Edited Transcript of GWPH.O earnings conference call or presentation 6-Aug-19 8:30pm GMT

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Justin D. Gover, GW Pharmaceuticals plc – CEO & Executive Director [3]

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Thank you, Steve. And welcome to all those who have joined us today. We are once again pleased to report strong sales of Epidiolex in the U.S. While we are still in the early stages of this product launch, our success continues to be fueled by strong market receptivity and demand by U.S. patients, increased prescribing by health care providers, and ongoing progress in payer coverage determinations. Darren Cline will provide more detail on our U.S. commercial achievements in a moment.

We continue to see significant potential for the growth of Epidiolex. In May, we reported positive results in our Phase 3 trial in patients with seizures associated with Tuberous Sclerosis Complex. We expect to file the sNDA for Epidiolex in TSC with the FDA in the fourth quarter, which should lead to a mid-2020 FDA decision, and if approved, expansion of the market for Epidiolex into this high-need patient population of approximately 50,000 patients. Volker Knappertz will provide more color on this and other R&D progress on this call.

Outside the United States, we were very pleased to have reached a positive opinion from the Committee for Medicinal Products or CHMP in Europe, recommending the approval of Epidiolex. This European approval is expected in early October and our commercial team is now readying for launch. Chris Tovey will provide an update on our European launch preparations later in this call. Finally on this call, Scott Giacobello, CFO, will provide our financial results.

Let me begin by asking Darren to provide a U.S. commercial update. Darren?

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Darren S. Cline, GW Pharmaceuticals plc – U.S. Chief Commercial Officer [4]

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Thank you, Justin. I am pleased to be presenting results to you for the first time as GW’s U.S. Chief Commercial Officer. Epidiolex U.S. net sales were $68.4 million in the second quarter and $101.9 million in the first half of 2019. We are very pleased with these results and encouraged by the uptake in the first 8 months since launch. The patients, caregivers and payers all continue to show strong support for Epidiolex, which is building a very solid foundation for the brand.

There were several drivers for the significant uplift in revenue in Q2. First, continued strength in new patient starts; second, completion of the transitioning of the expanded access and open-label expansion patients to commercial status; third, high patient retention; and lastly, continued strong payer coverage. Since launch, over 12,000 patients have received Epidiolex, up from over 7,600 through the end of March. Over 2,500 physicians have written a prescription for Epidiolex, an increase from 1,900 at the end of March.

We continue to be impressed with patient and physician excitement for Epidiolex and look forward to continued revenue growth through the second half of the year. The impressive early uptake seen in Q1, which was driven by pent-up demand and the EAP and OLE transition to commercial product, did extend further into the second quarter more than we had anticipated. The retention rate for these early patients is high, which also contributed to the strong Q2 numbers. With that said, during the quarter, we did see the beginning of a transition to more organic new patient identification and subsequent new patient starts. This is to be expected, as physicians are in the phase of evaluating their experience with the product. Moving forward, we expect to see a healthy rate of new patient starts, which we think would be more consistent with other successful analog product launches.

Physicians continue to titrate Epidiolex in line with the label guidelines. They typically start at 10 milligrams per kilogram per day at the beginning of the dose window and remain at that dose to assess efficacy and tolerability before determining whether they titrate up to a higher dose. While still early in the launch, we observe patient dosing increased slightly during the quarter. The average dose, however, remains at the lower end of the dose range, which is to be expected during early physician use of the product. As a broader set of physicians get more experience using Epidiolex, we expect doses to escalate, as physicians aim to maximize efficacy while managing tolerability.

As we mentioned in the previous quarter, we had observed higher adult utilization than anticipated. This remained true during the quarter, with an approximate 60% pediatric and 40% adult utilization mix. We believe this higher than expected adult utilization bodes well for the longer term. Market research conducted during the quarter was very positive. Epidiolex aided awareness for LGS and Dravet is nearly 100%, while unaided awareness is roughly 75%. 3/4 of the physicians expect to increase their usage in the future, while Epidiolex caregiver satisfaction is outpacing other products in the LGS and Dravet syndrome class. These market research metrics provide us confidence in the brand and its long-term performance.

During the launch period, as our sales team has been engaging with customers, we have continued to update our health care prescriber targets. As a result, the target prescribing universe has increased from 5,000 at the time of launch to approximately 6,000. We think this increased number of targets adds to the potential for the brand. With 2,500 prescribers already having patients on product just 8 months into the launch, representing 40% of the new 6,000 target number, we are excited at the prospect of both those existing prescribers increasing utilization as well as by the opportunity for the remaining 3,500 to start gaining experience with the product.

Our commercial execution continues to be a major focus in building Epidiolex into a leading brand in the field of epilepsy. Our sales and marketing teams launched several new resources around disease education and patient identification. The resources focus on how the disease has evolved, including the seizure types and how they present to the health care professional, as the patients age and enter adulthood. Our salesforce continues to reach key epilepsy centers and targeted health care professionals. We continue to see high interest in our speaker programs and other customer-focused initiatives. As I mentioned earlier, I believe these programs are all having a positive influence on our launch dynamic.

Turning now to payer coverage in the U.S., one of the early catalysts for the strong launch results has been our payer execution. Our current payer mix is approximately 45% commercial, 40% Medicaid and managed Medicaid, and 15% Medicare and other. Approximately 93% of all commercial Medicaid and Medicare lives in the U.S. now have a coverage determination of which 65% are prior authorization to indication or less restrictive. As to be expected, our priority for the first year has been to ensure smooth patient and physician access for Dravet and LGS to their labeled indication. And we believe that these efforts have been highly successful.

