Developing novel
prescription medicines
which make a real
difference to patients’ lives
GW Pharmaceuticals plc
Annual report and accounts 2015
2015 Highlights
Epidiolex® (CBD) childhood
epilepsy program
Advanced clinical programs
in multiple cannabinoid
pipeline product candidates
> Company sponsored Phase 3
development programs in Dravet
syndrome and Lennox-Gastaut syndrome
(“LGS”)
– First Phase 3 Dravet syndrome trial fully
enrolled. Data expected Q1 2016
– First LGS Phase 3 trial fully enrolled.
Data expected Q2 2016
– Second LGS Phase 3 trial fully
enrolled. Data expected Q2 2016
– Second Phase 3 Dravet syndrome trial
ongoing. Data expected mid 2016
– New Drug Application (“NDA”)
submission with Food and
Drug Administration (“FDA”)
expected Q4 2016
– Phase 3 Tuberous Sclerosis Complex
(“TSC”) trial expected to commence
Q1 2016
– Additional clinical development for
Epidiolex® beyond initial three
indications expected to commence in
H2 2016
> Expanded access program:
– Latest data updated issued at
the American Epilepsy Society
December 2015 Annual Meeting
– Approximately 350 children on
treatment at 32 US clinical sites
– Over 850 children authorised
for treatment by FDA under
Expanded Access Treatment INDs
and six US State programs
> Strategic agreement with the
Government of New South Wales in
Australia to conduct Epidiolex and
Cannabidivarin (“CBDV”) clinical trials
> Cannabidiol (“CBD”) and CBDV patent
portfolio strengthened
> Phase 2a CBD schizophrenia study
> Phase 1b/2a study for the treatment
data shows positive proof-of-concept
with a reassuring safety profile
> Phase 2 CBDV epilepsy study in adults
under way with data expected H2 2016
> Neonatal Hypoxic-Ischemic
Encephalopathy (“NHIE”) IV CBD
Phase 1 clinical program expected
to commence in H1 2016
– Orphan Drug and Fast
Track Designations granted
from FDA and EMA
> Clinical trials within the field of
autism spectrum disorders expected
to commence in H2 2016
of Recurrent Glioblastoma
Multiforme (“GBM”) fully enrolled
with data expected in mid-2016
– Orphan Drug Designation
granted from FDA
> Phase 2 study in type-2 diabetes fully
enrolled with data expected mid 2016
> Phase 2 study of Sativex® in spasticity
due to cerebral palsy ongoing
with data expected mid 2016
Pre-clinical progress
addressing a number of
areas of unmet needs
> Autism spectrum disorders,
> Duchenne muscular dystrophy
> Glioma
> Ovarian and pancreatic cancers
> Chemotherapy-induced cachexia
US operations established
in Carlsbad, California
> GW’s CEO, Justin Gover,
relocates to the US
> Seasoned industry executive
Julian Gangolli appointed as
President, North America
> Epilepsy specialist team
build-out under way
01
Chairman and Chief Executive Officer’s statement
GW has established a world
leading position in the
development of plant-derived
cannabinoid therapeutics.
Dear Fellow Shareholders,
Over the last 17 years since the company’s
founding, GW has established a world
leading position in the development of
plant-derived cannabinoid therapeutics.
Over this past year, GW has accelerated
its focus on the application of cannabinoid
science to treat severe and rare diseases.
At the forefront of these efforts is the
development of our product candidate
Epidiolex® in the field of treatment-
resistant epilepsy in children. GW
is currently supplying Epidiolex to
approximately 350 children in the
United States under a physician-led
FDA approved “expanded access”
compassionate use program and is also
rapidly progressing pivotal Phase 3 trials
in Dravet syndrome and Lennox-Gastaut
syndrome – two rare and extreme forms
of childhood epilepsy. We expect to
carry this momentum through 2016 with
top-line data from four Epidiolex pivotal
trials, our first NDA filing, build-out
of our U.S. commercial organization,
and ongoing data read-outs from a
number of clinical pipeline programs.
It is no exaggeration to say that GW
has seen a major transformation in
recent years. The listing of our shares
on the NASDAQ Global Market
in 2013 was followed by the rapid
acceleration of our epilepsy research
efforts, increasing recognition of the
importance and value of GW’s science
and cannabinoid platform, access to
significant capital from U.S. investors,
and the resultant ambition to retain
global commercial rights to our pipeline.
We are proud of GW’s achievements and
the organization that we have become.
In particular, highlights include:
> GW’s first product, Sativex®, is now
approved in 28 countries for the
treatment of multiple sclerosis spasticity
> GW now employs over 350 staff,
including over 300 in the UK as well as
an emerging U.S. commercial and
development operation to complement
its expanding UK scientific and
manufacturing base
> We have invested approximately
$1 billion in R&D and the development
of our organization
> We have research collaborations with
36 universities around the world
> Our UK commercial manufacturing
facility has been inspected and
approved by multiple regulatory
authorities
> We have conducted 44 Phase 2 and
Phase 3 clinical trials including over
4,379 patients
> We have undertaken post-market safety
studies involving over 1,000 patients
> Our research has led to over 80
publications in peer review journals
> We have evaluated 14 distinct
cannabinoids in pre-clinical research
> We have generated over 45,000
patient-years of human safety data on
cannabinoid medicines
> We have exported cannabinoids to 37
countries for research purposes
2015 has been a particularly active
year for GW and we enter 2016 with
confidence that the coming year will
be equally as exciting. In 2016, our key
objective is to successfully complete
the Epidiolex Phase 3 clinical program,
submit the NDA with FDA, and continue
the build-out of a world-class U.S.
commercial organization in anticipation
of future launch. Beyond Epidiolex,
we also look forward to progressing
clinical trials for various additional
cannabinoid pipeline products that
have the potential to lead to valuable
commercial opportunities, especially
in the field of pediatric neurology
thorough our growing knowledge and
understanding of the developing brain.
We believe that Epidiolex is a truly
important medicine which has the
potential to make a meaningful difference
to the lives of children suffering from
these very difficult forms of epilepsy.
Indeed, our whole organization is
stirred by the compelling and emotional
stories that regularly emerge from
our expanded access program as to
how Epidiolex appears to have had
such a positive impact on the lives of a
number of children and their families.
We should like to take this opportunity
to thank our staff for their dedication
to GW, without which we would not
have been able to make such significant
progress over the last year. The company
has grown rapidly over this period and
the pace of change has required an
extraordinary effort and commitment.
We should also like to thank our scientific
collaborators, the physician and patient
communities, and our shareholders in
supporting GW to further its important
mission to develop novel cannabinoid
therapies that have the potential to make
a real difference to the lives of patients
with rare and difficult to treat conditions.
Dr Geoffrey W Guy and Justin Gover
GW Pharmaceuticals plcAnnual report and accounts 2015 As filed with the Securities and Exchange Commission on December 7, 2015
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE
SECURITIES EXCHANGE ACT OF 1934
OR
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 2015
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
OR
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 001-35892
GW PHARMACEUTICALS PLC
(Exact name of Registrant as specified in its charter)
England and Wales
(Jurisdiction of incorporation or organization)
Sovereign House, Vision Park
Chivers Way, Histon
Cambridge, CB24 9BZ
United Kingdom
(Address of principal executive offices)
Justin D. Gover, Chief Executive Officer
Sovereign House, Vision Park
Chivers Way, Histon
Cambridge, CB24 9BZ
United Kingdom
Telephone No. (44) 1223 266800
E-Mail: investors@gwpharm.com
Facsimile: (44) 1223 235667
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act.
Title of each class
American Depositary Shares, each representing 12
Ordinary Shares, par value £0.001 per share
Name of each exchange on which registered
The NASDAQ Global Market
Securities registered or to be registered pursuant to Section 12(g) of the Act: None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of
the close of the period covered by the annual report: 261,180,173 ordinary shares, par value £0.001 per share.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the
Securities Act. Yes No
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web
site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required
to submit and post such files). Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-
accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.
(Check one):
Large accelerated filer
Accelerated filer
Non-accelerated filer
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements
included in this filing:
International Financial Reporting Standards as issued by the International Accounting Standards Board
U.S. GAAP
Other
If “Other” has been checked in response to the previous question, indicate by check mark which financial
statement item the registrant has elected to follow.
Item 17 Item 18
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes No
TABLE OF CONTENTS (TO BE UPDATED)
GENERAL INFORMATION
PRESENTATION OF FINANCIAL AND OTHER DATA
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
NOTE REGARDING EXPANDED ACCESS STUDIES
PART I
Item 1
Item 2
Item 3
Offer Statistics and Expected Timetable
Key Information
Identity of Directors, Senior Management and Advisers
A. Selected Financial Data
B. Capitalization and Indebtedness
C. Reasons for the Offer and Use of Proceeds
D. Risk Factors
Item 4
Information on the Company
A. History and Development of the Company
B. Business
C. Organizational Structure
D. Property, Plant and Equipment
Unresolved Staff Comments
Operating and Financial Review and Prospects
Item 4A.
Item 5.
A. Operating Results
B. Liquidity and Capital Resources
C. Research and Development, Patents and Licenses, etc.
D. Trend information
E. Off Balance Sheet Arrangements
F. Tabular Disclosure of Contractual Obligations
G. Safe Harbor
Item 6
Directors, Senior Management and Employees
A. Directors and Senior Management
B. Compensation
C. Board Practices
D. Employees
E. Share Ownership
Item 7
Major Shareholders and Related Party Transactions
A. Major Shareholders
B. Related Party Transactions
C.
Interests of Experts and Counsel
Item 8
Financial Information
A. Consolidated Statements and Other Financial Information
B. Significant Changes
Item 9
The Offer and Listing
A. Offer and Listing Details
B. Plan of Distribution
C. Markets
D. Selling Shareholders
E. Dilution
F. Expenses of the Issue
Item 10
Additional Information
A. Share Capital
B. Memorandum and Articles of Association
Page
1
1
1
3
4
4
4
4
6
6
7
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121
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122
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122
122
122
122
C. Material Contracts
D. Exchange Controls
E. Taxation
F. Dividends and Paying Agents
G. Statement by Experts
H. Documents on Display
I. Subsidiary Information
Item 11
Item 12
Quantitative and Qualitative Disclosures About Market Risk
Description of Securities Other than Equity Securities
A. Debt Securities
B. Warrants and Rights
C. Other Securities
D. American Depositary Shares
PART II
Item 13.
Item 14.
Item 15.
Defaults, Dividend Arrearages and Delinquencies
Material Modifications To The Rights of Security Holders and Use of Proceeds
Controls and Procedures
A. Disclosure Controls and Procedures
B. Management’s Annual Report on Internal Control over Financial Reporting
C. Attestation Report of the Registered Public Accounting Firm
D. Changes in Internal Control Over Financial Reporting
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
Change in the Registrant’s Certifying Accountant
Item 16A. Audit Committee Financial Expert
Item 16B. Code of Ethics
Item 16C. Principal Accountant Fees and Services
Item 16D. Exemptions From the Listing Standards For Audit Committees
Item 16E.
Item 16F.
Item 16G. Corporate Governance
Item 16H. Mine Safety Disclosure
PART III
Item 17
Item 18
Item 19
Financial Statements
Financial Statements
Exhibits
Page
122
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130
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130
131
131
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138
GENERAL INFORMATION
In this annual report on Form 20-F (“Annual Report”), “GW Pharma,” the “Group,” the “company,” “we,”
“us” and “our” refer to GW Pharmaceuticals plc and its consolidated subsidiaries, except where the context
otherwise requires.
Sativex® and Epidiolex® are registered trademarks of GW Pharmaceuticals plc.
PRESENTATION OF FINANCIAL AND OTHER DATA
The consolidated financial statement data as at September 30, 2015 and 2014 and for the years ended
September 30, 2015, 2014 and 2013 have been derived from our consolidated financial statements, as presented
elsewhere in this Annual Report, which have been prepared in accordance with International Financial Reporting
Standards, or IFRS, as issued by the International Accounting Standards Board, or IASB, and as adopted by the
European Union and audited in accordance with the standards of the Public Company Accounting Oversight Board
(United States). The consolidated financial statement data as at September 30, 2012 and 2011 have been derived
from our consolidated financial statements, which are not presented herein, which have also been prepared in
accordance with IFRS as issued by the IASB, and as adopted by the European Union and audited in accordance with
the standards of the Public Company Accounting Oversight Board (United States).
The consolidated financial data as at September 30, 2011 has been derived, after certain reclassifications to
conform to the current presentation, from our consolidated financial statements, which have been prepared in
accordance with IFRS as adopted by the European Union, or IFRS-EU, and which are not included elsewhere in this
Annual Report. These consolidated financial statements have not been audited in accordance with the standards of
the Public Company Accounting Oversight Board (United States). There are no differences applicable to us between
IFRS as issued by the IASB and IFRS-EU and PCAOB for any of the periods presented herein.
