GW Pharmaceuticals plc (GWPH) CEO Justin Gover on Q3 2018 Results - Earnings Call Transcript

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About: GW Pharmaceuticals plc (GWPH)
by: SA Transcripts

GW Pharmaceuticals plc (NASDAQ:GWPH) Q3 2018 Results Earnings Conference Call August 7, 2018 4:30 PM ET

Executives

Steve Schultz - VP, IR

Justin Gover - CEO

Julian Gangolli - President, North America

Dr. Volker Knappertz - Chief Medical Officer

Scott Giacobello - CFO

Chris Tovey - COO

Analysts

Tazeen Ahmad - Bank of America

Phil Nadeau - Cowen

Operator

Greetings and welcome to GW Pharmaceuticals Third Quarter 2018 Financial Results. At this time, all participants are in 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. Please go ahead.

Steve Schultz

Welcome all of you, and thank you for joining us today for our third quarter results call. Again, I’m Steve Schultz, Vice President of Investor Relations at GW. Today, I’m joined by Justin Gover, GW’s Chief Executive Officer; Julian Gangolli, President, North America; Dr. Volker Knappertz, our Chief Medical Officer; Scott Giacobello, our Chief Financial Officer; and Chris Tovey, our Chief Operating Officer.

We hope that you’ve had a chance to review our press release and 6-K filing issued a short while ago. As a reminder, during today’s call, we’ll 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, patent applications, timing of product launches, and statements relating to market acceptance and commercial potential.

Forward-looking statements involve risks and uncertainties, and actual events could differ materially from those projected herein. A list and description of risks and uncertainties associated with an investment in GW can be found in the Company’s filings with the U.S. Securities and Exchange Commission. These forward-looking statements speak only as of today’s date, August 7, 2018. Finally, an archive of today’s call will be posted to the GW website in the Investor Relations section.

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

Justin Gover

Thank you, Steve. And welcome to all those who are able to join us. On today’s call, following my introduction, Julian Gangolli will provide an update on our U.S. launch preparations; our Chief Medical Officer, Dr. Volker Knappertz will provide a research and development update; and Scott Giacobello will discuss our financial results. At the conclusion of our prepared remarks, we will open the line for questions.

Let me begin by stating how pleased we are with the approval of Epidiolex by the FDA. This first U.S. approval not only represents a transformative milestone for our Company but a historic medical breakthrough, offering patients and their families the first and only FDA approved CBD medicine to treat two severe, childhood-onset epilepsies. These deserving patients will soon have access to a cannabinoid medicine that has been thoroughly studied in clinical trials, manufactured to assure quality and consistency, and available by prescription under a physician’s care.

We expect to make Epidiolex available to U.S. patients this fall, following rescheduling, which is expected to occur within 90 days of FDA approval. The FDA has communicated its recommendation to DEA, and we understand that the rescheduling process is proceeding in a normal fashion and that it will be completed within the expected 90-day timeframe. We have been building commercial inventory in recent months and are in a position to ship product into the U.S. supply chain, once rescheduling is complete.

With this approval and the positive comments from the FDA regarding our approach to developing cannabis-based medicines, our confidence has never been stronger that GW’s cannabinoid platform is one that is favored by the regulatory agencies and one that will serve to provide momentum for a number of important pipeline programs that have the potential to offer investors additional value.

Let me now hand the call to Julian Gangolli for his update on our commercial organization and preparations for Epidiolex launch. Julian?

Julian Gangolli

Thank you, Justin, and good day to everyone.

With Epidiolex approved by the FDA and as we wait for DEA rescheduling, the U.S. commercial team now has completed the build out of an experienced commercial organization, consisting of sales, medical affairs, and marketing, and the market access payer teams. The U.S. sales team includes two national directors and eight regional managers, plus 66 neurology account managers that will target approximately 5,000 physicians who treat patients with LGS or Dravet syndrome.

The Company had a dramatic response to these available commercial positions and feels that the current team is drawn from the best qualified and most experienced professionals from the epilepsy and rare disease industry. The three primary responsibilities for the selling organization will be as follows: To promote Epidiolex to all clinical staff members, prescribers, and the entire multidisciplinary care teams at the target academic medical centers, epilepsy centers of excellence and target private practices; to ensure formulary access to Epidiolex within key institutions that treat epilepsy syndromes of Dravet and LGS; and to work with the local LGS and Dravet syndrome and epilepsy foundation chapters along with patient and caregiver support groups.

