Default template for Word - Nordea Markets · Oasmia Pharmaceutical 05 March 2018 Marketing material commissioned by Oasmia Pharmaceutical 4 commercialisation of its key products

Commissioned research 05 March 2018

Marketing material commissioned by Oasmia Pharmaceutical

Oasmia Pharmaceutical Healthcare | Sweden

KEY DATA

Source: FactSet and Bloomberg

ABSOLUTE & RELATIVE PERFORMANCE

Source: FactSet and Bloomberg

VALUATION APPROACH

Source: Nordea Markets

Nordea Markets - Analysts Dan Johansson Analyst

Alexander Fält Analyst

Hemming Svensson Analyst

Carl Mellerby Analyst

Hans Mähler Director

Decision time CHMP opinion expected in April Oasmia reported an operating loss of SEK 25.2m in Q3 compared with a loss of SEK 34.9m last year. Net sales were SEK 0.7m in Q3, driven by invoiced deliveries of goods to its partner in Russia.

The supplementary data analysis regarding a previous PK study for Apealea has now been completed, in response to questions from the EMA. Oasmia expects to receive a notification from the assessor during April (CHMP will host a meeting on 23-26 April), implying potential market authorisation by the summer. In addition, the process for listing Oasmia’s US subsidiary, AdvaVet Inc, is ongoing and a listing prospectus is expected to be submitted to the SEC soon.

Products begin Sales of Paclical in Russia have formerly started, with Oasmia shipping products to its distributor during November and January. However, this is still not fully reflected in revenue, as only manufacturing costs are invoiced and it will later receive share of profit.

Development of Docecal is progressing according to plan and the company is currently in final phase with a PK crossover study and randomised clinical study comparing it with Taxotere. Upon completion, Oasmia aims to use the randomised study to apply for market authorisation in Russia.

In addition, an agreement was signed to replace the loan from Nexttobe AB that matures in May. The existing loan will be replaced by a SEK 108m loan mainly underwritten by Oasmia’s principal owner, Arwidsro Investment AB.

Estimate changes We make some adjustments to our near-term estimates to reflect the company’s revenue recognition in Russia and the CHMP opinion on Apealea in April. Our long-term forecasts are unchanged, apart from adjustments owing to FX movements. Assuming the company can deliver on forecasts, we derive a value of share price between SEK 5.7 and SEK 6.8 per share, based on a WACC of 16.2-17.8%

Source: Company data and Nordea Markets

Key dataCountry SwedenBloomberg OASM SSReuters OASM.STShare price 3.83Free float 65%Market cap (m) SEK 676Website www.oasmia.seNext report date 08 June 2018

0

5

10

Mar 17 Jun 17 Sep 17 Dec 17 Mar 18Omx Stockholm PI Oasmia

-1M -6M YTDAbsolute -4% 37% 45%Relative -1% 38% 48%

SEK 6.8

SEK 5.7

4 5 6 7 8

DCF

SUMMARY TABLE - KEY FIGURESSEKm 12/13 13/14 14/15 15/16 16/17 17/18E 18/19E 19/20ENet sales 0 0 2 6 0 8 97 374- growth n.m. n.m. n.m. n.m. n.m. 1185% 287%EBIT (adj.) -116 -132 -124 -160 -136 -98 -19 78- margin n.m. n.m. n.m. n.m. n.m. n.m. n.m. 20.8%EPS -1.75 -1.68 -1.46 -1.66 -1.24 -0.69 -0.19 0.30- growth n.m. n.m. n.m. n.m. n.m. n.m. n.m.DPS 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00P/E n.m. n.m. n.m. n.m. n.m. n.m. n.m. 12.6EV/EBIT n.m. n.m. n.m. n.m. n.m. n.m. n.m. 12.7EV/Sales n.a. n.m. n.m. n.m. n.m. 121.2 10.2 2.6RoE -40.8% -46.3% -40.7% -48.0% -49.8% -35.1% -11.7% 18.3%Div. yield 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%FCF yield -14.5% -7.6% -9.1% -8.5% -15.1% -21.0% -9.4% -0.2%ND/EBITDA n.a. n.a. n.a. n.a. n.a. n.a. n.a. 2.2

Oasmia Pharmaceutical 05 March 2018

Marketing material commissioned by Oasmia Pharmaceutical 2

Table of contents Quarterly review ............................................................................................................................. 3

Factors to consider when investing in Oasmia Pharmaceuticals .................................................... 5

Valuation ...................................................................................................................................... 11

Estimates ...................................................................................................................................... 14

Risk factors ................................................................................................................................... 21

Glossary ........................................................................................................................................ 24

Reported numbers and forecasts.................................................................................................. 25

Disclaimer ..................................................................................................................................... 28



Quarterly review Oasmia reported an operating loss of SEK 25.1m in its Q3 report compared with a loss of SEK 34.9m for the same period last year. The main news item was clarification of the registration process for Apeala by the EMA (European Medicines Agency). Oasmia has completed the supplementary analysis regarding a previous PK (pharmacokinetic study) and is waiting to be included in the EMA’s CHMP meeting agenda for a recommendation during its April meeting. This would imply formal market authorisation for Apealea in Europe during the summer. Sales have also started in Russia and Oasmia shipped products to its distributor during November and January. Furthermore, the company is in final preparation for a listing of its veterinary assets in the US during the first half of 2018.

The company reported a lower operating loss y/y

Net sales were SEK 0.7m in Q3 (covering the period between 1 November and 31 January), mainly owing to income related to invoiced deliveries of goods to the partner in Russia. The company reported an operating loss of SEK 25.2m compared with a loss of SEK 34.9m in the same period last year.

Lower research and personnel costs

The improved result is largely driven by lower external expenses, due to less clinical research. Personnel costs were also down, as a result of the company’s earlier restructuring programme. Oasmia had 58 employees at the end of the Q2 compared with 77 in the same period last year.

New convertible loans of SEK 28m were issued after the end of the fiscal period

Agreement to replace the outstanding SEK 108m loan to Nexttobe AB

During the quarter, the company announced an issue of SEK 28m in convertible loans to partially replace already repaid debt. The terms of the new loan are one year maturity (30 November, 2018) with 8% annual interest and a conversion price of SEK 3.10 per share.

In addition, it signed an agreement to replace the outstanding loan to Nexttobe AB that matures in May. A new loan of SEK 108m has been set up, mainly underwritten by principal owner Arwidsro Investment AB. The new loan has 8% interest and the lenders will receive warrants corresponding to 34m shares with a conversion price of SEK 3.10. At the end of Q3, Oasmia had SEK 47.7m in cash on hand.

Oasmia is working intensively on ensuring that batches can be shipped on a continuous basis

Business activities

In Q3, Oasmia shipped its first Paclical orders to its Russian partner Hetero Group during November and January. Only manufacturing costs for the product were invoiced during in Q3, while share of profit will be received later, revealing the full sales impact. The company provides an illustrative example of the revenue recognition in the report:

“If manufacturing costs are 10, sales revenue 100 and distribution costs 2, Oasmia invoices 10 upon delivery and when profits are shared 50% of 100-10-2, ie 44.”

Its second approved product, Doxophos, is awaiting official pricing from the authorities and work has been ongoing to secure commercial production. After pricing has been set, Hetero will begin sales and the product will be an additional earnings contributor in the region. The product is approved for all indications that use the active pharmaceutical ingredient (API), Doxorubicin.

Potential ph III study in first- and second-line treatment of breast cancer to start in 2018

Oasmia also states that Hetero has initiated a long-term and methodologic strategy for sales and plans to initiate a clinical ph III study with Paclical in first- and second-line breast cancer during H1 2018. We find this reasonable as it could significantly broaden the potential and increase the penetration of the product.

Ambition to list veterinary assets in H1 2018

The process for listing Oasmia’s veterinary assets in the US is ongoing and the company is currently finalising the listing prospectus to be submitted to the SEC. Its ambition is to provide an ideal environment to enable further development and



commercialisation of its key products in the US, which is the largest veterinary market. Oasmia reiterated its ambition to list the asset, AdvaVet Inc, on Nasdaq Capital Market during the first half of 2018.

