GW Pharmaceuticals plc
Q2 2015 Earnings Call Transcript

Published: 5 May 2016

[Operator:]

Greetings, and welcome to GW Pharmaceuticals Second Quarter 2016 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A brief 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 Steve Schultz, Vice President of Investor Relations. Thank you. Please go ahead.

[Steve Schultz:]

Welcome all of you and thank you for joining us today. Again, I am Steve Schultz, Vice President of Investor Relations for GW. Today I’m joined by Justin Gover, GW’s Chief Executive Officer; Dr. Stephen Wright, our Chief Medical Officer; Adam George, 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 from earlier today. This document will be supplemented by an additional 6-K filing later today, which will include a full MD&A. 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, 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 5, 2016. Finally, an archive of today’s call will be posted to the GW website in the Investor Relations section. I'll 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. On today’s call, following my introduction, Dr. Stephen Wright will provide a research and development update. Julian Gangolli will provide an update on our U.S. commercial operations. And Adam George will discuss our financial results. At the conclusion of our prepared remarks, we will open the line for questions. Reflecting on our previous quarterly results call in February, we were then only leaps away from the highly anticipated results from the third Epidiolex Phase 3 trial. I am pleased to being here today with those positive results in hand. Importantly, we believe that these results support plans to move forward with preparations towards the filing of the new drug application with the FDA, as well as the expansion of GW’s U.S. commercial operations in anticipation of future launch. Since receipt of this data, we have now submitted a pre-NDA meeting request to the FDA. At the same time, the Epidiolex clinical program continues to move forward. The first two Phase 3 pivotal studies in Lennox-Gastaut syndrome are due to report headline results in June, and the second trial is due to report results in the third quarter. A few weeks ago we are also commenced the Phase 3 trial for Tuberous Sclerosis Complex, our third Epidiolex target indication. We approached the upcoming Lennox-Gastaut syndrome data with confidence. The positive results in our Dravet syndrome trial suggests that observation from the physician-led Expanded Access programs look to be a reasonable property for placebo-controlled trial data. You will recall that in the Expanded Access program, the LGS patients performed well, notably in achieving reductions in their atonic seizures. Regarding placebo, whilst we of course do not have place-controlled data for Epidiolex in Lennox-Gastaut syndrome, clinical data for other medicines approved in Lennox-Gastaut indicate that the start placebo rates are in line with vaccines in our recent Dravet syndrome trial. In terms of commercial preparedness, investors will recall that we set-up a U.S. commercial operation last summer with the recruitment of Julian Gangolli as President of North America. Julian joined GW from Allergan, where he has been President of North America, for the previous 11 years. I now work alongside Julian in our U.S. office and I’m delighted to see the progress we have made in this short time setting up the foundation for a first-class U.S. commercial operations. You’ll be hearing more from Julian later in today’s call. Let me now turn the call over to Stephen for a review of our R&D activities.

[Stephen Wright:]

