GW Pharmaceuticals plc
Q1 2019 Earnings Call Transcript

Published: 7 May 2019

[Operator:]

Greetings and welcome to the GW Pharmaceuticals First Quarter 2019 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Steve Schultz. Thank you, Mr. Schultz, you may begin.

[Steve Schultz:]

Welcome all of you and thank you for joining us today for our first quarter results call. Again, I'm Steve Schultz, Vice President of Investor Relations at GW. Today, I'm joined by Justin Gover, GW's Chief Executive Officer; Julian Gangolli, President of North America; Darren Cline, GW's new U.S. Chief Commercial Officer; Chris Tovey, our Chief Operating Officer; Dr. Volker Knappertz, our Chief Medical Officer; and Scott Giacobello, our Chief Financial Officer. We hope you've had a chance to review our press release issued a short while ago, and we expect to file our Form 10-Q tomorrow. As a reminder, during today's call, we'll be making certain forward-looking statements. These statements reflect GW's current expectations regarding future events including but not limited to statements regarding financial performance, clinical and regulatory activities, patent applications, timing of product launches and statements relating to market acceptance and commercial potential. Forward-looking statements involve risks and uncertainties and actual events could differ materially from those projected herein. A list and description of risks and uncertainties associated within investment in GW can be found in the Company's filings with the U.S. Securities and Exchange Commission. These forward-looking statements speak only as of today's date, May 6, 2019. And finally, an archive of today's call will be posted to the GW website in the Investor Relations section. I'll now turn the call over to Justin Gover, GW's Chief Executive Officer.

[Justin Gover:]

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 3 pivotal study in Dravet syndrome. We are excited to have released today positive results from our Phase 3 trial in Tuberous Sclerosis Complex. This puts GW on track to file an sNDA submission in the fourth quarter of this year, with a 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 22nd, 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 United States, the European regulatory procedure for Epidiolex continues to advance and we are preparing for launch in the major five European countries later this year. Chris Tovey will provide more detail later on this call. And finally, on this call, Scott Giacobello, CFO, will review our financial results. Let me begin by asking Darren to provide a brief introduction. Darren?

[Darren Cline:]

Thank you, Justin. And let me say that I'm thrilled to have this opportunity to continue with the work that Julian has done to build such a world-class U.S. commercial organizations. 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 of weeks. And I'm now looking forward to shape the 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 of Seattle Genetics, and where I was directly involved in the commercial build out for the U.S. launch and continued growth of Adcetris. Prior to Seattle Genetics, Alexion Pharmaceuticals in a critical commercial leadership role that prepared the company for the Soliris launch, helping to build out in the T cell functions that were 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 Gover:]

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

[Julian Gangolli:]

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's 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 healthcare 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 that level of early interest from and penetration of our customer base, and this places it exactly where we expect it to be at this point in time. Now, there are some unique features to this first full calendar quarter 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 carry-forward 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 described 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 healthcare professionals. We also continue to host educational broadcast 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'm also pleased to report that our time to fill the initial description is now down to an average of two 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 effects 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 patients. We continue to make significant progress on the payer side. As of now, over 90% of all lies [ph] 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 a PA to indication or better at Aetna, [ph] CVS, Cigna an Anthem in the in the past quarter, three major commercial payers have removed their new-to-market flux 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 on line 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, seven states including Florida, Illinois and New Jersey are now covering Epidiolex without restrictions. In addition, approximately 90% 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 six 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 HCP as to the value of Epidiolex, and by the favorable care coverage determinations that have been made to-date. Let me finish by expressing how gratifying these past four 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 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?

[Chris Tovey:]

Thank you, Julian. In Europe, we look forward to the CHMP opinion mid-year. Subject to a positive opinion, formal EU Commission approval would occur two months thereafter. The GW European commercial organization is now almost fully in place, in preparation for the early commercial launch markets, France, Germany and the UK. 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 place. This customer-facing starting 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 UK, assuming a positive nice outcome. We then expect to launch in the remaining two 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 authorities. As I stated on our last call, market research suggests 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're actively connecting with the key physician communities in all the major markets through continued high profile 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 with specialist epilepsy physicians in key centers, along with much needed access for appropriate patients prior to anticipated approval. Finally, looking out 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. Let me know hand the call to Volker for his update.