CHMP opinion on Apealea expected in April

Update on the registration process for Apealea

An update was also provided for the market authorisation process regarding Apealea by the EMA. The supplementary data analysis regarding a previous PK study has been completed, in response to questions from the assessor. As previously stated, the questions do not concern the pivotal ph III study in ovarian cancer. Oasmia expects an opinion by the CHMP on the April meeting, which implies market authorisation by the summer. The CHMP meets once a month and its next meeting is scheduled for 19-22 March, followed by a meeting on 22-25 April.

Decision on Apealea is a major catalyst for the value of the company

We argue that the decision process for Apealea is a key event. An unfavourable decision would question the validity of the remaining pipeline in human health (due to the use of the same drug delivery technology), although it does not necessarily imply a negative outcome for Oasmia’s other product candidates. A positive decision would validate the technology and allow for potential partner discussions in the EU and later in the US.

Estimate changes to reflect revenue recognition in Russia and delayed decision on Apealea

Estimate changes

We make some adjustments to our near-term estimates to reflect the company’s revenue recognition in Russia and later approval of Apealea by the EMA than we had earlier anticipated. Our long-term forecasts are unchanged, apart from adjustments due to currency movements.

Several key triggers in the next six months

Over the next six months, we expect to get more visibility on sales uptake in Russia, the spin-off of the veterinary assets and, most importantly, a decision from the EMA on the potential market approval of Paclical in Europe. These events could trigger significant positive or negative estimate revisions, depending on their outcomes.


OASMIA - QUARTERLY ESTIMATESSEKm Q1 17/18 Q2 17/18 Q3 17/18E Q4 17/18E 2017/18ESales 0 2 1 5 8EBIT -28 -22 -25 -22 -98margin (%) n.a. n.a. n.a. n.a. n.a.Net income -31.7 -25.1 -29.1 -25.8 -111.7



Factors to consider when investing in Oasmia Pharmaceuticals An investment in Oasmia offers exposure to a pharmaceutical development company focused on developing next-generation formulations of well-established cytostatic drugs within human and veterinary oncology. Its product pipeline is built on patented drug delivery technology XR-17, which utilises nanotechnology to improve water solubility without the use of any toxic solvents. In total, the company has five product candidates within human health and two products within veterinary health. Paclical, its lead asset, based on the well-known cytostatic drug paclitaxel in combination with XR-17, has completed ph III and is awaiting response to its marketing approval application to the European Medicines Agency.

We have identified a number of key themes describing the investment case in Oasmia Pharmaceuticals

We consider the following factors to be key when evaluating an investment in Oasmia:

• A proprietary drug delivery technology that utilises nanotechnology to enhance formulations and improve water solubility without the use of any toxic solvents

• Focus on optimising formulations of already established chemotherapy drugs, with well-known efficacy profiles and extensive patient history, instead of new novel treatments

• Late-stage assets in human health, with potential to penetrate major product markets across several indications

• Veterinary products offer additional opportunities outside human oncology.

Key risk factors:

• Oasmia is still in development phase and the current cash flows being generated are not enough to support its current operations in the near term

• Dependency on regulatory approvals and successful commercialisation of its product candidates

• The market for pharmaceutical products is highly competitive and we find it likely that the products and product candidates will face multiple competitors, including companies with extensive resources and established sales networks

• Operations in Oasmia have so far been limited to early-stage development activities, while the lack of commercial experience makes it difficult to accurately predict its future prospects. A full description of the main risk factors we find relevant for Oasmia is provided on page 21.

XR-17 enhances APIs by creating micelles

Technology platform with broad applications

Oasmia’s product pipeline is based on a platform called XR-17, which is a nanoparticle drug delivery system that facilitates the creation of optimised formulations. The technology enhances pharmaceutical substances by creating micelles that encapsulate the API and improve its water solubility without the use of any toxic solvents.

This approach has broad applications and could potentially be applied across a wide array of different APIs. Another interesting characteristic is that it allows the dual encapsulation of both water-soluble and insoluble active pharmaceutical ingredients (APIs) in one nanoparticle formulation, which is the basic idea behind product candidate OAS-19.

No need for toxic solvents As many efficient chemotherapy drugs are poorly soluble in water, solvents are commonly used to deliver the substance to the body. These solvents can be highly



toxic and require premedication to prevent severe side effects. In many cases this can limit the maximum dosage that can be administered, resulting in a lower efficacy of the drug. As XR-17 is non-toxic, it could allow higher dosage than with establish treatments, shorten infusion time and limit the time spent at the hospital.

Source: Company data

Focus on well-established compounds

Next-generation formulations of established drugs

Oasmia’s main focus is on developing improved formulations of already established chemotherapy substances with well-known efficacy and extensive patient history. One example is the anti-cancer molecule paclitaxel, the substance used in Oasmia’s lead asset Paclical, which was discovered more than 50 years ago and remains one of the “workhorses” in chemotherapy treatment.

Efficacy and side-effect profile are well-known

As such, the company does not need prove the actual mechanism of molecule, which means quicker advancement and potentially lower clinical costs than with new novel treatments. And although chemotherapy often comes with severe side effects, we find it likely that it will still be one of the standard treatment regimens for the foreseeable future, due to its efficacy, especially when the cancer has spread. Another aspect that potentially could be favourable for chemotherapy is the relative price point, as new and more advanced treatments are likely to be more expensive.



TECHNOLOGY PLATFORM

Active Pharmaceutical Ingredient (API) The XR-17 molecule Micelle consisting of XR-17 and

Paclitaxel

Paclitaxel- A water-insoluble cytostatic - Needs to be water-soluble to be injected

Water-soluble

HUMAN HEALTH PIPELINE

Geography PartnerCandidate Indication Pre-clinical Phase 1 Phase 2 Phase 3

Breast cancer (methastatic)

Appealea/ Paclical

(paclitaxel)

Reg./ Approval

Rights

Breast cancer

Prep. Submission

Application submitted*

Approved

USA

EU

RUS/KZ

Global

Ovarian cancer

Ovarian cancer

Ovarian cancer

Hybrid Approved RUS

Breast cancer Ongoing Ongoing Global

Various cancer

Various cancer

Ongoing

Ongoing

Global

Doxophos (doxorubicin)

Global

Docecal (docetaxel)

OAS-19 (combination)

KB952 (new subst.)

ANIMAL HEALTH PIPELINE

Geography PartnerPaccal Vet (paclitaxel)

Candidate Indication Pre-clinical Phase 1 Phase 2 Phase 3 Reg./ Approval

Rights

Doxophos Vet (Doxorubicin)

Planned Global (ex-JAP)

Lymphoma Ongoing Global

Mastcytoma



Pending market approval application in the EU for its product candidate Paclical

Late-stage assets with potential to penetrate major product markets

Oasmia has five product candidates within human oncology, a market where consensus estimates global product sales of USD 112bn across all indications. Its latest-stage asset is Paclical, a next-generation formulation of established chemotherapy drug paclitaxel. Oasmia has completed a ph III trial for the product candidate and is awaiting a response to the market approval application in Europe in ovarian cancer. Upon potential approval, the company intends to file for market authorisation in the US and later expand into other cancer indications treated with paclitaxel.

Source: Evaluate Pharma and Nordea Markets Source: Evaluate Pharma and Nordea Markets

Source: Evaluate Pharma and Nordea Markets Source: Evaluate Pharma and Nordea Markets

Celgene reported sales of USD 973m for Abraxane in 2016

The two leading paclitaxel products are Taxol (generic) and Abraxane. Taxol reached peak sales of almost USD 1.6bn in 2000 before patent expiration, while Abraxane was launched by Abraxis in 2005 and later acquired by Celgene for an upfront consideration of USD 2.9bn plus additional milestone payments. Celgene reported total product sales of USD 973m for Abraxane in 2016 (excluding Japan).

Pipeline consists of further late-stage assets

Oasmia also has another product candidate called Docecal, which is based on docetaxel in combination with XR-17. The product candidate is currently ongoing a clinical ph I trial and safety and tolerability study. Docetaxel is the active substance in Taxotere, a product marketed by Sanofi, which reached peak sales of EUR 2.1bn before patent expiration in 2010. In addition, Oasmia received approval in Russia on August 17 2017 for its product candidate Doxophos, as a hybrid drug (improved generic).