Thank you, Justin, and good day, everyone. I too would like to express my satisfaction regarding the recent positive Dravet syndrome pivotal data. Hence my excitement, the prospects is moving an important step closer to the opportunity of offering the first FDA approved medicine for patients suffering with Dravet syndrome. As we presented the top-line results of this trial recently, I don’t intend on reviewing them again on today’s call, but instead point you to the call archives and press release on GW’s website. I would however like to reiterate that a series of sensitivity analysis off the primary endpoint confirms the robustness of this result. And results from secondary efficacy endpoints reinforce the overall effectiveness observed with Epidiolex. Full results from this trial are currently being written up in peer-reviewed publication. Whilst the timing of this publication depends on many factors beyond our control, we anticipate publication during the fourth quarter of this year. I would also expect to see significant data presentations at the American Epilepsy Society Annual Meeting in December. As Justin mentioned, we have requested a pre-NDA meeting with the FDA to discuss the proposed Dravet syndrome NDA submission, and we expect this meeting to take place in the summer. The outcome of this meeting, together with results of our two Lennox-Gastaut syndrome trials, will provide greater clarity of the optimal NDA submission strategy. In our view, the submission is most likely to take place during the first half of 2017, and subject to the outcome of the LGS trials, would include data supporting the approval of Epidiolex in both indications. The work on compiling this NDA has now commenced. I would also remind investors that it’s only just over two years since the start of our Expanded Access program and just over one year since the start of our Phase 3 program. Hence, the pace of this development has been extremely rapid. Beyond the pivotal safety and efficacy data, the NDA is expected to include data from approximately 10 Phase 1 studies, as well as safety data that will include over 1,000 patients from both the Expanded Access and pivotal programs, including over 100 patients with one year or more of continuous exposure to Epidiolex. We’ve also spent considerable efforts on comprehensive CMC [ph] package to support approval and the successful pre-approval inspection. So we look forward to results from the two upcoming Lennox-Gastaut syndrome Phase 3 trials, both of which are fully enrolled well in excess of the original sample sizes. The two-arm LGS trial has randomized 171 patients, and the three-arm trial has randomized 225 patients. This over-enrollment reflects the strong interest in these trials within the epilepsy community, and also has the benefit of providing additional statistical power. We expect to report top-line results next month in June for the first LGS trial and top-line results for the second LGS trial in the third quarter of this year. We have elected to keep the second Dravet syndrome trial open for recruitment until off of the pre-NDA meeting. This allows us to retain some flexibility through our pre-NDA discussions. All patients in the randomized control trials who complete the treatment period are eligible to enroll in a long-term open-label extension. To-date, 98% of patients who completed the treatment period have elected to enroll in this open-label extension. The withdrawal rate is 10%. Beyond Dravet syndrome and Lennox-Gastaut syndrome, we recently started a Phase 3 trial for our third topic indication for Epidiolex, Tuberous Sclerosis Complex. This study is expected to enroll approximately 200 patients, and to report results in the second half of next year. We were pleased to report couple of weeks ago that the FDA have granted Orphan Drug Designation for Epidiolex in this indication. In parallel with GW’s pivotal programs, the FDA-authorized Epidiolex Expanded Access program continues. In addition to the physician-led Expanded Access INDs, the FDA has authorized 440 additional patients on the Expanded Access programs supported by six U.S. states. Two of those state programs, Alabama and Georgia, recently reported clinical effectiveness and safety data at the American Academy of Neurology Annual Meeting. The Alabama study, which had a six-month duration, included 51 patients evenly divided by children and adults. 49% had a 50% or greater response at the last visit, and these response rates were similar in both pediatric and adult groups. The Georgia study reported on 20 children that had received at least eight weeks treatment. They also observed a 51% reduction in total seizure frequency for all patients and a 48% reduction in all types of major seizures which included tonic, atonic and generalized tonic-clonic seizures. 95% of the patients experienced some seizure frequency reduction from base line. In both state programs, the results have been consistent with those seen in the Epidiolex Expanded Access program overall. Our pipeline beyond Epidiolex for epilepsy continues to make progress. Of particular interest is CBDV. CBDV is distinct in clinical structure to CBD and has shown anti-seizure properties across a range of in vitro and in vivo models. GW has also evaluated CBDV in both general and syndromic preclinical models of autism sexual disorders, yielding promising signals on cognitive and social endpoints, as well as repetitive behavior. In epilepsy, GW is recruiting a Phase 2 study of CBDV as add-on therapy in patients with inadequately controlled focal seizures. Data from this study is expected in the first quarter of 2017. In the field of autism spectrum disorders, GW is working with investigators and early open-label clinical experience is expected to commence in the second half of this year, with Phase 2 placebo-controlled trials expected to commence in 2017. An additional pipeline program that I wish to highlight is the development of an intravenous CBD formulation in the treatment of Neonatal Hypoxic-Ischemic Encephalopathy, or NHIE. GW estimates 6,500 to 12,000 cases of NHIE occur in the U.S. each year. Of these, 35% are expected to die in early life and 30% are expected to develop a persistent neurologic disability. There are currently no FDA-approved medicines specifically indicated for NHIE. GW has received Orphan Drug and Fast Track Designations from FDA for CBD in the treatment of NHIE, and expect to start the Phase 1 clinical study in healthy volunteers in quarter four of 2016. Thank you. And let me now hand the call to Julian Gangolli for his commentary on the U.S. commercial organization. Julian?

