GW Pharmaceuticals plc (NASDAQ:GWPH)
Q1 2016 Earnings Conference Call
February 10, 2016 08:00 AM ET
Steve Schultz - VP of Investor Relations
Justin Gover - CEO
Chris Tovey - COO
Stephen Wright - CMO
Adam George - CFO
Julian Gangolli - President of North America
Tazeen Ahmad - Bank of America/Merrill Lynch
Philip Nadeau - Cowen and Company
Josh Schimmer - Piper Jaffray
Greetings and welcome to the GW Pharmaceuticals' First Quarter 2016 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.
It is now my pleasure to introduce your host Steve Schultz, Vice President of Investor Relations. Thank you, sir. You may begin.
Thank you and welcome all of you for joining us today. Again, I am Steve Schultz, Vice President of Investor Relations for GW. And today I’m joined by Justin Gover, GW’s Chief Executive Officer; Dr. Stephen Wright, our Chief Medical Officer; Adam George, our Chief Financial Officer; Chris Tovey, GW’s Chief Operating Officer; and Julian Gangolli, President of North America for GW.
We hope you’ve had a chance to review our press release from earlier today. This document is supplemented by an additional 6-K filing, which will include a full MD&A.
As a reminder, during today’s call, we will be making certain forward-looking statements. These statements reflect GW’s current expectations regarding future events, including but not limited to statements regarding financial performance, clinical and regulatory activities, timing of product launches and statements relating to market acceptance and commercial potential.
Forward-looking statements involve risks and uncertainties, and actual events could differ materially from those projected herein. A list and description of risks and uncertainties associated with an investment in GW can be found in GW’s filings with the U.S. Securities and Exchange Commission. These forward-looking statements speak only as of today’s date February 10, 2016. Finally, an archive of today’s call will be posted to the GW Web site in the Investor Relations section.
And now I'll turn the call over to Justin Gover, GW's Chief Executive Officer.
Thank you, Steve, and welcome to all of those who are able to join us. On today’s call, following my introduction, Dr. Stephen Wright will provide a research and development update and Adam George will discuss Q1 2016 financial results. At the conclusion of our prepared remarks, we will open the line for questions.
Today we’re only weeks away from the first of the Epidiolex Phase 3 results. GW’s in-house clinical operations team is working towards database lock for the first Dravet syndrome trial. The two Lennox-Gastaut syndrome trials are fully enrolled and both remain on track for top line data in the second quarter.
The second Dravet trial is now in the latter stages of enrollment and data from this trial is expected in the second half. As we approach the important series of Phase 3 events over the coming months, I want to highlight the numerous factors that underlie our confidence in the success of the Epidiolex Phase 3 program.
First, we’ve four separate Phase 3 trials from which to form a basis of an NDA submission within the field of pediatric epilepsy. Given the extent of the data set to emerge this year and the multiple regulatory park rate that this data has the potential to provide, we’ve a very high level of confidence in GW progressing to make an NDA submission with FDA for Epidiolex later this year.
Second, these trials represent the largest trials program ever conducted within the field of Dravet and Lennox-Gastaut syndrome. And while the trials were originally well powered they’re now even more highly powered due to enrollments well beyond original targets.
Third, data from the ex-physician led expanded access program has been reported regularly over the last 18 months and each data set has in our view provided further confirmation of the strength of the efficacy and safety significant.
As we’ve moved from an initial disclosure on 27 patients, back in June 2014, to the most recent disclosure in December 2015 on approximately 260 patients, Epidiolex has continues to demonstrate consistent and significant seizure reduction activity across the broad range of Epidiolex diagnosis and seizer types, specifically, in the Dravet syndrome and Lennox-Gastaut syndrome patient group.
Fourth, the selection of the primary endpoints in our trials are centered on seizure types which are observable and easy to measure. These choice is primary endpoint, are expected to reduce the potential for placebo response. So we’ve more placebo response rate from published trials in similar patient populations have been relatively low. In particular, much lower than that seen in many other CNS disorders.
Fifth, our trials have been designed with a keen focus on quality and accuracy including an innovative interactive voice response system for daily seizure reporting, extensive patients’ caretaker, quick training and independent diagnosis confirmation. And finally, while we’ve complete confidence in each of these Phase 3 trials to succeed on their own, the protocols also allowed for a perspective pooling of data within each indication. An approach which is endorsed by the FDA and which further increases overall powering assumptions. In our view, all these factors provide a compelling basis on which to feel confident about the prospects for success in our trials this year.
