(Address, including zip code, and telephone
number, including area code, of Registrant’s principal executive offices)
(Name, address, including
zip code, and telephone number, including area code, of agent for service)
Indicate by check mark whether the registrant
is an emerging growth company as defined in Rule 405 of the Securities Act of 1933.
RISK FACTORS
Investing in the ADSs,
including the ADSs underlying the Warrants to purchase ADSs, involves a high degree of risk. You should carefully consider the
following risk factors and all other information contained in this prospectus, 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 prospectus,
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.
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 for cancer in dogs, Paclical
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, has been approved for full commercial distribution in Russia. Another one of our product candidates, Paccal
Vet was previously conditionally approved by FDA. However, this conditional approval was withdrawn 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 Paccal Vet
and Paclical
The development and commercial
success of our product and product candidates will depend on a number of factors, including, without limitation, the following:
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timely
initiation and successful completion of preclinical studies and clinical trials for our product candidates;
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demonstration to the satisfaction of the United States Food and Drug Administration (“FDA”), the European Medicines Agency (“EMA”) and other applicable regulatory authorities 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., Europe and elsewhere;
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continued compliance with all clinical and regulatory requirements applicable to our product and product candidates;
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maintenance of an acceptable safety profile of our products following regulatory approval;
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competition with other treatments;
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creation, maintenance and protection of our intellectual property portfolio, including patents and trade secrets, and regulatory exclusivity for our product and product candidates;
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effectiveness of our and our partners’ marketing, sales and distribution strategy and operations;
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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;
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ability to launch commercial sales of our product and product candidates following regulatory approval, whether alone or in collaboration with others;
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acceptance of our animal health product and product candidates by veterinarians, pet owners and the animal health community; and
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acceptance of our human health product candidates from physicians, health care payers, patients and the medical community.
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Many of these factors
are beyond our control, and 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 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:
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the indication and warnings approved by regulatory authorities in the product label;
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continued demonstration of efficacy and safety in commercial use;
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physicians’ or veterinarians’ willingness to prescribe the product;
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reimbursement from third-party payors such as government health care systems and insurance companies;
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the price of the product, including pet owners’ willingness to pay for treatment;
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the nature of any post-approval risk management plans mandated by regulatory authorities;
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the effectiveness of marketing and distribution support.
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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 Paccal Vet, Paclical, 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 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 Paccal Vet, Paclical and our other
product candidates, the market authorization for Paccal Vet and Paclical 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 Paccal Vet and Paclical
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 Paccal Vet, Paclical 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, Paclical 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 of our manufacturing facility
in Uppsala, Sweden, our pharmaceutical facilities are continuously subject to inspection by the FDA and foreign 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, Bayer AG, Novartis AG and Boehringer Ingelheim GmbH. Each 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, Inc., Masivet, made by AB Science S.A. and Tanovea™-CA1 made by VetDC. 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.
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, Paclical 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 Paccal Vet,
Paclical, 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:
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regulatory authorities may interrupt, delay or halt clinical trials;
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regulatory authorities may deny regulatory approval of our product candidates;
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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;
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regulatory authorities may withdraw their approval, require more onerous labeling statements or impose a more restrictive REMS of any product that is approved;
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we may be required to change the way the product is administered or conduct additional clinical trials;
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our relationships with our commercial partners may suffer;
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we could be sued and held liable for harm caused to patients; and
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our reputation may suffer.
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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 Paccal Vet, Paclical 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.
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
Paclical 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 toward 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 payers, 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 our other animal health products 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.
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 an 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.
Paclical 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.
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 Prospectus.
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 Prospectus contains an explanatory paragraph on our consolidated financial statements
stating there is 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. The perception that we may not be able to continue as a going concern may also make it more difficult to raise additional
funds or operate our business due to concerns about our ability to meet our contractual obligations.
Oasmia has one product
approved, but this does not yet create a sufficient cash flow from its own business. For this reason, Oasmia continuously works
with various financing alternatives. This work includes 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, 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. 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 inadequate
financial statement preparation and review procedures.
In connection with the
audit of our financial statements as of and for the fiscal years ended April 30, 2017 and 2015, 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. 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.
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adequate internal review processes in place over critical accounting areas including timely operation whereby management identifies and resolves significant or complex accounting matters.