Regarding price. We have stated for some time that our pricing strategy will be to price Epidiolex in line with other branded antiepileptic drugs used to treat these intractable conditions. Consistent with this, the Company has set a list price, which is based on an anticipated dosing and patient weight assumptions, and translate to an average gross price for Epidiolex of $32,500 per year. Our general pricing approach has been discussed with the payer community who appear supportive of the rationale that Epidiolex should be priced in line with the branded anti-seizure therapies prescribed for these intractable patients.

The analysis of the direct cost burden associated with LGS and Dravet syndrome in the U.S. showed a substantial cost burden for both conditions, and further highlights the need for this new therapeutic option. A comprehensive company patient support program will be available at launch to help ensure that patients who can benefit from our products will have access. Preparations with the payer community have been active, and detailed reviews with major payers have been completed. This activity, which includes individual one-on-one and advisory board interactions with a wide variety of payers, including most of the large commercial and state federal payers is designed to gather insights ahead of commercial launch. A number of one-on-one meetings have also taken place with pharmacy benefit managers or PBMs and the centers for Medicare and Medicaid services or CMS.

Given the significant pediatric population that may likely try Epidiolex, CMS will be an important payer. To-date, we have presented the plans that cover over 80% of commercial covered lives in the United States. We believe that this advanced work by Greenwich Biosciences team has generated a meaningful level of understanding that we feel is encouraging regarding formulary coverage and reimbursement decision-making.

The Company has now finalized the U.S. supply chain platform, which will employ a closed model distribution network of specialty pharmacy providers or SPPs. These providers range from those that have retail distribution in all 50 states to a Medicaid dedicated SPP and other SPPs that have large pharmacy benefit networks. These SPPs will process the prescription initiated in the physician’s office and ship directly to the patient or caregiver. The Company is also employing a central hub that offers the optional support of benefit verification, SPP selection and prior authorization management as and when needed. We have also expanded our medical information team to include an innovative in-house support center for both caregivers and providers.

We believe this level of direct support is an important offering that can provide high-quality, consistent information in an empathetic manner during the launch and post launch phases. This team will be cast with responding quickly, consistently and accurately to medical inquiries and optimize the customer experience. This sense [ph] will also align with the physician hub and specialty pharmacy network for a seamless customer experience.

The Epidiolex U.S. marketing team have now concluded a comprehensive program of physician and patient audience research. This includes research conducted in the last month on physician response to the approved label. Importantly, this research confirms that the approved label appears to have been received well in terms of efficacy description, dosing instructions, and understanding of the safety profile.

Some of the important findings from this research are as follows: Physicians universally characterized Epidiolex as first in a new class of antiepileptic drugs; physicians suggested the FDA approval would ensure quality control and consistency and so a little reason to consider non-FDA approved CBD products; many physicians positioned Epidiolex as an early adjunctive option and physicians expect that the high level of caregiver awareness and interest will be a driver in adoption.

The marketing team has also been carrying out numerous education initiatives with one such example being the launch of two important educational websites, one focused on both the physician and patient communities, located at cannabinoidclinical.com and the other for the patient communities located at TakeOnEpilepsy.com.

Approximately 1,200 patients from the expanded access program and open label extension from the pivotal trials are currently receiving Epidiolex in the form of clinical research product. We will embark on a systematic program to help ensure that these patients have access to commercial product, and most importantly to ensure continuity of treatment. As such, the Company will be focusing initially on new patients with an immediate need of Epidiolex prescriptions; and over time, likely by mid-2019, begin working with physicians to commence migration of these existing patients to commercial product.

The Company will continue to disseminate important scientific data from the Epidiolex clinical program to data presentations at important medical congresses. These presentations are integral to the efficient education of treating physicians and for our payers as they determine reimbursement policy.

In summary, we believe there is significant expectation and anticipation for Epidiolex due to the level of awareness in both the patient, caregiver and physician community, and that our prelaunch initiatives to-date and those planned for launch will support demand for the product in the LGS and Dravet communities.