We do, of course, understand that there are patients with other rare and refractory epilepsy types, many of which were studied in our EA program, with serious unmet medical needs that are interested in accessing Epidiolex. We are educating and working with payers to assist in their assessment for appropriate patient access. But this will inevitably take time. Overall, 8 months into the launch of a new branded treatment, we consider the current payer approach to be as constructive as can reasonably be expected and increasing access further will, of course, continue to be an area of focus in the months and years ahead.

Our specialty pharmacy and distribution partners are an important component of our launch. Our medium time to fill a prescription was approximately 2 weeks during the quarter, and we expect this to hold steady moving forward. I am pleased with how our specialty pharmacy network is delivering. This network continues to serve our physicians and their patients and families in an expedited fashion.

In closing, having settled into GW over these last 3 months, I am very impressed with the company, the commercial team and this brand. As I’ve gotten out in the field to speak with physicians, patients, caregivers and the wider epilepsy community, I am struck by the level of excitement and conviction that exists for Epidiolex. The patient stories that have been communicated to me and my team invigorate us all and keep the focus and passion for assisting as many patients as possible that can benefit from what we all believe is an exciting breakthrough treatment within the field of epilepsy.

Now I’ll turn the call over to Chris to discuss our progress in Europe. Chris?

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Christopher John Tovey, GW Pharmaceuticals plc – COO [5]

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Thank you, Darren. In Europe, we were very pleased to have received the positive opinion from the CHMP just over 1 week ago. Formal EU approval is expected to occur in early October. This is wonderful news for those European patients and families across Europe that have been waiting for access to a fully regulatory approved CBD medicine, one that has all the elements of a modern medicine and one they and prescribing physicians can have confidence in.

So similar to the U.S., prelaunch awareness of Epidiolex is very high in both the physician and patient communities. Clinicians have reported that patients in their clinics frequently ask for CBD. These European clinicians are of course very familiar with the experiences of their U.S. colleagues since U.S. launch and excited about the imminent arrival of Epidiolex into their practices. Once we have EU approval and product in the supply chain, we expect the first 2 launched to take place in France and Germany. The U.K. launch is expected once NICE has complete their health economic assessment, a process that is already well-advanced and for which we expect a conclusion soon after approval.

Continuing on, Spain and Italy launches are expected during 2020, once appropriate pricing and reimbursement negotiations are finalized. We remain encouraged by the quality of our ongoing prelaunch pricing and reimbursement discussions with the authorities in all the major markets. The GW European commercial organization is now in place and ready to support these launches with country and medical leads and a team of 17 MSLs having been in place now for some time in the major 5 European markets. Newly recruited sales professionals in Germany and France, many of them with prior epilepsy and specialized disease experience, are now undergoing comprehensive training.

Whilst the starting model is different from that in the U.S., it reflects the opportunity of a more concentrated specialist epilepsy prescribing base of about 1,600 key clinicians. We continue to connect with the key physician communities in all the major markets through high profile exposure of Epidiolex data, at key national and international medical congresses and through other medical meeting opportunities.

As was the case in the U.S., we initiated an early access program for Dravet syndrome and Lennox-Gastaut syndrome, so that appropriate patients could obtain access prior to anticipated approval. This program was only initiated at the end of 2018 and now numbers an impressive 800 plus patients registered across the 5 major European countries. As a result, we’re launching into an environment where a large number of clinicians have already developed important clinical management experience with Epidiolex. We are confident that this experience will prove to be a strong starting point and will aid in support sharing amongst the practitioners as they learn to introduce this new medicine into their clinics.

Moving away from European commercialization, our global commercial manufacturing and supply chain, which also falls under my responsibility, continues to run smoothly and we are confident that our capacity is more than sufficient to meet requirements in both the U.S. and Europe. In addition, our longer-term future capacity manufacturing expansion plans are on track to service what we expect to be robust long-term demand.

Thank you and let me now hand the call to Volker for his update.

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Volker Knappertz, GW Pharmaceuticals plc – Chief Medical Officer [6]

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Thank you, Chris, and good day, everyone. As Chris reported, on July 25, the CHMP adopted a positive opinion, recommending the granting of the marketing authorization for Epidiolex in Europe. I would like to thank and congratulate my colleagues for achieving another important regulatory success.

In May, we reported positive Phase 3 trial data for Epidiolex in the treatment of seizures associated with Tuberous Sclerosis Complex. We are excited about expanding the Epidiolex label to TSC and remain on track to submit supplemental applications to the FDA by the end of this year with the EMA submission to follow soon after. We believe that the TSC indication will be important for the evolution of Epidiolex in the market because it will add a third childhood onset drug resistant form of epilepsy to the label that involves seizure syndromes and types associated with TSC that are not typically associated with LGS and Dravet syndrome.

Beyond our Epidiolex program for seizures associated with syndromes, we have recently begun recruiting patients into a placebo-controlled Phase 3 trial in Rett syndrome. While some Rett patients also experience seizures, in this trial, we have focused our investigation on the non-seizure aspects of the disease. Children with Rett syndrome exhibit a broad range of symptoms ranging from mood and behavioral symptoms to movement disorders, breathing problems, communication loss and deficits in cognitive development. Therefore, we see this trial not only as assessing the efficacy and safety of Epidiolex for the treatment of Rett syndrome specifically, but it will also serve as an important source of information on the potential for CBD and indeed other related cannabinoids on many of the symptom complexes that are common to several severe neurodevelopmental disorders outside of epilepsy and are also commonly seen in patients with autism spectrum disorders.