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As a result of this material
weakness, during the year ended April 30, 2017 and 2015 we will continue to implement the following changes:
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continued to improve necessary procedures to capture all expenses for capitalized research and development expenses;
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further enhanced the internal review processes of critical and significant accounting areas by involving the management group deeper in such judgments and estimates;
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strengthened the finance department by recruitments and organizational change and by hiring additional personnel;
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improved know how of IFRS standards, as adopted by the IASB, through additional education in IFRS standards and also specific SEC reporting in the U.S.;
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Continued to implement and improve formalized written policies and procedures for the timely accrual of capitalized research and development expenses;
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enhanced oversight procedures in an effort to ensure that the accrual process has been performed prior to finalization of the financial statements at each reporting period; and
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formalized accounting evaluation of non-routine judgments and estimations.
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We concurred with the
findings in the years ended April 30, 2017 and 2015 from our independent registered public accounting firm. We will continue to
work to remediate the material weakness. We will continue to strengthen our processes, however our initiatives may not prove to
be successful to avoid any material weakness in the future.
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, 2017 and 2015 our independent registered public
accounting firm reported to our audit committee that it had identified a material weakness 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 inadequate financial statement reparation and review procedures.”
As a result of such
material weakness 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 prospectus, 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.
Our concentration of ownership could
be disadvantageous to shareholders.
Alceco International S.A.
(“Alceco”), as of February 28, 2018, owned approximately 11.01 % percent of our shares. Arwidsro Investment AB, owned
by Per Arwidsson as of February 28, 2018, owned approximately 17.20 percent of our shares. Alceco and Arwidsro Investment AB can
exercise significant influence over all matters requiring shareholder approval, and may be able to prevent a change in control
or take other measures that may benefit Alceco or Per Arwidsson but could be disadvantageous to other shareholders. Moreover, the
sale of a substantial number of our shares by Alceco and/or Per Arwidsson within a short period of time could cause our share price
to decrease, make it more difficult for us to raise funds through future offerings of Ordinary Shares or acquire other businesses
using Ordinary Shares as consideration. Additionally, Alceco and Per Arwidsson may have conflicting interests with us. 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 and with our largest shareholders that could pose a conflict
of interest. Two of our directors, our Chairman of the Board 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 February 28, 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 us, which as of the date of this prospectus has not been drawn upon.
Another director, Alexander Kotsinas,
was until recently an independent consultant for Nexttobe AB, which is our largest creditor, from whom we have a loan of SEK 102.4
million, which has an interest rate of 8.0 per cent and falls due on May 30, 2018.
These directors may have
actual or apparent conflicts of interest with respect to matters involving or affecting us and Alceco and/or Nexttobe. Examples
of possible conflicts include:
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the
board of directors could have to decide whether to use funds for operating expenses or the repayment of a loan to Nexttobe;
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issues or disputes could arise under the commercial agreements that exist between us and Alceco and Nexttobe;
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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;
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Nexttobe, a venture capital company, could own or come to own interests in companies that compete with us; and
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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.
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Apart from the conflicts
of interest policy contained in our Code of Ethics and Business Conduct, we and Alceco Nexttobe and Per Arwidsson have not established
any formal procedures for us and Alceco Nexttobe and Per Arwidsson 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 prospectus.
All of our directors and
officers named in this prospectus 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 160.24 million, SEK 141.54 million
and SEK 117.50 million for the fiscal years ended April 30, 2017, April 30, 2016 and April 30, 2015. The net losses for the first
three quarters of fiscal year 2017/2018 was SEK 85.93 million compared to SEK 118.16 for the same period previous fiscal year.
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:
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finalize Phase I/II programs for Docecal for the treatment of breast cancer;
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conduct additional efficacy studies in dogs to collect all the necessary efficacy data for full FDA approval of Paccal Vet;
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continue research and development for and commence pre-clinical and clinical trials of Docecal, Doxophos, Doxophos Vet and OAS-19;
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seek to discover and develop additional product candidates;
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seek regulatory approvals for any product candidates that successfully complete clinical trials;
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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;
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maintain, expand and protect our intellectual property portfolio;
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hire additional clinical and scientific personnel; and
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add operational, financial and management information systems and personnel, including personnel to support our product development and planned future commercialization efforts.
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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, 2017, April 30, 2016 and April 30, 2015 was SEK 133.01 million, SEK 128.13 million and SEK 107.67 million,
with development costs, which are capitalized, for those years totaling SEK 7.02 million, SEK 16.73 million and SEK 16.80 million.