With that said, like almost all product launches, it may take time for physicians to learn how to use the new medicine and adopt it in their clinics and for payers to provide reimbursement coverage.

On behalf of my colleague Chris Tovey, who is responsible for commercial activities in Europe, I am pleased to report that we continue to make good organizational progress towards the commercialization of Epidiolex in Europe. We continue to expect an outcome to the EMEA regulatory review in Q1 of 2019 and are planning launches in the five major European markets in 2019. An experienced epilepsy disease GW commercial leadership team is now fully recruited and in place. This team is focused on progressing the necessary pricing and reimbursement, medical and pre-commercial activities required to deliver a successful European launch. In particular, significant progress is now being made on building out the local country organizations in the five major European markets.

Thank you. And let me now hand the call over to Dr. Volker Knappertz for his update.

Dr. Volker Knappertz

Thank you, Julian, and good day, everyone.

Let me begin by echoing Justin’s comments regarding the Epidiolex approval. We believe that this approval now provides an additional important option for those who live with these difficult epilepsy conditions and desire a CBD medicine that adheres to the rigorous standards of our modern prescription medicines. This approval is based on three Phase 3 pivotal trials, two of which have been published in the New England Journal of Medicine and one in the Lancet. These prestigious peer-reviewed publications may provide additional guidance to physicians as they introduce Epidiolex into their clinics.

In addition, long-term safety and efficacy data in patients with Lennox-Gastaut Syndrome and Dravet Syndrome presented at this year’s American Academy of Neurology in Los Angeles further support the Phase 3 data by showing durable seizure reductions throughout 48 weeks of treatment with CBD with no new safety signals in patients continuing treatment.

There have been a number of recent additional publications on Epidiolex from both the pivotal studies and expanded access program, including the use of Epidiolex in various genetic orphan epilepsies, proved data analyses, and quality of life measures. Overall, there have been over 70 published manuscripts and abstracts related to the Epidiolex program. Regarding the ongoing Epidiolex clinical program, the second Phase 3 Dravet Syndrome trial is now fully recruited and is expected to read out in the fourth quarter.

Recruitment continues for the single Phase 3 trial in our third target indication, which is the seizure reduction in patients with tuberous sclerosis complex. Results are expected in the first half of next year. Subject to positive results, we expect to file an sNDA that is a supplemental NDA for the tuberous sclerosis indication in the second half of next year.

As investors will know, we have been interested for some time in the potential of non-seizure benefits for cannabinoids in children. Much of this interest stems from both preclinical evidence for CBD and CBDV as well as from reports from the Epidiolex expanded access program and the clinical development programs.

Until now, our clinical plans within the field of behavioral symptoms in neurodevelopmental disorders have been more focused on CBDV as opposed to CBD. We have now decided to advance both compounds in this area and have elected to commence a pivotal, placebo-controlled trial of Epidiolex I Rett syndrome, a particularly difficult to treat condition, caused by a gene mutation that generally affects young girls. Rett is a childhood-onset condition where seemingly healthy infants over time rapidly lose coordination, speech and use of the hands. The unmet need is significant as therapeutic options for Rett patients are very limited, much like Lennox-Gastaut Syndrome and Dravet Syndrome.

Our decision to move forward with the clinical study of Epidiolex in Rett is based on strong preclinical evidence and a number of clinical observations in our CBD patients. These reference points lead us to believe this strategy offers the most rapid path to making this medicine available to this high-need patient population as it would likely be a supplemental NDA clinical program and regulatory submission. With regard to the study, we expect to submit an IND with the FDA in the fourth quarter of 2018 for a pivotal placebo-controlled, multi-dose trial in children with Rett syndrome.

Beyond Epidiolex, I would like to highlight Sativex as an exciting late-stage pipeline opportunity. As we have discussed with you previously, Sativex is currently approved in over 25 countries outside the U.S. and is providing patients with relief for the spasticity due to multiple sclerosis. This product was developed by GW in the years prior to Epidiolex, at which time GW did not own the U.S. commercial rights. Having now reacquired these rights, we are in excellent position to advance this late-stage and derisk asset in the U.S. market in a number of indications.

