GW Pharmaceuticals plc
Q2 2018 Earnings Call Transcript

Published: 9 May 2018

[Operator:]

Greetings and welcome to the GW Pharmaceuticals' Second Quarter 2018 Financial Results Conference Call. At this time all participants are in 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, Stephen Schultz, Vice President of Investor Relations. Please go ahead.

[Stephen Schultz:]

Welcome all of you and thank you for joining us today for our second quarter results call. Again, I’m Steve Schultz, Vice President of Investor Relations at GW. And today, I’m joined by Justin Gover, GW’s Chief Executive Officer; Dr. Volker Knappertz, our Chief Medical Officer; Scott Giacobello, our Chief Financial Officer; Chris Tovey, our Chief Operating Officer and Julian Gangolli, President of North America. We hope you’ve had a chance to review our press release and 6-F filing issued a short while ago. 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, May 8, 2018. 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 CEO.

[Justin Gover:]

Thank you, Steve. And welcome to all of those who are able to join us. On today's call, following my introduction, our Chief Medical Officer Dr. Volker Knappertz will provide a research and development update, Julian Gangolli will provide an update on our U.S. launch preparations, and Scott Giacobello will discuss our financial results. At the conclusion of our prepared remarks, we will open the line for questions. Let me begin by reflecting on the positive outcome for Epidiolex FDA Advisory Committee Meeting which was a momentous event for GW. I'm proud of the entire GW team involved and the extensive preparation practice and presentation for the committee. We believe that the strength and consistency of the clinical data together with the public presentation that featured very moving personal stories of the challenges associated with managing these difficult forms of epilepsy were important to the unanimous vote in support of approval. I know that many of you watched the webcast of the proceedings and likely came away with the same conclusion. Being in the room that day offer the powerful reminder of why we go to work each day and the impact our work and have on the lives of those in need. In addition to the FDA's ongoing review of our clinical data in LGS and Dravet syndrome. I am pleased to report that FDA inspections of our manufacturing facilities have now been successfully completed. Whilst these inspections actually coincided with the rare but significant snowstorm in Southern England, our team was able to effectively manage through this ultimately delivering a clear inspection outcome devoid of any form of 483 observation. This particular FDA inspection lasted 7 working days during which the investigators scrutinized our facilities, quality systems, documentation and manufacturing processes in great detail. The inspection included a comprehensive review of facilities at each stage of the manufacturing process in addition to our extensive quality control laboratories. The assessment of the quality system included the detailed review of that record stability records and quality events. Our understanding is that it is uncommon for a company to have no form 483s in its first FDA GMP inspection and this is yet another testimony to the professionalism and dedication of our staff. It is extremely important to have secured a positive inspection outcome given the significant program of growing and manufacturing expansion that the company has been engaged in over the last few years. The company has transformed its scale growing manufacturing capacity in just a matter of few years and remains on track to satisfy the forecasted market demand with further planned expansion projects in the next year. With the FDA decision date at the end of June rapidly approaching, our confidence and an approval is high and our commercial team is busy preparing to launch Epidiolex in the second half of this year. should Epidiolex be approved, we believe that this will signal a major vote of confidence in GW's cannabinoid platform and will serve to provide momentum for a number of important pipeline programs that have the potential to offer additional value. Let me now hand the call to Dr. Volker Knappertz for his updates.

[Volker Knappertz:]