[Dr. Volker Knappertz:]

Thank you, Chris, and good day, everyone. I am pleased to report to you today the successful outcome of our Phase 3 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 three arms, where Epidiolex 25 milligrams per kilogram per day, 60 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 for 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, different from the previous Dravet and LGS Phase 3 trials. The most common seizure types were focal onset seizures or generalized seizures that were accountable. Patients in this trial were highly treatment resistant with a median of 57 TSC associated seizures per month in the baseline seizure. Patients taking Epidiolex 25 milligrams per kilogram per day demonstrated a 48.6% reduction in seizures, while patients taken Epidiolex 50 milligrams per kilogram per day achieved the reduction of 47.5% compared to a 26.5% reduction in patients taken placebo. The P values were p=0.0009 and p=0.0018, respectively. All key secondary endpoints were supportive of the effects on the primary endpoint. The most common adverse event in patients with receiving Epidiolex in this study was 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 on the higher dose experienced a higher rate of ALT elevations. There were no cases of Hy’s law observed, and there were no deaths in this study. These data represent the first Phase 3 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 is a lower incidence of known adverse events and laboratory changes with the 25 milligrams per kilogram per day group compared with the 50 milligram 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 a goal of expanding the product label in 2020 to help the lives of patients suffering with TSC related seizures. Beyond Epidiolex procedures, we have also 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 from indication of specificity 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’s 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 to 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 Giacobello:]

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 were $4.3 million, up from $2.8 million in the same period 2018. Cost of sales amounted of $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 the 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 as a result of the build out 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 31st, we held closing cash of $521.7 million. Following the end of the quarter, on April 5th, 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. We continue to expect operating expenses for the year-end December 31, 2019, in the range of $395 million to $425 million, reflecting the ramp-up of the Epidiolex launch in the U.S., launch preparations in Europe and continued investments in our R&D portfolio. We also continue to anticipate capital expenditure in the range of $30 million to $40 million related mainly to manufacturing expansion. Thank you. And I'll now hand the call back to Justin.

[Justin Gover:]

Thank you, Scott. As this is his last quarterly call, I should like to take this opportunity to thank Julian for his highly valued contributions to GW over the last four years. In this time, Julian has set up, from scratch, a world class U.S. commercial organization that is now delivering a successful launch of Epidiolex. More than this, he’s instilled the culture in our U.S. organization that truly puts patients at the center, and that acts as a close and trusted partner to the epilepsy community. He leaves GW with our sincere gratitude and appreciation for all he has accomplished. Looking ahead through 2019, we look forward to continuing commercial execution of the Epidiolex program, both in the U.S. and in Europe, and progressing on our primary goal of maximizing the Epidiolex opportunity for expansion of the product label, enhancing formulation and continuing to broaden exclusivity protections beyond our granted patents, and other approaches to lifecycle management. Parallel with Epidiolex, we believe that GW is well placed to deliver on the value of our cannabinoid platform, leveraging our 20-year history of cannabinoid experience, a strong and growing intellectual property portfolio, industry-leading manufacturing expertise, comprehensive understanding of cannabinoid pharmacology, as well as dozens of completed clinical trials. This platform creates a unique and world leading position for GW in cannabinoid science and the ability to create meaningful near-term and long-term value for investors. Thank you for your time today and for your interest in GW. And I would now like to open the call for a few questions.

[Operator:]

Our first question comes from the line of Tazeen Ahmad of Bank of America. Please proceed with your question.

[Tazeen Ahmad:]

Hi. Good afternoon. Thanks for taking my questions. One for Justin and one for Julian. Julian, I'll start with you. On the prepared remarks where you talked about the factors that led to the results you've got this quarter, pent-up demand and all of that, and the conversion of patients from EAP and OLE. You talked specifically about going forward you expect to see more organic growth. I'm just wondering if you could give us a little bit more color on what might that mean. Is it just based on expectations that you think this will be the case, or are you actually seeing it, resulting in the quarter thus far?