Further, with the FDA approval of Epidiolex, we believe that a formulation containing both CBD and THC is a timely next step for the evolution of cannabinoids as therapeutics in the United States market. As a one-to-one CBD to THC product, Sativex meets that need.

The nearest term opportunity to obtain FDA approval for Sativex is in the MS spasticity indication for which three positive Phase 3 trials have already been completed. We expect to meet with the FDA in the second half of 2018 in order to determine the most efficient regulatory pathway to achieve an NDA for Sativex in this indication.

Beyond, multiple sclerosis spasticity, we have already completed over 20 placebo-controlled trials of Sativex in other indications. These include data in neuropathic inflammatory pain syndromes and Phase 2 glioblastoma data. Hence we see Sativex as a product that has the potential for multiple indications, yielding significant market opportunities.

Further, as a complex botanical mixture, there’s significant potential for extended exclusivity for Sativex in the United States.

Regarding cannabidivarin or CBDV, as mentioned above, this molecule has shown promising preclinical results regarding cognition of behavior which has led us to pursue development of this molecule in the field of autism spectrum related disorders. This program is active and includes a small investigator-led open label study in 10 patients with autism, which is underway in the U.S. where five patients have now been enrolled where we should expect some initial data at this year’s Annual Meeting of the American Epilepsy Society in December. Second, an investigator-led 100-patient placebo-controlled trial in autism which is expected to commence in the third quarter of 2018. And third, the evaluation of CBDV in Rett syndrome for which we have received orphan drug designation from the FDA and EMA. We expect an investigator sponsored open label study in Rett syndrome to commence also in the third quarter this year.

As a reminder, from our Q2 discussion regarding CBDV and epilepsy, while we had inconclusive results in February from a Phase 2a proof of concept study of CBDV in adult patients with focal seizures, I want to be clear that we will continue to explore potential development of CBDV in the field of epilepsy. We plan on some additional formulation work in the near term, prior to making definitive plans in this area.

With regard to the combination of CBD and THC in patients with recurrent glioblastoma, we continue to perform a detailed analysis on the data from a previously completed Phase 2 to placebo-controlled clinical study. Further follow-up data presented at the Society of Neuro-Oncology Annual Scientific Meeting in San Francisco demonstrates continued prolonged survival of the CBD:THC arm with 50% survival for patients treated with CBD:THC and temozolomide TMZ versus 22% for patients with placebo and TMZ.

Median survival time for the CBD:THC group was greater than 662 days compared with 369 days in the placebo group. This result is consistent with our initial expectations for this study and supports our intent to advance this opportunity into a pivotal clinical development program.

Finally, with Epidiolex now approved, we’re advancing plans for two other pipeline programs, namely Neonatal Hypoxic-Ischemic Encephalopathy or NHIE and schizophrenia. We will provide more details on these two programs in due course.

Thank you. And I look forward to keeping you updated on our future progress. Let me now hand the call to Scott Giacobello to provide the financial review.

Scott Giacobello

Thank you, Volker, and good afternoon.

I’ll now provide some high level comments on GW’s financial results for the three months and nine month periods ended June 30, 2018. A more detailed discussion of our results is provided in the 6-K filed with the SEC a short while ago. We present GW’s results in accordance with International Financial Reporting Standards in British pound sterling. For convenience purposes on this call, I’ll refer to U.S. dollar equivalents, using the rates at June 30, 2018 of 0.7588 British pound sterling to 1 U.S. dollar.

Starting with revenue. Total revenue for the quarter was $3.5 million, up from $3.2 million in the prior year quarter, driven primarily by increased Sativex sales in Europe.

Moving to R&D spend. Total research and development expense for the quarter was $24.5 million compared to $36.8 million in the prior year quarter. This decrease is due primarily to the reversal of an Epidiolex inventory provision of $22.1 million during the quarter. Excluding reversal of this provision, underlying R&D expense was consistent with prior quarters, reflecting the ongoing Epidiolex development program, including the progression of the NDA and MAA submissions as well as our other pipeline programs.