Beyond Epidiolex, the next pipeline asset for which we are advancing plans for U.S. approval and launch is Sativex. As a reminder, Sativex is a standardized botanical extract, including both CBD and THC as well as other cannabinoids and non-cannabinoid plant components. The product is already approved in over 25 countries outside the United States in the treatment of spasticity due to multiple sclerosis. Following our meeting with the FDA several months ago, we are preparing to initiate an additional Phase 3 placebo-controlled trial later this year which is expected to enroll approximately 450 patients. This trial will supplement positive data from 3 European Phase 3 trials and is intended to address FDA’s preference for a primary endpoint that focuses directly on the physical manifestations of spasticity. To complement this trial, we are also initiating 2 small mechanistic studies of about 35 patients each in this indication.

Our recent work with experts from the MS field highlighted that there is significant interest in a novel cannabinoid treatment option, as there have been no new oral anti-spasticity treatments developed in the field for over 20 years. Moderate to severe spasticity is a common feature affecting over 35% of MS patients. The goals for MS spasticity management are to sufficiently relieve spasticity in order to increase mobility, ensure comfort and prevent complications without weakening the muscles, while maintaining adequate tone to support activities of daily living. Additionally, important treatment goals are the reduction of muscle spasms, which are often painful, as well as improving bladder and bowel function. Sativex brings a novel mechanism of action to the spasticity space where there continues to be a real need for new therapies.

We see potential for Sativex to be a pipeline in a product, representing a potentially very valuable asset in the portfolio. There is the opportunity to expand its use over time, not only within the field of spasticity, but to other neurological and psychiatric conditions. In parallel with advancing the MS spasticity program, we are actively developing plans for subsequent indications and look forward to sharing those with you in due course.

Our CBDV program continues to progress in the field of autism spectrum-related disorders. A company-sponsored open-label study in autism, which will include approximately 30 patients, is due to begin enrolling patients towards the end of the year. Another investigator-led 100 patient placebo-controlled trial in autism spectrum disorder has been actively recruiting since earlier this year. And in addition, an open-label study in Rett syndrome with seizures has recently commenced.

Separately, we are also advancing our program in neonatal hypoxic ischemic encephalopathy. NHIE is an acute or sub-acute brain injury resulting from deprivation of oxygen during birth or hypoxia. GW estimates 6,500 to 12,000 cases of NHIE to occur in the United States each year. Of these, 35% are expected to die in early life and 30% are expected to develop persistent neurologic disability. There are currently no FDA-approved medicines specifically indicated for NHIE and GW has received orphan drug designation and fast track designation from the FDA for CBD for the treatment of this condition. We have completed a Phase 1 trial under an IND of the intravenous CDB formulation in healthy volunteers and GW now expects to commence a safety study in neonates in the fourth quarter this year.

There are multiple additional pipeline programs in development and we expect to provide more information regarding the pipeline to you later this year.

Thank you and let me now hand the call to Scott Giacobello to provide the financial review. Scott?

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Scott M. Giacobello, GW Pharmaceuticals plc – CFO [7]

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Thank you, Volker, and good afternoon. I’ll now provide some high level comments on financial results for the quarter and 6 months ended June 30, 2019. A more detailed discussion of results will be provided in our 10-Q to be filed with the SEC later this week. I’ll start with revenue.

Total revenue for the quarter was $72 million, an increase of $68.8 million from the prior year quarter. This increase is due primarily to Epidiolex U.S. net sales of $68.4 million in the quarter. Cost of sales amounted to $6.6 million or 9% of net product sales, compared to $1.8 million or 58% of net product sales in the prior year quarter. This improvement is due to the launch of Epidiolex in the U.S. In the prior year, net product sales consisted of Sativex sales outside of the U.S. through licensed partners. Cost of sales is favorably impacted by Epidiolex inventory produced prior to approval, which was expensed in accordance with U.S. accounting guidelines.

Moving to R&D spend, total research and development expense for the quarter was broadly in line with the previous quarter at $32.5 million. This represents a decrease of $12.6 million from the same period in 2018. This decrease is mainly due to costs related to Epidiolex growing and inventory build prior to approval, which were expensed as incurred in the prior year. Following approval, these costs are now capitalized in inventory.

Turning to SG&A, selling, general and administration expenses for the quarter increased to $62.3 million from $37.8 million in the same period in 2018. This significant increase is primarily the result of the buildout of our commercial operations in both the U.S. and Europe, and costs related to the launch of Epidiolex in the U.S. The second quarter spend represents an increase of $7.2 million over the previous quarter. During the second quarter, we closed on the sale of our priority review voucher for $105 million. The net proceeds from this one-off transaction of $104.1 million were recognized as a gain on the sale of an intangible asset within other non-operating income. This has all resulted in net income for the quarter of $79.7 million compared to a net loss of $84 million in the prior year quarter. Excluding the sale of the priority review voucher, net loss for the quarter would have been $24.4 million.