[Julian Gangolli:]

Thank you, Tazeen. Yes. I think, we're all aware of the fact that when Epidiolex was about to get approved, there was -- there were lists being generated by physicians as to patients that were going to be put on therapy. So, I think when you look at the sort of totality of November, December and Q1, we were sort of the beneficiaries of a huge influx of patients. So, all I'm cautioning, really Tazeen is, if one was to look on quarter-on-quarter growth, given the huge number of patients that have come in that that probably isn't a fair way of looking at the overall growth for the product into the marketplace. We are obviously continuing to see good adoption with new patients coming on board and of course refill prescriptions, but with that bolus effect and not quite the linear sort of approach that perhaps other product launches exhibit, I just wanted to temper people in looking at a very significant Q1 and then extrapolating that for the balance of the year. Does that answer your question, Tazeen?

[Tazeen Ahmad:]

Sorry about that. I was on mute. Thanks for that color, Julian. And then, on TSC, I just wanted to get your thoughts about why will you wait until 4Q for the applications to be submitted? Is that a process that's simply about manpower, and how much people you have available for it? And also, can you remind us what the average dose in that study was and how that compares to the doses that are being used for Dravet and LGS? Thanks.

[Justin Gover:]

Yes. Hi, Tazeen. We are using the 25 and 50 milligram dose, which is the outside of the doses that we currently are labeled for which is 10 and 20 milligram dose for LGS and Dravet. So, it will take some integration of the data as we are contemplating now the results of the context of the existing label. So, this will be submitted in the fourth quarter. And we will await the discussion with the FDA on how [Technical Difficulty] the FDA in the context with the current label.

[Tazeen Ahmad:]

And so, does that mean that the average price for the TSC indication will end up being higher than any other indications, using a higher dose?

[Justin Gover:]

Thank you, Tazeen. What I'm going to do is have Volker actually sort of just walk you through the likely titration schedule that we're recommending.

[Dr. Volker Knappertz:]

Yes. So, we really now are looking, Tazeen, at the totality of evidence from five trials. We have four efficacious and equal efficacy between the 25 and 50 milligram dose in the supplier. So we're now looking at equal efficacy, we're looking at a safety profile that is favorable for the 25 milligrams, especially in comparison to the 50 milligrams, which was also safely administered during the trial, but had a higher incidence of certain adverse events and higher incidence of liver transaminase elevations. So going forward now, I mean, we are looking here at a efficacious drug in three indications where there's no difference between the 25 and 50. And on a group level, there’s little difference between the 10 and the 20. So, we believe the dosing corridor in our submission to the FDA will be preserved. We will be dosing -- proposing to dose TSC patients through the 10 milligram step that we have in the label that we have the physicians can titrate patients, 10 milligrams and observe, obtain the [technical difficulty] examination and then consider if a further increase in dose is necessary. In nuance will likely be in our negotiations, off the label, new label -- that will include the 25 milligram [technical difficulty] clinical trial data. We see very little change from our perspective in the dosing corridor that we have established in the first trials which has now been indicated and confirmed as we see [technical difficulty].

[Julian Gangolli:]

So, Tazeen, consequence of that is that patients will still be titrated through the 10 milligram per kilogram, held there evaluation of efficacy and safety, in particular efficacy. So, the difference between 20 and 25, we don't see as a as a major, sort of change in our upper end of the maintenance dose. So, in terms of calculating this TSC at a large milligram per kilogram increase, probably not, but it does obviously expand our ability to go into the TSC patient population with an approved indication.

[Operator:]

Our next question comes from the line of Salveen Richter of Goldman Sachs. Please proceed with your questions.

[Salveen Richter:]

Thanks for taking my questions. I'm just curious about use of Epidiolex outside of Dravet and LGF and how that's progressing and playing out as you see the initial Dravet LGS patients come on board. And then, secondly, you mentioned that you're seeing adult use outpacing internal assumptions. Just curious there, how it's affecting your gross pricing for the current year, given I think you biased the dosing towards children and used an initial dose of 10 mg per kg, and how that would also impact your gross pricing in year two?