GLOBAL ONCOLOGY SALES SOLID TUMOURS GLOBAL SALES PER INDICATION

0 5 10 15 20 25 30

Pancreatic cancerHead & neck cancers

Cervical cancer prophylaxisBladder cancer

Renal cell carcinoma (RCC)Colorectal cancer

Ovarian cancerMelanoma

Prostate cancerBreast cancer

Non-small cell lung cancer

2016 Sales 2022E Sales

83 89 95 100 112112 121136

156177

199221

0

50

100

150

200

250

USD

bn

Reported sales Forecasted (consensus estimates)

GLOBAL ONCOLOGY SALES PER REGION REGIONAL DIVISION

0

50

100

150

200

250

USD

bn

US EU ROW

0%

20%

40%

60%

80%

100%

US EU ROW



Source: Company data and Nordea Markets Source: Company data and Nordea Markets

Source: Company data and Nordea Markets Source: Evaluate Pharma and Nordea Markets

Two products specifically designed for animal applications

Veterinary products offer opportunities beyond human health

Oasmia also has two product candidates specifically engineered for veterinary indications, an underlying market experiencing structural growth thanks to increased spending among pet owners. In the US alone, there are about 89.7 million domestic dogs according to the American Pet Products Association (APPA), and canine cancer rates are about the same as for humans. Oasmia’s Paccal Vet product covers some of the most common cancers in dogs, including mammary carcinoma, squamous cell carcinoma and mast cell tumours. In addition, the company’s second veterinary product candidate, Doxophos Vet, is in the final phase of clinical trials before conditional approval for lymphoma, the most common cancer among dogs.

Increased focus on veterinary assets after recent strategic changes

To increase focus on the veterinary products further, the board has decided to spin off all assets into a US subsidiary, including all rights for Paccal Vet and Doxophos Vet. Oasmia intends to IPO the subsidiary, named AdvaVet Inc, during H1 2018.

In conjunction with this decision, Oasmia has decided to withdraw its conditional approval to change the treatment regime with a lower dosage. Its intention is to improve the safety profile by reducing side effects and improving the life quality of the pets. Another potential benefit is that the product could be available to more veterinarians. Previously, the product was mainly available across the few hundred specialised veterinary oncologists; with the new profile it could potentially be available to the larger community of general veterinary practitioners. Oasmia intends to conduct a new minor study to change the present dosing.

TAXOL REPORTED SALES ABRAXANE REPORTED SALES (EXCL. JAPAN)

0

300

600

900

1,200

1,500

1,800

1996 1997 1998 1999 2000

USD

m

0

200

400

600

800

1,000

1,200

USD

m

ABRAXANE GEOGRAPHICAL SALES SPLIT ABRAXANE ESTIMATED SALES (EXCL. JAPAN)

78% 78% 74% 68% 65%

22% 22% 26% 32% 35%

0%

20%

40%

60%

80%

100%

2012 2013 2014 2015 2016US International

0

400

800

1200

1600

2016 2017E 2018E 2019E 2020E 2021E 2022E

USD

m

Abraxane estimated sales



Source: American Pet Products Association Source: American Pet Products Association

Source: American Pet Products Association Source: American Pet Products Association

A full description of the risk factors we find most relevant for Oasmia Pharmaceuticals can be found on pages 21

Risk factors

As Oasmia is still in a development phase, cash flows from current operations might not be enough to support its planned activities in the near term. The company has in the past used several different financing sources and believes its prospects of securing additional funds are good. However, if it failed to raise additional funds, it could be difficult for it to continue as a going concern

Another key risk is that Oasmia is dependent on regulatory approvals and clinical trials for its product candidates to reach commercial success. These are “all-or-nothing” processes in the sense that a negative outcome would imply limited earnings potential. In particular, the upcoming EMA decision for Apealea will be important, as an unfavourable decision would question the validity of the remaining pipeline in human health (due to the use of the same drug delivery technology), although it does not necessarily imply a negative outcome for its other product candidates.

The pharmaceutical industry is highly competitive and Oasmia is likely to face multiple competitors, some with superior resources. Apart from the established treatments, Oasmia might also face competition from new novel treatments that are currently under development or will be developed in the coming years.

Since inception, Oasmia has focused on early-stage research activities and has not generated any significant revenue apart from milestone payments. Therefore, upon potential approval the commercial success, earnings potential and costs associated with a launch are difficult to forecast. We find it likely that the company will need to add new capabilities to penetrate the market, or undertake a strategic collaboration, and failure to do so could affect the future success. A full description of the main risk factors we find relevant for Oasmia is provided on page 21.

TOTAL US PET INDUSTRY EXPENDITURES BASIC ANNUAL EXPENSES FOR CATS AND DOGS

$0 $100 $200 $300 $400 $500

Surgical Vet.

Routine Vet.

Food

Food Treats

Kennel Boarding

Vitamins

Grooming

Toys

0

25

50

7520

04

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

E

USD

bn

TOTAL NUMBER OF DOGS OWNED IN THE US TOTAL NUMBER OF PETS OWNED IN THE US

0

20

40

60

80

100

2000 2002 2004 2006 2008 2012 2014 2015 2017

In m

illio

ns

0 50 100 150

Bird

Cat

Dog

Horse

Freshwater Fish

Saltwater Fish

Reptile

Small Animal

In millions



Valuation

Based on the assumption that the company can deliver in line with our expectations, we estimate a fair value range of SEK 5.7‐6.8 per share based on variations in weighted average cost of capital (WACC). We derive our fair value from our fundamental DCF framework. Note that the valuation is based on a long‐term analysis and is not linked to a near‐term assessment of the performance of the company. Our forecasts imply that Oasmia could reach risk‐adjusted peak sales of SEK 1,694m in 2027/28E.

We would like to highlight that near‐term news flow could alter our valuation range, positively or negatively, depending on the outcome. In our view, the most important near‐term event is the EMA decision for product candidate Apealea, for which we expect an outcome during April 2018. An unfavourable regulatory outcome could, in addition to limiting the sales potential of product, also question the viability of other product candidates, such as Docecal. This would likely warrant a higher cost of capital for the company, while a positive decision could give a lower cost of capital in our DCF framework.

Further information

We provide a more in-depth description of the company’s technology platform, business areas, underlying market and historical financials in our initiation report published on 5 June 2017. The full report can be accessed via this link.

https://nordeamarkets.com/commissioned-research-osamia-pharmaceuticals/



Valuation Based on a fundamental discounted cash flow (DCF) approach and assuming a weighted average cost of capital (WACC) of 16.2-17.8%, we derive an equity value range of SEK 5.7-6.8 per share. Note that the valuation is based on a long-term analysis and is not linked to a near-term assessment of the performance of the company.

Our valuation approach is primarily based on a DCF framework

We derive an equity value of SEK 5.7 to SEK 6.8 per share for Oasmia Pharmaceuticals

One of the most common ways to value the attractiveness of an investment opportunity is the discounted cash flow (DCF) method. A DCF model discounts all available cash flows for equity, bond and non‐equity holders at the weighted average cost of capital (WACC). In other words, WACC represents a blended cost of capital for all invested capital in the company. In fundamental terms, a DCF framework is built on three parts:

• Discounting the company’s free cash flow at WACC.

• Identifying the value of debt and other non‐equity claims on the enterprise value.

• Deducting all claims to determine the value of the common equity. The fair value per share is then simply calculated by dividing the equity value by the number of outstanding shares.

A DCF valuation is commonly considered among academics and practitioners to be the best way to capture the underlying fundamental drivers of a company such as cost of capital, growth rates, reinvestment rates etc. If applied correctly, it represents the best way to approximate the true intrinsic value of a company. The main appeal of a DCF framework compared with other valuation methodologies is that it also focuses on streams of cash rather than accounting earnings. Its main disadvantage is its relative sensitivity to changes in input values.

Based on a DCF framework, we derive an equity valuation range of SEK 5.7‐6.8 per share for Oasmia. Our forecast model is based on risk‐adjusted sales, where sales for the product candidates are adjusted to reflect the probability of approval. This implies that regulatory decisions and clinical trial results could alter the valuation, positively or negatively. Key events in the near term include the European Medicines Agency (EMA) decision on Apealea, potential partner discussions, sales uptake in Russia and the planned listing of its veterinary assets.

