GW Pharmaceuticals plc
Q1 2015 Earnings Call Transcript

Published: 4 Feb 2015

[Operator:]

Greetings and welcome to the GW Pharmaceuticals’ First Quarter 2015 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. It is now my pleasure to introduce your host Steve Schultz, Vice President of Investor Relations. Thank you sir. You may begin.

[Steve Schultz:]

Welcome and thank you for joining us on the call today. Again, my name is Steve Schultz and I’m the Vice President of Investor Relations for GW based in the United States. Today, I am joined by Justin Gover, GW’s Chief Executive Officer; Chris Tovey, our Chief Operating Officer; Dr. Stephen Wright, our Director of Research & Development; and Adam George, our Chief Financial Officer. We hope you’ve had a chance to review our regulatory filings from earlier today. These documents including a full MD&A provide additional details of the Company’s first quarter financial and operating results. As a reminder, during today’s call we will 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, including the regulatory clearance of our products, 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, uncertainties and other risks associated with investment in GW can be found in GW’s filings with the U.S. Securities and Exchange Commission. Existing and prospective investors are cautioned not to place undue reliance on these forward-looking statements, which speak only as of today’s date February 4th, 2015. 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 of those who are able to join us. As we have recently updated investors on both the Epidiolex and Sativex program I intend on keeping today's prepared remarks brief and focus on our incremental epilepsy program development to next steps regarding our pipeline. Dr. Wright will provide additional comments on the development and Adam George will then provide an overview of our financial results for the first quarter. At the conclusion of our prepared remarks, we will open the line to questions. First let me reflect on the announcements that we made in early January at that time we provided several important updates on our epilepsy program including the rapid completion of recruitment into path A of the Dravet Syndrome phase 2/3 pivotal study, the acceleration of our Dravet and Lennox-Gastaut syndrome phase 3 program timeline, the imminent entry of CBDV into phase 2 clinical development and the receipt of a notice of allowance for a patent regarding the use of CBD in partial seizures. Today I am please to expand on those announcements with the news of part A of the Dravet syndrome trial has completed with 34 patients randomized and only two withdrawals during the study. We are now in the process of collecting the data for review by the independent safety monitoring board. Following their advice the pivotal efficacy and safety part B of the study is due to start in March. The other pivotal studies one in Dravet and two in Lennox-Gastaut syndrome are due to start shortly thereafter, subject to the same recommendation from the safety monitoring board. We now expect recruitment into all four phase 3 trials to complete in 2015 and have data from at least one trial by the end of the year. We also believe that it is in GWs interest to continue to identify additional orphan epilepsy patient population to pursue through the FDA process. The physician led expand is access program that runs in parallel with GW's formal clinical program has been important for a number of reasons including the insights we gain on other forms of epilepsy that may respond well to Epidiolex treatment. It is this data that will inform GW in selecting additional targets for the orphan epilepsy program which we will announce when such programs are ready to launch. GWs epilepsy development program is not limited to Epidiolex. We are also developing a second product candidate GWP42006 which features the cannabinoid CBDV. Having completed phase 1 last year we expect to commence of phase 2 study in patients with epilepsy in the next couple of months. In parallel with clinical activities GW is also actively developing a U.S based commercial team and starting to put in place necessary commercial expertise in anticipation of having a full launch plan in place by the end of this year. Beyond hiring great people actions include the billed out of the U.S medical affairs team with strong epilepsy experience, evolving our work with key stakeholders such as the patients and physicians communities, developing a clear understanding of the U.S pricing and reimbursement landscape and looking at best in class launches. So we size our sales and marketing efforts appropriately. We're taking a measured approach making sure we fully understand all the critical success factors before acting. Ultimately, this is about developing a complete launch plan so that, upon approval, GW can leverage the current momentum into rapid update of Epidiolex in the marketplace. Over the course of this year, we will update investors on our progress towards these various activities as we prepare our Company for Epidiolex's commercialization. I'll now hand the call to Dr. Stephen Wright to provide some more color on our epilepsy program and other aspects of the pipeline. Stephen.