[Justin Gover:]

On the usage outside of Dravet and LGS, I think that question came up in last earnings release. We only have anecdotal information with regards to that. We do not have a line of sight on exactly how the prescription is written by that physician. There is a lot of deidentified information required by HIPAA that we basically don't get hold of. So, we're not in a position to actually say if there is -- what sort of percentage of outside of Dravet and LGS. I will say that given some of the payer wins that we had, which talk to unrestricted use of the product that does put a physician in a position to make a perhaps a different determination for that patient. And also, we hear anecdotally from physicians that they've had success in getting patients who were not the stereotypical Dravet and LGS patients. So, I think, overall, there are some successes out there, but as to a percentage, we're not in a position to guide on that. With regard to the adult split, I just wanted to remark on the fact that we are seeing usage in the adult patient population slightly ahead of where we thought we may be. This is probably being encouraged by some of those payer wins in which physicians have to be as go to the laborious nature of putting in an extensive PA for those. With regards to guidance on next year and whether or not that has pricing implications. What I would say is that is sort of attenuated by the fact that physicians are holding at the 10 milligram per kilogram level. So, when you net it all through, I think our pricing – sort of thinking is probably pretty much in line. I hope that answers your question, Salveen.

[Operator:]

Our next question comes from the Cory Kasimov of JP Morgan Chase & Company. Please proceed with your question.

[Cory Kasimov:]

I guess, two for you. First, now that you have a third indication for Epidiolex with highly compelling data behind it, can you talk about your clinical trial plans from here and others seizure disorders? Does it make sense to pursue other related syndromes to add to the label or do you expect you would get a significant amount or significant uptick in spontaneous use, especially given the consistent safety profile that’s been demonstrated to date? And I have one follow-up.

[Justin Gover:]

Hi, Cory, it's Justin here. I mean, I think these were the three initial indications within the epilepsy field we focused on for Epidiolex. It’s been the plan for a good couple of years now to focus on the three. And as you will have seen from the release, the plan mix is really look at Epidiolex outside of seizures specifically and into Rett Syndrome, so behavioral effects and cognitive effect of Epidiolex. So, there obviously continues to be interest in the effects of Epidiolex and other seizure disorders, investigators, [technical difficulty]. In terms of the sponsor trial, at least for the time being, this is to us, I think a satisfactory collection of different diagnoses and seizure types.

[Cory Kasimov:]

And then, I was just curious about the commercial opportunity in TSC. I mean, I know this syndication would roughly double the on-label market size, but can you talk about maybe how the unmet medical needs perhaps compares between TSC and Dravet and LGS?

[Justin Gover:]

Well, I think Cory, the unmet medical need is pretty much the same as Dravet and LGS. These are refractory epilepsy patients where the primary sort of cause or element is because of these Tuberous. I think what it does from a commercial perspective, it allows us to go into these very dedicated TSC clinics that have large patient populations, which frankly we're not in a position to go into now, since we don't have that indication. So, I think from an access perspective, this syndication does very much allow us to get to those clinics. I have to say, in full disclosure, many of those physicians, however, are the same physicians that are treating the other refractory epilepsies. But it will allow us to go there. And obviously from a label perspective with a PA to indication that would increase the number of patients that would fall within that category.

[Operator:]

Our next question comes from the line of Josh Schimmer of Evercore ISI. Please proceed with your question.

[Josh Schimmer:]

Thanks so much for taking the questions. I have three. First, with international pricing index proposals, how are you thinking about a European pricing strategy, recognizing that it could affect your U.S. price? And number two, you talked about a bolus. And you describe the cadence of patient additions ex the expanded access and open label extension studies over the quarter? Did you see the discernible waning of new patient additions over the three months? And then, third, how are you thinking about the titration from the 10 to 20 milligrams? How consistent would it be amongst treated patients, why would or would not physicians move to that 20-milligram and if they don't see an incremental benefits, should we expect that they would titrate back down to 10? Thank you.

[Justin Gover:]

Thanks, Josh. Chris, do you want to deal with the European pricing?

