims to governmental health care programs. Under laws such as the Health Insurance Portability and Accountability Act of 1996 in the U.S., we are prohibited from knowingly and willfully executing a plan to defraud any health care benefit program, including private payers, or knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for health care benefits, items or services. Violations of fraud and abuse laws may be punishable by criminal and/or civil sanctions, including fines and/or exemption or suspension from government-run health care programs such as Medicare and Medicaid and debarment from contracting with the U.S. and other governments. In addition, in the U.S. individuals have the ability to bring actions on behalf of the government under the federal False Claims Act as well as under state false claims laws.

 

Many states in the U.S. have adopted laws similar to the Anti-Kickback Statute, some of which apply to the referral of patients for health care services reimbursed by any source, not just governmental payers. In addition, California and a few other states in the U.S. have passed laws that require pharmaceutical companies to comply with the April 2003 Office of Inspector General Compliance Program Guidance for Pharmaceutical Manufacturers and/or the Pharmaceutical Research and Manufacturers of America Code on Interactions with Health Care Professionals. In addition, several states impose other marketing restrictions or require pharmaceutical companies to make marketing or price disclosures to the state. There are ambiguities as to what is required to comply with these state requirements and if we fail to comply with an applicable state law requirement we could be subject to penalties.

   

We have yet to receive definitive guidance on the application of fraud and abuse laws to our business. Law enforcement authorities are increasingly focused on enforcing these laws, and it is possible that some of our practices may be challenged under these laws. While we believe we have structured our business arrangements to comply with these laws, it is possible that the government could allege violations of, or convict us of violating, these laws. If we are found in violation of one of these laws, we could be required to pay a penalty and could be suspended or excluded from participation in certain government-run health care programs, and our business, results of operations and financial condition may be materially and adversely affected.

  

Risks Related to Our Business and Industry

 

If we fail to attract and keep senior management and key scientific personnel, we may be unable to successfully develop our product or our current or future product candidates, conduct our in-licensing and development efforts or commercialize our product or any of our current or future product candidates.

 

Our future growth and success depends in part on our continued ability to attract, retain and motivate highly qualified management and scientific personnel. We are highly dependent upon our senior management, particularly Julian Aleksov, our Executive Chairman, as well as our senior scientists and other members of our senior management team. The loss of services of any of these individuals could delay or prevent the successful development of our current or future product pipeline, completion of our planned development efforts or the commercialization of our product and product candidates. Although we have entered into an employment agreement with Julian Aleksov, the agreement does not provide for a fixed term of service, and does not contain any competition or non-solicitation clauses after the termination of employment. It is possible that current or former employees of Oasmia could put forward claims for an alleged right to our patents and demand compensation therefor. However, all our employees have signed an agreement where they assign all their inventions and intellectual property rights generated by them in their work to us. In addition, there is a law in Sweden that regulates the right to patentable inventions made by employees which gives the employer the rights to the inventions if they are invented in the course of the employees work. If one or more of the key personnel were to leave us and engage in competing operations, our business, results of operations and financial condition could be materially and adversely affected. To date, none of our key personnel has left us or, to our knowledge, engaged in competing operations, nor has any departure of key personnel had any material effect on Oasmia.

 

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We may have trouble hiring additional qualified personnel.

 

As we expand our development and commercial activities, we will need to hire additional personnel and could experience difficulties attracting and retaining qualified employees. Competition for qualified personnel in the biopharmaceutical field is intense due to the limited number of individuals who possess the skills and experience required by that industry. We may not be able to attract and retain quality personnel on favorable terms, or at all. In addition, to the extent we hire personnel from competitors, we may be subject to allegations that such personnel have been improperly solicited or that they have divulged proprietary or other confidential information, or that their former employers own their research output. Any of these difficulties could have a material adverse effect on our business, results of operations and financial condition.

 

Incentive program.

 

Oasmia’s Extraordinary General Meeting in November 2016 passed a resolution on an incentive plan, under which options will be issued to the Company’s senior management and Board members. These incentive plans were replaced by the incentive plans approved by an Extraordinary General Meeting in June 2017; see “ITEM 6 B. Compensation.”

 

The purpose of the Company’s incentive s plan is to encourage employees and Board members to dedicate their best efforts to the interests of the Company in order to be able to share in and help promote positive value growth in the Company’s share price in the period covered by the plan, and to enable Oasmia to retain and recruit competent and committed employees. There is a risk that these goals will not be achieved, however, which could result in the participants in incentive plans performing their work less efficiently than expected. There is also a risk that Oasmia and the participants in the incentive plans may interpret the terms and conditions of the plans in different ways, or that other disputes concerning the incentive plan could arise, which could add to the expense and reduce or completely counteract the effectiveness of the plan. Further, share-based incentive plan is always associated with an element of tax risk, since the Company’s assessment of applicable tax legislation may prove to be incorrect, which could lead to a higher tax burden in the future and in Oasmia being subject to tax-related penalties. In addition, other unforeseen costs related to incentive programs may arise. 

 

We are subject to risks relating to legal proceedings.

 

We are subject to various claims and legal actions arising in the ordinary course of its business. Any such litigation could be very costly and could distract our management from focusing on operating our business. The existence of any such litigation could harm our business, results of operations and financial condition. Results of actual and potential litigation are inherently uncertain. Additionally, in the past we have been subject to fines by a foreign exchange relating to our disclosures. See “Business — Foreign Exchanges.” An unfavorable result in a legal proceeding could adversely affect our reputation, financial condition and operating results.

   

If product liability lawsuits are successfully brought against us, we will incur substantial liabilities and may be required to limit the commercialization of Paccal Vet, Apealea and our other product candidates.

 

We and our partners face potential product liability exposure related to the testing of our product and product candidates in human and animal clinical trials. We will face exposure to claims by an even greater number of persons if we begin to market and distribute our products commercially in the U.S. and elsewhere, including those relating to misuse of Paccal Vet, Apealea and our other product candidates. Now, and in the future, an individual may bring a liability claim against us alleging that our product or one of our product candidates caused an injury. While we continue to take what we believe to be appropriate precautions including SEK 20 million, approximately $2.19 million, in product liability insurance coverage as of the date of this annual report), we may be unable to avoid significant liability if any product liability lawsuit is brought against us. It should be noted that the amount of the product liability insurance is revised continuously of the insurance broker. If we cannot successfully defend ourselves against product liability claims, we will incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may result in:

 

  decreased demand for Doxophos, Apealea and our other product candidates, if such product candidates are approved;

 

  injury to our reputation;

 

  withdrawal of clinical trial participants;

 

  costs of related litigation;

 

  substantial monetary awards to patients, pet owners and others;

 

  increased cost of liability insurance;

 

  loss of revenue; and

 

  our inability to successfully commercialize our products.

 

 - 19 - 

 

  

Furthermore, in the future there may be a need to expand the scope of our insurance coverage, which could result in significantly increased costs or the inability to obtain sufficient insurance coverage. Any of these occurrences could have a material adverse effect on our business, results of operations and financial condition.

 

Failure of our information technology systems could significantly disrupt the operation of our business.

 

Our ability to execute our business plan and to comply with regulatory requirements with respect to data control and data integrity depends, in part, on the continued and uninterrupted performance of our information technology systems (“IT systems”). These systems are vulnerable to damage from a variety of sources, including telecommunications or network failures, malicious human acts and natural disasters. Moreover, despite network security and back-up measures, some of our servers are potentially vulnerable to physical or electronic break-ins, computer viruses and similar disruptive problems. Despite the precautionary measures we have taken to prevent unanticipated problems that could affect our IT systems, there are no assurances that electronic break-ins, computer viruses and similar disruptive problems, and/or sustained or repeated system failures or problems arising during the upgrade of any of our IT systems that interrupt our ability to generate and maintain data will not occur. The occurrence of any of the foregoing with respect to our IT systems could have a material adverse effect on our business, results of operations or financial condition.

  

We are subject to the U.S. Foreign Corrupt Practices Act and other anti-corruption laws, as well as export control laws, customs laws, sanctions laws and other laws governing our operations. If we fail to comply with these laws, we could be subject to civil or criminal penalties, other remedial measures, and legal expenses, which could adversely affect our business, results of operations and financial condition.

 

Our operations are subject to certain anti-corruption laws, including the U.S. Foreign Corrupt Practices Act (“FCPA”), and other anti-corruption laws that apply in countries where we do business. The FCPA and other anti-corruption laws generally prohibit us and our employees and intermediaries from bribing, being bribed or making other prohibited payments to government officials or other persons to obtain or retain business or gain some other business advantage. We and our commercial partners operate in a number of jurisdictions that pose a high risk of potential FCPA violations and we participate in collaborations and relationships with third parties whose actions could potentially subject us to liability under the FCPA or local anti-corruption laws. In addition, we cannot predict the nature, scope or effect of future regulatory requirements to which our international operations might be subject or the manner in which existing laws might be administered or interpreted.

 

We are also subject to other laws and regulations governing our international operations, including regulations administered in the U.S. and in the EU, including applicable export control regulations, economic sanctions on countries and persons, customs requirements and currency exchange regulations (collectively, “Trade Control Laws”).

 

There can be no assurance that we will be completely effective in ensuring our compliance with all applicable anticorruption laws, including the FCPA or other legal requirements, such as Trade Control Laws. Any investigation of potential violations of the FCPA, other anti-corruption laws or Trade Control Laws by U.S., EU or other authorities could have an adverse impact on our reputation, our business, results of operations and financial condition. Furthermore, should we be found not to be in compliance with the FCPA, other anti-corruption laws or Trade Control Laws, we may be subject to criminal and civil penalties, disgorgement and other sanctions and remedial measures, as well as the accompanying legal expenses, any of which could have a material adverse effect on our reputation and liquidity, as well as on our business, results of operations and financial condition.

 

We are exposed to risks related to currency exchange rates.

 

Currency risks arise when future commercial transactions or reported assets or liabilities are denominated in a currency other than our functional currency, the Swedish krona. Our primary contract manufacturer and all of our clinical trials are located outside of Sweden. Because our financial statements are presented in kronor, changes in currency exchange rates have had and could continue to have a significant effect on our operating results. Exchange rate fluctuations between local currencies and the krona create risk in several ways, including the following:

 

  weakening of the krona may increase the krona cost of overseas research and development expenses and the cost of sourced product components outside Sweden;

 

  strengthening of the krona may decrease the value of our revenues denominated in other currencies;

 

  the exchange rates on non-kronor transactions and cash deposits can distort our financial results; and

 

  the pricing and profit margins of Paccal Vet, Apealea and our other product candidates may be affected by currency fluctuations.

 

In addition, to the extent our need for contract manufacturing increases once our products reach the commercial market, our exposure to currency risks will increase proportionally. We do not engage in regular hedging transactions, since to date our currency exposure has been mostly related to purchased services for product development, which has been irregular and difficult to anticipate. It is possible that fluctuations in currency exchange rates could have a material adverse effect on our business, results of operations and financial condition.

   

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If we are unable to use our net operating loss and tax credit carryforwards and certain built-in losses to reduce future tax payments or benefit from favorable tax legislation, our business, results of operations and financial condition may be adversely affected.

 

As a Swedish resident trading entity, we are subject to Swedish corporate taxation. As of April 30, 2018, we had cumulative carry forward tax losses of SEK 1,009.35 million, as of April 30, 2017, we had cumulative carry forward tax losses of SEK 877.18 million and as of April 30, 2016 we had cumulative carry forward tax losses of SEK 720.58 million. Due to a decision by the Swedish tax authority in the financial year, the carry forward tax losses for previous years 2016 and 2015 have been decreased by SEK 2.65 million for each year respectively. These losses are available to carry forward and offset against future operating profits, unlimited in time. If, however, there are unexpected adverse changes to the Swedish tax law, our business, results of operations and financial condition may be adversely affected.

 

Risks Related to Our Reliance upon Third Parties

 

We depend substantially on the commercial expertise of our commercial partners.

 

We do not have a sales and marketing operation and expect to rely, in certain geographical areas such as Japan and the CIS, on the expertise and commercial skills of our commercial partners to sell Paccal Vet, Apealea, Doxophos, Doxophos Vet, and our other product candidates in selected territories. We have entered into agreements for the commercialization of Paccal Vet in Japan, where Paccal Vet is licensed to Nippon Zenyaku Kogyo. We have entered into agreements for the commercialization of Apealea with Medison Pharma in Israel and Turkey and with Hetero Group in Russia and the CIS, as well as Ukraine, Georgia and Turkmenistan. The commercial success of Apealea and our other product candidates in each of these markets will depend entirely on the expertise and commercial skills of our commercial partners, whereas we will be responsible for the distribution and sales of Paccal Vet and Doxophos Vet. In addition, it is customary in these types of commercial agreements that our partners are entitled to price our products, which means that much of our financial performance will be dependent on our partners’ decision-making. Our partners also have the right, under certain circumstances, to terminate their agreements with us. See “Business — Strategic Alliances and Collaborations” for descriptions of the agreements with our commercial partners. A failure by our partners to successfully market Paccal Vet, Apealea, Doxophos Vet and our other product candidates, or the termination of agreements with our partners, would have a material adverse effect on our business, results of operations and financial condition.

 

We currently have no sales and marketing organization for the distribution of Paccal Vet or Doxophos Vet as a result of the termination of the Distribution Agreement with Zoetis. If we are unable to establish a direct sales force in the U.S. to promote our products, the commercial opportunity for our products may be diminished if not vitiated.

 

We currently have no sales and marketing organization for the distribution of Paccal Vet or Doxophos Vet as a result of the termination of the Distribution Agreement with Zoetis, which covered the entire world except for Japan. While we have established an entity through which Oasmia intends to distribute these products in the United States, the Company currently has no sales and marketing organization for these products. The Company will incur significant additional expenses and commit significant additional management resources to establish our sales force. The Company may not be able to establish these capabilities despite these additional expenditures. The Company will also have to compete with other pharmaceutical and biotechnology companies to recruit, hire and train sales and marketing personnel.

   

If the Company elects to rely on third parties to sell these products in the U.S., it may receive less revenue than the Company we sold our products directly. In addition, while the Company anticipates using due diligence in monitoring their activities, it may have little or no control over the sales efforts of those third parties. In the event the Company is unable to develop its own sales force or collaborate with a third party to sell these products, the Company may not be able to commercialize these products which would negatively impact its ability to generate revenue.

 

We depend on the financial ability of our commercial partners.

 

We have few customers, each representing a large part of sales and also of accounts receivable.  If one customer fails to satisfy its liability to us we will have to book a credit loss in our income statement which might represent a large part of the accounts receivable.

 

To a certain extent we build up our inventory based on forecasts for special geographical markets or from specific customers. If the customers fail to purchase according to this forecast there is a risk that we will not be able to sell these products to other customers before they expire or before the expiry date is so close that the products are unattractive for a customer. In that case we might have to write down the inventory value over the income statement.

 

We rely on contract manufacturers for the production of our products, which can create production uncertainties.

 

Our own production facility has the technical capacity for production of our finished products up to a limited commercial scale. We produced the launch supply of Apealea but we do not have adequate capacity to supply the product in the long term. As such, full-scale production of our products for commercial use will be carried out by contract manufacturers. Production at our primary contract manufacturer is expected to commence shortly. If it proves difficult for contract manufacturers to scale-up production, full-scale production may be delayed, which could then delay the product launch schedule.

 

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We will also be required to validate full-scale production and submit documentation to the relevant health authorities in connection with the scaling-up of the production to full-scale production. These agencies must approve the production at the manufacturers we select. We will be relying upon the contract manufacturers to provide us with the appropriate information for the regulators, and if the documentation is incomplete or incorrect there is a risk that the product launch will be delayed, which may have a material adverse effect on our financial position and performance.

 

We depend on a limited number of suppliers for materials and components required to manufacture Paccal Vet, Apealea and our other product candidates. The loss of these suppliers, or their failure to supply us on a timely basis, could cause delays in our current and future capacity and adversely affect our business.

 

The majority of the raw materials used in the production of our pharmaceuticals are purchased from a limited number of suppliers. As a result, we may not be able to obtain sufficient quantities of critical materials and components in the future. A delay or interruption by our suppliers may harm our business, results of operations and financial condition. In addition, the lead time needed to establish a relationship with a new supplier can be lengthy, and we may experience delays in meeting demand in the event we must switch to a new supplier. The time and effort to qualify for and, in some cases, obtain regulatory approval for a new supplier could result in additional costs, diversion of resources or reduced manufacturing yields, any of which would negatively impact our operating results. Our dependence on a limited number of suppliers exposes us to numerous risks, including:

 

  our suppliers could cease or reduce production or deliveries, raise prices or renegotiate terms;

 

  we may be unable to locate a suitable replacement suppliers on acceptable terms or on a timely basis, or at all; and

 

  delays caused by supply issues may harm our reputation, frustrate our customers and cause them to turn to our competitors for future needs.

 

Any one of these occurrences could have a material adverse effect on our business, results of operations and financial condition.

     

Risks Related to Our Intellectual Property

 

We may be forced to litigate to enforce or defend our intellectual property rights, or the intellectual property rights of our licensors.

 

We may be forced to litigate to enforce or defend our intellectual property rights against infringement and unauthorized use by competitors. In so doing, we may place our intellectual property at risk of being invalidated, held unenforceable, or narrowed in scope. Further, an adverse result in any litigation or defense proceedings may place pending applications at risk of non-issuance. In addition, if any licensor fails to enforce or defend its intellectual property rights, this may adversely affect our ability to develop and commercialize our product and product candidates as well as our ability to prevent competitors from making, using, and selling competing products. Any such litigation could be very costly and could distract our management from focusing on operating our business. The existence or outcome of any such litigation could harm our business, results of operations and financial condition.

 

Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential and proprietary information could be compromised by disclosure during this type of litigation. In addition, there could be public announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it could have a material adverse effect on the price of the Ordinary Shares.

 

We may be unable to adequately prevent disclosure of trade secrets and other proprietary information.

 

We rely on trade secrets to protect our proprietary know-how and technological advances, especially where we do not believe patent protection is appropriate or obtainable. However, trade secrets are difficult to protect. We rely in part on confidentiality agreements with our employees, consultants, outside scientific collaborators, sponsored researchers and other advisors to protect our trade secrets and other proprietary information. These agreements may not effectively prevent disclosure of confidential information and may not provide an adequate remedy in the event of unauthorized disclosure of confidential information. In addition, others may independently discover our trade secrets and proprietary information. Costly and time-consuming litigation could be necessary to enforce and determine the scope of our proprietary rights. Failure to obtain or maintain trade secret protection or failure to adequately protect our intellectual property could enable competitors to develop generic products or use our proprietary information to develop other products that compete with our products or cause additional, material adverse effects upon our business, results of operations and financial condition.

 

The transfer of technology and knowledge to contract manufacturers pursuant to the production of our products also creates a risk of uncontrolled distribution and copying of concepts, methods and processes relating to our products. Such uncontrolled distribution and copying could have a material adverse effect on the value of our products if used for the production of competing drugs or otherwise used commercially without our obtaining financial compensation.

 

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We may become subject to third parties’ claims alleging infringement of patents and proprietary rights or seeking to invalidate our patents or proprietary rights, which would be costly, time-consuming and, if successfully asserted against us, delay or prevent the development and commercialization of our product and our current or future product candidates.

 

There has been substantial litigation and other proceedings regarding patent and other intellectual property rights in the pharmaceutical industry, as well as patent challenge proceedings, including interference and administrative law proceedings before the U.S. Patent and Trademark Office (“U.S. PTO”) and the European Patent Office (“EPO”), and oppositions and other comparable proceedings in other jurisdictions. Recently, under U.S. patent reform laws, new procedures including inter partes review and post grant review have been implemented. As stated below, the novel implementation of such reform laws presents uncertainty regarding the outcome of challenges to our patents in the future.

 

We cannot assure you that our product or any of our current or future product candidates will not infringe existing or future patents. We may be unaware of patents that have already issued that a third party might assert are infringed by our product or one of our current or future product candidates. Because patent applications can take many years to issue and may be confidential for eighteen months or more after filing, there may be applications now pending of which we are unaware and which may later result in issued patents that we may infringe by commercializing our product or any of our current or future product candidates. In addition, third parties may obtain patents in the future and claim that use of our technologies infringes upon these patents. Moreover, we may face claims from non-practicing entities (commonly referred to as “patent trolls”), which have no relevant product revenue and against whom our own patent portfolio may thus have no deterrent effect.

  

We may be subject to third-party claims in the future against us or our collaborators that would cause us to incur substantial expenses and, if successful against us, could cause us to pay substantial damages, including treble damages and attorney’s fees if we are found to be willfully infringing a third party’s patents. If a patent infringement suit were brought against us or our collaborators, we or our collaborators could be forced to stop or delay research, development, manufacturing or sales of the product candidate that is the subject of the suit. As a result of patent infringement claims, or in order to avoid potential claims, we or our collaborators may choose to seek, or be required to seek, a license from the third party and would most likely be required to pay license fees or royalties or both. These licenses may not be available on acceptable terms, or at all. Even if we or our collaborators were able to obtain a license, the rights may be nonexclusive, which would give our competitors access to the same intellectual property. Ultimately, we could be prevented from commercializing a product, or forced to redesign it, or to cease some aspect of our business operations if, as a result of actual or threatened patent infringement claims, we or our collaborators are unable to enter into licenses on acceptable terms. Even if we are successful in defending such claims, infringement and other intellectual property litigation can be expensive and time-consuming to litigate and divert management’s attention from our core business. Any of these events could harm our business significantly.

 

In addition to infringement claims against us, if third parties have prepared and filed patent applications in the U.S. that also claim technology to which we have rights, we may have to participate in interference proceedings in the U.S. PTO to determine the priority of invention. Third parties may also attempt to initiate reexamination, post grant review or inter partes review of our patents in the U.S. PTO. We may also become involved in similar opposition proceedings in the EPO or comparable offices in other jurisdictions regarding our intellectual property rights with respect to our products and technology. Any of these claims could have a material adverse effect on our business, results of operations and financial condition.

 

If our efforts to protect the proprietary nature of the intellectual property related to our product or any of our current or future product candidates are not adequate, we may not be able to compete effectively in our market.

 

We rely upon a combination of patents, trade secret protection as well as confidentiality and license agreements to protect the intellectual property related to our product and our current product candidates and our development programs.

 

Composition-of-matter patents on an active pharmaceutical ingredient are generally considered to be the strongest form of intellectual property protection for pharmaceutical products, as such patents provide protection without regard to any particular method of use or manufacture. We cannot be certain that the claims in our patent application covering composition-of-matter of our product and our product candidates will be considered patentable by the U.S. PTO and courts in the U.S., or by the patent offices and courts in foreign countries. Method-of-use patents protect the use of a product for the specified method. This type of patent does not prevent a competitor from making and marketing a product that is identical to our product for an indication that is outside the scope of the patented method. Moreover, for our animal health products particularly, even if competitors do not actively promote their products for our targeted indications, veterinarians may recommend that pet owners use these products off label, or pet owners may do so themselves. Although off-label use may infringe or contribute to the infringement of method-of-use patents, we believe the practice is common and such infringement is difficult to prevent or prosecute.

 

The strength of patents in the field of human and animal health products involves complex legal and scientific questions and can be uncertain. The patent applications that we own or license may fail to result in issued patents in the U.S. or in other foreign countries. Even if the patents do successfully issue, third parties may challenge the validity, enforceability or scope thereof, which may result in such patents being narrowed, invalidated or held unenforceable. Furthermore, even if they are unchallenged, our patents and patent applications may not adequately protect our intellectual property or prevent others from designing around our claims. If the breadth or strength of protection provided by the patent applications we own, in-license or pursue with respect to our product or any of our current or future product candidates is threatened, it could threaten our ability to commercialize our product or any of our current or future product candidates. Further, if we encounter delays in our development efforts, the period of time during which we could market our product or any of our current or future product candidates under patent protection would be reduced. Since patent applications in the U.S. and most other countries are confidential for a period of time after filing, we cannot be certain that we were the first to file any patent application related to our product and product candidates. Furthermore, for patent applications in which claims are entitled to a priority date before March 16, 2013, an interference proceeding can be initiated by a third party or instituted by the U.S. PTO to determine who was the first to invent any of the subject matter covered by the patent claims of our applications. For patent applications containing a claim not entitled to a priority date before March 16, 2013, there is a greater level of uncertainty in the patent law with the passage of the America Invents Act, some provisions of which went into effect on that date whereas the America Invents Act itself first went into effect on September 16, 2011 and brought about significant changes to the U.S. patent laws that have yet to be well defined, and which introduces new procedures for challenging pending patent applications and issued patents. A primary change under this reform is creating a “first to file” system in the U.S., which requires us to minimize the time from invention to filing of a patent application.

 

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Even where laws provide protection, costly and time-consuming litigation could be necessary to enforce and determine the scope of our proprietary rights, and the outcome of such litigation would be uncertain. Moreover, any actions we may bring to enforce our intellectual property against our competitors could provoke them to bring counterclaims against us, and some of our competitors have substantially greater intellectual property portfolios than we have.

 

We also rely on trade secret protection and confidentiality agreements to protect proprietary know-how that is not patentable, processes for which patents are difficult to enforce and any other elements of our product development processes that involve proprietary know-how, information or technology that is not covered by patents. Although we endeavor to execute confidentiality agreements with all of our employees, consultants, advisors and any third parties who have access to our proprietary know-how, information or technology, we cannot be certain that we have executed such agreements with all parties who may have helped to develop our intellectual property or had access to our proprietary information, nor that our agreements will not be breached. We cannot guarantee that our trade secrets and other confidential proprietary information will not be disclosed or that competitors will not otherwise gain access to our trade secrets or independently develop substantially equivalent information and techniques. Further, the laws of some foreign countries do not protect proprietary rights to the same extent or in the same manner as the laws of the EU or the U.S. As a result, we may encounter significant problems in protecting and defending our intellectual property both in the U.S. and elsewhere. If we are unable to prevent material disclosure of the intellectual property related to our technologies to third parties, we will not be able to establish or maintain a competitive advantage in our market, which could materially and adversely affect our business, results of operations and financial condition.

 

Any disclosure to or misappropriation by third parties of our confidential proprietary information could enable competitors to quickly duplicate or surpass our technological achievements, thus eroding our competitive position in our market.

 

Changes in patent law could diminish the value of patents in general, thereby impairing our ability to protect our products.

 

As is the case with other biopharmaceutical companies, our success is heavily dependent on intellectual property, particularly patents. Obtaining and enforcing patents in the biopharmaceutical industry involves both technological and legal complexity. Therefore, obtaining and enforcing biopharmaceutical patents is costly, time-consuming and inherently uncertain. In addition, the U.S. has recently enacted and is currently implementing wide-ranging patent reform legislation. The U.S. Supreme Court has ruled on several patent cases in recent years, either narrowing the scope of patent protection available in certain circumstances or weakening the rights of patent owners in other situations. In addition to increasing uncertainty with regard to our ability to obtain patents in the future, this combination of events has created uncertainty with respect to the value of patents, once obtained. Depending on decisions by the U.S. Congress, the federal courts, and the U.S. PTO, the laws and regulations governing patents could change in ways that would weaken our ability to obtain new patents or to enforce our existing licensed patents and patents that we might obtain in the future. Similarly, changes in EU patent law and elsewhere could negatively affect the value of our patents registered outside of the U.S.

  

Obtaining and maintaining our patent protection depends on compliance with various procedural, documentary, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with any of these requirements.

 

The U.S. PTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other provisions during the patent process. There are situations in which noncompliance can result in abandonment or lapse of a patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. In such an event, competitors might be able to enter the market earlier than would otherwise have been the case, which could have a material adverse effect on our business, results of operations and financial condition.

 

We may not be able to protect our intellectual property rights throughout the world.

 

Filing, prosecuting and defending patents on product and product candidates throughout the world is prohibitively expensive. Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products and, further, may export otherwise infringing products to territories where we have patent protection, but where enforcement is not as strong as that in the U.S. These products may compete with our products in jurisdictions where we do not have any issued or licensed patents and our patent claims or other intellectual property rights may not be effective or sufficient to prevent them from so competing.

 

 - 24 - 

 

  

Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents and other intellectual property protection, particularly those relating to biopharmaceuticals, which could make it difficult for us to stop the infringement of our patents or marketing of competing products in violation of our proprietary rights generally. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial cost and divert our efforts and attention from other aspects of our business.

 

Risks Related to the ADSs and the Warrants

 

A trading market for the ADSs was relatively recently established.

 

In connection with our initial public offering, we listed the ADSs on the NASDAQ Capital Market (“Nasdaq”) and trading commenced on October 23, 2015. No public market for the ADSs existed prior to that offering.

 

There can be no assurance that an active trading market for the ADSs will develop or, if developed, be sustained in the future. The initial offering price was determined by negotiations among the lead underwriters and us. Among the factors considered in determining the initial offering price were our future prospects and the prospects of our industry in general, our revenue, net income and certain other financial and operating information in recent periods, and the financial ratios, market prices of securities and certain financial and operating information of companies engaged in activities similar to ours. The price of the ADSs has decreased markedly since the initial public offering and there can be no assurance that the ADSs will ever trade at a price equal to or greater than the offering price.