[Stephen Wright:]

Thank you, Justin, and good day everyone. During December at the American Epilepsy Society annual meeting in Seattle, there were six posters presenting a range of important findings from the Epidiolex expanded access program. These posters included efficacy and safety data on 58 children and young adults from the program, as presented to investors last October. But also included some interesting new insights. First, there were posters that provided positive data on children with a condition called tuberous sclerosis complex. Second, there was a compelling emergency IND case of a child treated with Epidiolex with a condition called FIRES or febrile infection-related epilepsy syndrome. An extreme form of epilepsy involving a state of continuous seizures which may require an induced coma to calm the seizures and which is resistant to treatment. Third, there was a poster which shared some very positive quality of life conclusions regarding 16 children taking Epidiolex. It's important to note that these quality of life improvements were in some cases independent of seizure control, suggesting that Epidiolex could result in improvements in adaptive living and cognitive function over time. Many of these quality of life problems are neuropsychological problems associated with epilepsy but are also associated with other conditions, such as autism. This is clearly an area of intense interest to GW as we evaluate future development opportunities. The expanded access program continues to enroll new patients with its now 235 children and young adults receiving treatment with Epidiolex in the United States at 13 clinical sites. With well over 400 patients authorized by FDA to this program as well as the number of United States day program establishing additional expanded excess in collaboration with GW, we expect these numbers to continue upwards over the course of 2015. As we've stated previously, GW expects updates from this expanded access program to continue throughout this year. And we have confirmed in today's release that updated data has been submitted by physicians as a late-breaking abstract to the upcoming annual meeting of the American Academy of Neurology in April. Of course, at this time we do not have any confirmation of acceptance of these abstracts and should the data not be made available at this meeting, we will notify investors in advance. Turning now to our sponsored development programs in Dravet Syndrome and Lennox-Gastaut Syndrome, as Justin mentioned earlier we've now completed part A of the phase 2/3 trial in Dravet Syndrome. The safety and pharmacokinetic data is right now being analyzed prior to review by an independent safety data monitoring board. This board will make the dose recommendation for part B and for the other phase 3 pivotal trials. Our in-house clinical operations team is working diligently in preparing for these Dravet Syndrome and Lennox-Gastaut pivotal programs. These preparations include the selection of more than 70 clinical trial sites in the US and Europe, obtaining the necessary DEA site licenses and making preparations for patient recruitment. Which we hope will follow a similar expedited path as we saw in part A of the first Drave trial. We hope that all four of these phase 3 trials will be completed in 2015 and the top line data from at least one trial will be available by year end. Now turning to Sativex. As we reported in January, the first of three phase 3 cancer pain trials did not meet the primary endpoint of demonstrating a statistically significant difference from placebo. In terms of safety, however, Sativex was well tolerated. And the safety profile exhibited in this trial was consistent with previous studies in this patient population. The result was surprising as pervious phase 2 studies of Sativex in the same or in this type -- identical patient population showed statistically significant improvement versus placebo. Using the same primary analysis as was used in this phase 3 trial. We are now examining the data in detail to better understand the reason for this discrepancy. The two remaining phase 3 cancer pain trials are expected to read out in 2015 and we believe that if these two are positive, the dataset will allow us to submit an NDA to the US FDA. We also expect continued progress in the clinical programs which comprise GW's other pipeline candidates. Including our follow-on epilepsy product candidate, CBDV, for which we expect to start a phase 2 study in patients with epilepsy very soon. A placebo controlled study of a combination of CBD and THC in the treatment of recurrent glioblastoma multiforme, for which a phase 2 study is underway with recruitment expected to complete by year end, with data in 2016. A pure CBD product in the treatment of schizophrenia, for which a phase 2 study is underway with results expected also in the second half of 2015. And product that contains the cannabinoid THCV in the treatment of type-2 diabetes, for which a phase 2 study is underway, with an estimated completion date in 2016. Finally, for our CBD extract in the treatment of ulcerative colitis, phase 2 study results from late 2014 provided good evidence for our therapeutic effect in patients who had previously failed to respond to first line therapy. And we are now investigating the next step with this program. As you can see, 2015 will be an active year for GW's product development and we look forward to the results of these various clinical programs. I'll now hand the call over to Adam George for the financial review.