[Julian Gangolli:]

Thank you, Steven, and good day to all of you. With the successful results from the first Dravet syndrome Phase 3 trial, plans of U.S. commercial organization are accelerating. We now have an experienced U.S. commercial leadership team in place, including executives in medical affairs, marketing, legal and human resources, many of whom have significant epilepsy industry experience. Our plan is to implement a high efficiency commercial deployment model that is expected to include a dedicated sales force of approximately 50 to 60 sales professionals, targeting approximately 4,000 to 5,000 U.S. physician specialists. This commercial organization will be signed by a high cut approach where emphasis will be placed on patients, physicians and payer communication and education, and one in which the medical affairs organization will play a significant role. Establishing strong relations with these key constituencies will be the core competency of our commercial organization, where we can outsource non-core functions in a more cost effective manner, we will do that. We believe that U.S. position will grant us an enthusiasm for new alternative anti-seizure therapy is high and the Epidiolex would be well received. The unmet medical needs for new prescription option is quite clear as the 70% of child onset epilepsy patients are or become frequent resistance over time. Additionally, side-effects of current anti-epilepsy drugs are dose-dependent and at high doses can cause patient non-compliance and high dropout rates. If approved, Epidiolex would represent an entirely new class of anti-seizure medicine with a potentially differentiated side-effect profile and mechanism of action. Another key factors about commercial planning includes discussions with U.S. managed care providers and the meetings are now taking place. For the remainder of 2016, will be an important time to the U.S. commercial organization as we expand our medical affairs activities, ensure that GW has a meaningful presence at relevant medical meetings and plan for highly active American Epilepsy Society Annual Meeting in early December. We expect to have a large team meeting and prepare to be a significant number of data presentations on Epidiolex. I look forward to updating investors periodically as we move closer to GW’s first U.S approval and commercial launch. Let me now ask Adam George to provide the financials. Over to you.

[Adam George:]

Thank you, Julian. I’ll now provide you high level comments on GW’s Q2 2016 financial results, a more detailed discussion of our results given in the 6-K that will be filed later today. We present GW’s results in accordance with International Financial Reporting Standards in British pound sterling. For convenience purposes on this call, I propose to refer to the U.S. dollar equivalent of the key numbers. Today's results are our second quarterly earnings release for the three months and six months ending March 31, 2016. And I’ll begin with research and development expenditure. In Q2 2016, our total research and development expenditure increased to $37 million for the quarter, compared to $22.1 million for the comparative period. Of this, the Otsuka funded element increased to $1.8 million from $7.4 million for the three months ended March 31, 2015. This decrease in partner-funded expenditure and the corresponding reduction to our revenues in this period reflects completion of the Sativex Phase 3 cancer pain program and is fully in line with previous guidance. GW funded research and development expenditure for Q2 increased to $35.2 million from $14.7 million in Q2 2015. The increase in spend is driven by the Epidiolex clinical programs. Moving to SG&A, our sales, general and admin expenses decreased to $4.7 million in Q2 from $5.5 million in the comparative period. But this quarterly decrease is not reflective of the overall trend, and looking at spend for the first half of the year, there was 50% increase compared to H1 2015. During the quarter, further strengthening of the U.S. dollar against pound sterling has resulted in the recognition of a net foreign exchange gain of $6.4 million in Q2 2016. The majority of this gain is due to the revaluation of the company’s dollar-denominated cash balance of the closing sterling exchange rate. This has all resulted in a loss before tax for Q2 of $24.2 million and a loss before tax of six months of $49.6 million. Turning to cash flow. Capital expenditure for six months was $6.9 million compared to $14.7 million for the six months of March 31, 2015. The reduction primarily reflects the fact that we’re nearing completion of our new cannabinoid extraction facility. Taking into account the impact of foreign exchange gains, our core net cash outflow for the first half of 2016 excluding capital expenditure was $53.7 million compared to $8.1 million at comparative period, with the increase driven primarily by our Epidiolex clinical trial spend. So in total, we’ve recorded a net outflow for the six months to March 31, 2016 of $60.6 million. At March 31, we had a strong closing cash position, equivalent to $276.8 million. Turning to guidance for the second half of 2016. Consistent with previous guidance, we continue to expect full-year capital expenditure for 2016 of $20 million, as we complete our new cannabinoid extraction facility and further expand our growing capacity. Having recorded a core cash outflow of $53.7 million for the first half of the year, in line with previous guidance, we now expect $60 million to $65 million outflow for the second half of 2016. This increase in operating spend will be driven principally by the completion of a substantial part of our Phase 3 program. Thank you. I’ll now turn the call back to Justin.