Let me now turn the call over to Stephen for a review of our R&D activities, and in particular further color on the Epidiolex Phase 3 program.
Thank you, Justin, and good day, everyone. As Justin has just stated GW's formal Epidiolex development program is currently focused on two initial therapeutic targets, Dravet syndrome on the one hand and Lennox-Gastaut syndrome or LGS on the other. This program includes four pivotal Phase 3 trials too in each indication and we expect to commence a third Phase 3 program in tuberous sclerosis complex, a new indication, very soon.
As outlined in today’s press release, three of the four trials are fully recruited already with the three arm dose ranging Dravet syndrome trials being the only trial which is still recruiting patients. But two arm Dravet syndrome trial will yield the first data which we expect in March.
Originally expected to enroll 100 patients, this trial randomized 120. The two LGS trials are also fully enrolled well in excess of their original plan sample sizes. The two arm LGS trial was originally targeting 100 patients and has finally randomized 171. The three arm LGS trial originally targeted 150 patients; it has in fact randomized 225. This very significant over enrollments in our trials reflects the intense interest in the studies within the epilepsy community and also of course had the benefit of providing substantial additional statistical power.
To echo Justin, as we approach these upcoming data events, our confidence in Epidiolex is supported by the consistently promising data that has emerged from the open label expanded access program, most recently presented in a number of posters at the American Epilepsy Society Annual Meeting in December 2015.
As these data were covered in our press release at that time, I don’t intend to review it again on today’s call. Instead, I’d like to focus from drawing out the key expanded access data relevant to the outcome of our Phase 3 trials.
If we take the three most recent data disclosures in 2015, namely the American Academy of Neurology poster in the first part of the year, the Lancet Neurology publication in December and the American Epilepsy Society poster, in patients with Dravet syndrome, we’ve seen a consistent median percent reduction in convulsive seizure frequency of approximately 50% and after the first 12 weeks of treatment.
The patients with LGS we’ve seen median percent reduction in atonic seizures drop attacks ranging from 55% to 71% after the first 12 weeks of treatment. These kind of responses differ so markedly from the reductions in seizure frequencies in the placebo arms of previously reported trials of other agents in patient populations. The seizure reductions on placebo in these patient populations in the literature tend to be in the low double-digit, generally in the 10% to 12% range. Hence it’s our pivotal trial, show a similar treatment effect sizes to those seen in the expanded access program.
Together with placebo effect of a similar magnitude to those seen in the published literature, we’ve every reason to look forward with confidence to the outcome of our pivotal Phase 3 trials.
I’d just like to add that we believe we’ve taken a conservative approach to powering these trials and as you can see from today’s update we’ve also seen substantial increase in the sample sizes, thus serving to increase the powering.
Looking at the first Dravet study, which is at 120 randomized patients, this trial is just over 90% powered to show a 30% difference in response between Epidiolex and placebo that is a difference in the reduction of convulsive seizure frequency, assuming a standard deviation of the response of 50%.
In the light of the over enrollment in the Lennox-Gastaut studies, the new sample sizes mean that the first LGS study is over 90% powered to show a 25% difference between Epidiolex and placebo in drop seizure reduction. Again, assuming a standard deviation of response of 50%.
Now please note that these power calculations are assumptions, and almost inevitably, actual data grew differ from the initial assumptions, nonetheless we hope that this amplified information help to inform as to the probability of success. Another useful point to note is that the data from the expanded access program are based on a 12 week observation period of which at least four weeks comprises a slow dose titration. Therefore, the treatment effect data in the expanded access program includes only eight weeks at the target dose.
This differs from the Phase 3 trials in which the observation period totaled 14 weeks, with only a two week dose titration period. Hence, the treatment is effect data for Epidiolex in the Phase 3 trials is based on 12 week at the target dose.
We believe that measuring the efficacy of Epidiolex in our Phase 3 trials with an additional four weeks at target dose can only be helpful. While on the topic of dosing, I want to touch on a point that has been discussed recently regarding the dose selection for these trials. For the Dravet syndrome patient, the average dose in the expanded access study is 19.6 milligrams per kilogram per day, almost exactly the same as the 20 milligram per kilogram dose being tested in the first pivotal Dravet study.