[Adam George:]

Thank you, Stephen. I will provide some high-level comments on today's Q1 financial results. A more detailed discussion of our results is given in the Q1 press release that we issued earlier today. As usual, we present GW's results in accordance with international financial reporting standards, in British pounds sterling, but for convenience purposes I'll give US dollar equivalents for certain key numbers. Today's results are our first quarterly earnings release for the three months ending December 31, 2014. I'll start with revenues. Total revenues for the quarter were GBP8 million of $12.4 million compared to GBP7.5 million in Q1 2014. Most of the increase was driven by Sativex sales revenue growth, which increased by 35% to GBP1.1 million in Q1 2015. Sativex in-market sales by GW's commercial partners for Q1 were similarly up by 35%. Research and development fees charged to Otsuka remained in line with the comparative quarter, GBP6.4 billion. We then received a small milestone at GBP0.1 million from Ipsen upon their submission of a regulatory filing in Brazil for Sativex in the MS spasticity indication. Cost of sales for the three months increased by GBP0.2 million, in line with the increased volume of Sativex products shipped to partners. Next, R&D spend. Total R&D expenditure increased by GBP5.9 million to GBP15.1 million, or $23.6 million for the quarter. The Otsuka funded element of this spend remained constant at GBP6.4 million. So all the increase was linked to GW-funded Epidiolex-associated activities. Driven by increased headcount amongst our clinical trial program. As we start to establish a US-based commercial team, increased clinical trial costs associated with the setup phase for GW's four phase 3 Epidiolex studies in Dravet and Lennox-Gastaut syndromes. Plus costs of Epidiolex supply to the growing number of children under the FDA-authorized expanded access INDs and state studies. Management and admin spend decreased by GBP0.5 million to GBP0.8 million for the quarter. This was due to a GBP0.9 million release of provision held for future payroll taxes on unrealized staff share option gains. Offset by GBP0.4 million increase in payroll and costs of being a US-listed company. We recorded a net foreign exchange gain in Q1 of GBP4 million which resulted from strengthening of the US dollar, creating a gain on [retranslation] of our US dollar denominated cash deposits into pounds sterling at the 31 December closing exchange rate. This all resulted in a loss before tax for Q1 of GBP3.1 million or $5.3 million, which compares to a loss before tax of GBP2.8 million in Q1 2014. Turning to cash flow, we recorded a net cash outflow from operating activities for the quarter of GBP5.6 million, or $8.8 million. Capital expenditure for the quarter was GBP6.4 million, or $9.9 million. Up from GBP1 million in the comparative quarter. The increase principally relates to construction costs for our new extraction facility, expected to be completed this year, and the cost of expanding our growing facilities for Epidiolex production. In total, we recorded a net outflow for the three months to 31 December 2014 of GBP7.9 million or $12.3 million. This resulted in a closing cash position at 31 December of GBP156.5 million or $243.9 million. Finally, turning to guidance, there are no changes to the 2015 cash flow guidance that I've provided at the start of the financial year. This indicates a GBP72 million outflow for 2015. And it should leave the Company with a healthy financial position at the end of the financial year. Thank you. I'll now hand the call back to Justin.

[Justin Gover:]

Thank you, Adam. In summary then, 2015 is shaping up to be another potentially transformative year for GW. This centers around substantial late stage clinical activity for Epidiolex as we aim to start and complete all four phase 3 Epidiolex pivotal trials in Dravet Syndrome and Lennox-Gastaut Syndrome. We also expect a significant body of additional data to be released in the first and second halves of the year from our expanded access program. In addition to Epidiolex, we look forward to updating you on some other aspects of our pipeline, including data from the remaining Sativex trials as well as data from our phase 2 trial in Schizophrenia. As well as progress in other phase 2 programs in CBDV for epilepsy as well as our other product candidates in the treatment of glioma and diabetes. Thank you for your time today and for your interest in GW. And I would now like to open the call for questions.