The reversal of the inventory provision was in accordance with International Financial Reporting Standards, under which capitalization of Epidiolex inventory began upon the FDA’s acceptance of the NDA filing in late December 2017. A 100% provision was recorded against capitalized inventory from this point, until FDA approval of Epidiolex on June 25, 2018. At that time, the inventory provision was reversed, reflecting the increase in the net realizable value of the inventory. This accounting treatment differs from U.S. GAAP under which the capitalization of inventory typically commences upon FDA approval.

Turning to SG&A. SG&A expenses increased to $35.2 million in the quarter, reflecting the continued investment in the ramp-up of our commercial operations and prelaunch activities in both the U.S. and Europe. This represents a substantial increase from both the previous quarter spend of $23.2 million and a $15.5 million in the same period last year.

Foreign exchange volatility continues to have a significant impact on our results. During the quarter, strengthening of the U.S. dollar against the pound sterling has resulted in the recognition of a net foreign exchange gain of $21.8 million. This gain is primarily due to the reevaluation of the Company’s dollar denominated cash balances at the closing sterling exchange rate. The gain largely offsets the $19.3 million loss recognized in the previous quarter. Year-to-date, net foreign exchange loss amounted to $0.8 million. This has all resulted in a net loss for the third quarter of $35.7 million.

Moving to cash flow. Net cash inflow from financing activities was $291.3 million for the nine months ended June 30, 2018, reflecting the successful equity financing completed in December 2017. Capital expenditure for the nine-month period was $24.1 million compared to $17.7 million for the prior year period, reflecting continued investments in the expansion of our cannabinoid production facilities.

Net cash outflow from operating activities for the nine-month period was $146.9 million compared to $99.3 million for the prior year period, reflecting the increases in R&D expenditures and SG&A costs previously discussed. Resulting increase in cash for the nine months ended June 30, 2018 amounted to $122.3 million. At June 30th, we held closing cash, equivalent to $440.2 million.

Turning to guidance, consistent with our previous guidance, we continue to expect total cash outflows for the second half of the fiscal year in the range of £90 million to £105 million or $120 million to $140 million, based on today’s prevailing currency exchange rates. This includes capital expenditure of $10 million to $20 million relating to manufacturing expansion. This reflects the continued investment in our prelaunch activities and manufacturing scale.

Finally, as disclosed in the previous quarter, the Company no longer qualifies as a foreign private issuer. As a result, effective October 1, 2018, we will file periodic reports, registration statements on U.S. domestic issuer forms with the SEC. Therefore, for our fiscal year ended September 30, 2018, we will file our annual report on Form 10-K and our financial results will be presented in accordance with the U.S. Generally Accepted Accounting Principles in U.S. dollars. Thank you.

Now, I’ll now hand the call back Justin.

Justin Gover

Thank you, Scott.

In closing, we are delighted to have received FDA approval for Epidiolex and to be in the final stages of launch preparation. We are also pleased with the comments from FDA Commissioner, Dr. Scott Gottlieb at the time of approval, on which he reiterated the agency support for advancing sound development program to properly evaluate active ingredients contained in marijuana that can lead to important medical therapies, and the FDA’s commitment to careful scientific research and drug development. This is GW’s approach and one that we expect will support our continued leadership.

We have also made considerable progress to ensure that Epidiolex will have a long commercial life, which includes U.S. and EU orphan exclusivity, and expanding patent portfolio, and a formulation life cycle plan with novel follow-on dosage forms already advancing through development.

GW’s patent portfolio relating to the use of CBD in the treatment of epilepsy includes into 21 distinct patent families which are either granted or filed. Most of the patent families in this portfolio playing the use of CBD in the treatment of particular childhood epilepsy syndromes, seizure subtypes and interactions with other concomitantly dosed anti-seizure drugs. To-date, this has resulted in eight patents granted by the USPTO which have expiration dates out to 2035, which are directly aligned with the Epidiolex label and Orange Book listable.

We will continue to identify novel findings and submit patent applications, resulting from the development program, and expect additional grounds from these applications. Our primary focus now is on ensuring that we deliver a highly successful U.S. launch of Epidiolex this fall. Our confidence is high with a world class commercial team in place, and research that is clearly telling us that patients and physicians alike are looking forward to the availability of this important new medicine.