Our DCF valuation range is based on WACC of 16.2-17.8%

Fundamental valuation

In the table below, we set out the general assumptions that we use to calculate our DCF value. Assuming that Oasmia can deliver broadly in line with our forecasts, with variations in WACC assumptions, we arrive at a fair equity value range of SEK 5.7‐6.8 per share. In the terminal period, we model WACC equal to return on invested capital (ROIC) and 2.5% growth. We also make a risk adjustment to reflect that the company might additional capital to cover deficits until its product candidates reach full commercial potential.


DCF VALUATIONDCF value Value Per shareNPV FCFF SEK 1,229m-1,421m SEK 6.2-7.2(Net debt) SEK -141m SEK -0.7Time value SEK 197m-209m SEK 1.0-1.1Other adjustments SEK -150m SEK -0.8DCF Value SEK 1,135m-1,339m SEK 5.7-6.8




To highlight the sensitivity of the DCF valuation, we also provide sensitivity matrices modelling variations in revenue growth, margin assumptions and cost of capital.

WACC

We apply a range of cost capital (WACC) of 16.2‐17.8% as the input for our DCF valuation. The assumptions behind our WACC are outlined in the table below.

We apply a WACC range of 16.2%-17.8%


DCF sensitivity

To highlight the sensitivity of the DCF valuation, we also provide sensitivity matrices modelling variations in revenue growth, margin assumptions and cost of capital. The first table illustrates the sensitivity of our DCF valuation, with varying EBIT margins and sales growth rates.

Our DCF value with varying EBIT margins and sales growth rates


We also illustrate how the equity value varies with changes in WACC and sales growth.

Our DCF value with different WACC and sales growth assumptions


In addition, we provide a sensitivity table illustrating how the equity value varies with changes in EBIT margin assumptions and WACC.

WACC ASSUMPTIONSAverages & assumptions 2017-28 2029-33 2034-38 2039-43 2044-48 Sust.Sales growth, CAGR 71.9% -15.0% -15.0% 0.0% 2.5%

EBIT-margin, excl. associates 38.0% 37.0% 36.0% 36.0% 33.7%Capex/depreciation, x 1.4 1.0 1.0 1.0 1.0Capex/sales 3.0% 3.0% 3.0% 3.0% 2.0%NWC/sales 14.9% 14.9% 14.9% 14.9% 14.9%FCFF, CAGR n.m. -9.8% -15.4% -6.2% 0.1% 2.5%

WACC ASSUMPTIONSWACC componentsRisk-free interest rate 1.0%Market risk premium 5.5%Forward looking equity beta 3.3-3.7Cost of equity 19.8%-21.9%Cost of debt 7.0%Tax-rate used in WACC 22.0%Equity weight 75.0%WACC 16.2%-17.8%

SALES GROWTH VS EBIT MARGIN

-5.0pp -2.5pp +2.5pp +5.0pp+5.0pp 6.1 6.2 6.4 6.6 6.8

EBIT margin +2.5pp 6.0 6.2 6.3 6.5 6.7change 6.0 6.1 6.2 6.4 6.6

-2.5pp 5.9 6.0 6.1 6.3 6.5-5.0pp 5.8 5.9 6.0 6.2 6.3

Sales growth change

WACC VS SALES GROWTH

16.2% 16.6% 17.0% 17.4% 17.8%+5.0pp 7.2 6.9 6.6 6.3 6.0

Sales gr. +2.5pp 7.0 6.7 6.4 6.1 5.8change 6.8 6.5 6.2 5.9 5.7

-2.5pp 6.6 6.3 6.1 5.8 5.6-5.0pp 6.5 6.2 6.0 5.7 5.5

WACC



Our DCF value with different WACC and EBIT margin assumptions


WACC VS EBIT MARGIN

16.2% 16.6% 17.0% 17.4% 17.8%+5.0pp 7.0 6.7 6.4 6.1 5.9

EBIT margin +2.5pp 6.9 6.6 6.3 6.0 5.8change 6.8 6.5 6.2 5.9 5.7

-2.5pp 6.7 6.4 6.1 5.9 5.6-5.0pp 6.6 6.3 6.0 5.8 5.5

WACC



Estimates Our research implies that Oasmia could reach risk-adjusted peak sales of SEK 1,694m in 2027/28E. We base our forecast model on the company’s late-stage assets, including Paclical, Docecal and Doxophos in human health, and Paccal Vet and Doxophos Vet in veterinary health. In 2022/23E we calculate that product sales within human oncology will constitute 77% of group sales, while veterinary oncology products make up the remaining 23%.

Our estimates include the company’s late-stage products in human and veterinary health

Our estimates include forecasts for the company’s late-stage product candidates, including Paclical, Docecal and Doxophos in human health and Paccal Vet and Doxophos Vet in veterinary health in the major regions (the US and EU including Russia). Hence, we have not assigned any value or included potential revenue streams from early-stage projects such as OAS-19 and KB9520, as well as potential out-licensing of the XR-17 technology.

Oasmia has indicated that it will either commercialise its products through a targeted sales force, or in collaboration with a strategic partner with an established sales network. Our forecasts are based on a direct sales model, similar to the approach of Abraxis when Abraxane was brought to the market in 2005.

In terms of sales, a strategic partnership involving a specialised oncology sales network would likely yield a higher sales outcome and potentially be value-accretive depending on the terms offered in such a deal. Due to the late stage of the product candidates, a potential deal would likely be back-end loaded with a lower upfront payment and a higher royalty base.

We estimate that Paclical could receive EMA approval in 2018

Paclical sales model

Below we list the main assumptions behind our sales forecasts for Paclical. We expect that Paclical could receive EMA and FDA approval in 2018 and 2019, respectively. We assign a 70% probability for market authorisation approval in the EU and 65% in the US. Upon a potential approval, we believe that Oasmia intends to expand into other indications treated with taxanes, primarily breast cancer (metastatic), which is reflected in our model. The addressable market for Paclical is defined as metastatic breast cancer patients and epithelial ovarian cancer patients.

We assume that the price point will be in line with Abraxane, which is currently priced at about USD 1,300 per vial (100 mg) in the US. In Europe, the price of Abraxane is about a third of the price in the US. Peak sales are estimated in 2028, although the products could be eligible for patent term expansion.

Potential for sales to pick up in Russia in the near term

Oasmia has announced a new strategic partnership with Hetero Group in Russia. We expect this could already result in a sales improvement in the coming quarters. Paclical has also received approval for its pricing and is eligible for reimbursement through the Russian insurance system. Tenders in the Russian hospital system are carried out on a semi-annual or annual basis, depending on the region. In addition, on August 2017 its second product Doxophos received market approval in Russia.



Source: Company data, NCI and Nordea Markets Source: Company data, NCI and Nordea Markets

We calculate non-risk adjusted peak sales of USD 165m for Paclical

Based on the assumptions that the company can deliver on our forecasts, we see a potential to reach non-risk-adjusted peak sales of USD 165m for Paclical in 2028E. On a regional basis, we expect that the US will contribute 83% of the sales value, with the EU constituting the remaining 17% in 2023E.


