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Executives

Steve Schultz - Vice President, Investor Relations

Justin Gover - Chief Executive Officer

Chris Tovey - Chief Operating Officer

Dr. Stephen Wright - Director, Research and Development

Adam George - Chief Financial Officer

Analysts

Ritu Baral - Canaccord Genuity

Josh Schimmer - Piper Jaffray

Joseph Schwartz - Leerink Partners

Phil Nadeau - Cowen and Company

Samir Devani - WG partners

Bert Hazlett - ROTH Capital

GW Pharmaceuticals plc (OTCPK:GWPRF) F1Q 2014 Results Earnings Call February 5, 2014 8:00 AM ET

Operator

Greetings. And welcome to the GW Pharmaceuticals First Quarter 2014 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. I would now like to turn the conference over to your host, Steve Schultz, Vice President of Investor Relations. Thank you, sir. You may now begin.

Steve Schultz

Welcome and thank you for joining us on the call today. Again, my name is Steve Schultz. I’m the Vice President of Investor Relations at GW and I’m based in the United States.

Here with me today are Justin Gover, GW’s Chief Executive Officer; Chris Tovey, our Chief Operating Officer; Dr. Stephen Wright, our Director of Research and Development; and Adam George, our Chief Financial Officer.

We hope you’ve had a chance to review our press release and the 6-K which were issued earlier today. These documents 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 related 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 the risks and uncertainties with an investment in GW can be found in the company'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.

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 able to join us today and welcome to GW’s new investors from our recent follow-on offering. On today’s call, I will briefly review our recent progress, Dr. Stephen Wright will provide more detail update on our Epidiolex product development program and Adam George, who will provide an overview of the financial highlights for the quarter. At the conclusion of our prepared remarks, we will open the line for questions.

The last few months have been hugely significant for GW. It is no exaggeration to say that the company has transformed in this period, from an investment proposition focused almost wholly on our product Sativex into multi-product platform company with a highly promising and exciting orphan drug opportunity in the field of childhood epilepsy.

The emergence of our orphan pediatric epilepsy program with our product candidate Epidiolex results from the coming together of both preclinical science and clinical case studies.

GW has carried out preclinical research into the potential of cannabinoids in the treatment of epilepsy over the last six years, which has shown two cannabinoids, CBD and CBDV to have significant potential as antiepileptic drugs.

In addition, wealth of clinical case stories have emerged from the U.S. with increasing frequency of the recent month, which provide apparently striking examples of the effects of CBD in reducing seizures in young children with epilepsy.

It is clear from all our discussions with the U.S. medical community that the specialist physicians responsible for the care of these children want the FDA approval appropriately tested medicine that they have confidence in prescribing. This was perfectly illustrate -- illustrated by Dr. Elson So, President of the American Epilepsy Society in his recent op-ed piece in the Miami, Herald.

We believe that Epidiolex has the potential to meet the significant unmet medical need. Our strategy is to concentrate initially on two orphan indications, Dravet Syndrome and Lennox-Gastaut Syndrome. Each of these syndromes represents rare, severe infantile-onset drug-resistant epilepsy conditions, with an estimated prevalence in the U.S. of 5,000 to 6,000 children for Dravet and approximately 14,000 to 18,000 for Lennox-Gastaut.

In November 2013, GW received Orphan Drug Designation from the FDA for Epidiolex for the treatment of Dravet Syndrome. In addition, we recently apply to the FDA to obtain Orphan Drug Designation for Epidiolex for the treatment of Lennox-Gastaut Syndrome.

With the new funds raised in our successful $101 million follow-on offering last month, GW now has the financial strength to accelerate the Epidiolex development program and specifically to conduct Phase 2 and Phase 3 trials in both Dravet Syndrome and Lennox-Gastaut, while retaining global commercial rights to the product.

While on the topic of our offering, we are very pleased to have attracted such a substantial expression of interest in the financing and particularly we are proud that many of the investors in this financing comprised the leading healthcare institutional investors in the United States.

Of course, in addition to our epilepsy program, GW continues to progress Sativex. Sativex is the world’s first plant-derived cannabidiol-based prescription medicine, which is currently approved for use in 25 countries in Europe spasticity due to multiple sclerosis.

Specifically, with respect to the United States, Sativex is currently in late Phase 3 clinical trials with the FDA for cancer pain and we expect initial topline data from at least one of the Phase 3 trials towards the end of this year, with submission of an NDA in 2015.