 

In addition, the market price of the ADSs may be volatile. Many factors may have a material adverse effect on the market price of the ADSs, including, but not limited to:

 

  announcements of the failure to obtain regulatory approvals or receipt of a “complete response letter” from the FDA;

 

  announcements of restricted label indications or patient populations, or changes or delays in regulatory review processes;

 

  announcements of therapeutic innovations or new products by us or our competitors;

 

  adverse actions taken by regulatory agencies with respect to our clinical trials, manufacturing supply chain or sales and marketing activities;

 

  changes or developments in laws or regulations applicable to Paccal Vet, Paclical, or our other product candidates;

  

  the failure of our testing and clinical trials;

 

  product liability claims, other litigation or public concern about the safety of our product, product candidates or future products;

 

  any adverse changes to our relationship with licensors, manufacturers or suppliers;

 

  the loss of any of our key scientific or management personnel;

 

  any major changes in our board of directors or management;

 

  the failure to retain our existing, or obtain new, commercial partners;

 

  announcements concerning our competitors or the pharmaceutical industry in general;

 

  the achievement of expected product sales and profitability;

 

  the failure to obtain reimbursements for our products or price reductions;

 

  manufacture, supply or distribution shortages;

 

  actual or anticipated fluctuations in our cash position or operating results;

 

  manufacturing and supply issues related to our product or our current or future product candidates for our development programs and commercialization;

 

  changes in financial estimates or recommendations by securities analysts;

 

  the termination of any of our existing license agreements;

 

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  announcements relating to future licensing or development agreements;

 

  potential acquisitions;

 

  the trading volume of ADSs on Nasdaq and of the Ordinary Shares on NASDAQ Stockholm;

 

  sales of the ADSs or Ordinary Shares by us, our executive officers or directors or our shareholders;

 

  fluctuations in the U.S. equity markets;

 

  changes in accounting principles;

 

  market conditions in the human and animal health sectors; and

 

  general economic conditions in the U.S. and elsewhere.

 

In addition, the stock market in general, and Nasdaq in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of these companies. Broad market and industry factors may negatively affect the market price of the ADSs, regardless of our actual operating performance.

  

The multiple listing of the Ordinary Shares and the ADSs may adversely affect the liquidity and value of the ADSs.

 

The Ordinary Shares will continue to be listed on NASDAQ Stockholm, and the ADSs trade on the NASDAQ Capital Market. We cannot predict the effect of this multiple listing on the value of the Ordinary Shares and the ADSs. However, it is possible the multiple listing of the Ordinary Shares and ADSs may dilute the liquidity of these securities in one or all two markets and may adversely affect the development of an active trading market for the ADSs in the U.S. The price of the ADSs could also be adversely affected by trading in the Ordinary Shares on NASDAQ Stockholm. Although currently we have no plans to do so, we may decide to delist the Ordinary Shares from either exchange in the future. We cannot predict the effect such delisting of the Ordinary Shares would have on the market price of the ADSs on Nasdaq.

 

If securities or industry analysts do not publish research or reports about our business, or if they issue an adverse or misleading opinion regarding the ADSs or the Ordinary Shares, the price of these securities and their trading volume could decline.

 

The trading market for the ADSs and the Ordinary Shares will be influenced by the research and reports that industry or securities analysts publish about us or our business. We do not currently have and may never obtain research coverage by securities and industry analysts. If we do not obtain adequate securities or industry analyst coverage, the trading price for the ADSs and the Ordinary Shares may be negatively impacted. In the event we obtain securities or industry analyst coverage, if any of the analysts who cover us issue an adverse or misleading opinion regarding us, our business model, our products, our intellectual property or the ADSs or our ordinary share performance, or if our target studies and operating results fail to meet the expectations of analysts, the prices of the ADSs and the Ordinary Shares may decline. If one or more of these analysts cease coverage of us or fail to publish reports on us regularly, we could lose visibility in the financial markets, which in turn could cause the prices of the ADSs and the Ordinary Shares, as well as their respective trading volume to decline.

 

Substantial future sales of the Ordinary Shares or the ADSs in the public market, or the perception that these sales could occur, could cause the price of the ADSs to decline.

 

Additional sales of the Ordinary Shares in the public market, or the perception that such sales could occur, could cause the market price of the Ordinary Shares to decline. As of the date of this annual report, we had 179,309,596 Ordinary Shares issued and outstanding, including those underlying presently issued and outstanding ADS but excluding all such Ordinary Shares underlying the ADSs issuable upon exercise of the Warrants and excluding any exercise by the underwriters of the option to purchase Ordinary Shares. All ADSs are freely transferable without restriction or additional registration under the Securities Act. The Ordinary Shares held by our directors, officers, and large institutional shareholders are available for sale since the expiration of the lock-up period has occurred. The remaining Ordinary Shares are also available for sale since they are not subject to contractual and legal restrictions on resale. To the extent shares are sold into the market, the market price of the ADSs could decline.

  

There is presently no public market for the Warrants to purchase ADSs and none is expected to develop.

 

There is presently no established public trading market for the Warrants and we do not expect a market to develop. Without an active market, the liquidity of the Warrants will be limited. Further, the existence of the Warrants may act to reduce both the trading volume and the trading price of our common stock.

 

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Speculative nature of Warrants.

 

The Warrants do not confer any rights of ownership of ADSs on their holders, such as voting rights or the right to receive dividends, but rather merely represent the right to acquire ADSs at a fixed price for a limited period of time. Specifically, holders of the Warrants may exercise their right to acquire ADSs and pay an initial exercise price of $4.06, subject to adjustment, during the ten (10) years from the date of issuance, after which date any unexercised Warrants will expire and have no further value. There can be no assurance that the market price of the ADSs will ever equal or exceed the exercise price of the Warrants, and consequently, whether it will ever be profitable for holders of the Warrants to exercise them.

   

You may not have the same voting rights as the holders of the Ordinary Shares and may not receive voting materials in time to be able to exercise your right to vote.

 

Holders of ADSs are not shareholders of our company and therefore do not have direct voting rights or the right to attend shareholders’ meetings. ADS holders do have the right to instruct the depositary how to vote the Ordinary Shares underlying their ADSs, but the depositary will only send voting materials to ADS holders if we ask it to. Therefore, you may not receive voting materials or you may not receive voting materials in time to instruct the depositary to vote, and it is possible that you, or persons who hold their ADSs through brokers or other securities intermediaries, will not have the opportunity to exercise a right to vote. The Warrants confer no equity ownership in our company, nor do they provide voting rights.

 

You may not receive distributions on the Ordinary Shares represented by the ADSs or any value for them if it is illegal or impractical to make them available to holders of ADSs.

 

The depositary for the ADSs has agreed to pay to you the cash dividends or other distributions it or the custodian receives on the Ordinary Shares or other deposited securities after deducting its fees and expenses. You will receive these distributions in proportion to the number of the Ordinary Shares your ADSs represent. However, in accordance with the limitations set forth in the deposit agreement, it may be unlawful or impractical to make a distribution available to holders of ADSs. We have no obligation to take any other action to permit the distribution of the ADSs, Ordinary Shares, rights or anything else to holders of the ADSs. This means that you may not receive the distributions we make on the Ordinary Shares or any value from them if it is unlawful or impractical to make them available to you. These restrictions may have a material adverse effect on the value of your ADSs.

 

As a foreign private issuer, we are exempt from a number of U.S. securities laws and rules promulgated thereunder and are permitted to file less information with the SEC than U.S. companies must. This will limit the information available to holders of the ADSs.

 

We currently qualify as a “foreign private issuer,” as defined in the SEC’s rules and regulations and, consequently, we are not subject to all of the disclosure requirements applicable to companies organized within the U.S. For example, we are exempt from certain rules under the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”), that regulate disclosure obligations and procedural requirements related to the solicitation of proxies, consents or authorizations applicable to a security registered under the Exchange Act. In addition, our officers and directors are exempt from the reporting and “short-swing” profit recovery provisions of Section 16 of the Exchange Act and related rules with respect to their purchases and sales of our securities. Moreover, we are not required to file periodic reports and financial statements with the SEC as frequently or as promptly as U.S. public companies. We are also not subject to Regulation FD under the Exchange Act, which would prohibit us from selectively disclosing material nonpublic information to certain persons without concurrently making a widespread public disclosure of such information. Accordingly, there may be less publicly available information concerning our company than there is for U.S. public companies.

 

As a foreign private issuer, we will file an annual report on Form 20-F within four months of the close of each fiscal year ended April 30 and reports on Form 6-K relating to certain material events promptly after we publicly announce these events. However, because of the above exemptions for foreign private issuers, our shareholders will not be afforded the same protections or information generally available to investors holding shares in public companies organized in the U.S.

 

As a foreign private issuer, we are not subject to certain Nasdaq corporate governance rules applicable to U.S. listed companies.

 

We rely on a provision in Nasdaq’s Listed Company Manual that allows us to follow Swedish corporate law and the Swedish Companies Act (SFS 2005:551) (the “Swedish Companies Act”) with regard to certain aspects of corporate governance. This allows us to follow certain corporate governance practices that differ in significant respects from the corporate governance requirements applicable to U.S. companies listed on Nasdaq.

  

For example, we are exempt from Nasdaq regulations that require a listed U.S. company to:

 

  have a majority of the board of directors consist of independent directors;

 

  require non-executive directors to meet on a regular basis without management present;

 

  promptly disclose any waivers of the code of ethics for directors or executive officers that should address certain specified items;

 

  have an independent nominating committee;

 

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  solicit proxies and provide proxy statements for all shareholder meetings; and

 

  seek shareholder approval for the implementation of certain equity compensation plans and issuances of Ordinary Shares.

 

As a foreign private issuer, we are permitted to, and we will, follow home country practice in lieu of the above requirements. The determination of foreign private issuer is made annually on the last business day of an issuer’s most recently completed second fiscal quarter, and, accordingly, the next determination will be made with respect to us as of the end of our second quarter of the current fiscal year. If we do not meet the SEC’s requirements for foreign private issuer, we will be subject to a number of additional rules and regulations, including those identified above, and as a result we may incur significant regulatory compliance costs.

 

In accordance with our Nasdaq listing, our audit committee is required to comply with the provisions of Section 301 of the Sarbanes-Oxley Act, and Rule 10A-3 of the Exchange Act, both of which are also applicable to Nasdaq-listed U.S. companies. Because we are a foreign private issuer, however, our audit committee is not subject to additional Nasdaq requirements applicable to listed U.S. companies, including an affirmative determination that all members of the audit committee are “independent,” using more stringent criteria than those applicable to us as a foreign private issuer.

 

We are an “emerging growth company,” as defined in the JOBS Act, and as a result of the reduced disclosure and governance requirements applicable to emerging growth companies, the ADS and Ordinary Shares may be less attractive to investors.

 

We are an “emerging growth company,” as defined in the JOBS Act, and we intend to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act. We cannot predict whether, or ascertain if, investors will or do find the ADSs or the Ordinary Shares less attractive because we will rely on these exemptions. If some investors find the ADSs or the Ordinary Shares less attractive as a result, there may be a less active trading market for the ADSs or the Ordinary Shares and the price of the ADSs may be more volatile. We may take advantage of these reporting exemptions until we are no longer an emerging growth company. We will remain an emerging growth company until the earlier of (1) the last day of the fiscal year: (a) following the fifth anniversary of the completion of the initial public offering, 2020, (b) in which we have total annual gross revenue of at least USD$1.0 billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of the Ordinary Shares that is held by non-affiliates exceeds USD$700 million as of the prior October 31; and (2) the date on which we have issued more than USD$1.0 billion in non-convertible debt during the prior three-year period. 

  

If we fail to establish and maintain proper internal controls, our ability to produce accurate financial statements or comply with applicable regulations could be impaired.

 

Section 404(a) of the Sarbanes-Oxley Act requires that beginning with our annual report for the year ending April 30, 2017, management must assess and report annually on the effectiveness of our internal control over financial reporting and identify any material weaknesses in our internal controls over financial reporting. Although Section 404(b) of the Sarbanes-Oxley Act requires our independent registered public accounting firm to issue an annual report that addresses the effectiveness of our internal control over financial reporting, we have opted to rely on the exemptions provided in the JOBS Act, and consequently will not be required to comply with SEC rules that implement Section 404(b) of the Sarbanes-Oxley Act until such time as we are no longer an emerging growth company.

 

Our first Section 404(a) assessment occurred beginning with our annual report for the year ending April 30, 2017. Although remedial activities to address the material weakness identified by our independent registered public accounting firm have been carried out, the presence of a material weakness in previous year could result in financial statement errors which, in turn, could lead to errors in our financial reports or delays in our financial reporting, and could require us to restate our operating results or require our auditors to issue a qualified audit report.

 

If we are unable to conclude that we have effective internal control over financial reporting or, at the appropriate time, our independent auditors are unwilling or unable to provide us with an unqualified report on the effectiveness of our internal control over financial reporting as required by Section 404(b) of the Sarbanes-Oxley Act, investors may lose confidence in our operating results, the price of the Ordinary Shares could decline and we may be subject to litigation or regulatory enforcement actions. In addition, if we are unable to meet the requirements of Section 404 of the Sarbanes-Oxley Act, we may not be able to remain listed on Nasdaq.

 

We incur significant increased costs as a result of operating as a company whose ADSs are publicly traded in the U.S., and our management is required to devote substantial time to new compliance initiatives.

 

As a company with publicly traded ADSs in the U.S., we incur significant legal, accounting, insurance and other expenses that we have not incurred prior to our initial public offering. In addition, the Sarbanes-Oxley Act, Dodd-Frank Wall Street Reform Act, Consumer Protection Act and related rules implemented by the SEC and Nasdaq have imposed various requirements on public companies, including requiring establishment and maintenance of effective disclosure and financial controls. Our management and other personnel need to devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations have increased our legal and financial compliance costs and made some activities more time-consuming and costly. We estimate that our annual compliance expenses will be approximately SEK 3 million in each of the next two fiscal years. Among other matters, these rules and regulations have made it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to incur substantial costs to maintain the same or similar coverage. These laws and regulations have also made it more difficult and expensive for us to attract and retain qualified persons to serve on our board of directors, our board committees or as our executive officers. Furthermore, if we are unable to satisfy our obligations as a public company, we could be subject to delisting of the ADSs, fines, sanctions and other regulatory action and potentially civil litigation.

 

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The rights of our shareholders may differ from the rights typically offered to shareholders of a U.S. corporation.

 

We are incorporated under Swedish law. The rights of holders of Ordinary Shares and, therefore, certain of the rights of holders of ADSs, are governed by Swedish law, including the provisions of the Swedish Companies Act, and by our Articles of Association. These rights differ in certain respects from the rights of shareholders in typical U.S. corporations.

   

We may be or may become a passive foreign investment company (“PFIC”) for U.S. federal income tax purposes.

 

Whether we are or may be a PFIC is a complex determination based on the classification of various assets and income under the PFIC rules. Further, a determination as to whether or not we are a PFIC must be made annually and our circumstances may change in any given year. We do not intend to make decisions regarding our business operations with the specific purpose of reducing the likelihood of our becoming a PFIC. Accordingly, our business plan may result in our engaging in activities that could cause us to become a PFIC. If we are or become a PFIC, U.S. Holders may be subject to increased U.S. federal income taxes on a sale or other disposition of our ADSs and on the receipt of certain distributions and will be subject to increased U.S. federal income tax reporting requirements. Moreover, we may not decide to provide the information that would enable U.S. Holders to make an election to treat us as a “qualified electing fund” (a “QEF”), which election could mitigate the adverse U.S. federal income tax consequences of us being classified as a PFIC if we were so classified. See “Taxation — Passive Foreign Investment Company Status” for a more detailed discussion of the consequences if we are treated as a PFIC.

 

ITEM 4. INFORMATION ON THE COMPANY

 

A. History and Development of the Company

 

Oasmia Pharmaceutical AB is a pharmaceutical company which develops, manufactures, markets and sells a new generation of drugs within human and veterinary oncology. The product development aims to manufacture novel formulations based on well-established cytostatic which, in comparison with current alternatives, show improved properties, a reduced side-effect profile and an expanded therapeutic area. The product development is based on in-house research within nanotechnology and company patents. The Company’s shares are listed on NASDAQ Stockholm and the NASDAQ Capital Markets.

 

We are a Swedish public company. Our principal executive offices are located in Uppsala, Sweden.

 

Company information

 

Company name: OASMIA PHARMACEUTICAL AB

Address: Vallongatan 1, 752 28 Uppsala, Sweden

Contact information: +46 18 50 54 40

Fax: +46 18 51 08 73

Email address: info@oasmia.com

Website: www.oasmia.com

  

B. Business overview.

 

We are a pharmaceutical company focused on innovative treatments within human and animal oncology. Our product and product candidates utilize a proprietary, nanoparticle formulation technology that is designed to facilitate the administration of intravenously-delivered active pharmaceutical ingredients, without the addition of toxic solvents. We believe our formulation may result in improved safety, efficacy and ease of administration over existing drugs. Our initial development and commercialization efforts are focused on creating novel formulations of well-established chemotherapeutic drugs that can be used for the treatment of cancer in both humans and companion animals. We have four human oncology product candidates in pre-clinical and/or clinical development, and two veterinary oncology product candidates. We disclosed top line Phase III data for our lead human oncology product candidate in the fourth quarter of 2014 and positive overall survival data in April 2016. In February 2014, we received conditional approval by the United States Food and Drug Administration (“FDA”) for our initial veterinary oncology product, which made us eligible for royalties and potential milestone payments from Abbott Animal Health, the animal health division of Abbott Laboratories. Our lead products utilize paclitaxel, the active ingredient of Taxol and Abraxane, two widely used cancer drugs marketed by Bristol-Myers Squibb and Celgene, respectively. Based on the potential benefits of our proprietary formulation technology, we are pursuing a strategy to replace the use of existing paclitaxel-based products in multiple cancers with our novel formulations. Our formulation is currently called Paclical or Apealea, depending on market, for human indications. We own the global commercial rights to Apealea, excluding Israel, Turkey, Russia, the Commonwealth of Independent States (“CIS”), Ukraine, Georgia and Turkmenistan. The Company has received marketing approval of Paclical in Russia and Kazakhstan and Doxophos in Russia, a key milestone following the recently established relationship with Hetero Group, its new marketing and distribution partner.

 

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A Phase III study with our lead human oncology product candidate, Apealea, for the treatment of epithelial ovarian cancer has been completed. We have received orphan designation for Apealea in the U.S. Results regarding progression free survival are available and we filed an MAA in the EU based upon these results in February 2016. We obtained overall survival, OS, data in April 2016 and we intend to file with the FDA in 2018. We are also conducting and planning additional clinical trials to evaluate Apealea in other cancer types.

 

For the veterinary products, the Board of Directors made a decision in May 2017 to spin off the veterinary assets off to our fully owned US subsidiary AdvaVet, Inc. The assets were spun off in May 2018.

 

The Company withdrew the conditional approval for Paccal Vet-CA1 in January 2017 in order to change treatment regime. Through our subsidiary, AdvaVet, Inc., we owe the global commercial rights of Paccal Vet, excluding Japan. Paccal Vet is the first injectable chemotherapeutic agent authorized for marketing for the treatment of squamous cell carcinoma and mammary carcinoma in dogs. We obtained conditional approval by the FDA for Paccal Vet for the treatment of mammary carcinoma and squamous cell carcinoma under the Minor Use and Minor Species (“MUMS”) designation in the U.S. MUMS designation is a status similar to orphan designation for human drugs, making the sponsor eligible for incentives to support the approval or conditional approval of the designated drug, including seven years of market exclusivity in the U.S, during which period a different drug company cannot pursue full or conditional approval of a generic version or another brand name version of the drug in the same form for the same intended use. The Company withdrew its current label and plans to initiate a new study confirming changed dosing regimen.

 

In order to receive the MUMS designation in the U.S. for Paccal Vet, we were required to show that squamous cell carcinoma and mammary carcinoma, the drug’s two indications, occur infrequently and in less than 70,000 dogs in the U.S. each year. To receive conditional approval pursuant to the MUMS designation, we were also required to show (i) that our manufacturing process for Paccal Vet satisfied certain criteria, including purity and stability (see “Government Regulation — Requirements for Approval of Veterinary Pharmaceuticals for Pets — Defined Manufacturing Process”); (ii) that the production and use of Paccal Vet satisfied certain human and environmental safety criteria (see “Government Regulation — Requirements for Approval of Veterinary Pharmaceuticals for Pets — Safe for Humans and the Environment”); and (iii) a reasonable expectation of effectiveness in treating mammary carcinoma and squamous cell carcinoma. To receive full approval, we will need to show that the manufacturing and safety criteria described above remain satisfied.

 

“[The] FDA’s Center for Veterinary Medicine determined that the drug’s two indications fit the ‘minor use in a major species’ category. Both mammary carcinoma and squamous cell carcinoma — within the limitations described on the label — occur infrequently and in a small number of dogs each year (fewer than 70,000 dogs in the U.S. in one year).”

 

Reference: FDA

http://www.fda.gov/animalveterinary/resourcesforyou/ucm402476.htm

 

“[The] FDA’s Center for Veterinary Medicine granted Oasmia Pharmaceutical AB’s request to declare the drug a “designated” animal drug for its two label indications. This designation status qualifies the company to receive financial incentives. First, it gives Oasmia Pharmaceutical AB seven years of exclusive marketing rights, beginning on February 27, 2014, the date that FDA conditionally approved PACCAL VET-CA1. During this 7-year period, a different drug company cannot pursue approval or conditional approval of a generic copy or another pioneer (brand name) version of the same drug in the same form for the same intended use.”

 

Reference to FDA (quotes): http://www.fda.gov/animalveterinary/resourcesforyou/ucm402476.htm

  

In Europe, we intend to submit a Marketing Authorization Application (“MAA”) to the European Medicines Agency (“EMA”) for Paccal Vet for the treatment of squamous cell carcinoma, mammary carcinoma and mast cell tumors (mast cells develop in bone marrow and are found in connective tissue throughout the body. Mast cells are, among other items, involved in the defense against parasitic infestations and infections. They contain histamine and are associated with allergic reactions based on data from the ongoing phase III studies.

 

In addition to Paccal Vet and Apealea, we have five additional product candidates:

 

  Docecal is a proprietary, patented formulation of docetaxel. Docetaxel is the active ingredient in Taxotere®, a product marketed by Sanofi. Taxotere, one of the most commercially successful and widely used chemotherapeutic medications, generated annual worldwide sales of more than $2.8 billion in 2010, the year its patent expired. We have completed a number of pre-clinical studies and are performing a clinical phase I study as well as a safety and tolerance study. Both studies are expected to be finalized during 2018. We retain global rights to Docecal.

 

  Doxophos Vet and Doxophos are a proprietary, patented formulation of doxorubicin, one of the most effective and commonly used substances for the treatment of cancer. Doxorubicin is the active ingredient in Doxil and Adriamycin. Our product candidate is called Doxophos Vet for veterinary indications and Doxophos for human indications. Doxophos Vet is being developed for the treatment of lymphoma, one of the most common cancers in dogs. A Phase I dose-finding clinical trial with Doxophos Vet was completed during the fourth quarter of 2014 and the study report was completed in June of 2015. We have completed a number of pre-clinical studies of Doxophos. In December 2015 we submitted a request for market authorization of Doxophos in Russia. Oasmia received market approval in Russia in August 2017.

 

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  OAS-19 is a proprietary combination of two widely used chemotherapeutic agents in a single formulation that can be administered in a single dose. In the past, cancers were often treated with a single chemotherapeutic agent but combination therapies have become more prevalent in clinical practice, including the combined use of multiple traditional chemotherapeutic agents and the combined use of newer cancer therapies in conjunction with traditional chemotherapeutic agents, which often require multiple infusions that can be time consuming and costly. By combining two chemotherapeutic agents in a single formulation, we believe that OAS-19 could offer physicians the ability to dose chemotherapy in a single infusion instead of two sequential infusions, which we believe decreases infusion times, the number of clinical visits, and associated treatment costs. We are currently evaluating OAS-19 in preclinical studies. We retain global rights to OAS-19.

 

  KB9520 is a substance acquired from Karo Pharma in November 2016. In pre-clinical studies, the substance has shown that it contributes to reduced side effects of treatment with cytostatics when intake of KB9520 and cytostatic treatment are combined. KB9520 has also demonstrated good efficacy for several types of cancer in pre-clinical models. In these disease models, treatment has shown a significant reduction in tumor size by stimulating apoptosis (programmed cell death) and inhibiting cell growth. The Company has created an internal project group for the continued development of this substance. In parallel, the company is also looking for a partner with whom Oasmia can drive this forward.

 

We believe that our strategy of applying our formulation technology to existing chemotherapeutic drugs will allow us to use the 505(b)(2) regulatory pathway in the United States to obtain regulatory approval for our human product candidates. The 505(b)(2) regulatory pathway permits the filing of a New Drug Application (“NDA”) where at least some of the information required for approval comes from studies not conducted by or for the applicant and for which the applicant has not obtained a right of reference. We believe this pathway is attractive as it has the potential to prevent the need for costly and time consuming clinical trials. We believe we will first be able to apply this to Paclical in the United States referencing Taxol.

  

Our Product and Product Candidates

 

The following tables summarize key information about our product and our most advanced product candidates:

 

Product
Candidate
  Commercial Rights   Stage of Development & Anticipated Milestones
Paclitaxel        

Apealea/Paclical

 

 

Oasmia: Global (excluding Israel, Turkey, Russia/CIS, Ukraine, Georgia and Turkmenistan)

Medison Pharma: Israel and Turkey

Hetero Group: Russia/CIS, Ukraine, Georgia and Turkmenistan

 

·     Final results, overall survival data, from Phase III trial vs. Taxol was disclosed in April 2016

·    Expecting opinion from EMA regarding marketing authorization in EU in September 2018

·     Received for marketing authorization in Russia in April of 2015

·     Aim to apply in the U.S. in 2018

         

Paccal Vet

 

 

Oasmia through AdvaVet: Global (excluding Japan)

Nippon Zenyaku Kogyo: Japan

 

 

·    Conditional U.S. approval received in February 2014, withdrawn in January 2017

·     Conduct studies to support a new dosing regimen

·     Asset moved to subsidiary AdvaVet Inc in May 2018

         
Docetaxel        
Docecal   Oasmia: Global (excluding Russia/CIS)  

·    Phase I pharmacokinetic clinical trial in metastatic breast cancer is ongoing, all 28 patients treated

·    Phase II safety and tolerance clinical trial in metastatic breast cancer is ongoing, all 200 patients treated

·    Aim to apply for marketing authorization in Russia during 2018

         
Doxorubicin        
Doxophos Vet   Oasmia through AdvaVet: Global  

·      Proof of Concept study is will be finalized in 2018

·      Aim to apply in to US FDA for conditional approval in 2018

         
Doxophos   Oasmia: Global (excluding Russia/CIS)  

·      Pre-clinical studies ongoing     

·      Received market authorization in August 2017 in Russia

         
Combination        
OAS-19   Oasmia: Global  

·      Currently in pre-clinical development

·      Initiate a Phase I dose-finding clinical trial

  

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Definitions

 

The following definitions are used throughout this document;

 

· Phase I:  The first clinical study initiated with a compound. This can be either a dose-finding study or a PK-study.

 

· Phase II:  A clinical study to assess safety and efficacy in a smaller study in the intended indication.

 

· Phase III:  A clinical study to show efficacy and safety and to be used as a basis for an application to obtain marketing authorization.

 

The label phase I is also used for veterinary studies although the nomenclature of the Center for Veterinary Medicine at the FDA (“CVM”) is “Dose characterization study” for phase I. Phase II is referred to herein as “Dose confirmation study” and phase III “field study”.

 

 

Apealea, Our Lead Human Oncology Candidate

 

Apealea Overview

 

Apealea is our XR17 formulation of paclitaxel for human use. Our XR17 technology increases the solubility of paclitaxel without the use of toxic solvents, which we believe facilitates the ease of administration and allows for higher doses than some of the other existing products on the market (250 mg/m2 compared to 175 mg/m2).

 

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Based on the potential benefits of XR17, we are pursuing a strategy to replace the use of existing paclitaxel-based products in treating multiple types of cancer. Our initial focus is to obtain regulatory approval for the treatment of ovarian cancer and expand use through additional regulatory approvals, starting with breast cancer. Since we are not conducting any human clinical studies in the U.S. we are not required to file an IND.

 

We have obtained orphan designation for epithelial ovarian cancer in the EU and in the U.S. based on the hypothesis that Apealea provides potential benefits to safety and tolerability compared to Taxol, which is currently used as a treatment for epithelial ovarian cancer. Both Apealea and Taxol are being administered in combination with carboplatin, a platinum-based chemotherapeutic that is the current standard of care for ovarian cancer. Carboplatin has historically been given as a monotherapy for the treatment of ovarian cancer, an incremental survival benefit by adding Taxol. On June 16, 2014, Oasmia announced that the primary endpoint for the Phase III study with Apealea for treatment of ovarian cancer had been met. The endpoint was to demonstrate that Apealea and Taxol, both in combination with carboplatin, have the same progression-free survival time. Further, we disclosed final results which showed a positive risk/benefit profile in the fourth quarter of 2014. This data served as the basis for an MAA to the EMA, which we submitted in February 2016.