All references in this Annual Report to "$" are to U.S. dollars, all references to "£" are to pounds sterling
and all references to "€" are to Euros. Solely for the convenience of the reader, unless otherwise indicated, all
pounds sterling amounts as at and for the year ended September 30, 2015 have been translated into U.S. dollars at
the rate at September 30, 2015, the last business day of our year ended September 30, 2015, of £0.6611 to $1.00 and
unless otherwise indicated, all pounds sterling amounts as at and for the year ended September 30, 2014 have been
translated into U.S. dollars at the rate at September 30, 2014, the last business day of our year ended September 30,
2014, of £0.6166 to $1.00. These translations should not be considered representations that any such amounts have
been, could have been or could be converted into U.S. dollars at that or any other exchange rate as at that or any
other date.
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report contains forward-looking statements that are based on our current expectations,
assumptions, estimates and projections about us and our industry. All statements other than statements of historical
fact in this Annual Report are forward-looking statements.
These forward-looking statements are subject to known and unknown risks, uncertainties, assumptions and
other factors that could cause our actual results of operations, financial condition, liquidity, performance, prospects,
opportunities, achievements or industry results, as well as those of the markets we serve or intend to serve, to differ
materially from those expressed in, or suggested by, these forward-looking statements. These forward-looking
statements are based on assumptions regarding our present and future business strategies and the environment in
which we expect to operate in the future. Important factors that could cause those differences include, but are not
limited to:
•
the inherent uncertainty of product development;
• manufacturing and commercialization;
•
our ability to submit and maintain INDs with the FDA;
1
•
•
•
•
•
•
•
our ability to successfully design, commence and complete clinical trials;
patents, including, but not limited to, legal challenges;
government regulation and approval, including, but not limited to, the expected timing of potential
regulatory approval dates for Epidiolex;
future revenue being lower than expected;
the level of pricing and reimbursement for our products and product candidates, if approved;
increasing competitive pressures in our industry;
general economic conditions or conditions affecting demand for the products offered by us in the markets
in which we operate, both domestically and internationally, being less favorable than expected;
•
currency fluctuations and hedging risks;
• worldwide economic and business conditions and conditions in the industry in which we operate;
•
•
•
•
•
•
•
•
•
•
our relationships with our customers and suppliers;
increased competition from other companies in the industry in which we operate;
changing technology;
claims for personal injury or death arising from the use of products and product candidates produced by us;
the occurrence of accidents or other interruptions to our production processes;
changes in our business strategy or development plans, and our expected level of capital expenses;
our ability to attract and retain qualified personnel;
regulatory, environmental, legislative and judicial developments;
our intention not to pay dividends; and
factors that are not known to us at this time.
Additional factors that could cause actual results, financial condition, liquidity, performance, prospects,
opportunities, achievements or industry results to differ materially include, but are not limited to, those discussed
under “Risk Factors” or elsewhere in this Annual Report. Additional risks that we may currently deem immaterial or
that are not presently known to us could also cause the forward-looking events discussed in this Annual Report not
to occur. The words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “expect” and similar
words are intended to identify estimates and forward-looking statements. Estimates and forward-looking statements
speak only at the date they were made, and we undertake no obligation to update or to review any estimate and/or
forward-looking statement because of new information, future events or other factors. Estimates and forward-
looking statements involve risks and uncertainties and are not guarantees of future performance. Our future results
may differ materially from those expressed in these estimates and forward-looking statements. In light of the risks
and uncertainties described above, the estimates and forward-looking statements discussed in this Annual Report
might not occur and our future results and our performance may differ materially from those expressed in these
forward-looking statements due to, inclusive of, but not limited to, the factors mentioned above. Because of these
uncertainties, you should not make any investment decision based on these estimates and forward-looking
statements.
2
NOTE REGARDING EXPANDED ACCESS STUDIES
The expanded access studies we currently support are uncontrolled, carried out by individual physician
investigators independent from us, and not always conducted in strict compliance with Good Clinical Practices, all
of which can lead to an observed treatment effect that may differ from one seen in placebo-controlled trials. Data
from these studies provide only anecdotal evidence of efficacy for regulatory review, although they may provide
supportive safety information for regulatory review. These studies contain no control or comparator group for
reference and are not designed to be aggregated or reported as study results. Moreover, data from such small
numbers of patients may be highly variable. Such information, including the statistical principles that the
independent investigators have chosen to apply to the data, may not reliably predict results achieved after systematic
evaluation of the efficacy in company-sponsored clinical trials or evaluated via other statistical principles that may
be applied in these trials. Reliance on such information may lead to Phase 2 and/or Phase 3 clinical trials that are not
adequately designed to demonstrate efficacy and could delay or prevent our ability to seek approval of Epidiolex.
Physicians conducting these studies may use Epidiolex in a manner inconsistent with GW’s protocols, including in
children with conditions different from those being studied in GW-sponsored trials. Any adverse events or reactions
experienced by subjects in the expanded access program may be attributed to Epidiolex and may limit our ability to
obtain regulatory approval with labeling that we consider desirable, or at all.
3
PART I
Item 1
Identity of Directors, Senior Management and Advisers.
Not Applicable.
Item 2
Offer Statistics and Expected Timetable.
Not Applicable.
Item 3
Key Information.
A.
Selected Financial Data.
The following table summarizes our consolidated financial data as at the dates and for the periods
indicated. The consolidated financial statement data as at September 30, 2015 and 2014 and for the years ended
September 30, 2015, 2014 and 2013 have been derived from our consolidated financial statements, as presented
elsewhere in this Annual Report, which have been prepared in accordance with IFRS, as issued by the IASB, and as
adopted by the European Union and audited in accordance with the standards of the Public Company Accounting
Oversight Board (United States). The consolidated financial statement data as at September 30, 2012 and 2011 has
been derived, after certain reclassifications to conform to the current presentation, from our consolidated financial
statements, which are not presented herein, which have also been prepared in accordance with IFRS as issued by the
IASB, and as adopted by the European Union and audited in accordance with the standards of the Public Company
Accounting Oversight Board (United States). The selected consolidated financial data as at September 30, 2011 has
been derived, after certain reclassifications to conform to the current presentation, from our consolidated financial
statements, which have been prepared in accordance with IFRS-EU, and which are not included elsewhere in this
Annual Report. These consolidated financial statements have not been audited in accordance with the standards of
the Public Company Accounting Oversight Board (United States). There are no differences applicable to us between
IFRS as issued by the IASB and IFRS-EU and PCAOB for any of the periods presented herein.
Our consolidated financial statements are prepared and presented in pounds sterling, our presentation
currency. Solely for the convenience of the reader our consolidated financial statements as at and for the year ended
September 30, 2015 have been translated into U.S. dollars at $1.00 = £0.6611 based on the certified foreign
exchange rates published by Federal Reserve Bank of New York on September 30, 2015. Such convenience
translation should not be construed as a representation that the pound sterling amounts have been or could be
converted into U.S. dollars at this or at any other rate of exchange, or at all.
Our historical results are not necessarily indicative of the results that may be expected in the future. The
following selected consolidated financial data should be read in conjunction with our audited consolidated financial
statements included elsewhere in this Annual Report and the related notes and Item 5, “Operating and Financial
Review and Prospects” below.
Year Ended September 30,
2015
$
2015(1) 2014(1) 2013(1)(2) 2012(1)(2) 2011(2)
£
£
£
(in thousands, except per share data)
£
£
Income Statement Data:
Revenue
43,172
(3,960)
Cost of sales
Research and development expenditure (116,153)
Sales, general and administrative
28,540
(2,618)
(76,785)
30,045
(2,060)
(43,475)
27,295
(1,276)
(32,697)
33,120 29,627
(1,347)
(27,578) (22,714)
(839)
expenses
Net foreign exchange gains/(losses)
(19,013)
9,382
(12,569)
6,202
(7,337)
3,188
(3,555)
(237)
(3,620)
(40)
(3,479)
181
Operating (loss)/profit
Interest expense
Interest income
(Loss)/profit before tax
Tax benefit
(Loss)/profit for the year
(Loss)/earnings per share
Basic
Diluted
Weighted average number of shares
Basic
Diluted
(86,572)
(113)
369
(86,316)
18,906
(67,410)
(57,230)
(75)
244
(57,061)
12,498
(44,563)
(19,639)
(61)
130
(19,570)
4,911
(14,659)
(10,470)
(64)
178
(10,356)
5,807
(4,549)
1,043
(1)
200
1,242
1,248
2,490
2,268
(3)
263
2,528
221
2,749
(0.27)
(0.27)
(0.18)
(0.18)
(0.07)
(0.07)
(0.03)
(0.03)
0.02
0.02
0.02
0.02
246.4
254.2
246.4
254.2
210.4
219.9
151.5
158.2
133.0
137.5
131.7
135.8
4
As at September 30,
2015
$
2015(1) 2014(1)(3) 2013(1) 2012(1) 2011(1)
£
£
(in thousands)
£
£
£
Balance Sheet Data:
Non-current assets
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Total current assets
Total assets
Current liabilities
Trade and other payables
Current tax liabilities
Obligations under finance leases
Deferred revenue
Non-current liabilities
Trade and other payables
Obligations under finance leases
Deferred revenue
Share capital
Share premium
Net assets/Total equity
Cash Flow Data:
Net cash (outflow)/inflow from
operating activities
Net cash outflow from investing
activities
Net cash inflow from financing
activities
52,348
34,606
17,126
11,581
7,642
7,078
4,756
15,514
4,777
7,194
23,468
7,108
355,292 234,872 164,491
385,954 255,142 176,376
438,302 289,748 193,502
3,537
2,408
1,424
4,661
4,633
2,281
38,069 29,335 28,319
47,363 35,280 32,024
58,944 42,922 39,102
(36,338)
(554)
(167)
(4,945)
(24,022)
(366)
(111)
(3,269)
(12,376)
-
(126)
(4,827)
(9,440)
-
(100)
(3,181)
(9,114 )
-
-
(2,449 )
(6,562)
-
(7)
(3,459)
(12,775)
(2,330)
(10,173)
395
(7,927)
(1,781)
(7,881)
237
528,348 349,275 220,551
371,020 245,270 158,584
(8,445)
(1,540)
(6,725)
261
-
-
-
-
(1,905)
-
(8,916) (10,127 ) (11,422)
133
84,005 65,947 65,866
35,402 21,232 17,652
133
178
2015
$
Year Ended September 30,
2015(1) 2014(1) 2013(1) 2012(1)
£
£
£
(in thousands)
£
2011
£
(70,296)
(46,471)
(12,626)
(7,468)
1,801
2,361
(26,912)
(17,791)
(7,095)
(2,076)
(1,060 )
(647)
194,259 128,419 144,267
18,253
73
1,393
(1)
The selected historical consolidated financial data as at September 30, 2015 and 2014 and for the years
ended September 30, 2015, 2014, and 2013 have been derived from our consolidated financial statements,
as presented elsewhere in this Annual Report, which have been prepared in accordance with IFRS as issued
by the IASB and as adopted by the European Union, and audited in accordance with the standards of the
Public Company Accounting Oversight Board (United States). The consolidated financial statement data as
at September 30, 2012 and for the year ended September 30, 2011 have been derived, after certain
reclassifications to conform to the current presentation, from our consolidated financial statements, which
are not presented herein, which have also been prepared in accordance with IFRS as issued by the IASB,
and as adopted by the European Union.
5
(2)
(3)
The selected historical consolidated financial data as at September 30, 2013, 2012 and 2011 and for the
years then ended, reflects a reclassification to report foreign exchange gains and losses, primarily from
balance sheet revaluation, previously reported within “Management and administrative expenses” in a new
income statement line item, titled “Net foreign exchange gains/(losses).” Such reclassification had no
impact on operating profit, profit before tax or profit for the year.
The selected historical consolidated financial data as at September 30, 2014 and for the year then ended,
reflects a reclassification to report the deferred tax asset, previously reported within “Current assets”, to
“Non-current assets.” Such reclassification had no impact on operating profit, profit before tax or profit for
the year.
Exchange rate information
The table below shows the period end, average, high and low exchange rates of U.S. dollars per pound
sterling for the periods shown. Average rates are computed by using the noon buying rate of the Federal Reserve
Bank of New York for the U.S. dollar on the last business day of each month during the relevant year indicated or
each business day during the relevant month indicated. The rates set forth below are provided solely for your
convenience and may differ from the actual rates used in the preparation of our consolidated financial statements
included in this Annual Report.
Year ended September 30:
2011
2012
2013
2014
2015
Month:
May 2015
June 2015
July 2015
August 2015
September 2015
October 2015
November 2015 (through November 27, 2015)
Period End Average (1)
Noon Buying Rate
High
Low
1.5624
1.6132
1.6179
1.6220
1.5116
1.5286
1.5727
1.5634
1.5363
1.5116
1.5445
1.5040
1.6064
1.5768
1.5609
1.6570
1.5447
1.5456
1.5576
1.5560
1.5578
1.5338
1.5343
1.5202
1.6691
1.6263
1.6275
1.7165
1.6216
1.5772
1.5882
1.5634
1.5731
1.5573
1.5475
1.5428
1.5358
1.5301
1.4837
1.5904
1.4648
1.5118
1.5187
1.5353
1.5362
1.5116
1.5162
1.5040
(1) The average of the noon buying rate for pounds sterling on the last day of each full month during the relevant
year or each business day during the relevant month indicated.
B.
Capitalization and Indebtedness.
Not Applicable.
C.
Reasons for the Offer and Use of Proceeds.
Not Applicable.
6
D.
Risk Factors.