In addition, we are also pursuing the MS spasticity indication in United States and recently submitted the request to the FDA for special protocol assessment for our proposed single additional Phase 3 trial. We are currently in set for this trial and expected to start in the second half of this year.

Last month, we also expanded our partnership arrangements to Sativex to include Latin America, with the signing of an agreement with Ipsen. Ipsen is a specialty-driven pharmaceutical company headquartered in France, with revenues of greater than €1.2 billion and with a particular strength in neurology that represents an excellent fit for Sativex.

Beyond all of this, GW’s proprietary cannabinoid platform has generated active clinical stage pipeline programs in ulcerative colitis, type 2 diabetes, schizophrenia and an additional orphan development program in glioma. Please note that all non-Sativex pipeline products have funded completed by GW and GW retains all rights to commercialize any and all products evolve from these programs.

As you can see there is a great deal of activity at GW at the moment and for some more detail on the epilepsy program, I will now turn to Stephen Wright. Stephen?

Dr. Stephen Wright

Thank you, Justin, and good day, everybody. I will start my comments by explaining activities currently being undertaken to treat children with refractory epilepsy with Epidiolex under FDA approved investigator lead INDs and we’ll then turn to our own formal development plans.

GW is clinical experience with Epidiolex in the field of pediatric epilepsy, began with the request over one year ago from the treating physician of two children in the United States with drug-resistant early onset epilepsy.

Both children have so far received treatment under FDA individual INDs with Epidiolex for over six months. According to the most recent report from the treating physician, she has observed seizure reduction up to 90% and subsequent improvement in behavior and cognitive function, and has also noted that Epidiolex has been well tolerated in chronic use.

Since this initial request, GW has been approached by epileptologists from across the United States and indeed across the world to find out more about the prospects of using Epidiolex. Several of these independent physicians have applied to FDA to obtain Epidiolex under expanded access INDs in order to prescribe to product to selected patients.

To date, a total of seven of these expanded access INDs have been granted by the FDA to independent investigators, allowing treatment of a total of approximately 125 pediatric epilepsy patients with Epidiolex. The majority of these patients suffered Dravet and Lennox-Gastaut syndrome, but the list of children also comprises a range of other pediatric epilepsy syndromes.

The first patient at two sites in New York and San Francisco begin receiving treatment during the week before last. INDs for each of these sites allow for the treatment of 25 children per site. We understand from the two physicians that approximately 12 children are currently taking Epidiolex, with the remainder expected to begin treatment over the coming weeks.

It is our expectation that all 50 of those children across the two sites will become treatment by the end of March through an ongoing sequence at regular enrollment through separate and through March. Approximately, three quarters of these initial 50 patients have Dravet syndrome or Lennox-Gastaut.

An additional physician site is expected to commence treatment of its 25 patients around the end of March, and the remaining 50 patients at two other sites are expected to commence treatment around midyear, after receipt of the necessary site licenses from the Drug Enforcement Administration. Since the beginning of 2014, a number of additional U.S. physicians have submitted similar expanded access INDs to the FDA.

Under this expanded access IND program, the physicians will collect regular treatment data on seizure frequency, the Epidiolex dosing, the use of concomitant anti-epileptic medication, adverse events and other relevant clinical measure. We expect the meaningful data on an initial coded patients should be available around the middle of the year, with additional data on these patients as well as on the remaining IND patients to follow during the second half of this year. We expect that these INDs will generate important safety and tolerability information as well as initial clinical evidence to support the use of Epidiolex across a number of distinct treatment resistant pediatric epilepsy syndromes.

Turning now to our formal regulatory development strategy, GW intends to develop Epidiolex for the treatment of both Dravet and Lennox-Gastaut syndromes, working with some of the leading pediatric epilepsy specialists in the United States. GW has proposed an investigational plan to the FDA for Epidiolex and Dravet syndrome, and we expect to hold a pre-IND meeting in the near future.

Following this meeting, we intend to submit an IND to the FDA in the first half of 2014, and then to commence an initial clinical trial in the second half of this year. We have proposed that this initial trial be a two part randomized, double-blind, placebo-controlled trial of single and multiple doses of Epidiolex to treat Dravet syndrome in children who are being treated unsatisfactorily with other antiepileptic drugs.