As I reflect on this 20th year of GW’s operations and its most important year yet, our leadership and deep expertise have not only validated this area of cannabinoid science but it strengthens our entire Company’s confidence in the capability of our propriety development platform to generate important and valuable product candidates.

Thank you for your time today and for your interest in GROWTH. And I would now like to open the call for a few questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from the line of Tazeen Ahmad with Bank of America. Please proceed with your question.

Tazeen Ahmad

Hi. Good afternoon, guys. Thanks for taking my questions. Justin, I just wanted to quickly follow up on your prepared remarks about your expectation of receiving your final scheduling within 90 days of approval. I just wanted to confirm, did you say that this is based on a recent interaction with the FDA?

Justin Gover

Hi. Tazeen. Thanks for your question. Actually, Julian is leading this effort. So, I’m going to hand that question to him.

Julian Gangolli

So, the process, as a number of you may know on the phone, is it involves FDA, HHS, and DEA and the shuttering action comes from the FDA, goes through HHS over to DEA. We have had confirmation in our approval letter of June 25th that the FDA has made their recommendation to DEA. So, that has already taken place. So, now, the scheduling action is with the DEA. I would just remind you that there have been a few products that have been approved under the new interim final rule bill. And we are right in line with the timing that those particular products achieved in terms of their rescheduling action.

Tazeen Ahmad

So, did it take closer to the full 90 days on those front?

Julian Gangolli

It did indeed.

Tazeen Ahmad

While I have you, Julian. Can you talk a little bit about this patient support program that’s going to be available at launch? Particularly given some potential competition from I guess mom-and-pop shops that are not FDA approved for cannabis products, we’ve done some research and found that the monthly out-of-pocket cost for parents to choose to take that route can be on the high side. And obviously besides the clear advantages of having an FDA approved product, can you talk to us a little bit more in detail about what you would expect to out-of-pocket for parents of children to be, should they need assistance with out-of-pocket payment?

Julian Gangolli

I think that’s going to be -- it’s going to be difficult to give you a number of what out-of-pocket costs are going to be. I think, it’s -- the way we would approach this question is, are we going to have a co-pay assistance program which will reduce the price of the -- or the cost of the co-pay down to some bearable amount for the parent. And that’s exactly what the strategy is that we have in place. But in terms of what the likely out-of-pocket costs will be is very much determined by the tier of the product and where they are in their reimbursement and coverage determination.

Tazeen Ahmad

So, what would be something on a high end of just on a lower tier just so that we have a point of reference?

Julian Gangolli

So, on Medicaid, we’re looking at $5 to $10. So, for those types of patients, I think the out-of-pocket consequence is relatively affordable. In a Tier 3, Tier 4 environment, those are typically anywhere between $40 to $60 to $100 per month. And there may be some plans with coinsurance and that may be upwards of $200. So, it’s a range, but we have the ability and the commercial environment to be able to mitigate at least some of that cost out-of-pocket cost. I would also just mention that obviously the co-pay versus what may be available from a dispensary, that delta in price is relatively steep. So, the cost of a co-pay is significantly or could be significantly less onerous and burdensome than the cost of the product in -- either over the internet or from dispensary.

Tazeen Ahmad

And I guess the last question, Julian is, as all of us are trying to model we think the initial cadence of the launch is going to be, can you provide some color, based on your previous experience on for example how long do you think that the onset of the launch it could take from the time let’s say a doctor writes a script for Epidiolex to when the specialty pharmacy is able to ship it out?

Julian Gangolli

So, we’ve done a little bit of work on this and we’ve talked to a number of payers and to SPPs. On average, it takes somewhere in the range of between 14 days to 21 days to get through the PA process, get the benefit verification in place, get the patient enrolled or the parent enrolled get -- or the credit card information. So, anything up to three weeks for initial prescriptions.

Operator

Our next question comes from the line of Salveen Richter with Goldman Sachs. Please proceed with your question.

Unidentified Analyst

Hi. Thank you for taking the question. This is Ross on Salveen. On Epidiolex, can you just provide some color around the reimbursement process here? And can we expect Epidiolex to be listed on the 2019 formularies? And then, on TSC, can you just size the potential Epidiolex opportunity here and how we should really be thinking about what the market size is? And then, I have a follow-up.