 

We continued to follow patients from the Phase III clinical trial to measure overall survival and received final data in April 2016. We expect to be able to utilize the Section 505(b)(2) regulatory pathway for Apealea in the United States. We do not currently plan to conduct any other pivotal studies of Apealea for epithelial ovarian cancer at this time since only one study is needed for submission to the FDA and EMA, although we intend to include other supportive studies in our Section 505(b)(2) application to the FDA. 

 

In addition to the development of Apealea in ovarian cancer, we intend to enhance the commercial potential of Apealea by demonstrating the potential safety, efficacy, and convenience advantages of Apealea over other paclitaxel-based therapies in additional clinical trials. For example, we have recently completed a pharmacokinetic study to compare Apealea with Abraxane. In addition, this data can be used in our discussions with payor organizations and physicians to help drive market acceptance of Apealea. We are currently also initiating an additional pivotal trial with Apealea in Russia in the indication breast cancer.

 

In addition to our efforts in the EU and the U.S., we submitted an application for marketing authorization for Apealea with the name Paclical in Russia in September 2012 and received approval in April of 2015 and we were approved with respect to their reimbursement system in January 2016. In December 2017 we also received market authorization in Kazakhstan.

 

Apealea Market

 

The two leading paclitaxel-based products on the market are Taxol and Abraxane, two widely used cancer drugs. Taxol generated $1.6 billion in sales in 2000 alone, prior to losing its patent protection in 2001. In 2013, Taxol generated $92 million in post-patent sales. Abraxane, which received FDA approval in 2005 for metastatic breast cancer, followed by approvals for lung (in 2012) and pancreatic cancer (in 2013), generated $992 million in worldwide annual sales outside Japan in 2017. Abraxane is sold by Celgene worldwide except in Japan where Otsuka Holdings Co., Ltd. owns the rights. In order to deliver paclitaxel, Taxol contains the solvent Cremophor EL. The toxicity of Cremophor EL limits the dose of Taxol that can be administered during a reasonable time, potentially limiting the efficacy of the drug. In addition, patients receiving Taxol require pre-medication with steroids and antihistamines to prevent the toxic side effects associated with the combination of paclitaxel and Cremophor EL. Abraxane was developed as a Cremophor-free product containing paclitaxel suspended in human albumin. Because Abraxane contains no Cremophor EL solvent, Abraxane’s recommended dosing enables the delivery of 50% more paclitaxel while maintaining a similar safety profile, and requires no routine pre-medication to prevent hypersensitivity reactions or the immediate allergic effects that often prevent or limit treatment. Like Abraxane, Apealea is free of Cremophor EL, but unlike Abraxane, Apealea does not contain human albumin.

 

Our initial indication for Apealea is epithelial ovarian cancer, which is the fifth leading cause of cancer death among American women, and an indication for which Abraxane has no approval. There are clinical studies and case reports that indicate that Abraxane is used off-label by oncologists to treat certain types of epithelial ovarian cancer, but we cannot estimate how frequently they do so or whether Abraxane is used off-label to treat second line epithelial ovarian cancer. It is easier to find publications on platinum resistant epithelial ovarian cancer and first line epithelial ovarian cancer than on second line epithelial ovarian cancer (Apealea’s intended indication), but it is not possible to say if that reflects the usage. Epithelial ovarian cancers account for about 85% to 90% of ovarian cancers, and are the most aggressive and dangerous sub-type. According to the National Cancer Institute, in 2014, the most recent year in which data are available, there were over 222,000 women living with ovarian cancer in the U.S. The five year survival rate for ovarian cancer from 2007 to 2013 was 46.5%, and it is estimated that 22,440 women will develop and 14,080 women will die from ovarian cancer in 2017. In the EU, the five year survival rate for ovarian cancer was 37.6% from 2000 – 2007 according to a study published in The Lancet. In 2012, there were 44,149 diagnosed cases of ovarian cancer in the EU, according to the European Cancer Observatory/International Agency for Research on Cancer, while 29,758 women died of ovarian cancer. In the U.S., 51% of women with ovarian cancer are diagnosed with stage III cancer, characterized by microscopically confirmed peritoneal metastasis outside the pelvis and/or regional lymph node metastasis. Common chemotherapy drugs used for the treatment for ovarian cancer include cisplatin or carboplatin, and paclitaxel or docetaxel, which are most often given in combination.

  

Although we may choose to license Apealea to a commercial partner, we also believe we could successfully market and sell the product ourselves. There have been numerous examples of successful oncology drugs, including Abraxane, launched by small companies.

 

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Apealea Phase III Clinical Trial

 

We have completed a Phase III open, randomized, multi-center trial in patients with recurrent epithelial ovarian cancer, primary peritoneal cancer or fallopian tube cancer to compare the efficacy and safety of Apealea to Taxol, both in combination with carboplatin. Carboplatin was historically given as a monotherapy for the treatment of ovarian cancer but some studies have demonstrated an incremental survival benefit from adding Taxol, which has increased the use of the two drugs in combination. Top-line progression free survival results were disclosed in the second quarter of 2014. Since there are no human clinical studies in the U.S. we are not required to file an IND.

 

The study was designed to achieve the following primary objectives:

 

  For progression free survival, to show non-inferiority of Apealea (250 mg/m2) versus Taxol (175 mg/m2) using computed tomography (“CT”) scans, as assessed according to RECIST by central review.

 

  For overall survival, to show non-inferiority of Apealea (250 mg/m2) versus Taxol (175 mg/m2).

 

Inclusion criteria included patients, in total 789 patients, who relapsed at least six months after ending the first line or second line treatment including platinum based therapy. Apealea was administered as a one-hour intravenous infusion at its recommended dose of 250 mg/m2 to 391 patients. Taxol was administered as a three-hour intravenous infusion at its recommended dose of 175 mg/m2 to 391 patients. Both drugs were dosed in six three-week cycles, which is consistent with clinical practice. After completing the treatment cycles, patients were managed by their respective physicians and tracked for certain measures, including progression free survival and overall survival.

 

Tumor response was evaluated with a biomarker, CA 125, and through CT scans. CA 125 is used in clinical practice to assess when to re-treat a patient, as it is generally accepted as a sign of disease progression. We received guidance from Russian regulators that CA 125 would be an acceptable endpoint for regulatory submission. In an interim analysis we assessed the response to Apealea and to Taxol with regard to concentration average of CA 125 during the treatment period. The objective to show non-inferiority of the two treatments was met. The results of the interim analysis were used in a submission for marketing authorization to Russian authorities. Beyond the Russian market, we believe the use of both CA 125 and CT scan data in one study will give us the opportunity to include a comparison of progression free survival based on CA 125 and based on CT evaluation in the final analysis.

 

On June 16, 2014, we announced the results of this trial. The primary end-point has been analyzed and it shows a progression free survival of 10.3 months in the Apealea + carboplatin group and 10.1 months in the control group (Taxol + carboplatin). The protocol objective to show non-inferiority (or similar efficacy) was thus met (p-value of 0.09).

 

A protocol amendment increased the frequency of CT scans to be performed every three months after end of treatment. An analysis of the Progression Free Survival rate (“PFS”) in this subset of patients showed a PFS for Apealea of 12.2 month and 10.2 months for Taxol. The non-inferiority criteria were met also regarding the secondary efficacy variables. Even though the data on efficacy were not significantly different, PFS tended to be better in the Apealea group regardless of patient population; more frequent CTs showed the most pronounced differences.

  

The safety profile of Apealea active substance dose of 250 mg/m2 is rather similar to the safety profile of Taxol, active substance of 175 mg/m2. The number of patients with serious myelosuppression is substantial, but many of them were detected in the hematology analyses and were without clinical signs. Further, when needed, myelosuppression is easily managed in the clinic.

 

Considering both efficacy and safety of Apealea, including a comparatively short infusion time and less frequent use of pre-medications, we believe that the benefits of Apealea outweigh the potential risks of the treatment.

 

Apealea Phase I and Phase I/II Clinical Trials

 

Apealea Phase I/II Dose Escalation Trial

 

We evaluated Apealea in a dose escalating Phase I/II trial to define the maximum tolerated dose and desired dose to use in clinical trials of Apealea. Thirty-four patients with different kinds of cancers were included in the trial. Patients received escalating doses (90 – 275 mg/m2) of Apealea, until the dose-limiting toxicity was noted. Dose-limiting toxicity (“DLT”) is the emergence of side effects during treatment that are severe enough to prevent further increases in dosage of the treatment. Apealea was given as a one-hour intravenous infusion every 21 day for three cycles. No premedication was administered prior to Apealea administration.

 

Eight patients experienced at least one adverse event classified as DLT. The first occurred at 225 mg/m2 and consisted of fatigue, skin reaction, and stomatitis. The following 4 patients experiencing DLT occurred at 250 mg/m2 where one patient experienced myalgia, arthralgia and leukopenia classified as DLT during both first and second treatment cycle. Additional three patients experienced neuropathy whereof one also experienced stomatitis and febrile neutropenia at this dose. Three patients experienced DLTs at the 275 mg/m2 dose level; all three experienced fatigue, one in combination with small intestinal obstruction and one in combination with peripheral sensory neuropathy.

 

Stomatitis (at 250 mg/m2), myalgia, arthralgia (at 250 mg/m2), and small intestinal obstruction (at 270 mg/m2) fulfilled the criteria of serious adverse event. Other serious adverse events considered related to Apealea were pyrexia (2 patients) and hemoglobin decrease (2 patients).

  

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The maximum tolerated dose was established at 250 mg/m2, which is 75 mg/m2 greater than the recommended dose for Taxol of 175 mg/m2 and similar to the recommended dose for Abraxane of 260 mg/m2. No hypersensitivity reactions were reported despite the fact that no premedication was given before the administration of Apealea. In addition to the foregoing results, this trial indicated that Apealea was effective when administered with a one hour infusion period, while Taxol requires three hours.

 

The patient population consisted of terminally ill patients for whom no further treatment was available. Further, no patient received more than 3 cycles. Considering these circumstances, we consider the efficacy results, 10 patients with stable disease, to be promising.

 

The most important result from this trial, in our view, was that Apealea can be given without pre-treatment, the maximum tolerated dose is 250 mg/m2 and the infusion period is one hour. This demonstrates that there are benefits associated with Apealea compared to Taxol since Taxol requires pre-treatment, the maximum tolerated dose is 175 mg/m2 and the infusion for Taxol is three hours.

 

Pharmacokinetic Comparison with Taxol

 

The pharmacokinetic properties of paclitaxel following an intravenous infusion of Apealea at a dose of 175 mg/m2 were evaluated in a Phase I crossover pharmacokinetic study comparing the pharmacokinetics of Apealea and Taxol in humans. The mean unbound plasma concentrations, which indicate the levels of paclitaxel in the bloodstream that are not bound to common blood proteins and therefore can readily cross cell membranes, were similar for the two formulations (see Figure 2). We believe that this supports the thesis that the paclitaxel-related effects for Apealea and Taxol when given at the same dose and during the same infusion time should be comparable and should have the same temporal course of action. We believe that this trial supports the pursuit of the 505(b)(2) regulatory path in the U.S.

 

Figure 2: Mean curves of unbound plasma concentration of paclitaxel after identical doses of Apealea and Taxol, 175 mg/m2 over 3 hours.

 

Paclitaxel Mean Cu after Apealea1 and Taxol

 

 

 

Pharmacokinetic Comparison with Abraxane

 

The pharmacokinetic properties of paclitaxel have also been evaluated following an intravenous infusion of Apealea or Abraxane at a dose of 260 mg/m2 in order to compare the pharmacokinetics of Apealea and Abraxane in humans. The study was a cross-over study and both the mean total plasma concentrations and the mean unbound plasma concentrations were compared, and both were similar for the two formulations (see Figure X and Y). We interpret these findings as an indication of similar paclitaxel related effects of the two compounds.

 

 

1 Apealea was referred to as Paclical in this study.

 

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Figure X Mean (±SD) Total Plasma Paclitaxel Concentrations Following IV Administration of Apealea or Abraxane — All Patients

 

 

 

  

Figure Y Mean (±SD) Unbound Plasma Paclitaxel Concentrations Following IV Administration of Apealea or Abraxane — All Patients

 

 

 

The results from the above described study of a head-to-head pharmacokinetic comparison between Apealea and Abraxane, announced on August 4, 2015, found that the concentration of both total and unbound paclitaxel in plasma was similar.

 

Our formulation is currently called Apealea for human indications, and Paccal Vet (“Paccal Vet”) for veterinary indications. We own the global commercial rights to Apealea, excluding Israel, Turkey, Russia, the Commonwealth of Independent States (“CIS”), Ukraine, Georgia and Turkmenistan. We have licensed the global commercial rights to Paccal Vet for sale in Japan, Russia and the CIS. Apealea received marketing approval in Russia in April 2015, in Kazakhstan in November 2017.

 

Apealea Phase I

A phase I study exploring the dose of weekly administration of Apealea in patients with metastatic breast cancer have been finalized during 2016. By looking at all events, not only those occurring following the first treatment, a suggested dose for further development of weekly Apealea was identified to 170 mg/m2. However, the main object of the follow-up study intended to explore the number of cycles for weekly Apealea treatment was not obtained.

 

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XR17 Phase I Clinical Trial

A phase I clinical study to investigate the pharmacokinetics and safety and tolerability of three doses of our patented excipient XR 17 and XMeNa in healthy subjects were finalized during 2016. The conclusion of the study is that the half time of the excipients is short, 2-3h and that it is well tolerated and safe. Adverse events were seen occasionally and a dose dependent relationship were noted with infusion site reactions.

 

Paccal Vet

 

Paccal Vet Overview

 

Paccal Vet is a novel XR17 based formulation of paclitaxel. Paclitaxel is a well-established, widely used chemotherapeutic that on its own is practically insoluble in water. Paccal Vet is our initial product in veterinary oncology. Our former commercial partner, Abbott Animal Health, a leading animal health company, launched the product in mid-2014, at which time we were eligible to receive royalties that start at a minimum approximately one third of net sales. The Investigative New Animal Drug (“INAD”) number for Paccal Vet is 011609, which we requested on March 20, 2007.

 

In February 2014, we received conditional approval from the FDA for Paccal Vet for the treatment of nonresectable stage III, IV or V mammary carcinoma and resectable and nonresectable squamous-cell carcinoma, both for dogs that have not received previous chemotherapy or radiotherapy. The conditional approval was withdrawn in January 2017 in order to redesign the dose regimen allowing treatment in less specialized veterinarian clinics.

 

To receive conditional approval pursuant to the MUMS designation, we were also required to (i) show that our manufacturing process for Paccal Vet satisfied certain criteria, including purity and stability (see “Government Regulation — Requirements for Approval of Veterinary Pharmaceuticals for Pets — Defined Manufacturing Process”); (ii) show that the production and use of Paccal Vet satisfied certain human and environmental safety criteria (see “Government Regulation — Requirements for Approval of Veterinary Pharmaceuticals for Pets — Safe for Humans and the Environment”); and (iii) provide a reasonable expectation of effectiveness in treating mammary carcinoma and squamous cell carcinoma.

  

Conditional approval allows veterinarians to treat dogs with Paccal Vet in the approved indications. Conditional approval grants Paccal Vet seven years of market exclusivity, and gives us the right to promote the product before all of the efficacy data necessary for a full approval are available. Conditional approval also allows us to keep the product on the market for up to five years, through annual renewals, while collecting the remaining required efficacy data.

 

“[The] FDA’s Center for Veterinary Medicine determined that the drug’s two indications fit the ‘minor use in a major species’ category. Both mammary carcinoma and squamous cell carcinoma — within the limitations described on the label occur infrequently and in a small number of dogs each year (fewer than 70,000 dogs in the U.S. in one year).”

 

“The company has shown that, when used according to the label, PACCAL VET is safe and has a ‘reasonable expectation of effectiveness.’”

 

Reference: FDA http://www.fda.gov/animalveterinary/resourcesforyou/ucm402476.htm

 

The study Paccal Vet Prospective Single-Arm Trial in Mast Cell Tumors in Dogs was a single-arm study. This was because the comparator used in clinical trials is the standard of care, the most commonly used treatment for the indication. When we started to develop Paccal Vet there were no chemotherapeutics approved for dogs. One can of course always compare to no treatment or the vehicle (“placebo”). With a disease such as cancer, it is not ethical not to treat, and that was the reason for the single arm study.

 

When it was possible for us to apply for conditional approval, discussions were held with CVM/FDA and it was concluded that data from a comparative study were not needed to obtain the conditional approval. However, according to CVM/FDA, the number of dogs with the specific indications treated in the study Paccal Vet in Malignant High-Grade Solid Tumors in Dogs, was too low to meet requirements of reasonable expectation of effectiveness. Therefore, it was decided through discussions with CVM/FDA, to include dogs from a study not done by Oasmia (mammary carcinoma) and to conduct a small study (squamous cell carcinoma) in order to meet the requirements of a conditional approval.

 

EMA CVMP Scientific Advice and FDA protocol concurrence were requested and received for the pivotal clinical study protocol(s) for full approval. The study protocol was submitted to EMA for scientific advice. An answer was obtained on July 12, 2012 (EMA/CVMP/SAWP/296308/2012). The questions asked by Oasmia referred to study design, primary objective/end-point, the use of placebo as comparator, sample size calculations, quality of life scale, the use of anti-emetics, and the possibility to use safety data from previous studies. The answers to some of the questions were ambiguous and clarifications were requested on August 10, 2012, and answered on September 13, 2012 (EMA/CVMP/SAWP/548291/2012). EMA’s comments were addressed in the final study protocol.

 

The Clinical Study Protocol(s) have received FDA “concurrence” which means FDA agrees with the design of the clinical protocol(s), and as such also agrees with the numbers of dogs to be in the study(s). FDA as a status quo requires a minimum of 150 dogs. EMA does not generally require a specific minimum number of dogs such as 150 dogs, but the numbers should be based on a hypothesis that is statistically valid. Oasmia asked in scientific advice to EMA CVMP October 2013 specifically, “Does the CVMP agree that this number of dogs is sufficient?” EMA CVMP Answer (excerpted) “As outlined in the CVMP GL on statistical principles for clinical trials for veterinary medicinal products (EMA/CVMP/EWP/81976/2010) ‘the number of animals in a clinical trial should always be large enough to provide reliable answers to the questions addressed. This number is usually determined by the primary objective of the trial’. Thus, a formal sample size calculation is considered necessary in the planned confirmatory clinical trial. Based on the treatment effects specified in the company’s position, the planned sample size initially appears reasonable.”

  

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Paccal Vet Market

 

According to the Animal Cancer Foundation, approximately six million dogs per year are diagnosed with cancer in the U.S., slightly less than 10% of the population. Based on a population of 60 million dogs in the EU, we estimate almost six million dogs per year are diagnosed with cancer in Europe. We estimate that between 36,000 and 41,250 dogs are treated annually for mammary carcinoma, while the number of positive diagnoses for squamous cell carcinoma in dogs is less than 10,000 annually. This is the reason Paccal Vet was eligible for conditional approval; the drug’s two indications fit the “minor use in a minor species” category. As mentioned earlier, both mammary carcinoma and squamous cell carcinoma occur infrequently and in a small number of dogs each year (fewer than 70,000 dogs in the U.S. each year).

 

Based on the referenced sources for the U.S. and Europe, we believe that the incidence rates and overall prevalence of cancer in dogs is similar for cats. Solid tumors, with or without metastatic disease, are one of the most common forms of cancer in dogs and cats. Aside from Paccal Vet, there is currently no injectable chemotherapeutic drug specifically approved for use in pets in the U.S., though, as an alternative, human drugs are often used off-label. Taxol and Abraxane, both of which deliver paclitaxel, cannot safely be used in dogs. Taxol has toxicity associated with Cremophor El (polyoxyethylated castor oil) (“Cremophor”), and dogs have a resistance to human albumin, which is found in Abraxane.

 

The first drug to be approved specifically for the treatment of cancer in dogs was Zoetis’ Palladia, a toceranib phosphate tablet, which is indicated for the treatment of mast cell tumors and launched in 2009. While Zoetis does not disclose sales of Palladia, we believe the product is well known to veterinarians.

 

Mammary carcinoma and squamous-cell carcinoma are two of the most common types of solid tumors in dogs. Skin cancers, which include squamous-cell carcinomas, comprise one third of all canine cancers. Mammary tumors are the most common type of cancer in female dogs, accounting for about half of all tumors and affecting up to 25% of female dogs that are not spayed.

 

Paccal Vet in Malignant High-Grade Solid Tumors in Dogs

 

We evaluated Paccal Vet in an open-label, single arm, dose-escalating clinical field study to determine a clinically safe and effective dose and to evaluate single-dose pharmacokinetics in tumor-bearing dogs. This was our first clinical report of a Cremophor-free formulation of paclitaxel, suggesting successful administration without premedication in dogs. We ran this study as a single-arm study because the objective of this study, and other early phase studies, was to assess appropriate dosage and to assess certain particular safety aspects of Paccal Vet, for which a control group was not required.

 

The study included 27 dogs, with one-quarter of the dogs diagnosed with mast cell tumors, another quarter diagnosed with mammary tumors, and the others diagnosed with lymphoma, squamous cell carcinoma and other types of tumors. The dogs were treated with Paccal Vet for at least three cycles and up to five cycles, with each treatment cycle consisting of separate infusions approximately 21 days apart. The majority of dogs were treated with 150 mg/m2, which was the dose of Paccal Vet used in subsequent studies. We used data from this study to receive conditional approval in mammary carcinoma and squamous cell carcinoma from the FDA.

 

Paccal Vet in Mast Cell Tumors in Dogs

 

The safety and efficacy of Paclical for the treatment of grade II or III mast cell tumors in dogs that cannot be safely removed surgically were evaluated in a randomized, masked, controlled, multinational 14-week clinical field study. The objective was to demonstrate clinical superiority of Paccal Vet compared to active control lomustine, an oral chemotherapeutic commonly used for dogs. Efficacy was evaluated by the portion of dogs with a confirmed overall response, defined as complete response or partial response, 14 weeks after four consecutive three-week treatment cycles.

 

Paccal Vet in Mammary Carcinoma

 

We received conditional approval for mammary carcinoma indication from the FDA in February 2014. This approval was based on safety data for Paccal Vet and the limited efficacy data for the indication.

 

Efficacy data relating to mammary carcinoma were obtained from the study with Paccal Vet on malignant high-grade solid tumors. In that study, seven dogs with mammary carcinoma were treated, four of which responded to treatment (one complete response and three partial responses). Furthermore, two of the seven dogs survived over a year after the treatment was completed. In addition to the dogs from the previous study, literature data on three dogs previously treated at University of Wisconsin was added, for a total of 10 cases of mammary carcinoma, of which six responded.

   

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Paccal Vet in Squamous Cell Carcinoma

 

We also received conditional approval for squamous cell carcinoma indication for Paccal Vet from the FDA in February 2014. This approval was likewise based on safety data for Paccal Vet and limited efficacy data for the indication.

 

The study of Paccal Vet in malignant high-grade solid tumors included only three cases of squamous cell carcinoma, and as this was not enough to show reasonable expectation of efficacy, we conducted a small, exploratory study in dogs with this indication. In this study, 14 dogs with various types of squamous cell carcinoma were treated with Paccal Vet for four cycles. Two of the dogs responded to treatment and another two dogs had prolonged stable disease, which, according to the protocol, was considered a response to treatment. A dog with squamous cell carcinoma had also been treated in a compassionate use program in the U.S., and this dog was also included in the efficacy analysis, which consisted of a total of 18 dogs, with six dogs showing Best Overall Response Rate (“BORR”) and two dogs having prolonged periods of stable disease.

 

Paccal Vet Single-Arm Trial in Mast Cell Tumors in Dogs

 

We conducted a single-arm, open-label, multi-center, clinical trial to determine the efficacy and safety of Paccal Vet in client-owned dogs with grade II or III mast cell tumors. Mast cell tumors are graded histologically from I to III: grade I tumors are benign and local, curable with surgery alone; grade II tumors are intermediate and approximately 25% of these metastasize; and grade III tumors are advanced with high metastatic potential and short overall survival despite aggressive treatment.

 

Dogs that received at least one dose of treatment (29 dogs) were included in the analysis of safety, and 28 of those dogs had tumor measurements and were included in an efficacy analysis. The dogs were administered an intravenous dose of 150 mg/m2 of Paccal Vet once every 21 days for three cycles. Clinical safety was assessed by clinicopathological analyses and recording of adverse events. Following the end of the study, the owners were contacted to provide information used to assess progression free survival.

 

BORR at any time during treatment was seen in 54% of dogs whereas complete or partial response was observed in 31% of dogs at the end of the study. It took an average of 247 days from the start of the treatment until the cancer reappeared in the dog. Adverse events were reductions in the number of two types of white blood cells, neutrophils and leucophils. These events, which are common with chemotherapy, were short lasting and seen only sub-clinically (i.e., the dogs did not display any evidence of fever or other symptoms, other than in the blood sample analyses).

 

The difference between this study and the one including 249 dogs called Paccal Vet in Mast Cell Tumors in Dogs consists of the response rate, BORR. In this study of 29 dogs, the BORR is assessed at any time during the treatment period. In the study of 249 dogs the BORR was assessed after 4 treatment cycles.

 

Paccal Vet Planned Clinical Studies

 

We will perform a dose characterization study in order to ascertain a lower yet viable dose of Paccal Vet. We have applied for MUMS-designation in several indications and are expecting a positive opinion from FDA with respect to at least one indication, which will be the target for the next clinical program. We intend to initiate the dose characterization study before the end of the calendar year 2018.

 

When the results from the dose characterization study are available we will discuss the updated clinical program for Paccal Vet with the FDA and EMA. A dose confirmation study will commence immediately after these discussions.

 

Paclical & Paccal Vet Preclinical Data including data in healthy dogs

 

We conducted a comprehensive program of preclinical testing of Paclical, including several in vitro and in vivo studies. Key findings from our preclinical program include:

 

  In vitro studies in ten different human tumor cell lines showed that the cytotoxic activity of Paclical was somewhat more effective than Taxol in the more sensitive cell lines whereas the activity of Taxol was more active in three of the six investigated resistant cell lines. A comparison of the cytotoxicity of Paclical and Taxol was also made in vivo in rats. The tumor density of living tumor cells five days after drug administration, showed no difference between the two paclitaxel formulations but there was a considerably lower cell survival than that for placebo treated rats.

 

  In a comparative pharmacokinetic study of paclitaxel in rats receiving either Taxol or Paclical, higher concentrations of total paclitaxel were observed after dosing with Taxol compared to dosing with the same dose of Paclical. However, when studying the unbound concentrations, no obvious difference between the two formulations could be seen.

 

  The hematological toxicity of Paclical was studied in rats and found to be similar to Taxol in terms of extent and duration. A strong rebound in the white blood cell count followed the initial decrease, and at days 16 to 17 following a single dose, the white blood cell counts were stabilized at the baseline level. Since efficacy and hematological toxicity were similar in rats being dosed with identical doses of Paclical and Taxol, it would appear that the unbound drug is the determining factor in the efficacy and safety of paclitaxel.

 

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  Repeat dose toxicity studies were performed in rats.  The mortality rate at 10 mg/kg Taxol was high and the dose in the 10 mg/kg group was reduced to 5 mg/kg.  All animals that received 10 mg/kg of Paclical survived.

 

  The pharmacokinetic profile of Paclical was evaluated in a repeat dose toxicity study in healthy dogs (n=21). Following a 30 minute intravenous infusion of 100-150 mg/m2 of paclitaxel (Paclical), the distribution of paclitaxel into the tissue was rapid and the distribution phase ended within one hour after the start of infusion.

 

  The toxicity profile of Paclical in dogs has been shown to be consistent with the pharmacological action i.e., bone marrow suppression evincing the most apparent toxicity. Gastrointestinal disorders such as diarrhea and vomiting have also been commonly observed. None of the severe hypersensitivity reactions that have been reported in dogs with Cremophor EL based vehicles was observed with Paclical.

 

  Toxicity investigations conducted with the excipient XR17 showed increases in liver enzymes, bile acids and total bilirubin as well as the presence of pigmented Kupffer cells at high doses. The exposure in dogs was 8.3- and 12-fold at doses of 75 and 108 mg/kg, respectively compared to the mean AUC following a clinical dose of 166 mg/m2 in humans.  No histological findings of significance were observed in low dose animals. Major toxic reactions were not seen until doses reached almost five times higher than the doses given to Paclical patients.