Part one comprises the pharmacokinetic and dose-finding elements of the trial. Part two is a placebo-controlled extension, which will compare the effect of Epidiolex with that of placebo. GW plans to use the results of this initial study to informed discussions with the FDA regarding the design of additional efficacy and safety trials that could serve as the basis for future NDAs for Epidiolex in both Dravet and Lennox-Gastaut syndromes.

Our intention is to commence pivotal trials in 2015. Our objective working with FDA is to establish Epidiolex as the leading cannabinoid-based medicine for the treatment of childhood epilepsy disorders through sound, credible and reliable scientific evidence. I note that when we would like to see the shortest path to approval for Epidiolex, you should assume that GW will be required to go through the normal development and regulatory path with FDA. Needless to say, we will seek every opportunity to minimize the timelines required to submit the initial Orphan NDA and we also hope to be in a position to apply for breakthrough status during the course of the development program.

Moving on now from Epidiolex, GW has a second product candidate, GWP42006, which features CBDV Cannabidivarin as the primary cannabinoid. CBDV is structurally related to CBD and has also shown anticonvulsant effects across a range of in vitro and in vivo models of epilepsy.

I would particularly like to draw your attention to a very recent publication showing that CBDV expresses epilepsy associated gene expression in association with significant anticonvulsant effects, providing potential for the development of important genetic biomarkers for efficacy in epilepsy, very exciting findings indeed.

We’ve recently completed dosing in a Phase 1 dose escalation single and multiple dose pharmacokinetics and tolerability clinical trial for CBDV. Results are now in data management and we expect to issue a release with more information about this study in the first half of 2014.

From what we already know, I can say that the safety profile of CBDV looks wholly reassuring as there were no serious or severe adverse events during the Phase 1 trial, nor any withdrawal from the trial due to adverse events. Our current expectation is that we will be advancing plans during the second half of 2014 for CBDV to commence the Phase 2 proof-of-concept trial.

One hour epilepsy program remains at the forefront of our pipeline activity. It is important to remember that GW is approaching some key milestones for Sativex and also has several other exciting pipeline programs in progress, each of which is supported by promising pharmacology.

For Sativex, as Justin mentioned earlier, we expect initial topline Phase 3 cancer pain data towards the end of this year. And we will also expect to commence the U.S. targeted Phase 3 multiple sclerosis spasticity trial in the second half.

With respect to our earlier stage pipeline, the key areas of activity are as follows. Firstly, we are closed to completing a Phase 2a trial in the treatment of ulcerative colitis for the botanical drug product GWP42003, which features CBD as its primary cannabinoid. Data from this trial is expected around mid year. Second, we expect to commence a Phase 2b dose ranging trial in the first half of 2014 in the treatment of type 2 diabetes for GWP 42004, which features THCV as the primary cannabinoid.

Third, we expect to commence the Phase 2a trial in the first half of 2014 in the treatment of schizophrenia using GWP42003. And fourthly, we recently commenced a Phase 1b/2a trial in the treatment of recurrent glioblastoma multiforme, an orphan disease, for a product candidate, which combines GWP42002 with GWP42003.

In summary, therefore, we have a very busy program of R&D activity that present and expect progress across all major areas of the pipeline during 2014.

Let me now turn the call over to Adam for the financial review. Adam?

Adam George

Thank you, Stephen. I intend to provide some general comments on today’s Q1 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 financial reporting standards or IFRS accounting rules in British pounds sterling. For convenience purposes, I’ll give U.S. dollar equivalence to certain key numbers.

Today, we are reporting on the three months ended 31, December 2013. I’ll start with revenues. Total revenues for the quarter was 7.5 million pounds or $12.4 million compared to 5.2 million pounds in Q1 2013. Revenue increased 2.3 million pounds.

This increase is due to two factors, 1.7 million pound increase in research and development phase increased to 6.4 million pounds or $10.5 million, reflecting progress with the recruitment of patients into the Otsuka funded Phase 3 cancer pain trials as well as the cost of setting of the MS Phase 3 trial that we expect to start later this year.

Sativex revenue of 0.8 million pounds or $1.3 million increased from the 0.2 million pounds in the prior period. This reflects the fact that the prior period was impacted by 0.7 million pound provision for rebate due to Almirall following the adverse pricing decision in Germany in early 2013.

In market, sales volumes by our partners, Sativex, increased by 36% over the prior period. This reflects continued growth in Germany plus a strong start in Italy was launched recently.