Thank you, Justin and good day, everyone. Let me begin by reinforcing Justin's commendation to the team that supported the advisory committee meeting. Let me also thank the FDA and the panelist for their time and attention to this important public and scientific advisory process. We believe that presenting and discussing the product safety and efficacy data in a public forum was appropriate for this first in class medicine. Most importantly it provided an opportunity for those who live with these difficult epilepsy conditions to express their support and desire for the availability of the CBD medicine that adheres to the vigorous standards of our modern prescription medicines. In support of our ongoing objectives to share Epidiolex program data with the medical community last month, our company was well represented at the American Academy of Neurology Annual Meeting in Los Angeles. Epilepsy was part of the overall therapeutic focus of this broad-based neurology meeting which had over 14,000 attendees. Here the Epidiolex program data was presented in both podium and post reforms including long term safety and efficacy data in patients with LGS and Dravet syndrome showing durable seizure reductions through 48 weeks of treatment with CBD with no new safety signals emerging. Safety and efficacy outcomes as predefined time points for the phase 3 LGS studies showed that the seizure reduction difference between CBD and placebo emerged already during the titration period of the trials and persisted through the end of the treatment period. Most adverse events occurred and resolved during the study. Another presentation is that the exposure response analysis in Phase 3 LGF studies and showed that the efficacy on seizure reductions and some safety parameters were related to the exposure of CBD and its active metabolite seven hydroxyl CBD. Results from the study evaluating the abuse potential of purified cannabinoid oral solution suggests a low abuse potential. And finally, the analysis of the direct cost burden associated with LJS and Dravet syndrome in the U.S. which showed a substantial direct cost burden for both conditions further highlighting the need for new and effective therapies. I'm also pleased to announce that the LGS phase 3 study has now been accepted for publication and once again in the top tier journals. Clearly the importance of the Epidiolex clinical development program and data is reinforced by this level of attention from the medical publishing community. We expect this publication in the very near future. Turning to our pipeline. Regarding the ongoing Epidiolex clinical program, the second phase 3 Dravet syndrome trial is fully recruited and is expected to read out in the second half of this year. Recruitment continues for the single phase 3 trial and a now a third target indication which is seizure reduction in patients with tuberous sclerosis complex. Results are expected in the first half of next year and the part A of the Phase 2/3 trial for Epidiolex and infantile spasm is nearing completion. Based on currently available data it's unlikely that the company will proceed in this indication to Part B. Beyond Epidiolex as we recently reported GW now has full ownership of the U.S. development and commercialization rights of Sativex offering us an exciting late stage pipeline opportunity. I'll remind you that Sativex is currently approved in numerous countries outside of the U.S. and is providing patients with relief for the spasticity due to multiple sclerosis. We are currently evaluating the optimal path towards submitting an NDA for an MS spasticity indication and with numerous completed clinical studies, including 3 positive Phase 3 trials in Europe which underpins the Sativex approvals in these regions from countries, we expect this may only require a single additional pivotal trial in the U.S. We also remain focused on developing the cannabinoid CBDV which has shown promising preclinical results regarding cognition of behavior which has led us to pursue development of this molecule in the field of autism spectrum related disorders. This program includes multiple studies. A small investigator led expanded access study in 10 patients with autism which is underway in the U.S., an investigator led 100 patient placebo-controlled trial in Autism which is also expected to commence in in the first quarter of 2018, and we are progressing the evaluation of CBDV in red syndrome for which we have received orphan drug designation from the FDA and EMA. We expect an investigator sponsored open label trial study in Rett to commence in the third quarter followed by the start of a company sponsored Phase 2 placebo-controlled trial in the fourth quarter of this year. Regarding CBDV and epilepsy as you may recall in February GW announced the top-line results from a Phase 2a proof of concept study of CBDV in adult patients with focal seizers which did not meet its primary endpoints as both active and placebo arm showed similar reductions in focal seizers of approximately 40%. I want to be clear that we will continue to explore potential development for CBDV in the field of epilepsy. Finally, with regards to the combination of CBD and THC in patients with recurrent glioblastoma, we continue to perform a detailed analysis of the data from our previously completed Phase 2 placebo-controlled clinical study. Further follow-up demonstrates continued prolonged survival in the CBD THC arm supporting our initial observations and supporting our intent to stand this opportunity into a pivotal clinical development program. Thank you. And I look forward to keeping you updated on our future progress. Let me now ask Julian to provide some comments on the commercial status.