Moving to cash flow, net cash used in operating activities for the 6 months ended June 30 amounted to $89.9 million, compared to $98.3 million for the prior year period. Net cash provided by investing activities for the 6 month period was $80.6 million, reflecting the proceeds from the sale of the priority review voucher. Capital expenditure for the period amounted to $23.5 million compared to $15.7 million for the prior year period, reflecting continued investments in the expansion of our cannabinoid production facilities. The resulting net decrease in cash and cash equivalents for the 6 month period amounted to $7.8 million. At June 30, we held cash and cash equivalents $583.7 million.

Turning to guidance, we continue to expect operating expenses for the year ended December 31, 2019, in the range of $395 million to $425 million, reflecting the ramp-up of the Epidiolex launch in the U.S., launch preparations in Europe and continued investments in our R&D portfolio. We anticipate capital expenditure in the range of $35 million to $45 million related mainly to manufacturing expansion.

Thank you. Now I’ll now turn the call back to Justin.

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Justin D. Gover, GW Pharmaceuticals plc – CEO & Executive Director [8]

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Thank you, Scott. In closing, we continue to be very excited about the U.S. launch experience with Epidiolex to date, with all key growth drivers evolving as planned and we look forward to launching in Europe later this year. In parallel with commercial execution, we continue to invest in order to maximize the Epidiolex opportunity. These investments include new indications as well as additional formulations and other measures to broaden exclusivity protection. Beyond Epidiolex, we believe that GW is uniquely positioned to continue our 20-year leadership in the development and commercialization of cannabinoid medicines. It is clear that the potential of cannabinoids as therapeutics is now widely appreciated across the world by patients, the medical and scientific community and by governments. We are committed to advancing our pipeline to bring to market a series of additional novel prescription cannabinoid medicines that make a positive difference to patient lives and believe that this can result in continued meaningful near-term and long-term value for investors.

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

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Questions and Answers

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Operator [1]

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(Operator Instructions). Our first question is from Tazeen Ahmad with Bank of America.

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Tazeen Ahmad, BofA Merrill Lynch, Research Division – VP [2]

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So Justin, one question from me. You’ve now completed your second quarter of sales, full quarter of sales for Epidiolex. You’ve got north of 100% upside from what you reported in the first quarter. I guess what prevents us from thinking that this trend would continue? Why wouldn’t you have another quarter in 3Q where you have another 100% upside, for example, from here given that you’re in the early innings of a launch? And maybe tied to that, how are you thinking about potentially providing sales guidance for Epidiolex to help analysts kind of get a sense of what a realistic ramp might be?

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Justin D. Gover, GW Pharmaceuticals plc – CEO & Executive Director [3]

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Thank you for that invitation to comment on expectations. I mean I think clearly obviously Q1 and Q2 has been — reflects a great launch experience and I think as Darren said in his remarks, we recognize that a lot of this great start has come from the high level of awareness and early demand coming from patients. But as we move into the second half of this year and beyond, we enter into a more normalized state when it comes to the development of a commercialized asset and I think it’s really important that we see that and we would ask you and investors to recognize that that has to happen at some point in time.

And so as you can tell from the remarks, we’re confident about the future. But I think we do need to make sure that investors understand that we’re entering into a different phase, which I think is only inevitable now that we’re 8 months into the launch. With regard to guidance, there’s no expectation of setting guidance at this point. We’re still getting a feel for this market ourselves and then with TSC coming onboard as well, I think at this point and even looking into that TSC indication, it will be unwise in our view to be predicting today when we’re going to guide.

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Tazeen Ahmad, BofA Merrill Lynch, Research Division – VP [4]

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Okay. And then maybe a question on the dosing. You talked about how most patients are still on the lower dose. But for those who have been moved up to a higher dose on average, are you getting a sense for how long doctors want to keep patients on that lower dose before moving them up?

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Darren S. Cline, GW Pharmaceuticals plc – U.S. Chief Commercial Officer [5]

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It’s Darren. Thanks for the question. I think it’s still early. In the 8 months since launch, doctors are prescribing Epidiolex. They’re trying to understand the dose, managing tolerability, understanding efficacy. And my experience is we need a little bit more time away from launch before we start to see it settle out. But what we see are encouraging and I think it’s encouraging on a couple of fronts. One, for the patient and physician experience, kind of that lower kind of understanding with the product. And also too, I think from a payer coverage perspective, from LGS and Dravet, they understand the benefit of it. So I think we’re pleased with what we’re seeing. But it’s a little too early to comment.

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Operator [6]

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Our next question is from Salveen Richter with Goldman Sachs.

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Maryana Ilya Breitman, Goldman Sachs Group Inc., Research Division – Research Analyst [7]

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This is Maryana Breitman on for Salveen and congrats on all the progress. I had a quick question on, you talk about a very high compliance rate. And I was wondering if you could provide some more color on that and how it compares to the clinical trial. And another question that I had is, do you expect a similar sort of mix between the adults and the pediatric patients in your European launches?

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Darren S. Cline, GW Pharmaceuticals plc – U.S. Chief Commercial Officer [8]

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Yes. Regarding the compliance rate, again, I think it’s a little bit too early. We’ll understand a little bit more as we get farther away. But we’re pleased with what we hear anecdotally from the field. But again, I think this kind of measured approach to dosing is providing good outcomes for patients. I think the second part, the adult-pediatric mix, while it’s better than we anticipated, I think the farther we get away post launch, we may see a more equivalent around adult-pediatric, but it’s too early to tell right now.