Next R&D spend. Total R&D expenditures for the quarter increased by 43% to 9.2 million pounds or $15.2 million from 6.4 million pounds in the three months December 31, 2012. This is made up of two elements, the first being the Otsuka-funded Phase 3 R&D spend, I referred to earlier, which increased to 6.4 million pounds or $10.5 million.

Otsuka continue to fund approximately 70% of GW’s total R&D spend. We’d expect this proportion to reduce in future as we invest more of our funds into our pipeline programs. In this quarter, GW funded spend increased to 2.8 million pounds or $4.6 million.

The increase is linked to the completion of the CBDV Phase 1 study, they completed dosing recently plus the start-up cost of the glioblastoma study that started in the last quarter. Management and administration spend of 1.5 million pounds or $2.5 million was 0.7 million pounds higher than the prior period.

0.5 million pounds of this increase reflects growth in the provision that we hold for future payroll taxes payable by GW on future share auction gains driven by the significant increase in our share price during the period. With the remaining increase in costs being cost associated with our NASDAQ listing. This resulted in the loss before tax for the three months of 3.5 million pounds or $5.8 million which compares to a loss of 2.4 million pounds for Q1 2013.

Turning to tax. the 0.7 pound or $1.2 million tax credits recorded in this quarter reflects the research and development tax credit that we will claim from the U.K. tax authority at the end of 2014 financial year in respect of R&D spend incurred in this quarter. In the prior period 31 December 2012, we recorded 4.4 million pound tax credit which included a number of one-off items resulting from agreements reached with U.K. tax authority in the first quarter of 2013. These items have not been repeated in this quarter.

The net operating cash outflow for the quarter was 2.8 million pounds or $4.6 million compared to 1.7 million pound outflow in the period ended December 31, 2012. As I’ve already noted, most of this increase is linked to GW funded pipeline research and development spend.

We ended the period with cash of 35.2 million pounds or $58.4 million at December 31. Subsequently following the successful completion of our follow-on offering in January, this has been further announced by the net proceeds received $94 million giving a current cash position approaching 91 million pounds or $150 million.

Finally, let me update our 2014 guidance. As I guided in November, we expect continued in-market sales volume growth by our partners to lead to growth for Sativex revenues in 2014. And in terms of milestone income, we continue to expect to receive a $5 million milestone from Otsuka on commencement of the MS Phase 3 study later this year.

In terms of R&D spend, I previously guided you to expect GW-funded R&D to increase by 40% to 50% this year as we progress a number of clinical stage pipeline programs. Having completed our recent fund raising as per the guidance given in the fund raising prospectus, I now expect this to increase further as a result of planned Epidiolex program spend.

In cash flow terms, I expect to spend $10 million of the offering proceeds in this financial year. Therefore, operating cash outflows plus planned capital expenditure should now result in a cash outflow of approximately $34 million or 21 million pounds for the 2014 financial year.

In terms of profitability, we continue to expect to report a loss for the 2014 financial year. The size of that projected loss can be expected to increase in line with the additional cash spend that I just outlined. Thank you.

I will now hand the call back to Justin.

Justin Gover

Thank you, Adam. GW has had an extremely busy first quarter and look forward to an exciting year ahead during which we expect to update investors on a series of important milestones.

With respect to epilepsy, we continue to progress expanded access treatment IND programs throughout the year with initial data being released from mid ’14 onwards. For Sativex, we expect initial topline Phase 3 data in cancer pain around the end of the year as well as the start of our US MS spasticity Phase 3 trial in the second half. We also have numerous clinical trials expected across the pipeline with the next Phase 2 data coming from our ulcerative colitis trial.

Our model in the past has been to develop cannabinoid-based therapeutics and [partner] them out as we did with Sativex. However much has changed over the recent months and we are very excited about the opportunity to retain the full commercial rights to our orphan epilepsy program and leverage that opportunity to the benefit of our shareholders.

Finally, as demonstrated by our 15 years of experience dedicated towards cannabinoid therapeutics and our development and regulatory track record established over this extended period, GW is proud to be at the forefront of cannabinoid science and we believe that we are the company best positioned to lead the way into the future of the therapeutic cause.

Thank you again for joining us today, and I am now able to open the line for questions. I'll turn back to the operator. Thank you very much.

Question-and-Answer Session

Operator

(Operator Instructions). Our first question comes from the line of Ritu Baral with Canaccord Genuity. Please proceed with your question.