[Chris Tovey:]

Yeah. Thank you, Justin. Josh, hi. From a European pricing perspective, we're optimistic on the back of the engagement we've had with the payers, HTAs, organizations in Europe. So, we're pretty optimistic that we're going to be able to hit a price point sort of at around 70% of the U.S. price. So, again, pretty confident that we can get a good price in Europe, given the unmet medical needs here as well, in Europe as in the U.S.

[Justin Gover:]

Okay. And Julian?

[Julian Gangolli:]

So, Josh, on your two questions. First, the bolus, I think I just wanted to, as I mentioned in the previous response to a question, I just wanted to make sure that when we look forward to quarter-on-quarter comparisons, or indeed if you get Iqvia [ph] or Symphony data month on months comparisons versus Q1, we are still seeing very solid patient acquisition growth. But, we were the beneficiaries of a large number of patients who ticked into to Q1 and got their prescriptions filled. And the components of that, Josh, are twofold. First of all, the number of new patient starts that we registered in the first two months, which is about 4,500 new patient starts. And the fact that many of the plans had not made a coverage decision until January, that's both commercially and from a Medicaid perspective. So, the month of January and February really benefited from prior two-month rollover, obviously the EAP. And then underlying growth from naturally acquired, organically acquired patient acquisition. So, I think my observation is more around there was a unusually high patient acquisition number in Q1, but as I look at April, going forward, the underlying growth of the brand from a new Rx perspective remains solid. But it is an awful disclosure, it is at a lesser level to what we have benefited from due to those two factors or three factors in Q1. With regard to titration, did that answer your question, Josh?

[Josh Schimmer:]

Yes. Thank you.

[Julian Gangolli:]

Okay. In terms of titration, obviously, we have very experienced investigators who are probably more comfortable with a more rapid titration. But, frankly, as a percentage of our prescriber base, which is now close to 2,000, discreet physicians, they represent a small contribution to that overall prescriber number. And what I would say is that very much to the form in the United States and neurologists and epileptologists, they're going to make a determination of 10 milligrams per kg. And if that patient is getting good seizure control, then they are likely to titrate little slower. If they're not seeing the seizure control that they wish to see then, they will migrate up that, but they are going to have a period of observation there. I think the likelihood of us getting anywhere close to 20 milligrams per kilogram in 2019 is relatively remote.

[Operator:]

Our next question comes from the line of Esther Rajavelu of Oppenheimer & Company. Please proceed with your question.

[Esther Rajavelu:]

Hi. Thank you for taking my questions. Darren, congrats on the role. Would you please give us your thoughts on your initial take on the commercial infrastructure in the U.S. and what your priorities will be over the course of the year? Then, I have a follow-up on the Epidiolex.

[Darren Cline:]

Thanks for the question. I'm very excited for the role. As I've come in here over the last couple of weeks, as I stated in my prepared remarks, Julian's built a fantastic organization, a lot of seasoned professionals across both the commercial and medical affairs teams that really know this business. And when you have a therapy like Epidiolex that brings tremendous value to patients and their families, I couldn't be more excited. I think my priority is to really come in, understand the business. And I've been in rare disease, hematology oncology my last couple of companies with some pretty successful products. And I think all the ingredients are here, and for me, it's just coming up to speed on the business and contributing to the executive leadership team and build Epidiolex into the brand we think it can become.

[Esther Rajavelu:]

Great, thank you. And then, maybe on Epidiolex, Could you talk a little bit about the lifecycle management efforts that you mentioned in the press release? What’s driving these efforts real quickly post launch? And what are some of the pushes and pulls of how quickly these would be developed and maybe what formulations could be prioritized?

[Justin Gover:]

Yes, hi. It's Justin here. So I mean, firstly, obviously, with news like today, lifecycle management has been a focus for years. And as it relates to indication expansions of TSC to come, Rett syndrome as being the next focus. And then with regard to formulations, it's important, Julian referred earlier in his remarks to adult use. Having a capsule formulation is something that we think is going to be helpful to patient adoption, in the life cycle of the drug. There are improvements to the solution, we have an IV formulation as well. And of course there are intellectual property considerations as well. So, even ahead of launch, we were advanced enough thinking about this. And there's several steps to go, as we go through this life cycle, not all the life cycles steps will happen at this early stage in the life, but it's been pretty well thought through.