[Justin Gover:]

Thank you, Adam. In closing, this is a truly exciting period for GW and we are now entering a new chapter as we prepare the company’s first NDA submission to the FDA and step up plans to commercialization. In the near future, we will report top-line data from the first Lennox-Gastaut syndrome pivotal trial in June and with the successful results from the Dravet syndrome trial, we have a solid basis to confidence in these upcoming results. After announcing the Dravet syndrome trial results in March, we received many phone calls wishing the company well as we move forward. On behalf of GW, I thank you for that continued support. We remain excited as the potential for Epidiolex to make a real difference to the lives of those patients and their families who suffer from debilitating effects of Dravet syndrome and Lennox-Gastaut syndrome. We at GW are determined to everything possible to make this medicine available on prescription as soon as possible. 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. Ladies and gentlemen, we will now be conduction a question-and-answer session. [Operator Instructions] Our first question comes from the line of Paul Matteis with Leerink Partners. Please go ahead with your questions.

[Paul Matteis:]

Great, guys. Thanks very much and congrats on all the progress. A couple of quick questions here. The first is, Stephen, I’m wondering if you can just expand upon your comments at keeping the second Dravet study open, offer some sort of flexibility. Maybe you can just give us a little bit more detail on the strategic thought there?

[Stephen Wright:]

Certainly, Paul, and good to speak with you. We’re anticipating a pre-NDA meeting with the FDA around mid-year of this year as we’ve signaled, and it’s very feasible that we make - as I’m scheduling that meeting to additional analysis or different ways of looking at the analysis of the second Dravet, which would require us to make some amendments to the plan and/or the protocol. It clearly would not be feasible or perhaps less feasible for us to do that if recruitment has completed in that study and the data mention process was ongoing. Also, and as I think we’ve made clear, recruitment for that study at this point in time is not yet complete anyway. So we have two good reasons for wanting to keep recruitment into that study going, at least until after we’ve had the pre-NDA meeting.

[Paul Matteis:]

Okay. Is there anything specifically that you’re anticipating from the FDA are concerned about? I guess, my question immediately that comes up, is there anything with respect to the drug-drug interaction or stratification for other agents that you’re anticipating from that meeting or is it something else? Anything on your mind?

[Stephen Wright:]

Well, we’re very confident that the results of the first Dravet study give us all the grounds we need to make a successful submission with the single pivotal study. It’s more making sure that we can maximize the output of the second Dravet study in order that they can best guide physicians. So we hope we’ll be given the opportunity to prescribe Epidiolex for Dravet syndrome in the recent and near future.

[Paul Matteis:]

Okay. Got it. And maybe one more follow-up on the clinical side, Stephen. So the first study obviously 26% drug placebo difference is great; p-value of 0.01 is great. However we’ve looked at some past studies in epilepsy, and I guess for that given effect size, you might expect an even lower p-value, which implies a pretty high level of variability. I’m wondering if you could just comment on the level of variability that you saw in this study, how it was relative to your expectations and whether or not you think that could drive a patient population or the drug itself and - I know it’s a multipart question, but anything on variability will be interesting.