Ritu Baral - Canaccord Genuity

Good morning. Thanks for taking the question guys. I wanted to ask you about some of the details on the investigator studies for Epidiolex being conducted right now. Specifically you said that they would -- the investigators would be capturing dosing data, what are the parameters for dosing in this trial and dose escalation, what are they allowed to do and what are you -- what sort of escalation are you thinking about for the trial that you guys will start in the second half?

Dr. Stephen Wright

Hi, Ritu, Stephen right here. The dosing recommendations within the investigator led expanded access INDs are all ones which have been agreed with FDA. They start at a dose of 2.5 milligrams per kilogram and dose titrated up to a maximum of 25 milligram per kilogram. There is a very slight variability between individual INDs, but essentially that's that the top dose that FDA have so far approved within that setting. We are aiming within our own a GW sponsored INDs to explore the same dose range and to go one dose range higher than 25 milligrams per kilogram up to 50 mg per kg. That of course remains the subject for discussion with FDA, but that’s our target.

Ritu Baral - Canaccord Genuity

And do you expect a large degree of variability on the appropriate dose for the patient population. I guess the question is, do you expect that certain kids will need a wildly different dose than others?

Dr. Stephen Wright

I mean I think as is the case with almost every other antiepileptic drug, there is going to be a range of effective doses that I am sure that’s correct, and you can probably predict that and the fact that CBD Epidiolex has a relatively low oral by availability which almost always means there is going to be variability between subjects in the way they respond to it. Fortunately because we have such a good safety profile, I don’t think that have any negative consequence and actually epileptologists are very comfortable and very used to the idea that they need to explore dose range in treating with epilepsy.

Ritu Baral - Canaccord Genuity

I see. And the other epilepsy trial, the Phase 1 in 42006, what sort of data will we have when you release the Phase 1 data? Do we have any sort of markers as efficacy?

Dr. Stephen Wright

That study is actually in healthy volunteers, its conventional Phase 1 study so we do not have any pharmacodynamic markers other than safety. So what it is, it’s a conventional single dose, single rising dose and then multiple dose pharmacokinetic study. So we will learn the pharmacokinetics with all the normal parameters you would expect, half life, maximum plasma concentration time to maximum plasma concentration and so on both in single dosing and in multiple dosing. And we will be able to link any safety concerns that we might have from the study with the exposure of the volunteers to the drug. So that will then allow us to target an appropriate dose range to move into our proof-of-concept study later this year.

Ritu Baral - Canaccord Genuity

Got it. And last follow-up and I will get into queue. What differences do you predict in the clinical profile between CBD and CBDV depending on the work that you have done?

Dr. Stephen Wright

I think it’s almost certain that we will not be targeting the same type of epilepsy straight off the bat with 42006 CBDV as we are with CBD. So the proof-of-concept with CBDV will be more conventional approach in complex partial features and we will then determine exactly which patient population to go into in pivotal studies with CBDV.

So we don’t at this point have any expectation of a markedly different profile for the one than for the other, but we will almost certainly be exploring different epilepsy subtypes with CBDV than with CBD.

Ritu Baral - Canaccord Genuity

Great. Thanks for taking the question guys. Appreciate it.

Operator

Thank you. Our next question comes from the line of Josh Schimmer with Piper Jaffray. Please proceed with your question.

Josh Schimmer - Piper Jaffray

Hey. Thanks for taking the questions. First of all, any sense on the size of the Epidiolex placebo-controlled Phase 2 study and when would you expect the randomize portion of that trial to begin? And then last, what’s given you the confidence now to advance so quickly into a placebo-controlled studies. There been any change in your observations or any new findings that's driven that?

Dr. Stephen Wright

Thanks, Josh. Stephen Wright here again. Very broadly we’re anticipating that there will be 60 patients in each of the two pivotal studies that we‘re proposing and that symphonize is based on an assumption of around about of 55% responder rate on drug and about 25% responder rate on placebo. Those numbers work in that kind of setting.

Of course, we've yet to determine whether the expectations of FDA are suitable and database science will be met by those proposals and we’ll find that out quite soon, but that's the way we framed our approach.

Do we think, it’s too soon to be going to placebo-controlled trial? The answer is, no, we don’t. The pivotal portions of those studies weren’t start until the end of this year or the beginning of next year, actually more likely. And by that time, we’ll have quite a significant amount of guidance from the expanded access IND open-label data that we've seen up to that date.