 

Docecal

 

Overview

 

Docecal is our patented formulation of docetaxel, the active ingredient in Taxotere, a widely used chemotherapeutic medication that generated annual worldwide sales of more than $2.8 billion in 2010, when its patent expired. Taxotere contains the solvent polysorbate 80, which is potentially linked to adverse side effects such as acute hypersensitivity and edema. To minimize these effects, patients typically undergo premedication with steroids. Like Paclical, Docecal is free of toxic solvents. We believe Docecal may be able to deliver equal, or potentially greater, amounts of docetaxel as Taxotere without the effects of polysorbate 80 and, if approved, compete with Taxotere and generic versions thereof. Since there are no human clinical studies in the U.S. we are not required to file an IND.

  

Docecal Preclinical Studies

 

The anti-proliferative effects of Docecal were investigated in a panel of six human cancer cell lines and compared with the effects of commercially available Taxotere using a standard cell proliferation assay. For all of the tested cell-lines, Docecal was as effective as Taxotere in inhibiting cell growth.

 

Rats were injected with Docecal once weekly for 28 days with doses of 4.2 mg/kg or 6.0 mg/kg or with Taxotere 4.2 mg/kg. The Docecal group showed Docecal-related signs such as erythema, paleness, wounds on the tails, limpness and local skin reactions seen as dry skin with scale formations in both sexes following both treatments. The effects were most pronounced in the 6 mg/kg group. Changes in hematology, clinical chemistry, organ mass, macroscopic and microscopic findings were seen in both sexes. In the absence of any histological examination in the Docecal 4.2 mg/kg group, the significance of these differences cannot be assessed.

 

A no-observed-adverse-effect level, or the highest exposure of docetaxel having no adverse effect, was not established in this study with Docecal. However, we believe that the failure to establish a no-observed-adverse-effect level has not hindered the approval process for other APIs used in the treatment of cancer and will not hinder the Docecal approval process.

 

Docecal Clinical Studies

 

Docecal is an XR17 based formulation of docetaxel intended for treatment of metastatic breast cancer. A clinical phase I pharmacokinetic study and a phase II safety and tolerance study are ongoing and all patients have been treated. The pharmacokinetic phase I study, comparing Docecal with Taxotere is ongoing in three countries and the recruitment of patients started in September 2016. The safety and tolerance study is a randomized trial also comparing Docecal and Taxotere started recruitment of patients in March 2016 and has approval to be run in three countries.

 

If successful, we plan to discuss the results and a proposed clinical development plan with both the EMA and the FDA.

 

We enrolled the first patient in a study in March 2016 to assess the need for pre-medication and possibly to fulfill the requirements of the Russian authorities in order to obtain market authorization in Russia and the CIS. All patients in the studies were treated in February 2018.

 

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Doxophos Vet

 

Doxophos Vet Overview

 

Doxophos Vet is a patented formulation of doxorubicin, one of the most effective and commonly used chemotherapeutic agents for the treatment of cancer, which we are developing for the treatment of lymphoma in dogs. Lymphoma is the most common cancer in dogs, and the FDA has granted MUMS designation for Doxophos Vet for lymphoma. We completed a dose-finding study in the fourth quarter of 2014 and the results were obtained in June of 2015. The INAD number for Doxophos Vet is 011910, which we requested on March 10, 2010.

 

Doxophos Vet Clinical Trials

 

Upon determining the dose in the dose ranging study, a proof of concept study in dogs with lymphoma was started during the first quarter of 2015 which, as a result of the MUMS designation, enables us to apply for a conditional approval. The aim of the study is to assess the response rate in dogs with lymphoma, but also to monitor progression to estimate progression free survival.

 

A large field study with Doxophos Vet is needed to obtain full approval, and this study is planned to start following completion of the proof of concept study and discussions with FDA and EMA.

 

Doxophos Vet Preclinical Data including data from healthy dogs

 

  · A preclinical study using six human cancer cell lines was conducted in rats where the activity Doxophos was compared to standard doxorubicin. Doxophos was as effective in inhibiting cell growth as standard doxorubicin in all of the tested cell lines and had a comparable pharmacokinetic profile in rats.

 

  · The tissue distribution of doxorubicin was compared following a single intravenous injection of Doxophos or standard doxorubicin in mice. There were no major differences between the two formulations indicating that existing toxicity data from the literature for doxorubicin also would be applicable for Doxophos. At 30 min following administration, the organs that showed the highest radioactivity was the kidney and liver followed by the spleen. At 6 h the highest level was found in the feces and high levels were found in the kidney medulla and spleen.

 

  · Repeat dose toxicity in rats showed that the incidence and severity of the clinical effects were similar in the Doxophos and standard doxorubicin exposed rats (6 mg/kg) and less frequent or less severe in rats receiving the lower dose of Doxophos (4 mg/kg). Expected changes were observed in most hematology parameters and were similar for Doxophos and standard doxorubicin treated rats.

 

  · Rats treated with standard doxorubicin had a higher incidence of fluid-filled abdomens (ascites), which could be a sign of (right sided) heart failure. However, histopathological examination failed to show any differences between the two treatments and a lower cardiotoxicity potential of Doxophos compared to standard doxorubicin was thus not seen in this study.

 

  · A dose-finding study in healthy dogs was conducted where the maximum tolerated dose was determined to 35 mg/m2.

 

  · A pivotal target animal safety study in dogs with intravenous dosing of Doxophos Vet at 25, 30 and 35 mg/m2 (4 dogs per sex and dose group), showed dose-dependent toxicities known to be associated with doxorubicin namely; cardiotoxicity, gastrointestinal toxicity, bone marrow suppression, whisker loss etc.

 

Doxophos

 

Doxophos Overview

 

Doxophos is a proprietary formulation of doxorubicin. Despite the efficacy of doxorubicin, significant cardiovascular toxicity, including irreversible cardiomyopathy, has been observed and the cumulative dose should not exceed 550 mg/m2. We obtained market approval for Doxophos in Russia in August 2017. Doxophos was approved for use in the treatment of acute lymphoblastic leukemia, acute myeloblastic leukemia, chronic leukemia, Hodgkin’s disease and non-Hodgkin’s lymphoma, multiple myeloma, osteogenic sarcoma, Ewing’s sarcoma, soft tissue sarcoma, neuroblastoma, rhabdomyosarcoma, Wilms’ tumor, breast carcinoma, endometrial cancer, ovarian carcinoma, germ cell tumors, prostatic carcinoma, lung cancer, gastric carcinoma, head and neck cancer and thyroid carcinoma. As is its current practice with Paclical, Oasmia’s leading and previously commercialized cancer treatment product, Hetero Group will be responsible for the marketing and distribution of Doxophos in Russia.

 

Doxophos Market

 

The two leading doxorubicin-based products are Adriamycin and Doxil, or Caelyx when marketed outside of the U.S. Doxil is a lipid, or fat, encapsulation of doxorubicin introduced as a replacement for Adriamycin.

  

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OAS-19

 

OAS-19 Overview

 

Historically, chemotherapeutic agents were used as single agents. However, combination therapies have become standard treatment for a number of cancers, such as ovarian cancer, first line breast cancer, prostate cancer and lung cancer. OAS-19 is an XR17 based combination of two widely-used chemotherapy drugs in a single micelle. OAS-19 applies a dual chemotherapeutic agent encapsulation and release mechanism in one infusion and may provide us with a new platform for further product candidate development. Since there are no human clinical studies in the U.S. we are not required to file an IND.

 

OAS-19 Preclinical Studies

 

Male and female rats received four intravenous administrations of OAS-19, one week apart, at the doses of 0 (micelle excipient only), 4.2, 6 and 8.5 mg/kg/week. Mortality was noted in highly-dosed males only, while effects on food consumption and body weight gain were observed at all doses and in both genders, with a dose-dependent relationship. Treatment-related changes were noted almost at all doses, albeit without a clear dose-dependent relationship, in organs/tissues of the hemolymphoietic, gastrointestinal, urinary, genital, musculoskeletal, nervous and integumentary systems. The toxic effects observed in target organs were those expected to occur after administration of the underlying agents included in OAS-19.

 

Under the applied conditions, 6 mg/kg was considered the maximum tolerated dose, while the lowest observed adverse effect level (LOAEL) was the lowest tested dose of 4.2 mg/kg/week.

 

The dose to be used in humans will be established in the first clinical trial, but it is estimated that 6 mg/kg corresponds to six to eight times the human dose.

 

OAS-19 Planned Studies

 

We plan to develop a clinical program for this product candidate.

 

Market Overview

 

Our initial development efforts are focused on the fields of human and veterinary oncology. We believe that our XR17 technology can be applied to address commercially attractive opportunities in these two markets based on the limitations of existing therapies.

 

Human Oncology Market Opportunity

 

Cancer is a serious, widespread and expanding disease. According to the World Health Organization (“WHO”), approximately 8.8 million people died of cancer in 2015, and it is expected to rise by 70% over the next two decades.

 

Despite the development and introduction of new drugs to treat cancer, chemotherapeutic agents, used in combination with other treatments such as surgery or radiation, remain the primary treatment of cancer worldwide. Chemotherapeutic agents generally work by blocking cell division, thereby inhibiting the reproduction of cancer cells and suppressing tumor growth. Many new drugs that have obtained marketing approval for the treatment of cancer are used in combination with chemotherapeutic agents. In addition, many drug candidates in development across the industry, like most chemotherapeutics, are not water soluble and will require innovative formulations to enable intravenous use. We believe that the widespread use of chemotherapeutic agents worldwide and the potential use of our formulation technology with new drug candidates present a large commercial opportunity.

 

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Animal Health Market Opportunity

 

 

  

The U.S. is the single largest pet market, with 87 million pet dogs and 94 million pet cats, according to the American Pet Products Association (“APPA”) 2017–2018 National Pet Owners Survey. According to the same survey, 60 million households own a dog in the U.S. According to The European Pet Food Industry Federation’s 2016 Facts & Figures, there are approximately 63 million pet dogs in the EU and 82 million in total Europe. The number of cats is 74 million in the EU and 102 million in all of Europe.

 

Pet owners also spend an increasing amount of money on their pets. Total expenditures have risen to $66.8 billion in 2016 and are expected to grow by 4.1% in 2017. The APPA estimates that $16.6 billion of that amount will be spent on veterinary care.

 

Dogs in particular are receiving increased amounts of veterinary care. According to APPA, approximately 78% of dog owners in the U.S. treated their dogs with medications in 2010, as compared to 50% in 1998. The increased spending is largely due to a changing attitude of owners toward their pets, as they increasingly view pets as family members. Accordingly, owners are willing to seek quality medical care for their pets. While the actual number of dogs in need of chemotherapy that actually received such treatment is unknown, one study estimated the number of dogs receiving cancer treatment in 2008 in the United States to be over one million, and that the average age of the dog when cancer is detected is eight years. Also, in Sweden pet insurance is becoming more widespread. It is estimated that eighty to ninety percent of dogs are covered by medical insurance, and approximately eighty percent of such insurance policies includes coverage for chemotherapy. The approximate life expectancy of dogs that do not receive treatment could be one to two months after the diagnosis, whereas for a dog that is treated with chemotherapy it could be one year from the diagnosis. It should be noted that this is a hypothetical statement given that it is impossible to generalize the life expectancy of the dog, since it depends on the type of tumor and treatment, among other factors.

 

Due to the limited number of registered available oncology treatments for companion animals, we believe that there is a significant commercial opportunity to apply our formulation technology within veterinary oncology. According to the Center for Cancer Research and CanineCancer.com, approximately six million dogs in the U.S. are diagnosed with cancer each year, of which approximately one third have cutaneous, or skin, cancers. Current treatments consist largely of surgery, chemotherapy, and radiation therapy. For dogs in need of chemotherapy, the standard of care has largely been the off-label use of injectable human chemotherapeutic agents such as cisplatin, doxorubicin, carboplatin and vincristine. Due to the fact that existing injectable chemotherapeutic agents have been formulated for humans and have not been optimized for animals, combined with broad acceptance of their anti-cancer effect, we believe that our intravenous chemotherapy labeled specifically for use in dogs will be viewed favorably by the veterinary community.

 

Based on the attributes of XR17, we believe that there is a significant commercial opportunity to apply our proprietary formulation technology within veterinary oncology to enable the safe delivery of well-established chemotherapeutics, approved for the first time specifically for animal use.

 

Competition

 

Our industry is highly competitive and subject to rapid and significant technological change. While we have significant development experience and scientific knowledge, we may face competition from both large and small pharmaceutical and biotechnology companies, including specialty pharmaceutical and veterinary pharmaceutical companies and generic drug companies, as well as academic institutions, government agencies and research institutions, among others.

 

Our competition will be determined in part by the potential indications for which our products are developed and ultimately approved by regulatory authorities. It is likely that the timing of market introductions of some of our potential products or our competitors’ products will be an important competitive factor. Accordingly, the speed with which we can develop our compounds, conduct preclinical studies and clinical trials to obtain approval and manufacture or obtain supplies of commercial quantities of any approved products should also be important competitive factors. We expect that competition among products approved for sale will be based on additional factors, such as product efficacy, safety, reliability, availability, price and patent position.

 

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Human Health

 

We believe that Apealea will compete, directly or indirectly, with Bristol-Myers Squibb’s Taxol and its generic equivalents, Celgene’s Abraxane and other cancer therapies, including alternative formulations of paclitaxel, or other chemotherapeutic agents, that have been or are being developed by other pharmaceutical and biotechnology companies.

 

Animal Health

 

We expect that Doxophos Vet will face competition from Tanovea™-CA1 (Rabacfosadine) by VetDC, a novel acyclic nucleotide analog conditionally approved for naïve and relapsed/refractory lymphoma could be a potential competitor to Doxophos Vet.

 

We believe Paccal Vet will face competition from Palladia, made by Zoetis, Inc., and Masivet, made by AB Science S.A. Masivet was conditionally approved by the FDA but lost its approval in December 2015; nonetheless, Masivet might return to the market.

 

Since the development and commercialization of new veterinary medicines is highly competitive, we expect considerable competition from major pharmaceutical, biotechnology and specialty animal health companies. We are also aware of several smaller early stage companies that are developing products for use in the pet therapeutics market.

   

Strategic Alliances and Collaborations

 

We have entered into three separate agreements with established pharmaceutical companies for our products. Each agreement provides the pharmaceutical company with an exclusive right in a defined geographic territory to market one or more products in all indications. In return, we receive royalty payments or a profit participation, as well as milestone payments, and we retain the exclusive right with respect to the manufacture and supply of the product during the commercial life of the product. The various agreements generally are terminable upon a material breach or insolvency of either of the parties. Under all of the agreements, we supply the products at an agreed upon formula related to our production cost (subject to annual adjustment) and the pharmaceutical company establishes the price at which the products are sold in the territory.

 

Nippon Zenyaku Kogyo, Japan

 

We entered into a development, supply and exclusive license agreement with Nippon Zenyaku Kogyo, Co. Ltd. (“Nippon”) in April 2010 (the “Nippon Agreement”). The Nippon Agreement grants Nippon the exclusive right to market Paccal Vet in Japan. The initial term of the Nippon Agreement is the later to occur of (i) 10 years from the date of the Nippon Agreement, or (ii) upon the expiration of the patent rights granted under the Nippon Agreement. Nippon is solely responsible for all sales and marketing costs as well as the requisite clinical trials in order to obtain marketing approval for Paccal Vet in Japan.

 

We receive royalties of (i) 27% of Nippon’s gross profits for net sales up to $7.5 million and (ii) 36% of Nippon’s gross profits for net sales above $7.5 million. The Nippon Agreement also includes various milestone payments, the first of which, €0.55 million, we received upon entering into the Nippon Agreement. The remaining milestone payments are payable upon our achieving certain marketing approvals and net sales thresholds, including €0.7 million upon marketing authorization, €1.0 million when annual net sales reach $7.5 million and €1.0 million when annual net sales reach $12.5 million. We may be required to repay the first milestone payment if marketing approval cannot be obtained or if we are guilty of a breach of contract that results in the termination of the Nippon Agreement or the withdrawal of the product from the market. We may also be liable to compensate Nippon for costs incurred in relation to obtaining marketing approval.

 

We are responsible to Nippon for maintaining the quality of the product, but Nippon is solely responsible for pharmacovigilance. The Nippon Agreement may be terminated by either party if the other party commits a material breach or becomes insolvent. In the event that the Nippon Agreement is terminated, regardless of which party terminates the agreement and the grounds for termination, the marketing approval, if received in Japan, will be transferred to us.

  

Medison Pharma, Israel

 

We entered into a supply and exclusive license agreement with Medison Pharma, Ltd. (“Medison”) in May 2011 (the “Medison Agreement”). The Medison Agreement grants Medison exclusive license and distribution rights for Apealea in Israel and Turkey. The initial term of the Medison Agreement is (i) ten years from the first commercial sale of Apealea in Israel or Turkey, or (ii) the expiration of our patent rights granted under the Medison Agreement, whichever occurs later. The Medison Agreement provides that Medison will use its commercially reasonable best efforts to launch Apealea in Israel and Turkey within six months of Apealea obtaining marketing authorization, and will assume sole responsibility for sales and marketing costs. We are responsible under the Medison Agreement for obtaining marketing approval for Apealea in Israel and Turkey, while Medison is responsible for obtaining reimbursement approval.

 

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Medison has agreed to purchase specified, minimum quantities of Apealea once all approvals have been obtained. Should the minimum purchase requirements not be met, we have the right to terminate exclusivity. We receive royalties of (i) 25% of Medison’s net sales for net sales up to €7.5 million and (ii) 30% of Medison’s net sales for net sales above €7.5 million. The Medison Agreement also includes milestone payments, the first of which, €0.2 million, we received upon entering into the Medison Agreement, and the second of which, €0.1 million, we are entitled to receive upon the grant of marketing authorization by the European Commission.

 

We are responsible under the Medison Agreement to maintain the quality of the product, but Medison is solely responsible for pharmacovigilance. The Medison Agreement may be terminated by us if Medison fails to launch Apealea in Israel and Turkey within six months of Apealea obtaining marketing authorization. The Medison Agreement may also be terminated by either party if the other party fails to remedy a material breach or becomes insolvent.

 

Hetero Group, Russia and CIS

 

We entered into a supply and exclusive marketing, sales and distribution agreement with the Indian generic pharmaceutical company Hetero Labs LTD in June 2017 (the “Hetero Agreement”), which is substantially similar to the previous Pharmasyntez Agreement which was replaced by the Hetero Agreement. The Hetero Agreement grants Hetero exclusive license and distribution rights for Paclical (Apealea) in Russia and the CIS, as well as Ukraine, Georgia and Turkmenistan. The initial term of the Hetero Agreement expires after five (5) years from its inception, with an opportunity to agree on a two (2) year prolongation twelve (12) months before expiration. Hetero has sole responsibility under the Hetero Agreement for sales and marketing costs in Russia and the CIS. We are responsible for obtaining registration approval in Russia, including performing any clinical research required to market Paclical. The agreement also contains an option for Hetero Group that the products Doxophos and Docecal shall be encompassed by the agreement. Hetero Group is responsible for the costs of marketing approval and sales.

 

Hetero has agreed to purchase specified minimum quantities of Paclical, and should the minimum purchase requirements not be met, we have the right to terminate exclusivity. The Hetero Agreement contains rights to milestone payments for Oasmia in the amount of maximum $300,000 and Oasmia also has the right to a certain share of the net profit from sales made under the Agreement. The Company is also responsible for ensuring that the product meets the agreed quality level and pharmacovigilance.

 

The Hetero Agreement provides that all profits from the sale of Paclical in Russia and the CIS be split evenly between us and Hetero. The Hetero Agreement defines profits as net sales minus (i) our supply price (which are our production costs, subject to annual adjustment) and (ii) Hetero’s distribution costs. We are liable to Hetero for maintaining the quality of the product and for pharmacovigilance.

 

The Hetero Agreement may be terminated by either party if the other party commits a material breach, becomes insolvent or files for bankruptcy. In the event the Hetero Agreement is terminated, regardless the reason therefor and regardless of which party terminates the agreement and the grounds for termination, the marketing approvals obtained in any of the marketing areas shall be transferred to us.

 

Sales- and marketing approval was obtained in Russia in April 2015. The first shipment of products to the previous license and distributor Pharmasyntez was delivered at the end of the same year. Paclical was entered into the Russian reimbursement system in January 2016. Russia is divided into more than 50 hospital regions. Purchases of pharmaceuticals in the Russian hospital regions are carried out through tender offers annually or on half-year basis depending on the region.

 

Acquisition of KB9520 from Karo Pharma

 

In November 2016, the Company acquired the substance KB9520 from Karo Pharma for SEK 25 million. The purchase price was paid with 3,080,000 newly issued shares at a price of approximately SEK 8.12 per share. According to the acquisition agreement, in addition to the purchase price, the Company will pay a future royalty payment of 20 per cent of all of its future revenue generated from the product.

 

Intellectual Property

 

Our success depends in significant part on our ability to protect the proprietary nature of XR17, our product and product candidates, technology and know-how, to operate without infringing on the proprietary rights of others, and to prevent others from infringing on our proprietary rights. We have sought, and plan to continue to seek, patent protection in the U.S., the EU and other countries for our proprietary technologies. Our intellectual property portfolio consists of our trademark-protected product Paccal Vet and our product candidates Paclical, Paccal Vet, Docecal, Doxophos Vet, Doxophos and KB9520. All of these drugs (except for KB9520) are based on our excipient model developed with nanotechnology and are protected by patents in all countries which we consider to be of commercial interest. In the U.S., we already have 13 issued patents with one further pending patent application under active prosecution. All of our patents are part of one or more of twelve different patent families. A patent family is a collection of patents and patent applications, regional and national, which cover an invention or a group of related inventions.

 

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See below for information regarding the patent families currently used in our product and product candidates.

 

Patent family   Products
patent family
applies to
  Status
(US)
  Status
(EU1)
  Status
(Japan)
  Status
(Israel)
  Status
(Eurasia)
  Expiration
date
Taxol containing compositions   Paccal Vet, Paclical   Granted   Granted   Granted       2022
Anticancer compositions   Paccal Vet, Paclical, Docecal, Doxophos   Granted   Granted         2022
Water insoluble   Paccal Vet, Paclical, Docecal   Granted   Pending   Granted     Granted   2028
Water soluble   Doxophos Vet, Doxophos   Granted   Granted   Granted     Granted   2028
Tax-Dox-Mix   OAS-19   Granted   Pending   Granted     Granted   2028
XMeNa Process2   Paccal Vet, Paclical, Docecal, Doxophos   Pending   Pending   Pending     Pending   2036
KB9520 substance   KB9520   Granted   Granted   Granted     Granted3   2029
KB9520 in mesothelioma   KB9520   Granted           2034

1: European patent nationalized at least in Germany, France and the UK

2: PCT application granted; nationalizations pending or in preparation

3: Russia only

 

Our strategy for intellectual property rights is intended to protect our core technologies and their application. Our protection for intellectual property rights is continually monitored and is currently considered to be satisfactory. We are to a large extent dependent on our patents.

 

The term of individual patents depends upon the countries in which they are obtained. In most countries in which we have filed, the patent term is 20 years from the date of filing. In the U.S., a patent’s term may be lengthened by patent term adjustment, which compensates a patentee for administrative delays by the U.S. Patent & Trademark Office (“PTO”) in granting a patent, or shortened if a patent is terminally disclaimed over another patent.

 

The term of a patent that covers an FDA-approved drug may also be eligible for extension, which permits term restoration as compensation for the time period lost during the FDA regulatory review process. The Drug Price Competition and Patent Term Restoration Act of 1984, also known as the Hatch-Waxman Act, permit an extension of up to five years beyond the expiration of the patent. See “— Regulatory.” The length of the patent term extension is related to the length of time the drug is under regulatory review. Extensions cannot extend the remaining term of a patent beyond 14 years from the date of product approval and only one patent applicable to an approved drug may be extended. Similar provisions to extend the term of a patent that covers an approved drug are available in Europe and other non-U.S. jurisdictions. In the future, if and when our pharmaceutical product candidates receive FDA approval, we may apply for extensions on patents covering those products.

 

To protect our rights to any of our issued patents and proprietary information, we may need to litigate against infringing third parties, avail ourselves of the courts or participate in hearings to determine the scope and validity of those patents or other proprietary rights. For a more comprehensive summary of the risks related to our intellectual property, see “Risk Factors — Risks Related to Our Intellectual Property.”

 

We require our employees, consultants, outside scientific collaborators, researchers and other advisors to execute confidentiality agreements upon the commencement of employment or consulting relationships with us. In addition, our employment agreements with all of our employees expressly grant us the exclusive rights to any inventions or other patentable material they produce in connection with their employment with us. Swedish law provides that (i) we own the exclusive intellectual property rights to any inventions or other patentable material produced by any of our research and development employees in connection with their employment, and (ii) we own non-exclusive rights to use any inventions or other patentable material produced by any of our other employees in connection with their employment, along with a right of first refusal if the employee were to attempt to sell exclusive rights to the invention or other patentable material. Accordingly, if an employee were to seek to enforce a claim to any of our patents, we would either own the exclusive rights in the patent already or have the right to purchase such rights from the employee. We also rely on trademarks, trade secrets, know-how and continuing innovation to develop our competitive position. In addition, we have a number of domain names registered, including oasmia.se and oasmia.com.

 

Manufacturing and Supplies

 

We are responsible for the manufacture and supply of our products for commercial and clinical trial purposes. On December 3, 2013, we announced that we have successfully passed an FDA Pre-Approval Inspection of our manufacturing facility in Uppsala, Sweden. We have entered into agreements with contract manufacturers, to help us meet the anticipated demand for our products and XR17 excipient.

  

On May 14, 2014, the Swedish Medicinal Products Agency had approved Oasmia’s production facility concerning manufacture for sales of human pharmaceuticals in the EU. Oasmia has previously a GMP license for veterinary pharmaceuticals. Thus, Oasmia presently has a fully approved production facility for manufacture of cytostatics for the EU market.

 

In May 2018 the facilities were inspected with no major remarks by the Ministry of Industry and Trade of the Russian Federation.

 

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Baxter Oncology GmbH

 

We entered into a non-exclusive commercial manufacturing and supply agreement with Baxter Oncology GmbH (“Baxter Oncology”) in February 2011 (the “Baxter Agreement”) which we expect to utilize as manufacturing requirements increase. The Baxter Agreement provides that Baxter Oncology will be responsible for the production of Paccal Vet and Apealea once the commercial demand reaches a specific level. Baxter will perform complete analytical testing and release of semi-finished product. Final labeling, packaging and product release for the market will be performed by Oasmia. The Baxter Agreement was expanded in June 2014 to enable inclusion of other product candidates from our product portfolio. The Baxter Agreement’s initial term is for five years, with automatic one-year renewals.

 

The Baxter Agreement may be terminated by either party if the other party commits a material breach or becomes insolvent.

 

Syntagon

 

We entered into a non-exclusive manufacturing agreement with Syntagon AB (“Syntagon”) in August 2013 (the “Syntagon Agreement”). The Syntagon Agreement provides that Syntagon will undertake process development and production for the manufacturing of technical batches of XR17. The manufacturing will be performed with certain process adaptations due to the increased scale. Syntagon may not sub-contract any activities it is to perform pursuant to the Syntagon Agreement without our prior written approval. Syntagon indemnifies us against any liability, claim, lawsuit or judgment that we incur due to any defective product or any other breach of the agreement by Syntagon.

 

The Syntagon Agreement’s initial term is until December 31, 2018, with automatic one-year renewals. The Syntagon Agreement may be terminated by either party if the other party fails to cure a breach or becomes insolvent.

 

Raw Materials

 

Our most important raw materials are two different types of retinoic acids, 13 Cis Retinoid Acid and AllTrans Retinoid Acid, and a third compound known as L-Cysteic acid methyl ester. Both of the retinoic acids are commercially available from numerous suppliers that meet our demands for quality and documentation. Sigma-Aldrich Production GmbH manufactures L-Cysteic acid methyl ester specifically for us. Prices for the raw materials have not been affected thus far by any political, environmental, or economic crises.

 

Commercialization

 

Human Oncology

 

We entered into a supply and exclusive marketing, sales and distribution agreement with the Indian generic pharmaceutical company Hetero in June 2017 (the “Hetero Agreement”). The Hetero Agreement granted Hetero exclusive license and distribution rights for Paclical (Apealea) in Russia and the CIS, as well as Ukraine, Georgia and Turkmenistan We may retain some rights to commercialize our product candidates in the U.S. or the EU, if we receive marketing approval for our product candidates in markets which we believe it is possible to access through a focused, specialized field force. Outside of the U.S. and Europe, we expect to enter into distribution and other marketing arrangements with third parties for any of our product candidates that receive marketing approval.

 

Subject to receiving marketing approvals, we expect to commence commercialization activities by either entering into regional or global license and commercialization agreements, or by directly commercializing Apealea ourselves using a targeted sales force to identify key cancer centers to support the launch of the product. These activities could form the basis of a sales and marketing organization that we will use to market our other products as they may receive marketing approval.

 

We have entered into a collaboration agreement with Medison Pharma for the distribution of Apealea in Israel and Turkey.

