GW Pharmaceuticals plc
Q3 2019 Earnings Call Transcript

Published: 6 Nov 2019

[Operator:]

Greetings. Welcome to the GW Pharmaceuticals Third 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] Please note this conference is being recorded.I will now turn the conference over to your host, Mr. Steve Schultz. Please go ahead.

[Stephen Schultz:]

Welcome all of you. This is Steve Schultz, Vice President of Investor Relations. Thank you for joining us for this third quarter results conference call. I apologize for what you just heard, which was actually a recording of our last quarter conference call, which for some reason they started playing versus us providing this quarter’s result.So we’ll reset and begin right now with the third quarter results conference call. Today I’m joined by Justin Gover, GW’s Chief Executive Officer; Darren Cline, U.S. Chief Commercial Officer; Chris Tovey, our Chief Operating Officer; Dr. Volker Knappertz, 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. 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 with an 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, November 5, 2019. Finally, an archive of today’s call will be posted to the GW website in the Investor Relations section.I 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 once again pleased to report continued Epidiolex growth in the U.S., with sales in the first 3/4 of the year totaling $188 million including $86 million in this most recent quarter. We are proud of the success of the launch to-date and our experience suggests that Epidiolex has all the characteristics necessary to be a blockbuster brand.We see a medicine that is high demand by patients, warmly welcomed by physicians and the payers recognized as providing meaningful value. Beyond the U.S., we are now starting to commercialize Epidiolex in selected major European countries. And looking into 2020, we look forward to adding a new indication of Tuberous Sclerosis Complex around mid next year.In a moment, Darren will provide more details on the U.S. commercial opportunity as it moves into its second year. I’ve also asked Chris Tovey to review the European launch status. Understandably, in the Epidiolex launch year, there has been a focus on commercial performance. But it is important to remind investors that GW is a platform company with an exciting pipeline, which is going to be the subject of investment in 2020.Volker Knappertz will review the pipeline with you later on this call. Finally, on this call, Scott Giacobello, CFO, will review our financial results. We begin by asking Darren to provide a U.S. commercial update. Darren?

[Darren Cline:]

Thank you, Justin. Epidiolex U.S. net sales were $86 million in the third quarter and $188 million year to date. We continue to be very pleased with the progress of this launch and the impact Epidiolex is having in patients and caregiver lives, and their prescribing physicians.We feel very confident of future direction of the brand, as we complete our first year of commercialization. And believe that the fundamentals to make Epidiolex a highly successful brand continue to demonstrate themselves.These fundamentals includes

[Chris Tovey:]

Thanks, Darren. In Europe, our European Commission approval for Epidiolex came in late September, wonderful news for those European patients and families that have been waiting for access to a fully regulatory approved CBD medicine. In the months leading up to approval, our early access program allowed us to provide Epidiolex to over 1,100 patients across the major 5 EU markets, including more than 400 key prescribers from more than 250 top specialist centers.We now began the formal launch phase in the EU 5 major markets. Something that will occur market by market over the next 12 months, as we secure national pricing and reimbursement. First market launch with Germany were a full commercial launch took place in mid-October. In France, we are also inactive in the market through the sales team of neurology account managers supported by the team of medical science liaisons.In France, we’re relatively unusual physician of having early reimbursed product available as part of the national ATU early access gain, we supposed early patient access to import new medicines in serious diseases. In parallel with this early access, the formal reimbursement process has commenced. The outcome of which is expected later in 2020.The third of the EU 5 countries, where we’re making major progress towards commercial launch is the UK. We continue to work productively with nice and remain confident of a positive recommendation in the near future that will lead to the NHS paying for Epidiolex. We plan on launching in the UK when the NICE process is complete. Continuing on across the EU 5, Spain and Italy launches are expected during 2020, once the appropriate pricing and reimbursement negotiations are finalized. We remain encouraged by the quality of our ongoing pre-launch pricing and reimbursement discussions with those authorities in the markets.Underpinning our activities in Europe is a highly experienced team in both epilepsy and specialist disease product launches. The field based team has been created to accommodate the specifics of the European medical environment. We typically physicians have high patient workloads and access to epilepsy physicians is limited proving a challenge not only for GW, but even patients and families themselves.Consideration of what EU physicians need from GW has prompted a customer facing team that is equivalent numbers between neurology account managers and medical science liaisons. This starting model is different in that aspect from in the U.S. and it is also relatively smaller reflecting the opportunity of a much more concentrated epilepsy specialist prescribing base of about 1,600 key clinicians across the EU 5. What doesn’t differ from the U.S., though, is that market research and all our market feedback suggest that we are launching into a very receptive environment.Research tells us that physicians are eager to have access to a new therapy to treat these difficult cases. And then there is a high level of awareness amongst patients broadly equivalent to that of the U.S. to the similar point. This data is very reassuring and along with the physician experience and patient base created by the early access program, offers us a strong head start as we begin the formal launches.Moving away from European commercialization, our global commercial, manufacturing and supply chain, which also falls under my responsibility, continues to run smoothly. In addition, our longer-term future capacity manufacturing expansion plans are on track to service what we expect to be robust long-term demand for Epidiolex.Thank you. And let me now hand the call to Volker for his update.