Our business has significant risks. You should carefully consider the following risk factors and all other
information contained in this Annual Report, including our consolidated financial statements and the related notes.
The risks and uncertainties described below are those significant risk factors, currently known and specific to us
that we believe are relevant to our business, results of operations and financial condition. Additional risks and
uncertainties not currently known to us or that we now deem immaterial may also impair our business, results of
operations and financial condition.
Risks Related to Our Business
We are dependent on the success of our product candidates, none of which may receive regulatory approval or be
successfully commercialized.
Our success will depend on our ability to successfully commercialize our product pipeline, including
commercialization of Epidiolex for both Dravet syndrome and LGS, Sativex for cancer pain, and our other
cannabinoid product candidates for type-2 diabetes, cancer, epilepsy and schizophrenia. We are evaluating Epidiolex
for the treatment of Dravet syndrome and LGS in the United States and have initiated Phase 3 trials for Dravet
syndrome and LGS; however, Epidiolex may never receive U.S. regulatory approval for the treatment of either of
these indications. We are evaluating Sativex in Phase 3 trials for the treatment of cancer pain in the United States
and the results of none of the three Phase 3 cancer pain trials for Sativex show a statistically significant difference
for Sativex compared with placebo, therefore Sativex may never receive U.S. regulatory approval for the treatment
of cancer pain. Even if completed Phase 3 clinical trials and/or Phase 3 clinical trials conducted for U.S. approval
show positive results, there can be no assurance that the FDA will approve Epidiolex, Sativex or any other product
candidate for any given indication for several potential reasons, including failure to follow Good Clinical Practice,
or GCP, negative assessment of risk to benefit, unacceptable risk of abuse or diversion, insufficient product quality
control and standardization, non-GMP compliant manufacturing facilities and in the absence of a protocol agreed
through the FDA’s Special Protocol Assessment process, refusal by FDA to accept our clinical trial design/or failure
to agree on appropriate clinical endpoints.
Our ability to successfully commercialize Epidiolex, Sativex and our other product candidates will depend
on, among other things, our ability to:
•
•
•
•
•
•
successfully complete pre-clinical studies and clinical trials;
receive regulatory approvals from the FDA and similar foreign regulatory authorities;
produce, through a validated process, in manufacturing facilities inspected and approved by regulatory
authorities, including the FDA, sufficiently large quantities of the product candidate, and the related
Botanical Drug Substances, or BDSs, to permit successful commercialization;
build and maintain strong sales, distribution and marketing capabilities sufficient to launch commercial
sales of our product candidates, or otherwise establish collaborations with third parties for the
commercialization of our product candidates;
obtain reimbursement from payers such as government health care programs and insurance companies and
other private payers, as well as achieve commercially attractive levels of pricing;
secure acceptance of our product candidates from physicians, health care payers, patients and the medical
community;
•
create positive publicity surrounding our product candidates;
• manage our spending as costs and expenses increase due to clinical trials and commercialization; and
•
obtain and enforce sufficient intellectual property for our product candidates.
Our failure or delay with respect to any of the factors above could have a material adverse effect on our business,
results of operations and financial condition.
7
Our product candidates, if approved, may be unable to achieve the expected market acceptance and,
consequently, limit our ability to generate revenue from new products.
Even when product development is successful and regulatory approval has been obtained, our ability to
generate significant revenue depends on the acceptance of our products by physicians and patients. We cannot
assure you that Epidiolex or our other product candidates will achieve the expected market acceptance and revenue
if and when they obtain the requisite regulatory approvals. The market acceptance of any product depends on a
number of factors, including the indication statement and warnings approved by regulatory authorities in the product
label, continued demonstration of efficacy and safety in commercial use, physicians’ willingness to prescribe the
product, reimbursement from third-party payers such as government health care systems and insurance companies,
the price of the product, the nature of any post-approval risk management plans mandated by regulatory authorities,
competition, and marketing and distribution support. Any factors preventing or limiting the market acceptance of
our products could have a material adverse effect on our business, results of operations and financial condition.
In respect of our product candidates targeting rare indications, orphan drug exclusivity may afford limited
protection, and if another party obtains orphan drug exclusivity for the drugs and indications we are targeting,
we may be precluded from commercializing our product candidates in those indications during that period of
exclusivity.
The first New Drug Application, or NDA, applicant with an orphan drug designation for a particular active
moiety to treat a specific disease or condition that receives FDA approval is entitled to a seven-year exclusive
marketing period in the United States for that product, for that indication. There is no assurance that we will
successfully obtain orphan drug designation for future rare indications or orphan exclusivity upon approval of any of
our product candidates that have already obtained designation. Even if we do obtain orphan exclusivity for any
product candidate, the exclusive marketing rights may be lost if the FDA later determines that the request for
designation was materially defective or if the manufacturer is unable to assure sufficient quantity of the drug.
Moreover, a drug product with an active moiety that is a different cannabinoid from that in our drug candidate or,
under limited circumstances, the same drug product, may be approved by the FDA for the same indication during
the period of marketing exclusivity. The limited circumstances include a showing that the second drug is clinically
superior to the drug with marketing exclusivity through a demonstration of superior safety or efficacy or that it
makes a major contribution to patient care. In addition, if a competitor obtains approval and marketing exclusivity
for a drug product with an active moiety that is the same as that in a product candidate we are pursuing for the same
indication, approval of our product candidate would be blocked during the period of marketing exclusivity unless we
could demonstrate that our product candidate is clinically superior to the approved product. In addition, if a
competitor obtains approval and marketing exclusivity for a drug product with an active moiety that is the same as
that in a product candidate we are pursuing for a different orphan indication, this may negatively impact the market
opportunity for our product candidate. There have been legal challenges to aspects of the FDA’s regulations and
policies concerning the exclusivity provisions of the Orphan Drug Act, and future challenges could lead to changes
that affect the protections afforded our products in ways that are difficult to predict. In a recent successful legal
challenge, a court invalidated the FDA’s denial of orphan exclusivity to a drug on the grounds that the drug was not
proven to be clinically superior to a previously approved product containing the same ingredient for the same orphan
use. In response to the decision, the FDA released a policy statement stating that the court’s decision is limited just
to the facts of that particular case and that the FDA will continue to require the sponsor of a designated drug that is
the “same” as a previously approved drug to demonstrate that its drug is clinically superior to that drug upon
approval in order to be eligible for orphan drug exclusivity, or in some cases, to even be eligible for marketing
approval. In the future, there is the potential for additional legal challenges to the FDA’s orphan drug regulations
and policies, and it is uncertain how such challenges might affect our business.
We have to date commercialized only one product, Sativex.
Our only approved product, Sativex is currently being commercialized for spasticity due to multiple
sclerosis, or MS, outside the United States. Even if we obtain regulatory approval for a product other than Sativex,
our future success will still depend in part on the continued successful commercialization of Sativex. Although
Sativex is currently approved in 28 countries outside of the United States for MS spasticity, and is sold in 15 of
those countries, it may never be successfully commercialized in all of these jurisdictions. The commercial success of
Sativex for MS spasticity depends on a number of factors beyond our control, including the willingness of
physicians to prescribe Sativex to patients, payers’ willingness and ability to pay for the drug, the level of pricing
achieved, patients’ response to Sativex, the ability of our marketing partners to generate sales and, given that we
generate revenue from the supply of Sativex to our partners at a fixed percentage of partners’ net sales and that any
increase in our manufacturing costs will adversely affect our margins and our financial condition, our ability to
manufacture Sativex on a cost effective and efficient basis. Accordingly, we cannot assure you that we will succeed
in generating revenue growth through the commercialization of Sativex for MS spasticity. If we are not successful in
the continued commercialization of Sativex for MS spasticity, our business, results of operations and financial
condition may be harmed.
8
We expect to face intense competition, often from companies with greater resources and experience than we
have.
The pharmaceutical industry is highly competitive and subject to rapid change. The industry continues to
expand and evolve as an increasing number of competitors and potential competitors enter the market. Many of
these competitors and potential competitors have substantially greater financial, technological, managerial and
research and development resources and experience than we have. Some of these competitors and potential
competitors have more experience than we have in the development of pharmaceutical products, including
validation procedures and regulatory matters. In addition, Sativex and our product candidates, if successfully
developed, will compete with, product offerings from large and well-established companies that have greater
marketing and sales experience and capabilities than we or our collaboration partners have. In particular, Insys
Therapeutics, Inc. has publicly stated its intention to develop cannabidiol (CBD) in Dravet syndrome, LGS, glioma
and potentially other indications, Zogenix, Inc. is developing low dose fenfluramine in Dravet syndrome, and other
companies with greater resources than us may announce similar plans in the future. In addition, there are non-FDA
approved CBD preparations being made available from companies in the medical marijuana industry, which may be
competitive to Epidiolex. If we are unable to compete successfully, our commercial opportunities will be reduced
and our business, results of operations and financial conditions may be materially harmed.
Product shipment delays could have a material adverse effect on our business, results of operations and financial
condition.
The shipment, import and export of Epidiolex, Sativex and our other product candidates require import and
export licenses. In the United States, the FDA, U.S. Customs and Border Protection, and the Drug Enforcement
Administration, or DEA, and in the United Kingdom, the Home Office, and in other countries, similar regulatory
authorities regulate the import and export of pharmaceutical products that contain controlled substances, including
Sativex, Epidiolex and our other product candidates. Specifically, the import and export process requires the
issuance of import and export licenses by the relevant controlled substance authority in both the importing and
exporting country. We may not be granted, or if granted, maintain, such licenses from the authorities in certain
countries. Even if we obtain the relevant licenses, shipments of Sativex, Epidiolex and our product candidates may
be held up in transit, which could cause significant delays and may lead to product batches being stored outside
required temperature ranges. Inappropriate storage may damage the product shipment resulting in a partial or total
loss of revenue from one or more shipment of Sativex, Epidiolex or our other product candidates. A partial or total
loss of revenue from one or more shipment of Sativex, Epidiolex or our other product candidates could have a
material adverse effect on our business, results of operations and financial condition.
9
If the price for Sativex or any future approved products decreases or if governmental and other third-party payers
do not provide adequate coverage and reimbursement levels our revenue and prospects for profitability will
suffer.
Reimbursement systems in international markets vary significantly by country and by region, and
reimbursement approvals generally must be obtained on a country-by-country basis. Where we have chosen to
collaborate with a third party on product candidate development and commercialization, our partner may elect to
reduce the price of our products in order to increase the likelihood of obtaining reimbursement approvals. In many
countries, products cannot be commercially launched until reimbursement is approved and the negotiation process in
some countries can exceed 12 months. In addition, pricing and reimbursement decisions in certain countries can be
affected by decisions taken in other countries, which can lead to mandatory price reductions and/or additional
reimbursement restrictions across a number of other countries, which may thereby adversely affect our sales and
profitability. In the event that countries impose prices that are not sufficient to allow us or our partners to generate a
profit, our partners may refuse to launch the product in such countries or withdraw the product from the market,
which would adversely affect sales and profitability. For example whereas the All Wales Medicines Strategy Group
has recommended Sativex for use in MS spasticity in Wales, the National Institute for Clinical Excellence published
MS treatment guidelines which did not recommend Sativex for use in England. In Italy the government approves an
annual quota for purchasing hospital medicines from each pharmaceutical company. If the public spending on a
pharmaceutical company’s hospital medicines breaks the approved annual quota, the pharmaceutical company has to
pay back 50% of the payments it has received for having sold medicines to public hospitals in excess of their
approved annual quota. This has caused us to commence discussions with our partner, Almirall, in order to ascertain
how any reimbursement to the Italian government will be allocated between the parties so as to maintain a level of
profitability for us on our sales of Sativex in Italy and has also caused us to commence legal proceedings in Italy to
challenge the quota levied on Sativex hospital sales by the Italian government. Whilst these examples all refer to the
commercialization of Sativex, the same or similar events, such as price decreases, government mandated rebates or
unfavorable reimbursement decisions, could affect the pricing and reimbursement of Epidiolex and our other
product candidates and could have a material adverse effect on our business, results of operations and financial
condition.
Problems in our manufacturing process, failure to comply with manufacturing regulations or unexpected
increases in our manufacturing costs could harm our business, results of operations and financial condition.
We are responsible for the manufacture and supply of Sativex to our collaboration partners and for the
manufacture and supply of Sativex, Epidiolex and other product candidates for use in clinical trials. The
manufacturing of Sativex and our product candidates necessitates compliance with Good Manufacturing Practice, or
GMP, and other regulatory requirements in jurisdictions internationally. Our ability to successfully manufacture
Sativex, Epidiolex and other product candidates involves cultivation of botanical raw material from specific
cannabinoid plants, extraction and purification processes, manufacture of finished products and labeling and
packaging, which includes product information, tamper evidence and anti-counterfeit features, under tightly
controlled processes and procedures. For Sativex and certain of our product candidates, production also requires the
cultivation of cannabinoid plants under highly controlled and standardized conditions. In addition, we must ensure
chemical consistency among our batches, including clinical batches and, if approved, marketing batches.