[Julian Gangolli:]

Thank you, Volker. With the recent positive Advisory Committee outcome, our confidence grows stronger for an on-time PDUFA approval scheduled for June 27. Post approval, the DEA will need to reschedule aa Epidiolex, a process which may take up to 90 days, following which various administrative steps will need to completed. We are therefore planning on a launch in the fall of this year. We have now completed the build-out of an experienced team of medical professionals, marketing and market access expertise, many of whom have strong epilepsy knowledge and experience. As a reminder, our US commercial business operates under the name Greenwich Biosciences. With our Head of Sales recruited earlier this year, Greenwich had recently completed the build out of its national and regional sales management team and we have started the identification and screening process for the neurology account managers. We are impressed and excited with both the interest and experience that these prospective candidates could bring to Greenwich Biosciences. The offers are timed so that the sales professionals are fully prepared by launch. Over the last four years, we have developed excellent KOL relations through the Epidiolex clinical program. Our US medical affairs team continues to build on that, focused on open scientific and consultative communications with KOLs and key academic medical centers in the US. The team is developing Dravet, an LGS disease state information. And just recently, Greenwich supported the launch of two important information websites, one for the physician community located at www.cannabinoidclinical.com and one for the patient communities located at www.takeonepilepsy.com. Turning to the all-important payer community. A number of one-on-one meetings and advisory board meetings have taken place over the last year. With the deployment of our experienced payer national account team, we have engaged in more detailed individual discussions with the major US plans. These meetings have already taken place or are planned to be completed prior to launch. We’ve also been very active at the major payer meetings with numerous one-on-one meetings at the Pharmaceutical Care Management Association Meeting, the PCMA meeting in March and the Asembia meeting, the Specialty Pharmacy Summit meeting that is recently just concluded. In addition, the company had the opportunity to share clinical data and the outcome of the recently held highly favorable FDA advisory committee with the centers for Medicare and Medicaid Services or CMS. Given the significant pediatric population that may likely beyond Epidiolex, CMS will be an important payor. In summary, we believe there is significant expectation and anticipation for Epidiolex, due to the very high level of awareness in both the patient caregiver and the physician communities. Awareness of the recent FDA advisory committees’ unanimous vote for approval is very high in both communities. This was witnessed by the significant level of physician interest at our exhibit, poster and podium presentation at the recently held American Academy of Neurology meeting that happened to be held the week directly following the FDA advisory committee meeting. We believe through our initiatives to-date and those planned prior to and into launch, there will be strong support and demand for the product. With regard to coverage many of you on this call are aware, the various payers within commercial state and federal plans have different policies and procedures to establish reimbursement coverage and the time it takes to establish coverage policy. As mentioned earlier, we are working with them to see to what extent we can help expedite the time to favorable coverage. Turning to IP and exclusivity, we have made considerable progress to ensure that Epidiolex will have a longer commercial life. Progress which includes U.S. and EU orphan exclusivity, a rapidly expanding patent portfolio, a formulation lifecycle plan with novel follow on dosage forms that are already advancing through development. Looking specifically at our intellectual property progress, we recently reported that five patents had received notices of allowance from the USPTO, which includes the use of CBD for the treatment of convulsive seizures associated with both LGS and Dravet syndrome as well as the use of CBD with clobazam and the teaching that dose adjustment may be needed when concurrently prescribed. These patents have all now been granted. I am happy to update you that two additional method-of-use patents have now received [NOAs]. One is the drop seizures in LGS and one for atonic seizures in LGS and Dravet syndrome. These patents are directly aligned with the expected Epidiolex label and will be Orange Book listable. We believe that these patents are strong and having being thoroughly examined through the examination process. With these graphs we believe there is a strong argument for exclusivity to extend beyond the orphan period. Now on behalf of my colleague Chris Tovey, who is leading the Ex-US commercialization efforts, I'm pleased to report that with the European regulatory application now under active review, we continue to make good organizational progress for the commercialization of Epidiolex in Europe. Significant progress has been made in hiring country leadership and the local medical staff in the five major European markets and these staffs are engaged in local activities supporting market access, medical affairs and commercial plans. Significant focus is now being placed on the specific activities associated with securing acceptable and prompt pricing and reimbursement post MAA approval expected in the first quarter of 2019. I thank you for your time and attention today. And look forward to updating you regarding Epidiolex FDA approval and U.S. launch. Let me now hand the call to Scott Giacobello to provide the financial review.