In addition, all of the Dravet syndrome patients that showed a 50% response to Epidiolex in the expanded access program did so at doses of 25 milligrams per kilogram or lower. And finally, we’re seeing blood levels of CBD at this dose which are the levels predicted by the preclinical data to be those associated with efficacy.
Overall, the dosing information and patent seen in the expanded access program support our choice of dose in the pivotal program. Our confidence in Epidiolex and the robustness of the expected NDA filing is further supported by the safety profile reported from the expanded access program where Epidiolex has been well tolerated and the most adverse events have been mild or moderate and transient.
As reported at the American Epilepsy Society meeting in December, just 4% of patients in the expanded access program have withdrawn due to side effects. Overall, we’re very excited to be on the verge of seeing this large body of placebo controlled data and our team is working with the full expectation of being able to make an NDA submission in the fourth quarter of this year.
Now, while I know that all focus on the present time is only upcoming Epidiolex Phase 3 results, GW continues to progress the pipeline of additional product candidate in a variety of therapeutic areas. Indeed, we expect to have data from four Phase 2 placebo controlled trails in our pipeline this year. These are for CBDV as an add-on therapy in patients with inadequately controlled focal seizure, a THC/CBD combination product in the treatment of recurrent glioblastoma multiforme, Sativex for spasticity due to cerebral palsy in children from the age of 8 to 18 years and THCV in Type 2 diabetes.
As you can see 2016 will indeed be an important year across the products pipeline. Thank you for your attention. Let me now hand the call to Adam George for the financial review.
Thanks, Stephen. I propose to provide some high-level comments on GW’s Q1 2016 financial results and a more detailed discussion of our results can be found in the 6-K that we filed this morning. We present GW’s results in accordance with international financial reporting standards in British pound sterling, but for conveniences purposes today, I propose to refer to the U.S. dollar equivalent for the key numbers.
Today's results for our first quarterly earnings release for the three months ending December 31, 2015. As usual, I will start with the most important line of our income statement, the research and development line. In Q1, 2016, our total R&D expenditure increased $35.7 million for the quarter.
The Otsuka funded element is now less than 10% of our total R&D spend, a $3.3 million as our partner from these activities associated with the Sativex cancer pain program now need completion.
GW funded research and development expenditure for Tier 1 increased to $32.4 million. The increase reflects the rapid progress made with the Epidiolex clinical program and the supporting development activities as we do everything necessary to prepare for an NDA filing post Phase 3 results.
Turning to Q1 revenues, total revenues for the quarter were $5.4 million, about 64% lower than the comparative quarter, as previously guided; this reduction was expected and is almost entirely due to the reduced R&D fee charges to Otsuka. We expect these R&D fees to cease completely by mid year, once all of our Sativex cancer pain activities come to an end.
In terms of SG&A spend, this increased to $5.4 million for Q1, this compares to an expense of $1.2 million in the comparative quarter with the increase being driven by the increased pre-launch commercialization activities for Epidiolex together with the cost associated with the U.S based headcount that we’ve engaged over the last year to start to prepare for U.S launch.
Further strengthening of the U.S dollar against pounds sterling during Q1 has caused us to record a net foreign exchange gain of $5.3 million. This is almost entirely due to the revaluation of the Company, dollar denominated cash balances at the 31, December closing exchange rate.
We continue to claim research and development tax credits from the U.K. tax authorities, resulting in a tax credit for Q1 equivalent to $5.4 million. This all resulted in a loss after tax for Q1 at ₤17.7 million or $26.2 million.
Turning to cash flow, capital expenditure, for the quarter was $2.7 million, down from $8.7 million for the comparative quarter. Couple of spending is reduced as we near completion of the fit out phase of our new cannabinoid extraction facility.
In total, we reported a net outflow for Q1 of $15.6 million -- sorry, ₤15.7 million or $23 million, leaving us with a strong closing cash position equivalent to ₤219.3 million or $324.1 million at December 31.
Turning to guidance with operating spend for the first half of 2016 expected to be in the range of $48 million to $56 million. Our plan is to provide full-year guidance in Q2, as the Phase 3 study results emerge and start to drive our decisions for the second half.
I’ll now hand the call back to Justin.
Thank you, Adam. In closing, GW is on track to report top line data from 4 Epidiolex Phase 3 trial this year, with the first data due in March. We remain excited at the transformational potential of these data, not only for the Company, but also for those patients and families who suffer from the debilitating effects of Dravet syndrome and Lennox-Gastaut syndrome.