Demonstrating such consistency may require typical manufacturing controls as well as clinical data. We must also
ensure that our batches conform to complex release specifications. For each step in the manufacturing process for
Sativex, we are currently reliant on single manufacturing facilities and no back-up facilities are yet in place. We
have a second site at which we can grow the specific cannabinoid plants which produce the CBD used in Epidiolex,
but we are currently reliant on a single manufacturing facility, and no back-up facilities are yet in place, for the later
steps in the Epidiolex production process. Because Sativex is a complex mixture manufactured from plant materials,
and because the release specifications may not be identical in all countries, certain batches may fail release testing
and not be able to be commercialized; a number of our product candidates (excluding Epidiolex) also consist of a
complex mixture manufactured from plant materials, and are therefore subject to a similar risk. If we are unable to
manufacture Sativex, Epidiolex or other product candidates in accordance with regulatory specifications, or if there
are disruptions in our manufacturing process due to damage, loss or otherwise, or failure to pass regulatory
inspections of our manufacturing facilities, we may not be able to meet current demand or supply sufficient product
for use in clinical trials, and this may also harm our ability to commercialize Sativex, Epidiolex and our product
candidates on a timely or cost-competitive basis, if at all. We are in the process of expanding and upgrading parts of
our growing and manufacturing facilities in order to meet future demand and FDA requirements, a program which
requires significant time and resources. We are planning a significant expansion of our growing facilities over the
next few years in order to meet potential demand for Epidiolex, including working with several new contractors and
adopting new methods in order to handle and process bulk quantities of botanical raw material. We are planning to
increase the scale in which we manufacture Epidiolex over the next few years in order to meet potential demand for
Epidiolex, including working with several new contractors and, potentially, adopting new processes. These activities
may be unsuccessful, may lead to delays, interruptions to supply, or may prove to be more costly than anticipated.
We may fail to expand our growing and manufacturing capability in time to meet market demand for our products
and product candidates. Any problems in our growing or manufacturing process could have a material adverse effect
on our business, results of operations and financial condition.
10
In addition, before we can begin commercial manufacture of Sativex and any other product candidates for
sale in the United States, we must obtain FDA regulatory approval for the product, which requires a successful FDA
inspection of our manufacturing facilities, processes and quality systems in addition to other product-related
approvals. Further, pharmaceutical manufacturing facilities are continuously subject to inspection by the FDA and
foreign regulatory authorities, before and after product approval. Due to the complexity of the processes used to
manufacture Sativex, Epidiolex and our other product candidates, we may be unable to initially or continue to pass
federal, state or international regulatory inspections in a cost effective manner. If we are unable to comply with
manufacturing regulations, we may be subject to fines, unanticipated compliance expenses, recall or seizure of any
approved products, total or partial suspension of production and/or enforcement actions, including injunctions, and
criminal or civil prosecution. These possible sanctions would adversely affect our business, results of operations and
financial condition.
Further, the processes we use for cultivation of botanical raw material and the production of product
candidates for use in clinical trials may be different to the processes we use to produce commercial product and/or
may not be capable of producing sufficient quantities of product for commercial purposes. We may therefore need to
undertake additional manufacturing process development and scale-up activities before we can commercialize a
product. This may include the conduct of bioequivalence studies to demonstrate that product produced by the
process used to manufacture on a commercial scale is the same as the material used in clinical trials. If we cannot
demonstrate that our commercial scale product is the same as material used in our clinical trials, we may not be
permitted to sell that product, which could have an impact on our business, results of operations and financial
condition.
Product recalls or inventory losses caused by unforeseen events, cold chain interruption and testing difficulties
may adversely affect our operating results and financial condition.
Sativex and our product candidates are manufactured and distributed using technically complex processes
requiring specialized facilities, highly specific raw materials and other production constraints. The complexity of
these processes, as well as strict company and government standards for the manufacture of our products, subjects us
to production risks. For example, during the manufacturing process we have from time to time experienced defects
in components which have caused vial sealing faults, resulting in vial leakage, pump dispenser faults which have
resulted in under-filling of vials and misalignment of labels and tamper evident seals, as well as receipt of faulty
electronic dose counters from our supplier. While product batches released for use in clinical trials or for
commercialization undergo sample testing, some defects may only be identified following product release. In
addition, process deviations or unanticipated effects of approved process changes may result in these intermediate
products not complying with stability requirements or specifications. Some of our products must be stored and
transported at temperatures within a certain range, which is known as "strict cold chain" storage and transportation.
If these environmental conditions deviate, our products' remaining shelf-lives could be impaired or their efficacy and
safety could become adversely affected, making them no longer suitable for use. The occurrence or suspected
occurrence of production and distribution difficulties can lead to lost inventories, and in some cases product recalls,
with consequential reputational damage and the risk of product liability. The investigation and remediation of any
identified problems can cause production delays, substantial expense, lost sales and delays of new product launches.
Sativex and our product candidates contain controlled substances, the use of which may generate public
controversy.
Since Sativex, Epidiolex and our other product candidates contain controlled substances, their regulatory
approval may generate public controversy. Political and social pressures and adverse publicity could lead to delays
in approval of, and increased expenses for, Sativex and our product candidates. These pressures could also limit or
restrict the introduction and marketing of Sativex and our product candidates. Adverse publicity from cannabis
misuse or adverse side effects from cannabis or other cannabinoid products may adversely affect the commercial
success or market penetration achievable by Sativex and our product candidates. The nature of our business attracts
a high level of public and media interest, and in the event of any resultant adverse publicity, our reputation may be
harmed.
11
Business interruptions could delay us in the process of developing our product candidates and could disrupt our
product sales.
Loss of our manufacturing facilities, our growing plants, stored inventory or laboratory facilities through
fire, theft or other causes, or loss of our botanical raw material due to pathogenic infection or other causes, could
have an adverse effect on our ability to meet demand for Sativex, to continue product development activities and to
conduct our business. Failure to supply our partners with commercial product may lead to adverse consequences,
including the right of partners to take over responsibility for product supply. We currently have insurance coverage
to compensate us for such business interruptions; however, such coverage may prove insufficient to fully
compensate us for the damage to our business resulting from any significant property or casualty loss to our
inventory or facilities.
We have significant and increasing liquidity needs and may require additional funding.
Our operations have consumed substantial amounts of cash since inception. Excluding receipts from
milestone fees, our cash flow used for operating activities and capital expenditure, less proceeds from finance leases,
for the years ended September 30, 2015 and September 30, 2014 was £64.4 million and £19.9 million, respectively.
In the first six months to March 31, 2016, we expect our net cash outflow used for operating activities to be in the
range of £32-37 million ($48-56 million) as we aim to progress four Epidiolex Dravet and LGS Phase 3 clinical
trials towards completion in 2016, initiate clinical trial programs for Epidiolex in new indications, scale up our
Epidiolex growing and manufacturing activities to supply near-term demand and increase spend on U.S. commercial
operations as we prepare to commercialize Epidiolex. We also expect our capital expenditure to decrease to
approximately £13-15 million ($20-23 million) in 2016 as we complete construction of our upgraded commercial
manufacturing facilities and expand Epidiolex growing and manufacturing capacity. Research and development,
management and administrative expenses and cash used for operations will continue to be significant and may
increase substantially in future connection with new research and development initiatives, continued product
commercialization efforts and as we continue to grow as a U.S. public company. We may need to raise additional
capital to fund our operations, continue to conduct clinical trials to support potential regulatory approval of
marketing applications, and to fund commercialization of our products.
The amount and timing of our future funding requirements will depend on many factors, including, but not
limited to:
•
•
•
•
•
•
•
•
•
the timing of FDA approval, if any, and approvals in international markets of our product candidates, if
at all;
the timing and amount of revenue from sales of Sativex, or revenue from grants or other sources;
the rate of progress and cost of our clinical trials and other product development programs;
costs of establishing or outsourcing sales, marketing and distribution capabilities;
costs and timing of completion of expanded in-house manufacturing facilities as well as any
outsourced growing and commercial manufacturing supply arrangements for our product candidates;
costs of filing, prosecuting, defending and enforcing any patent claims and other intellectual property
rights associated with our product candidates;
costs of operating as a U.S. public company;
the effect of competing technological and market developments;
the continuation of our existing collaboration agreements;
•
•
personnel, facilities and equipment requirements; and
the terms and timing of any additional collaborative, licensing, co-promotion or other arrangements
that we may establish.
While we expect to fund our future capital requirements from a number of sources including cash flow
from operations (including milestone and other payments from our partners), the proceeds from further public
offerings, the proceeds from the exercise of share options and warrants, we cannot assure you that any of these
funding sources will be available to us on favorable terms, or at all. Further, even if we can raise funds from all of
the above sources, the amounts raised may not be sufficient to meet our future capital requirements.
12
The presence or absence of one or more new large orders in a specific quarter, our ability to process orders or the
cancellation of previous orders may cause our results of operations to fluctuate significantly on a quarterly basis.
We supply Sativex to our commercial partners in response to their monthly purchase order schedules.
Historically, the size of each purchase order has fluctuated. As a result, the presence or absence in a specific quarter
of one or more new large orders or delays in our ability to process large orders or the cancellation of previous orders
may cause our results of operations to fluctuate on a quarterly basis. These fluctuations may be significant from one
quarter to the next. Any demands that require us to quickly increase production may create difficulties for us. In
addition, our limited commercial history and the characteristic of our orders in any quarterly period make it very
difficult to accurately predict or forecast our future operating results.
We are exposed to risks related to currency exchange rates.
We conduct a significant portion of our operations outside the United Kingdom. Because our financial
statements are presented in pounds sterling, changes in currency exchange rates have had and could have a
significant effect on our operating results. Exchange rate fluctuations between local currencies and the pound
sterling create risk in several ways, including the following: weakening of the pound sterling may increase the
pound sterling cost of overseas research and development expenses and the cost of sourced product components
outside the United Kingdom; strengthening of the pound sterling may decrease the value of our revenues
denominated in other currencies; the exchange rates on non-sterling transactions and cash deposits can distort our
financial results; and commercial Sativex pricing and profit margins are affected by currency fluctuations.
If product liability lawsuits are successfully brought against us, we will incur substantial liabilities and may be
required to limit the commercialization of Sativex and our product candidates.
Although we have never had any product liability claims or lawsuits brought against us, we face potential
product liability exposure related to the testing of our product candidates in human clinical trials, and we currently
face exposure to claims in jurisdictions where we market and distribute Sativex. We may face exposure to claims by
an even greater number of persons if we begin marketing and distributing our products commercially in the United
States and elsewhere. Now, and in the future, an individual may bring a liability claim against us alleging that
Sativex or one of our product candidates caused an injury. While we continue to take what we believe are
appropriate precautions, we may be unable to avoid significant liability if any product liability lawsuit is brought
against us. Although we have purchased insurance to cover product liability lawsuits, if we cannot successfully
defend ourselves against product liability claims, or if such insurance coverage is inadequate, we will incur
substantial liabilities. Regardless of merit or eventual outcome, liability claims may result in:
•
•
decreased demand for Sativex and our other product candidates, if such product candidates are approved;
injury to our reputation;
• withdrawal of clinical trial participants;
•
•
•
•
•
costs of related litigation;
substantial monetary awards to patients and others;
increased cost of liability insurance;
loss of revenue; and
the inability to successfully commercialize our products.
Counterfeit versions of our products could harm our business
Counterfeiting activities and the presence of counterfeit products in a number of markets and over the
Internet continue to be a challenge for maintaining a safe drug supply for the pharmaceutical industry. Counterfeit
products are frequently unsafe or ineffective, and can be life-threatening. To distributors and users, counterfeit
products may be visually indistinguishable from the authentic version. Reports of adverse reactions to counterfeit
drugs along with increased levels of counterfeiting could be mistakenly attributed to the authentic product, affect
patient confidence in the authentic product and harm the business of companies such as ours. If our products were to
be the subject of counterfeits, we could incur substantial reputational and financial harm.
13
We have recently grown our business and will need to further increase the size and complexity of our organization
in the future, and we may experience difficulties in managing our growth and executing our growth strategy.
Our management and personnel, systems and facilities currently in place may not be adequate to support our
business plan and future growth. With the initiation of Phase 3 clinical trials for Epidiolex in parallel with
completion of our program of Phase 3 clinical trials for Sativex, coupled with the decision to promote and market in
the US the product candidates for with we receive marketing approval from FDA, we have increased our number of
full-time employees from 194 on 30 September 2013 to 369 as of 30 September 2015, primarily because we are
conducting all of our Phase 2 and 3 clinical trials of Epidiolex and our other product candidates ourselves and
establishing a commercial organization and our commercial infrastructure. As a result of these activities the
complexity of our business operations has substantially increased. We will need to further expand our scientific,
sales and marketing, managerial, operational, financial and other resources to support our planned research,
development and commercialization activities.
Our need to effectively manage our operations, growth and various projects requires that we:
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continue to improve our operational, financial, management and regulatory compliance controls and reporting
systems and procedures;
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attract and retain sufficient numbers of talented employees;
● manage our commercialization activities effectively and in a cost-effective manner;
● manage our clinical trials effectively;
● manage our internal manufacturing operations effectively and in a cost effective manner;
● manage our development efforts effectively while carrying out our contractual obligations to contractors and
other third parties; and
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continue to improve our facilities.
