GW Pharmaceuticals' CEO Discusses F4Q2013 Results - Earnings Call

| About: GW Pharmaceuticals (GWPH)

GW Pharmaceuticals plc (NASDAQ:GWPH)

F4Q2013 Earnings Call

November 19, 2013 08:00 AM ET


Stephen Schultz - VP of IR

Justin Gover - CEO

Chris Tovey - COO

Dr. Stephen Wright - Director of Research & Development

Adam George - CFO


Ritu Baral - Canaccord Genuity

Phil Nadeau - Cowen and Company

Bert Hazlett - ROTH

Mike Aitkenhead - Edison


Greetings and welcome to the GW Pharmaceuticals Fourth Quarter and Full Year 2013 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. It is now my pleasure to introduce your host, Stephen Schultz, Vice President of Investor Relations for GW Pharmaceuticals. Thank you, Mr. Schultz. You may begin.

Stephen Schultz

Thank you. Welcome and thank you all for joining us on the call today. Again, I am Steve Schultz, Vice President of Investor Relations for GW. I am based in the United States. And here with me today are Justin Gover, GW’s Chief Executive Officer; Chris Tovey, GW’s Chief Operating Officer; Dr. Stephen Wright, our Director of Research & Development; and Adam George, our Chief Financial Officer.

We will be utilizing a slide presentation during this call. If you’re joining us via the webcast you should see that presentation in the console. Alternatively the slides are available on GW’s website in the investor relation section under calendar and events. At the conclusion of our prepared remarks we will open the line for questions.

We hope you’ve had a chance to review our press release which was issued earlier today. We expect to issue the 20-F shortly. These documents provide additional details of the company’s fourth quarter and full year financial and operating results.

As a reminder, during today’s call we will be making certain forward-looking statements. Forward-looking statements involve risk and uncertainties, and actual events could differ materially from those projected herein. A list and description of uncertainties and risks and other risks associated with an investment in GW can be found on GW Pharmaceuticals filings with the U.S. Securities and Exchange Commission. Investors are cautioned not to place undue reliance on these forward-looking statements which speak only as today’s date.

I’ll now turn the call over to Justin Gover, GW’s Chief Executive Officer.

Justin Gover

Thank you, Steve, and welcome to all those who are joining us on the call today. On today’s call I will provide some introductory and closing remarks. Most of the presentation will feature an update from Stephen Wright on our various product development programs. And towards the end of the call Adam George will provide an overview of the financial highlights for the year.

I could start by focusing on slide 3, the highlights for 2013. The NASDAQ listing was a very important strategic event for this company in 2013, and has significantly increased GW’s profile amongst the U.S. investment community. As part of the listing we raised $30 million and these proceeds further strengthened GW’s financial position and in particular enabled us to advance the pipeline as well as expand our manufacturing facilities in preparation for the future U.S. launch of Sativex.

For Sativex, the last year has seen important progress with the advance of two US-targeted Phase 3 pivotal programs. The lead U.S. indication is cancer pain where GW has two pivotal Phase 3 trials in recruitment. Topline results from the first trial is due towards the end of 2014. The second U.S. indication for Sativex is MS spasticity where GW has recently opened a Phase 3 IND and is now planning for Phase 3 trial to commence next year.

Outside the U.S., we continue to make progress on the commercial front with Sativex now approved in 22 countries with the treatment of spasticity. In 2013, our partners saw an encouraging 25% increase in in-market sales volumes and we expect growth to continue in 2014.

When we go out to our pipeline, the most significant update relates to our orphan pediatric epilepsy program for Epidiolex, a proprietary product featuring CBD or Cannabidiol in a purified formulation. This program results from six years of research and has accelerated an importance in recent months as a result of the very high level of interest from the medical community in the United States.

Just a few days ago, we received orphan drug designation for Epidiolex from the FDA in the treatment of Dravet Syndrome and also announced that the FDA has now approved seven expanded access to INDs to allow a total of a 125 children in the U.S. to be treated with Epidiolex in the near term.

GW owns the rights to Epidiolex and intends to develop this product in-house. Beyond this orphan program and since our presentation of the last full year results we’ve also made significant progress in advancing other pipeline candidates in type-2 diabetes, ulcerative colitis, schizophrenia and glioma.

Adam will provide an update of the financials later. So I will just comment at this stage that today’s numbers are very much in line with consensus and we ended the year with a healthy cash balance of £38 million or around $62 million.

Moving now to the next slide, slide 4, you will see that we have modified the presentation of our pipeline to reflect our interest in orphan indications, focusing at this stage on the childhood epilepsy program for Epidiolex and also our separate orphan pipeline opportunity in glioma.