[Scott Giacobello:]

Thank you, Julian and good afternoon. I will now provide some high-level comments on GW's financial results for the 3 months and 6 months period ending March 31, 2018. A more detailed discussion of our results is provided in the 6K we filed with the SEC a short while ago. We present GW's results in accordance with international financial reporting standards and British Pound Sterling. For convenience purposes on this call I will refer to U.S. dollar equivalents using the rate at March 31, 2018 of €0.7118 to $1. Starting with revenue, total revenue for the quarter was $3.4 million up from $2.3 million in the prior year quarter. This $1.1 million increase is driven primarily by increased Sativex sales. Moving to R&D spend, total research and development expense for the quarter increased to $46.1 million compared to $38.2 million in the prior year quarter. This increase reflects the ongoing Epidiolex development program and cost related to the progression of the NDA and MAA submissions as well as our other pipeline programs and additional costs related to the scale up of Epidiolex growing and inventory build for potential launch, all of which are expense has incurred. Turning to SG&A. Sales, general and administrative expenses increased to $24.8 million in the quarter from $13.1 million in the same period last year. Current quarter SG&A expense was in line with the previous quarters spend of $24.4 million and reflects continued investment in the ramp up of our commercial operations and prelaunch activities in both the U.S. and Europe. Foreign exchange volatility continues to have a significant impact on our results. During the second quarter continued weakening of the U.S. dollar against the pound sterling has resulted in the recognition of a net foreign exchange loss of $20.5 million. This loss is primarily due to the revaluation of the company's dollar denominated cash balances at the closing sterling exchange rate. This is all resulted in a net loss for the second quarter of $88 million. Moving to cash flow, net cash inflow from financing activities was $311.1 million for the 6 months period ended March 31, 2018 reflecting successful equity financing completed in December 2017. Capital expenditures for the 6 months ended March 31, 2018 was $16.2 million compared to $9.6 million for the prior year reflecting continued investments in the expansion of our cannabinoids production facilities. Net cash outflow from operating activities for the 6 months to March 31, 2018 was $122.4 million compared to $92.7 million for the prior year reflecting the increases in R&D expenditures and SG&A costs already mentioned. The resulting increase in cash for the six months ended March 31, 2018 amounted to $148.4 million. At March 31st, we held closing cash equivalent to $487.2 million. Turning to guidance, net cash outflows for the first half of the year excluding the impact of the December financing amounted to $138.6 million. This exceeded the upper end of our guidance range of $120 million due primarily to the timing of the receipt of the UK R&D tax credit of $28 million which is now expected to be received in the third quarter. Taking this credit into consideration, operating cash outflows for the first half were as guided. Following the successful financing in December, the company’s funds allowed us to continue to make the investments necessary to support a successful launch of Epidiolex in the second half of the year. We expect total cash outflows for the second half of the year in the range of £90 million to £105 million or $120 million to $140 million based on today’s prevailing currency exchange rates. This includes capital expenditure of $10 million to $20 million related to manufacturing expansion. This reflects the continued investment in our pre-launch activities and manufacturing scale up. Finally, as disclosed in our 6-K filed a short while ago, the company no longer qualifies as a foreign private issuer as of March 31, 2018. As a result, effective October 1, 2018, we will be required to file periodic reports and registration statements on US domestic issuer forms with the SEC. Therefore, for our fiscal year ended September 30, 2018, we will file our annual report on Form 10-K and our financial results will be presented in accordance with US Generally Accepted Accounting Principles in US dollars. Thank you. I will now hand the call back to Justin.