[Operator:]

Thank you. At this time, we will be conducting the question-and-answer session. (Operator Instructions) Our first question is coming from the line of Paul Matteis with Leerink Partners. Please proceed with your question.

[Paul Matteis:]

Hey guys, thanks for taking my question. And congrats on the progress. My first question is on part A of the phase 2/3 in Dravet. I'm wondering if there's anything else you can tell us? I know that study was a dose-finding study that was at five, 10 and 20 mg/kg. Did you -- what did you achieve for tolerability? And do you expect to move forward the highest dose into part B of that study and use that dose in other trials as well?

[Stephen Wright:]

Hi Paul, Stephen Wright here. I think given the knowledge that we have from the expanded access program about the good tolerability of doses of 20 milligrams per kilogram per day or higher even, that we are really quite confident that the recommendation from the independent board will be to move ahead at the top dose, which you're quite right, is 20 mgs per kg per day. You'll appreciate the study is part of a blinded study program. So the first Dravet study in its entirety is blinded. So we won't be in a position to make any comments about relative safety or relative pharmacokinetics until the very end of the whole study. So we're subject to the recommendation of the advisory -- safety advisory board.

[Paul Matteis:]

Got it, yes. And then on the data update at AAN, I think you had said you had around 150 patients on Epidiolex back in October. So at AAN, would you expect 12 week efficacy data from at least this amount of patients? And I guess maybe more if some others have completed 12 weeks by then?

[Justin Gover:]

Paul, it's Justin here. I don't think I have the precise number. I don't feel -- last -- as you'll remember, last data disclosure was on 58 patients and I think we'd certainly be doubling that dataset at the 12 week time point in the next data disclosure. I'm not sure it'll be as many as 150 in that if you think about this, in October, 150 children would have -- there may have been a good proportion that would have only just started treatment. And the abstract that was submitted, obviously, had had a data cutoff that is several weeks old. So the number is certainly north of 100.

[Paul Matteis:]

Right, okay, that makes sense. And then just one more. I'm wondering now, you said you're doing some of your pre-launch hiring activities. Can you just talk about the trajectory of SG&A for the rest of 2015? It's obviously stayed pretty low. What kind of run rate do you expect to be at by the fourth quarter of this year?

[Adam George:]

We haven't given -- I haven't given any specific guidance yet on the run rate of that spend. The only overall guidance we've given is for total cash spend, which previously I'd said will be about GBP72 million this year, of which about GBP50 million will be operating expenditure. So clearly the bulk of that will be our R&D, which is increasing with the clinical trial spend. Clearly SG&A will be growing in line with some of our commercial appointments. But it's relatively modest this year.

[Justin Gover:]

And Paul, it's Justin here, I'd add that the model we're adopting is we're retaining flexibility this year. Such that the committed -- some of the longer-term committed permanent costs associated with our US presence are likely to mainly be centered around next year. And so we're keeping ourselves pretty flexible this year.

[Operator:]

Our next question is coming from the line of Phil Nadeau with Cowen and Company. Please proceed with your question.

[Phil Nadeau:]

Good morning. Thanks for taking my questions. First a follow up on the AAN abstract. Is this -- the data that's likely to be presented at AAN, was that collected by GW was all the sites and aggregated into a single abstract? Or were there multiple abstracts submitted from investigators at multiple sites without a collection of the data by GW?

[Stephen Wright:]

Hi, Phil, it's Stephen Wright here. It's actually a little bit of a combination of the two. You have to remember that these are investigator-led studies. So each of the investigators has the right to do with their data what they wish. So if they wish to publish and abstract of their data alone, they can do that. But equally, they recognize that the data are more powerful when aggregated. And since the ability to aggregate and database those data sit most readily with GW then we are happy to do that. So data from all sites are provided to us, we put it into a database and then give back to the consortium of investigators the output. And they then convert it into a collective abstract, which is the abstract we've referred to which has gone into the American Academy of Neurology. It is highly likely that there will be other abstracts as well that come from individual sites, as happened at AES in December in Seattle. So I think we can anticipate, subject to acceptance by the committee of the AAN, a number of Epidiolex-related abstracts.

