Edited Transcript of GWPH.O earnings conference call or presentation 6-May-19 8:30pm GMT

I now turn the call over to Justin Gover, GW's Chief Executive Officer.

--------------------------------------------------------------------------------

Justin D. Gover, GW Pharmaceuticals plc - CEO & Executive Director [3]

--------------------------------------------------------------------------------

Thank you, Steve, and welcome to all those who have joined us today. We are coming to you today from the American Academy of Neurology Annual Meeting in Philadelphia, where numerous Epidiolex poster presentations are occurring, including the presentation of the second Phase III pivotal study in Dravet syndrome. We are excited to have released today positive results from our Phase III trial in tuberous sclerosis complex. This puts GW on track to file a sNDA submission in the fourth quarter of this year with the goal of expanding the market for Epidiolex into this high-need patient population in 2020.

Volker Knappertz, our CMO, will provide more detail on these TSC results on this call.

I also want to welcome our new U.S. Chief Commercial Officer, Darren Cline, to the call. As announced last month, Darren is succeeding Julian Gangolli in the role of heading the U.S. commercial team. Darren joined our team officially on April 22 and is completing a brief transition period with Julian before Julian officially retires at the end of this week. I will ask Darren to give you a brief introduction later on this call.

As we now report on the first full quarter of Epidiolex sales, I am pleased to report strong receptivity to the product introduction. Overall, we are very satisfied with the launch to date and continued momentum looks to be leading towards an exciting year commercially. In a moment, Julian will offer additional perspectives on the Epidiolex market dynamics and some thoughts behind the strong Q1 results.

Beyond the United States, the European regulatory procedures for Epidiolex continues to advance, and we are preparing for launch in the major 5 European countries later this year. Chris Tovey will provide more detail later on this call. And finally, on this call, Scott Giacobello, our CFO, will review our financial results.

Let me begin by asking Darren to provide a brief introduction. Darren?

--------------------------------------------------------------------------------

Darren S. Cline, GW Pharmaceuticals plc - U.S. Chief Commercial Officer [4]

--------------------------------------------------------------------------------

Thank you, Justin, and let me say that I am thrilled to have this opportunity to continue with the work that Julian has done to build such a world-class U.S. commercial organization. From my perspective, the organization is well-suited to achieve the objectives ahead. My immediate goal is to transition into the role as quickly as possible. Julian and the senior commercial team have been great support over the last couple weeks, and I am now looking forward to shape a long-term strategy and execution to maximize the Epidiolex commercial opportunity.

My background is in rare disease, where most recently I oversaw all commercial functions at Seattle Genetics and where I was directly involved in the commercial buildout for the U.S. launch and continued growth of ADCETRIS. Prior to Seattle Genetics, I was at Alexion Pharmaceuticals in a critical commercial leadership role that prepared the company for the Soliris launch, helping to build out and lead key sales functions that are instrumental in Soliris becoming a very successful brand. This type of success is what we expect from Epidiolex. So I feel my experience is ideally suited to the opportunity at hand. I look forward to interacting with our investors and analysts in the coming months. Now let me hand the call back over to Justin. Justin?

--------------------------------------------------------------------------------

Justin D. Gover, GW Pharmaceuticals plc - CEO & Executive Director [5]

--------------------------------------------------------------------------------

Thanks, Darren, and welcome again to the team. Let me now hand the call over to Julian for his update. Julian?

--------------------------------------------------------------------------------

Julian S. Gangolli, GW Pharmaceuticals plc - Executive Officer [6]

--------------------------------------------------------------------------------

Thank you, Justin. Let me also welcome Darren to the team. Having got to know Darren, I am confident that Darren is absolutely the right person to take the U.S. commercial organization to the next horizon of its success, and I believe he is an excellent fit culturally for the commercial operation we have built here in the U.S.

I am pleased to report Epidiolex U.S. net sales in Q1 of $33.5 million. This performance reflects a strong launch, and I believe we have reason to be confident in Epidiolex' commercial prospects in the short, medium and long term here in the U.S.

As we look forward at this first full quarter of Epidiolex sales, we continue to be pleased with the strong level of support from patients, caregivers and health care professionals. During Q1 2019, we worked through the majority of the 4,500 Epidiolex new patient enrollments received in late 2018. And, as at the end of March, over 7,600 patients had received Epidiolex dispensed prescriptions since launch, written by over 1,900 prescribers. We continue to be highly encouraged by the level of early interest from, and penetration of, our customer base, and this places us exactly where we expected to be at this point in time.