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Justin D. Gover, GW Pharmaceuticals plc – CEO & Executive Director [9]

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And Chris, do you want to comment on Europe?

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Christopher John Tovey, GW Pharmaceuticals plc – COO [10]

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Yes, thank you, Justin. I think in Europe we’re more likely to see a higher pediatric-adult split. So I think particularly in the early days of the launches in Europe, the children will be prioritized. So I think we’ll see a higher pediatric-adult split in Europe.

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Operator [11]

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Our next question is from Cory Kasimov with JPMorgan.

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Cory William Kasimov, JP Morgan Chase & Co, Research Division – Senior Biotechnology Analyst [12]

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Congrats on the continued great launch. I wanted to follow up with this first question, the idea of this bolus effect. I mean you talked about this in your last quarterly call which was in May, so I mean pretty far into 2Q. But now you’re thinking this continued into 2Q. So I’m not sure I fully understand the dynamics here and how we should be thinking about this in the context of the prints you put up today. Are you currently seeing more of a steady run rate in terms of patient adds, or is this something you’re expecting to start to see?

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Darren S. Cline, GW Pharmaceuticals plc – U.S. Chief Commercial Officer [13]

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It’s Darren. Yes, I think that we are starting to see a more — if you look at other AED launches, this bolus impact with such high awareness, as Justin pointed out, the pent-up demand, the tremendous interest in the OLE and the EAP and those patients transitioning to commercial, if you kind of look at those through Q2 and then you look at other — kind of so that starting point and look at, say, an ONFI launch, I think we’re starting to see a more this organic patient identification or acquisition and patient starts. So we are starting to see it, but still thrilled and pleased with the uptake, the interest in the product, our prescriber base expanding. So we’re very pleased with the start, but you’ll start to see this kind of organic growth moving forward.

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Justin D. Gover, GW Pharmaceuticals plc – CEO & Executive Director [14]

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Sorry. I’ll just add. I think by definition, and you can only have a launch bolus once. And I think it probably extended a little longer than we expected in Q2. But at some point, we have to normalize.

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Cory William Kasimov, JP Morgan Chase & Co, Research Division – Senior Biotechnology Analyst [15]

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Right, I totally understand that. Do you have any qualitative commentary on how much the positive TSC data may have impacted the back half of the quarter in terms of some potential initial spontaneous use, if at all?

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Justin D. Gover, GW Pharmaceuticals plc – CEO & Executive Director [16]

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No. I don’t think we — we’ve not, at least we’re not aware that the TSC data has impacted the current quarter.

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Cory William Kasimov, JP Morgan Chase & Co, Research Division – Senior Biotechnology Analyst [17]

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Okay. And then one quick question on Europe if I can. Can you just talk about a little bit on that CHMP opinion, the characterization of Epidiolex as an adjunctive therapy to clobazam over there? I mean kind of what drove that differential label versus what you have in the U.S.?

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Volker Knappertz, GW Pharmaceuticals plc – Chief Medical Officer [18]

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This is Volker, Cory. Thank you for the question. As a practice, we really don’t want to wish to comment in public on the details of our regulatory interactions. But it’s important for you to know that we think that the FDA interpretation of the data, which is essentially the same data that was reviewed there, and the improved indication in the United States is the correct one. So that said, different labels are not uncommon between the U.S. and Europe and we believe that we have a very good opportunity with the TSC application in Europe to obtain an indication statement which does not work in clobazam. So we’re really keeping our eye on moving towards the end of the year towards filing then around [this] and TSC also in Europe and I think that will move us into an opportunity to have that labeling there.

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Operator [19]

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Our next question is from David Lebowitz with Morgan Stanley.

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David Neil Lebowitz, Morgan Stanley, Research Division – VP [20]

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I guess given the higher proportion of adults than you had initially expected coming onto therapy, has that I guess changed the way you’re marketing the product to physicians going forward?

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Darren S. Cline, GW Pharmaceuticals plc – U.S. Chief Commercial Officer [21]

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Thanks for the question. At launch, we were focused on both pediatric and adult epileptologists as well as child neurologists. They were key physicians that treat these LGS and Dravet patients. But we are — there is interest with just general neurologists. And I think if you look at these diseases as patients transition from young — children to young adults, we’re starting to experience that phenomenon. So it doesn’t really change our messaging, other than we launched a few initiatives in the quarter just around diagnosis, what it looks like for these patients to grow into adulthood. And so — and again that toppled with a broader neurology target physician expansion, I think just organically our messages will stay the same around the efficacy and tolerability of Epidiolex to benefit the needs of our patients.

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David Neil Lebowitz, Morgan Stanley, Research Division – VP [22]

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And additionally, on the distribution network, clearly it seems the lion’s share is coming from the specialty pharmacies. How is the breakdown now between the specialty pharmacies and the Epidiolex Engage Hub?

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Darren S. Cline, GW Pharmaceuticals plc – U.S. Chief Commercial Officer [23]

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Yes, I think we’re pleased with our distribution network the way that we have set it up. Specialty pharmacy is playing a key role. We’ve expanded it since launch to meet the needs of the patients and physicians in their community and we’re really very pleased with how we’re operating.

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Operator [24]

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Our next question comes from Paul Matteis with Stifel.