I should point out that the studies that we’ve proposed at start, with what we call a Part A which is a dose ranging pharmacokinetic safety evaluation, that part is also placebo-controlled. So actually the entire body of GW-sponsored clinical trial work under an IND will be placebo-controlled.

Josh Schimmer - Piper Jaffray

And you said two pivotal studies is that two in Dravet or one in Dravet and one in Lennox-Gastaut?

Dr. Stephen Wright

The current proposal is that we will propose two in Dravet. Clearly, if at some stage due to accumulation of data, FDA became comfortable with the single pivotal study, if it will sufficiently compelling were enough, than that would be great. I think it would be in judicious of us to propose that of straight of that right now.

Josh Schimmer - Piper Jaffray

Got it. Maybe last question, can you give us a sense of progress or timing in lifting, what seems to be a pretty absurd scheduling of Epidiolex, is a Schedule-1 drug. Who makes the decision to change that scheduling? What has to happen before that and is there any action or activities from parents, families or physicians to facilitate that or is there anything that could be done?

Justin Gover

Joshua, hi. Its Justin here. I’ll reflect off Steve for that one. I mean, it’s obviously, a major topic of discussion, the whole issue is, of course, as you all know. I mean, at the end of the day, there is a systematic approach to rescheduling and again, just as you are hearing with respect to our development program, I think, for now, I think, you just have to assume that, scheduling will change on approval of an FDA approved prescription medicine are made.

I don’t think we can comment beyond that and obviously we’re well aware that there’s a lot of activity and I’m sure there is discussion within the medical community and other parts of bodies within the U.S. about this. But from our perspective, it’s a Schedule-1 substance, all the sites we use in a treatment IND have Schedule-1 licenses.

And in that respect that should be, although, it is -- as you might say, maybe absurd but actually the process still works. We are able to go through this licensing process as you know children are starting to be treated and the sponsor studies will be done. As they all with Sativex, Sativex is still Schedule-1 and we were able to navigate through that. So I don’t think it will harm our own progress.

Josh Schimmer - Piper Jaffray

Got it. Thanks very much.

Operator

Thank you. Our next question comes from the line of Joseph Schwartz with Leerink Partners. Please proceed with your question.

Joseph Schwartz - Leerink Partners

Hi. Thanks very much. I was wondering if you could tell us, how focused are you on keeping European development in the pace that mirrors the United States and what kind of activities are going -- ongoing outside the U.S. such as with the EMEA?

Dr. Stephen Wright

Joseph, hi. Stephen Wright here. Yes, we are indeed going to be recruiting both within Europe and the United States in our pivotal clinical trials and we now having preliminary discussions with the EMEA during March.

Joseph Schwartz - Leerink Partners

Okay. And then how are you thinking or going after orphan epilepsy’s outside the U.S. and EU, very orphan drug exclusivity root in places like Latin America that you could take advantage of?

Dr. Stephen Wright

At this point our ambitions extend to the EU and to the United States. I think, you raise a very good point and clearly in due course, we need to explore how rapidly we can globalize the opportunity, yeah, we haven’t fully done that.

Joseph Schwartz - Leerink Partners

Okay. And then lastly regarding the GW 42003 program and all sort of colitis. I think that's a 10-week dose escalation study and you said you were close to finishing the dosing with data mid-year. I was wondering, how did you settle on the 10-week duration and what is the up-titration schedule? Was that informed by any of the anecdotal observational studies with CBD-enriched cannabis? How likely do you think it is that patients will be able to get to a meaningful therapeutic dose in that timeframe and how have you designed that?

Justin Gover

Sure, firstly, the 10-week dosing period, the objective of the study is to induce remission in patients, actually who fail to have remission induced by first-line therapy. And in general, I think everyone would accept if you don't induce remission over a 10-week period that's a treatment failure. Clearly, if we were looking at the maintenance of remission, we would want much longer exposures, but for the induction of remission, most studies actually are six or eight weeks. So, I think we are very comfortable with a 10-week period.

In terms of the dose titrations, the material being used in the ulcerative colitis study, for very good pharmacologic reasons contains a small proportion of THC. And it's actually the THC within the material. THC has a desirable properties on gastrointestinal mobility. It's because of the presence of THC that we're dose titrating upwards.