[Phil Nadeau:]

Okay, that's very helpful. And second is on the drop outs in part A that you referenced in your prepared remarks. I think you said there were two. Do you have any information on why those patients dropped out?

[Justin Gover:]

We do, Phil, but of course the allocation of those patients, either to their dose group or to placebo, is completely blinded. So our view is that at this point, it's non-contributory to try and describe individual adverse events since we don't know and won't know until the end of the entire study whether they were allocated low dose, mid-dose, high dose or placebo. And that's customary during the course of a blinded clinical trial.

[Phil Nadeau:]

Okay. But is it fair to say that the side effects that you've observed are consistent with what you've seen in the past?

[Stephen Wright:]

It's fair to say that we do see quite a broad range. And I can emphasize that they were deemed to be minor, or rather non-serious adverse events. Which I think is important. I suppose it's also worth drawing attention to the literature looking at other antiepileptic agents in clinical trials. A withdrawal rate of two subjects out of 34 would be something that most other companies in development would give their right arms for, honestly.

[Phil Nadeau:]

Okay. And my last question is just on other orphan epilepsy indications. Are there any ones in particular you'd point to? In your prepared remarks you mentioned tuberous sclerosis and febrile infection-related epilepsy syndrome. Are those two at the upper-end of your list of indications that could be investigated next? Or are there others that you think are maybe more interesting?

[Justin Gover:]

Thanks Phil, it's Justin here. I think for some obvious reasons we'll -- we're keeping that decision a bit close to our chest right now. Those two were referenced because they happen to be [indiscernible] and they're good examples, actually, of what Stephen said earlier about investigators submitting their own data to medical meetings. And there are a number of other orphan epilepsy syndromes which are also within the expanded access program. So obviously as the dataset increase, we're better able to assess which of them appear to be primary candidates. But I don't think we want to declare our hand at this point. We will once we've made our decision, update you at that point during the course of the year.

[Operator:]

Our next question is coming from the line of Joshua Schimmer with Piper Jaffray. Please proceed with your question.

[Josh Schimmer:]

Great, thanks for taking my questions. First, just thinking about the plans for autism and how you plan on selecting patients. Do you plan on selecting them for evidence of baseline epileptic (technical difficulty) activity or not? That's one. Two, can you help flesh out the difference between CBD and CBDV in terms of the receptor [indiscernible] there? And then last question is do you think that Lennox-Gastaut's timeline for that trial, given the larger patient population, should we expect more rapid enrolment than Dravet Syndrome? Thank you.

[Stephen Wright:]

Josh, maybe I can take the second two parts of the question and then Justin can address the choice of future indication as we did. With regard to recruitment the Lennox-Gastaut and Dravet, our feasibility has been very good. Based on that feasibility that we've guided towards end of this year, the finalization of recruitment. Clearly if our clinical operations team are able to recruit faster, that's upside and we'll be delighted if they are. But our guidance is based on the feasibility that's come back from our target recruitment for each of those studies, actually. I think if we want some reassurance that that feasibility is good, the faster-than-anticipated recruitment into part A of the Dravet Syndrome does give us reassurance that our feasibility does pan out in real life, so to speak. The second -- your middle question was about the mode of action of CBD versus CBDV. I think we're moving closer and I'm very confident that during the rest of 2015 we'll be able to give more confident, I suppose, guidance as to what we see as the definitive mode of action of CBD. We're identifying that as being particularly related to calcium mobilization in pre-synaptic neurons, perhaps acting through a channel called VDAC1 -- V D A C 1 -- and its well-known anti-inflammatory pharmacology as well. But we'll be able to give a much more comprehensive, I spoke prudently for that for the hypothesis during the course of 2015. With regards to CBDV, we're working very actively indeed in trying to identify whether the mechanism or how the mechanism of action of CBDV varies from CBD. We are confident that it does vary, we are beginning to get data through which I think helps to confirm that. And we'll certainly, once those data are solid enough for us to be able to present to the world, put those in the public domain. So in summary, yes, we're confident they work through different mechanisms of action and we're also confident that during 2015 we'll give much more color on those two mechanisms.