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Paul Andrew Matteis, Stifel, Nicolaus & Company, Incorporated, Research Division – Co-Head of the Biotech Team, MD & Senior Analyst [25]

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I wanted to ask one question about patient adds in the quarter. I had one question on pricing going forward. On patient adds, from our back-of-the-envelope math, it looks likes patient adds may have accelerated last quarter even though less of the — a smaller proportion came from the EAP. Is that correct and maybe you could comment on what you’ve been seeing into July, where IMS scripts look very good. And then secondarily, on pricing you had commented on $32,500 as your expectation for this year. Later you commented that the average dose had been lower. But now it looks like there’s a greater proportion of adults. What should we expect there going forward?

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Darren S. Cline, GW Pharmaceuticals plc – U.S. Chief Commercial Officer [26]

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Yes, I think on the patient adds, I mean I wouldn’t break out EAP or OLE new adds at this point. And just know that we have healthy robust patient adds. Pricing, we don’t think it will exceed the $32,500 average price. Granted, we did comment that the dose is at the lower end and do see a slight movement upward. But again, we view this as positive for patients and physicians. They’re having favorable outcomes. They’re able to understand the efficacy and tolerability. And again, on the payer side, having honest kind of dialogue around what the utilization is and pricing, we feel we’re in a good spot as it relates to the price.

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Paul Andrew Matteis, Stifel, Nicolaus & Company, Incorporated, Research Division – Co-Head of the Biotech Team, MD & Senior Analyst [27]

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Okay. If I could ask one more quick question on reimbursement, I think you said 65% of what are mostly covered lives are either prior auth to indication or even less lenient. Can you break out — I don’t know if you’re willing to subset that are more lenient than the label at this stage and how that’s been tracking in your payer conversations?

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Darren S. Cline, GW Pharmaceuticals plc – U.S. Chief Commercial Officer [28]

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Yes, again, we’re pleased with the payer coverage. There’s kind of this escalation, if you will, from more restrictive to a little bit more open. We’re not breaking out what that looks like at this point. But I think if you look at the execution around Dravet, LGS, we find the payer community to be very, very favorable to that utilization there. So we’re very pleased with it.

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Operator [29]

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Our next question is from Phil Nadeau with Cowen and Company.

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Philip M. Nadeau, Cowen and Company, LLC, Research Division – MD & Senior Research Analyst [30]

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First question is just a follow-up on the IQVIA data. Do you have a sense of how accurate it is? It does look like, for example, NRx don’t show any signs of a bolus going through July. So I’m curious what you think of the IQVIA trends and quantitative data.

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Darren S. Cline, GW Pharmaceuticals plc – U.S. Chief Commercial Officer [31]

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Yes, thanks for the question. We said on our remarks, we saw a big influx of patients in the first 6 months of launch. But it’s inevitable that the growth pattern in new patients will evolve to a rate that’s more consistent with other successful launches in the category. We’re not concerned with this. And indeed, it happened later in the launch than we originally expected. But I do think having this bolus occur immediately at launch has create a very solid patient base for us well beyond what we’ve seen in other successful AED launches. There’s clearly considerable room to grow the brand in the future, highly valuable medicine that Epidiolex in — we’re very much at the beginning of the commercial journey. I think that if you look at the revenue that the launch bolus can’t last forever, you’ll start to see as we get farther away, that data. While you can’t predict it on a month-to-month basis, but over time it depicts a pretty good picture of demand in total prescriptions.

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Philip M. Nadeau, Cowen and Company, LLC, Research Division – MD & Senior Research Analyst [32]

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Perfect. That’s helpful. And second on inventory, do you know where channel inventory stands today and was there any inventory build during Q2?

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Scott M. Giacobello, GW Pharmaceuticals plc – CFO [33]

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Yes, so it’s Scott. We don’t comment on channel inventory. So I don’t really have anything. But I would say no significant build from quarter to quarter.

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Philip M. Nadeau, Cowen and Company, LLC, Research Division – MD & Senior Research Analyst [34]

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Got it, okay. And then last question from me is on persistence. In your prepared remarks you suggested that it’s tracking somewhat ahead of where you thought it was going to be. Can you give us some sense of where persistence is today and where do you think it will normalize to over time?

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Darren S. Cline, GW Pharmaceuticals plc – U.S. Chief Commercial Officer [35]

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Yes, we’re not — again, not providing any color on that. It’s just a little too early for us to provide any metric around that.

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Operator [36]

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Our next question is from Marc Goodman with SVB Leerink.

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Marc Harold Goodman, SVB Leerink LLC, Research Division – MD of Neuroscience & Senior Research Analyst [37]

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Yes, a few, first of all on Epidiolex, can you give us a sense of what the gross to nets are? And second, you talked about some market research. Obviously, there’s some anecdotal information from the field. Maybe you can just give us a sense of what percent of the business, the patients are Dravet versus LGS versus other, if you have any sense of that. I know that you don’t get that information. But maybe from the market research that you’re doing now, you might have that. And then secondly on Sativex, can you tell us, what exactly is the primary endpoint in the key study here and are there any secondary endpoints that are key to FDA or for commercializing the product? And you mentioned these other trials, the smaller trials. Can you just give us more color what the purpose of those are?