Source: Company data, NCI and Nordea Markets

MAIN ASSUMPTIONS US MAIN ASSUMPTIONS EUAddressable market Adressable market

Metast. breast & ovarian cancer (no. patients): 346,887 Metast. breast & ovarian cancer (no. patients): 167,008

Patient growth: 3% Patient growth: 3%

Price PriceTreatment cycles: 6 Treatment cycles: 6 Price per vial (100mg): USD 1,300 Price per vial (100mg): USD 433Price inflation: 3% Price inflation: 3%

Sales SalesLaunch (year): 2020 Launch (year): 2018Peak sales (year): 2028 Peak sales (year): 2028

Prob. of approval: 65% Prob. of approval: 70%

PACLICAL SALES (NON-RISK ADJ.) GEOGRAPHICAL SALES SPLIT

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PACLICAL SALES MODELUSDm 2016 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E 2026E 2027E 2028EUS patients on Paclical-Metastatic breast - - - - 307 475 571 672 519 356 349 321 292 -Epilepthial ovarian - - - - 928 1,092 1,406 1,594 1,701 1,844 1,900 1,891 1,847 Total (no. patients) - - - - 1,235 1,567 1,977 2,265 2,220 2,201 2,248 2,213 2,139

Cost per patient (in USD) 37,440 38,563 39,720 40,912 42,139 43,403 44,705 46,046 47,428 48,851 50,316 51,826 53,380

US Paclical sales-Metastatic breast - - - - 13 21 26 31 25 17 18 17 16 -Epilepthial ovarian - - - - 39 47 63 73 81 90 96 98 99 Total (USDm) - - - - 52 68 88 104 105 108 113 115 114

EU patients on Paclical -Metastatic breast - - - 41 142 219 300 309 239 246 254 261 269 -Epilepthial ovarian - - 105 759 894 1,035 1,066 1,098 1,131 1,165 1,200 1,236 1,273 Total (no. patients) - - 105 800 1,035 1,254 1,367 1,408 1,370 1,412 1,454 1,498 1,542


EU Paclical sales-Metastatic breast - - - 1 2 3 5 5 4 4 4 5 5-Epilepthial ovarian - - 1 11 13 15 16 17 18 19 21 22 23Total (USDm) - - 1 11 15 19 21 22 22 23 25 26 28

RUS patients on Paclical -Metastatic breast - - - 53 164 226 349 359 370 381 262 270 278 -Epilepthial ovarian - - 79 490 693 736 780 827 851 877 903 930 958 Total (no. patients) - - 79 543 858 962 1,129 1,186 1,222 1,258 1,165 1,200 1,236


RUS Paclical sales-Metastatic breast - - - 1 2 3 5 6 6 6 4 5 5-Epilepthial ovarian - - 1 7 10 11 12 13 14 15 15 16 17Total (USDm) - - 1 8 12 14 17 19 20 21 20 21 22

Paclical sales (USDm) - - 2 19 79 101 126 145 147 152 158 162 165



We include Docecal estimates across two different indications

Docecal sales model

Oasmia’s second product candidate, Docecal, is a next-generation formulation based on docetaxel, which is a chemotherapy substance used to treat a number of cancer indications. In our forecasts we have only included sales across two different indications: breast cancer (metastatic) and prostate cancer (castor resistant). As the product is still in clinical phase we assign a probability of success of 50% in EU and assume potential market approval by the EMA in 2020 followed by US approval in the subsequent year.

Source: Company data, NCI and Nordea Markets Source: Company data, NCI and Nordea Markets

We model non-risk adjusted peak sales of USD 103m

We model non-risk-adjusted peak sales of USD 103m in 2028E across the EU and US. Our estimates indicate that 76% of the sales value will derive from the US in 2023E.



MAIN ASSUMPTIONS US MAIN ASSUMPTIONS EUAddressable market Addressable marketMetast. breast & prost. cancer (no. patients): 309,199 Metast. breast & prost. cancer (no. patients): 138,392 Patient growth: 3% Patient growth: 3%

Price PriceFull treatment cost: USD 15,600 Full treatment cost: USD 5,200Price inflation: 3% Price inflation: 3%

Sales SalesLaunch (year): 2021 Launch (year): 2020Peak sales (year): 2028 Peak sales (year): 2028

Prob. of approval: 45% Prob. of approval: 50%

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DOCECAL SALES MODELUSDm 2016 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E 2026E 2027E 2028EUS patients on Docecal -Metast. breast - - - - - 1,108 1,630 1,847 2,076 2,138 2,110 2,268 2,336 -Castor-resist prostate - - - - - 759 1,172 1,208 1,244 1,068 1,188 1,178 1,167 Total (no. patients) - - - - - 1,867 2,803 3,055 3,319 3,205 3,298 3,446 3,503


US Docecal sales -Metastatic breast - - - - - 20 30 35 41 44 44 49 52 -Castor-resistant prostate - - - - - 14 22 23 25 22 25 25 26 Total (USDm) - - - - - 34 52 59 66 65 69 74 78

EU patients on Docecal -Metastatic breast - - - - 708 875 1,352 1,393 1,514 1,560 1,606 1,655 1,704 -Castor-resistant prostate - - - - 322 663 853 879 905 1,081 1,056 989 958 Total (no. patients) - - - - 1,030 1,538 2,205 2,271 2,419 2,641 2,663 2,644 2,662


EU Docecal sales -Metastatic breast - - - - 5 7 10 11 12 13 14 15 16 -Castor-resistant prostate - - - - 2 5 7 7 7 9 9 9 9 Total (USDm) - - - - 8 12 17 18 20 22 23 24 25

Docecal sales (USDm) - - - - 8 45 69 77 86 88 92 98 103



Doxophos was approved in August, 2017

Doxophos sales model

Oasmia’s product candidate Doxophos, based on doxorubicin, is used to treat breast cancer, among others. The company filed for market authorisation in December 2015 for the use of Doxophos as a hybrid drug (improved generics) and received approval in August, 2017. Our estimates only reflect the sales potential in Russia, and we do not assign any value for other regions.


Doxophos would potentially improve the cash flow

We see potential that, upon approval, Doxophos will contribute to near-term earnings and improve the cash flow situation for the company before its lead assets reach commercial phase. However, in terms of long-term value the successes of Paclical and Docecal are far more important for the company.


Strategic initiatives to bolster the development of the veterinary pipeline

Veterinary health products

Oasmia has recently initiated a strategic overview of its veterinary products and decided to move its asset to a US subsidiary. The company intends to IPO the asset during H1 2018. The company has also withdrawn its FDA approval for Paccal Vet and intends to reintroduce the product with lower dosage, which potentially could give fewer side effects and improved wellbeing for the pets. This could also allow the product to be available on a broader scale to general veterinary practitioners instead of only specialised veterinary oncologists.

Paccal Vet is used to treat squamous cell carcinoma and mastocytoma, which together represent about a third of all skin tumours in dogs. It is also used to treat to mammary carcinoma, a tumour common in female unsprayed dogs.

Doxophos Vet has received MUMS designation from the FDA for treatment of lymphoma, one of the most common cancers among dogs. According to Oasmia, about 200,000 dogs are affected on an annual basis.

In our forecasts, we assume an addressable market for Doxophos Vet of about 200,000 dogs and 175,000 dogs for Paccal Vet across all indications, with 3% annual growth. Furthermore, we set an average price of USD 1,750 and assume 3% price inflation. We assigned a probability of approval of 90% for Paccal Vet and 85% for Doxophos Vet. Our estimates do not include any value from potential sales in other regions, such as Europe.

MAIN ASSUMPTIONS RUSAddressable marketMetastatic breast cancer (no. patients): 9,778 Patient growth: 3%

PriceFull treatment cost: USD 1,500Price inflation: 3%

SalesLaunch (year): 2017

Prob. of approval: 100%

DOXOPHOS SALES MODELUSDm 2016 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E 2026E 2027E 2028ERUS patients on Doxophos -Metastatic breast - - 201 519 1,603 1,651 1,587 1,635 1,563 1,486 1,403 1,314 1,218 Total (no. patients) - - 201 519 1,603 1,651 1,587 1,635 1,563 1,486 1,403 1,314 1,218

RUS Doxophos sales -Metastatic breast - - 0.3 0.9 2.7 2.9 2.8 3.0 3.0 2.9 2.8 2.7 2.6 Total (USDm) - - 0.3 0.9 2.7 2.9 2.8 3.0 3.0 2.9 2.8 2.7 2.6

Doxophos sales (USDm) - - 0.3 0.9 2.7 2.9 2.8 3.0 3.0 2.9 2.8 2.7 2.6




Source: Company data, The National Canine Cancer Foundation and Nordea Markets

Our estimates imply risk-adjusted peak sales of SEK 1,694m in 2027/28E

Group estimates

Based on our forecasts, we calculate risk-adjusted peak sales of SEK 1,694m yielding an EBIT of SEK 708m in 2027/28E. In our forecasts, human health products constitute 77% of 2022/23E sales, with animal health products representing the remaining 23%. Within human health, Paclical represents 71% of risk-adjusted sales in 2022/23E followed by Docecal (27%) and Doxophos (2%).


Sales in Russia will be key near term earnings drives

In the near term, we expect Doxophos and Paclical sales in Russia to be the key earnings drivers and that the company could be cash flow positive in 2019/20E, once the full pipeline reaches commercial phase. In the long term, Paclical and Docecal sales in Europe and US and veterinary sales will be far more important.