For the nine month period ended January 31, 2018 the cash flow from operating activities was SEK 94.35 million compared to SEK
103.84 million for the same period previous year. 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 and as we transitioned to a U.S. public company. 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:
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delay, reduce or eliminate our research and development programs or any future commercialization efforts;
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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;
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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
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cease operations altogether.
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We do not expect our existing
capital resources to enable us to complete Phase III development of Paclical for the treatment of epithelial ovarian cancer, conduct
Phase III development of Paclical for other indications, conduct additional efficacy studies in dogs for full FDA approval of Paccal
Vet or continue research and development for and commence clinical trials of Docecal, Doxophos 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:
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the revenue, if any, related to commercial sales of our product and product candidates for which we receive marketing approval;
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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;
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our ability to enter into collaborative agreements for the development and commercialization of our product candidates;
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the number and development requirements of other product candidates that we pursue;
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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.;
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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;
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any product liability or other lawsuits related to our products;
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the expenses needed to attract and retain skilled personnel; and
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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.
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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.
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.
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.
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 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 Paccal Vet, Paclical and our other product candidates in cancer treatment, are being enrolled at sites
outside the U.S. (25% of canine subjects and 100% of human patients), differences in efficacy results between U.S. and non-U.S.
sites could cause the FDA to require additional trials. In the event that:
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we obtain negative results from the Paccal Vet trials,
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we receive poor clinical results for our other product candidates,
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the FDA places a clinical hold on our Phase III trials due to potential chemistry, manufacturing and controls issues or other hurdles, or
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the FDA does not approve our New Animal Drug Application (“NADA”) for Paccal Vet or our New Drug Application (“NDA”) for Paclical or for our other product candidates,
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then:
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we may not be able to generate sufficient revenue or obtain financing to continue our operations,
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our ability to execute our current business plan will be materially impaired,
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our reputation in the industry and in the investment community would likely be significantly damaged, and
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the price of the Ordinary Shares would likely decrease significantly.
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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 a number of our product candidates are expected to continue for several years and may even take significantly
longer to complete. In addition, we, the FDA, an IRB, or other regulatory authorities, including in the U.S., EU and elsewhere,
may suspend, delay or terminate our clinical trials at any time, for various reasons, including:
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lack of effectiveness of any product candidate during clinical trials;
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discovery of serious or unexpected toxicities or side effects experienced by trial participants or other safety issues;
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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;
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delays or inability in manufacturing or obtaining sufficient quantities of materials for use in clinical trials due to manufacturing or regulatory constraints;
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inadequacy of or changes in our manufacturing process or product formulation;
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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;
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changes in applicable regulatory policies and regulations;
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delays or failure in reaching agreement on acceptable terms in clinical trial contracts or protocols with prospective clinical trial sites;
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delay or failure to supply product for use in clinical trials which conforms to regulatory specification;
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unfavorable results from ongoing pre-clinical studies and clinical trials;
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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;
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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;
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scheduling conflicts with participating clinicians and clinical institutions;
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failure to design appropriate clinical trial protocols; or
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regulatory concerns with pharmaceutical products generally and the potential for abuse.
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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 an 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, which we withdrew in early 2017
to allow the start of a new study to confirm a new treatment regimen. It will require additional follow-up efficacy studies for
full approval, but have yet to receive 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 pet therapeutic for a particular species of pet, we must provide the FDA and foreign regulatory authorities with data
from animal safety and effectiveness studies that adequately demonstrate the safety and efficacy of that product 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 of 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 human beings 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.
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 fail to do so on a timely basis and, even if we are 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:
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restrictions on the marketing or manufacturing of the product, withdrawal of the product from the market, or voluntary or mandatory product recalls;
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fines, warning letters or holds on target studies;
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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;
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product seizure or detention, or refusal to permit the import or export of products; and
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injunctions or the imposition of civil or criminal penalties
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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.
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, 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 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:
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requests for additional endpoints or studies;
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changes to manufacturing methods;
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recall, replacement, or discontinuance of certain products; and
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additional record keeping.
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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 mammary carcinoma and squamous-cell carcinoma in dogs, Paclical for ovarian cancer in humans,
Docecal for breast cancer in humans, Doxophos Vet for lymphoma in dogs, Doxophos for breast cancer in humans, 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 REMS
for Paclical 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 Paclical 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 Paclical 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 Paclical 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, Paclical 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.