 

Veterinary Oncology

 

We have entered into commercialization agreements with Nippon Zenyaku Kogyu, granting commercial rights to Paccal Vet in Japan. We believe that the value of our veterinary oncology candidates will be enhanced by having at least one large commercial partner, given the nature of the animal health market and the broad distribution of veterinarians, as well as the fact that there are only a limited number of experienced sales professionals available, and we have limited experience in developing a sales force.

 

Facilities

 

Our office is located in Uppsala, Sweden, where we lease and occupy six floors of a seven-floor building that encompasses approximately 43,000 square feet. Each floor is leased separately. The lease for the second floor expires on December 31, 2018, for the fifth floor expires March 31, 2020 and the leases for the remaining floors expire on December 31, 2019. The leases can be terminated by either party with nine months’ notice, and any leases that are not terminated are automatically extended for an additional term of three years. The building currently contains our entire business, including our research, laboratory and cGMP production facilities, as well as our administrative offices. We also have storage premises in Fyrislund, Uppsala with a lease period until January 31, 2021 and December 31, 2023 respectively. We believe that our facilities are sufficient to meet our current needs.

  

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Legal Proceedings

 

We are not a party to any material legal proceedings.

 

Government Regulation

 

Clinical trials, the pharmaceutical approval process, and the marketing of pharmaceutical products, both for animals and for humans, is intensively regulated in the U.S. and in all major foreign countries.

 

Human Health Product Regulation in the U.S.

 

In the U.S., the FDA regulates pharmaceuticals under the Federal Food, Drug, and Cosmetic Act (“FDCA”) and related regulations. Pharmaceuticals are also subject to other federal, state, and local statutes, regulations and ordinances. Failure to comply with applicable U.S. regulatory requirements at any time during the product development process, approval process or after approval may subject an applicant to administrative or judicial sanctions. These sanctions could include the imposition by the FDA of an Institutional Review Board (“IRB”), a clinical hold on trials, a refusal to approve pending applications or supplements, withdrawal of an approval, warning letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, civil penalties or criminal prosecution. Any agency or judicial enforcement action could have a material adverse effect on us.

 

The FDA and comparable regulatory agencies in state and local jurisdictions impose substantial requirements upon the clinical development, manufacture and marketing of pharmaceutical products. These agencies and other federal, state and local entities regulate research and development activities and the testing, manufacture, quality control, safety, effectiveness, labeling, storage, distribution, record keeping, approval, advertising and promotion of our human and animal health products.

 

The FDA’s policies may change and additional government regulations may be enacted that could prevent or delay regulatory approval of Paclical or our other future human health product candidates or approval of new disease indications or label changes. We cannot predict the likelihood, nature or extent of adverse governmental regulation that might arise from future legislative or administrative action, either in the U.S. or elsewhere.

 

Marketing Approval

 

The process required by the FDA before human health care pharmaceuticals may be marketed in the U.S. generally involves the following:

 

nonclinical laboratory and animal tests;

 

submission of an IND application which must become effective before clinical trials may begin;

 

adequate and well-controlled human clinical trials to establish the safety and efficacy of the proposed drug for its intended use or uses;

 

pre-approval inspection of manufacturing facilities and clinical trial sites; and

 

FDA approval of an NDA, which must occur before a drug can be marketed or sold.

 

We will need to successfully complete extensive additional clinical trials in order to be in a position to submit an NDA to the FDA. We must reach agreement with the FDA on the proposed protocols for our future clinical trials in the U.S. A separate submission to the FDA must be made for each successive clinical trial to be conducted during product development. Further, an independent IRB for each site proposing to conduct the clinical trial must review and approve the plan for any clinical trial before it commences at that site, and an informed consent must also be obtained from each study subject. Regulatory authorities, a data safety monitoring board or the sponsor, may suspend or terminate a clinical trial at any time on numerous grounds.

 

Our objective is to conduct additional clinical trials for Paclical and, if those trials are successful, seek marketing approval from the FDA and other worldwide regulatory bodies. To achieve this objective, we have completed a Phase III clinical trial of Paclical for the treatment of ovarian cancer, and are compiling the data from it. If it is successful, we expect to file for marketing approval first in the EU and then in the U.S. We plan to follow this process also with respect to the other indications that we discuss in this annual report, such as metastatic breast cancer.

 

For purposes of NDA approval for human health products, human clinical trials are typically conducted in phases that may overlap.

 

  Phase I.   The drug is initially introduced into healthy human subjects and tested for safety, dosage tolerance, absorption, metabolism, distribution and excretion. In the case of some products for severe or life-threatening diseases, especially when the product may be too inherently toxic to ethically administer to healthy volunteers, the initial human testing is often conducted in patients.

 

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  Phase II.   This phase involves trials in a limited subject population to identify possible adverse effects and safety risks conducted in order to preliminarily evaluate the efficacy of the product for specific targeted diseases and to determine dosage tolerance and optimal dosage. Phase II studies may be sub-categorized to Phase IIa studies which are smaller, pilot studies to evaluate limited drug exposure and efficacy signals, and Phase IIb studies which are larger studies testing more rigorously both safety and efficacy.

 

  Phase III.   This phase involves trials undertaken to further evaluate dosage, clinical efficacy and safety in an expanded subject population, often at geographically dispersed clinical trial sites. These trials are intended to establish the overall risk/benefit ratio of the product and provide an adequate basis for product labeling.

 

All of these trials must be conducted in accordance with Good Clinical Practice (“GCP”) requirements in order for the data to be considered reliable for regulatory purposes.

  

New Drug Applications

 

In order to obtain approval to market a pharmaceutical in the U.S., a marketing application must be submitted to the FDA that provides data establishing the safety and effectiveness of the investigational drug for the proposed indication to the FDA’s satisfaction. Each NDA submission requires a substantial user fee payment unless a waiver or exemption applies (such as with the Orphan Drug Designation discussed below). The NDA submission fee for 2017 was $2,038,100, and the manufacturer and/or sponsor under an approved NDA are also subject to annual product and establishment user fees, currently $97,750 per product and $512,200 per establishment. For 2017 these fees were lowered compared to the previous two years. The NDA includes all relevant data available from pertinent non-clinical studies and clinical trials, including negative or ambiguous results as well as positive findings, together with detailed information relating to the product’s chemistry, manufacturing, controls and proposed labeling, among other things. Data can come from company-sponsored clinical trials intended to test the safety and effectiveness of a use of a product, or from a number of alternative sources, including studies initiated by investigators.

 

The FDA will initially review the NDA for completeness before it accepts it for filing. The FDA has 60 days from its receipt of an NDA to determine whether the application will be accepted for filing based on the agency’s threshold determination that the application is sufficiently complete to permit substantive review. After the NDA submission is accepted for filing, the FDA reviews the NDA to determine, among other things, whether the proposed product is safe and effective for its intended use, and whether the product is being manufactured in accordance with cGMP to assure and preserve the product’s identity, strength, quality and purity. The FDA may refer applications for novel drug products or drug products that present difficult questions of safety or efficacy to an advisory committee, typically a panel that includes clinicians and other experts, for review, evaluation and a recommendation as to whether the application should be approved and, if so, under what conditions. The FDA is not bound by the recommendations of an advisory committee, but it considers such recommendations carefully when making decisions.

 

Based on pivotal Phase III trial results submitted in an NDA, upon the request of an applicant, the FDA may grant a Priority Review designation to a product, which sets the target date for FDA action on the application at six to eight months, rather than the standard ten to twelve months. The FDA can extend these reviews by three months. Priority review is given where preliminary estimates indicate that a product, if approved, has the potential to provide a significant improvement compared to marketed products or offers a therapy where no satisfactory alternative therapy exists. Priority Review designation does not change the scientific/medical standard for approval or the quality of evidence necessary to support approval.

 

After the FDA completes its initial review of an NDA, it will communicate to the sponsor either that the drug will be approved, or that it will issue a complete response letter to communicate that the NDA will not be approved in its current form and inform the sponsor of changes that must be made or additional clinical, nonclinical or manufacturing data that must be received before the application can be approved, with no implication regarding the ultimate approvability of the application.

 

Before approving an NDA, the FDA will inspect the facilities at which the product is manufactured, even if such facilities are located overseas. The FDA will not approve the product unless it determines that the manufacturing processes and facilities are in compliance with cGMP requirements and adequate to assure consistent production of the product within required specifications.

 

Additionally, before approving an NDA, the FDA may inspect one or more clinical sites to assure compliance with GCP. If the FDA determines that any of the application, manufacturing process or manufacturing facilities is not acceptable, it typically will outline the deficiencies and often will request additional testing or information. This may significantly delay further review of the application. If the FDA finds that a clinical site did not conduct the clinical trial in accordance with GCP, the FDA may determine that if the data generated by the clinical site should be excluded from the primary efficacy analyses provided in the NDA. Additionally, notwithstanding the submission of any requested additional information, the FDA ultimately may decide that the application does not satisfy the regulatory criteria for approval.

 

The testing and approval process for a drug requires substantial time, effort and financial resources, and this process may take several years to complete. Data obtained from clinical activities are not always conclusive and may be susceptible to varying interpretations, which could delay, limit or prevent regulatory approval. The FDA may not grant approval on a timely basis, or at all. We may encounter difficulties or unanticipated costs in our efforts to secure necessary governmental approvals, which could delay or preclude us from marketing our products.

 

The FDA may require, or companies may pursue, additional clinical trials after a product is approved. These so-called Phase IV studies may be made a condition to be satisfied for continuing drug approval. The results of Phase IV studies can confirm the effectiveness of a product candidate and can provide important safety information. In addition, the FDA now has express statutory authority to require sponsors to conduct post-market studies to specifically address safety issues identified by the agency.

 

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Any approvals that we may ultimately receive could be withdrawn if required post-marketing trials or analyses do not meet the FDA requirements, which could materially harm the commercial prospects for Apealea or Paccal Vet.

 

The FDA also has authority to require a Risk Evaluation and Mitigation Strategy (“REMS”) from manufacturers to ensure that the benefits of a drug or biological product outweigh its risks. A sponsor may also voluntarily propose a REMS as part of the NDA submission. The need for a REMS is determined as part of the review of the NDA. Based on statutory standards, elements of a REMS may include “dear doctor letters,” a medication guide, more elaborate targeted educational programs, and in some cases restrictions on distribution. These elements are negotiated as part of the NDA approval, and in some cases if consensus is not obtained until after the Prescription Drug User Fee Act review cycle, the approval date may be delayed. Once adopted, REMSs are subject to periodic assessment and modification.

 

Even if a product candidate receives regulatory approval, the approval may be limited to specific disease states, patient populations and dosages, or might contain significant limitations on use in the form of warnings, precautions or contraindications, or in the form of onerous risk management plans, restrictions on distribution, or post-marketing study requirements. Further, even after regulatory approval is obtained, later discovery of previously unknown problems with a product may result in restrictions on the product or even complete withdrawal of the product from the market. Delay in obtaining, or failure to obtain, regulatory approval for Apealea, or obtaining approval but for significantly limited use, would harm our business. In addition, we cannot predict what adverse governmental regulations may arise from future U.S. or foreign governmental action.

 

Section 505(b)(2) New Drug Applications

 

Most drug products obtain FDA marketing approval pursuant to an NDA or an Abbreviated New Drug Application (“ANDA,” described below under “— The Drug Price Competition and Patent Term Restoration Act — Orange Book Listing”). A third alternative is a special type of NDA, commonly referred to as a Section 505(b)(2) NDA, which enables the applicant to rely, in part, on the FDA’s previous approval of a similar product, or published literature, in support of its application.

 

Section 505(b)(2) NDAs often provide an alternate path to FDA approval for new or improved formulations or new uses of previously approved products. Section 505(b)(2) permits the filing of an NDA where at least some of the information required for approval comes from studies not conducted by or for the applicant and for which the applicant has not obtained a right of reference. If the Section 505(b)(2) applicant can establish that reliance on the FDA’s previous approval is scientifically appropriate, it may eliminate the need to conduct certain preclinical or clinical studies of the new product. The FDA may also require companies to perform additional studies or measurements to support the change from the approved product. The FDA may then approve the new product candidate for all or some of the label indications for which the referenced product has been approved, as well as for any new indication sought by the Section 505(b)(2) applicant.

 

To the extent that the Section 505(b)(2) applicant relies on studies conducted for an already approved product, the applicant must certify to the FDA concerning any patents listed for the approved product in the Orange Book to the same extent that an ANDA applicant would. As a result, approval of a Section 505(b)(2) NDA can be delayed until all the listed patents claiming the referenced product have expired, until any non-patent exclusivity, such as exclusivity for obtaining approval of a new chemical entity, listed in the Orange Book for the referenced product has expired, and, in the case of a Paragraph IV certification and subsequent patent infringement suit, until the earlier of 30 months, settlement of the lawsuit or a decision in the infringement case that is favorable to the Section 505(b)(2) applicant.

 

Disclosure of Clinical Trial Information

 

Sponsors of clinical trials of certain FDA-regulated products, including prescription drugs, are required to register and disclose certain clinical trial information on a public website maintained by the U.S. National Institutes of Health. Although we are not required to register, since our studies are outside of the U.S., we do so voluntarily. Information related to the product, patient population, phase of investigation, study sites and investigator, and other aspects of the clinical trial is made public as part of the registration. Sponsors are also obligated to disclose the results of these trials after completion. Disclosure of the results of these trials can be delayed until the product or new indication being studied has been approved. Competitors may use this publicly-available information to gain knowledge regarding the design and progress of our development programs.

  

Orphan Drug Designation

 

Under the Orphan Drug Act, the FDA may grant orphan designation to a drug or biological product intended to treat a rare disease or condition, which is generally a disease or condition that affects fewer than 200,000 individuals in the U.S., or more than 200,000 individuals in the U.S. and for which there is no reasonable expectation that the cost of developing and making a drug or biological product available in the U.S. for this type of disease or condition will be recovered from sales of the product. Orphan Drug Designation is intended to assist and encourage companies to develop safe and effective therapies for the treatment of rare diseases and disorders. In addition to providing a seven-year term of market exclusivity upon final FDA approval, Orphan Drug Designation also positions a company to be able to leverage a wide range of financial and regulatory benefits, including government grants for conducting clinical trials, waiver of expensive FDA user fees for the potential submission of an NDA, and certain tax credits. Orphan product designation must be requested before submitting an NDA. After the FDA grants orphan product designation, the identity of the therapeutic agent and its potential orphan use are disclosed publicly by the FDA. Orphan product designation does not convey any advantage in or shorten the duration of the regulatory review and approval process.

 

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If a product that has orphan designation subsequently receives the first FDA approval for the disease or condition for which it has such designation, the product is entitled to orphan product exclusivity, which means that the FDA may not approve any other applications to market the same drug or biological product for the same indication for seven years, except in limited circumstances, such as a showing of clinical superiority to the product with orphan exclusivity. Competitors, however, may receive approval of different products for the indication for which the orphan product has exclusivity or obtain approval for the same product but for a different indication for which the orphan product has exclusivity. Orphan product exclusivity also could block the approval of a product for seven years if a competitor obtains approval of the same drug or biological product as defined by the FDA or if the drug or biological candidate is determined to be contained within the competitor’s product for the same indication or disease. If a drug or biological product designated as an orphan product receives marketing approval for an indication broader than what is designated, it may not be entitled to orphan product exclusivity. Orphan drug status in the EU has similar but not identical benefits in the EU.

 

We have been granted Orphan Drug Designation for Apealea for the treatment of epithelial ovarian cancer in the U.S.

 

The Drug Price Competition and Patent Term Restoration Act

 

The Drug Price Competition and Patent Term Restoration Act, also known as the Hatch-Waxman Act, requires pharmaceutical companies to divulge certain information regarding their products which have the effect of making it easier for other companies to manufacture generic drugs to compete with those products.

 

Orange Book Listing.   In seeking approval for a drug through an NDA, applicants are required to list with the FDA each patent whose claims cover the applicant’s product. Upon approval of a drug, each of the patents listed in the application for the drug is then published in the FDA’s Approved Drug Products with Therapeutic Equivalence Evaluations, commonly known as the Orange Book. Drugs listed in the Orange Book can, in turn, be cited by potential generic competitors in support of approval of an ANDA. An ANDA provides for marketing of a drug product that has the same active ingredients in the same strengths and dosage form as the listed drug and has been shown through bioequivalence testing to be therapeutically equivalent to the listed drug. Other than the requirement for bioequivalence testing, ANDA applicants are not required to conduct, or submit results of pre-clinical or clinical tests to prove the safety or effectiveness of their drug product. Drugs approved in this way are commonly referred to as “generic equivalents” to the listed drug, and can often be substituted by pharmacists under prescriptions written for the original listed drug.

 

The ANDA applicant is required to certify to the FDA any patents listed for the approved product in the FDA’s Orange Book. Specifically, the applicant must certify that: (i) the required patent information has not been filed; (ii) the listed patent has expired; (iii) the listed patent has not expired, but will expire on a particular date and approval is sought after patent expiration; or (iv) the listed patent is invalid or will not be infringed by the new product. The ANDA applicant may also elect to submit a section viii statement, certifying that its proposed ANDA label does not contain (or carves out) any language regarding the patented method-of-use, rather than certify to a listed method-of-use patent.

 

If the applicant does not challenge the listed patents, the ANDA application will not be approved until all the listed patents claiming the referenced product have expired.

 

A certification that the new product will not infringe on the already approved product’s listed patents, or that such patents are invalid, is called a Paragraph IV certification. If the ANDA applicant has provided a Paragraph IV certification to the FDA, the applicant must also send notice of the Paragraph IV certification to the NDA and patent holders once the ANDA has been accepted for filing by the FDA. The NDA and patent holders may then initiate a patent infringement lawsuit in response to the notice of the Paragraph IV certification. The filing of a patent infringement lawsuit within 45 days of the receipt of a Paragraph IV certification automatically prevents the FDA from approving the ANDA until the earlier of 30 months, expiration of the patent, settlement of the lawsuit, or a decision in the infringement case that is favorable to the ANDA applicant.

 

The ANDA application also will not be approved until any applicable non-patent exclusivity listed in the Orange Book for the referenced product has expired.

 

Exclusivity.   Upon NDA approval of a New Chemical Entity (“NCE”), which is a drug that contains no active moiety that has been approved by the FDA in any other NDA, that drug receives five years of marketing exclusivity during which time the FDA cannot receive any ANDA seeking approval of a generic version of that drug. Certain changes to a drug, such as the addition of a new indication to the package insert, are associated with a three-year period of exclusivity during which the FDA cannot approval an ANDA for a generic drug that includes the change.

 

An ANDA may be submitted one year before NCE exclusivity expires if a Paragraph IV certification is filed. If there is no listed patent in the Orange Book, there may not be a Paragraph IV certification, and, thus, no ANDA may be filed before the expiration of the exclusivity period.

 

Patent Term Extension.   After NDA approval, owners of relevant drug patents may apply for up to a five-year patent extension. The allowable patent term extension is calculated as half of the drug’s testing phase — the time between IND submission and NDA submission — and all of the review phase — the time between NDA submission and approval up to a maximum of five years. The time can be shortened if FDA determines that the applicant did not pursue approval with due diligence. The total patent term after the extension may not exceed 14 years.

 

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For patents that might expire during the application phase, the patent owner may request an interim patent extension. An interim patent extension increases the patent term by one year and may be renewed up to four times. For each interim patent extension granted, the post-approval patent extension is reduced by one year. The director of the PTO must determine that approval of the drug covered by the patent for which a patent extension is being sought is likely. Interim patent extensions are not available for a drug for which an NDA has not been submitted.

 

Environmental Regulations.   The U.S. generally requires an environmental assessment, which discusses a company’s proposed action, possible alternatives to the action, and whether the further analysis of an environmental impact statement is necessary. Certain exemptions are available from the requirement to perform an environmental assessment and an environmental impact statement. Once an exemption is claimed, a company must state to the FDA that no extraordinary circumstances exist that may significantly affect the environment. We will claim an exemption, under the category for biologic products, from the requirement to provide an environmental assessment and an environmental impact statement for Apealea, and will furthermore state to the FDA that to our knowledge, no extraordinary circumstances exist that may significantly affect the environment.

 

FDA Post-Approval Requirements

 

Following the approval of an NDA, the FDA continues to require adverse event reporting and submission of periodic reports. The FDA also may require post-marketing testing, known as Phase IV testing, REMS, and surveillance to monitor the effects of an approved product, or the FDA may place conditions on an approval that could restrict the distribution or use of the product. In addition, quality control, drug manufacture, packaging, and labeling procedures must continue to conform to cGMP after approval. Drug manufacturers and certain of their subcontractors are required to register their establishments with FDA and certain state agencies. Registration with the FDA subjects entities to periodic unannounced inspections by the FDA, during which the agency inspects manufacturing facilities to assess compliance with cGMP. Accordingly, manufacturers must continue to expend time, money and effort in the areas of production and quality control to maintain compliance with cGMP. Regulatory authorities may withdraw product approvals or request product recalls if a company fails to comply with regulatory standards, if it encounters problems following initial marketing, or if previously unrecognized problems are subsequently discovered.

 

Patient Protection and Affordable Health Care Act

 

In March 2010, the Patient Protection and Affordable Health Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (collectively, “PPACA”), was enacted, which includes measures that have or will significantly change the way health care is financed by both governmental and private insurers. The fees, discounts and other provisions of this law have a significant negative effect on the profitability of pharmaceuticals.

  

Human Health Product Regulation in the European Union

 

In addition to regulations in the U.S., we are and will be subject, either directly or through our distribution partners, to a variety of regulations in other jurisdictions governing, among other things, clinical trials and any commercial sales and distribution of our products, if approved.

 

Whether or not we obtain FDA approval for a product, we must obtain the requisite approvals from regulatory authorities in non-U.S. countries prior to the commencement of clinical trials or marketing of the product in those countries. Certain countries outside of the U.S. have a process that requires the submission of a clinical trial application prior to the commencement of human clinical trials. In Europe, for example, a Clinical Trial Application (“CTA”) must be submitted to the competent national health authority and to independent ethics committees in each country in which a company intends to conduct clinical trials. Once the CTA is approved in accordance with a country’s requirements, clinical trial development may proceed in that country.

 

The requirements and process governing the conduct of clinical trials, product licensing, pricing and reimbursement vary from country to country, even though there is already some degree of legal harmonization in the EU Member States resulting from the national implementation of underlying EU legislation. In all cases, the clinical trials are conducted in accordance with GCP and other applicable regulatory requirements.

 

To obtain regulatory approval of an investigational drug under EU regulatory systems, we must submit a marketing authorization application. This application is similar to the NDA in the U.S., with the exception of, among other things, country-specific document requirements. Drugs can be authorized in the EU by using (i) the centralized authorization procedure, (ii) the mutual recognition procedure, (iii) the decentralized procedure or (iv) national authorization procedures.

 

The EMA implemented the centralized procedure for the approval of human drugs to facilitate marketing authorizations that are valid throughout the EU. This procedure results in a single marketing authorization granted by the European Commission that is valid across the EU, as well as in Iceland, Liechtenstein and Norway (the “European Community”). The centralized procedure is compulsory for human drugs that are: (i) derived from biotechnology processes, such as genetic engineering, (ii) contain a new active substance indicated for the treatment of certain diseases, such as HIV/AIDS, cancer, diabetes, neurodegenerative diseases, autoimmune and other immune dysfunctions and viral diseases, (iii) officially designated orphan drugs, and (iv) advanced-therapy medicines, such as gene-therapy, somatic cell-therapy or tissue-engineered medicines. The centralized procedure may at the request of the applicant also be used for human drugs which do not fall within the above mentioned categories if the human drug (a) contains a new active substance which, on the date of entry into force of Regulation (EC) No. 726/2004, was not authorized in the European Community; or (b) the applicant shows that the medicinal product constitutes a significant therapeutic, scientific or technical innovation or that the granting of authorization in the centralized procedure is in the interests of patients or animal health at European Community level.

 

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Under the centralized procedure in the EU, the maximum timeframe for the evaluation of a MAA by the EMA is 210 days, though the date count stops whenever the Committee for Medicinal Products for Human Use (“CHMP”) asks the applicant for additional written or oral information, with adoption of the actual marketing authorization by the European Commission thereafter. Accelerated evaluation might be granted by the CHMP in exceptional cases, as when a medicinal product is expected to be of a major public health interest from the point of view of therapeutic innovation, defined by three cumulative criteria: (i) the seriousness of the disease to be treated; (ii) the absence of an appropriate alternative therapeutic approach; and (iii) anticipation of exceptional high therapeutic benefit. In this circumstance, EMA ensures that the evaluation for the opinion of the CHMP is completed within 150 days and the opinion issued thereafter. We submitted an application for marketing authorization for Apealea in the first half of 2016.

 

The Mutual Recognition Procedure (“MRP”), for the approval of human drugs is an alternative approach to facilitate individual national marketing authorizations within the EU. Basically, the MRP may be applied for all human drugs for which the centralized procedure is not obligatory. The MRP is applicable to the majority of conventional medicinal products, and is based on the principle of recognition of an already existing national marketing authorization by one or more Member States.

 

The characteristic of the MRP is that the procedure builds on an already existing marketing authorization in a Member State of the EU that is used as reference in order to obtain marketing authorizations in other EU Member States. In the MRP, a marketing authorization for a drug already exists in one or more Member States of the EU and subsequently marketing authorization applications are made in other EU Member States by referring to the initial marketing authorization. The Member State in which the marketing authorization was first granted will then act as the reference Member State. The Member States where the marketing authorization is subsequently applied for act as concerned Member States.

 

The MRP is based on the principle of the mutual recognition by EU Member States of their respective national marketing authorizations. Based on a marketing authorization in the reference Member State, the applicant may apply for marketing authorizations in other Member States. In such case, the reference Member State shall update its existing assessment report about the drug in 90 days. After the assessment is completed, copies of the report are sent to all Member States, together with the approved summary of product characteristics, labeling and package leaflet. The concerned Member States then have 90 days to recognize the decision of the reference Member State and the summary of product characteristics, labeling and package leaflet. National marketing authorizations shall be granted within 30 days after acknowledgement of the agreement.

 

Should any Member State refuse to recognize the marketing authorization by the reference Member State, on the grounds of potential serious risk to public health, the issue will be referred to a coordination group. Within a timeframe of 60 days, Member States shall, within the coordination group, make all efforts to reach a consensus. If this fails, the procedure is submitted to an EMA scientific committee for arbitration. The opinion of this EMA Committee is then forwarded to the Commission for the start of the decision making process. As in the centralized procedure, this process entails consulting various European Commission Directorates General and the Standing Committee on Human Medicinal Products or Veterinary Medicinal Products, as appropriate.

  

Human Health Product Regulation in the Rest of World

 

For other countries outside of the EU, such as countries in Eastern Europe or Asia, the requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary from country to country. In all cases, again, the clinical trials are conducted in accordance with GCP and the other applicable regulatory requirements. We submitted an application for marketing approval for Paclical in Russia, and received approval on April 20, 2015.

 

After up-coming discussions with FDA and EMA, we might initiate a new Phase III clinical trial of Docecal for the treatment of metastatic breast cancer. Based on existing pivotal trials, we expect to file for marketing approval in Russia in 2018.

 

If we fail to comply with applicable foreign regulatory requirements, we may be subject to, among other things, fines, suspension of clinical trials, suspension or withdrawal of regulatory approvals, product recalls, seizure of products, operating restrictions and criminal prosecution.

 

Animal Health Product Regulation in the U.S.

 

Three federal regulatory agencies regulate the health aspects of animal health products in the U.S.: the FDA, the United States Department of Agriculture (the “USDA”) and the Environmental Protection Agency (the “EPA”).

 

The Center for Veterinary Medicine at the FDA (“CVM”) regulates animal pharmaceuticals under the Food, Drug and Cosmetics Act. The USDA Center for Veterinary Biologics regulates veterinary vaccines and some biologics pursuant to the Virus, Serum, Toxin Act. The EPA regulates veterinary pesticides under the Federal Insecticide, Fungicide and Rodenticide Act. Many topical products used for treatment of flea and tick infestations are regulated by the EPA.

 

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Our product and all of our current animal health product candidates are animal pharmaceuticals regulated by the CVM. Manufacturers of animal health pharmaceuticals, including us, must show their products to be safe, effective and produced by a consistent method of manufacture. The CVM’s basis for approving a drug application is documented in a Freedom of Information Summary. We will be required to conduct post-approval monitoring of products and to submit reports of product quality defects, adverse events or unexpected results to the CVM’s Surveillance and Compliance group.