[Operator:]

Our next question comes from the line of Marc Goodman of SVB Leerink. Please proceed with your question.

[Marc Goodman:]

Given Julian's previous comments, should we be thinking that 2Q sales will be flat to down from first quarter, or is the message up, but not up much? I guess, this is question one? Second question is, can you give us the number of patients on the EAP program in Europe so far? And then, third, with respect to TSC, I heard your Volker about the 25 milligram. Just, I'm just curious, are you basically saying that you're fully expecting the label is going to be 10 milligrams, continue to ramp up to 20, maybe some patients get to 25, but you really saying, we may not get to 25 for TSC? And on the side effect profile of TSC at the 25, we're not basically the same as what you're seeing in the 20 milligram for on label?

[Dr. Volker Knappertz:]

Yes. I'm going to take that last part of your question first. So, we believe from our perspective, that we’ll be approaching regulators by adding TSC to the existing dosing corridor with an option of going to 25, to anchor to the dose reaction tested for efficacy and safety. With regards to safety, the 25 is behaving very similarly to what we see with the 20 milligram doses in our safety experience -- large safety experience in the trial. So I think I think overall, we will be trying to guide towards going to 10, following the current titration of dosing guidelines with the option of going to 25 and the safety is fully in line with the expectations that we have already in the [technical difficult]

[Justin Gover:]

So, on Europe, the Early Access Program is getting towards 500 patients or so now. And in regards to your first question, we don’t give guidance on sales. So, I mean, I think Julian has tried to paint a picture of patient acquisition and new prescriptions. But, as it relates to a patent over, given the unusual launch dynamics. But, we are -- and it's that level of caution that we're focusing on, but we're not giving guidance on sales other than we -- as you heard, we believe this is the strong launch.

[Operator:]

Our next question comes from the line of Paul Matteis of Stifel. Please proceed with your question.

[Paul Matteis:]

Two questions on the Epidiolex launch. One, I was wondering if you could speak to the over half of that just in the U.S. that haven't yet written up a dialect. Why do you think that that might be the case? And how confident are you that you can penetrate those customers over the next couple of quarters? And then, secondarily, Julian, I was wondering if you could kind of review the spectrum of prior offset you're seeing from the strictest to the most lacked, and where do you think kind of the average payers settling out? Thanks so much.

[Julian Gangolli:]

Okay, Paul. On the penetration into the physician target universe. So, we've taken a very measured approach as to how we want to deploy our selling organization. The 5,000 physicians that we have in our target universe are obviously deciled by potential. And what we have focused on, on these in a month of launch, obviously, those individuals that are situated in major epilepsy centers or have basically a high potential to see a disproportionately large number of patients, Dravet and LGS patients. So in these -- in a month, we've really focused and prioritized our selling organizations to focus on those individuals. As we go out over time, one of the areas of growth that we have, in addition to the underlying organic growth that we continue to experience is obviously getting to this broader group of patients and physicians, so that as we go through 2019, I think you're going to find the number of prescribers from that 2,000 base is going to increase as we expand the reach and frequency of our selling organization to those lower deciles but still important epileptologists and neurologists, in the United States. So, that was -- and the prior ops. Thank you. Yes, Paul, on the prior one, we have a number of plants that actually have no restrictions, the PA is unrestrictive, and a number of lives fall in that category. So if I was to say where is --, where has the 275 million plus lives that have some sort of insurance, either through state federal or commercial? I think, I would be comfortable in saying that 65% of those covered lives, at this present moment in time have a PA indication, or something that is less restrictive from that all the way to unrestricted. So, I think for being on the market for the first five or six months, that's a reasonably good place to be. There are some plans that we are working with, that are sort of in the top 10 commercial plans in the United States that still have a slightly more onerous requirement then simply a PA to indication which I’ll remind everyone is seizures associated with Dravet and LGS. And we -- to our account executive market access team, we are focusing on those. But I think, to answer your question directly, Paul, I would say it's 65% that the covered patients in the United States have a relatively easy PA requirements.