[Volker Knappertz:]

Thank you, Chris, and good day, everyone. Looking first to the Epidiolex, we look forward to presenting at the upcoming annual meeting of the American Epilepsy Society of positive Phase 3 trial data in the treatment of seizures associated with Tuberous Sclerosis Complex or TSC. We are in the final stages of preparation for submission of supplemental application to the FDA for this new indication. While this application timing has shifted into early January, we still expect the approval of this indication in mid-2020. The European submission of the TSC data is to be filed in Q1 2020, the addition of TSC and its associated seizure types which are predominately focal in onset will be important new features in the prescribing information.Beyond Epidiolex for seizure syndromes, we are now actively recruiting patients into the placebo-controlled Phase 3 trial in the Rett syndrome. In this 252 patient trial, we have focused our investigation from the non-seizure aspects of the disease. We see this trial serving as an important source of information on the potential for Epidiolex to address many of the symptom complexes that are commonly seen in patients with autism spectrum disorders and also common in several severe neuro developmental disorders outside of epilepsy.Success in children with Rett syndrome would collaborate the many anecdotal reports, we continue to hear from clinicians and parents relating to improvements in social interactivity and in cognitive and behavioral functioning. Before moving on, let me address comments, we’ve heard from some investors regarding Epidiolex and the Phase 3 profile. Since launch the safety information we have seen this consistent with the label safety profile in the U.S. prescribing information and is as expected.Beyond Epidiolex, we’re advancing plans for Sativex in the U.S. and see this product is a major late-stage pipeline opportunity with potential for extended exclusivity. We’ve spent a last several months, evaluating the development strategy and commercial potential for Sativex across the range of neurological and psychiatric indications. This work has reinforced our view of the significant market potential in the U.S. for Sativex, botanically derived products containing TSC and CBD as well as other cannabinoid and non-cannabinoid components. We look forward to sharing further insights into the extent of this opportunity early next year.The fastest route to market for Sativex in the U.S. is via the indication already approved in Europe and so which we have reported 3 positive Phase 3 trials mainly the treatment of spasticity due to multiple sclerosis. Over 35% of MS patients have moderate to severe spasticity in represent candidates for this treatment. In discussions with MS experts in the U.S., it is clear that Sativex would be a welcome novel mechanism of action to the spasticity space, where there continues to be a substantial need for new therapies as there have been no new oral anti-spasticity treatments introduced to this field for over 20 years.Based on an ongoing dialogue with the FDA, our plan is to perform one additional Phase 3 placebo controlled trial of approximately 450 patients, to supplement positive data from 3 European Phase 3 trials that is intended to address FDA’s preference, while primary endpoint that focuses directly on the physical manifestations of spasticity.To complement this trial we are also initiating two mechanistic studies of about 35 patients each. This clinical program is expected to come in, in the first quarter of 2020. As a reminder, with this product already commercialized in Europe, we have a comprehensive CMC data package in place together with over 80,000 patient years of safety data.In parallel with the Phase 3 MS trial we anticipate during 2020 and 2021, initiating clinical programs and additional follow-on indications with Sativex and see a truly exciting opportunity for this product to address market needs in several indications over the coming years.Beyond Sativex, we are particularly excited about the prospect for the treatment of autism as we have seen a potential beneficial effect for both Epidiolex and CBDV in several symptom complexes associated with autism spectrum disorder.This is of particular interest as there are currently only a few options to treat these systems. These are largely antipsychotic agents which are especially challenging to use in children. The effects of CBDV and CBD in autism has been explored to a range of genetic phenotypic and environmental [in-cell] [ph] based animal models. These demonstrate efficacy and social impairment, visual recognition memory which is a key component of social recognition, as well as repetitive behaviors and hyperactivity.A small expanded access program study with CBDV and ASP reported beneficial effects on social engagement and communication in 5 patients. We are following this initial experience in ASP with a 30 patient open label study, which is about to commence. And we expect the first set of data from this study to be available by the end of next year.In addition, an investigator led 100 patient placebo controlled trial in autism spectrum disorder has been actively recruiting since earlier this year. Finally, an open label investigator led study in Rett Syndrome with seizures is ongoing.Looking at our program in Neonatal Hypoxic-Ischemic Encephalopathy or NHIE, we have open trial sites and expect shortly to treat the first patient in this initial safety study of our intravenous CBD formulation for neonatal.There are currently no FDA approved medicines indicated for NHIE, clearly a product to address this patient population would represent a major breakthrough and we look forward to advancing his program.Finally, I am pleased to announce today that we are now moving forward a clinical development program for schizophrenia. This is an area; which GW has been researching for approximately a decade. CBD has demonstrated efficacy in multiple pre-clinical models of schizophrenia and to have them 2 randomized controlled clinical trials evaluating the efficacy of CBD in the treatment of schizophrenia, one of which was a placebo controlled GW sponsored study.In this study, 88 subjects with schizophrenia experienced partial response to antipsychotic therapy. GW’s investigational CBD containing product was superior to placebo on positive systems as well as on the clinical global impression of improvement, which were both statistically significant.Having reviewed this data package with experts in schizophrenia, we are now moving forward with a follow-on Phase 2b study. This study will enroll patients, who despite receiving a stable dose of antipsychotic therapy continue to experience psychotic systems. The study aims to further estimate the magnitude of treatment effect of an investigational CBD containing product on positive, negative and general symptoms of schizophrenia, as well as to evaluate effects on quality of life, [cannabis used] [ph] and cognitive function in a well characterized population.We expect to initiate enrollment into this study in mid-2020. Thank you and let me now hand the call to Scott Giacobello to provide the financial review.