In addition to Sativex and Epidiolex which I have already talked about, each of the pipeline programs is advancing. For our program in the field of glioma, we have recently commenced the Phase 1b/2a trial for this product candidate. In type-2 diabetes we expect to commence shortly our Phase 2 dose ranging trial of GWP42004.

In ulcerative colitis, the Phase 2 trial for our product candidate is nearing completion with data expected in the first half of 2014. We are also planning to commence the Phase 2 trial in the treatment of schizophrenia in the first half of 2014.

And finally in addition to Epidiolex, GW has a second product candidate in epilepsy GWP42006 which features CBDV as the primary cannabinoid. This candidate recently ended Phase 1, and we expect data in the first half of 2014. We believe that both Epidiolex and CBDV represent important yet separate product candidates within the Company’s epilepsy franchise.

Let me now turn the call over to Dr. Stephen Wright to provide more color on each of these areas of research activity.

Stephen Wright

Thank you Justin, and good morning and good afternoon ladies and gentlemen. What I am aiming to do over the next few minutes is give you an update of the two key clinical development programs that we have running currently, that is our pediatric orphan epilepsy program on the one hand, and Sativex on the other, and then move on to discuss in brief our other more advanced in clinical development pipeline project.

So if we turn to the slide 6, cannabinoid in epilepsy. There’s both the historical precedent for the proposal that cannabinoid may be used for the treatment of epilepsy and much more recently due to an understanding of the pharmacology of cannabinoid a strong pharmacologic rationale; for example certain cannabinoids may modulate the movement of positively charged ions into and out of nerve cells which of course is a key feature of the transmission of the nerve impulse.

Certain cannabinoids show themselves to be anti-inflammatory within the central nervous system, another feature of clear relevance to epilepsy and there are others that you can see on the slide there that make cannabinoid worthy of investigation as a candidate for further development. I am going to show you in a moment the key features of our preclinical investigations, but they have resulted in the identification together with the historical evidence of these two cannabinoids on the slide as clinical candidates.

Firstly GW’s Cannabidiol which in the preparation that we have now made available, has the trademark Epidiolex and secondly GWP42006 Cannabidivarin, which you can see is structurally related to Cannabidiol but has a difference in somewhat complementary pharmacology.

If we turn over to the next slide, slide 7; we have been engaged in a six year collaborative research program with the Department of Chemistry and Pharmacy at the University of Redding. And what we have shown during that collaboration firstly is a logical movement of our cannabinoid candidates through a preclinical development program.

The graphics that you could see on the slide shows our in vitro model where we take sheaths of hippocampal neurons and provoke waves of synchronized electricity across those sheaths of hippocampal neurons to simulate epilepsy. And you can see on the left hand panel on the graphic, a sort of tsunami of red waves of electricity travelling across the sheaths of cultured hippocampal neurons.

On the right hand side, following the application of an active cannabinoid, but the picture would be the same, an active anti-epileptic drug, you can see a much calmer picture emerging showing the capacity of the drug to inhibit those waves of electricity passing across this part of the brain.

Having seen a positive result in this in vitro model, we then moved on to five different acute in vivo seizure models, and then on to chronic epilepsy models, and then on to the activity of our cannabinoids in conjunction or in addition to existing anti-epileptic drug. And all of these results have shown our cannabinoids to be orally active, so active by the oral route in both acute and chronic models and in conjunction with standard anti-epileptic drugs.

So from the point of view of the preclinical work the benefit is obvious to us. What about the risk side of the equation; so important in drug development. The bottom half of the slide shows the results of expanded approach that we used in identifying whether or not the anti-epileptic drug is effecting motor activity.

Many existing anti-epileptic drugs have the side effect of impairing motor function and indeed impairing cognition as well. And in this particular model the animals are encouraged to move across a one meter long beam and the ability of the animal to maintain balance is represented on the graphic that you can see. In the red bars, the result you see with valproic acid, one of the most widely used anti-epileptic drugs and as the dose increases the animals lose balance.

On the other hand, with the green bars and the blue bars; that of the right hand side of the graphic, you can see that CBDV and CBD possess no ability to impair balance at all. Balance remains essentially normal even at very high super therapeutic doses.

Finally, we’ve also been looking at the identification of epilepsy associated genes in our animal models and we are very pleased to -- we are able to say that we’ve identified certain gene expression being disregulated in epilepsy and we’ve shown the ability of our cannabinoids to reduce this abnormal gene expression in association with efficacy. In short, we’ve identified at least in the animal, so far, a genetic biomarker for efficacy. And this I think promises for a great interest in the development program in the future.