In addition, historically, we have utilized and continue to utilize the services of part-time outside consultants
and contractors to perform a number of tasks for us, including tasks related to compliance programs, clinical trial
management, regulatory affairs, formulation development and other drug development functions. Our growth
strategy may also entail expanding our use of consultants and contractors to implement these and other tasks going
forward. Because we rely on consultants and contractors for certain functions of our business, we will need to be
able to effectively manage these consultants and contractors to ensure that they successfully carry out their
contractual obligations and meet expected deadlines. There can be no assurance that we will be able to manage our
existing consultants and contractors or find other competent outside expertise, as needed, on economically
reasonable terms, or at all. If we are not able to effectively expand our organization by hiring new employees and
expanding our use of consultants and contractors, we may be unable to successfully implement the tasks necessary
to effectively execute on our planned research, development and commercialization activities and, accordingly, may
not achieve our research, development and commercialization goals.
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We depend upon our key personnel and our ability to attract and retain employees.
Our future growth and success depend on our ability to recruit, retain, manage and motivate our employees.
The loss of the services of any member of our senior management, including our Chairman, Dr. Geoffrey Guy, our
Chief Executive Officer, Justin Gover and our Chief Medical Officer, Dr. Stephen Wright, or the inability to hire or
retain experienced management personnel could adversely affect our ability to execute our business plan and harm
our operating results. Because of the specialized scientific and managerial nature of our business, we rely heavily on
our ability to attract and retain qualified scientific, technical and managerial personnel. The competition for qualified
personnel in the pharmaceutical field is intense. Due to this intense competition, we may be unable to continue to
attract and retain qualified personnel necessary for the development of our business or to recruit suitable
replacement personnel.
Our employees may engage in misconduct or other improper activities, including noncompliance with regulatory
standards and requirements.
We are exposed to the risk of employee fraud or other misconduct. Misconduct by employees could include
intentional failures to comply with FDA regulations, provide accurate information to the FDA, comply with
applicable manufacturing standards, comply with other federal and state laws and regulations, report information or
data accurately or disclose unauthorized activities to us. Employee misconduct could also involve the improper use
of information obtained in the course of clinical trials, or illegal misappropriation of drug product, which could
result in serious harm to our reputation. We have adopted a Code of Business Conduct and Ethics, but it is not
always possible to identify and deter employee misconduct, and the precautions we take to detect and prevent this
activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from
governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws
or regulations. If any such actions are instituted against us, and we are not successful in defending ourselves or
asserting our rights, those actions could have a significant impact on our business, including the imposition of
significant fines or other sanctions.
If we are unable to use net operating loss carry-forwards and certain built-in losses to reduce future tax payments
or benefit from favorable tax legislation, our business, results of operations and financial condition may be
adversely affected.
As a U.K. resident trading company, we are predominantly subject to U.K. corporate taxation. At
September 30, 2015, we had cumulative carry-forward tax losses of £74.0 million, available to offset against future
profits. The majority of these tax loss attributes have not been recognized on our balance sheet at September 30,
2015. Additionally, as we carry out extensive research and development activities in the U.K., we benefit from the
U.K. research and development tax credit regime for small and medium sized companies, whereby our principal
research subsidiary, GW Research Ltd., is able to surrender a portion of available losses that arise from research and
development activity for a refundable credit of up to approximately 33.4% of the eligible research and development
expenditure. We may also benefit in the future from the UK’s "patent box" regime, which would allow certain
profits attributable to revenue from patented products to be taxed at a lower rate than other profits that over time will
be reduced to 10%. When taken in combination with our available carry-forward tax losses and the enhanced relief
available on our research and development expenditure, we expect that this may result in a long-term low rate of
corporation tax. If, however, we are unable to generate sufficient future taxable profits, or implement feasible tax
planning strategies to utilize our carry-forward losses, or there are unexpected adverse changes to the U.K. research
and development tax credit regime or "patent box" regime, or we are unable to qualify for such advantageous tax
legislation, our business, results of operations and financial condition may be adversely affected.
We are subject to the U.K. Bribery Act, the U.S. Foreign Corrupt Practices Act and other anti-corruption laws, as
well as export control laws, customs laws, sanctions laws and other laws governing our operations. If we fail to
comply with these laws, we could be subject to civil or criminal penalties, other remedial measures, and legal
expenses, which could adversely affect our business, results of operations and financial condition.
Our operations are subject to anti-corruption laws, including the U.K. Bribery Act 2010, or Bribery Act, the
U.S. Foreign Corrupt Practices Act, or FCPA, and other anti-corruption laws that apply in countries where we do
business. The Bribery Act, FCPA and these other laws generally prohibit us and our employees and intermediaries
from bribing, being bribed or making other prohibited payments to government officials or other persons to obtain
or retain business or gain some other business advantage. We and our commercial partners operate in a number of
jurisdictions that pose a high risk of potential Bribery Act or FCPA violations, and we participate in collaborations
and relationships with third parties whose actions could potentially subject us to liability under the Bribery Act,
FCPA or local anti-corruption laws. In addition, we cannot predict the nature, scope or effect of future regulatory
requirements to which our international operations might be subject or the manner in which existing laws might be
administered or interpreted.
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We are also subject to other laws and regulations governing our international operations, including
regulations administered by the governments of the United Kingdom and the United States, and authorities in the
European Union, including applicable export control regulations, economic sanctions on countries and persons,
customs requirements and currency exchange regulations, collectively referred to as the Trade Control laws.
However, there is no assurance that we will be completely effective in ensuring our compliance with all
applicable anti-corruption laws, including the Bribery Act, the FCPA or other legal requirements, including Trade
Control laws. If we are not in compliance with the Bribery Act, the FCPA and other anti-corruption laws or Trade
Control laws, we may be subject to criminal and civil penalties, disgorgement and other sanctions and remedial
measures, and legal expenses, which could have an adverse impact on our business, financial condition, results of
operations and liquidity. Likewise, any investigation of any potential violations of the Bribery Act, the FCPA, other
anti-corruption laws or Trade Control laws by U.K., U.S. or other authorities could also have an adverse impact on
our reputation, our business, results of operations and financial condition.
Failure of our information technology systems could significantly disrupt the operation of our business.
Our business increasingly depends on the use of information technologies, which means that certain key
areas such as research and development, production and sales are to a large extent dependent on our information
systems or those of third party providers, notably for storing and transferring confidential or sensitive information.
Our ability to execute our business plan and to comply with regulators requirements with respect to data control and
data integrity, depends, in part, on the continued and uninterrupted performance of our information technology
systems, or IT systems and the IT systems supplied by third-party service providers. These systems are vulnerable to
damage from a variety of sources, including telecommunications or network failures, malicious human acts and
natural disasters. Moreover, despite network security and backup measures, some of our servers are potentially
vulnerable to physical or electronic break-ins, computer viruses and similar disruptive problems. Despite the
precautionary measures we and our third-party service providers have taken to prevent unanticipated problems that
could affect our IT systems, sustained or repeated system failures or problems arising during the upgrade of any of
our IT systems that interrupt our ability to generate and maintain data, and in particular to operate our proprietary
technology platform, could adversely affect our ability to operate our business.
Legislative or regulatory reform of the health care system in the United States and foreign jurisdictions may
affect our ability to profitably sell our products, if approved.
Our ability to commercialize our future products successfully, alone or with collaborators, will depend in
part on the extent to which coverage and reimbursement for the products will be available from government and
health administration authorities, private health insurers and other third-party payers. The continuing efforts of the
U.S. and foreign governments, insurance companies, managed care organizations and other payers of health care
services to contain or reduce health care costs may adversely affect our ability to set prices for our products which
we believe are fair, and our ability to generate revenues and achieve and maintain profitability.
Specifically, in both the United States and some foreign jurisdictions, there have been a number of
legislative and regulatory proposals to change the health care system in ways that could affect our ability to sell our
products profitably. For example, the Patient Protection and Affordable Care Act, as amended by the Health Care
and Education Reconciliation Act, or collectively the ACA, enacted in the United States in March 2010,
substantially changes the way healthcare is financed by both governmental and private insurers.
We expect additional federal and state proposals and health care reforms to continue to be proposed by
legislators, which could limit the prices that can be charged for the products we develop and may limit our
commercial opportunity.
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The continuing efforts of government and other third-party payers to contain or reduce the costs of health
care through various means may limit our commercial opportunity. It will be time consuming and expensive for us
to go through the process of seeking coverage and reimbursement from Medicare and private payers. Our products
may not be considered cost effective, and government and third-party private health insurance coverage and
reimbursement may not be available to patients for any of our future products or sufficient to allow us to sell our
products on a competitive and profitable basis. Our results of operations could be adversely affected by ACA and by
other health care reforms that may be enacted or adopted in the future. In addition, increasing emphasis on managed
care in the United States will continue to put pressure on the pricing of pharmaceutical products. Cost control
initiatives could decrease the price that we or any potential collaborators could receive for any of our future products
and could adversely affect our ability to generate revenue in the U.S. market and maintain profitability.
In some foreign countries, including major markets in the European Union, the pricing of prescription
pharmaceuticals is subject to governmental control. In these countries, pricing negotiations with governmental
authorities can take 6 to 12 months or longer after the receipt of regulatory approval for a product. To obtain
reimbursement or pricing approval in some countries, we may be required to conduct a pharmacoeconomic study
that compares the cost-effectiveness of our product candidates to other available therapies. Such pharmacoeconomic
studies can be costly and the results uncertain. Our business could be harmed if reimbursement of our products is
unavailable or limited in scope or amount or if pricing is set at unsatisfactory levels.
We may acquire other companies which could divert our management's attention, result in additional dilution to
our shareholders and otherwise disrupt our operations and harm our operating results.
We may in the future seek to acquire businesses, products or technologies that we believe could
complement or expand our product offerings, enhance our technical capabilities or otherwise offer growth
opportunities. The pursuit of potential acquisitions may divert the attention of management and cause us to incur
various expenses in identifying, investigating and pursuing suitable acquisitions, whether or not they are
consummated. If we acquire additional businesses, we may not be able to integrate the acquired personnel,
operations and technologies successfully, or effectively manage the combined business following the acquisition.
We also may not achieve the anticipated benefits from the acquired business due to a number of factors, including:
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incurrence of acquisition-related costs;
diversion of management's attention from other business concerns;
unanticipated costs or liabilities associated with the acquisition;
harm to our existing business relationships with collaboration partners as a result of the acquisition;
harm to our brand and reputation;
the potential loss of key employees;
use of resources that are needed in other parts of our business; and
use of substantial portions of our available cash to consummate the acquisition.
In the future, if our acquisitions do not yield expected returns, we may be required to take charges to our
operating results arising from the impairment assessment process. Acquisitions may also result in dilutive issuances
of equity securities or the incurrence of debt, which could adversely affect our operating results. In addition, if an
acquired business fails to meet our expectations, our business, results of operations and financial condition may be
adversely affected.
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Risks Related to Development and Regulatory Approval of Sativex and Our Product Candidates
Clinical trials for our product candidates are expensive, time-consuming, uncertain and susceptible to change,
delay or termination.
Clinical trials are expensive, time consuming and difficult to design and implement. Even if the results of
our clinical trials are favorable, the clinical trials for a number of our product candidates are expected to continue for
several years and may take significantly longer to complete. In addition, we, the FDA, an Institutional Review
Board, or IRB, or other regulatory authorities, including state and local authorities, may suspend, delay or terminate
our clinical trials at any time, require us to conduct additional clinical trials, require a particular clinical trial to
continue for a longer duration than originally planned, require a change to our development plans such that we
conduct clinical trials for a product candidate in a different order, e.g., in a step-wise fashion rather than running two
trials of the same product candidate in parallel, or the DEA could suspend or terminate the registrations and quota
allotments we require in order to procure and handle controlled substances, for various reasons, including:
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lack of effectiveness of any product candidate during clinical trials;
discovery of serious or unexpected toxicities or side effects experienced by trial participants or other
safety issues, such as drug: drug interactions, including those which cause confounding changes to the
levels of other concomitant medications. In this regard it should be noted that the data from the
expanded access studies with Epidiolex we are currently supporting, as presented by Devinsky et al at
the Annual Meeting of the American Epilepsy Society held in December 2015, indicates that
Clobazam co-therapy is associated with a higher rate of treatment response (median reduction in
convulsive seizures (CBD with v. without Clobazam) at week 12 of treatment. However, this effect is
not seen in patients with Dravet syndrome or LGS. We will shortly be initiating a Company-sponsored
double-blinded, placebo controlled Phase 2 trial to investigate this drug:drug interaction in a controlled
and scientific manner;
slower than expected rates of subject recruitment and enrollment rates in clinical trials;
difficulty in retaining subjects who have initiated a clinical trial but may withdraw at any time due to
adverse side effects from the therapy, insufficient efficacy, fatigue with the clinical trial process or for
any other reason;
delays or inability in manufacturing or obtaining sufficient quantities of materials for use in clinical
trials due to regulatory and manufacturing constraints;
inadequacy of or changes in our manufacturing process or product formulation;
delays in obtaining regulatory authorization to commence a trial, including "clinical holds" or delays
requiring suspension or termination of a trial by a regulatory agency, such as the FDA, before or after a
trial is commenced;
• DEA-related recordkeeping, reporting or security violations at a clinical site, leading the DEA or state
authorities to suspend or revoke the site's controlled substance license and causing a delay or
termination of planned or ongoing trials;
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changes in applicable regulatory policies and regulation, including changes to requirements imposed
on the extent, nature or timing of studies;
delays or failure in reaching agreement on acceptable terms in clinical trial contracts or protocols with
prospective clinical trial sites;
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uncertainty regarding proper dosing;
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delay or failure to supply product for use in clinical trials which conforms to regulatory specification;
unfavorable results from ongoing pre-clinical studies and clinical trials;
failure of our contract research organizations, or CROs, or other third-party contractors to comply with
all contractual requirements or to perform their services in a timely or acceptable manner;
failure by us, our employees, our CROs or their employees to comply with all applicable FDA or other
regulatory requirements relating to the conduct of clinical trials or the handling, storage, security and
recordkeeping for controlled substances;
scheduling conflicts with participating clinicians and clinical institutions;
failure to design appropriate clinical trial protocols;
regulatory concerns with cannabinoid products generally and the potential for abuse;
insufficient data to support regulatory approval;
inability or unwillingness of medical investigators to follow our clinical protocols; or
difficulty in maintaining contact with patients during or after treatment, which may result in
incomplete data.