 

To begin the development process for our products in the U.S., we will establish an INAD file with the CVM. We will then hold a pre-development meeting with the CVM to reach a general agreement on the plans for providing the data necessary to fulfill requirements for a New Animal Drug Application (“NADA”). During development, we will submit pivotal protocols to the CVM for review and concurrence prior to conducting the required studies. We will gather and submit data on manufacturing, safety and effectiveness to the CVM for review, and this review will be conducted according to timelines specified in the Animal Drug User Fee Act. Once all data have been submitted and reviewed for each technical section — safety, effectiveness and Chemistry, Manufacturing and Controls (“CMC”) — the CVM will issue to us a technical section complete letter as each section review is completed, and when all three letters have been issued, we will compile the Freedom of Information Summary, the proposed labeling, and all other relevant information, and submit these as an administrative NADA for CVM review. Generally, if there are no deficiencies in the submission, the NADA will be issued within four to six months after the submission of the administrative NADA. After approval, we will be required to collect reports of any adverse events and submit them to the CVM on a regular basis.

 

Animal Health Product Regulation in the European Union

 

The EMA regulates the scientific evaluation of medicines developed by pharmaceutical companies for use in the EU. Its veterinary review section is distinct from the review section for human pharmaceuticals mentioned previously. The Committee for Medicinal Products for Veterinary Use (the “CVMP”), is responsible for scientific review of the submissions for animal pharmaceuticals and vaccines but the EMA makes the final decision on the approval of products. Once a centralized marketing authorization is granted by the EMA, it is valid in all EU and European Economic Area-European Free Trade Association states. In general, the requirements for regulatory approval of an animal health product in the EU are similar to those in the U.S., requiring demonstrated evidence of purity, safety, efficacy and consistency of manufacturing processes.

 

The EMA is responsible for coordinating scientific evaluation of applications for marketing approval for pet therapeutics in the EU. To perform these evaluations the EMA established a specific scientific committee called the CVMP, which considers applications submitted by companies for the marketing approval of individual pet therapeutics and evaluates whether or not the medicines meet the necessary quality, safety and efficacy requirements. Assessments conducted by the CVMP are based on scientific criteria and are intended to ensure that pet therapeutics reaching the marketplace have a positive benefit-risk balance in favor of the pet population for which they are intended. Based on the CVMP’s recommendation, a centralized marketing authorization is granted by the EMA, which allows the product to be marketed in any of the EU states. The CVMP is also responsible for various post-authorization and maintenance activities, including the assessment of modifications or extensions to an existing marketing authorization.

 

To obtain authorization from the EMA, we must submit a marketing authorization application called a dossier. The dossier is the EMA’s equivalent of the FDA’s NADA and includes data from studies showing the quality, safety and efficacy of the product. The CVMP reviews and evaluates the dossier. For any dossier, a rapporteur and co-rapporteur are appointed from the members of the CVMP. Their role is to lead the scientific evaluation and prepare the assessment report. The rapporteur can utilize experts to assist it in performing its assessment. The report is critiqued by the co-rapporteur and other members of the CVMP before the CVMP makes its determination. The final opinion of the CVMP is generally given within 210 days of the submission of a dossier.

  

Animal Health Product Regulation in the Rest of World

 

Each other country has its own regulatory requirements for approving and marketing veterinary pharmaceuticals. Many country-specific regulatory laws contain provisions that include requirements for labeling, safety, efficacy and manufacturers’ quality control procedures to assure the consistency of the products, as well as company records and reports. With the exception of the EU, the regulatory agencies of most other countries generally refer to the FDA, USDA, EMA, and other international animal health entities, including the World Organization for Animal Health and the Codex Alimentarius Commission, in establishing standards and regulations for veterinary pharmaceuticals and vaccines.

 

Requirements for Approval of Veterinary Pharmaceuticals for Pets

 

As a condition to regulatory approval for sale of animal products, regulatory agencies worldwide require that a product used for pets is demonstrated to be:

 

  be safe for the intended use in the intended species;

 

  have substantial evidence of effectiveness for the intended use;

 

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  have a defined manufacturing process that ensures that the product can be made with high quality consistency; and

 

  be safe for humans handling the product and for the environment.

 

Safe for the intended use.   To determine whether a new veterinary drug is safe for use, regulatory bodies will require us to provide data from a safety study generated in laboratory dogs and cats tested at doses higher than the intended label dose, over a period of time determined by the intended length of dosing of the product. In the case of the CVM, the design and review of the safety study and the study protocol are completed prior to initiation of the study to help assure that the data generated will meet FDA requirements. These studies are conducted under rigorous quality control, including Good Laboratory Practice, to assure integrity of the data. They are designed to clearly define a safety margin, identify any potential safety concerns, and establish a safe dose for the product. This dose and effectiveness is then evaluated in the pivotal field effectiveness study where the product is studied in the animal patient population in which the product is intended to be used. Field safety data, obtained in a variety of breeds and animals kept under various conditions, are evaluated to assure that the product will be safe in the target population. Safety studies are governed by regulations and regulatory pronouncements that provide the parameters of required safety studies and are utilized by regulatory bodies in the U.S., the EU and Japan.

 

Effectiveness for the intended use.   Early pilot studies may be done in laboratory dogs or cats to establish effectiveness and the dose range for each product. Data on how well the drug is absorbed when dosed by different routes and the relationship of the dose to the effectiveness are studied. When an effective dose is established, a study protocol to test the product in real world conditions is developed prior to beginning the study. In the case of the CVM, the pivotal effectiveness field study protocol is submitted for review and concurrence prior to study initiation, to help assure that the data generated will meet requirements.

 

The pivotal field effectiveness study must be conducted with the formulation of the product that is intended to be commercialized, and is a multi-site, randomized, controlled study, generally with a placebo control. To reduce bias in the study, the individuals conducting the assessment are not told which group is the test group and which is the placebo group. In both the U.S. and the EU, the number of patients enrolled in the pivotal field effectiveness studies is required to be at least 100 animal subjects treated with the test product and a comparable number of subjects in the control group that receive the placebo. In many cases, a pivotal field study may be designed with clinical sites in both the EU and the U.S., and this single study may satisfy regulatory requirements in both the EU and the U.S.

 

Defined Manufacturing Process.   To assure that the product can be manufactured consistently, regulatory agencies will require us to provide documentation of the process by which the API is made and the controls applicable to that process that assure the API and the formulation of the final commercial product meet certain criteria, including purity and stability. The drug development process is known as Chemistry, Manufacturing and Controls, or CMC. After a product is approved, we will be required to communicate with the regulatory bodies any changes in the procedures or manufacturing site. Both API and commercial formulations are required to be manufactured at facilities that practice cGMP.

 

Safe for Humans and the Environment.   Certain exemptions are available from the requirement to provide an environmental impact statement for animal health products. Similar to the process for human health products, once an exemption is claimed, a company must state to the FDA that no extraordinary circumstances exist that may significantly affect the environment. We have claimed an exemption, under the category for drugs intended for nonfood animals, from the requirement to provide an environmental impact statement for Paccal Vet, and have stated to the FDA that to our knowledge, no extraordinary circumstances exist that may significantly affect the human environment. The FDA agrees with us that the proposed uses of our drug fall within the claimed categorical exemption and it is not aware of any extraordinary circumstances. Thus, in the U.S. we are not required to perform either an environmental assessment or an environmental impact statement. For approval in the EU, a risk assessment for potential human exposure will be required.

 

Labeling, All Other Information, and Freedom of Information Summary.   We also will be required to submit the intended label for the product, and also any information regarding additional research that has been conducted with the drug, to the CVM and other regulatory bodies for review. We will draft, and submit for regulatory review, the Freedom of Information Summary for use in the U.S. This summary outlines the studies and provides substantial information that CVM uses to assess the drug’s safety and effectiveness and then publishes on its website.

 

C. Organizational Structure

 

As per April 30, 2018, the Group consists of the parent company Oasmia Pharmaceutical AB and the subsidiaries Oasmia Incentive AB, Qdoxx Pharma AB, AdvaVet, Inc., Oasmia Pharmaceutical Asia Pacific Limited and Oasmia Rus, Ltd.

 

Subsidiaries

 

   Country of
incorporation
  Ownership   Votes 
Qdoxx Pharma AB  Sweden   100%   100%
Oasmia Incentive AB *  Sweden   100%   100%
AdvaVet, Inc. **  USA   100%   100%
Oasmia Pharmaceutical Asia Pacific Limited  Hong Kong   100%   100%
Oasmia Rus, Ltd.  Russia   80%   80%

 

* name changed from Oasmia Animal Health AB

** name changed from Oasmia Pharmaceutical Inc.

 

 - 55 - 

 

  

D.  Property, Plant and Equipment

 

See "—B. Business Overview—Facilities" for a description of our leased premises. Our equipment includes computers, office equipment, furniture and manufacturing equipment with a net book value at April 30, 2018 and 2017 of TSEK 15,528 and TSEK 18,368, respectively. Our manufacturing equipment is owned by the Company and placed in Uppsala and in Germany for the use by a Company vendor who provides contract manufacturing services to the Company. The net book value of our manufacturing equipment at April 30, 2018 was TSEK 13,331 compared to TSEK 15,776 at April 30, 2017. None of our research and manufacturing equipment is leased and there are no liens or encumbrances on our equipment.

 

We currently do not have any material commitments to acquire tangible fixed assets; however, it is possible that we may need to acquire additional manufacturing equipment in the near-term. It is uncertain at this time what, if any, additional manufacturing equipment we may need to acquire. The timing and amount of any manufacturing equipment purchases we make in the future will be determined based on the terms and conditions and Company needs.

 

ITEM 4A. UNRESOLVED STAFF COMMENTS

 

Not applicable

 

ITEM 5. OPERATING AND FINACIAL REVIEW AND PROSPECTS

 

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and the related notes and other financial information included elsewhere in this annual report. Some of the information contained in this discussion and analysis or set forth elsewhere in this annual report, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. You should review the “Risk Factors” section of this annual report for a discussion of important factors that could cause our actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

 

A . Operating Results Overview

 

Overview

 

We are a pharmaceutical company focused on innovative treatments within human and animal oncology. Our product and product candidates utilize a proprietary, nanoparticle formulation technology that is designed to facilitate the administration of intravenously-delivered active pharmaceutical ingredients, without the addition of toxic solvents. We believe our formulation may result in improved safety, efficacy and ease of administration over existing drugs. Our initial development and commercialization efforts are focused on creating novel formulations of well-established chemotherapeutic drugs that can be used for the treatment of cancer in both humans and companion animals. We have five human oncology product candidates in pre-clinical and/or clinical development, and two veterinary oncology product candidates. In October 2016, Oasmia acquired a cancer project from Karo Pharma with promising results in pre-clinical models for a number of different types of cancer. We disclosed positive Overall Survival results from Phase III study of or lead human product for treatment of ovarian cancer in the April, 2016. In February 2014, we received conditional approval by the FDA for our initial veterinary oncology product. However, this conditional approval was withdrawn in in January 2017 in order to investigate another dosage regimen.

  

Our lead products utilize paclitaxel, the active ingredient of Taxol and Abraxane, two widely used cancer drugs marketed by Bristol-Myers Squibb and Celgene, respectively. Based on the potential benefits of our proprietary formulation technology, we are pursuing a strategy to replace the use of existing paclitaxel-based products in multiple cancers with our novel formulations. Our formulation is currently called Paclical for human indications, and Paccal Vet for veterinary indications. In the submission of a marketing authorization application (“MAA”) to the EMA, the name Apealea is used instead of Paclical. We own the global commercial rights to Paclical, excluding Israel, Turkey, Russia, the Commonwealth of Independent States (“CIS”), Ukraine, Georgia and Turkmenistan. We have licensed the commercial rights to Paccal Vet for sale in Japan. Paclical received marketing approval in Russia in April 2015, in Kazakhstan in January 2018 and in EU in July 2018. Doxophos received marketing approval in Russia in August 2017.

 

Since we do not have sales and marketing operations, we have entered into various licensing and distribution agreements with established pharmaceutical companies to sell Apealea, Paccal Vet, and our other product candidates. We have entered into an agreement with Hetero Group for the commercialization of Paclical in Russia and the CIS, as well as Ukraine, Georgia and Turkmenistan, and a separate agreement with Medison Pharma for the commercialization of Paclical in Israel and Turkey. Furthermore, we have moved all rights for Paccal Vet and Doxophos Vet to our subsidiary in the USA, AdvaVet Inc. Oasmia has entered into an agreement with Nippon Zenyaku Kogyo for the commercialization of Paccal Vet in Japan.

 

 - 56 - 

 

  

Paccal Vet is the first injectable chemotherapeutic agent authorized for marketing for the treatment of squamous cell carcinoma (a cancer occurring in certain cells in the skin and the lining of other organs) and mammary carcinoma (a cancer occurring in the lining of the milk ducts of the mammary glands) in dogs. We received conditional approval by the FDA for Paccal Vet for the treatment of mammary carcinoma and squamous cell carcinoma under the Minor Use and Minor Species (“MUMS”) designation in the U.S. MUMS designation is a status similar to orphan designation for human drugs, making the sponsor eligible for incentives to support the approval or conditional approval of the designated drug, including seven years of market exclusivity in the U.S. For a description of the qualifications for Paccal Vet to receive the MUMS designation, conditional approval and full approval for dogs, see “Business — Overview.” We withdrew the conditional approval in January 2017 and plan to investigate another dosage regimen.

 

From our inception through April 30, 2018, marketing and distribution agreements have yielded net cash of SEK 86.96 million in upfront fees and milestone payments and SEK107.14 million in royalties and sales revenue.

 

In addition to these partnerships, we will eventually directly commercialize Paclical ourselves using a targeted sales strategy or find a collaboration partner depending on our possibility to negotiate satisfactory terms for Oasmia. Currently we retain the rights to commercialize Paclical outside of Russia, CIS, Turkey and Israel. On November 5, 2015, we announced the final results of a study of a head-to-head pharmacokinetic comparison between Paclical and Abraxane, which found that the concentration of both total and unbound paclitaxel in plasma was similar.

 

We are a newly-commercial stage company with one product for human use approved for marketing and sale, and given our recent change from development stage to commercial stage, we have not generated any significant revenue other than milestone payments from our commercial partners. We have incurred significant net losses since our inception on April 15, 1988. We incurred net losses of SEK 118.01 million, SEK 160.24 million and SEK 141.54 million for the fiscal years ended April 30, 2018, April 30, 2017 and April 30, 2016. These losses have resulted principally from costs incurred in connection with research and development activities and general and administrative costs associated with our operations. As of April 30, 2018, we had a deficit accumulated during development stage of SEK 1,009.35 million and cash and cash equivalents of SEK 15.58 million. We expect to continue to incur operating losses in the near future as we continue our clinical and preclinical development programs, apply for marketing approval for our product candidates and, subject to obtaining regulatory approval of our product candidates, establish sales and marketing partnerships in preparation for the potential commercialization of our product candidates.

 

Oasmia has two products approved in Russia, Paclical and Doxophos. These approvals do not yet create a sufficient cash flow for its business. Accordingly, Oasmia continuously works with various financing alternatives. This work includes entering into discussions with potential partners for licensing of distribution and sales rights, negotiations with new and existing investors, financiers and lenders and that the Company obtains enough resources to assure it that forecasted future revenue streams from regions where the Company's products registered are realized.

  

Available consolidated liquid assets and unutilized credit facilities as of April 30, 2018 are not sufficient to provide the required capital to pursue the planned activities during the next 12 months. In light of available financing alternatives and the recent developments in the Company, the Board of Directors assesses that the prospects for financing of the Company´s operations in the coming year are good. Should funding not be obtained in sufficient quantities there is a risk that the conditions for continued operation do not exist.

 

Other than what is disclosed in this annual report, there are at present no significant trends known to us that are reasonably likely to have a material effect on our financial situation.

  

Events after balance sheet date of April 30, 2018

 

Sale of veterinary business to AdvaVet completed

All veterinary assets have now been sold to the US-based AdvaVet, Inc. AdvaVet has recruited management and its board of directors is working with several American advisors to ensure financing, development and commercialization.

 

Adjustment of terms of loan

The Company, Arwidsro Investment and MGC Capital have agreed on an extension until September 30, 2018 for payment of the loan made on January 2, 2018. This is so that the Company will be given time to complete ongoing activities. In all other respects the same terms apply to the loan.

 

Results from Oasmia Pharmaceutical’s Phase III study was presented at ASCO annual meeting

Oasmia presented the follow-up results from the study including 789 patients with platinum-sensitive recurrent ovarian cancer. Patients with disease relapse constitute a group that could benefit from further treatment options. The study results show that Apealea in combination with carboplatin has a similar effect as standard treatment with regard to overall survival. The patients in the Apealea group survived for an average of 25.7 months and the patients with standard treatment survived 24.8 months from study start. Also, the time to progression was similar between the Apealea group and standard treatment group (hazard ratio 0.86 (95% confidence interval: 0.72-1.03) in favor of Apealea). The results are further strengthened by sub-group analyses in the study showing similar effects.

 

 - 57 - 

 

  

Orphan Status within the EU

Oasmia withdrew its orphan designation for Apealea in the EU considering among other facts that the prevalence of the indication ovarian cancer, several times exceed the limitation which EMA has as a threshold for approving orphan status of pharmaceuticals.

 

EMA

The Committee for Medicinal Products for Human Use (CHMP) asked Oasmia to respond to remaining outstanding issues in written form within the standard procedure timeline. Oasmia responded to these remaining issues on August 21, 2018.

 

Financial development after balance sheet day

Short-term loans of SEK 26,000 thousand matured on May 31, 2018. Of this sum, SEK 17,000 thousand has been repaid up until the day of the signing of this Annual Report. The remaining SEK 9,000 thousand has been extended after closing day to September 30, 2018.

 

Short-term loans of SEK 6,000 thousand matured on June 30, 2018. These have been extended after closing day to September 30, 2018.

 

On July 31, 2018 the loan from Nexttobe including interest and totaling SEK 109,699 thousand matured. This loan has in August 2018 been replaced by loans from a consortium according to previous communication. These new loans mature on September 30, 2019. Beginning of September 2018, one of the lenders, and warrant holder, has utilized 8,064,516 warrants for the issue of 8,064,516 new shares, each with a subscription of SEK 3.10 per share, totaling SEK 25,000 thousand, which will be set off against the loan.

 

During July 2018 SEK 9,000 thousand of the convertible loan issued in November 2017 was converted into 2,903,224 new shares. In September 2018 2,857,142 new shares will be issued following the conversion of convertible instruments from the convertible loan issued in April 2018.

 

On September 7, 2018 a convertible loan of 32 convertible instruments at a nominal value of SEK 1,100,000 per instrument, totaling SEK 35,200 thousand, was issued. The conversion rate is SEK 7.70 and if the loan is fully converted 4,571,424 new shares will be issued. The convertible loan bears an interest of 8 per cent and matures on September 6, 2019, if not converted earlier.

  

Trend information

 

We are currently in an early stage to commercialize products on the market. Accordingly, any trends within the markets in which we operate are expected to have more direct impact on our business in the event that we are successful in commercializing Paclical/Apealea and Doxophos.

 

Over the past few years, there has been increasing pressure to reduce drug prices in the developed markets as a consequence of political initiatives and regulations aiming to curb continuous increases in healthcare spending. We expect this trend to continue in the years ahead and accordingly any revenue we may earn in the future will likely be negatively affected by such political initiatives and regulations. However, we believe spending in the healthcare industry, as compared to many other industries, is less linked to economic trends. Furthermore, while falling drug prices in the mature drug markets such as the U.S. and the EU are having a negative impact on general sales growth levels for the biopharmaceutical industry as a whole in those markets, we expect such sales growth to continue at higher levels in emerging markets. We also expect that demographic developments, increased treatment penetration, especially in newly established drug markets, and better diagnostic tools will result in continuing growth in overall global drug sales.

         

Financial Operations Overview

 

Net sales.   We generate net sales pursuant to agreements with our commercial partners. These agreements generally include some of the following sources of revenue: an initial payment, additional milestone payments dependent upon the achievement of certain clinical, regulatory or commercial milestones, invoiced supply price for products delivered to commercial partners and royalties on product sales of licensed products when such product sales occur. Net sales also include amounts earned from the sale of miscellaneous supplies, such as sterile water. We recognize net sales when the amount earned can be measured in a reliable way and when we have determined it is likely that future economic benefits will accrue to us and certain criteria have been met, which will vary based on specific contractual arrangements. Revenue from licensing arrangements and product sales during the fiscal year ended April 30, 2018 amounted to SEK 3,007 thousand for the fiscal year ended April 30, 2017 amounted to SEK 0 (zero) and for the fiscal year ended April 30, 2016 amounted to SEK 6,077 thousand.

 

Change in inventory of products in process and finished goods

 

Change in inventory of products in process and finished goods consists of the change in book value of products in process and finished goods and refers to manufacturing of ordered products which are planned to be sold on the Russian market during the coming months.

 

Capitalized development cost.   Capitalized development cost consists of expenditures for materials and services used in development of the intangible asset and employee benefit expenses for staff engaged in developing the intangible asset. Expenditures for research and development operations are generally expensed as they occur. Development costs which are attributable to clinical trials and registration are capitalized to the extent that they are expected to generate future economic benefits. We have determined that the beginning of Phase III trials is the earliest point for capitalization of development expense. This has been applied for Paccal Vet and Paclical, for which all conditions for capitalization are fulfilled. These conditions are generally met when it is probable that expected future economic benefits attributable to an asset will flow to us and the asset’s cost can be measured reliably. The disclosure of the development costs in Phase III is accounted for gross, i.e., the costs are included in various operating expenses whereas the capitalized part is disclosed on a specific line in the income statement.

 

Other operating income.   Other operating income comprises revenues that are not generated in the ordinary course of business.

 

Operating expenses.   Operating expenses includes four categories described below.

 

Raw materials, consumables and goods for resale.   Raw materials, consumables and goods for resale consist of materials and consumables for manufacturing of pharmaceuticals for sales, clinical trials, cost of analysis for such pharmaceuticals and handling of waste.

 

 - 58 - 

 

  

Other external expenses.   Other external expenses consist mainly of external fees paid for clinical trials, fees paid for regulatory, administration and other services such as rent of facility and cost for utilities.

 

Employee benefit expenses.   Employee benefit expenses consist of salaries to employees, remuneration to board members, social security cost and other employee benefits and expenses.

 

Depreciation and amortization.   Depreciation consists of depreciation for machinery, equipment and patents. The capitalized development expense is not yet subject to amortization.

 

Financial income.   Financial income consists primarily of interest earned by investing our cash reserves in short-term interest-bearing deposit accounts.

 

Financial expenses.   Financial expenses consist primarily of interest expense on interest-bearing loans.

 

Income taxes.   As a Swedish resident trading equity, we are subject to Swedish corporate taxation. Since we have been loss-making since inception, no corporate taxes have been recorded.

 

Results of operations

 

Comparison of Fiscal Years Ended April 30, 2018 and April 30, 2017

 

   Year Ended April 30, 
   2018   2017 
   (in TSEK) 
Net sales   3,169    172 
Change in inventory of products in progress and finished goods   (1,450)   (1,405)
Capitalized development cost   9,157    7,023 
Other operating income   1,753    420 
Operating expenses   (116,353)   (146,691)
Financial income   101    85 
Financial expense   14,390)   (19,847)
Income taxes   -    - 
Income for the period   (118,013)   (160,243)

  

Net sales

 

   Year Ended April 30, 
   2018   2017 
   (in TSEK) 
Net sales   3,169    172 

 

Revenues from royalties and sales of products were TSEK 3,007 in the year ended April 30, 2018 and TSEK nil in the year ended April 30, 2017. These consisted of invoiced distribution rights of TSEK 1,595 in the year ended April 30, 2018 and TSEK nil in the year ended April 30, 2017 in connection with the signing of an agreement with the Russian distributor, invoiced deliveries of goods to the tune of TSEK 630 in the year ended April 30, 2018 and TSEK nil in the year ended April 30, 2017 and a share of the profits to the tune of TSEK 783 stemming from sales of these goods. There were revenues from sales of water for injection amounting to SEK 162 thousand in the year ended April 30, 2018 and SEK 172 thousand in 2017.

 

Change in inventory of products in progress and finished goods

 

   Year Ended April 30, 
   2018   2017 
   (in TSEK) 
Change in inventory of products in progress and finished goods   (1,450)   (1,405)
           

 

Change in inventories of products in progress and finished goods amounted to TSEK (1,450) in the year ended April 30, 2018. This derives from the production of semi-finished products to be included in the production of goods intended for sale. Change in inventory of products in progress, amounting to SEK (1,405) thousand in the previous financial year, derives from the production of semi-finished products that will be included in the production of goods for sale as well as from a write-down of inventories of finished goods that were intended for sale on the Russian market of SEK 5,324 thousand. Change in inventories of products in progress and finished goods amounted to TSEK 9,509 in the previous financial year.

 

 - 59 - 

 

  

Capitalized development cost

 

   Year Ended April 30, 
   2018   2017 
   (in TSEK) 
Capitalized development cost   9,157    7,023 
           

 

Capitalized development cost increased by TSEK 2,134, or 30,4 %, from SEK 7.023 million in the year ended April 30, 2017 to SEK 9.157 million in the year ended April 30, 2018. In both years there were two product candidates, Paccal Vet and Paclical, subject to capitalization. For Paclical, capitalization increased by SEK 1,465 thousand, from SEK 7,559 thousand to SEK 9,024 thousand. For Paccal Vet, capitalization decreased by SEK 205 thousand from SEK 338 thousand to SEK 133 thousand in the year ending April 30, 2018. The increase in capitalized development costs during the financial year is primarily because the increase in capitalized cost for Paclical mainly comprise of activities related to the approval process in EMA. The Paccal Vet study for the treatment of mammary cancer in dogs had lower activity compared to the previous year.

 

Other operating income

 

   Year Ended April 30, 
   2018   2017 
   (in TSEK) 
Other operating income   1,753    420 

 

For the year ended April 30, 2018, other operating income increased to SEK 1,753 thousand, compared to SEK 420 thousand in the prior year. Oasmia has been involved in an ongoing legal dispute for a number of years with a supplier concerning delivery of defective production equipment. This dispute was settled in November 2017 by means of conciliation whereby Oasmia was awarded compensation of SEK 1,300 thousand, which has been recorded as other operating income. Favorable exchange gains of SEK 157 thousand in the year ended April 30, 2018 compared to SEK 202 thousand for the year ended April 30, 2017.

 

Operating expenses

 

   Year Ended April 30, 
   2018   2017 
   (in TSEK) 
Raw materials, consumables and goods for resale   2,953    2,984 
Other external expenses   60,235    79,904 
Employee benefit expenses   48,371    59,295 
Depreciation, amortization and impairment   4,794    4,508 
           
Total operating expenses   116,353    146,691 

 

Operating expenses including depreciation and amortization decreased by SEK 30.34 million, or 20.7%, from SEK 146.7 million to SEK 116.4 million, for the year ended April 30, 2018 compared to the financial year before.

 

The decrease is mainly attributable to lower costs for clinical studies during the period. The decrease is mainly attributable to lower costs for bad debt losses, clinical studies and employees. The decrease in employee benefit expenses is largely due to the fact that the rationalization program which was started the previous financial year has had an impact this year. The average number of employees decreased by 16 persons or 21% from 75 in April 30, 2017 to 59 in April 30, 2018 and resulted in lower employee benefit costs.

 

Financial income

 

   Year Ended April 30, 
   2018   2017 
   (in TSEK) 
Financial income   101    85 

 

Financial income in the year ended April 30, 2018 amounted to SEK 101 thousand, compared to SEK 85 thousand in previous year. The increase is mainly due to increased foreign exchange gains related to bank balances in foreign currencies.

 

Financial expense

 

   Year Ended April 30, 
   2018   2017 
   (in TSEK) 
Financial expense   14,390    19,847 

 

 - 60 - 

 

  

Oasmia has a loan of SEK 102,419 thousand from Nexttobe AB, which up until October 31, 2016 was Oasmia’s second largest shareholder. This loan carries interest of 8.5 percent. It matured on July 31, 2018 and has in August 2018 been replaced by loans from a consortium according to previous communication. These new loans mature on September 30, 2019.

 

These new loans base on a promise of credit granted in December 2017. When this promise of credit was received, 34,838,709 warrants were issued to the parties who had granted the promises of credit. Their market value has been calculated to be SEK 12,542 thousand, and this figure has been included in equity. The warrants mature on August 15, 2019 and can be redeemed in exchange for 34,838,709 shares at a price of SEK 3.10 per share.

 

In April 2017, a convertible loan comprising 26 convertible instruments was issued at a price of SEK 1,000 thousand each, in total SEK 26,000 thousand. These convertible debt instruments carried interest of 8.5% and matured on April 18, 2018. Upon maturity accrued interest was paid while the principal was replaced by short-term promissory notes which carry interest of 8.5% until maturity on May 31, 2018. Until signing of this report SEK 17,000 thousand of these promissory notes have been paid and the remaining SEK 9,000 thousand have been renegotiated and mature on September 30, 2018.

 

In June 2017 a convertible loan of SEK 42,000 thousand matured, and upon maturity was replaced by non-negotiable promissory notes. Of these promissory notes, SEK 39,000 thousand was repaid during the year and new promissory notes of SEK 3,000 thousand were issued. At April 30, there were thus non-negotiable promissory notes of SEK 6,000 thousand in total carrying 8.5 percent interest and maturing on September 30, 2018.