If we move on to the next slide, Intractable Childhood Epilepsy; there are almost half a million children in the United States with epilepsy and a significant proportion of those are not adequately treated by exiting antiepileptic drugs. Now the GBP93 or so children who have this clear unmet medical need are in fact represented by a series of well-defined smaller indications each of which or many of which fall into the category of rare diseases or orphan indications and this is the direction in which DW’s development program is going. So our first target or the first part of our strategy is to target Dravet syndrome one of the most uncommon of these orphan pediatric syndrome and then expand into other syndromes such as Lennox-Gastaut syndrome and others.

If we move over to the next slide current status of next step, where does this take us? Well, firstly we announced at the end of last week that we have been granted orphan designation for Epidiolex in Dravet syndrome, a significant step forward in the program and I call tell you that we have other orphan designation applications in preparation. Due to very significant demand both from pediatric epileptologist and patient organization and in the light of the extensive safety data already in place with regard to CBD Epidiolex, the FDA has now granted approval for a number of expanded access treatment INDs managed by these pediatric epileptologist and involved at least 125 children and these expanded access INDs at least start treating children in the course of the next couple of months.

So during the course of next year, we will have benefit of data generated across the range of these pediatric orphan epilepsy syndromes. At the same time, we are engaging in discussions with FDA in order to open GW sponsored IND probably next year so we can start formal Phase 2 studies under that IND with the Epidiolex in Dravet syndrome. I think we’ve already mentioned that with CBDV cannabidivarin, GWP42006, we have a Phase 1 single and multiple ascending dose study going very well at the moment and we will be able to report results of that early next year.

If I move onto our key late stage clinical development program that is Sativex and move to the slide headed Sativex in cancer pain overview. The indication that we’re seeking is the treatment of persistent pain in people with advanced cancer who are simply not obtaining adequate pain relief from current therapy with slow release and chronic opioids. This is a substantial body of patients. We have been able to start generate Phase 2 data in more than 530 patients across three studies all of which have been published and been reviewed in well regarded journals.

One of the consequences of the extended Phase 2 data that we have generated is that at our end Phase 2 meeting with FDA, we were able to agree that the Phase 3 trial should employ the same key features as the Phase 2b which is a considerable advantage in Phase 3 studies. So we are actually well involved on conducting two identical Phase 3 trials which will form the basis of the NDA. Each study is involved 380 patients for this very substantial study indeed and we expect top line data from these towards the end 2014.

We are incidentally also conducting a third study -- we don’t intend that this will be part of NDA submission but we will further inform the profile of Sativex in preparation for marketing. I move onto the next Slide 12, Sativex in multiple sclerosis spasticity. You have heard that we have been successful in obtaining market authorization for Sativex in 22 countries now principally in the EU and that the drug is being quite nicely used in all of those markets in which is marketed and growth is very pleasant, is very nice. But I think more importantly, there is very significant physician interest in expanding the use of Sativex in the MS patient population as evidenced by very substantial attendance at the Sativex symposium at the ECTRIMS Congress in October just this year.

To this accelerating interest has been embedded in the fact that we’ve now opened Phase 3 IND with the FDA and just preparing to submit our final protocol for special protocol assessment with the aim that we’ll be starting now pivotal U.S. study in 2014. Both these and the cancer pain studies are referred to earlier on are fully funded by our partners Otsuka.

Just moving on then to a brief overview of the other clinical programs that we have in or pipeline, we go into the slide headed 42002, 42003 in Glioma. We recently announced that we have initiated a study looking at this combination of cannabinoids together with the standard treatment of glioma and we base the initiation of this study on some very compelling preclinical data which I can show you on the top of this slide. This classic shows the rate of growth of xenograft of a glioma xenograft following overall administration of vehicle in the red line at the top and I’ll draw your attention to the green line at the bottom of the slide which is temozolomide a standard treatment of glioma in combination with these Cannabinoids given orally. And you’ll see that not only if tumor growth completely inhibited but it’s actually reversed which is an unusual and very compelling finding in these preclinical models.

As we since going on to look further mechanisms of actions and I think we’re comfortable with the mechanism that action of these Cannabinoids together with temozolomide and both multiple path ways which to our mind is an advantage in the treatment of these otherwise very difficult to treat cancers and unlike of all of this have started our early Phase 2 study which you can see in the bottom panel very briefly, it starts with the short period when the safety of Cannabinoids in combination with temozolomide in human is determined and then followed by placebo control period where all patients are exposed for 52 weeks to the combination treatment and we will observe the efficacy over that period of time in this patient population and we look forward very much to announcing results in due course.

Moving on to the next slide, 42003 in Ulcerative Colitis. Again you’ll see from all of these slides that our decision to move into clinical development in our pipeline is very much based on comprehensive preclinical evaluation. And the graph in the topper end corner of this slide shows you the effects of 42003 on Cytokine in a mouse model of inflammatory bowel disease.