[Scott Giacobello:]

Thanks, Volker, and good afternoon. I’ll now provide high level comments on financial results for the quarter and 9 months ended September 30, 2019. More detailed discussion of results will be provided on our 10-Q to be filed with the SEC tomorrow. I’ll start with revenue. Total revenue for the quarter was $91 million, compared to $2.4 million in the prior year quarter.This increase is due primarily to Epidiolex U.S. net sales of $86.1 million of the quarter. Net sale of Epidiolex outside of the U.S. amounted to $1.9 million, consisting largely of sales to early access programs in Europe.Total deductions from gross sales for allowances were $18.6 million for the quarter, related mainly to Epidiolex. Gross to net is in line with our expectations at this point [over launch] [ph]. For the 9 months ended September 30, total revenue was $202.3 million, driven mainly by Epidiolex U.S. net sales of $188 million.Cost of sales for the quarter amounted to $8.2 million or 9% of net product sales compared to $1.4 million or 60% of net product sales in the prior year quarter. This improvement is due to the launch of Epidiolex in the U.S.In the prior year, net product sales consisted of Sativex sales outside of U.S. through license partners. Cost of sales continues to be favorably impacted by Epidiolex inventory produced prior to approval, which was expensed in accordance with U.S. accounting guidelines.Moving to R&D spend, total research and development expense for the quarter was $36.3 million, compared to $28.9 million in the prior year quarter. This increase reflects expenses related to the ongoing Epidiolex development program, including preparation of the supplemental NDA for TSC, as well as advancing the Sativex clinical program and our other pipeline programs.Turning to SG&A, selling, general and administrative expenses for the quarter, increased to $64.2 million from $52.7 million in the same period in 2018. This increase is primarily a result of cost related to the launch of Epidiolex in the U.S. and the build-out of our commercial operations in Europe in preparation for upcoming launches.The third quarter spend was in line with the previous quarter spend of $62.3 million. This has all resulted in a net loss for the quarter of $13.8 million, compared to a net loss of $79.9 million in the prior year quarter.Moving to cash flow, net cash used in operating activities for the 9 months ended September 30 amounted to $107.5 million, compared to $180.3 million for the prior year period. Net cash provided by investing activities for the 9 month period was $73 million, compared to net cash used in investing activities of $24.1 million for the prior year period.The current year map includes $104.1 million in net proceeds from the sale of our priority review voucher in the previous quarter. Capital expenditure for the 9 month period was $31.1 million compared to $24.7 million for the prior year period, reflecting continued investments in the expansion of our cannabinoid production facility.Resulting net decrease in cash and cash equivalents for the 9 month period amounted to $36.8 million. For the quarter ended September 30, net decrease in cash and cash equivalents was $29 million. At September 30, we held cash and cash equivalents of $554.7 million.Turning to guidance, regarding operating expenses for 2019, we are narrowing our guidance range to $415 million to $430 million from our previous guidance range of $395 to $425 million. This spend reflects the continued ramp up of the Epidiolex launch in the U.S., launch preparations in Europe and continued investments in our R&D portfolio.As previously guided, we continue to anticipate capital expenditure in the range of $35 million to $45 million, related mainly to manufacturing expansion.Thank you. And I’ll now hand the call back to Justin.

[Justin Gover:]

Thank you, Scott. Before closing the call, I just want to comment on intellectual property, which remains an area of great focus at GW.First in respect of Epidiolex, there are 9 granted patents in the orange book, that runs through 2035. Further, we are developing novel formulations with IP potential, that have yielded promising PK data this year and which are moving into additional studies in 2020.In addition, we have been exploring whether Epidiolex is different from synthetic CBD. And recently, patent application was published, that indicates Epidiolex is more efficacious than synthetic CBD in animal models of seizures, based on the key difference that Epidiolex comprises up to 2% of other cannabinoids.The patent, if granted, would be a useful addition to our portfolio and we continue to produce more data to support new patent application and our understanding of the mechanism of action of Epidiolex. With respect to our pipeline, we believe that Sativex CBDV and a number of other pipeline products will benefit from strong IP protection, given their complexity and novel application.Overall, I believe that GW is at the most exciting point in its history as we move into the second year of Epidiolex’ commercial availability. We have established an enviable base of patients and see major growth opportunities in 2020 as more and more patients gain access to the medication. Beyond Epidiolex, we believe that our pipeline will start to emerge as a major value driver as we advance multiple late stage opportunities and consolidate our leadership in cannabinoid science.Before I had this call over to questions, let me highlight an upcoming GW hosted KOL dinner at the upcoming American Epilepsy Society annual meeting in Baltimore on December 9. If you’re interested in attending, please reach out to Steve Schultz.Thank you for your time today and for your interest in GW. And I would now like to open the call for questions.Thank you. At this time, we will be conducting a question-and-answer session. [Operator Instructions] Our first question is from Phil Nadeau with Cowen and Co. Please go ahead.