[Paul Matteis:]

Thanks, Julian. When you say no restrictions, do you mean the patient just has to have a diagnosis of epilepsy?

[Julian Gangolli:]

And they have to have -- it has to be a neurologist.

[Operator:]

Our next question comes from the line of David Lebowitz of Morgan Stanley. Please proceed with your question.

[David Lebowitz:]

Thank you very much for taking my question. Given that usage in adults has been higher, has there been any change or modification to the -- I guess communications with doctors?

[Justin Gover:]

David, no. There is really no difference in a deployment of our sales plan. We haven't deliberately gone out after the adult patient population in a prioritized way. We really focused primarily in the month in those centers that have a high pediatric patient population, just because of obviously the huge unmet medical need. It was purely an observation that we are obviously calling it, if we're in the pediatric site, we’re going to be calling on the adult epilepsy clinic. And our penetration there, it’s still heavily skewed to the pediatric patient population. But, we are seeing now a good penetration in the adult patient population.

[Operator:]

Our next question comes from the line of Yatin Suneja of Guggenheim. Please proceed with your question.

[Yatin Suneja:]

Hey, guys, congrats on good performance. Just a couple of questions. Maybe first on the TSC side, could you maybe talk about the cognitive or behavioral related benefit, is that something that we might see later or maybe if you could give some commentary around those?

[Justin Gover:]

So, at this point in time -- thank you for the question, it's important. At this moment in time, we have only access to the top-line results. And to sum of the scale that such [indiscernible] and scale and some of the other scales that can be giving us an inclination on effect, on cognition are still not analyzed but still early days with regards to our complete understanding of all the data; we are sharing the top level results.

[Yatin Suneja:]

Got it. And then, in terms of adding a focal seizure, could you just give us or maybe talk a little bit more about the significance of adding that on the label? I mean beside TSC, could adding vocal gives you access to another pool of patient population, which maybe we are not thinking about or where you think you can leverage?

[Justin Gover:]

Yes. So, the TSC will be what will be, what we are seeking in the sNDA that get approved on the label. The nature of the seizures are focal in many patients, but if you also have generalized seizures, it doesn't substantially differ. Probably it’s been already in [technical difficulty] however, the amount of focal seizures and as Julian has mentioned due to the pathology of the -- tumors and this genesis of the -- as part of the disease are prominent in Tuberous Sclerosis. I think time will tell and the way we're going to be able to the talk about the seizures and more detailed analysis on how much read through on focal onset seizures in general the epilepsy community can actually see in this very specific genetic epilepsy of Tuberous Sclerosis Complex.

[Yatin Suneja:]

Got it. Just final question and apologies if I missed it. Have you commented on the channel inventory or any stocking that happened during the quarter?

[Justin Gover:]

Yes. No, we're not commenting on that.

[Yatin Suneja:]

Thank you.

[Operator:]

Our next question comes from the line of Phil Nadeau of Cowen & Company. Please proceed with your question.

[Phil Nadeau:]

First question on the Epidiolex launch. I appreciate it is early days. Do you have any sense for the persistence on therapy? What proportion of patients you're talking are for -- are based on the experience you've seen in the EAP? What do you think that long-term persistence is likely to be?

[Justin Gover:]

Obviously, it's early days, patients are just getting into their stride of getting their refill prescriptions now. We are not seeing any high levels of disbandment. And from the data that we have, and it's very, very early days to make any assessments around long-term persistence and compliance. But, we're certainly not hearing of people going on therapy and coming off in any great numbers. And I think, we felt that that was a reasonable assumption going in, based exactly on the observation you made around the expanded access program where we did see for systems unusually high, even with some of the difficulty of systems to the clinical trial site, and they weren't actually in a clinical trial; this is an open label studies that patients actually stayed on therapy. So, we do believe when cutting through it, we do believe that the normal persistence that you see in the antiepileptic category, which is 9 to 10 months, unfortunately, before a change may take place, I think we believe that from everything we've seen, and what we have heard anecdotally, to-date, we're probably going to be north of that number. And obviously, as time unfolds we have the advanced and greater clarity. But I think we're encouraged by the fact that folks in the real world EAP and what we're seeing now, we probably will be a little heavier than that number.