The inflammatory bowel disease is produced by the application of DNBS, dinitrobenzene, sulfonate to the gap mikoriza (Ph) of the animal model and you can see on the left hand panel that the prone inflammatory cytokine interleukin 1-beta is very substantially elevated. When you had treatment 42003 in the green bar you can see there is an almost complete return of the level of cytokine towards normal.

On the right hand panel, again you’ll see with the red path of the application of the [indiscernible] substance to the gap lining produces a reduction in the protective cytokine into interleukin 10 and the level of this protective cytokine is returned again towards normal by 42003.

In this particular model we’re using 42003 as an extract which contains other cannabinoids shown to have desirable properties in this condition such as improving intestinal secretion and motility. So the clinical trial, the outline which you see at the bottom of this slide involves treating patients who have failed to achieve remission with convention first line treatments and compares 42003 extract with placebo when added to that first line treatment. The study is going very nicely and again we’ll have results in the first part of next year to be able to announce on inflammatory bowel in ulcerative colitis.

In my final slide, looks at 42004, another and entirely non-psychoactive cannabinoids in the treatment of diabetes. This treatment plan is based to gain on some very compelling preclinical data in particular the evidence that 42004 appears to be able to protect the insulin producing islet cells of the pancreas. If you look at the panel at the top you can see firstly the normal animal, that shows the background of pink pancreatic tissue, these islands of much darker staining insulin producing islet cells and before and after there is no change in the pattern of staining in the normal animal.

The middle panel shows the genetically -- a mouse which is genetically predisposed towards diabetes before and after treatment in the top panel you can see before treatment these black staining islet cells against the background of pink staining pancreatic tissue. In the bottom panel after the animal’s developed diabetes, these black staining cells have almost completely disappeared. On the right hand of the panels 42004 before and after treatment and I think that slide gives very aliquant testimony to the ability of the cannabinoid to maintain islet cell present and function.

We announce towards the end of last year results from the preliminary early phase 2a study where there was series of positive outcomes with regard to glucose and insulin control and the bottom panel shows you the study which is just about to start early next year where conducting a four more dose ranging study looking at three doses of 42004 against the placebo in patients with type 2 diabetes using glycosylated hemoglobin HbA1c as a primary outcome measure and again we look forward to reporting results on this potentially important aspect of our development pipeline.

At this point I’m going to pass over to Adam George for the financial information.

Adam George

I intend to provide some general comments on today's financial results; a more detailed discussion of our results is given in the press release that we issued earlier today. GW presents its financial results in accordance with international reporting standards or IFRS accounting rules, in British pounds sterling and for convenience purposes U.S. dollar equivalence a certain key numbers.

Today we're reporting on the 12 months and the three months ended 30, September 2013. So before talking through today's results on my first slide I would like to give you a brief overview of our financial model. GW has four main income streams, license and collaboration fee, development and the proven milestones, Sativex product sales and research and development fees. We have license agreements with four commercial partners and each of those agreements has generated upfront license fees which are typically amortized over the life of the agreement.

Sativex product sales revenue is recognized on shipment of inventory to partners rather than when sold in market. As such our revenue in any particular period may not correlate directly within market sales trend as it depends on the timing of shipments partners. We look over to short period, product sales revenues were there to fluctuate with delivery volumes, over the longer term we would expect our revenues to track the in-market sales trend.

Milestones are typically linked to single events and usually earned and recognized lump sums in the period in which the triggering event is achieved. Regarding our R&D expenditures, many of our R&D activities are partner funded. We refer to this as partner funded R&D, we have to sponsor for our clinical studies and incur R&D expenditures which are then recharged as R&D fees to our partners.

You will also hear me refer to GW funded R&D, this is our own spend using GW cash resources to fund core overhead plus our own in house pipeline R&D programs. My next two graphs will illustrate the trend in these factors. To my next slide Sativex in market sales volume, this shows vials sold in market by our partners Bayer and Almirall. As you can see the key message here is a steady progress with in market sales volume for 2013 up 25% against 2012. GW shipments to partners to which our revenues are linked was 51% higher than in 2012.

However we're reporting net Sativex revenues of just £2.2 million roughly $3.5 million, that's a reduction of £0.3 million compared to the prior year. This reduction is due to the recognition of £1 million provision for revenue rebate that we expect to make to our own at the end of 2013, primarily as a result of the retrospective adverse pricing decision in Germany in March.

As previously announced Almirall have now agreed a mutually acceptable reimbursement price for Sativex in Germany from 1 January 2014. This will be an increase to the reduced price that have previously been imposed by the German authorities.

Moving to our next slide, R&D spend, as you can see total R&D spend has increased to £32.7 million or $52.9 million from 27.6 million in the prior year. Of this 72% £23.6 million was funded by Otsuka, this includes £19.3 million of U.S. cancer pain Phase 3 clinical program spend up from 14.1 million in the prior year, plus £4.3 million of earlier stage pipeline activity funded by Otsuka, down from 5.4 million in the prior year following the end of the Otsuka collaboration agreement in June 2013.