[Phil Nadeau:]

Good afternoon. Thanks for taking my questions. First, just a quick question on the Epidiolex revenue, the press release mentions $86.1 million in U.S. revenue. In your prepared remarks, you mentioned $1.9 million from ex-U.S. So is total Epidiolex revenue for the quarter $88 million or was that $1.9 million not actually booked because it’s early access payments.

[Justin Gover:]

No, no, no, the total revenue wouldn’t – the total Epidiolex revenue globally would include the $1.9 million.

[Phil Nadeau:]

So the total global revenue is $88 million?

[Justin Gover:]

That U.S. revenue for Epidiolex was $86.1 million. And then there was $1.9 million of Epidiolex revenue outside of the U.S. related mainly to the early access programs.

[Phil Nadeau:]

Got it, okay. That’s very helpful. Thanks. And then second question on the Epidiolex launch in the U.S., I know it’s been on the market for approximately a year. Do you have any quantitative understanding of what persistence and compliance is for patients’ therapy? In particular, do you have a sense of what the current dropout rate is?

[Darren Cline:]

Hey, Phil. It’s Darren. I’ll take the question. We’re not providing specific metrics on this. But if you’re thinking about modeling retention, I think it’s helpful to remind everyone the data that’s already published.Across our 4 Phase 3 trials the withdraw rate for patients on Epidiolex was on average 10% over the 14 week trial period. And for those patients that completed the trial and entered the long-term open-label expansion, and this is presented at AES in 2019. Over 1 year period, we saw retention rates of 80% for LGS and 70% for Dravet.So again, this is of course in the context of a clinical trial environment. And worth noting that these numbers are those typically seen or above what we see in the AED class. So I think that’s how you probably should consider modeling retention.

[Phil Nadeau:]

Great. And then, last question for me is just on toxicity. In your prepared remarks, you mentioned that it was – thus far, it’s been consistent with the label. I think the concerns investors had were around perhaps the death rate. Can you discuss deaths, specifically, anything surprisingly or different than what you would expect from the natural history of these diseases?

[Volker Knappertz:]

Well, thank you. This is Volker, Chief Medical Officer for the question. We – just to refer back to my prepared remarks, we have carefully looked at the post market surveillance. We do this on an ongoing basis. We are aware of all the data that’s out there and there is really no change from what is in the label. And it is consistent with what we’ve seen so far in the clinical trial program and what is known from the epidemiology of those diseases.

[Phil Nadeau:]

Perfect. Thanks for taking my question.

[Operator:]

Thank you. Your next question comes from Salveen Richter from Goldman Sachs. Please go ahead.

[Salveen Richter:]

Thanks for taking my questions. On the floor can you just put the – or elaborate on the healthy rate of new patient starts. You mentioned in the context of the third quarter trajectory. And then, secondly, with regard to the payer process, when we think about the refractory epilepsy patients, how are these patients, how are – you in terms of them going through appeals process or being able to get drugs through the first pass, how does that, I guess, rate of success plays out here?

[Justin Gover:]

Yes. Thanks. Salveen. So regarding the new patient adds, as we’ve stated with the large uptake early on in the launch and now kind of the settling of the – in the third quarter, we still – the patient adds for the quarter remain very healthy in our view as we kind of move and transition into 2020 and beyond.Regarding the payer front, and the rare and other refractory epilepsies, as I eluded to on the call, we feel very good about the LGS, Dravet. What we have found is those physicians that want to prescribe in these other areas that have an unmet need, once they go to the appeal process and/or peer to peer conversation with the payer, we’re seeing a very high number of these get driven, get ultimately paid.

[Salveen Richter:]

Thank you.

[Operator:]

Thank you. Your next question comes from David Lebowitz with Morgan Stanley. Please go ahead.

[Ishmael Asante:]

Hi, this is Ishmael on for David. Thank you for taking our question. Can you remind us of your expectations for the European ramp in 2020 and the dynamics that made different from what you experienced from the U.S. launch? Thank you.

[Justin Gover:]

Chris?

[Chris Tovey:]

Yeah, hi, Chris Tovey. I think it’s fair to say that the European launch hasn’t really started in earnest. The German launch started sort of mid-October and the French one which is really only just starting. So I think 2020 is best thought of as the first real launch year for Europe, in similar some ways to the way the U.S. launch timing worked.And as I’ve said, it’s all about pricing reimbursement. So we will be looking obviously for an outcome from Nice. And then, we got a complete pricing reversement in Spain and Italy. So you’re going to have the sequential introduction of countries through 2020, which means it’s not really easy to compare with the U.S., which is obviously one country, one population in one go. So it looks very different. But typically, we expect the European overall, when it matures into the launch to be 1/4 to 1/3 of the size of the U.S. market.Patient availability in DS and LGS is pretty similar across Europe to the U.S. So – we remain really optimistic about the opportunity for the European launch. And – but 2020 is going to be a case of achieving pricing reimbursement in the major EU5 markets, and then bringing – dialing them on and bringing them through into real sort of commercial launch phase.

[Ishmael Asante:]

Okay, great. Thank you for taking our question.

[Operator:]

Thank you. Your next question comes from Cory Kasimov with JP Morgan. Please go ahead.