[Justin Gover:]

Josh, I think your first part of your question was quite hard to hear you. But I think it was related to how we're advancing the thoughts with regards to autism.

[Josh Schimmer:]

Yes, specifically [so] you plan on trying to identify patients who have evidence of (technical difficulty) activity without obvious clinical features.

[Stephen Wright:]

Josh, I can -- perhaps I should answer that. As Justin mentioned to Phil just a while ago, giving precise guidance about exactly what indications we're going for next is something that we're not doing right now because we're carrying out a whole series of evaluations. So I'm answering your question theoretically. And theoretically, we will take guidance from the observations that are made within the expanded access program as to whether particular behavioral disorders or particular aspects of cognitive or behavioral dysfunction appear to be responding better to Sativex than to others. Now quite where the -- Epidiolex, I'm sorry, than to others. Now precisely where those disorders will sit on the autistic spectrum I think would be a little bit premature of us to be specific about right now. But it is -- it's a very advanced evaluation we're involved in. and again, we're I think comfortable that during the course of 2015 we will be giving guidance about exactly where that -- those initiatives with Epidiolex and/or CBDV go in the neurocognitive behavioral spectrum of disorders which covers, of course, autistic spectrum disorders as well. I hope that helps.

[Josh Schimmer:]

It does, thank you.

[Operator:]

Thank you. Our next question is coming from the line of Christian Glennie with Edison Investment Research. Please proceed with your question.

[Christian Glennie:]

Hi, good afternoon. Just on the timelines of Epidiolex, is it possible to say at this stage -- you talk about obviously one of those studies reporting by the end of the year. Is it possible to say which one of those it's most likely to be? Particularly obviously whether it would be the phase 2/3, given that --the stage of that? Or whether it may perhaps be another one?

[Justin Gover:]

Yes, hi Christian, its Justin here. Yes, I think you're absolutely right. The -- in the inference behind your question. The guidance that we're giving, it relates to the first -- likely relates to the first of the Dravet Syndrome trials. And as Stephen mentioned earlier, it obviously -- if others come in around the same time, that would be a great achievement. I think however we look at this, these trials will read out very close together. There are four of them essentially starting more or less in parallel of a similar size. Many common sites et cetera. So it's a relatively small window in which we should see results from all of these studies. And clearly we do everything we can to bring them in. But it is likely, certainly, that the first outcome would be a Dravet study.

[Christian Glennie:]

And then bringing with the expectation would be by the end of Q1 then kind of all these studies have reported that?

[Justin Gover:]

We haven't given that specific guidance but it's certainly a reasonable expectation. I don't think that, given they're all starting more or less together, they should complete within that sort of timeframe, yes.

[Christian Glennie:]

Okay, thank you. And then just one quick point on the ulcerous colitis program. Obviously you talk about the clear rationale for the further development. But what is your expectation on when -- if that program was to restart, as it were, or get that underway again, what's your thinking there?

[Stephen Wright:]

Yes, hi Christian, its Stephen here. Essentially, I think when we presented the results of that study we identified that the formulation that we used had tolerability issues. So clearly where we should move -- or when we move forward with that program, that's dependent upon the identification of a revised formulation with a better tolerability profile. And it's really not possible to predict how long it'll take to develop that.

[Operator:]

Thank you. It appears there are no further questions at this time. I would like to move the floor back over to management for any additional concluding comments.

[Justin Gover:]

Hi everyone, it's Justin here just to round up. Thank you very much for your time today. I think it's worth just saying at the end, if any investors are planning to attend the AAN meeting, it might be worth letting Steve Schultz know by email, he can then coordinate when we found out whether the abstract is accepted and any activities associated with it. So please do it. Feel free to contact Steve about that. Many thanks for your time today, we look forward to updating you as all these trials get underway. And our next -- our Q2 will be in early May. So many thanks for your time. Bye bye.

[Operator:]

Thank you. Ladies and gentlemen, this does conclude today's teleconference. We thank you for your participation and you may disconnect your lines at this time.