You will appreciate from our experience with Sativex and a lot of Phase 1 experience with CBD extract, that we've become very familiar with the rate at which dose increases can occur. So, I think we are very comfortable that we've achieved a -- we are able to achieve both a pretty rapid and appropriate dose titrations. So, I hope that answers your questions.

Joseph Schwartz - Leerink Partners

Yes. That's very helpful. Thanks.

Operator

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. Thanks for taking my questions. First, just a housekeeping question on the 2014 guidance, if I interpreted your comments correctly, it sounds like you're guiding to a 40% to 50% increase in R&D plus $10 million, is that correct or did I misinterpret what you said?

Adam George

This is Adam George. Yeah, I have said that we are going to spend $10 million. I want to be specific that all of that will be going through the R&D line, but the majority of it will be, so yes, your interpretation is there or thereabout.

Phil Nadeau - Cowen and Company

Okay. Great. My second question is on the trial design. On the other day you discussed with the pivotal trials. I think you said a 50% -- 55% responder rate on drug, 25% on placebo. I was curious about the placebo response rate. I have thought Dravet was a very refractory epilepsy, how would placebo be closing 25% response rate, how would you be defining response to them to see that level of response from placebo?

Justin Gover

Well, the definition of a response is better than 50% reduction in seizure frequency. And I completely agree with you that, in general, Dravet is thought to be very treatment resistant. However, if you look at occasional published studies, for example the stiripentol in Dravet, there is a distinct placebo response.

And our U.S. Chief Investigator or Dr. Orrin Devinsky has published some very elegant papers on placebo responses in patients with epilepsy, which I think means that it would be injudicious of us to predict a very, very low placebo response in the setting of the Phase 3 clinical trial. I think where we used to do that and then a placebo response of some significance to occur we would be -- we'd be caught with egg on our face and that's not something we want to be.

Phil Nadeau - Cowen and Company

I guess that's a very fair point. I guess the broader question, I am wondering about is a lot of us are interpreting the data that we -- or the press reports about reduction in the seizure frequency from CBD-enriched medical marijuana and soon I think we'll all be interpreting the reduction in seizure frequency we see from the treatment INDs.

Should we kind of assume a 25% of patients would probably have a reduction in seizure frequency, no matter what they got when we try to interpret these anecdotes, or I guess give us some sense of how we should interpret the uncontrolled anecdotes that we see?

Justin Gover

Yeah. No, I don't think so. And I think the answer is that placebo-controlled clinical trials in a very formal setting with a very fixed primary outcome measure are a different animal than what happens in real life and in the clinic. And I hope the two are complementary when we come to submit our orphan NDA for Epidiolex in Dravet.

So, I did mention during the presentation that we are, in our view being relatively conservative with our proposals to FDA for the investigational plan. And I think this discussion about the placebo response in clinical trials illustrates exactly that we are being relatively conservative, and we would suggest that that may offer some potential upside if it turns out the placebo responses is in fact somewhat lower than that. So, I think that's how I'd position the way we're powering our clinical trials.

Phil Nadeau - Cowen and Company

Okay. Great. And then one last question, you have conducted a survey of patients who've been CBD-enriched medical marijuana, which has shown a pretty dramatic reduction in seizure frequency for those patients. What I'm actually curious about is the patient makeup of the survey. If I remember correctly, the vast majority of the patients with Dravet with only one or two Lennox-Gastaut patients in the survey, and I'm curious about that it seems like there's actually probably more Lennox-Gastaut patients out there than Dravet. So why was the population skewed toward Dravet, is it something about the age of the kids or the severity of the Lennox-Gastaut that means they are not going on CBD and regimen of marijuana whereas Dravet is?

Justin Gover

You make a very good point. Can I first look at your first point that because it refers back to my previous answer. If you look at the results found in that published survey, about 64% of the children overall got a better than 50% reduction in seizure rate, that’s more or less what we are aiming at in our clinical trial. So I think that’s a kind of another reference point that we can use. I think 13 out of the 19 children and they were Dravet children and I think it was tilted towards Dravet children simply because of the particular interest of the Dravet foundation actually and that’s my understanding. I believe the Dravet foundation is more active currently than Lennox-Gastaut foundation, I think that probably is the simple reason.

Phil Nadeau - Cowen and Company

Okay. So there is no reason I think CBD would work less or will be less appropriate for Lennox-Gastaut child than a Dravet child?

Justin Gover

No, and there are published case reports out there showing dramatic improvements in Lennox-Gastaut children as well.