[Stephen Wright:]

I shall try and give you a multipart answer, Paul. We were a little bit surprised by the high degree of variability that’s quite right reflected in the standard deviation of the responses that we saw there, and I think in the light of that variability, we are particularly pleased at achieving 0.01 p-value actually. Can we explain the reason for this slightly higher than expected variability? The answer is we can't. It doesn’t appear to be particularly attributable to one subgroup of patients or one geography or anything like that at all. It’s just I think something that happens, and it makes us please that we had the additional power in the study which was conferred by the slightly larger sample size than we had originally thought for. So all in all, I think it’s what’s helped quite well. How predictable that variability in this point is to further studies? I think we’ll only know that when we see the results of the additional studies, but I would add that they are all well powered to allow for that increase in variability.

[Paul Matteis:]

Okay. Got it. Great. Thanks very much.

[Operator:]

Thank you. [Operator Instructions] Our next question comes from the line of Cristina Ghenoiu with Cowen. Please go ahead with your questions.

[Cristina Ghenoiu:]

Hi. Congratulations on all the progress and thank you for taking my question. The first one is on the LGS study. What - if I look at the drop seizures. So presented those seizures are atonic seizures and how does it go as far as the remaining type of seizures to be detected?

[Chris Tovey:]

I think I can answer that. Because the study is still blinded, we don’t know what proportion of the total number of drop attacks in the study are atonic seizures. We would anticipate something around 50% but really I wouldn’t want to put my finger on any particular proportion.

[Cristina Ghenoiu:]

Sorry. This was just in general like in LGS seizure, what percentage are atonic?

[Chris Tovey:]

They are the most frequent seizure type, most frequent type of drop attack in about 50% of patients with Lennox-Gastaut syndrome. The endpoint that we’re using is an endpoint that has been used previously actually in studies at other agents in Lennox-Gastaut and an endpoint that we were guided towards by FDA. So our definition of the drop attack, which you can see, which we’ve described previously is very much fairly standard definition of a drop attack.

[Cristina Ghenoiu:]

Thank you. And a follow-up. This is about your latest PowerPoint [ph] scheduling for CBDV reimbursement access and pricing, if you can comment. Thank you.

[Justin Gover:]

Cristina, hi, it’s Justin here. With regards to - I think your question is with regards to scheduling. I mean we obviously are part of the NDA filing, pulling together an appropriate package for review by the FDA on scheduling. It remained our view that the likely scheduling of cannabinoid [ph] we would anticipate and hope for schedule forward obviously subject to the review of Controlled Substances, DEA, but our objective is to be in a relatively low restricted schedule. And the second part of your question…

[Cristina Ghenoiu:]

It was about reimbursement and pricing, if you can comment your latest thoughts up there?

[Julian Gangolli:]

This is Julian. Obviously we’re doing a lot of work on the pricing side. I think it’s a little premature to suggest a point price on this. I think we’ll be engaged and we’ll continue to be engaged with the payers as the data becomes more available, and I think the lack given the severity of the condition that we’re talking about and the fact that these are individuals and particularly chosen who have failed multiple other anti-seizure medications, I think they are in the position to still be optimistic about pricing for this product.

[Cristina Ghenoiu:]

Thank you.

[Operator:]

Thank you. Ladies and gentlemen, that is all the time we have for Q&A. I’d like to turn the floor back over to management for closing remarks.

[Justin Gover:]

Thank you. This is Justin speaking. Just a final word to say thank you. We look forward to updating you over the coming weeks or at several investor conferences, and then of course next key event for GW will be the Lennox-Gastaut data in June. So look forward to display these updates. See you and updating you at that point in time. Many thanks. So you have good time today.

[Operator:]

Thank you. Ladies and gentlemen, this concludes today’s teleconference. You may disconnect your lines at this time. And thank you for your participation.