Julian Gangolli

So, Ross. Yes. On formulary placement for 2019. We have been active through this year to make sure that plans are well educated as to the potential impact, budget impact of Epidiolex on their 2019 budget. So, that’s why we’ve been doing a lot of work back into ‘17 and into ‘18. We would anticipate formulary coverage really getting to its maximum within the 2019 timeframe. And so I think we should be, by middle and end of 2019 in pretty good shape for most of the payers in the commercial world and in Medicaid.

Unidentified Analyst

Great. Thank you. And then on TSC, just the potential Epidiolex opportunity there? And then, I have question on Rett program.

Julian Gangolli

Okay. So, TSC, the incidence is seen as somewhere in the region of 60,000 patients have this condition. 30,000 of those 60,000 have tubers that result in some sort of seizure outcome unfortunately. So, the addressable market for Epidiolex is probably roundabout 30,000 in the TSC patient population. And for the Rett discussion, I will hand over to Volker. Could you repeat the question Ross first. Dr. Knappertz.

Unidentified Analyst

Sure. Can you provide details on how we should be thinking about potential trial design and time lines around trial negotiation and the first look at data.

Dr. Volker Knappertz

Thank you for taking interest in our announcement today that we will be initiating a clinical trial -- a pivotal clinical study with Epidiolex cannabidiol in Rett syndrome. So, this will be a pivotal study, it will be sized appropriately to have adequate power to detect a clinically meaningful effect. We’re looking at typical non-seizure outcome in Rett syndrome which are in part similar to what we’ve seen in the non-seizure outcomes in our Lennox-Gastaut patient population and the Dravet population, and will be using validated tools for Rett syndrome as the outcome measures. With regards to initiation of the trial, we have guided within the prepared remarks that we will be commencing this study in 2019.

Operator

Due to time constraints our final question comes from line Phil Nadeau with Cowen. Please proceed with your question.

Phil Nadeau

[Technical Difficulty] As you’ve begun to talk to insurers and discuss access to Epidiolex, do you have a sense of what prior efforts or [ph] step therapy will be necessary for a patient to initiate Epidiolex therapy?

Julian Gangolli

Yes. We’ve had obviously extensive discussions. And I would say it’s pretty much across the board as to the level of utilization management that plans have indicated that they are going to go through. I think, at the end of the day, the reason why we have chosen the pricing strategy that we have come across or we’ve now communicated is that it came back very strongly from the payers. Look, if you’re anticipating utilization management similar to the utilization management that is typically employed for these branded anti-seizure, antiepileptic drugs for these intractable conditions, then you need to be within this boundary. And that’s what we’ve talked to them about. So, belief is that we will have utilization management similar to, given our pricing strategy, what is existing out there.

Phil Nadeau

And then, secondly, on the prescriptions, I guess since you’re using a close distribution, no meaningful prescription data will be available publicly, is that accurate?

Julian Gangolli

That is strictly not accurate. There is availability of data through the switch, through claims. So, it’s not as if there will be no visibility to what’s happening in terms of general direction of the product uptake. But, in terms of the specifics that are typically available because it’s going through a close model SPP that won’t be available.

Phil Nadeau

Just so I’m clear, specifically referring to like an IMS or IQVIA type services, there won’t be prescriptions available through those different services?

Julian Gangolli

There will be estimates through those services but not the type of IMS data that you’re accustomed to.

Phil Nadeau

And then, last question for me is on the DEA scheduling, is there any meaningful difference in the uptick of the launch, depending whether it’s schedule 4 or schedule 5, or are those relatively similar in your minds?

Julian Gangolli

Phil, they’re relatively similar. Really there’s not a lot of difference there. There’s no real regulatory difference between 4 and 5.

Operator

Ladies and gentlemen, we have reached the end of our question-and-answer session. And I would like to turn the call back over to management for closing remarks.

End of Q&A

Justin Gover

Great, thank you. This is Justin speaking, just to thank you all for joining the call. Hopefully look forward to updating you over the near term on scheduling progress, launch, and updating you later in the year on the progress of that launch. So, exciting times ahead and look forward to an important and exciting second half of the year. Thank you very much.

Operator

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