VETERINARY HEALTH SALES PRODUCT SALES SPLIT

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VETERINARY HEALTH SALES MODELUSDm 2016 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E 2026E 2027E 2028E

Patient data (no. patients)Paccal Vet - - - 5,737 6,106 8,115 8,985 9,255 9,532 9,818 10,113 10,416 10,729 Doxophos Vet - - - 3,825 5,909 10,144 10,657 10,977 11,306 11,645 11,994 12,354 12,725


US Vet Sales (USDm)Paccal Vet - - - 11 12 16 19 20 21 22 24 25 27 Doxophos Vet - - - 7 12 21 22 24 25 27 28 30 32

Total sales (USDm) - - - 18 24 37 41 44 46 49 52 55 59

GROUP SALES SPLIT SALES SPLIT WITHIN HUMAN HEALTH

Paclical71%

Docecal27%

Doxophos2%

Human health77%

Veterinary health23%




Gross margins assumption of 81%

Group costs

Our main cost assumption is gross margins of 81%, once the company reaches commercial phase, with SG&A representing about 38% of revenue. As Oasmia has incurred substantial net operating losses during its development phase, we expect taxes carried forward to be used to minimise tax payments.

We forecast SG&A relative to sales of ~38%

In 2017/18E we forecast other external expenses of SEK 59m compared to SEK 80m in 2016/17, due to completion of the ph III trial for Paclical and cost rationalisation. We expect external costs to increase again in 2019/20E and peak at SEK 84m, when later stage clinical trials are initiated for Docecal.

We also assume that sales and general expenses will increase from SEK 59m to SEK 576m, for the period between 2016/17 and 2027/28E, in order to commercialise its product candidates. In relative terms, this represents a cost CAGR of 23% over the same period.

Source: Nordea Markets Source: Nordea Markets


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We assume 15% net working capital to sales

Balance sheet items

We assume a net working capital need of 15% of sales in steady state, once product demand reaches a certain trajectory. In terms of non-current assets, we forecast an unchanged asset composition, meaning that it will continue to exist in the form of mainly intangible assets. Furthermore, according to our assumptions the company could be debt-free in 2021/22E.



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Risk factors Below, we list the main risk factors we find relevant for Oasmia Pharmaceutical. The purpose of this is not to provide a comprehensive picture of all the risks that the company may be subject to, but rather to highlight those that we find most relevant. The main risks we have identified relate to the regulatory uncertainty, success in clinical trials, potential competition, the financial position and the limited commercial history of the company.

Oasmia is dependent on the success of its product candidates

Success of its key product and product candidates

Oasmia is dependent on regulatory approvals and the successful commercialisation of its product candidates, and in particular Paclical in the near term. Failure to receive approval for one or several product candidates could affect the prospects of strategic collaborations and funding, and limit future earnings potential. Risk factors affecting commercial and development success include, but are not limited to, completion of preclinical and clinical trials, regulatory and market approvals from the EMA and FDA, protection and maintenance of intellectual property, competition from other treatments and – upon launch – the sales platform.

Clinical trials are risky and time consuming

Clinical trials risky, time consuming and require resources

Clinical trials are risky and there are no guarantees that they are successful despite promising results in earlier trials. Even in the case of positive results, there is a risk that regulatory bodies, such as the FDA and EMA, might have another interpretation of the results. Trials are also time consuming, expensive and require certain expertise. It can take it several years to complete a trial, and regulatory bodies may delay or terminate trials at any time.

Regulatory outcomes are uncertain and differ between regions

Continuing regulatory overview

Regulatory processes are also uncertain, demanding substantial time and resources from management. In addition, the requirements might differ between different countries and additional studies could be required to obtain approvals. In the case of approval, products will still undergo continual regulatory overviews covering all parts of the manufacturing process, labelling, packing, distribution etc. Failure to comply with current regulations could impose marketing restrictions and recalls, among other things. Another risk is that the current policies may change in the future.

Pharmaceutical products are governed by strict regulation

Manufacturing

Manufacturing of Oasmia’s product candidates requires compliance with the EMA, FDA and other international standards, such as current Good Manufacturing Practice (cGMP). If the company fails to meet these standards, this could cause production disruptions, which could delay clinical trials and affect its ability to fulfil demand. Increased requirements in the future could also cause disruptions and lead to increased investments.

In addition, Oasmia is dependent on third-party manufacturers such as Baxter Oncology GmbH, which will be responsible for the production of Paclical and Paccal Vet once demand has reached a certain trajectory. The contract, which was signed in June 2014, is designed as a five-year non-exclusive deal with automatic one-year renewals.

Oasmia faces competition from multiple sources with experience and resources

Competition

The market for pharmaceutical products is highly competitive, particularly within oncology. We find it likely that Oasmia will face multiple competitors for its products and product candidates including major pharmaceutical companies (Big Pharma), specialty pharma companies and biotechnology companies. Apart from established



treatments, Oasmia might also face competition from new novel treatments currently under development.

Several of the current and potential competitors also have significant advantages in terms of experience, resources and established market positions including, but not limited to, Celgene, Merck & Co, Sanofi S.A., Eli Lilly, Bayer AG, Novartis AG and Boehringer Ingelheim GmBH. In addition, early-stage companies might also prove to be a threat, through strategic collaborations with larger players. Finally, apart from competition from other products there may be generic alternatives that are generally less expensive and where producers are aggressive in terms of price competition.

Many of the names above also have some presence in the animal health market. In addition, there are specialist companies such as Zoetis, Aratana Therapeutics and VetDC and several early-stage development companies. Furthermore, it is not uncommon that human products are used off-label for veterinary indications.

Products could cause severe side effects

Adverse events

There is a risk that the company’s products and product candidates could cause serious and/or unexpected side effects. If these were to occur, they could cause a delay or stop in clinical trials, negative outcomes in market approval processes, induce labelling requirements or be the source of legal disputes and reputational damage.

Chemotherapy is expensive and patients depend on reimbursement systems

Insurance schemes, reimbursements

Chemotherapy drugs are expensive and most patients are not able to cover the full treatment by themselves. Therefore, it is common in the health care industry that treatments are covered by various kinds of reimbursement system. Prices for certain treatments have skyrocketed during the past couple of years, raising the question of cost control initiatives, especially in the US. There is a risk that the reimbursement rates could be lowered to such levels that it would not be commercially viable to sell the product in certain countries and/or regions. In addition, it is also a cumbersome process to obtain reimbursement as the process varies between different countries and regions.

Oasmia might not have sufficient funds to reach commercial phase

Financial position and capital needs

Oasmia is still in a development phase and the current cash flows being generated might not be enough to support the planned activities for the coming 12 months. The company is continually working with several different financing options, including licensing deals and discussions with new and existing shareholders, as well as lenders to ensure that it has enough liquidity until its products are registered and can generate revenue streams. The company believes its prospects of receiving funding are good, but if it was not to receive sufficient funds, it could be difficult for Oasmia to continue as a going concern.

Potential governance risks related to ownership concentration

Concentration of ownership and conflict of interest

Julian Aleksov and Bo Cederstrand, who currently make up 40% of the board of directors, are one of the main shareholders of Oasmia through holding company Alceco. In addition to being partners they have a familial relationship, as Mr Aleksov is married to Mr Cederstrand’s daughter. This can potentially be a conflict of interest in terms of the employment status and remuneration of Mr Aleksov. Alceco also has an outstanding credit facility of SEK 40m to Oasmia.

Limited history makes it difficult to predict the long-term viability of the business

Limited operational history to assess long-term viability

Oasmia has been an active company since 1999, but operations so far have been limited to early stage development activities such as identifying product candidates, raising capital and conducting clinical trials. In terms of commercial activity, the company does not have a proven history of being able to conduct sales and



marketing activities, making it difficult to accurately predict its future success. In order to support such activities, Oasmia might need to invest and add such capabilities.

Oasmia depends on key personnel, including scientists and the founder, Julian Aleksov

Hiring/maintaining qualified personnel

Oasmia’s future success is dependent on its ability to keep, motivate and attract key personnel. This includes senior scientists as well as senior management and in particular Julian Aleksov, who has been part of the company since the start. Loss of key individuals could lead to delays to or prevention of the successful development or commercialisation of key products and product candidates. As previously mentioned, the company might also need to add new capabilities to engage in commercial activities and failure to do so could limit future success.