[Neena Bitritto-Garg:]

Hi, this is Neena on for Cory. Thanks for taking the question. So just kind if you go back to kind of the underlying rate of new patient acquisitions, can you just help us understand how we should really think about that rate moving forward? Should we kind of expect it to level off from here? Should we expect to see growth? Yeah, anything you can kind of guide us on that would be helpful.

[Darren Cline:]

Yeah, I think there’ll be – this is Darren. Through the end of 2019, I think we’re in a really nice kind of steady state as we exit the year. But we – as I stated in my remarks there are several growth drivers for us in 2020 and beyond. We look at the advocates that were early part of this launch, continue to prescribe Epidiolex, I told you about the next 1,000 or so prescribers that we’re going to spend time and effort on to increase that prescriber base.And that goes hand in hand with the opening access of the payers that as I stated during their annual review now. So I think that through the remainder of the year, we feel very good about the patient adds. But really look to 2020 to really capitalize on those dynamics that we are setting up for the future.

[Neena Bitritto-Garg:]

Okay. Great. And then just one question around the TSC kind of timing. Is there any reason, in fact, filing got pushed back to the first quarter versus fourth quarter?

[Darren Cline:]

Yeah. Thanks for the question. It’s really just a few weeks of it extra administrative steps, so it’s just – these are important things to get right, it’s actually a pretty comprehensive sNDA, because it includes second Dravet study as well. So a lot of those getting into this, and it’s travelling a quarter, but this timing shift is actually relatively in consequential media approval is still expected.

[Neena Bitritto-Garg:]

Okay. Great. And one more really quick question. You talked a little bit about just looking at and getting some of the piece other rare and refractory epilepsy patients through on drug. So at this point, I want – can you tell us – give us any sort of guidance on what the breakdown is between on-label and off-label view?

[Darren Cline:]

Yeah. It’s Darren. We – again the majority of the scripts of LGS, DS of this particular time, not really any insight into the broader, just hearing what we hear and doubly through our payer interactions.

[Neena Bitritto-Garg:]

Okay. Great. Thank you.

[Operator:]

Thank you. Your next question comes from Marc Goodman with SVB Leerink. Please go ahead.

[Marc Goodman:]

Yes. First question is sounds like you’ve made some decisions on additional indications for Sativex just start some studies next year. I was wondering, if you could elaborate a little bit on that. And second, if you could talk about what else we’re going to see it AES this year, I know, you mentioned obviously the Phase 3 data? But what are the studies are you planning to show us? Thanks.

[Justin Gover:]

Hey, Marc, it’s Justin here. I’ll take the Sativex question. I think, we’re obviously focusing on the call today on the lead indication in terms of the fastest route to the market, I think, with signaling strongly that you can expect a serious of indications. We do see it as a pipeline of product opportunity. We kind of being a little judicious about how we laid that out, but you can expect early next year for us to kind of lay that for you in terms of the series of indications that we will be investing. And then there is a mix of to the natural follow-ons from the MS spasticity indication to some broader less related indications as well.And the market research we’re doing is really coming out to be very interesting with that. But I’m – we decided to date to limit the comments to the kind of routes to NDA, but stay tuned. And I think on AES, we don’t see the main focus is the TSC indication that will be additional long-term data from – on the Epidiolex use, and so selected other posts, the primarily sort of focus for AES is definitely TSC.

[Marc Goodman:]

Thanks.

[Operator:]

Thank you. Your next question comes from Tazeen Ahmad with BAM. Please go ahead.

[Tazeen Ahmad:]

I think, BAM is Bank of America. So that must be me. Hi, guys. I did want to ask a couple of follow-up maybe the questions that were asked earlier in the queue. And in case I missed it, did you get what your current mix of adult and pediatric uses this quarter and if it changes all from what you’ve been seeing it in the first 2 quarters of the launch.

[Darren Cline:]

Hey, Tazeen, it’s Darren. Remain about 60/40.

[Tazeen Ahmad:]

Okay. And then, can you give us an idea of what the growths to that was during the quarter?

[Scott Giacobello:]

Yeah, Tazeen. It’s Scott. We said that we had total deductions from gross sales of $18.6 million, which I can give the specific percent, but it’s running at under 20%. And we don’t split that out by product by region, just in total. But we’re running where we expect it to be.

[Tazeen Ahmad:]

It’s running under 20%, but can you say directionally if that changed from your first couple of quarters.

[Scott Giacobello:]

It’s changed very little. But what is happening is obviously Medicaid is a large portion of our business. So Medicaid, I think, Darren mentioned is up to 40%, and as Medicaid ticks up, I think, we initially thought it would be somewhere around 40% to 45%, it’s the biggest piece, so it does drive it. So it’s ticked up slightly.

[Tazeen Ahmad:]

Okay. And maybe the last question for me. I know, you’re a little bit constraints in being about the answer these types of questions. But just for our understanding and being able to model is better going forward. Can you give us the sense you talked about retention, but without knowing like what your patient count was this quarter, how do we get a better sense of this continuation beyond, let’s say, the comments that just been has made about the launch going as planned so far?