 

In order to replace repaid promissory notes, a new convertible loan of SEK 28,000 thousand was issued in November 2017. This loan consists of 28 convertible instruments of SEK 1,000 thousand each. The loan carries 8.0 percent interest and matures on November 30, 2018 unless there is prior conversion. These convertible instruments can be converted at a price of SEK 3.10 per share. In the event of full conversion, 9,032,258 new shares would be issued. SEK 21,000 thousand had been received for these instruments at April 30, 2018. The remaining SEK thousand 7,000 was received at the beginning of May 2018.

 

In April 2018, a convertible loan comprising 26 convertible instruments was issued at a price of SEK 1,000 thousand each, in total SEK 26,000 thousand. The loan carries 8 percent interest and matures on April 22, 2019, unless there is prior conversion. These convertibles can be converted at a price of SEK 4.90 per share. Full conversion would entail the issue of 5,306,122 new shares. At April 30, 2018 the company had not yet received funds for this loan.

 

Convertible loans financial liabilities valued at amortized cost

In contrast to a bond loan, convertible debt instruments provide both the right to carry interest and the opportunity to receive a certain number of shares instead of repayment of the loan. This additional benefit means that the interest rate of the convertible debt instruments is lower than the market interest rate for an equivalent bond loan. The fair value of the benefit Oasmia received due to the lower interest rate is recorded, after a deduction for issuance expenses, directly against equity. The debt component of the convertibles, i.e., excluding the equity component indicated above, is recorded after a deduction for issue expenses at its fair value as a liability in the balance sheet the first time it is recorded. The interest expense is calculated thereafter according to the effective interest method and is charged to the income statement.

 

Interest expense on above described convertible loan programs and other borrowings amounts to SEK 12.31 million in the year ended April 30, 2018 compared to SEK 13.49 million in the year ended April 30, 2017.

 

Financial expenses also consist of other financial expenses related to convertible loans and exchange losses related to bank balances in foreign currencies. Exchange losses from bank balances in foreign currencies decreased by SEK 4.28 million from SEK 6.36 million in the year ended April 30, 2017 to SEK 2.08 million in the year ended April 30, 2018.

 

Comparison of Fiscal Years Ended April 30, 2017 and April 30, 2016

 

   Year Ended April 30, 
   2017   2016 
   (in TSEK) 
Net sales   172    6,373 
Change in inventory of products in progress and finished goods   (1,405)   9,509 
Capitalized development cost   7,023    16,727 
Other operating income   420    2 
Operating expenses   (146,691)   (165,302)
Financial income   85    786 
Financial expense   (19,847)   (9,634)
Income taxes   -    - 
Income for the period   (160,243)   (141,539)

 

 - 61 - 

 

  

Net sales

 

   Year Ended April 30, 
   2017   2016 
   (in TSEK) 
Net sales   173    6,373 

 

Revenues from royalties and sales of products were SEK 0 in the year ended April 30, 2017 and 6,077 in the year ended April 30, 2016.

 

Revenues from sales of research collaboration amounted to SEK 200 thousand in the year ended April 30, 2016 and zero in the fiscal year ended April 30, 2017. There were revenues from sales of water for injection amounting to SEK 172 thousand in the year ended April 30, 2017 and SEK 96 thousand in 2016.

 

Change in inventory of products in progress and finished goods

 

   Year Ended April 30, 
   2017   2016 
   (in TSEK) 
Change in inventory of products in progress and finished goods   (1,405)   9,509 

 

Change in inventory of products in progress, amounting to SEK (1,405) thousand in the year ending April 30, 2017, derives from the production of semi-finished products that will be included in the production of goods for sale as well as from a write-down of inventories of finished goods that were intended for sale on the Russian market of SEK 5,324 thousand. Change in inventories of products in progress and finished goods amounted to TSEK 9,509 in the previous financial year. The tender process in Russia has taken considerably more time than originally estimated. This leads to obsolescence problems in the inventories produced for sale in Russia. Inventories of finished goods were therefore written down during the financial year as described above.

 

Capitalized development cost

 

   Year Ended April 30, 
   2017   2016 
   (in TSEK) 
Capitalized development cost   7,023    16,727 

 

Capitalized development cost decreased by SEK 9,704 thousand, or 58,0 %, from SEK 16.73 million in the year ended April 30, 2016 to SEK 7.02 million in the year ended April 30, 2017. In both years there were two product candidates, Paccal Vet and Paclical, subject to capitalization. For Paclical, capitalization decreased by SEK 2.42 million, from SEK 9.98 million to SEK 7.56 million. For Paccal Vet, capitalization decreased by SEK 7.28 million from SEK 6.75 million to SEK (0.54) million in the year ending April 30, 2016. The decrease in capitalized development costs during the financial year is primarily because the Paccal Vet study for the treatment of mammary cancer in dogs had low activity compared to the previous year. In addition, fewer costs have been capitalized for Paclical, mainly since the study on ovarian cancer is completed and there has therefore been less activity.

 

Other operating income

 

   Year Ended April 30, 
   2017   2016 
   (in TSEK) 
Other operating income   420    2 

 

For the year ended April 30, 2017, other operating income increased to SEK 420 thousand, compared to SEK 2 thousand in the prior year. The increase was primarily related to favorable exchange gains of SEK 202 thousand in the year ended April 30, 2017 compared to SEK 2 thousand for the year ended April 30, 2016.

 

Operating expenses

 

   Year Ended April 30, 
   2017   2016 
   (in TSEK) 
Raw materials, consumables and goods for resale   2,984    4,733 
Other external expenses   79,904    98,104 
Employee benefit expenses   59,295    57,661 
Depreciation, amortization and impairment   4,508    4,804 
           
Total operating expenses   146,691    165,302 

 

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Operating expenses including depreciation and amortization decreased by SEK 18.61 million, or 11.3%, from SEK 165.3 million to SEK 146.7 million, for the year ended April 30, 2017 compared to the prior financial year.

 

The decrease is mainly attributable to lower costs for clinical studies during the period. The Paclical Vet study for the treatment of mammary cancer in dogs has had lower activity during the financial year compared to the previous year. Furthermore, the costs for production-related method development and contract production were lower during the financial year compared to the previous year. These lower expenses are counteracted by the bad debt loss of SEK 5,065 thousand and the write-down of SEK 5,324 thousand for inventories of finished goods that were charged to the income statement during the financial year.

 

Financial income

 

   Year Ended April 30, 
   2017   2016 
   (in TSEK) 
Financial income   85    786 

 

Financial income in the year ended April 30, 2017 amounted to SEK 85 thousand, compared to SEK 786 thousand in previous year. The decrease is mainly due to decreased foreign exchange gains related to bank balances in foreign currencies.

 

Financial expense

 

   Year Ended April 30, 
   2017   2016 
   (in TSEK) 
Financial expense   19,847    9,634 

 

Financial expense is primarily attributable to interest on loans from Nexttobe AB and Convertible loans.

 

In December 30, 2016, Oasmia had a loan of SEK 94.4 million from Nexttobe AB. This loan, including accrued interest of SEK 8,0 million was replaced with a new loan of SEK 102.4 million in the fiscal year ended April 30, 2017, which carries an interest rate of 3.5 percent and is due for payment on September 30, 2017. Interest expense on the loan from Nexttobe, amounts to SEK 6.5 million in the year ended April 30, 2017 compared to SEK 7.6 million in the year ended April 30, 2016.

 

At the end of the previous financial year, in April 2016, a convertible loan comprising 28 convertible instruments was issued at a price of SEK 1,000,000 per convertible instrument, totaling SEK 28,000 thousand. This convertible loan, which carried interest of 8.5%, fell due on April 14, 2017. Upon maturity accrued interest of SEK 2.4 million was paid and 2 convertible instruments of SEK 1,000,000 were repaid. The remaining convertible instruments were replaced by a new convertible loan comprising 26 convertible instruments at a price of SEK 1,000,000 per convertible instrument, in total SEK 26,000 thousand. This convertible loan falls due for payment on April 18, 2018, unless there is prior conversion, and carries interest of 8.5 percent. These convertible instruments can be converted at a price of SEK 8.00 per share. Full conversion would entail the issue of 3,250,000 new shares.

 

In June 2016, a convertible loan comprising 42 convertible instruments was issued at a price of SEK 1,000,000 per convertible instrument. After a deduction for issue expenses this generated TSEK 37,395 for the company. This convertible loan falls due for payment on June 9, 2017, unless there is prior conversion, and carries interest of 8.5%. These convertible instruments can be converted at a price of SEK 12.00 per share. Full conversion would entail the issue of 3,500,000 new shares.

 

On March 31, 2017, a convertible loan comprising 42 convertible instruments was issued at a price of SEK 1,000,000.60 per convertible instrument, in total TSEK 42,000. After a deduction for issue expenses this generated TSEK 41,734 for the Company.

 

This convertible loan carried no interest and was converted to 7,058,856 new shares on April 25, 2017 at a conversion price of SEK 5.95 per share. This conversion entailed dilution of the Company’s shares of 5.6%.

 

Convertible loans financial liabilities valued at amortized cost

In contrast to a bond loan, convertible debt instruments provide both the right to carry interest and the opportunity to receive a certain number of shares instead of repayment of the loan. This additional benefit means that the interest rate of the convertible debt instruments is lower than the market interest rate for an equivalent bond loan. The fair value of the benefit Oasmia received due to the lower interest rate is recorded, after a deduction for issue expenses, directly against equity. The debt component of the convertibles, i.e., excluding the equity component indicated above, is recorded after a deduction for issue expenses at its fair value as a liability in the balance sheet the first time it is recorded. The interest expense is calculated thereafter according to the effective interest method and is charged to the income statement.

 

 - 63 - 

 

  

Interest expense on above described convertible loan programs amounts to SEK 6.3 million in the year ended April 30, 2017 compared to SEK 0.1 million in the year ended April 30, 2016.

 

Furthermore, Oasmia had a bank loan from Nordea amounting to SEK 20 million that was repaid on December 30, 2016. Interest expense for this loan was SEK 0.1 million in the fiscal year ending April 30, 2017 and SEK 0.4 million 2016.

 

Financial expenses also consist of exchange losses related to bank balances in foreign currencies. Exchange losses from bank balances in foreign currencies decreased by SEK 1.2 million in the year ended April 30, 2017 compared to the year ended April 30, 2016.

 

Jumpstart Our Business Startups Act (“JOBS Act”)

 

On April 5, 2012, the JOBS Act was signed into law in the United States. The JOBS Act permits an emerging growth company such as us to take advantage of relief from certain regulatory burdens that are otherwise generally applicable to public companies. Among the otherwise applicable requirements is an exemption from the auditor attestation requirement under Section 404 of the Sarbanes-Oxley Act in the assessment of an emerging growth company’s internal control over financial reporting. We have elected to rely on this exemption and will not provide such an attestation from our auditors. In addition, we are in the process of evaluating the benefits of relying on other exemptions and reduced reporting requirements afforded by the JOBS Act, including the exemption from complying with any requirement that may be adopted by PCAOB regarding mandatory audit firm rotation or requiring any supplement to the auditor’s report provide additional information about the audit and the financial statements (auditor discussion and analysis).

 

We will remain an emerging growth company until the earliest of (a) the last day of our fiscal year during which we have total annual gross revenue of at least $1.0 billion; (b) the last day of our fiscal year following the fifth anniversary of the completion of our initial public offering; (c) the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt; or (d) the date on which we are deemed to be a “large accelerated filer” under the Exchange Act, which would occur if the market value of our ADSs that are held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter. Once we cease to be an emerging growth company, we will not be entitled to the exemptions and other relief provided in the JOBS Act.

 

B. Liquidity and Capital Resources.

 

Sources of funds

Our primary uses of cash are to fund research and development expenses and capital expenditures. However, since we launched Paclical in Russia during 2015/2016 and entered into a commercialization phase we have an increasing use of cash for production of commercial products.

 

In recent years, we have largely funded our operations and growth from loans, share issuances and milestone payments from our partners and licensees. Our cash flows may fluctuate, are difficult to forecast and will depend on many factors including:

 

the realization of revenue from our product and product candidates, which will rely upon the timing of regulatory approvals, the marketing efforts of our commercial partners, and the price levels achieved by our partners;

 

The need of additional funds in a period with increasing commercial activities depending on increasing production and growing working capital;

 

the extent of success in our pre-clinical and clinical stage research programs which will determine the amount of funding required to further the development of our product candidates;

 

the outcome, timing and cost of regulatory approvals of Paccal Vet, Paclical/Apealea, Doxophos Vet and our other product candidates;

 

the timing of achievement of the milestones receivable if Paccal Vet, Paclical/Apealea, Doxophos Vet and our other product candidates are approved and launched in the U.S. and elsewhere;

 

the extent to which we seek to retain development rights to our pipeline of new product candidates or whether we seek to license such candidates to a partner who will fund future research and development expenditure in return for a right to share in future commercial revenue;

 

the terms and timing of new strategic collaborations;

 

the number and characteristics of the product candidates that we seek to develop;

 

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the costs involved in filing and prosecuting patent applications and enforcing and defending potential patent claims; and

 

the costs of hiring additional skilled employees to support our continued growth.

 

Borrowing and unutilized credit facilities

 

On April 30, 2018 we had the following loans and credit lines: (i) one loan from Nexttobe, amounting to SEK 102.4 million with a fixed annual interest rate of 8.5%. This loan matured on July 31, 2018 and has in August 2018 been replaced by loans from a consortium according to previous communication. These new loans mature on September 30, 2019., (ii) 28 convertible debt instruments (2017:3) of SEK 1 million each, due November 30, 2018*) with an interest rate of 8 %, (iii) 26 convertible debt instruments (2018:1) of SEK 1 million each, due in April 22, 2019 *) with an interest rate of 8.0 %, (iv) Non-negotiable promissory notes of SEK 6.0 million issued in June 2017 with an interest rate of 8.5% due in June 30, 2018. This loan has been prolonged and matures on September 30, (v) Non-negotiable promissory notes of SEK 26.0 million issued in April 2018 with an interest rate of 8.5% due in May 31, 2018. Of this loan SEK 17.0 million have been repaid until the day of signing this report and the remaining SEK 7.0 million have been prolonged and matures on September 30, (vi) one unutilized SEK 5 million credit facility with Nordea with a variable interest rate upon utilization, and (v) one unutilized credit facility of SEK 40 million with Alceco, with a fixed interest rate of 5% upon utilization.

  

*) Of the SEK 28.0 million convertible debt instrument (2017:3), SEK 7.0 million had not been paid in as per April 30, 2018, but were paid in during May 2018. Of the SEK 26.0 million convertible debt instrument (2018:1), none have not been paid in as per April 30, 2018, but were fully paid in at the time of signing this report.

  

Available consolidated liquid assets and unutilized credit facilities as of April 30, 2018 are not sufficient to provide the required capital to pursue the planned activities during the next 12 months. In light of available financing alternatives and the recent developments, the emergence of a new largest shareholder and new market approval for Doxophos and also the new relationship with Hetero Group, its new marketing and distribution partner, the Board of Directors assesses that the prospects for financing of the Company´s operations in the coming year are good. However, should funding not be obtained in sufficient quantities there is a risk that we be required to curtail or cease operations.

 

Comparison of Fiscal Years Ended April 30, 2018 and April 30, 2017

 

Summary of cash flows

 

   Year Ended April 30, 
   2018   2017 
   (in TSEK) 
Cash flow from operating activities   (123,634)   (133,011)
Cash flow from investing activities   (21,452)   12,039 
Cash flow from financing activities   132,656    122,755 

 

Cash flow from operating activities

 

The negative cash flow from operating activities for the fiscal year ended April 30, 2018, SEK 123.63 million, consists of the operating income loss, SEK 103.72 million, adjusted for depreciation and amortization, SEK 6.42 million, unfavorable changes in working capital, SEK 16.31 million, plus interest received, SEK 0.10 million, less interest paid, SEK 10.13 million. The significant items in the changes in working capital included a decrease in accounts payable of SEK 11.76 million, a decrease in inventories of SEK 2.87 million, an increase in accounts receivable of SEK 1.54 million, a decrease in other current liabilities of SEK 6.21 million and a decrease of other short term receivables of SEK 0.34 million.

 

Cash flow from investing activities

 

For the fiscal year ended April 30, 2018, cash flow used in investing activities amounted to SEK 21.45 million. Capital expenditure included intangible assets of SEK 21.04 million, which consisted of capitalized development costs of SEK 9.16 million and patents of SEK 11.88 million. The majority, SEK 10.55 million, of this year’s investments in patents comprise acquisitions of new patent rights which extend protection of XR17 by a further 8 years up until 2036. Investments in tangible assets amounted to SEK 0.42 million, which primarily related to the purchase of production equipment.

 

In the financial year ended 30 April 2017, divestment of short term investments generated SEK 20 million in cash and therefore there was a cash inflow from investments then. These short-term investments were frozen as security for a bank loan that was repaid when the investments were divested.

 

Cash flow from financing activities

 

For the fiscal year ended April 30, 2018, cash flow provided by financing activities amounted to SEK 132.66 million compared to SEK 122.76 million in the previous financial year. A new share issue generated a gross amount of SEK 159.28 million for the company while the outflow for issue expenses amounted to SEK 11.36 million. A convertible loan of SEK 42.0 million matured during the year and was replaced at maturity by non-negotiable promissory notes. Of this debt, SEK 39.0 million has been repaid while new loans of total SEK 3.0 million have been taken.

 

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In November 2017 a convertible loan of SEK 28.0 million was issued, of which SEK 21.0 million had been paid to the company up until April 30, 2018. Issue expenses of SEK 0.47 million had been paid by the company at this date

 

Comparison of Fiscal Years Ended April 30, 2017 and April 30, 2016

 

Summary of cash flows

 

   Year Ended April 30, 
   2017   2016 
   (in TSEK) 
Cash flow from operating activities   (133,011)   (128,126)
Cash flow from investing activities   12,039    10,066 
Cash flow from financing activities   122,755    117,449 

 

Cash flow from operating activities

 

The negative cash flow from operating activities for the fiscal year ended April 30, 2017, SEK 133.01 million, consists of the operating income loss, SEK 140.48 million, adjusted for depreciation and amortization, SEK 15.31 million, unfavorable changes in working capital, SEK 5.42 million, plus interest received, SEK 0.09 million, less interest paid, SEK 2.52 million. The significant items in the changes in working capital included a decrease in accounts payable of SEK 6.62 million, an increase in inventories of SEK 2.78 million, an increase in accounts receivable of SEK 0.20 million, an increase in other current liabilities of SEK 7.76 million and an increase of other short term receivables of SEK 3.58 million.

 

Cash flow from investing activities

 

For the fiscal year ended April 30, 2017, cash flow provided in investing activities amounted to SEK 12.04 million. This amount included intangible assets of SEK 7.45 million, which consisted of capitalized development costs of SEK 7.02 million and patents of SEK 0.42 million. Investments in tangible assets amounted to SEK 0.52 million, which primarily related to the purchase of production equipment.

 

Disposal of short term investments generated SEK 20 million in cash.

 

Cash flow from financing activities

 

For the fiscal year ended April 30, 2017, cash flow provided by financing activities amounted to SEK 122.76 million compared to SEK 117.45 million in the previous financial year. This amount mainly consisted of new private placement of SEK 70.0 million, issue of two convertible debt instruments totaling SEK 84.0 million and issue expenses of SEK 9.25 million and outflow of SEK 2.0 million for repayment of convertible debt instrument.

 

In April 2017, a private placement of 26 convertible debt instruments (no. 2017:2) at a price of SEK 1,000,000 and a total amount of SEK 26.0 million were directed issued, by means of partly set-off, to current holders of convertibles (2016:1) which matured on April 14, 2017. Accrued interest and repayment of SEK 2.0 million were settled by the company. The convertible debt instruments are due on April 18, 2018 if conversion is not made before then. The loan carries an interest of 8.5 % and can be converted to a price of SEK 8.00 per share. Full conversion would entail that 3,250,000 new share were issued.

 

In March 2017, a private placement of 42 convertible debt instruments (no 2017:1) at a price of SEK 1,000,004.60 each were issued, which provided the Company with SEK 42,000,193 in gross proceeds. After deductions for issue expenses amounting to SEK 266 thousand the share issue and issue of convertible debt instruments provided the company in April 2017 with SEK 41,734 thousand in liquidity. The loan was interest free the conversion price was SEK 5.95 per share. The convertible debt instruments were converted into 7,058,856 of our ordinary shares on the maturity date of April 25, 2017.

 

In November 2016, the former second largest shareholder, Nexttobe AB, extended its loan to the company. The new loan includes accrued interest for 2016 and amounts to SEK 102.4 million and replaced the loan of SEK 94.4 million. The interest for the new loan is set to 3.5 % and the loan is due September 30, 2017.

 

In October 2016 a private placement was consummated wherein 8,750,000 Ordinary Shares were issued. The issue price was SEK 8.00 per share and gross proceeds provided the Company with SEK 70.0 million in proceeds. 

 

In October 2016, an offset issue of 3,080,000 Ordinary Shares were issued in order to purchase, for SEK 25 million, a cancer project of Karo Pharma. The issue price was approximately SEK 8.12 per share.

 

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In June 2016, a private placement of 42 convertible debt instruments (no 2016:2) at a price of SEK 1,000,000 each were issued, which provided the Company with SEK 42,000 thousand in gross proceeds. After deductions for issue expenses amounting to SEK 4,605 thousand the issue of convertible debt instruments provided the company in June and July 2016 with SEK 37,395 thousand in liquidity. The convertible debt instruments are due on June 9, 2017 if conversion is not made before then. The loan carries an interest of 8.5 % and can be converted at a price of SEK 12.00 per share. Full conversion would entail that 3,500,000 new shares be issued.

  

C. Research and Development, Patents and licenses, etc.

 

For a description of Oasmia’s Research and Development projects and activities please see Item 4. B.

 

Research and Development Expenses

 

Research and development expenses are incurred for the development of new products and processes and include conducting clinical trials, development materials, payroll, including scientists and professionals for product registration and approval, external advisors and the allotted cost of manufacturing facility for research and development purposes. Expenditures for research and development are expensed as they occur. Development costs attributable to clinical trials and registration are capitalized to the extent that they are expected to generate future economic benefits. We have determined the beginning of Phase III as the earliest point for capitalization of development expense. This has been applied to two pharmaceutical candidates, for which all conditions for capitalization are fulfilled. Funds spent on research and development as included in the income statement line items, is disclosed below.

  

Comparison of Fiscal Years Ended April 30, 2018 and April 30, 2017

 

   Year Ended April 30, 
   2018   2017 
   (in TSEK) 
Raw materials, consumables   1,822    1,228 
Other external expenses   31,568    50,048 
Employee benefit expenses   29,220    43,408 
Depreciation   2,937    3,178 
Total spent on research and development activities   65,546    97,862 

 

Comparison of Fiscal Years Ended April 30, 2017 and April 30, 2016

 

   Year Ended April 30, 
   2017   2016 
   (in TSEK) 
Raw materials, consumables   1,228    1,208 
Other external expenses   50,048    68,934 
Employee benefit expenses   43,408    39,951 
Depreciation   3,178    3,518 
Total spent on research and development activities   97,862    113,611 

 

The reason research and development expenses are not disclosed separately for each product candidate is that all costs cannot be allocated to each product candidate separately.

 

Intangible assets; Amortization and impairment tests

 

Amortization of the intangible assets is carried out on a straight-line basis over the period that the expected benefits are expected to generate earnings for the company, which is from the date that commercial sale to final customers is commenced. This point in time frequently occurs after receiving full approval for the indication (e.g., a cancer-type) of a product candidate in a specific market.

 

At the end of each fiscal year, we perform an assessment of whether there is a need for impairment of the capitalized development cost. The impairment test on intangible assets is based on a discounted cash flow model per cash generating unit (“CGU”). The CGUs are the regional markets for the two product candidates in Phase III. We have made the judgment that there is no need for impairment since of the two pharmaceutical candidates that are capitalized one has already received conditional approval, and approval for the other lies, according to management estimates, within the foreseeable future. We estimate that future profits motivate the value of the assets.

  

The impairment tests require us to use a number of assumptions, including market factors specific to the pharmaceutical business, potential pricing for our product and product candidates, the amount and timing of estimated future cash flows and the time value of money. In general, cost estimates (cash outflows) can normally be estimated with a higher degree of accuracy than revenues (cash inflows). Some specific areas of uncertainty are described below.

 

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We have no history on which to base our forecasts. The cytostatic market for dogs is completely new so for this segment there is no product on which to study volumes and prices. The cytostatic market for human use is well known but there have been substantial changes in recent years as patents have expired and generic products have been introduced. One product whose patent has not expired is Abraxane, which is commercially available in many countries, with a higher price than that of generic products but with notable differences in price in those countries where it is on the market.

 

One further market uncertainty is that we do not yet have distributors or licensees for our human product candidates in the majority of countries and therefore have not received any parameters by which to estimate our net sales.

 

Another uncertainty is cost of goods sold. The only experience that we have with manufacturing is with small-scale production in our plant in Uppsala. We expect that large scale production in Uppsala and elsewhere will reduce the cost of goods sold per unit over time.

  

Our estimates have been calculated by the following procedures.

 

Animal Health

 

We have access to statistics for the number of dogs in the U.S. and the rates of cancer incidence among dogs. We cannot be certain how many dogs with cancer will be treated so we have estimated very small numbers of sales for the first few years. We also cannot be certain what revenue can be derived per patient. We have received estimates from Abbott Animal Health for the amounts dog owners are willing to pay for treatment, not specifically for cytostatic but for other treatments (as there have been no cytostatic for dogs available on any market before we received conditional approval for Paccal Vet from the FDA). Cost of goods sold has been estimated by calculating all components at our plant and at the plants of our sub-contractor.

 

Human Health

 

We have access to figures on populations per country, cancer incidents per year, per cancer type and per country as well as net sales and prices for existing cytostatic. We also have access to the number of patients treated with taxanes. Of this figure we have estimated very small numbers for the first few years. Cost of goods sold has been estimated in the same way as in animal health above.

 

Since until just recently we had no product approved, we have not been able to verify any of our estimates. There have been no major changes to any of our assumptions, other than that we have had to move back our estimate of the first year of market approval per product due to the approval processes with the relevant authorities taking more time than we had originally anticipated.

 

If our products are not approved, or the probability of their approval is diminished, capitalized expenditures will be carried as expenses. We annually evaluate whether a need for impairment exists for all intangible assets.

 

D. Trend information

 

See “Item 5.A Operating results”

 

E. Off-balance Sheet Arrangements.

 

As of April 30, 2018, we have no off-balance sheet arrangements that have or are reasonably likely to have current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity or capital resources.

 

F. Tabular disclosure of contractual obligations.

 

The following table summarizes our contractual commitments and obligations as of April 30, 2018.

 

   Payments Due by Period 
   Total   Less than
1 year
   1 – 3
years
   3 – 5
years
   More
than
5 years
 
   (in TSEK) 
Operating lease obligations (1)   14,692    6,298    5,641    2,135    619 
Purchase obligations (2)   147,465    7,115    49,923    67,820    22,607 
Interest Payments   12,818    12,818    -    -    - 
Short-term debt obligations (3)   188,419    188,419    -    -    - 
Total contractual cash obligations   363,394    214,649    55,564    69,955    23,225 

 

(1)Consists of the leasing of premises and lease of office equipment. Leasing of premises amounts to SEK 6.3 million and lease of office equipment SEK 0.1 million in the year ending April 30, 2018. The expiration dates for the leasing contracts regarding premises are December 31, 2019, March 31, 2020, January 31, 2021, December 31, 2021 and December 31, 2023. These leases automatically extend for an additional 3 years if not terminated within 9 months’ notice.

 

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(2)Mainly consists of a purchase contract with obligations for Oasmia to purchase a minimum number of product vials for each contract year.

 

(3)Short-term obligations include repayment of loan to Nexttobe AB of SEK 102.4 million, repayment of convertible debt instruments of SEK 54.0 million and repayment of non-negotiable promissory notes of SEK 32.0 million.

 

Contracts with our venders that allow us to cancel the contract on short notice without financial penalty are excluded from the above table.

 

ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

 

A.Directors and senior management.

 

The following table sets forth the names, ages and positions of our executive officers and directors as of the date of this Annual Report:

 

Name   Age   Position
Executive Director:        
Julian Aleksov   53   Executive Chairman of the Board
Executive Officers:        
Mikael Asp   55   Chief Executive Officer and Head of Quality Assurance
Anders Blom   49   Executive Vice President and Chief Financial Officer
Non-Executive Directors:        
Bo Cederstrand   79   Director
Alexander Kotsinas   50   Director
Lars Bergkvist   54   Director
Per G Langö   49   Director

 

The following is a brief summary of the business experience of our executive officers and directors. The current business address for all of our executive officers and directors is Vallongatan 1, 752 28, Uppsala, Sweden.