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Scott M. Giacobello, GW Pharmaceuticals plc – CFO [38]

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It’s Scott. I’ll take the first one on gross to net, and thanks for the question, by the way. We have not disclosed the gross to net percent at this point. What I can say is 8 months into the launch and overall we’re where we expected to be from a gross to net perspective at this point. As Darren mentioned, 93% of commercial Medicaid and Medicare lives have a coverage determination. And we’ve been able to achieve this through a limited number of contracts. The channel mix is still settling, as we’re 8 months in. But I would reiterate we’re where we expected to be at this point from a gross to net perspective.

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Darren S. Cline, GW Pharmaceuticals plc – U.S. Chief Commercial Officer [39]

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It’s Darren. Regarding the market research and the breakdown, it’s just not something we’re providing at this point. And Volker, I think you have–

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Volker Knappertz, GW Pharmaceuticals plc – Chief Medical Officer [40]

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Yes, so regarding Sativex, thank you, Marc, for your interest in this. So we are initiating in the ensuing weeks and months these studies, as we said in the prepared remarks. 2 of them are mechanistic studies. They’re smallish in nature but very precise with regards to looking at the cardinal symptoms that is common to all spasticity, which is really the hypertonia of the muscle and some other features that are sort of neurological in nature. And we’re looking at the direct effects in more of a laboratory type of setting with these mechanistic studies, which I think are going to be critical for our discussions with the regulatory agency in the United States. Regarding the primary endpoint for our Phase 3 study, we have looked back at our 3 positive studies in MS spasticity and from the cardinal core symptoms and features of MS spasticity, which FDA wants us to focus on, we selected the spasm and spasm frequency as the primary endpoint. This is something we’re quite comfortable with, have used this before in clinical trials and the prior data is quite supportive of this endpoint.

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Operator [41]

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Our next question is from Esther Rajavelu with Oppenheimer & Company.

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Esther P. Rajavelu, Oppenheimer & Co. Inc., Research Division – Executive Director & Senior Analyst [42]

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Based on the prescriptions that have come to this quarter, how many vials does each script equate to on average and how much of a change have you seen in the vials per script from 1Q to 2Q?

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Justin D. Gover, GW Pharmaceuticals plc – CEO & Executive Director [43]

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Yes, it’s Justin here. We’re not giving that level of granularity. Obviously, as time moves on, the average number of vials in the prescription goes up, as doses goes up. But so it has increased, but we’re not yet at a stage where we can give you that number.

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Esther P. Rajavelu, Oppenheimer & Co. Inc., Research Division – Executive Director & Senior Analyst [44]

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Got you. And then I’m going to ask the pricing question a little differently. Someone else had asked this before. But where you are netting on price per patient now relative to that annual guidance of 32,500 when you launched?

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Justin D. Gover, GW Pharmaceuticals plc – CEO & Executive Director [45]

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It’s kind, it’s another way of asking your first question, of course, which is you do have a price per bottle. It’s the only price, of course, there is for the product. So we are guiding you that the dosing is at the low end of the dose range. You’ve got 40% adults. So you have a weight-based drug. So frankly, I feel like we’re giving you enough information to be able to sort of try to understand this dynamic. But I’m afraid we’re not giving you more detail.

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Operator [46]

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Our next question is from Yatin Suneja with Guggenheim Partners.

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Yatin Suneja, Guggenheim Securities, LLC, Research Division – MD & Senior Biotechnology Analyst [47]

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Congrats on a great launch. Just 2 questions from me. First, could you just comment on the size of the European market, how big that is relative to the U.S. in light of the add-on label you have? And then I have a follow-up.

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Christopher John Tovey, GW Pharmaceuticals plc – COO [48]

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Yes, I think we said in the past, the European market is about — it’s about a quarter to a third of the U.S. market. I think in terms of the European label that we’ve got now from the positive opinion of a week or so ago, is that we’re not seeing that opinion and that label has much of an impact on our expectations for the European business. It’s important to know that what we’ve done so far in analysis is we don’t see it will impact pricing reimbursement.

And I think everybody is aware, Europe’s success is largely predicated on pricing reimbursement and what we know from this physician community is that they’ve been using clobazam extensively for nearly 25 years. It’s generic in Europe. And they have very comfortable chopping and changing their therapies and therefore the use of clobazam. So a very limited impact, and obviously with the TSC application in Europe, we’re optimistic that we’ve got a good opportunity to attain an indication statement, which doesn’t include any clobazam reference. So Europe about a quarter to a third of the U.S. and we don’t think the label has as much of an impact.

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Yatin Suneja, Guggenheim Securities, LLC, Research Division – MD & Senior Biotechnology Analyst [49]

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Got it. And then just following up on the TSC data, I think you’re going to present full data at some point. But could you comment on whether you were able to look at some of the cognitive end behavior, your related benefit, now that you’ve had more time to analyze that data?

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Volker Knappertz, GW Pharmaceuticals plc – Chief Medical Officer [50]

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Yes, so we are just getting to some of those exploratory endpoints within the TSC study. So we have not seen the full data. But keep in mind that these studies were designed to really focus on patients with high seizure frequency. As I recall, these patients on average had about 56 or so seizures per month. And it really overwhelms any other signal you can see. So we have chosen now, as I said in my prepared remarks, in Rett for example, to really focus on the non-seizure aspects. And I think you need to really understand that the confounding by the seizures and the effect of the seizures and the seizure reduction is probably so large that those data will not be guiding us very strongly.