Any of the foregoing could have a material adverse effect on our business, results of operations and financial
condition.
Any failure by us to comply with existing regulations could harm our reputation and operating results.
We are subject to extensive regulation by U.S. federal and state and foreign governments in each of the
markets where we currently sell Sativex or in markets where we have product candidates progressing through the
approval process. We must adhere to all regulatory requirements including the FDA's Good Laboratory Practice,
current Good Manufacturing Practice, or cGMP, and Good Clinical Practice requirements. If we or our suppliers fail
to comply with applicable regulations, including FDA pre-or post-approval cGMP requirements, then the FDA or
other foreign regulatory authorities could sanction us. Even if a drug is FDA-approved, regulatory authorities may
impose significant restrictions on a product's indicated uses or marketing or impose ongoing requirements for
potentially costly post-marketing trials.
If any of our product candidates is approved in the United States, it will be subject to ongoing regulatory
requirements for labeling, packaging, storage, advertising, promotion, sampling, recordkeeping and submission of
safety and other post-market information, including both federal and state requirements in the United States. In
addition, manufacturers and manufacturers' facilities are required to comply with extensive FDA requirements,
including ensuring that quality control and manufacturing procedures conform to cGMP. As such, we and our
contract manufacturers (in the event contract manufacturers are appointed in the future) are subject to continual
review and periodic inspections to assess compliance with cGMP. Accordingly, we and others with whom we work
must continue to expend time, money and effort in all areas of regulatory compliance, including manufacturing,
production, quality control and quality assurance. We will also be required to report certain adverse reactions and
production problems, if any, to the FDA, and to comply with requirements concerning advertising and promotion for
our products. Promotional communications with respect to prescription drugs are subject to a variety of legal and
regulatory restrictions and must be consistent with the information in the product's approved label. As such, we may
not promote our products for indications or uses for which they do not have FDA approval.
If a regulatory agency discovers previously unknown problems with a product, such as adverse events of
unanticipated severity or frequency, or problems with the facility where the product is manufactured, or disagrees
with the promotion, marketing or labeling of the product, it may impose restrictions on that product or us, including
requiring withdrawal of the product from the market. If we fail to comply with applicable regulatory requirements, a
regulatory agency or enforcement authority may:
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issue warning letters;
impose civil or criminal penalties;
suspend regulatory approval;
suspend any of our ongoing clinical trials;
refuse to approve pending applications or supplements to approved applications submitted by us;
impose restrictions on our operations, including by requiring us to enter in to a Corporate Integrity
Agreement or closing our contract manufacturers' facilities, if any; or
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seize or detain products or require a product recall.
Any government investigation of alleged violations of law could require us to expend significant time and
resources in response, and could generate negative publicity. Any failure to comply with ongoing regulatory
requirements may significantly and adversely affect our ability to commercialize and generate revenue from Sativex
and our product candidates. If regulatory sanctions are applied or if regulatory approval is withdrawn, the value of
our business and our operating results will be adversely affected. Additionally, if we are unable to generate revenue
from sales of Sativex, our potential for achieving profitability will be diminished and the capital necessary to fund
our operations will be increased.
Any action against us for violation of these laws, even if we successfully defend against it, could cause us
to incur significant legal expenses, divert our management's attention from the operation of our business and damage
our reputation. We expend significant resources on compliance efforts and such expenses are unpredictable and
might adversely affect our results. Changing laws, regulations and standards might also create uncertainty, higher
expenses and increase insurance costs. As a result, we intend to invest all reasonably necessary resources to comply
with evolving standards, and this investment might result in increased management and administrative expenses and
a diversion of management time and attention from revenue-generating activities to compliance activities.
Information obtained from expanded access studies may not reliably predict the efficacy of our product
candidates in company-sponsored clinical trials and may lead to adverse events that could limit approval.
The expanded access studies we are currently supporting are uncontrolled, carried out by individual
investigators and not typically conducted in strict compliance with GCPs, all of which can lead to a treatment effect
which may differ from that in placebo-controlled trials. These studies provide only anecdotal evidence of efficacy
for regulatory review. These studies contain no control or comparator group for reference and these patient data are
not designed to be aggregated or reported as study results. Moreover, data from such small numbers of patients may
be highly variable. Information obtained from these studies, including the statistical principles that we and the
independent investigators have chosen to apply to the data, may not reliably predict data collected via systematic
evaluation of the efficacy in company-sponsored clinical trials or evaluated via other statistical principles that may
be applied in those trials. Reliance on such information to design our clinical trials may lead to Phase 2 and 3 trials
that are not adequately designed to demonstrate efficacy and could delay or prevent our ability to seek approval of
Epidiolex.
Expanded access programs provide supportive safety information for regulatory review. Physicians
conducting these studies may use Epidiolex in a manner inconsistent with the protocol, including in children with
conditions beyond those being studied in GW-sponsored trials. Any adverse events or reactions experienced by
subjects in the expanded access program may be attributed to Epidiolex and may limit our ability to obtain
regulatory approval with labeling that we consider desirable, or at all.
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There is a high rate of failure for drug candidates proceeding through clinical trials.
Generally, there is a high rate of failure for drug candidates proceeding through clinical trials. We may
suffer significant setbacks in our clinical trials similar to the experience of a number of other companies in the
pharmaceutical and biotechnology industries, even after receiving promising results in earlier trials. In this regard,
the results of none of the three Phase 3 cancer pain trials for Sativex showed a statistically significant difference for
Sativex compared with placebo even though the results of the preceding Phase 2 cancer pain trials for Sativex did
show positive results. Further, even if we view the results of a clinical trial to be positive, the FDA or other
regulatory authorities may disagree with our interpretation of the data. In the event that we obtain negative results
from clinical trials for Epidiolex or our other product candidates, or the FDA places a clinical hold on our trials due
to potential Chemistry, Manufacturing and Controls issues or other hurdles or does not approve our NDA for our
product candidates, we may not be able to generate sufficient revenue or obtain financing to continue our operations,
our ability to execute on our current business plan will be materially impaired, our reputation in the industry and in
the investment community would likely be significantly damaged and the price of our ADSs would likely decrease
significantly. In addition, our inability to properly design, commence and complete clinical trials may negatively
impact the timing and results of our clinical trials and ability to seek approvals for our drug candidates.
The anticipated development of a Risk Evaluation and Mitigation Strategy (REMS) for our product candidates
could cause delays in the approval process and would add additional layers of regulatory requirements that could
impact our ability to commercialize our product candidates in the United States and reduce their market
potential.
As a condition of approval of an NDA, the FDA may require a Risk Evaluation and Mitigation Strategies
(REMS) to ensure that the benefits of the drug outweigh the potential risks. REMS elements can include medication
guides, communication plans for health care professionals, and elements to assure safe use, or ETASU. ETASU can
include, but are not limited to, special training or certification for prescribing or dispensing, dispensing only under
certain circumstances, special monitoring and the use of patient registries. Moreover, product approval may require
substantial post-approval testing and surveillance to monitor the drug's safety or efficacy. We may be required to
adopt a REMS for our product candidates to ensure that the benefits outweigh the risks of abuse, misuse, diversion
and other potential safety concerns. Even if abuse, misuse and diversion are not as high as for other cannabinoid
products, there can be no assurance that the FDA will approve a manageable REMS for our product candidates,
which could create material and significant limits on our ability to successfully commercialize our product
candidates in the United States. Delays in the REMS approval process could result in delays in the NDA approval
process. In addition, as part of the REMS, the FDA could require significant restrictions, such as restrictions on the
prescription, distribution and patient use of the product, which could significantly impact our ability to effectively
commercialize our product candidates, and dramatically reduce their market potential thereby adversely impacting
our business, financial condition and results of operations. Even if initial REMS are not highly restrictive, if, after
launch, our product candidates were to be subject to significant abuse/non-medical use or diversion from licit
channels, this could lead to negative regulatory consequences, including a more restrictive REMS.
If we are found in violation of federal or state “fraud and abuse” laws, we may be required to pay a penalty
and/or be suspended from participation in federal or state health care programs, which may adversely affect our
business, financial condition and results of operations.
After we obtain regulatory approval for our products in the United States, if any, we will be subject to
various federal and state health care “fraud and abuse” laws, including anti-kickback laws, false claims laws and
other laws intended to reduce fraud and abuse in federal and state health care programs, which could affect us
particularly upon successful commercialization of our products in the United States. The Medicare and Medicaid
Patient Protection Act of 1987, or federal Anti-Kickback Statute, makes it illegal for any person, including a
prescription drug manufacturer (or a party acting on its behalf), to knowingly and willfully solicit, receive, offer or
pay any remuneration that is intended to induce the referral of business, including the purchase, order or prescription
of a particular drug for which payment may be made under a federal health care program, such as Medicare or
Medicaid. Under federal government regulations, some arrangements, known as safe harbors, are deemed not to
violate the federal Anti-Kickback Statute. Although we seek to structure our business arrangements in compliance
with all applicable requirements, these laws are broadly written, and it is often difficult to determine precisely how
the law will be applied in specific circumstances. Accordingly, it is possible that our practices may be challenged
under the federal Anti-Kickback Statute. False claims laws prohibit anyone from knowingly and willfully presenting
or causing to be presented for payment to third-party payers, including government payers, claims for reimbursed
drugs or services that are false or fraudulent, claims for items or services that were not provided as claimed, or
claims for medically unnecessary items or services. Cases have been brought under false claims laws alleging that
off-label promotion of pharmaceutical products or the provision of kickbacks has resulted in the submission of false
claims to governmental health care programs. Under the Health Insurance Portability and Accountability Act of
1996, we are prohibited from knowingly and willfully executing a scheme to defraud any health care benefit
program, including private payers, or knowingly and willfully falsifying, concealing or covering up a material fact
or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for
health care benefits, items or services. Violations of fraud and abuse laws may be punishable by criminal and/or
civil sanctions, including fines and/or exclusion or suspension from federal and state health care programs such as
Medicare and Medicaid and debarment from contracting with the U.S. government. In addition, private individuals
have the ability to bring actions on behalf of the government under the federal False Claims Act as well as under the
false claims laws of several states.
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Many states have adopted laws similar to the federal anti-kickback statute, some of which apply to the
referral of patients for health care services reimbursed by any source, not just governmental payers. In addition,
California and a few other states have passed laws that require pharmaceutical companies to comply with the April
2003 Office of Inspector General Compliance Program Guidance for Pharmaceutical Manufacturers and/or the
Pharmaceutical Research and Manufacturers of America Code on Interactions with Healthcare Professionals. In
addition, several states impose other marketing restrictions or require pharmaceutical companies to make marketing
or price disclosures to the state. There are ambiguities as to what is required to comply with these state requirements
and if we fail to comply with an applicable state law requirement we could be subject to penalties.
Neither the government nor the courts have provided definitive guidance on the application of fraud and
abuse laws to our business. Law enforcement authorities are increasingly focused on enforcing these laws, and it is
possible that some of our practices may be challenged under these laws. While we believe we have structured our
business arrangements to comply with these laws, it is possible that the government could allege violations of, or
convict us of violating, these laws. If we are found in violation of one of these laws, we could be required to pay a
penalty and could be suspended or excluded from participation in federal or state health care programs, and our
business, results of operations and financial condition may be adversely affected.
Our ability to research, develop and commercialize Sativex and our product candidates is dependent on our
ability to maintain licenses relating to the cultivation, possession and supply of controlled substances.
Our research and manufacturing facilities are located exclusively in the United Kingdom. In the United
Kingdom, licenses to cultivate, possess and supply cannabis for medical research are granted by the Home Office on
an annual basis. Although the Home Office has renewed our licenses each year since 1998, it may not do so in the
future, in which case we may not be in a position to carry on our research and development program in the United
Kingdom. In addition, we are required to maintain our existing commercial licenses to cultivate, produce and supply
cannabis. However, if the Home Office were not prepared to renew such licenses, we would be unable to
manufacture and distribute our products on a commercial basis in the United Kingdom or beyond. In order to carry
out research in countries other than the United Kingdom, similar licenses to those outlined above are required to be
issued by the relevant authority in each country. In addition, we will be required to obtain licenses to export from the
United Kingdom and to import into the recipient country. To date, we have obtained necessary import and export
licenses to 37 countries. Although we have an established track record of successfully obtaining such licenses as
required, this may change in the future.