 

Executive Officers

 

Julian Aleksov is a co-founder of Oasmia, and has served as Chief Executive Officer and a director since 1999, though he was a director of Oasmia’s predecessor from 1998 to 1999. On May 28, 2015, he resigned as our Chief Executive Officer and was appointed as our Executive Chairman of the Board. During the Extraordinary General Meeting held in November 2016 he was appointed Vice Executive Chairman, however in February 2017 he was re-appointed as Executive Chairman of the Board. He is an economist with extensive experience in coordinating research projects and strategic development of global intellectual property assets. Prior to becoming the CEO, he oversaw our research and strategic development within bio-organic chemistry, with a focus on retinoids and alpha-protein bindings, while also managing our global intangible assets registrations and financing. He has been a partner and member of the board of Alceco, one of our principal stockholders, since 2000. He attended the Deutsche Schule in Stockholm for his basic education, and thereafter studied economics on several levels.

 

Anders Blom has served as Executive Vice President since September 1, 2014 and is Chief Financial Officer since October 4, 2017. He has 20 years of experience from international strategic business development and finance at Galderma (former Q-Med AB) and Pharmacia. Anders was previously CEO of Nexttobe, a life science focused venture capital firm based in Uppsala. He has a Master of Business Administration degree from Uppsala University.

 

Mikael Asp has served as Head of Quality Assurance since 2013. On May 28, 2015, he was appointed as our Chief Executive Officer. He has 25 years of experience with a variety of companies in the international pharmaceutical sector including Xellia, Pfizer, Wyeth and Pharmacia in research and development, production and quality assurance. He has been a Qualified Person since 2013. He has a Master’s degree in chemical engineering from Royal Institute of Technology, Stockholm.

 

Non-Executive Directors

 

Bo Cederstrand has been a director since 2000 and was Chairman of the Board from 2000 to 2011. He has approximately 40 years of experience as CEO and partner in a number of small and medium-sized companies specializing in pets or pet products, most of which he founded. He has extensive experience in international trade and production and has been very active within trade branch associations. He has been a partner and member of the board of Alceco, one of our principal stockholders, since 2000. He is a deputy board member at Fruges Aktiebolag AB and was a previous board member of Arkenbutikerna. He studied at the Stockholm School of Economics.

 

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Alexander Kotsinas has served on our board of directors since September 2013. He is currently working as Director Finance at Lindorff AB. Alexander worked as an independent consultant for Nexttobe AB from 2016 to 2017, and as a Partner at Nexttobe AB from 2011 to 2016. He has been Vice President at Investor AB and has worked at Ericsson. He was the Vice President and CFO at Q-Med AB from 2008 to 2011, and was the CFO at Life Europe AB in 2007 and at Tre-Hi3G Access AB from 2003 to 2006. He has a Master of Science degree in Applied Physics from the Royal Institute of Technology, Stockholm and a Bachelor of Science Economics from the Stockholm School of Economics.

  

Lars Bergkvist has served on our board of directors since May 2015. From 2001 through 2011, he was the chief executive officer at Arken Zoo. Since 2012, he has acted as the chairman of the board of Jaktia AB, Master Design AB and Chainformation AB, as a member of the board of directors of FDT AB, a public company, and as a member of the advisory board of Skyltspektrum AB. He received a degree in Accounting and Finance from Stockholm’s School of Economics in 1986.

 

Per Langö, has served on our board of directors since September 2017. Per Langö has extensive international and commercial experience in launching and establishing global products in various therapeutic areas. During his career, he has been responsible for a large number of international business development efforts, including major licensing and public transactions. At present Per Langö is employed by Nestlé Skin Health. He holds a Masters Degree in Economics from Uppsala University.

 

B. Compensation

 

Compensation of Directors and Executive Management Board

 

The following discussion provides the amount of compensation paid, and benefits in kind granted, by us to our directors and executive officers for services in all capacities to us for the year ended April 30, 2018.

 

Directors Compensation

 

For the year ended April 30, 2018, the table below sets forth the compensation paid to our directors.

 

Year Ended April 30, 2018 Directors Compensation

 

Name  Base salary/
Board fees
   Remuneration
upon
termination
of
employment
   Variable
remuneration
   Social
security incl.
special
employer´s
contribution
   Pension/
sickness
benefit
   Total 
   (In TSEK) 
Julian Aleksov (1)
Executive Chairman of the Board
   1,702    -    30    650    456    2,838 
Bo Cederstrand
Director
   150    -    -    25    -    175 
Alexander Kotsinas
Director
   150    -    -    47    -    197 
Per Langö (2)
Director
   88    -    -    27    -    115 
Lars Bergkvist
Director
   150    -    -    47    -    197 
Mikael Asp
CEO
   1,378    -    4    510    334    2,226 
Other senior executives (1 people at end of year, 2 people on average during financial year) (3)   2,787    202    15    1,107    675    4,786 
Other senior executives in subsidiaries   326    -    -    7    78    411 
                               
Total   6,732    202    48    2,421    1,543    10,946 

   

(1)Julian Aleksov is an employee of the company and receives a monthly salary.

 

(2)Mr. Langö was appointed in September, 2017.

 

(3)One senior executive resigned during the fiscal year.

 

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Remuneration of the Chairman of the Board and members of the board of directors is decided at each annual general meeting. There is no remuneration for participation in the nomination committee or any of the other committees. Upon special agreement, up until September 2017, we paid members of the board of directors their compensation through a company wholly owned by the board member. In such cases, the invoice amount was increased by social security and VAT. Accordingly, board member fees for Mr. Bergkvist were paid through Axli AB until September 2017 and board member fees for Mr. Kotsinas was paid through Windride AB between April 2017 and September 2017. As from October 2017 all Board members have their Board fees paid as earned income, which is subject to an employer´s contribution from Oasmia.

 

Executive Officers Compensation

 

Compensation for each executive officer is comprised of base salary, pension allocation of base salary, directors’ and officers’ liability insurance, and the medical benefits described below. Executive directors also receive private health insurance and health care insurance. The total amount of compensation paid to executive officers, whether or not a director, for the year ended April 30, 2018 was SEK 10,946 thousand.

 

Bonus Plans

 

We do not currently pay bonuses to any director or employee.

 

Options and Incentive Programs

 

Oasmia has introduced a share-based incentive plan comprising options. The purpose of the incentive plans is to encourage Oasmia’s employees and Board members to invest time and effort in the Company in order to be able to benefit from and help promote positive value growth in the Company’s share in the period covered by the plans, and to enable Oasmia to retain and recruit competent and committed employees. The incentive programs 2017:1 and 2017:2 were introduced following a resolution taken by an Extraordinary General Meeting on June 2, 2017. The incentive plan 2017:2 applies to independent members of the Board, while 2017:1 is aimed at the Company’s independent senior management team members. The same EGM also decided that options issued under the incentive plans 2016:1 and 2016:2, decided previously by the Board, will be recalled and cancelled. Plan 2017:1 comprises 3,750,000 options, while plan 2017:2 comprises 3,000,000 options. The options will be transferred to the participants of the plans at the market value of the options, calculated by using the Black & Scholes valuation model. Each option in the plans 2017:1 and 2017:2 will entitle the holder to subscribe for one share in the Company during the period June 16, 2019 to August 16, 2019. The subscription price per share should correspond to 175 per cent of the volume-weighted average price of the Company’s shares according to the Nasdaq Stockholm official list in the period June 9, 2017 to June 16, 2017. In the event that all outstanding options are exercised for shares, the number of shares will increase by a total of 6,750,000, corresponding to dilution of around 5.4 per cent of the number of issued shares on April 30, 2017.

 

In accordance with the resolution adopted at the Extraordinary General Meeting on June 2, 2017 concerning the issue of warrants, 5,543,182 warrants were issued and paid as a shareholders’ contribution to Oasmia Incentive. These warrants were resold by Oasmia Incentive AB to Oasmia Pharmaceutical AB’s Board and senior management for between SEK 0.17 and SEK 0.22 per warrant, depending on the market value at the time of each individual issue. These warrants generated equity of SEK 1,171 thousand for Oasmia.

 

Health care and medical care

 

We offer our employees free medical care and free medicine up to the Swedish high-cost protection ceilings of SEK 1,100 and SEK 2,250, respectively. We also have an agreement with a provider of occupational health services.

 

Employment Agreements

 

Julian Aleksov

 

Mr. Aleksov signed an employment agreement with us on January 1, 2000 to serve as our Chief Executive Officer but is presently our Executive Chairman of the Board; this change in title had no impact on his compensation. The employment agreement is for an unspecified term. As of April 30, 2018, he receives a base salary of SEK 1,701,600 per annum, reviewed annually, plus private health insurance and pension allocations. He does not receive a bonus or any additional perquisites or other annual compensation. The health insurance and healthcare insurance he receives is worth SEK 41,256 and SEK 3,768 annually respectively. His defined contribution pension plan is currently handled through Linder & Partners AB, with an annual pension contribution of SEK 411,873 since the beginning of the last full fiscal year, compared to SEK 405,000 as of the end of the previous fiscal year. He does not receive any additional compensation for serving as a director.

 

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In the event Mr. Aleksov’s employment is terminated by us, Mr. Aleksov shall be entitled to notice of 24 months. If he voluntarily decides to terminate his employment, the notice shall be six months. There is no agreement or arrangement for Mr. Aleksov to receive any severance payments or any additional payments should we undergo a change of control.

 

Anders Blom

 

Mr. Blom joined our company on September 1, 2014. As of April 30, 2018, he receives a base salary of SEK 1,602,900 per annum, reviewed annually. His pension plan follows a staircase model whereas his pension allocation is based on his salary and the pension contribution was SEK 509,517 for the fiscal year ended April 30, 2018. The health insurance and healthcare insurance he receives is worth SEK 25,590 and SEK 7,509 annually respectively. He does not receive any other bonus, perquisites or any other annual compensation.

 

If we terminate Mr. Blom’s employment, he shall be entitled to a notice period of six (6) months. If he voluntarily decides to terminate his employment, the notice period shall be three (3) months. There is no agreement or arrangement for Mr. Blom to receive any severance payments or any additional payments should we undergo a change of control.

 

Mikael Asp

 

Mr. Asp signed an employment agreement with us on January 7, 2013. The employment agreement is for an unspecified term. As of April 30, 2018, he receives a base salary of SEK 1,377,600 per annum, reviewed annually. His pension plan follows a staircase model whereas his pension allocation is based on his salary and worth SEK 302,152 annually. The health insurance and healthcare insurance he receives is worth SEK 25,148 and SEK 6,791 annually respectively. He does not receive any other bonus, perquisites or any other annual compensation.

 

If we terminate Mr. Asp’s employment, he shall be entitled to a notice period of twelve (12) months. If he voluntarily decides to terminate his employment, the notice period shall be three (3) months. There is no agreement or arrangement for Mr. Asp to receive any severance payments or any additional payments should we undergo a change of control.

 

Limitations on Liability and Indemnification Matters

 

Under the Swedish Income Tax Act, if a company directly indemnifies a member of the board of directors or an executive officer or otherwise holds him or her harmless, the amount expended will be regarded as salary upon which we must pay social security contributions, and the director or officer will also be liable for income tax on any such expended amount. Therefore, we maintain directors and officer’s insurance through XL Insurance Company SE and Navigators to insure our directors and executive officers against certain liabilities incurred based on their capacity as a director or an executive officer.

 

C. Board practice

 

Board Composition

 

Our affairs are managed under the direction of our board of directors, which is currently composed of five members. Three of our directors, i.e., Messrs. Kotsinas, Bergkvist and Langö, qualify as independent directors under Rule 5605(a)(2) of the Nasdaq Marketplace Rules. Messrs. Aleksov and Cederstrand are not considered independent under Nasdaq or SEC rules. Directors are elected at each annual general meeting for one-year terms. None of our directors, or our executive officers, has any family relationship with any other director or executive officer, except that Mr. Cederstrand is the grandfather of two of Mr. Aleksov’s children.

 

Tasks of the Board of Directors

 

The Board of Directors manages our affairs on behalf of our shareholders. The Board of Directors acts in accordance with the Swedish Companies Act (SFS 2005:551) (“Swedish Companies Act”), our Articles of Association, internal regulations and directions given by the general meeting. In addition, the board of directors shall ensure that we comply with the Swedish Corporate Governance Code, NASDAQ Stockholm’s Rule Book for Issuers, SEC regulations as well as other applicable laws and regulations. The principal tasks of the board of directors include the following:

 

establishing our overall operational goals and strategy;

 

appointing, evaluating and, if necessary, dismissing the chief executive officer;

 

evaluating our management and deciding if any significant changes in our organization and business need to be made;

 

analyzing our financial situation;

 

ensuring that there is an effective system for follow-up and control of our operations;

 

ensuring that our internal control of the financial development is satisfactory and that information concerning the financial development is correctly communicated in our financial reports;

 

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ensuring that there is a satisfactory process for monitoring our compliance with laws and other regulations relevant to our operations, including applicable accounting standards and other requirements for listed companies;

 

defining necessary guidelines to govern our ethical conduct; and

  

ensuring that our external communications are transparent and that they are accurate, reliable and relevant.

 

Committees of the Board of Directors and Corporate Governance

 

The committees of our board of directors consist of an audit committee, a compensation committee and a nomination committee. Each of these committees has the responsibilities described below. Our board of directors may also establish other committees from time to time to assist in the discharge of its responsibilities.

 

Subject to certain exceptions, the rules of Nasdaq permit a foreign private issuer to follow its home country practice in lieu of certain Nasdaq listing requirements. The Nasdaq listing requirements with respect to which we rely on this exemption, and the corresponding requirements imposed on us by Swedish law and corporate governance guidelines and the listing requirements of NASDAQ Stockholm, are set forth in the table below.

 

Nasdaq Listing Requirement   Swedish requirements
A majority of the board of directors must consist of independent directors   Policy that an issuer must have (i) a majority of the board of directors be independent directors, (ii) only one director may also be an executive employee of the issuer, and (iii) two independent directors should also not be related to major shareholders (i.e., those who own 10% or more of the Ordinary Shares), or the issuer must explain why the board of directors did not comply with this policy.
Non-executive directors must meet on a regular basis without management present   Policy that the board of directors must meet at least once annually with the issuer’s auditors without management present or the issuer must explain why the board of directors did not comply with this policy.
All members of the nominating committee must be independent   Policy that (i) the nominating committee should consist of at least three members, two of which are independent directors, (ii) the CEO and other executive employees should not serve on the nominating committee, and (iii) one member of the nominating committee should not be related to major shareholders, or the issuer must explain why the board of directors did not comply with this policy.
Proxies must be solicited and proxy statements provided for all shareholder meetings   Mandatory requirement that notice of shareholder meeting must include information relating to the matters to be decided at the shareholder meeting, how to cast votes by proxy and where to find a proxy form.
    Policy that (i) the notice of shareholder meeting should include the nomination committee’s suggestion for chairman of the issuer, and (ii) the nomination committee should issue a statement on the issuer’s website explaining its proposals regarding the board of directors, or the issuer must explain why the board of directors did not comply with this policy.
Shareholder approval must be sought for the implementation of certain equity compensation plans and issuances of ordinary shares   Mandatory provision applying certain supermajority shareholder approval thresholds for implementation of certain equity compensation plans and certain issuances of new shares that deviate from existing shareholders’ preferential rights.

 

We are not required to follow the Nasdaq listing requirements set forth above with respect to having a majority of our board of directors be independent.

 

Audit Committee

 

The members of our audit committee are Mr. Kotsinas, Mr. Lars Bergkvist and Mr. Per Langö (since September 25, 2017), all of whom qualify as an “independent director” as such term is defined in Rule 10A-3 under the Exchange Act. Mr. Lars Bergkvist serves as chair of the audit committee. Our board of directors has determined that Mr. Bergkvist is a financial expert as contemplated by the rules of the SEC implementing Section 407 of the Sarbanes Oxley Act of 2002. Our audit committee meets at least twice per year with the external auditors and our independent registered public accounting firm without executive board members present and oversees the monitoring of our internal controls, accounting policies and financial reporting and provides a forum through which our external auditors and independent registered public accounting firm reports. The audit committee also oversees the activities of the external auditors and our independent registered public accounting firm, including their appointment, reappointment, or removal as well as monitoring of their objectivity and independence. In addition, the audit committee considers the fees paid to the external auditors and independent registered public accounting firm and determines whether the fee levels for non-audit services, individually and in aggregate, relative to the audit fee are appropriate so as not to undermine independence. During the year ended April 30, 2018, there were six meetings of the audit committee. 

 

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Compensation Committee

 

The members of the compensation committee are Mr. Alexander Kotsinas, Mr. Lars Bergkvist and Mr. Per Langö (since September 25, 2017). Each of the members, qualifies as an independent director under Rule 5605(a)(2) of the Nasdaq Marketplace Rules. Mr. Lars Bergkvist serves as chair of the compensation committee. Our compensation committee reviews, among other things, the performance of our executive directors and sets the scale and structure of their remuneration and the basis of their employment agreements with due regard to the interests of the shareholders. No director has a service agreement with a notice period exceeding one year. During the year ended April 30, 2018, there was one meeting of the compensation committee 

 

Nomination Committee

 

The nomination committee consists of three members. The first member, currently Mr. Bo Cederstrand, represents the second largest shareholder Alceco International S.A. The second member, currently Mr. Per Arwidsson, represents the largest shareholder Arwidsro Investment AB. The third member is Mr. Aleksov. Mr. Cederstrand serves as chair of the nomination committee and oversees the evaluation of the board of directors’ performance. The primary task of the nomination committee is to present candidates for the board of directors and the Chairman of the Board and to decide their compensation. The nomination committee also presents proposals to the annual general meeting of possible remuneration for committee work and remuneration of external auditor. Proposals of the nomination committee are made public no later than when notice of the annual general meeting is sent. The nomination committee’s mandate extends to when the next nomination has been made public. The nomination committee meets at least once a year.

 

D. Employees

 

As of April 30, 2018, we had 58 employees, whereof 56 of them are located in Sweden and 2 in Russia. We have never had a work stoppage and none of our employees is represented by labor unions or covered by collective bargaining agreements. The competence and experience of our employees are among Oasmia’s most important assets. Drug development is a complex process which requires many specialist competencies. A total of 76% of Oasmia’s employees have a university degree and 26% these also have a Ph.D. Many nationalities are represented among the employees, creating a positive, challenging and dynamic work environment. Oasmia strives to continually improve and ensure a healthy and safe work environment. Oasmia will continue to be a safe, healthy and pleasant workplace.

 

The table below sets forth a breakdown of our employees as at end of each of the past fiscal years by main category of activity.

 

   As of April
30,
2018
   As of April
30,
2017
   As of April
30,
2016
 
Quality control, quality assurance and production   26    31    38 
Finance, accounting, and administration   4    5    10 
Human resource   1    2    2 
Research and development   6    6    8 
Clinical development   3    4    3 
Regulatory affairs   6    6    5 
Logistics, clinical supply and facility management   5    6    4 
Public relations and communications, IT   1    2    2 
Legal, Business Development   2    1    1 
CEO, Executive Vice President, Executive chairman   4    3    2 
Total   58    66    75 

  

E. Share ownership

 

See "Item 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS —A. Major Shareholders."

 

ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

 

A. Major Shareholders

 

The following table and related footnotes set forth information with respect to the beneficial ownership of the Ordinary Shares, as of July 31, 2018, by: (i) each of our directors and executive officers, and (ii) each person known to us to own beneficially more than 5% of the Ordinary Shares as of July 31, 2018. As of July 31, 2018, we had 179,309,596 Ordinary Shares issued and outstanding.

 

Beneficial ownership is determined in accordance with the rules and regulations of the SEC. In computing the number of Ordinary Shares owned by a person and the percentage ownership of that person, we have included shares that the person has the right to acquire within 60 days, including through the exercise of any option, warrant or other right or the conversion of any other security. These Ordinary Shares that the person has the right to acquire within 60 days, however, are not included in the computation of the percentage ownership of any other person. Ownership of the Ordinary Shares by the “principal shareholders” identified below has been determined by reference to our share register, which provides us with information regarding the registered holders of the Ordinary Shares but generally provides limited, or no, information regarding the ultimate beneficial owners of such Ordinary Shares. As a result, we may not be aware of each person or group of affiliated persons who beneficially owns more than 5% of the Ordinary Shares.

 

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Unless otherwise indicated, the business address for each of the shareholders in the table below is c/o Oasmia Pharmaceutical AB, Vallongatan 1, 752 28, Uppsala, Sweden.

 

   Ordinary Shares Beneficially
Owned
 
Name of Beneficial Owner  Number   Percent 
Greater than 5% Shareholders          
           
Per Arwidsson private and Arwidsro Investment AB (1)   30,314,448    16.91 
Alceco International S.A.   19,417,801    10.83 
Försäkringsbolaget Avanza Pension   15,175,252    8.46 
           
Directors and Executive Officers          
Julian Aleksov (2)   19,567,597    10.91 
Bo Cederstrand (3)   19,543,801    10.90 
Mikael Asp   8,040    * 
Anders Blom   116,850    * 
Alexander Kotsinas   -    - 
Lars Bergkvist   -    - 
Per Langö   30,000    * 
All Named Executive Officers and Directors as a Group (6 persons)   19,722,487    11.00 

 

*Less than one percent.

 

(1)The business address for Arwidsro Investment AB is Box 55938, SE-102 16, Stockholm, Sweden. Mr Arwidsson is the control person of Arwidsro Investment AB

 

(2)Consists of 19,417,801 shares held through Alceco and 149,796 held by Mr. Aleksov separately. Messrs. Aleksov and Cederstrand are the control persons of Alceco.

 

(3)Consists of 19,417,801 shares held through Alceco and 126,000 held by Mr. Cederstrand separately. Messrs. Aleksov and Cederstrand are the control persons of Alceco.

 

Our shareholders do not have different voting rights. We are not aware of any arrangement that may, at a subsequent date, result in a change of control of our company.

 

The following table sets forth information with respect to the beneficial ownership of our ordinary shares by our major shareholders, which means shareholders that beneficially own 5% or more of our ordinary shares, as of July 31, 2018, July 31, 2017 and July 31, 2016, each being the most recent practicable date before reporting for the last three fiscal years.

 

   2016   2017   2018 
Name  # of
Shares
   % of
issued
Shares*
   # of
Shares
   % of
issued
Shares*
   # of
Shares
   % of
issued
Shares*
 
Alceco International S.A. (1)   25,536,445    23.82%   21,648,765    12.52%   19,417,801    10.83%
Arwidsro Investment AB (2)   -    -    22,667,856    13.11%   30,314,448    16.91%

 

(1)Messrs. Aleksov and Cederstrand are the control persons of Alceco.

 

(2)Includes the shares owned privately by Per Arwidsson. The business address for Arwidsro Investment AB is Box 55938, 102 16 Stockholm, Sweden. Mr. Arwidsson is the control person of Arwidsro Investment AB.

 

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B. Related Party Transactions

 

Transactions with major shareholders and companies controlled by major shareholders

 

Alceco, Oasmia’s second largest shareholder, see item 7 A Major Shareholders, has made a credit facility of SEK 40 million available to us. The credit facility is valid until December 2018, and is renewed automatically for one-year terms, unless terminated by either party at least three months prior to an expiration date. This credit facility was completely unused at April 30, 2018, as was the case at April 30, 2017. No other transactions took place between Alceco and Oasmia.

 

After the rights issue carried out in July 2017, Arwidsro Investment AB is Oasmia’s largest shareholder. In connection with the share issue Arwidsro guaranteed a certain amount and thus received a guarantee commission of SEK 4.49 million. During the year Arwidsro also received 24,193,548 warrants with a carrying amount of SEK 8.71 million as compensation for a promise of credit.

 

Nexttobe, AB was Oasmia’s second largest shareholder up until October 31, 2016, with a shareholding of 18.3 percent. However, this shareholding was divested as of November 1, 2016, which means that the relationship with Nexttobe is no longer a related party relationship. Nexttobe had the following transactions with Oasmia during the last three fiscal years in million SEK:

 

in SEK million except Interest rate 

April 30,

2018

   April 30,
2017
   April 30,
2016
 
Financial loan from Nexttobe, as per April 30   102.4    102.4    94.4 
Accrued interest as per April 30   5.1    1.2    2.7 
Interest rate, percent   8.5    3.5    8.5 

 

Ardenia Investment Ltd, a company controlled to equal parts by Oasmia’s founders Bo Cederstrand and Julian Aleksov, is registered as the applicant and holder of the patents which forms the basis for Oasmia’s business. Through an agreement between Ardenia and Oasmia, the rights to these patents have been transferred to Oasmia. Ardenia cross charges its administration costs for these patents. During the financial year 2017/2018, Oasmia acquired new patent rights that extend the protection of XR17 for a further 8 years to 2036 for SEK 10.55 million.

 

Cross charged costs and Oasmia’s outstanding liability as per April 30 for the last three fiscal years, million SEK:

 

   May 1, 2016 –
April 30, 2018
   May 1, 2015 –
April 30, 2017
   May 1, 2014-
April 30, 2016
 
Cross charged administration costs   1.57    1.37    2.23 
Acquisition of patent   10.55    -      
Liability as per April 30   0.00    0.72    0.00 

 

Transactions with Group companies

 

The Oasmia group consists of the parent company Oasmia Pharmaceutical AB and the Swedish subsidiaries Oasmia Incentive AB (name changed from Oasmia Animal Health AB) and Qdoxx Pharma AB, the Nevada-registered subsidiary AdvaVet, Inc. (name changed from Oasmia Pharmaceutical, Inc.), the Hong Kong-registered subsidiary Oasmia Pharmaceutical Asia Pacific Limited and Moscow-registered subsidiary Oasmia RUS LLC. As per 30 April, 2018, all subsidiaries are owned by Oasmia Pharmaceutical AB to 100%, except the Oasmia RUS, LLC which is owned by 80%. The subsidiaries are thus under the control of Oasmia Pharmaceutical AB.

 

No sales of goods or services have taken place between the parent company and the Swedish subsidiaries either during this year or the previous year.

 

The following table shows the loan transactions during the year between the Parent Company and the Swedish subsidiaries and the opening and closing liabilities:

 

   Qdoxx Pharma   Oasmia Incentive 
in SEK thousand  2017/18   2016/17   2017/18   2016/17 
Parent Company’s opening liabilities   62    99    1,601    204 
Transactions during the year   (20)   (37)   1,140    1,397 
Parent Company’s closing liabilities   42    62    2,741    1,601 

 

The Parent Company made a shareholders’ cash contribution of SEK 50 thousand to Qdoxx during the year.

 

AdvaVet, Inc. (name changed from Oasmia Pharmaceutical, Inc.), was founded in June 2015 by the parent company. The Parent Company paid a shareholders’ contribution of USD 17 thousand during the year, which was reported in the Parent Company as Holdings in Group companies of SEK 145 thousand, and also issued a loan of USD 70 thousand, of which USD 7 thousand has been repaid. The net amount of USD 63 thousand, the Parent Company’s outstanding receivable at April 30, 2018, is reported as Receivables from Group companies of SEK 545 thousand. The Parent Company recharged expenses of USD 40 thousand in total to AdvaVet during the year, corresponding to SEK 325 thousand, which had been paid at April 30, 2018.

 

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Oasmia Pharmaceutical Asia Pacific Limited was founded in May 2016 by the parent company The Parent Company made a shareholders’ contribution of HKD 87 thousand to Oasmia Pharmaceutical Asia Pacific during the year. This was initially reported in the Parent Company as Holdings in Group companies of SEK 97 thousand but was written down by SEK 47 thousand to SEK 50 thousand at April 30, 2018. There were no dealings between the companies at April 30, 2018.

 

The Russian subsidiary, which is 80 percent owned, was founded during the year. The Parent Company purchased services from this subsidiary for EUR 60 thousand during the year, which has been recorded as SEK 591 thousand. There were no dealings between the two companies at April 30, 2018.

 

Transactions with related individuals

 

For transactions with related individuals, see item 6 B. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES Compensation

 

In accordance with a resolution adopted at the Extraordinary General Meeting on June 2, 2017 concerning the issue of warrants, 5,543,182 warrants were issued and paid as a shareholders’ contribution to Oasmia Incentive. These warrants were resold by Oasmia Incentive AB to Oasmia Pharmaceutical AB’s Board and senior management for between SEK 0.17 and SEK 0.22 per warrant, depending on the market value at the time of each individual issue. These warrants generated equity of SEK 1,171 thousand for Oasmia.

 

C. Interests of Experts and Counsel

 

Not Applicable

 

ITEM 8. FINANCIAL INFORMATION

 

A. Consolidated statements and other financial information

 

See Item 18. Financial Statements, which contains our financial statements prepared in accordance with IFRS.

 

B. Significant Changes

 

Not applicable.

 

ITEM 9. THE OFFER AND LISTING 

 

A. Offering and Listing Details

 

See "Item 9. C. Markets" for information regarding the price history of our stock.

 

B. Plan of Distribution

 

Not Applicable.

 

C. Markets

 

The Ordinary Shares have been trading on NASDAQ Stockholm under the symbol “OASM” since June 24, 2010 and on the Frankfurt Stock Exchange under the symbol “OMAX” sin