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 scheme 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 Chairman of the Board, 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 employee’s 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.
Incentive program.
Oasmia’s Extraordinary
General Meeting in November 2016 passed a resolution on an incentive scheme, under which warrants will be issued to the Company’s
senior management and Board members. These incentive schemes were replaced by the incentive schemes approved by an Extraordinary
General Meeting in June 2017.
The purpose of the Company’s
incentive scheme is to encourage employees and Board members to invest in the Company in order to be able to share in and help
promote positive value growth in the Company’s share in the period covered by the scheme, 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 schemes performing their work less efficiently than expected. There is also a risk that Oasmia
and the participants in the incentive schemes may interpret the terms and conditions of the schemes in different ways, or that
other disputes concerning the incentive scheme could arise, which could add to the expense and reduce or completely counteract
the effectiveness of the scheme. Further, share-based incentive schemes are 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. In addition, share based incentive schemes in the form of warrants also dilute the holdings of existing shareholders
when the warrants are exercised.
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.
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. 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 Paclical 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 Paclical 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, or approximately
$2.29 million, in product liability insurance coverage as of the date of this prospectus), 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:
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decreased demand for Paclical, Doxophos and our other product candidates, if such product candidates are approved;
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injury to our reputation;
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withdrawal of clinical trial participants;
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costs of related litigation;
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substantial monetary awards to patients, pet owners and others;
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increased cost of liability insurance;
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our inability to successfully commercialize our products.
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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:
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weakening of the krona may increase the krona cost of overseas research and development expenses and the cost of sourced product components outside Sweden;
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strengthening of the krona may decrease the value of our revenues denominated in other currencies;
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the exchange rates on non-kronor transactions and cash deposits can distort our financial results; and
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the pricing and profit margins of Paclical, Doxophos and our other product candidates may be affected by currency fluctuations.
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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.
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, 2017, we had cumulative carry forward tax losses of SEK 878.34 million,
as of April 30, 2016, we had cumulative carry forward tax losses of SEK 720.58 million and as of April 30, 2015 we had cumulative
carry forward tax losses of SEK 518.74 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, Paclical, 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 Paclical 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 Paclical and many of
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
that in these types of commercial agreements our partners are entitled to price our products, which means that much of our financial
performance will be dependent on our partners. Our partners also have the right, under certain circumstances, to terminate their
agreements with us. A failure by our partners to successfully market Paccal Vet, Paclical, 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.
As referred to elsewhere
herein, we have entered into various licensing and distribution agreements with established pharmaceutical companies to sell Paccal
Vet. Specifically, we had entered into an agreement for the global commercialization of Paccal Vet with Abbott Animal Health, the
assets of which were acquired by Zoetis on February 10, 2015. In connection with Zoetis’ purchase of Abbott Animal Health,
Zoetis terminated the distribution arrangement effective September 30, 2015.
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 pay his 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 currently have no sales and marketing
organization for the distribution of Paccal Vet or Doxophos Vet as a result of the pending 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.
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, we currently have no sales and marketing organization for these products.
We will incur significant additional expenses and commit significant additional management resources to establish our sales force.
We may not be able to establish these capabilities despite these additional expenditures. We will also have to compete with other
pharmaceutical and biotechnology companies to recruit, hire and train sales and marketing personnel.
If we elect to rely on
third parties to sell these products in the U.S., we may receive less revenue than if we sold our products directly. In addition,
while we anticipate using due diligence in monitoring their activities, we may have little or no control over the sales efforts
of those third parties. In the event that we are unable to develop our own sales force or collaborate with a third party to sell
these products, we may not be able to commercialize these products which would negatively impact its ability to generate revenue.
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 Paccal Vet, 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.
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 Paclical 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:
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our suppliers could cease or reduce production or deliveries, raise prices or renegotiate terms;
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we may be unable to locate a suitable replacement suppliers on acceptable terms or on a timely basis, or at all; and
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delays caused by supply issues may harm our reputation, frustrate our customers and cause them to turn to our competitors for future needs.
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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.
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.
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, document submission, 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.
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, the Warrants
and this offering
A trading market for the ADSs was only
recently established.
There was no public market
for the ADSs prior to our initial public offering. In connection with the public offering, we listed the ADSs on the NASDAQ Capital
Market (“Nasdaq”) and trading commenced on October 23, 2015. There is no trading market for the Warrants and it is
not anticipated that one will ever develop.