In the United States, the DEA regulates the cultivation, possession and supply of cannabis for medical
research and/or commercial development, including the requirement of annual registrations to manufacture or
distribute pharmaceutical products derived from cannabis extracts. We do not currently conduct manufacturing or
repackaging/relabeling of any product candidates in the United States. In the event that we sought to do so in the
future, a decision to manufacture, or supply cannabis extracts for medical research or commercial development in
the United States would require that we and/or our contract manufacturers maintain such registrations, and be
subject to other regulatory requirements such as manufacturing quotas, and if the DEA failed to issue or renew such
registrations, we would be unable to manufacture and distribute any product in the United States on a commercial
basis.
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Serious adverse events or other safety risks could require us to abandon development and preclude, delay or limit
approval of our product candidates, or limit the scope of any approved label or market acceptance.
If Sativex or any of our product candidates, prior to or after any approval for commercial sale, cause
serious or unexpected side effects, or are associated with other safety risks such as misuse, abuse or diversion, a
number of potentially significant negative consequences could result, including:
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regulatory authorities may interrupt, delay or halt clinical trials;
regulatory authorities may deny regulatory approval of our product candidates;
regulatory authorities may require certain labeling statements, such as warnings or contraindications or
limitations on the indications for use, and/or impose restrictions on distribution in the form of a Risk
Evaluation and Mitigation Strategy, or REMS, in connection with approval, if any;
regulatory authorities may withdraw their approval, require more onerous labeling statements or impose a
more restrictive REMS of any product that is approved;
• we may be required to change the way the product is administered or conduct additional clinical trials;
•
our relationships with our collaboration partners may suffer;
• we could be sued and held liable for harm caused to patients; or
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our reputation may suffer. The reputational risk is heightened with respect to those of our product
candidates that are being developed for pediatric indications,
We may voluntarily suspend or terminate our clinical trials if at any time we believe that they present an
unacceptable risk to participants or if preliminary data demonstrate that our product candidates are unlikely to
receive regulatory approval or unlikely to be successfully commercialized. To date, we have only voluntarily
suspended clinical trials when recruitment of the target patients has proven to be too difficult. In addition, regulatory
agencies, IRBs or data safety monitoring boards may at any time recommend the temporary or permanent
discontinuation of our clinical trials or request that we cease using investigators in the clinical trials if they believe
that the clinical trials are not being conducted in accordance with applicable regulatory requirements, or that they
present an unacceptable safety risk to participants. Although we have never been asked by a regulatory agency, IRB
or data safety monitoring board to temporarily or permanently discontinue a clinical trial, if we elect or are forced to
suspend or terminate a clinical trial of any of our product candidates, the commercial prospects for that product will
be harmed and our ability to generate product revenue from that product may be delayed or eliminated. Furthermore,
any of these events may result in labeling statements such as warnings or contraindications. For example, the FDA
has stated that Sativex, if ever approved, will likely be labeled as carrying a risk of seizures and that further
mechanistic studies, although encouraged, are not likely to alter this conclusion. In addition, such events or labeling
could prevent us or our partners from achieving or maintaining market acceptance of the affected product and could
substantially increase the costs of commercializing our product candidates and impair our ability to generate revenue
from the commercialization of these products either by us or by our collaboration partners.
23
If third parties claim that intellectual property used by us infringes upon their intellectual property, our operating
profits could be adversely affected.
There is a substantial amount of litigation, both within and outside the United States, involving patent and
other intellectual property rights in the pharmaceutical industry. We may, from time to time, be notified of claims
that we are infringing upon patents, trademarks, copyrights or other intellectual property rights owned by third
parties, and we cannot provide assurances that other companies will not, in the future, pursue such infringement
claims against us or any third-party proprietary technologies we have licensed. We are currently subject to a claim of
trademark infringement by G&W Laboratories for the use of the GW name and logo in the US which, if successful,
may result in us being unable to commercialize our products under the GW Pharmaceuticals name in the US. It
would not prevent us from commercializing our products in the US per se, or prevent us from commercializing our
products outside the US. If we were found to infringe upon a patent or other intellectual property right, or if we
failed to obtain or renew a license under a patent or other intellectual property right from a third party, or if a third
party that we were licensing technologies from was found to infringe upon a patent or other intellectual property
rights of another third party, we may be required to pay damages, including triple damages if the infringement is
found to be willful, suspend the manufacture of certain products or reengineer or rebrand our products, if feasible, or
we may be unable to enter certain new product markets. Any such claims could also be expensive and time
consuming to defend and divert management’s attention and resources. Our competitive position could suffer as a
result. In addition, if we have declined to enter into a valid non-disclosure or assignment agreement for any reason,
we may not own the invention or our intellectual property, and our products may not be adequately protected.
Although we have reviewed certain third-party patents and patent filings that we believe may be relevant to Sativex,
Epidiolex and our other product candidates, we have not conducted full freedom-to-operate searches or analyses,
and we may not be aware of patents or pending or future patent applications that, if issued, would block us from
commercializing Sativex, Epidiolex or our other product candidates. Thus, we cannot guarantee that Sativex,
Epidiolex or our other product candidates, or our commercialization thereof, does not and will not infringe any third
party’s intellectual property.
Risks Related to Our Reliance Upon Third Parties
We depend substantially on the commercial expertise of our collaboration partners for Sativex.
Whilst we intend to commercialize Epidiolex using our own sales and marketing operation in the U.S. and
potentially elsewhere, we rely on the expertise and commercial skills of our collaboration partners to sell Sativex.
We have entered into agreements for the commercialization of Sativex with Almirall S.A., or Almirall, in Europe
(excluding the United Kingdom) and Mexico; Otsuka Pharmaceutical Co. Ltd., or Otsuka, in the United States;
Novartis Pharma AG, or Novartis, in Australia and New Zealand, Asia (excluding Japan, China and Hong Kong),
the Middle East (excluding Israel) and Africa; Bayer HealthCare AG in the United Kingdom and Canada; Ipsen
Biopharm Ltd, or Ipsen, in Latin America (excluding Mexico and the Islands of the Caribbean); and Neopharm
Group in Israel. Our ability to successfully market and sell Sativex in each of these markets depends entirely on the
expertise and commercial skills of our collaboration partners. Our partners have the right, under certain
circumstances, to terminate their agreements with us, and three of our partners, Almirall, Otsuka and Novartis, have
the right to terminate their agreements with us without cause. No partner has given notice of termination of their
agreement with us to date, but given the fact that not one of three Phase 3 cancer pain trials for Sativex showed a
statistically significant difference for Sativex compared with placebo, we cannot be certain that not one of these
partners will not terminate their agreement with us. Further, a failure by our partners to successfully market Sativex,
or the termination of agreements with our partners, may have an adverse effect on our business at least in the near
term period following such termination.
We have to date relied on Otsuka for funding of our Sativex research and development programs in the United
States, and Otsuka is a joint owner of the intellectual property resulting from our pre-clinical research
collaboration.
Under the terms of our agreement with Otsuka with respect to Sativex in the United States, Otsuka funds all
pre-clinical and clinical trials for the development of Sativex in the treatment of cancer pain as well as potential
additional indications. There is however no assurance that Otsuka will agree to fund future development activities.
As outlined above, Otsuka has the right to terminate their agreement with us without cause. In light of the results of
the Phase 3 cancer pain trials for Sativex discussed above, we cannot be certain that Otsuka will not terminate this
agreement. If Otsuka were to terminate this agreement, we would be required to find alternative funding for our
clinical program for the development of Sativex in the United States or face substantial delays in, or possible
termination of, that program. In addition, under a separate global research collaboration for research of cannabinoids
in CNS and oncology, we received funds from Otsuka from 2007 to June 2013. The term of this research
collaboration agreement with Otsuka ended in June 2013. Since then our GW-funded research and development
expenditure has increased as a result of this change and we expect this trend to continue.
24
In addition, the research collaboration agreement with Otsuka provided that all intellectual property rights
(including both patents and non-manufacturing related know-how) that was conceived by either Otsuka or us during
the course of the collaboration is to be jointly owned by Otsuka and us. We have 9 patent families which consist of
232 jointly owned patent applications and 90 granted patents relating to our collaboration with Otsuka, including
those directed to the use of Sativex in the CNS and/or oncology field or that are otherwise relevant to Sativex.
Because Otsuka exercises some control over this jointly owned intellectual property, we may need to seek Otsuka’s
consent to pursue, use, license and/or enforce some of this collaboration intellectual property in the future. In
addition, Otsuka has the right to develop and commercialize a synthetic cannabinoid molecule product (a molecule
not based on a phytocannabinoid but which has an effect on the endocannabinoid system) subject to payment of a
royalty to us. An unexpected deterioration in our relationship with Otsuka would have a material adverse effect on
our business, reputation, results of operations and financial condition.
Our existing collaboration arrangements and any that we may enter into in the future may not be successful,
which could adversely affect our ability to develop and commercialize Sativex and our product candidates.
We are a party to, and may seek additional, collaboration arrangements with pharmaceutical or
biotechnology companies for the development or commercialization of Sativex and our product candidates. We
may, with respect to our product candidates, enter into new arrangements on a selective basis depending on the
merits of retaining commercialization rights for ourselves as compared to entering into selective collaboration
arrangements with leading pharmaceutical or biotechnology companies for each product candidate, both in the
United States and internationally. To the extent that we decide to enter into collaboration agreements, we will face
significant competition in seeking appropriate collaborators. Moreover, collaboration arrangements are complex and
time consuming to negotiate, document and implement. We may not be successful in our efforts to establish,
implement and maintain collaborations or other alternative arrangements if we choose to enter into such
arrangements and, as noted above, our selected partners may be given, and may exercise, a right to terminate their
agreement with us without cause. The terms of any collaboration or other arrangements that we may establish may
not be favorable to us.
Any existing or future collaboration that we enter into may not be successful. The success of our
collaboration arrangements will depend heavily on the efforts and activities of our collaborators. Collaborators
generally have significant discretion in determining the efforts and resources that they will apply to these
collaborations. For example, we have amended our agreement with Novartis, our collaborator for Sativex in parts of
Asia, the Middle East and Africa, in order to permit Novartis not to make a determination about launching Sativex in
any country in its territory until final data is available for the Phase 3 clinical trials for Sativex in cancer pain. In
light of the results of these trials, there is a likelihood that Novartis will terminate their agreement with us.
Disagreements between parties to a collaboration arrangement regarding development, intellectual
property, regulatory or commercialization matters, can lead to delays in the development process or
commercialization of the applicable product candidate and, in some cases, termination of the collaboration
arrangement. These disagreements can be difficult to resolve if neither of the parties has final decision making
authority.
Collaborations with pharmaceutical or biotechnology companies and other third parties often are
terminated or allowed to expire by the other party. Any such termination or expiration would adversely affect us
financially and could harm our business reputation.
25
We depend on a limited number of suppliers for materials and components required to manufacture Sativex and
our other product candidates. The loss of these suppliers, or their failure to supply us on a timely basis, could
cause delays in our current and future capacity and adversely affect our business.
We depend on a limited number of suppliers for the materials and components required to manufacture
Sativex and our other product candidates. For example, we rely on single-source suppliers to supply various
components of Sativex, including the glass vial and pump actuator, and we rely on a single contractor for
commercial supply of botanical raw material for Sativex. At present, we have two independent contractors who
supply botanical raw material for Epidiolex but are otherwise dependent on single-source suppliers and facilities for
producing Epidiolex. As a result, we may not be able to obtain sufficient quantities of critical materials and
components in the future. A delay or interruption by our suppliers may also harm our business, results of operations
and financial condition. In addition, the lead time needed to establish a relationship with a new supplier can be
lengthy, and we may experience delays in meeting demand in the event we must switch to a new supplier. The time
and effort to qualify for and, in some cases, obtain regulatory approval for a new supplier could result in additional
costs, diversion of resources or reduced manufacturing yields, any of which would negatively impact our operating
results. Our dependence on single-source suppliers exposes us to numerous risks, including the following: our
suppliers may cease or reduce production or deliveries, raise prices or renegotiate terms; our suppliers may become
insolvent or cease trading; we may be unable to locate a suitable replacement supplier on acceptable terms or on a
timely basis, or at all; and delays caused by supply issues may harm our reputation, frustrate our customers and
cause them to turn to our competitors for future needs.
A significant portion of our cash and cash equivalents are held at a small number of banks.
A significant portion of our cash and cash equivalents is presently held at a small number of banks.
Although our board has adopted a treasury policy requiring us to limit the amount of cash held by each banking
group taking into account their credit ratings, we are subject to credit risk if any of these banks are unable to repay
the balance in the applicable account or deliver our securities or if any bank should become bankrupt or otherwise
insolvent. Any of the above events could have a material and adverse effect on our business, results of operations
and financial condition.
Risks Related to Our Intellectual Property
We may not be able to adequately protect Sativex, our product candidates or our proprietary technology in the
marketplace.