[Darren Cline:]

Yeah. I mean, I think, what I stated previously, Tazeen, I think that – you think about the AED class, 2 different things, I mean, think about our clinical trials on the open label, and the retention rates there. And then just the general antiepileptic drug class and then between the 2 in the clinical trials down at the AED class is the range of how you should model it.

[Justin Gover:]

Yeah. And I think, it’s important investors to understand this antiepileptic drug phenomenon, and I think, we should also emphasize that we see Epidiolex is a top performer, when it comes through within that class. But epilepsy has a cadence to it and we’re just trying to make sure investors understand that dynamic. But I think as far as we can go.

[Tazeen Ahmad:]

Okay. Thank you.

[Operator:]

Thank you. Your next question comes from Esther Rajavelu with Oppenheimer. Please go ahead.

[Esther Rajavelu:]

Thank you for taking my questions. Can you talk about the EU market dynamic with this [dispensingly] [ph] CBD where doctors are maybe prescribing these in some markets? How does that impact your pricing discussions and news update?

[Chris Tovey:]

Hi. It’s Chris Tovey. It doesn’t actually to be frank, the reality is all the market research we’ve done, all the engagement we’ve had through our KOL ad boards and then all the congresses we’ve been at, have made it very, very clear that specialist and remember these are treating really seriously allocate particularly, especially it’s actually one regulatory approved CBD medicines. So essentially it really doesn’t have any impact on the way, that specialist and physicians are thinking about prescribing.And additionally, the health technology assessments to the go on that support pricing reimbursement, Europe are evidence based. And there is no evidence for these other products. So essentially, it’s sort of business as usual for pharmaceutical products and obviously the date that we have behind Epidiolex in a highly unmet medical need area, it makes us, puts us in a really strong position. And I think, we’ve seen that come through and our conversations with NICE for instance.

[Esther Rajavelu:]

Okay. And then really quickly on the EAP patient pool. What – how quickly do you see that uptake into revenue? You said about $2 million in this quarter?

[Chris Tovey:]

Yeah. So you still in Europe. Sorry, just…

[Esther Rajavelu:]

Right. In Europe.

[Chris Tovey:]

Yeah. I think, the reality again is, and this is the – our sound like a broken down, every country in Europe is very different. And it’s – we are in a fabulous position to be sitting on 1,100 patients both have experience in just over a year and in nearly access program. But each country scheme is slightly different some of them are paid for, some of them are not paid for. And the transition process will have to be managed individually. And the transition can only occur when pricing is reimbursement is agreed.So for instance, the process in Germany will take upwards of 3 to 4 months, because of prescription lens given in the early access program. So what will have is the benefits of this early access patients transitioning into commercial pack through 2020 as we bring on new countries with pricing reimbursement. So but it’s just really in place to be starting from, because it means a least quarter of the prescribing base have got experience of Epidiolex and the vast majority of the key centers have also seen Epidiolex on the sales of their pharmacy.

[Esther Rajavelu:]

Thank you.

[Operator:]

Thank you. Your next question comes from Paul Matteis with Stifel. Please go ahead.

[Paul Matteis:]

Great. Thank you for taking my questions. If you look at patient numbers that you guys reported this quarter and last quarter from 1Q. It looks like patients who tried Epidiolex from 1Q to 2Q, and then 2Q to 3Q was about 4,000 – over 4,000 and then 3,000. I was wondering of those numbers that 4,000 and 3,000 also match the underlying net patient at rate roughly when you control for discontinuation? And then secondarily, on IMS right now, it looks like NRX are continuing to increase into this quarter, and may we’re increasing from 2Q to 3Q, but new patient’s starts with and they were down this quarter. Can you help kind of clarify what’s going on with IMS and whether or not we should be paying attention that data every Friday into November and December? Thanks a lot.

[Scott Giacobello:]

Yeah. Hey, Paul. It’s Scott. I’m going to take the first one on the patient as you mentioned 4,000, 3,000, actually we exclude the impact of EAP transitions in Q2 that there is a new patient add rate is actually been pretty consistent across the quarters. From the net patient add, when I don’t think I can’t really comment on, I don’t – we don’t know exactly how that’s playing out underneath of discontinuation is coming off and on. And I’m sorry, your third question?

[Paul Matteis:]

That was about – well, actually, Scott, just as a follow-up. I thought 75% of the EAP was converted in 1Q. And then 25% in 2Q is that wrong, because that make should impact about 3,000 or so patients in 2Q?

[Scott Giacobello:]

I don’t think we gave the actual split out that. I think, we just said, it was largely, it’s true that, there was more of it completed in 1Q then in Q2. But there is – I – there was still a decent amount in the second quarter. But there wasn’t – for me, there wasn’t a drastic difference when you excluded those items of new patients adds between Q2 and Q3.

[Justin Gover:]

Right. I think, Paul, this is Justin. When I look back at our Q2 comments, which we were – I think, pretty clear that what we felt was the – I think, you would agree that the significant growth we saw in Q2 was the combination of that transition, but also the extension of that sort of pre-launch phenomenon extending into Q2 time period. So I think, we feel very comfortable when you look at the sort of cadence underlying that the 3,000 adds is something, we’re very comfortable. If we don’t see it as a downturn at all. And I think just to emphasize the – for all the reasons down is that on this call. But I think in particular point to the kind of prescriber targeting and also the payer access change that we expect to see in 2020. We are not worried at all about the potential pool patients, and the opportunity for new patients add is growing in 2020. I just want to be clear on that. We are in an interesting year, because of the bring – we go forward as many of patients in the launch year. But there is nothing we’re seeing which kind of, because this concern around new patient growth moving forward.