There can be no assurance
that an active trading market for the ADSs will develop or be sustained. As of the date of this prospectus, the ADSs trade significantly
below the initial offering price. There can be no assurance that the ADSs will trade at or above the initial offering price within
the foreseeable future, if at all.
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:
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announcements of the failure to obtain regulatory approvals or receipt of a “complete response letter” from the FDA;
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announcements of restricted label indications or patient populations, or changes or delays in regulatory review processes;
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announcements of therapeutic innovations or new products by us or our competitors;
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adverse actions taken by regulatory agencies with respect to our clinical trials, manufacturing supply chain or sales and marketing activities;
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changes or developments in laws or regulations applicable to Paclical, or our other product candidates;
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the failure of our testing and clinical trials;
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product liability claims, other litigation or public concern about the safety of our product, product candidates or future products;
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any adverse changes to our relationship with licensors, manufacturers or suppliers;
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the loss of any of our key scientific or management personnel;
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any major changes in our board of directors or management;
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the failure to retain our existing, or obtain new, commercial partners;
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announcements concerning our competitors or the pharmaceutical industry in general;
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the achievement of expected product sales and profitability;
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the failure to obtain reimbursements for our products or price reductions;
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manufacture, supply or distribution shortages;
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actual or anticipated fluctuations in our cash position or operating results;
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manufacturing and supply issues related to our product or our current or future product candidates for our development programs and commercialization;
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changes in financial estimates or recommendations by securities analysts;
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the termination of any of our existing license agreements;
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announcements relating to future licensing or development agreements;
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potential acquisitions;
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the trading volume of ADSs on Nasdaq and of the Ordinary Shares on NASDAQ Stockholm and the Frankfurt Stock Exchange;
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sales of the ADSs or Ordinary Shares by us, our executive officers or directors or our shareholders;
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fluctuations in the U.S. equity markets;
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changes in accounting principles;
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market conditions in the human and animal health sectors; and
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general economic conditions in the U.S. and elsewhere.
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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 Ordinary Shares, 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 Frankfurt Stock Exchange, 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 three 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 and the Frankfurt Stock Exchange. 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 after this offering, 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 prospectus, we had 176,406,372 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
sold in this offering 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 will be available for sale after this offering 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.
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.
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 we do file 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:
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have a majority of the board of directors consist of independent directors;
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require non-executive directors to meet on a regular basis without management present;
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promptly disclose any waivers of the code of ethics for directors or executive officers that should address certain specified items;
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have an independent nominating committee;
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solicit proxies and provide proxy statements for all shareholder meetings; and
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seek shareholder approval for the implementation of certain equity compensation plans and issuances of Ordinary Shares.
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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
if investors will 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 this offering, (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 shall 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 will take place beginning with our annual report for the year ended 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. For the fiscal years ended April 30, 2015 and April 30, 2014, our independent registered public
accounting firm reported to our audit committee that it had identified a material weakness 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 inadequate
financial statement preparation and review procedures.” In order to maintain and improve the effectiveness of our disclosure
controls and procedures and our internal controls over financial reporting, we will need to expend significant resources and provide
significant management oversight. Implementing any appropriate changes to our internal controls may require specific compliance
training of our directors and employees, entail substantial costs in order to modify our existing accounting systems, take a significant
period of time to complete and divert management’s attention from other business concerns. These changes may not, however,
be effective in maintaining the adequacy of our internal controls.
If we are unable to conclude
that we have effective internal control over financial reporting or, at the appropriate time, our independent auditors are 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 will incur significant increased costs
as a result of operating as a company whose ADSs are publicly traded in the U.S., and our management will be 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 previously incurred.
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 will need to devote a substantial amount of time
to these compliance initiatives. Moreover, these rules and regulations will increase our legal and financial compliance costs and
will make some activities more time-consuming and costly. We estimate that our annual compliance expenses following the completion
of this offering will be approximately SEK 3 million in each of the next two fiscal years. Among other matters, we expect these
rules and regulations to make 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 could also make
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.
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. See “Description of the Ordinary Shares
—
Differences in Corporate Law” for a description of the principal differences between the provisions of the Swedish Companies
Act applicable to us and, for example, the Delaware General Corporation Law relating to shareholders’ rights and protections.
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.