In addition to the Phase 3 data, this year is also expected to include the continued build-out of our U.S. commercial organization; continued scaling of our production capacity in anticipation of commercial demand for Epidiolex is approved. Ongoing data readouts from a number of exciting clinical pipeline programs, the start of clinical development in tuberous sclerosis is complex and NHIE and GW’s first NDA submission. Overall we expect data from eight placebo controlled trials this year.
Also we understand that the biotech market backdrop has changed in the recent months, GW and prospects remained strong and unchanged. We look forward to updating investors on the top line results from the first Dravet trial which will come in the form of the company press release and conference call next month.
Thank you for your time today and for your interest in GW. And I would now like to open the call for questions.
Thank you. [Operator Instructions] Thank you. Our first question comes from the line of Tazeen Ahmad with Bank of America/Merrill Lynch. Please proceed with your question.
Hi. Good morning, everyone. Thanks for taking my question. Maybe just really quickly with your data that is expected in March. Are you going to be able to present both efficacy and safety data. Will you have enough time to get all that together?
Hi, Tazeen, Stephen Wright here. The answer if I simply say one word, yes, definite -- or two words, yes, definitely.
Okay, great. And then, I know you spoke about this briefly in the past, but I just wanted to drill in a little bit further. Have you had conversations with FDA on the possibility of firing for approval with a single positive study? I know that there are previous precedence for approvals happening with just one positive Phase 3 study that, have you had any conversations about what the requirements might be there. So, I asked that basically because lets say if your Dravet trial ends up being, statistically significant in March, your second trial would it readout for at least a couple of months after that? Would there be the possibility of going straight to FDA and asking them to file with that single Dravet study, and would they want to see completion of the second trial, as well?
Hi, Tazeen, it’s Justin here. Maybe I’ll make a comment and Stephen. I think the -- obviously the discussions from the thinking around NDA trialing strategy of course will become much clear once the data emerge. I think the overall feeling we have as I -- we said on the call is that with four Phase 3 trials, there are multiple ways in which we think we could engage with FDA with regards to those filings later this year. So typically on the merits of a single pivotal maybe I could hand to Stephen to make a comment on that.
Yes, thanks, Justin. Hi, Tazeen, I can echo what Justin said, but the answer is it depends on the degree of positivity of the first study whether it might meet the criteria filing with the single pivotal. It’s probably worth paying some attention to historical data here between 2005 and 2012 of all approved NDA, 37% of them were approved in the basis of a single pivotal. So clearly there are distinct possibilities. But it depends on the quality and consistency and internal consistency in particular of the data that emerge from the first study. With regard to FDA, it’s customary that once the data emerge from the first of your pivotal studies, you will hold a pre-NDA meeting and we’ll be holding that as soon as we can after the data emerges.
Okay, thanks. And then the last question is, I guess, just on your thoughts about pricing. There’s been a lot of talk about drug pricing recently in the U.S. and maybe can you talk about how you feel your product might be insulated from some of the pressures that other companies might face on pricing?
Julian, you okay to take that question on pricing?
Sure. Thank you, yes. We already initiated a number of pricing research initiatives with some of the major payers here in the U.S. We have sort of being set back some relatively optimistic information on a pricing corridor which actually has not moved to any great extent even with the narrative that’s going on, on pricing. A lot of the value discussion is going to come around the robustness of the data. So, we’re still in a wait and see on that, but if target product profile actually is the profile that we have in the market, I think we’re still in a position to be optimistic on price.
Okay. And do you have a range that you could give us on what you think might be appropriate pricing to assume here?
Tazeen, its Justin here. I don’t think we’ll be giving a range in public at this point in the development programs. There’s so much to learn this year.
[Operator Instructions] Our next question comes from the line of Philip Nadeau with Cowen and Company. Please proceed with your question.
Good morning. Thanks for taking my question and congratulations on the progress. First Justin, you’ve mentioned several times that you can pool the Dravet trials and the Lennox-Gastaut trials, should that be necessary. Could you give a sense of what the powering would be for the pool data set?
Thanks for that question, Phil. I mean, I think the -- I’m not sure we have the statistics in front of us. I think the -- you’d be -- wouldn’t be surprised to hear that and if you’re increasing sample sizes and actually doubling them, that you end up with a very substantial level of power. I don’t believe that we have the precise statistics for you today. Stephen, would you care to comment at all?