[Paul Matteis:]

Okay. That’s helpful. My other question was just on IMS, because IMS into this quarter is conveying that new patient starts are at least flat or maybe actually even up. It sounded like just in that you’re saying that this 3,000 add rate on a go forward basis, it’s still sustainable. What about IMS should we be paying attention to that and what’s been happening with the capturing? I was just wondering, if you can clarify at all.

[Scott Giacobello:]

Yeah. So Paul, Scott again. I mean, again as we have said consistently introduce cautioned around the IMS numbers, right. Because it’s not the full picture over a longer period of time, it should be directionally correct. But it clearly is not the full picture. But I’d say as far as capture rate, we haven’t seen any meaningful movement in capture rate over the last couple of quarters.

[Paul Matteis:]

Okay. Thanks for the help. I appreciate it.

[Operator:]

Thank you. Your next question comes from Charles Duncan with Cantor Fitzgerald. Please go ahead.

[Charles Duncan:]

Hi, guys. First of all, congrats on the progress to Justin and team. Thanks for taking my questions. I just had 2 questions, one is commercial and one is pipeline. On the commercial question, you mentioned the long-term care segment, and I’m wondering if you could provide some additional color on the kind of patient population that you’re looking at there are numbers of patients. And then other dynamics and whether or not that may impact the sizing of your sales force going into 2020?

[Darren Cline:]

Yeah. It’s Darren. I’ll take the question. We always have this long-term care segment on our radar as the potential opportunity to the factors that I talked about interactions with our physicians, market research and other analogs how the companies have to handle it. And the patient type, if you think about patients that are in the long-term care facility. These are the most probably sickest of the sick within LGS. And other kind of these rare epilepsies, and there is a great need for this product. As it relates to kind of a resource – we’re actually – it won’t impact our sales organization if anything and this will help our sales organization focusing on our target prescribers. We’re going to have a separate small group of account executives will be – with long-term care background will be deployed into the segment. So we actually think that we’ll be able to capitalize on the opportunity in 2020 and beyond.

[Charles Duncan:]

That’s help for added color. With regard to the pipeline this maybe way ahead of our skies or whatever. But I wondered, if you could provide some additional color on the Rett study as well as the Schizophrenia study, specifically with regard to Rett, are you tracking the patients that have been enrolled and how do you feel about the characteristics in terms of being able to slow signal-to-noise for the neuropsych symptoms versus certainly the seizures. And then for Schizophrenia could you just let us know whether or not that’s 4 to 6 week study, and if it’s for U.S. patients or more broader?

[Chris Tovey:]

So with regarding to your question on Rett and I appreciate your concern about signal to noise, we’re using a validated scale called the RSBQ is the Rett Syndrome Behavior Questionnaire. And we don’t have ongoing monitoring of that scale in the moment. So I can give you data on this, we will be looking at the behavior of those scales and we will be looking at this in real time in the files. But this is nothing we’re actually report. So I’m afraid to have to ask you to the patient until the trial completing the results.And with regard to your question on Schizophrenia, the duration of that file, we haven’t announced the precise trial design, yet. But I anticipate this to be longer than the 4 to 6 week study I anticipate this to be a 3 month study.

[Charles Duncan:]

And you answered global?

[Chris Tovey:]

The study will be recruiting in various geographies including the U.S.

[Charles Duncan:]

Okay. Thanks for the added color and taking my questions.

[Chris Tovey:]

Thank you.

[Operator:]

Thank you. Your next question is from Yatin Suneja with Guggenheim Partners. Please go ahead.

[Derek Johnson:]

Hey, guys. This is Derek on for Yatin. I just wanted to get a little more clarification on the question, Paul asked earlier on the sort of a lack of relationship with the IMS script numbers and what we’re seeing in terms of total revenue. I know that you guys have made really clear that, that we shouldn’t really look at these scripts as being a direct one to one.But is there any other just color that you can add in terms of the patient-adds that came through the quarter? Were they smaller; which would perhaps have a lower-dosages that could have, yeah, that would be reflected in TRx numbers? Were specialty pharmacies a lower percentage of the dispensaries, which may not have been reflected as well in all of those numbers?Is there – any additional information you can provide just to kind of clear that up a little bit?

[Darren Cline:]

Yeah. I’m sorry. We would like to be helpful. But I’m not sure we can, I mean, it’s an imperfect dataset, because it’s incomplete, and that’s why ever since this launch, we’ve just been urging an element of caution that we have realized it’s the most you have. And that’s maybe partial data, so it’s frustrating. But we can’t, because the data is not ours and I don’t think we can get insight as enough to start to explain to you the differences. The results are the results, and obviously, I think what we are giving you is the actual metrics and IMS is obviously there and we realize it’s a guide, but it remains only a guide.

[Derek Johnson:]

Okay. That’s helpful. Thank you. And could you just remind us real quick on how you view the size of the adult population you can be targeting in with Epidiolex and LGS...