Now there are some unique features to this first full calendar quarter of sales which I think are important to highlight and which have led to a bolus of prescription activity and an unusually high rate of new patient acquisition. Consistent to our narrative prior to launch and as we reported in our earnings call in February, there was considerable physician and patient pent-up demand in anticipation of the availability of Epidiolex. This initial wave of prescriptions from previously diagnosed-and-waiting patients resulted in a demand carryforward from December 2018 into this first quarter. This was further amplified by the fact that many commercial and state Medicaid carriers only made their coverage determination known in January, and finally, conversion of the some 900-plus patients in the EAP and OLE studies has proceeded faster than anticipated, with over 75% now having been transitioned to commercial product.

Also, as we communicated to you prior to launch and consistent with how new antiepileptic drugs are prescribed by physicians here in the U.S., our expectation was, and continues to be, that physicians will prescribe to gain experience with an initial set of patients and observe those patients over a 4- to 6-month period as to therapeutic effect, before determining how to utilize Epidiolex in a broader set of patients. We believe we are now in that evaluation period.

As a consequence of physicians in these early months, evaluating the therapeutic effect of Epidiolex and the unusually high awareness and pent-up demand for the product prior to launch, we believe, as we go forward, that the product will exhibit a more organic new patient acquisition growth consistent with the underlying dynamics of the market.

Our sales team is actively in the field meeting with prescribers, and to date, the sales organization has interacted with about 70% of the target universe of over 5,000 health care professionals. We also continue to host educational broadcasts and speaker programs to support the launch.

As we indicated on our last call, clinicians continue to focus on their young LGS and Dravet syndrome patients first. However, we are encouraged by an increasing number of adult patients now being prescribed Epidiolex. Indeed, the percentage of adult patients is somewhat ahead of where we thought we would be at this point in time. I am also pleased to report that our time to fill of the initial prescription is now down to an average of 2 weeks. Again, in line with our assumptions for where we are in the launch.

Physicians also continue to titrate Epidiolex in line with the label guidelines, and that is titrating to 10 milligrams per kilogram per day and remaining at that dose to observe the efficacy effect before determining whether to titrate up to a higher dose. We expect this observation period to likely last several months before clinicians determine if increasing the dose is the right strategy for the patient.

We continue to make significant progress on the payer side. As of now, over 90% of all lives, commercial, Medicaid and Medicare, in the U.S. have a coverage determination, of which 65% are PA to indication or indeed, a less restrictive PA. In addition to favorable coverage determination of the PA to indication or better at ESI, CVS, Cigna and Anthem, in the past quarter, 3 major commercial payers have removed their new-to-market blocks and implemented positive coverage decisions. These are: United HealthCare, Optum and Prime. That, plus favorable decisions with state Medicaid this quarter, has extended our favorable coverage this quarter by some 37 million lives. Also, as I mentioned earlier, most of the Medicare and Medicaid coverage came online in January. Currently, 99% of state fee-for-service Medicaid lives have a coverage determination, with 67% of these lives having a simple PA to indication or better than that. And in fact, 7 states, including Florida, Illinois and New Jersey, are now covering Epidiolex without restrictions.

In addition, approximately 90% of Managed Medicaid lives now have made a coverage determination, with 40% having a PA to indication or, indeed, a less restrictive prior authorization. We believe that given that we are less than 6 months into the launch that we have achieved favorable access for patients and HCPs alike.

Our highly experienced and extremely dedicated U.S. marketing, sales, market access and medical affairs teams are executing the launch plan extremely well and are incredibly motivated by the potential difference that Epidiolex can make in the lives of these patients. The whole team continues to be encouraged by the positive feedback and high level of interest from patients, caregivers and HCPs, as to the value of Epidiolex and by the favorable payer coverage determination that have been made to date.

Let me finish by expressing how gratifying these past 4 years have been at GW. As I stated at the time of announcing my planned retirement back in November of last year, now is the right time to hand the U.S. commercial responsibility to a new leader and to build on the considerable success that we have had to date. I am delighted that we have found that leader in Darren. I believe he has both the necessary experience as well a really good cultural fit with GW.

In Europe, we continue to make great progress, and let me now ask Chris Tovey to provide an update on European commercialization. Chris?