Only really to add color, Justin to that. Phil, as you know the power of a study reflects the chance that you might have a false negative, meaning that the drug really works, but you failed to show it. So you normally expect somewhere between 80% and 90% in your pivotal studies. Clearly when you pool the data you go very substantially in excess, actually in this case its 95%. What that actually means, if you have a much smaller chance of a false negative. So that’s one reason why that could pool results some more, more reliable in the sense that you can trust in them more, and that’s essentially I think the message to take home. Will we be doing a pooled analysis regardless? Absolutely, because you have to give an indication that you’re going to pool prospectively. If you only do it retrospectively, it looks as if you’re kind of trying to save yourself from having same results that you don’t particularly like. So it really is mandatory that your pooling analysis plan is done in advance of any unbinding of any data. And that’s very clear in recently published FDA guidelines on the competition of what's called an integrated summary of efficacy that pooling is in their view a very helpful tool to better understand the efficacy of the drug by being able to look with more power across more endpoints.
Okay, that’s very helpful. And then on the second Dravet Phase 3 the one that’s still enrolling, what are you waiting for to complete the enrollment? Is there a specific enrollment target that you’re going to hit or in some aspects, are you waiting for the results of the first Dravet trial just to see perhaps how big that enrollment should be?
Yes, I think I can probably carry on, Phil. The answer is that, with every study there is a target sample size which is half of the first common pass of the analysis plan. So, we have a target sample size we aim to recruit in there. You have to recall that the three arm study, it has a dose arm, so the original sample size was one-third as much a gain as the target sample size in the first Dravet study.
Got it, okay. And then last question is on dose. There was some controversy on the Epidiolex dose coming out of EAP. You comments around the average dose in the EAP in the dose for responders is very helpful. How in the Phase 3s, with somebody who, the physician is not considering a responder be handled or is their dose capped or is there a provision similar to the EAP, where the dose could actually be increased?
That dose absolutely is capped. The only discretion that the investigator has is to reduce the dose in the event that they feel the patient might be having an adverse effect. And then from the point of view of analysis, that patients actually remains in those groups to which they were originally allocated even if they finish up at a lower. But there’s no room for increasing the dose within the pivotal study.
Great. Thanks for taking my questions.
Our next question comes from the line of Josh Schimmer with Piper Jaffray. Please proceed with your question.
Good morning. Thanks for taking the questions, first on the -- just the question on dosing. In the open label expanded access, experience -- did you see patients who did not have evidence of response at or below the 20 milligram per kilogram level, but then converted above that at the 25 milligram per kilogram level? And if so, was that at all common?
Hi, Josh, it’s Stephen. We did not see any new responses above 25 mg/kg at all.
So I was asking above 20, which is where you set the dose in the Phase 3.
I think there were two or three out of 32 who got, who came responder in the Dravet population above 20 and below 25, so less than 10%.
Got it, okay. Very helpful. And then you’ve talked about lifecycle extension strategy as it pertains to CBDV. Can you talk a little bit about what efforts you have underway for Epidiolex specifically in terms of new formulations and what that might be able to add in terms of market exclusivity?
Josh, hi. It’s Justin here. I mean, as you would expect, we have a significant effort with regard to life cycle management of Epidiolex. I don’t think I’ll go into specifics of each of the steps we are taking, but you can certainly assume that way we will do as you would imagine for, in the introduction of a new antiepileptic drug was just to continue to provide a lifecycle which allow for the appropriate use of product in the target patient population. So, the Epidiolex story will certainly evolve through the commercial life of the product. And as you know with both CBD and other pipeline products, we have a whole range of formulations which we have worked on, and I think you should assume we’re applying the same principles for the lifecycle of Epidiolex. But I’m afraid, no specifics to that.
When do you think you might be in a position to talk more about that? Is that eminent in the next weeks, months or is that over years that you’ll be ready to provide more details?
I think clearly lets get through -- get through the Phase 3 program, and then I think we’ll begin to talk about the lifecycle and the exclusivity and so on. We have been working hard on that effort, and I think that that’s a next chapter for communication beyond the Phase 3 data.
Got it. Thank you very much.
Thank you. We have reached the end of the question-and-answer-session. Mr. Gover, I would now like to turn the floor back over to you for closing comments.
Sure. Well, thank you everyone for joining in the call today. Just to reiterate, exciting times ahead, we look forward to speaking to everyone next month when we have the first of the placebo-controlled trials to discuss. So I look forward to speaking to you then, and thanks again for your interest in the company.
Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.
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