Currency fluctuations affect both costs and revenue

Currency fluctuations (both costs and revenues)

Oasmia could potentially be exposed to currency fluctuations, both in terms of revenue and costs, as the main commercial production site is based outside Sweden and all clinical trials are conducted there. As such, R&D and production costs could increase as result of a weakening SEK. Currency fluctuations could also affect pricing and margins on product sales. To date, no currency hedges have been used, as the timing of flow of capital related to services for product development is difficult to predict.

Oasmia relies on commercial partners

Dependency on commercial expertise

As Oasmia has no commercial platform, it relies on the expertise of commercial partners in certain regions. The company has agreements with Nippon Zenyaku Kogyo for the commercialisation of Paccal Vet in Japan and Hetero Group for the commercialisation of Paclical in Russia and CIS. In addition, it has a separate agreement with Medison Pharma for the commercialisation of Paclical in Israel and Turkey. This renders it dependent on the third parties’ ability to market its products and a failure or termination of the agreements could have a financial impact.

Intellectual property is key to the future success of its product candidates

Patent

Intellectual property is crucial in pharmaceutical development and Oasmia has a broad portfolio of issued, pending and published patents covering the major markets for lead products and the technology platform, XR-17, which expires in 2028. If Oasmia is not able to adequately defend its IP, this could affect the future success of its product and product candidates. The company might also be forced into litigation, or it could itself be subject to allegations of patent infringements by a third party.



Glossary Anthracycline: a class of cancer drugs extracted from Streptomyces bacterium. Prevents cell division by damaging the DNA.

API: active pharmaceutical ingredient.

Carboplatin: a chemotherapy drug used to treat some cancer types, including ovarian cancer and small cell lung cancer.

Clinical phase: tests of drug candidates on humans (or animals in a veterinary context)

• ph I: test of drug on a limited number of healthy volunteers (25-100 people) for dose-ranging

• ph II: test of drug on patients (50-300 people) with the disease to determine efficacy and side effects

• ph III: test of drug on a larger group of patients (300-3 000 people) with the disease to determine efficacy, side effects and safety profile compared to current standard treatment

• ph IV: Upon market launch the drug is monitored with respect to rare side effects

Cremophor EL: a castor oil used for delivering poorly-water soluble drugs.

Cytostatic: chemotherapy drugs used against tumours.

Docetaxel: a substance that is part of the taxane family. Used for treating a number of cancers.

Doxorubicin: a type of chemotherapy drug called an anthracyclines.

Excipient: a substance formulated alongside the API crucial for delivering the drug within the body.

Hybrid application: application as an improved generic drug.

Hydrophilic: tendency to mix or dissolve in water

Hydrophobic: tendency not to combine or dissolve in water.

Metastasis: the spread of cancer cells to new areas of the body.

Micelle: lipid molecules that arrange themselves in a spherical form in aqueous solutions.

MUMS: Minor use/Minor species. FDA designation to incentivise development of drugs to treat rare diseases or diseases for a limited number of species. Similar to orphan drug designation.

Nanoparticle: a microscopic particle where at least one dimension is less than 100 nanometres.

Neutropenia: abnormally low levels of neutrophils (a type of white blood cell that forms the immune system’s first line of defence).

Paclitaxel: a commonly used chemotherapy drug. Part of the taxane family.

Pharmacokinetics: the study of the distribution, absorption and metabolism of a substance over time in the body

Preclinical phase: a stage before tests on humans (clinical trials). Identification of drug candidates, study of feasibility and assessment of products’ safety profiles.

Taxane: a class of drugs originally derived from the yew tree. One of the most common compounds used to prevent cells from entering mitosis, a process of cell division.



Reported numbers and forecasts



INCOME STATEMENTSEKm 10/11 11/12 12/13 13/14 14/15 15/16 16/17 17/18E 18/19E 19/20ENet revenue 0 1 0 0 2 6 0 8 97 374 Revenue growth n.a. n.a. n.a. n.a. n.a. n.a. n.a. 1185.4% 287.0% EBITDA -146 -124 -111 -127 -119 -155 -132 -93 -11 104

Depreciation and impairments PPE -4 -4 -4 -4 -4 -4 -3 -3 -4 -4

EBITA -150 -128 -115 -131 -124 -159 -135 -96 -15 100 Amortisation and impairments -1 -1 -1 -1 -1 -1 -1 -1 -4 -23

EBIT -151 -129 -116 -132 -124 -160 -136 -98 -19 78

of which associates 0 0 0 0 0 0 0 0 0 0 Associates excl. from EBIT 0 0 0 0 0 0 0 0 0 0 Net financials -2 -0 -5 -7 -9 -9 -20 -14 -18 -17 Pre-Tax Profit -152 -129 -121 -139 -134 -169 -156 -112 -37 60 Reported taxes 0 0 0 0 0 0 0 0 0 0 Net profit from cont. operations -152 -129 -121 -139 -134 -169 -156 -112 -37 60 Discontinued operations 0 0 0 0 0 0 0 0 0 0 Minority interest 0 0 0 0 0 0 0 0 0 0 Net profit to equity -152 -129 -121 -139 -134 -169 -156 -112 -37 60EPS -3.37 -2.31 -1.75 -1.68 -1.46 -1.66 -1.24 -0.69 -0.19 0.30 DPS 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 of which ordinary 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 of which extraordinary 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Profit margin in percent EBITDA n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. -11.5% 27.9% EBITA n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. -15.6% 26.8% EBIT n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. -19.6% 20.8%

Adjusted earnings EBITDA (adj.) -146 -124 -111 -127 -119 -155 -132 -93 -11 104 EBITA (adj.) -150 -128 -115 -131 -124 -159 -135 -96 -15 100 EBIT (adj.) -151 -129 -116 -132 -124 -160 -136 -98 -19 78 EPS (adj.) -3.37 -2.31 -1.75 -1.68 -1.46 -1.66 -1.24 -0.69 -0.19 0.30

Adjusted profit margins in percent EBITDA (adj.) n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. -11.5% 27.9% EBITA (adj.) n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. -15.6% 26.8% EBIT (adj.) n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. -19.6% 20.8%

Performance metrics CAGR last 5 years Net revenue n.a. n.a. n.a. n.a. 110.2% 63.5% n.a. 234.6% 161.4% 176.8% EBITDA n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. EBIT n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. EPS n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. DPS n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.

Average EBIT margin n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Average EBITDA margin n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.

VALUATION RATIOS - ADJUSTED EARNINGSSEKm 10/11 11/12 12/13 13/14 14/15 15/16 16/17 17/18E 18/19E 19/20E P/E (adj.) -4.0 -3.3 -6.4 -11.2 -13.7 -7.8 -5.1 -5.6 -20.5 12.6 EV/EBITDA (adj.) -4.4 -3.8 -8.6 -13.5 -17.1 -9.7 -7.1 -9.8 -88.7 9.4 EV/EBITA (adj.) -4.3 -3.7 -8.3 -13.1 -16.5 -9.5 -7.0 -9.5 -65.2 9.8 EV/EBIT (adj.) -4.3 -3.7 -8.3 -13.0 -16.4 -9.4 -6.9 -9.3 -51.9 12.7

Valuation ratios/reported earnings P/E -4.0 -3.3 -6.4 -11.2 -13.7 -7.8 -5.1 -5.6 -20.5 12.6 EV/Sales 6087.8 530.7 n.a. 28639.6 984.2 235.7 5473.5 121.2 10.2 2.6 EV/EBITDA -4.4 -3.8 -8.6 -13.5 -17.1 -9.7 -7.1 -9.8 -88.7 9.4 EV/EBITA -4.3 -3.7 -8.3 -13.1 -16.5 -9.5 -7.0 -9.5 -65.2 9.8 EV/EBIT -4.3 -3.7 -8.3 -13.0 -16.4 -9.4 -6.9 -9.3 -51.9 12.7 Dividend yield (ord.) 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% FCF yield -22.4% -14.2% -14.5% -7.6% -9.1% -8.5% -15.1% -21.0% -9.4% -0.2% Payout ratio 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%