Phil Nadeau - Cowen and Company

Great. Thanks for taking my questions.

Operator

Thank you. Our next question comes from the line of Samir Devani with WG partners. Please proceed with your questions.

Samir Devani - WG partners

Hello, everyone. I’ve got few questions. First question to Steve, just going back to the issue of dosing Epidiolex, what sort of adverse events would you expect to see as you approach the MDT.

Dr. Stephen Wright

Honestly minor, a non-specific adverse events. We have seen zero in the way of target organ toxicity even at very-very high doses in all toxicology studies, so we are talking about things like headache, minor gastrointestinal disturbances that kind of thing. So nothing I think specific at all.

Samir Devani - WG partners

Okay. And just moving onto the non-orphan epilepsy opportunity, what’s the strategy there?

Dr. Stephen Wright

I think the strategy remains to be fully elaborated. Certainly, the proof-of-concept with CBDV currently, we are aiming to target complex partial seizures probably in adolescence, but even that remains to be fully determined. We believe that that would give us the best what can I say, that would allow us to reach the fork in the road which gives us the most productive routes then to follow.

Samir Devani - WG partners

Okay. And then just finally one bit of housekeeping, in terms of Sativex, I think you had applied for regulatory approval in the Gulf states, so I am just wondering if you could give us an update as to how that’s going?

Dr. Stephen Wright

Well we have regulatory approval in Kuwait, that’s done and tested and we are waiting for more regulatory approval in the other Gulf member states. We have had our manufacturing plant satisfactorily inspected by the Gulf Coordinating Committee so all the kind of pieces are in places.

Samir Devani - WG partners

Okay. And were we now expecting some milestones from approval in Gulf states or is that no longer the case?

Justin Gover

Hi Samir, its Justin here. There is a milestone associated with a combination of a couple of the Gulf states, but it’s a relatively immaterial milestone. And yes, I mean, the approvals are still expected.

Samir Devani - WG partners

Great. Thanks very much.

Justin Gover

Okay.

Operator

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

Bert Hazlett - ROTH Capital

Thanks, I just have a brief one. Could you remind us of the intellectual property strategy for Epidiolex. Clearly you have orphan drug designation for Dravet. Are there additional strategies in place beyond orphan drug for the individual settings and if so, could you comment on those? Thanks.

Justin Gover

Yeah, hi Bert, thanks. It’s Justin here. So there are a couple of specific use related patents for CBD in the epilepsy therapeutic area, which are going through prosecution right now as well as some IP that relates to the purification and other sort of process steps that were involved in the production of the product. So there is a literature around CBD and epilepsy. So those patents are relatively focused.

I think -- and it is undoubtedly the case that one of our ambitions is to, is also within the concept of an epilepsy portfolio to be looking, not just at Epidiolex and the protection that are provided both by an exclusivity in this IP, but also thinking more broadly relevant to the previous question actually about role of CBDV as we move forward which is also well protected.

So I think there is a metrics approach that we've taken here, which is not dissimilar to Sativex actually. Sativex doesn’t have a single key patent .There are various patents around this. But I think it's probably, let’s say that the orphan exclusivity is particularly important for CBD.

Bert Hazlett - ROTH Capital

And just one follow-up, you have the patents under prosecution. Could you -- it's always a mystery as to how that progresses? Could you comment on the general status? Have you -- or do you think you're close to notice of allowance or are they in early days in terms of being prosecuted?

Justin Gover

Yeah. Our approach for the IP prosecution is over the last 15 years has been intended to use the U.K. patent authority as a kind of initial sort of tests if you will and those patents can get -- we can get opinions quite quickly and prosecute quite quickly. So we do have opinions and so I think you can take it from that the prosecution and U.S. is continuing on the basis of feedback that we've received already from the U.K. examiners.

Bert Hazlett - ROTH Capital

Okay.

Operator

Thank you. Ladies and gentlemen, we've come to the end of our allowed time for questions. I would like to now turn the floor back over to management for any closing comments.

Justin Gover

Great, thank you. So Justin Gover here just wrapping up. Thank you for all your attention this morning. We've been able to clarify some key aspects of the news flow for this year in particularly with regard to the evolution of the epilepsy program through the remainder of 2014. And we look forward to updating you in our second quarter results in a few months time. Many thanks.

Operator

Thank you. This concludes today's teleconference. You may disconnect your lines. Thank you for your participation.

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