At the bottom of the graph you can see the GW funded R&D spend, this has increased by £1 million to £9.1 million largely due to progress with our pipeline projects.

Moving to our next slide, the income statements for the year ended 31, September 2013. Total revenues of £27.3 million or $44.2 million were down by £5.8 million from 33.1 million in 2012, primarily as a result of a £9.5 million reduction to milestone income. R&D fees and partners totaled £23.6 million up by 4.1 million from 19.5 million in the prior year and in line with the trended partner funded R&D spent on my previous graph.

As already explained Sativex sales decreased by £0.3 million, finally license fee income of £1.3 million was in line with the prior year. Cost of sales of £1.3 million is up from 0.8 million in the prior year reflecting the 51% growth in Sativex volume shipped to partners. I have already talked about R&D spend, so moving straight to management and admin this increased margin lead to £3.8 million as a result of the additional cost of being a U.S. publically listed company.

This all resulted in a pre-tax loss of £10.4 million compared to a 1.2 million profit in the prior year. This loss has been partially offset by £5.8 million tax credit to a loss after tax of £4.5 million which is in line with market expectations.

Turning now to my next slide cash flow, the net operating cash outflow for the year to September 13, was £10.3 million, we incurred £2 million of capital expenditure and received a £2.8 million R&D tax credit. We then received net IPO proceeds of £18.1 million resulting in a net cash inflow for the year of £8.8 million or $14.1 million. We ended the year with a strong cash position of £ 38.1 million or $61.6 million at 30th of September.

Finally, I’d like to give you some guidance for 2014. So moving to my guidance slide we expect in-market sales volume growth by our partners to result in Sativex revenue growth in 2014. Under the Otsuka license agreement we’re eligible to receive a $5 million milestone upon first patient into the planned MS Spasticity Phase 3 trial. Our increased cash position following our NASDAQ IPO has enabled the board to make the strategic decisions to advance multiple pipeline clinical programs. We now expect GW funded R&D spend to increase by 40% to 50% over 2013.

The cash outflow associated with capital expenditure is expected to increasing £ 2 million in 2013 to £ 6 million in 2014 as we invest in expansion of our manufacturing facilities preparation for U.S. launch. Thank you. I’ll now hand the call back to Justin.

Justin Gover

Thank you, Adam. And it brings the opportunity for me to close today’s presentation by looking at Newsflow in slide 24. Looking forward into 2014, we believe the GW is poised to meet a number of significant clinical regulatory and commercial milestones. The Newsflow slide here is a busy slide and this reflects the fact that we expect a great deal of activity next year.

Slide splits out four key areas of focus for the company. Without going into each specific item, we expect to increase the momentum of our Epidiolex program in 2014 with parallel focus on the treatment INDs and the start of GW sponsored clinical trials. In addition, we look forward to keeping you informed on the upcoming Phase 3 data for Sativex in cancer pain the progress of our Phase 3 MS trial as well as further advancement of several other Cannabinoid pipeline candidates.

Thank you for your attention today, and I would now like to open the call for few questions. I’ll now hand back to the operator at this time.

Question-And-Answer Session


Thank you. We would like to conduct a question-and-answer session at this time. [Operator Instructions] Our first question comes from the line of Ritu Baral with Canaccord Genuity. Please proceed with your question.

Ritu Baral - Canaccord Genuity

Hi guys. Thanks for taking the question this morning. Given the recent focus on your upcoming work in epilepsy, can you maybe take us through some of the IND, investigator sponsored IND work that is going to be undertaken as part of the seven INDs, and how that may contribute to your upcoming planned Phase 2 program? And also can you sort of give us an idea of the safety database that exists to-date, both clinical and preclinical for CBD, and how that may relate to treatment duration in the Phase 2 and patient inclusion et cetera?

Stephen Wright

Ritu, thank you, its Stephen Wright here. Perhaps if I start with the second half of your question, the safety of CBD, I guess that perhaps not all of you be aware that CBD is present in the Sativex. It comprises approximately 50% of the total Cannabinoids in the Sativex. And Sativex has a global safety database encompassing more than 19,000 patient years. Now of course some of that is due to the THC or some of the adverse effects we see due to the THC. But what it means is there is a very expensive exposure of humans for CBD.

As far as CBD itself is concerned it’s been used in early phase clinical studies either as pure compound or as an extract where some other Cannabinoids are present but CBD is predominant in over 200 human beings now. So again we have a pretty extensive safety database from early clinical exposure of CBD as well as CBD in Sativex. I think this is one of the reasons why the FDA has been quite prompt actually in granting the expanded access, treatment IND is that we do attention to because of this extensive safety database of the product that these children will be using in the expanded access in INDs.