However, Rett and the non-seizure aspects of Rett that we’re really focusing on here now in the next Phase 3 study, will help us really understand mood, behavior, cognitive development aspects. We will specifically design also to longer treatment periods to assess these. So we’ll be reporting that separately as we have a better understanding on these exploratory endpoints in TSC. But really this was a seizure focused study also by its duration, and just want to manage your expectations on that and point you to our other programs where we really assess cognitive function and neurocognitive development.

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Operator [51]

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Our next question is from David Kideckel with AltaCorp Capital.

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David M. Kideckel, AltaCorp Capital Inc., Research Division – MD of Institutional Equity Research for Life Sciences & Senior Analyst [52]

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Congratulations on the quarter. Just a couple of questions here. Firstly, I’m just curious, with the Epidiolex patients that you’re seeing physicians prescribe drug to, would you say that most or is there a material number of patients that are physicians prescribing Epidiolex to that are currently on other medications or are these altogether newly identified and organically grown patients?

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Darren S. Cline, GW Pharmaceuticals plc – U.S. Chief Commercial Officer [53]

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Yes, I think our experience, typically I think when you look at the clinical trial, is pairing out in the commercial where these patients have 3 or 4 potential therapies that they could have had or co-administer with Epidiolex.

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David M. Kideckel, AltaCorp Capital Inc., Research Division – MD of Institutional Equity Research for Life Sciences & Senior Analyst [54]

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Okay. My next question has to do with the so-called refractory epilepsies or using Epidiolex in other conditions, not necessarily associated with LGS or Dravet. But can you maybe just comment on not the numbers of patients in this category, but do you see I guess qualitatively are the payers willing to reimburse Epidiolex for the so-called refractory epilepsies?

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Darren S. Cline, GW Pharmaceuticals plc – U.S. Chief Commercial Officer [55]

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Yes, let me remind you that we only promote on-label and really don’t have much visibility into diagnosis of others. But 8 months into the launch, as I stated, payers had a clear appreciation of the unmet need in DS and LGS and our payer access metrics reflect this for those patients. And at this point in the launch, it’s been our absolute priority to execute and provide access for DS and LGS patients. Now we do recognize there are other rare refractory epilepsy patients that may wish to access Epidiolex and we’re engaged in an ongoing basis with payers, as appropriate, to help them make responsible decisions for access to these patients in need. And I remind you and you kind of pointed out that these patients are very sick and in need of treatment options. But this early in the launch, one would not expect to see unrestricted access in this broader patient population by the payers. However, we do see some instances already in both the commercial and Medicaid patients. But over time, we do expect Epidiolex to have similar access to comparable AEDs.

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David M. Kideckel, AltaCorp Capital Inc., Research Division – MD of Institutional Equity Research for Life Sciences & Senior Analyst [56]

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That’s helpful. My final question, just shifting gears a bit here to CBDV and I guess autism spectrum disorders as well as Rett. I’m just curious then for this actual cannabinoid CBDV. Giving that autism spectrum disorders and Rett are quite dissimilar, are they potentially going to be — is CBDV going to be potentially targeting similar manifestations between both disorders or is it being used entirely to treat different manifestations of autism and Rett?

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Volker Knappertz, GW Pharmaceuticals plc – Chief Medical Officer [57]

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Yes, so it’s still early days in our CBDV autism and Rett development, although we’re in Phase 3 in Rett. A lot of the priors are based on other related areas. So I believe I was trying to make the case that there are of course substantial differences. Rett is not ASD. On the other hand, there are overlapping features. I think the Rett study will serve multiple purposes, including of course, being a potentially pivotal trial for the Rett indication. But I think the RSBQ, which is the symptomatic and behavioral scale, has I believe 46 items on it and I think there’s a lot of overlap to what we generally consider autism spectrum disorder symptomatology. And I think we’re going to use this in really broadly understanding where we can use this type of pharmacology of CBDV and we’ll make some match between our learnings from ASD and Rett to really come to that conclusion.

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Operator [58]

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Our next question is from Danielle Brill with Piper Jaffray.

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Danielle Catherine Brill, Piper Jaffray Companies, Research Division – VP & Senior Research Analyst [59]

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A few from me, so I know in the past you had said IMS data are missing the top 7 dispensing pharmacies. I’m just curious if that’s still accurate. And then do you know the average number of refills per patient per quarter? And I know this was asked, but I missed it. What was the gross to net?

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Darren S. Cline, GW Pharmaceuticals plc – U.S. Chief Commercial Officer [60]

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So IMS data does not capture. I think it still remains what you had stated, a small sample size of total. The second question? Oh refills, again, we’re not providing any level or metric or color on refill or persistency at this point.

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Scott M. Giacobello, GW Pharmaceuticals plc – CFO [61]

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Yes, and then, Danielle, it’s Scott. On the gross to net, we haven’t disclosed the gross to net percent. All we would say is that we’re right where we think we should be at this point in the launch. We have 93% of commercial, Medicaid and Medicare lives which have a coverage determination and we’ve been able to achieve that at this point through a limited number of contracts. So channel mix is still settling out. But overall we’re right where we need to be or where we think we should be from a gross to net perspective.

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Operator [62]

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We have reached the end of the question-and-answer session. I will now turn the call over to management for closing remarks.

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Justin D. Gover, GW Pharmaceuticals plc – CEO & Executive Director [63]

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Great. This is Justin, just to thank you all for your time and we look forward to updating you on progress and reporting Q3 results and Q4 later this year. So thank you very much for your attention today.

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Operator [64]

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