--------------------------------------------------------------------------------

Christopher John Tovey, GW Pharmaceuticals plc - COO [7]

--------------------------------------------------------------------------------

Thank you, Julian. In Europe, we look forward to the CHMP opinion midyear. Subject a positive opinion, formal EU commission approval would occur 2 months thereafter. The GW European Commercial Organization is now almost fully in play, in preparation for the early commercial launch markets of France, Germany and the U.K. Sales professionals have been recruited and are undergoing comprehensive training, with many of them having prior epilepsy and specialized disease experience. These neurology account managers, NAMs, will join the existing field-based team comprised of 17 MSLs that are already in play. This customer-facing staffing model reflects the concentrated specialist epilepsy prescribing base and our planned high science approach, similar to that deployed in the U.S.

Once we have EU approval and product in the supply chain in the respective countries, we expect to launch Epidiolex in France and Germany where we will have immediate pricing and reimbursement conditions and shortly thereafter in the U.K., assuming a positive nice outcome. We then expect to launch in the remaining 2 major European markets, with specific timing depending on securing appropriate pricing and reimbursement. We remain encouraged by the quality of our ongoing prelaunch pricing and reimbursement discussions with the authority.

As I stated on our last call, market research suggest awareness is high amongst specialists and similar to the U.S. levels prior to launch. These clinicians report having patients in their clinics on a weekly basis asking for CBD. At this time, we are actively connecting with the key physician communities in all the major markets through a continued, high protocol exposure of Epidiolex data at key national and international medical congresses. In addition, the early access program for Dravet syndrome and Lennox-Gastaut Syndrome that we established in the major countries at the end of last year is providing important Epidiolex clinical management experience for specialist epilepsy physicians in key centers, along with much-needed access for appropriate patients prior to anticipated approval.

Finally, looking now at manufacturing, which also falls under my responsibility, our commercial, manufacturing and supply chain continues to run smoothly. We are confident that our capacity is more than sufficient to meet requirements in both the U.S. and Europe, and our manufacturing expansions are on track to service what we expect to be robust, long-term demand.

Thank you, and let me now hand the call to Volker for his update.

--------------------------------------------------------------------------------

Volker Knappertz, GW Pharmaceuticals plc - Chief Medical Officer [8]

--------------------------------------------------------------------------------

Thank you, Chris, and good day, everyone. I am pleased to report to you today the successful outcome of our Phase III pivotal trial of Epidiolex in tuberous sclerosis complex, which we announced in a press release today. TSC affects over 40,000 to 80,000 individuals in the United States and over 1 million individuals worldwide, both children and adults. Epilepsy is present in greater than 90% of patients with TSC, and more than 60% of these individuals do not achieve seizure control with existing medications. It is in these treatment-resistant patients that our study was carried out.

In this trial, we randomized 224 patients into 3 arms, where Epidiolex 25 milligrams per kilogram per day, 50 milligrams per kilogram per day, or placebo was added to current antiepileptic drug regimens. The average age of trial participants was 14 years. On average, patients were taking 3 AEDs, having previously tried and discontinued on average, 4 other AEDs. The most common concomitant AEDs in this trial were: valproic acid with 45% usage, vigabatrin, 33%; levetiracetam, 29%; and clobazam with 27% usage.

The primary efficacy measure in this trial was the change in the frequency of seizures associated with tuberous sclerosis complex over the 16-week treatment period compared to baseline. These seizures differed from the previous Dravet and LGS Phase III trials. The most common seizure types were focal onset seizures or generalized seizures that were countable. Patients in this trial were highly treatment-resistant, with a median of 57 TSC-associated seizures per month in the baseline period.

Patients taking Epidiolex 25 milligrams per kilogram per day demonstrated a 48.6% reduction in seizures, while patients taking Epidiolex 50 milligrams per kilogram per day achieved a reduction of 47.5% compared to a 26.5% reduction in patients taking placebo. The p values were p equals 0.0009 and p equals 0.0018, respectively.

All key secondary endpoints were supportive of the effects on the primary endpoint.

The most common adverse event in patients receiving Epidiolex in this study were generally consistent with the previous 4 pivotal studies. The majority of adverse events reported were mild to moderate. Consistent with the U.S. prescribing information, patients on concomitant valproic acid and of the higher dose experienced a higher rate of ALT elevations. There were no cases of high SLA observed and there were no deaths in the study. These data represent the first Phase III trial safety data of the 25 and 50 milligrams per kilogram per day dosages which are higher than those tested in the Dravet and LGS trials, providing useful additional information on both efficacy and safety at these different dose levels.