We anticipate that we will be able to see efficacy and safety data across a series of orphan pediatric epilepsy indications as a consequence of these exposures. We anticipate that round about 30% of the children will have Dravet syndrome around about 30% Lennox-Gastaut and then a range of other orphan epilepsies. All of these data will be very helpful to us not only in giving us signals of efficacy but also in cementing safety profile of CBD in the pediatric; in this case the pediatric epilepsy population in particular but also the pediatric population in general.

So I mean I hope that answers your question.

Ritu Baral - Canaccord Genuity

Yes, so of the 200 CBD patient exposures, how many of them are currently pediatric or do you anticipate with most of the pediatric safety coming from the new IND?

Stephen Wright

The safety data I mentioned is very, very predominantly in adult patients indeed but of course I would also draw attention to the very extensive preclinical safety data base with CBD which does of course cover childhood safety as well. So I think we are very comfortable. The expanded access INDs will certainly give us more specific and targeted safety information which is always a benefit to future development.

Ritu Baral - Canaccord Genuity

And one follow-up and I’ll hop back into the queue, as far as the trial structure for the Phase 2 in these indications, what do you think will be some of the most important endpoints for diseases like this is it seizure grade, or is it seizure frequency, what should we be thinking about as far as trial structure and potential duration of the trial?

Stephen Wright

I think there are three very key features of the first formal GW sponsored IND study that we need to pay attention to. The first is that FDA have a particular liking for dose-ranging studies and I think a dose-ranging element is essential. Secondly, in developing a new antiepileptic drug, we need to be certain that is free or relatively free of important drug-drug interactions in so for that means it can be taken with other antiepileptic drugs and that will be the case in the first instance for the development in Epidiolex. Thirdly, the primary efficacy measure conventionally is seizure frequency. We will of course be discussing with the FDA whether this needs to be the primary outcome measure in this orphan indication, but our anticipation at this point is that seizure frequency will be primary outcome measure.

Ritu Baral - Canaccord Genuity

Great, thanks. I will hop back in the queue.


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

Phil Nadeau - Cowen and Company

Good morning and thanks for taking my question and congratulation on all the progress. First on the physician INDs for the 125 or so kids, could you talk a little bit about the type of efficacy data that you’re going to be able to collect from those INDs? Will you have rigorously collected treatment frequency data or will it vary from IND to IND or physician to physician?

Stephen Wright

We are in the process of agreeing with the investigated structure of the data that they will collect it. Certainly, we’ll focus on seizure frequency but it will also look at other aspects of the treatment of these children for example. Are they subsequently able to reduce other antiepileptic drugs? Are they sleeping better? How many children become seizures free compared with having a significant reduction in seizures? I mentioned also we’re looking at the pharmacokinetic or the potential of pharmacokinetic interactions between Epidiolex and exiting antiepileptic drugs and they will be collecting data reflecting on these.

So we will, I think I am sure actually we’ll benefit from an awful lot of information to feed into our formal development program from the outcome of these investigate letter, but also I think the children will benefit and perhaps more importantly actually from the addition of another treatment where they currently have nothing other than the existing antiepileptic drugs which not providing adequate efficacy to them. So I think it’s a beautiful position to be in actually as a company developing a new product in epilepsy.

Phil Nadeau - Cowen and Company

And then one other question, epilepsy. What are your, I understand you are still in the discussions with the FDA, what are your expectations for clinical trial program? Would you need separate study in Dravet and separate study in Lennox-Gastaut, or do you think you could get on the market following the Phase 2 which is from one additional study looking at refractory pediatric epilepsy?

Stephen Wright

I think again there are two key points we adopted. Firstly, we probably start from a relatively conservative position which is that we will need at least one positive multiple-center controlled clinical trial in the indication. And if you look at the data, it would suggest that a maximum total patient population of 250 should be more than enough successful NDAs in orphan indications of the size more than 50% of them contain fewer than 250 patients. So I think that will be our conservative target.

And I think in terms of discussing things with the FDA, we would anticipate that we would, say hope that we would achieve both fast-track and breakthrough designation, so the goal post in terms of the number of patients are likely to move as more and more efficacy data comes through only to see outstanding efficacy that I think it’s understandable our requirements for patients numbers are likely to be smaller. And that of course is something we’ll be able to keep everybody updated on as the exposure proceeds.

With your question about the focus, again begin conventional and relative to conservative with the FDA, we’d suggest that we should focus on a single indication in order to get approval in that single indication. Where we to see again outstanding efficacy in the expanded access treatment INDs across the range of other pediatric orphan epilepsy syndrome of course we will be discussing at the earliest opportunity with FDA to see whether there is a way of providing those benefits to chose in need of efficacy sooner rather than later.