[Justin Gover:]

Yeah, just across all the indications, once TSC…

[Darren Cline:]

Particular – well, this is Darren, our addressable patient population is about 70,000. If you look at DS, LGS and eventual TSC, and the breakdown is probably roughly 50-50 ultimately, is what we think it will shake out.

[Derek Johnson:]

Great. All right, that’s helpful. Thanks again, guys, and congrats on the quarter.

[Operator:]

Thank you. Your next question comes from Danielle Brill with Piper Jaffray. Please go ahead.

[Danielle Brill:]

Hi, guys. Thanks for the question. So you mentioned that the current mix of adults and pediatrics is stable. I’m curious, are you expecting that to skew more towards adults as you increase focus on the middle tier providers. And then also, you mentioned that the average dose increase in the third quarter, can you comment on revenue per patient dynamics and how we should think about the shifting moving forward? Thanks.

[Darren Cline:]

Yeah, it’s Darren. I think over time we do anticipate more adults being treated, as I noted in my remarks, driven by more broad neurology treating the disease. And the second question around dose, no, we just said it didn’t increase during the quarter. But I think it’s about midpoint of the dosing range currently.

[Danielle Brill:]

Got it. Thank you.

[Darren Cline:]

Welcome.

[Operator:]

Thank you. Your next question comes from Serge Belanger with Needham & Company. Please go ahead.

[Serge Belanger:]

Hi, good afternoon. A couple of questions for Darren. What should we expect in terms of changes to payer coverage in 2020? I think you’re already at the mid-90 range in terms of covered commercial lives.And then, related to that, you also mentioned that some plans will undergo review of their Epidiolex coverage after – in 2020. So any expected changes from that review process?

[Darren Cline:]

Yeah, thanks for the question. Well, regarding the covered lives, we said we’re about 93%, 94% of all covered lives in the U.S., which we feel very good and we’ll chip away at the remainder. I think if you think about 2020 and payer coverage. And I alluded to this in my prepared remarks as one year, as if we approach one year of approval now or just likely passed, the commercial payers and particularly during their kind of annual review of Epidiolex utilization.And I think the takeaway that I highlighted, that the utilization is being contained within the target set of physicians, within the targeted set of patients. And then those with the rare refractory upon appeal or peer to peer are ultimately getting through. And I think our discussions with the payers as we dialog around this utilization is what’s the PA accomplishing it? How do they think about broader coverage? And it all anchors around what I heard recently in an advisory board that the managed markets team had with about a dozen commercial payers and then Medicaid was that there is a tremendous value proposition for Epidiolex in this patient segment, these patients with uncontrolled epilepsy.So I think that it’s a winning proposition for all parties as we look to 2020.

[Serge Belanger:]

Okay. And then, I think in your prepared comments you talked about the TSC Phase 3 dataset kind of establishing a broad usage role for Epidiolex, by mid 2020 you should have the label expanded to – will include DS, LGS, and TSC. How do you go beyond those 3 indications through a broader role? Is there a regulatory strategy to get there? Or is it going to be driven by payer coverage?

[Darren Cline:]

Well, I think from a commercial perspective, having that TSC label expansion will be – is tremendous for the brand, is – the addressable patient population. Commercially we won’t promote outside of that label. Well, if you look at Onfi and I talked about this in my remarks last year over their exclusivity. There are a lot of patients on that drug. And I think if you look at Epidiolex and the profile of this within the epilepsy it bodes very well for us.And I won’t comment on the additional regulatory – we talked about the Rett later. But I think just these three and then in these uncontrolled rare epilepsies, provide us, again, a very compelling proposition for this brand long term.

[Serge Belanger:]

Okay. Thank you.

[Operator:]

Thank you. Your next question comes from David Kideckel with Alta Capital. Please go ahead.

[David Kideckel:]

Hi, good afternoon. Thanks for taking my questions and congratulations on the quarter. Just wanted to go back to the comment that was made earlier, with now you’re moving on to the mid-tier physician for 1,000 – sorry about that, but 1,000 physicians at the project for Epidiolex. I’m just wondering from a revenue standpoint, how we should be thinking about that moving into Q4.Compared to your top-tier physicians, is this going to require an extensive amount of efforts to train and educate these physicians now, given that they’re mid-tier as compared to where your top-tier physicians at?

[Darren Cline:]

Yeah, it’s Darren. Thanks for the question. I think you should think about, again, the dynamic of the launch. We have this tremendous uptake early on by those centers. And even these 1,000 prescribers that are in kind of this next year, 80% have written. But what they really haven’t done now is gone from just the one or two scripts per physician to a broader set of prescribing across their practice and that’s really the focus.So it’s not – it’s just additional – it’s not any additional, it’s just continued effort of our tremendous sales force around continuing call frequency. And really, it’s around education, experience and access. Right, we continue to educate physicians around Epidiolex in these LGS, Dravet patients. It’s getting the experience within their practices, coupled with improved access over time. So the fundamentals in really delivering on this mid-tier are set up for us. We just have to continue to execute it.

[David Kideckel:]

Understood. Okay. Thanks very much.

[Operator:]

Thank you. This concludes today’s conference. And you may now disconnect your lines at this time. Thank you for your participation.