[Phil Nadeau:]

And then, one question on TSC, congrats on the data. Is there any risk that the FDA wants you to define the lowest effective dose in TSC? It sounds like from your comments that you’re going to recommend the same dosing corridor we've seen before. We saw Julian the efficacy from the other trials and in other indications. So, do you have a data on 10 milligrams in TSC and I guess is there any reason that the FDA may want to see more of that data?

[Dr. Volker Knappertz:]

Yes. We don't have data on 10 milligrams in TSC and when we got the original approval last June, we also didn't have 10 milligram data in Dravet syndrome, which was included in the label. So, we believe that that extension between concept [technical difficulty] epilepsy from childhood-onset or catastrophic childhood-onset encephalopathic epilepsy will continue, in our very, very good relations and discussions with that review division. So yes, we believe there will be an extension in the evidence between all 5 files, and refer to my earlier remarks, we think the dosing corridor will be preserved, maybe with the addition of 25 milligrams for TSC patients to anchor the trial data.

[Operator:]

Our next question comes from the line of Danielle Brill with Piper Jaffray. Please proceed with your question.

[Unidentified Analyst:]

Hi, everyone. Thanks for taking my question. This is [indiscernible] for Danielle Brill. I just had one quick one. For the TSC data, I was just wondering if there was any analysis done on subgroups to see if there were differences and to your frequencies for patients with different content, AED.

[Justin Gover:]

So, your question points to are there any modification of the effect by subgroups by different AED. Just to remind you, the AED profile is quite different from that from Dravet syndrome and Lennox-Gastaut syndrome where for example, one of the mainstay or most frequently you see these global bands, [ph] it's actually used quite infrequently, and only by the quarter of the patients in this patient population. So, three quarters of the patients are for example on clobazam, majority is on valproic acid as the comedication. So really a different picture, and the drug works across the entire spectrum here of comedication.

[Operator:]

Our next question comes from the line of David Kideckel of AltaCorp Capital. Please proceed with your question.

[David Kideckel:]

Hi, congratulations on your really strong quarter. Darren, congrats as well for your new appointment for what it's worth. I also used to work at Alexion Pharmaceuticals, directly in the Soliris franchise. My first question, I have a couple of them. Just trying to wrap my head around. I think Justin, you mentioned the number of adult patients treated exceeded your expectations. Can you maybe comment a little bit about were these new starts, or on commercial drug use, or were these patients coming from your clinical trial program that were transitioned from -- as pediatrics into adults? That's number one. And number two, I was just looking for maybe just some overall guidance, moving beyond what some of the other folks have mentioned on the call today with respect to glioblastoma and Rett syndrome?

[Julian Gangolli:]

David, this is Julian. I'll address that first question on the adult patient split. It isn't a consequence of a larger number of adult patients from the OLE or EAP data coming over. This is underlying de novo patients from Epidiolex, but we're seeing an increase on over and above where we anticipated us to be. And we just mentioned that because I think it's important that this product be positioned as a product for Dravet and LGS. And thankfully when the LGS patients do get into adulthood and that this is just not a pediatric product, but it has utility in the adult patient population. So we just wanted to make that observation and share that with you on this call. And I'll hand over to Justin on the glioblastoma…

[Justin Gover:]

Thanks. With regard to the pipeline, I mean clearly Epidiolex and Rett in the foreign life cycle that we've been talking about, it’s the highest priority followed by the Sativex program which Volker highlighted, and then CBDV with respect to autism. There are several other programs, glioblastoma which we've been doing some further data analysis and we’ll talk about next steps on that later this year, schizophrenia and others. So, for today, we're focusing on core Epidiolex opportunity and we’ll update on some of these other pipeline programs as the year moves on.

[Operator:]

There are no further questions over the audio portion of the conference. I would now like to turn the conference back over to management for closing remarks.

[Justin Gover:]

Great. Well, thank you all for your time and for the questions on today's call. We look forward to updating you on our Q2 results in the summer. Thank you very much for your time today.

[Operator:]

This concludes today's conference. Thank you for your participation. You may disconnect your lines at this time. Have a wonderful rest of your day.