Phil Nadeau - Cowen and Company

Just I’m curious, so your initial expectation is a program of about 250 patients although obviously that could change depending until discussions with the FDA. Is that.

Stephen Wright

In Dravet, that’s correct.

Phil Nadeau - Cowen and Company

And then just one last question on cancer pain, your guidance is for data towards the end of 2014, is there spot change from [indiscernible] that this first half was going to be more like mid 2014.

Stephen Wright

It is a small change; it actually reflects our review with our partners of the end point, the final recruitment targets for the study. What we’ve elected to do to better ensure success with the FDA is to increase the proportion of patients that we are going to be recruiting in the United States and as I think you’ll understand the regulatory hurdles to starting sites in the United States are somewhat more substantial in those in Europe. So, this means that we are taking a little bit of, we're accepting a tiny base of right what’s movement in the delivery of results in return for a better insurance of outcome which I think we all feel and I know our partners think and feel is a very sensible thing to do.


Thank you. Our next question comes from the line of Bert Hazlett with ROTH. Please proceed with your question.

Bert Hazlett - ROTH

I have one or two; and my apologies if this is been answered directly. I’m not sure it has but on the investigator responsive studies for Epidiolex, are there one or two studies that you were valuing more highly than others in terms of the data readouts? And if so what are they and maybe which one should we be paying attention to again who all are very important in terms of learning about the characterization of your compound but if there are one or two that you’re focused on more heavily than others if you could point those out that will be great? And I have a couple of other ones as well.

Stephen Wright

No there aren’t. The data that we are hoping to collect from these is the same data regardless of which investigator is carrying out the study or which child is being treated. So, now we’ll regard the more as being equal importance.

Bert Hazlett - ROTH

Then just shifting gears with glioma. And that encouraging approach, it looks to me in this last slide that you are expecting data sometime in the middle of 2014. Could you characterize what you might expect, when and maybe you should, what, is their ability to get enrollment of dates maybe with this program as we’re able to get some times in oncology, or, and when do you think there will be final results would be available for this program.

Stephen Wright

I’m starting with the first part of your question. The approach we’re taking again is a pretty conventional approach in an oncology study. We’re first ensuring that there is no indication of any safety concern when these Cannabinoids are added to existing anticancer, in this case temozolomide existing anticancer treatment. And that’s important and I think that that’s expected by those regulated and the community oncologist. So, I think we will be in a position to report on the safety outcomes relatively early we hope in 2014 subject to recruitment.

Once we’re all satisfied in particularly treated oncologist is satisfied, there is no problem with combining these Cannabinoids with existing drugs then we’ll embark on the placebo controlled purely efficacy portion of the study and I think it’s difficult for me to predict at this point how recruitment and how rapidly recruitment is going to go in the second half of the study. I think you’re absolutely right, if we see results [indiscernible] are truly material; so, for example, a number of the first six patients do very well indeed then I think we probably be obliged to let everybody know that this is looking very promising.

Bert Hazlett - ROTH

Just two questions on Sativex, in the near term from modeling perspective, how much significance or importance should we be placing on the positive pricing decision you received in Germany. And then just very briefly I think you mentioned the notice of allowance of patents in the U.S. for Sativex, could you sort of characterize the notice of allowance and maybe what types of patents and how strong you think that (NYSE:IP) is.

Justin Gover

I’m not think to use this opportunity to guide you on specific Germany sales. I think we, the price reduction in March was something that frankly was unacceptable so a compromise was reached, unable to true compromise. So, the price that has ultimately come out of this process is somewhere in the middle of the starting price and the price that was originally imposed. But I don’t think I’d like get too much further into guidance at this point.

With regard to the Sativex patents, the two patents granted during the course of this year related mainly to the delivery aspects of the product and the device itself and the delivery of the formulation, they add to a suite of around six or seven patents that focus on Sativex or protects and the patent expiry for Sativex the later stage is September 2026 which is the cancer pain use patent.

Bert Hazlett - ROTH

Thank you for the clarity. Keep up the great work.


(Operator Instructions). Our next question comes from the line of Mike Aitkenhead with Edison Group. Please proceed with your questions.

Mike Aitkenhead - Edison

Listen up I just got two quick pipeline questions, the first one with respect to the ongoing cancer pain studies. Can you maybe give us a bit of clarity on what proportion of U.S. patients you are aiming for both of the pivotal trials? And secondly, could you give us some sort of update on when we might expect the readout of the third supportive study? Is that going to be still on the second half of '15? And just a final question on the upcoming diabetes trial, can you maybe give us some clarity on the type of population that you are planning to enroll in this trial? Will this be patients who have failed in maybe diet and exercise, or these will be patients who have failed one or the other oral therapies? Thanks.