Our early conclusions regarding this trial are: that both Epidiolex doses studied here have been shown to be equally effective. There's a lower incidence of known adverse event and laboratory changes with the 25 milligrams per kilogram per day group compared with the 50 milligrams per kilogram per day group. As a result, we expect to focus our label expansion discussions with the FDA on the lower dose, which is close to the dose range already included in the U.S. prescribing information for Epidiolex.

Further detail from this clinical trial will be reported at a future medical conference and subsequently published in a medical journal.

With these data, we look forward to submitting a supplemental New Drug Application to the FDA in the fourth quarter with the goal of expanding the product label in 2020 to help the lives of patients suffering with TSC-related seizures.

Beyond Epidiolex for seizures, we have opened the IND for a pivotal placebo-controlled trial in Rett Syndrome, which is expected to commence this quarter. We are also excited about the Sativex program in the U.S. as it represents an exciting late-stage pipeline opportunity for GW. We believe the most rapid path to FDA approval for Sativex is for an indication of spasticity in multiple sclerosis.

Based on our December 2018 meeting with the FDA, we expect to conduct an additional pivotal clinical trial to buttress the wealth of existing clinical trial data, underpinning the product European approvals. We expect this trial to commence in the fourth quarter of this year.

Regarding cannabidivarin, or CBDV, we are pursuing development of this molecule in the field of autism spectrum-related disorders. This program includes a company-sponsored, open-label study in autism which we expect will include approximately 30 patients and an investigator-led 100-patient placebo-controlled trial in autism spectrum disorders which began recruitment last month.

An open-label study in Rett Syndrome with seizures has also recently commenced.

Thank you, and I look forward to updating you regarding our progress over the course of the year. Let me now hand the call to Scott Giacobello to provide the financial review.

--------------------------------------------------------------------------------

Scott M. Giacobello, GW Pharmaceuticals plc - CFO [9]

--------------------------------------------------------------------------------

Thank you, Volker, and good afternoon. I'll now provide some high level comments on financial results for the quarter ended March 31, 2019.

This is the first quarter under our new calendar year end. A more detailed discussion of our results will be provided in our 10-Q to be filed with the SEC later this week.

Starting with revenue. Total revenue for the quarter was $39.2 million, an increase of $36.2 million from the prior year quarter. This increase is due primarily to Epidiolex U.S. net sales of $33.5 million in the quarter, following the November 2018 launch. Sativex net sales for the quarter was $4.3 million, up from $2.8 million in the same period of 2018. Cost of sales amounted to $5.1 million for the quarter or 13% of net product sales, compared to $1.6 million or 58% of net product sales in the prior year quarter. In the prior year, net product sales consisted only of Sativex sales outside of the U.S. through licensed partners. We anticipate continued improvement in the cost of sales percentage as Epidiolex sales grow as a proportion of total net product sales.

Moving to R&D spend. Total research and development expense for the quarter was in line with the previous quarter at $30.4 million. This represents a decrease of $13.1 million from the prior year quarter. This decrease is mainly due to costs related to the scale up of Epidiolex growing and inventory build, which were expensed as incurred in the prior year quarter. Following approval, these costs are now capitalized in inventory.

Turning to SG&A. Selling, general and administrative expenses increased to $55.1 million in the quarter from $26.2 million in the same period in 2018. This substantial increase is primarily the result of the buildout of our commercial operations in both the U.S. and Europe and costs related to the launch of Epidiolex in the U.S. The current quarter spend represents an increase of $6 million over the previous quarter spend of $49.1 million. This has all resulted in a net loss for the quarter of $50.1 million compared to $69.5 million in the prior year quarter.

Moving to cash flow. Net cash used in operating activities for the quarter amounted to $58.4 million compared to $65.4 million for the prior year quarter. Capital expenditure for the quarter was $12.3 million, up from $6.4 million in the comparable period in 2018, reflecting the continued investments in the expansion of our cannabinoid production facilities. The resulting net decrease in cash and cash equivalents for the quarter amounted to $69.8 million. At March 31, we held closing cash of $521.7 million. Following the end of the quarter, on April 5, we closed on the sale of our Priority Review Voucher for $105 million. This sale and related cash inflow will be reflected in our Q2 2019 results.

Turning to guidance. There is no change to our previous guidance.