[Justin Gover:]

Thank you, Scott. In closing, our primary focus now is on ensuring that we deliver a highly successful US launch this fall through our world class commercial team. This is a very exciting time and the various elements of success are now in place with only the hiring of the sales field force to complete. Looking beyond Epidiolex, we are very excited about leveraging our deep expertise and proprietary development platform to generate important and valuable product candidates. After 19 years of dedicated cannabinoid research, GW has now come of age and is on the cusp of major success. As the world's leading cannabinoid science, not only at GW on the verge of the launch of a potentially important and valuable medicine in Epidiolex but we also believe that the approval of Epidiolex will validate this area of science and GW’s leading capabilities in translating that science in the novel approved medicine that meet real unmet needs. GW has built a unique improvement platform and is developing a broad wholly-owned innovative pipeline in this emerging and highly topical area of science. 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:]

At this time, we will be conducting a question-and-answer session. [Operator Instructions]. Our first question is from Salveen Richter with Goldman Sachs. Please proceed with your question.

[Salveen Richter:]

Thanks for taking my questions and congrats on the positive FDA panel. And so just with regard to the approval process, you had mentioned that you haven't received any [43] letters. How do you believe that this, I guess how are you thinking about approval in the context of manufacturing clearance? And then secondly with regard to the DEA scheduling process, how would a schedule two versus three or four or five effect distribution?

[Justin Gover:]

Salveen. It’s Justin here. I mean I mean I’m not quite sure I understand the first question other than clearly the AdCom was a hugely important, thank you for your nice comments around the safety and efficacy. Manufacturing of a very positive outcome for that inspection and obviously we've been working hard over several years to that end and we are manufacturing commercial stock out of that inspected facilities. So, the launch stock is being manufactured and inventory is now being built from that successfully inspected facility ahead of launch, but I'm not sure that quite addressed your question, was that what you were getting?

[Salveen Richter:]

Sure. I guess, I was just wondering if you believe, you’re all cleared for approval on the manufacturing front here, you have deposit of those, but is manufacturing offset as well.

[Justin Gover:]

We believe so, yes. Salveen, on your question of scheduling, I think if one listened to the FDA narrative around the --[indiscernible] I think it would be very unusual that this would be placed in a schedule two category. I think we continue to be of the opinion that it's supports 4 or lower category rating which doesn't really impose any major issues to distribution through our supply chain.

[Salveen Richter:]

Great. And then just one more follow-up, how are you thinking about the patients in the expanded access program and when they may start to transition to drug in the context of finalizing reimbursement?

[Justin Gover:]

Yeah, thank you, Salveen. It’s something very important to us. Obviously, we have a number of patients in the expanded access program. We want to make sure that as we move through the coverage and policy determinations that plans are going to be making that we make sure that there is continuity of care for those individuals as best as can be achieved. So, we will be looking for a transition of those individuals in 2019.

[Justin Gover:]

Thank you

[Operator:]

Our next question is from Tazeen Ahmad with Bank of America. Pleased proceed with your question.

[Tazeen Ahmad:]

Hi, guys thanks for taking my questions. Maybe a couple about expectations about scheduling. I know we’ve talked about this in the past but as we get closer to the PDUFA, I'm just wondering if you have a better sense, it could take as long as up to 90 days, but potentially it could take a lot fewer days to get that. So how are you thinking about that and how should we be thinking about that in terms of sales for the quarter? Thanks.

[Justin Gover:]

So, the legislation that covers this, that gives the interim final rule allows for DEA to get up to 90 days. I think from a planning perspective, we don't want to obviously anticipate something that we have no control over frankly. So, we have that built in. once the DEA has made its confirm the rescheduling position it needs to be published in the federal register which happens almost within 24 hours. And then there are a number of relatively easy but there are a number of administrative steps that need to take place immediately following the federal registered publication. So, we have we are looking for an early full September -- around September timeframe for introduction of the product. So, I would, in your model suggests recognize that as one of our assumptions.

[Tazeen Ahmad:]

Okay. And then in terms of pricing, obviously we'll see the final price when the drug launches but based on the work you have done, maybe Julian you can comment a little bit about what kind of growth in that assumptions we should be thinking about here, thanks.

[Julian Gangolli:]

Obviously with regards to pricing. This is not the forum for that, but in terms of GTM, I think we out of the gate given the pediatric population and the likely use of Medicaid as you know that has its own sets of requirements in terms of discounts some rebates. I would imagine that we would be operating between 23 and 25 as the GTM in the first year.

[Tazeen Ahmad:]

And would that trend improve overtime?