Stephen Wright

Stephen Wright here, I will start with the last bit first. In the diabetes study we're looking at HbA1c as a preliminary outcome measure, so we’re looking at Type 2 diabetics currently maintained on Metformin with somewhat other satisfactory HbA1c control. So the initial target is as the first line add on Metformin we suspect that during a later development program as subject to posted results this will be looked at further and multiple therapies will be looked at and shown, but that's the target for this study.

With regard to the Sativex in cancer pain study we’re aiming to recruit at least the same proportion or more in the Phase 3 in the U.S. as we did in the Phase 2 in the U.S. which is approximately one-third of the total population with the U.S. being the single largest recruiting country.

And your question about the third cancer pain which is underway and is not required for the NDA in our view, our target is that yes it should conclude in the second or we should have results from it in the second half of 2015, so that be very readily available for use information materials in the commercialization phase. The study as you will recall is a different design an enriched study design which in our view possibly somewhat better in [indiscernible] are used in clinical practice and so is ideally suited for use in a more kind of commercial setting.

Mike Aitkenhead - Edison

Brilliant, that's great. And just one final follow up question Epidiolex. I know you are planning to start the Phase 2 trial around mid '14, would it be reasonable for us to expect some initial headline days from the trial by the second half of '15 or late '15 early '16? [Audio Gap]

Justin Gover

There is a provision from our previous collaboration with agreement that relates to IP that emerge from it, some of the IP around Epidiolex is our own and other parts of it and quotes collaboration IP there is a very, very small single digit royalty based on any product that emerges from collaboration IP.

Mike Aitkenhead - Edison

And then just going back to the cancer pain Phase 3 study, [Audio Gap] in terms of tax guidance, could you give us some guidance

For this year, could you give us some guidance on that please?

Stephen Wright

This year’s tax credit contains a number of elements. I think is five for £8 million in total, 2 million of that we like to acclaim to settle from the in line revenue that we received early this year in respect to 2012, 2.9 million is the claim that we’ll be submitting for 2013 and then I think it’s 0.9 million of deferred tax asset recognition. So it’s the 2.9 that’s the current year claim.

I think the claims are generally linked to the level of your R&D spend. So clearly I’ve guided to increased R&D spend. So I would hope that it will go up proportionally but that will depend on future review of our claims by in line revenue.

Mike Aitkenhead - Edison

That’s very helpful, and then just final question just on in the press release you talk about some additional CapEx to get manufacturing on to sort of U.S. compliance. Could you just give us a bit more detail on that? And is that simply going to be a 2014 spend nothing going over into 2015?

Stephen Wright

Yes, as you said I’ve guided to an increase this year. There will also be a similar increase in 2015. We’re building a new extraction facility constructions just started and we’d expect the build to take about 18 months.

Mike Aitkenhead - Edison

That’s great. Thank you very much.


Thank you. Our next question is a follow up from Ritu Baral. Please proceed with your question.

Ritu Baral - Canaccord Genuity

Going back to your comments on Sativex in MS Spasticity in the U.S., you mentioned that you sort of had buy in from the FDA that Phase 3 would look like, what the Phase 3 may look like. Could you give us any additional clarity with progressing talks specially end points and the responder analysis that you may be considering?

Stephen Wright

Ritu, it’s Stephen Wright here. Yes, we’ve actually been through obviously this at the stage of pre-IND and then the IND some discussions with FDA about the shape of the protocol and we’re very comfortable with the protocol that’s emerging. We also need to make sure that our partners Otsuka believe that the outcomes of the first call with Sativex commercial needs when look that together with our existing and very extensive data base. So we aim to reach final agreement with Otsuka on the find detail of the protocol which will go into SPA. I think it probably would be inappropriate for me to give details of that protocol prior to the SPA discussions but I think we’d be very comfortable in doing so afterwards.

Ritu Baral - Canaccord Genuity

All right just checking. Thanks so much.

Stephen Wright

I mean I can I certainly happy to say that the basics of the design that we believe FDA are currently quite comfortable with make it a very similar design to the study GW SPO 604 (Ph) that was published in the European Journal of Neurology and which show such positive results and was one of the key reasons why we’ve had such widespread approval around the rest of the world so far and clearly we’re very comfortable with that kind of enriched study design.

Ritu Baral - Canaccord Genuity

Great, thanks for the color.


Thank you. Ladies and gentlemen, we’ve come to the end of our Q&A session. I’d like to turn the floor back over to management for any closing comments.

Justin Gover

Great, thank you. It’s Justin Gover here. Just to thank you all for your time today. We look forward to a very exciting year for GW in 2014 and our next update for you will be on first quarter earnings call in the first part of 2014. So we look forward to speaking to you then. Thank you very much.


Thank you. This concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.

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