BALANCE SHEETSEKm 10/11 11/12 12/13 13/14 14/15 15/16 16/17 17/18E 18/19E 19/20E Intangible assets 236 328 357 390 405 422 453 470 496 504 of which R&D 227 301 347 376 393 410 417 434 460 467 of which other intangibles 9 27 10 13 12 12 36 36 36 36 of which goodwill 0 0 0 0 0 0 0 0 0 0 Tangible assets 27 26 26 24 23 21 18 20 22 25 Shares associates 0 0 0 0 0 0 0 0 0 0 Interest bearing assets 0 0 0 0 0 0 0 0 0 0 Deferred tax assets 0 0 0 0 0 0 0 0 0 0 Other non-int. bearing assets 0 0 0 0 0 0 0 0 0 0 Other non-current assets 0 0 0 0 0 0 0 0 0 0 Total non-current assets 263 354 383 414 428 443 471 490 518 528 Inventory 0 0 1 2 5 17 14 2 15 56 Accounts receivable 0 0 0 0 0 5 0 2 29 112 Other current assets 5 4 6 4 54 25 8 4 24 37 Cash and bank 52 2 63 48 27 26 28 15 19 18 Total current assets 57 6 70 54 87 73 50 24 87 223 Assets held for sale 0 0 0 0 0 0 0 0 0 0Total assets 320 360 453 468 515 516 522 513 605 752

Shareholders equity 294 273 319 282 376 326 300 336 299 360 of which preferred stock 0 0 0 0 0 0 0 0 0 0 of which Equity of hyb. debt 0 0 0 0 0 0 0 0 0 0 Minority interest 0 0 0 0 0 0 0 0 0 0 Total Equity 294 273 319 282 376 326 300 336 299 360 Deferred tax 0 0 0 0 0 0 0 0 0 0 Long term int. bearing debt 0 0 0 0 0 0 0 13 88 88 Pension provisions 0 0 0 0 0 0 0 0 0 0 Other long-term provisions 0 0 0 0 0 0 0 0 0 0 Other long-term liabilities 0 0 0 0 0 0 0 0 0 0 Convertible debt 0 0 0 0 0 26 66 52 52 52 Shareholder debt 0 0 0 0 0 0 0 0 0 0 Hybrid debt 0 0 0 0 0 0 0 0 0 0 Total non-curr. liabilities 15 16 1 1 0 26 66 65 140 140 Short-term provisions 0 0 0 0 0 0 0 0 0 0 Accounts payable 4 10 7 18 14 27 21 6 39 112 Other current liabilities 7 27 21 23 18 22 32 4 24 37 Short term interest bearing debt 0 33 105 145 107 114 102 102 102 102 Total current liabilities 11 71 133 186 139 164 155 112 165 252 Liab.for assets held for sale 0 0 0 0 0 0 0 0 0 0Total liabilities and equity 320 360 453 468 515 516 521 513 605 752

Balance sheet and debt metrics Net debt -52 31 42 97 80 114 141 152 224 225 Working capital -6 -34 -21 -35 28 -3 -30 -1 5 56 Invested capital 258 321 362 380 456 440 441 489 523 585 Capital employed 310 290 320 283 376 352 367 402 439 500 ROE -69.8% -45.5% -40.8% -46.3% -40.7% -48.0% -49.8% -35.1% -11.7% 18.3% ROIC -71.2% -44.7% -34.4% -36.0% -30.3% -36.1% -31.9% -21.6% -4.5% 13.3% ROCE -48.7% -44.5% -36.3% -46.7% -33.1% -45.4% -37.1% -24.3% -4.3% 15.6%

Net debt/EBITDA 0.4 -0.2 -0.4 -0.8 -0.7 -0.7 -1.1 -1.6 -20.2 2.2Interest coverage -71.6 -258.9 -21.5 -18.3 -13.1 -16.5 -6.9 -7 -1 4Equity ratio 91.8% 75.9% 70.4% 60.2% 73.0% 63.2% 57.5% 65.5% 49.5% 47.8%Net gearing -17.6% 11.3% 13% 34.3% 21% 34.9% 47.0% 45.3% 74.7% 62.6%




CASH FLOW STATEMENTSEKm 10/11 11/12 12/13 13/14 14/15 15/16 16/17 17/18E 18/19E 19/20EEBITDA (adj.) for associates -146 -124 -111 -127 -119 -155 -132 -93 -11 104 Paid taxes 0 0 0 0 0 0 0 0 0 0 Net financials -1 0 0 0 -1 -1 -2 -14 -18 -17 Change in Provisions 0 0 0 0 0 0 0 0 0 0 Change in other LT non-IB 0 1 -15 0 -1 0 0 0 0 0 Cash flow to/from associates 0 0 0 0 0 0 0 0 0 0 Dividends paid to minorities 0 0 0 0 0 0 0 0 0 0 Other adj. to reconcile to cash flow 86 63 63 34 18 27 7 0 0 0Funds from operations (FFO) -60 -61 -64 -94 -104 -129 -128 -107 -29 87 Change in NWC 3 8 -8 7 -4 1 -5 -29 -6 -51Cash flow from op. (CFO) -58 -52 -72 -87 -108 -128 -133 -136 -35 36 Capital Expenditure -99 -10 -62 -36 -21 -20 -8 -23 -36 -37Free Cash Flow before A&D -156 -63 -134 -123 -129 -148 -141 -159 -71 -1 Proceeds from sale of assets 0 0 0 0 30 30 20 0 0 0 Acquisitions 0 0 0 0 -80 0 0 0 0 0 Free cash flow -156 -63 -134 -123 -179 -118 -121 -159 -71 -1

Dividends paid 0 0 0 0 0 0 0 0 0 0 Equity issues / buybacks 148 45 118 68 176 89 61 148 0 0 Net change in debt 54 33 72 40 -20 28 62 -1 75 0 Other financing adjustments 0 0 0 0 0 0 0 -1 0 0 Other non-cash adjustments 0 -65 4 0 1 0 0 0 0 0 Change in cash 47 -50 61 -15 -21 -1 2 -13 4 -1

Cash flow metrics Capex/D&A 2111% 202% 1131% 722% 381% 415% 177% 496% 458% 140% Capex/Sales n.a. n.a. n.a. n.a. n.a. n.a. n.a. -306% -37% -10%

Key information Share price year end (current) 13 8 11 18.8 20.0 13.0 6.4 3.8 3.8 3.8 Market cap 697 442 919 1622 1957 1388 801 759 759 759 Enterprise value 645 473 961 1718 2037 1502 941 912 983 984 Diluted no. of shares, year-end (m) 52.1 58.2 81.8 86.2 97.9 107.2 126.1 198.2 198.2 198.2

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Analyst shareholdings Nordea Markets equity and credit analysts do not hold shares in the companies that they cover.No holdings or other affiliations by analysts or associates. Fair value and sensitivity We calculate our fair values by weighting DCF, DDM, SOTP, asset-based and other standard valuation methods. Our fair values are sensitive to changes in valuation assumptions, of which growth, margins, tax rates, working capital ratios, investment-to-sales ratios and cost of capital are typically the most sensitive. It should be noted that our fair values would change by a disproportionate factor if changes are made to any or all valuation assumptions, owing to the non-linear nature of the standard valuation models applied (mentioned above). As a consequence of the standard valuation models we apply, changes of 1-2 percentage points in any single valuation assumption can change the derived fair value by as much as 30% or more. All research is produced on an ad hoc basis and will be updated when the circumstances require it

Marketing Material This research report should be considered marketing material, as it has been commissioned and paid for by the subject company, and has not been prepared in accordance with the regulations designed to promote the independence of investment research and it is not subject to any legal prohibition on dealing ahead of the dissemination of the report. However, Nordea Markets analysts are according to internal policies not allowed to hold shares in the companies/sectors that they cover.. Recommendation structure There is no recommendation in this report, and thus this section is not applicable.

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Issuer Review This report has not been reviewed by the issuer prior to publication. Completion date 5 March 2018, 08:21 CET

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Default template for Word - Nordea Markets · Oasmia Pharmaceutical 05 March 2018 Marketing material commissioned by Oasmia Pharmaceutical 4 commercialisation of its key products