[Julian Gangolli:]

Unlikely, the gross to net improved overtime unfortunately Tazeen, but I think obviously we've we want to manage gross to net as much as we possibly can. But I would not suggest that gross to net will improve overtime period.

[Tazeen Ahmad:]

Okay thanks.

[Operator:]

Our next question comes from Phil Nadeau with Cowen & Company. Please proceed with your questions.

[Phil Nadeau:]

Good afternoon. Thanks for taking my questions. And let me add my congratulations on the progress. Just first one question on the pipeline and one on commercial. On the pipeline question you announced the likely discontinuation of the infantile spasms trial this afternoon. Can you talk a little bit about how we should interpret that data in light of the ongoing KFC trial? Is there a readthrough from IS to TSE? How do the endpoints differ and how does your prior experience and compassionate use differ between the two indications?

[Justin Gover:]

Thank you very much for the question. On our assumption that we will discontinue the infantile spasm study. It is not fully completed yet, we have nearly completed the 10 patient Part A that was to inform the next stage. But the observations that we've had to date and this is an open label study so I'm not going to disclose to you exactly what the observations were, this is still within of the people within the study conduct. We do not expect to move this forward into the Phase 3 stage. Infantile spasm is an age dependent as you know form of severe catastrophic childhood epilepsy that does occur in TSE but it's age dependent and the seizers that we're treating, TSE studies are very commonly partial and complex partial as well secondary generalized seizers. It’s a very different seizure type. They do occur in the same individuals over the course of their lifetime but the infantile spasms are a very specific hard to treat treatment refractory seizure type that we’ve chosen them to bar for efficacy that we have set, it’s extraordinarily high. We basically were looking for cures of these patients that had to be spasm seizure free, spasm free for two weeks and had to show application of hypsarrhythmia pattern on EEG, the typical EEG pattern associated with this condition. So really, we don’t believe there’s any read through between infantile spasms which we were hoping to treat that looks like it’s not going to be a breakthrough here, but everything with regards to TSC which are mainly partial seizures, some generalized seizures but the remaining partial seizures are unaffected by this.

[Julian Gangolli:]

And may be Phil I’d just add a couple of things. The first is, obviously we have data on TSC, you’ve seen it, open-label albeit -- but very consistent with the Dravet LGS open-label data and the end point that we are using TSC is similarly constructed in terms of seizure reduction. So, this is always a very different type of development opportunity.

[Phil Nadeau:]

And then second is the commercial question. As you look forward to the early days of the launch of Epidiolex, what are your expectations for use in Dravet and Lennox-Gastaut versus patients with diagnosis of other seizure disorders? Should we anticipate off-label use can start right from approval or is that going to take some time for insurance to relax restrictions to allow of what we used in early in the launch where we just [indiscernible] therapy?

[Justin Gover:]

Yes, thank you, Phil. Obviously I need to say this and underscore it, but our education is going to obviously be around Dravet and LGS. We are aware that in many situations physicians are faced with some difficult decisions with these intractable epilepsies. The discussions that we’ve had with the payers have indicated that for Dravet and LGS they reshape that those have major unmet medical needs and that the prior authorization should proceed relatively unhindered. With regard to the however one of payer defines off-label in this context, whether or not it’s strictly Dravet or LGS so however they want to define it, obviously that is between the provider and the payor themselves. But I think it would be realistic to anticipate that each of the plans will need to come up with some policy coverage guideline and that typically takes a little bit of time to review and process. So, I would not expect immediately out of the gate that there will be a lot of coverage for non-Dravet, non-LGS patients.

[Operator:]

Ladies and gentlemen, we’ve run out of time for the question-and-answer session. At this time, I would like to turn the call back to management for closing comments.

[Justin Gover:]

This is Justin here. Thank you all for joining our call today. I see very exciting few months ahead as we head towards PDUFA date and rescheduling a launch. So, thank you again for your interest and support for the company and we look forward to what should be a very exciting year ahead for us.

[Operator:]

This concludes today’s conference. You may disconnect your lines at this time and we thank you for your participation.