Our success will depend, in part, on our ability to obtain patents, protect our trade secrets and operate
without infringing on the proprietary rights of others. We rely upon a combination of patents, trade secret protection
(i.e., know how), and confidentiality agreements to protect the intellectual property of Sativex and our product
candidates. The strengths of patents in the pharmaceutical field involve complex legal and scientific questions and
can be uncertain. Where appropriate, we seek patent protection for certain aspects of our products and technology.
Filing, prosecuting and defending patents throughout the world would be prohibitively expensive, so our policy is to
patent commercially potential technology in jurisdictions with significant commercial opportunities. However,
patent protection may not be available for some of the products or technology we are developing. If we must spend
significant time and money protecting, defending or enforcing our patents, designing around patents held by others
or licensing, potentially for large fees, patents or other proprietary rights held by others, our business, results of
operations and financial condition may be harmed. We may not develop additional proprietary products that are
patentable.
The patent positions of pharmaceutical products are complex and uncertain. The scope and extent of patent
protection for Sativex and our product candidates are particularly uncertain. To date, our principal product
candidates, including Sativex and Epidiolex, have been based on specific formulations of certain previously known
cannabinoids found in nature in the cannabis sativa plant. While we have sought patent protection directed to,
among other things, composition of matter for our specific formulations, their methods of use, and methods of
manufacture, we do not have and will not be able to obtain composition of matter protection on these previously
known cannabinoids per se. We anticipate that the products we develop in the future will continue to include or be
based on the same or other naturally occurring compounds, as well as synthetic compounds we may discover.
Although we have sought and expect to continue to seek patent protection for our product candidates, their methods
of use, and methods of manufacture, any or all of them may not be subject to effective patent protection. Publication
of information related to Sativex and our product candidates by us or others may prevent us from obtaining or
enforcing patents relating to these products and product candidates. Furthermore, others may independently develop
similar products, may duplicate our products, or may design around our patent rights. In addition, any of our issued
patents may be opposed and/or declared invalid or unenforceable. Indeed, two of our recently issued European
patents, including our European patent claiming the use of CBD in the treatment of partial seizures, have received
notices of opposition which may result in claims in either or both of these patents being narrowed or cancelled such
that the scope of an opposed patent may not be as broad, or the opposed patent may be revoked in its entirety. If we
fail to adequately protect our intellectual property, we may face competition from companies who attempt to create a
generic product to compete with Sativex or Epidiolex. We may also face competition from companies who develop
a substantially similar product to Sativex, Epidiolex or one of our other product candidates that is not covered by
any of our patents.
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Many companies have encountered significant problems in protecting, defending and enforcing intellectual
property rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing
countries, do not favor the enforcement of patents and other intellectual property rights, particularly those relating to
pharmaceuticals, which could make it difficult for us to stop the infringement of our patents or marketing of
competing products in violation of our proprietary rights generally. Proceedings to enforce our patent rights in
foreign jurisdictions could result in substantial cost and divert our efforts and attention from other aspects of our
business.
Risks Related to Controlled Substances
Controlled substance legislation differs between countries and legislation in certain countries may restrict or
limit our ability to sell Sativex and our product candidates.
Most countries are parties to the Single Convention on Narcotic Drugs 1961, which governs international
trade and domestic control of narcotic substances, including cannabis extracts. Countries may interpret and
implement their treaty obligations in a way that creates a legal obstacle to our obtaining regulatory approval for
Sativex, Epidiolex and our other products in those countries. These countries may not be willing or able to amend or
otherwise modify their laws and regulations to permit Sativex, Epidiolex or our other products to be marketed, or
achieving such amendments to the laws and regulations may take a prolonged period of time. For example, we are
currently unable to file a regulatory application in Mexico or Japan due to a national law which the regulators
consider prevents the approval of a cannabis-based medicine. In the case of countries with similar obstacles, we
would be unable to market Sativex, Epidiolex and our product candidates in countries in the near future or perhaps
at all if the laws and regulations in those countries do not change.
Sativex, Epidiolex and the other product candidates we are developing will be subject to U.S. controlled substance
laws and regulations and failure to comply with these laws and regulations, or the cost of compliance with these
laws and regulations, may adversely affect the results of our business operations, both during clinical
development and post approval, and our financial condition.
Sativex, Epidiolex and all other product candidates we are developing contain controlled substances as
defined in the federal Controlled Substances Act of 1970, or CSA. Controlled substances that are pharmaceutical
products are subject to a high degree of regulation under the CSA, which establishes, among other things, certain
registration, manufacturing quotas, security, recordkeeping, reporting, import, export and other requirements
administered by the DEA. The DEA classifies controlled substances into five schedules: Schedule I, II, III, IV or V
substances. Schedule I substances by definition have a high potential for abuse, no currently “accepted medical use”
in the United States, lack accepted safety for use under medical supervision, and may not be prescribed, marketed or
sold in the United States. Pharmaceutical products approved for use in the United States which contain a controlled
substance are listed as Schedule II, III, IV or V, with Schedule II substances considered to present the highest
potential for abuse or dependence and Schedule V substances the lowest relative risk of abuse among such
substances. Schedule I and II drugs are subject to the strictest controls under the CSA, including manufacturing and
procurement quotas, security requirements and criteria for importation. In addition, dispensing of Schedule II drugs
is further restricted. For example, they may not be refilled without a new prescription.
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While cannabis is a Schedule I controlled substance, products approved for medical use in the United States
that contain cannabis or cannabis extracts should be placed in Schedules II-V, since approval by the FDA satisfies
the “accepted medical use” requirement. If and when Sativex and Epidiolex receive FDA approval, the DEA will
make a scheduling determination and place the product in a schedule other than Schedule I in order for it to be
prescribed to patients in the United States. If approved by the FDA, we expect the finished dosage form of Sativex
to be listed by the DEA as a Schedule II or III controlled substance and Epidiolex to be controlled in Schedule III or
IV. Consequently, their manufacture, importation, exportation, domestic distribution, storage, sale and legitimate use
will be subject to specific, and, in the case of Sativex, potentially significant levels of regulation by the DEA. On
November 25, 2015 the President of the United States enacted a new law that (i) amends the CSA to require the
DEA to issue an interim final scheduling rule within ninety days following FDA approval and the Secretary of
Health and Human Services recommending that the Attorney General control the drug in Schedule II, III, IV or V,
and (ii) amends the FDCA and patent term extension laws to ensure that companies do not lose more than 90 days’
exclusivity on newly approved drugs because of the DEA drug scheduling process. Insys Therapeutics Inc., a
competitor who is developing products for the treatment of Dravet Syndrome and Lennox-Gastaut Syndrome
(among other indications) which are based on CBD produced by a synthetic process, has already petitioned DEA to
reschedule its synthetic CBD. If Insys succeeds with its petition before its product is approved by FDA, it will avoid
this 90 day post-FDA approval rescheduling delay. Furthermore, if the FDA, DEA, or any foreign regulatory
authority determines that Sativex or Epidiolex may have potential for abuse, it may require us to generate more
clinical or other data than we currently anticipate to establish whether or to what extent the substance has an abuse
potential, which could increase the cost and/or delay the launch of that product.
DEA registration and inspection of facilities. Facilities conducting research, manufacturing,
distributing, importing or exporting, or dispensing controlled substances must be registered (licensed) to perform
these activities and have the security, control, recordkeeping, reporting and inventory mechanisms required by the
DEA to prevent drug loss and diversion. All these facilities must renew their registrations annually, except
dispensing facilities, which must renew every three years. The DEA conducts periodic inspections of certain
registered establishments that handle controlled substances. Obtaining the necessary registrations may result in delay
of the importation, manufacturing or distribution of Sativex and/or Epidiolex. Furthermore, failure to maintain
compliance with the CSA, particularly non-compliance resulting in loss or diversion, can result in regulatory action
that could have a material adverse effect on our business, financial condition and results of operations. The DEA
may seek civil penalties, refuse to renew necessary registrations, or initiate proceedings to restrict, suspend or
revoke those registrations. In certain circumstances, violations could lead to criminal proceedings.
State-controlled substances laws. Individual states have also established controlled substance laws and
regulations. Though state-controlled substances laws often mirror federal law, because the states are separate
jurisdictions, they may separately schedule Sativex, Epidiolex and our product candidates as well. While some states
automatically schedule a drug based on federal action, other states schedule drugs through rulemaking or a
legislative action. State scheduling may delay commercial sale of any product for which we obtain federal regulatory
approval and adverse scheduling could have a material adverse effect on the commercial attractiveness of such
product. We or our partners must also obtain separate state registrations, permits or licenses in order to be able to
obtain, handle, and distribute controlled substances for clinical trials or commercial sale, and failure to meet
applicable regulatory requirements could lead to enforcement and sanctions by the states in addition to those from
the DEA or otherwise arising under federal law.
Clinical trials. Because Sativex and Epidiolex contain cannabis extracts, which are Schedule I
substances, to conduct clinical trials with Sativex and Epidiolex in the United States prior to approval, each of our
research sites must submit a research protocol to the DEA and obtain and maintain a DEA researcher registration
that will allow those sites to handle and dispense Sativex and/or Epidiolex (as applicable) and to obtain the product
from our importer. If the DEA delays or denies the grant of a research registration to one or more research sites, the
clinical trial could be significantly delayed, and we could lose clinical trial sites. The importer for the clinical trials
must also obtain a Schedule I importer registration and an import permit for each import. We do not currently
conduct any manufacturing or repackaging/relabeling of either Sativex or its active ingredients (i.e., the cannabis
extract) or Epidiolex or its active ingredient (purified CBD) in the United States. Sativex and Epidiolex are both
imported in fully-finished, packaged and labeled dosage forms.
Importation. If Sativex or Epidiolex is approved and classified as a Schedule II or III substance, an
importer can import for commercial purposes if it obtains an importer registration and files an application for an
import permit for each import. The DEA provides annual assessments/estimates to the International Narcotics
Control Board which guides the DEA in the amounts of controlled substances that the DEA authorizes to be
imported. The failure to identify an importer or obtain the necessary import authority, including specific quantities,
could affect the availability of Sativex and Epidiolex and have a material adverse effect on our business, results of
operations and financial condition. In addition, an application for a Schedule II importer registration must be
published in the Federal Register, and there is a waiting period for third party comments to be submitted. It is always
possible a competitor could take this opportunity to make adverse comments that delay the grant of an importer
registration.
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If Sativex or Epidiolex is approved and classified as a Schedule II controlled substance, federal law may
prohibit the import of the substance for commercial purposes. If Sativex or Epidiolex is listed as a Schedule II
substance, we will not be allowed to import that drug for commercial purposes unless the DEA determines that
domestic supplies are inadequate or there is inadequate domestic competition among domestic manufacturers for the
substance as defined by the DEA. It is always possible the DEA could find that the active substance in a product,
even if it is a plant derived substance, could be manufactured in the US. Moreover, Schedule I controlled substances,
including BDSs, have never been registered with the DEA for importation commercial purposes, only for scientific
and research needs. Therefore, if neither Sativex nor its BDSs, nor Epidiolex or its purified BDS could be imported,
that product would have to be wholly manufactured in the United States, and we would need to secure a
manufacturer that would be required to obtain and maintain a separate DEA registration for that activity.
Manufacture in the United States. If, because of a Schedule II classification or voluntarily, we were to
conduct manufacturing or repackaging/relabeling in the United States, our contract manufacturers would be subject
to the DEA’s annual manufacturing and procurement quota requirements. Additionally, regardless of the scheduling
of Sativex and Epidiolex, cannabis and the BDSs comprising the active ingredient in the final dosage form are
currently Schedule I controlled substances and would be subject to such quotas as these substances could remain
listed on Schedule I. The annual quota allocated to us or our contract manufacturers for the active ingredients in
Sativex and/or Epidiolex may not be sufficient to meet commercial demand or complete clinical trials.
Consequently, any delay or refusal by the DEA in establishing our, or our contract manufacturers’, procurement
and/or production quota for controlled substances could delay or stop our clinical trials or product launches, which
could have a material adverse effect on our business, financial position and operations.
Distribution in the United States. If Sativex or Epidiolex is scheduled as Schedule II or III, we would
also need to identify wholesale distributors with the appropriate DEA and state registrations and authority to
distribute the product to pharmacies and other health care providers. We would need to identify distributors to
distribute the product to pharmacies; these distributors would need to obtain Schedule II or III distribution
registrations. The failure to obtain, or delay in obtaining, or the loss any of those registrations could result in
increased costs to us. If Sativex or Epidiolex is a Schedule II drug, pharmacies would have to maintain enhanced
security with alarms and monitoring systems and they must adhere to recordkeeping and inventory requirements.
This, coupled with the fact that Sativex must be refrigerated, may discourage some pharmacies from carrying either
or both of these products. Furthermore, state and federal enforcement actions, regulatory requirements, and
legislation intended to reduce prescription drug abuse, such as the requirement that physicians consult a state
prescription drug monitoring program may make physicians less willing to prescribe, and pharmacies to dispense,
Schedule II products.
The approval and use of medical and recreational marijuana in various U.S. states may impact our business.
There is a substantial amount of change occurring in various states of the United States regarding the use of
medical and recreational marijuana. While marijuana is a Schedule I substance as defined under federal law, and its
possession and use is not permitted according to federal law, a number of individual states have enacted state laws to
enable possession and use of marijuana for medical purposes, and in some states for recreational purposes also. Our
business is quite distinct from that of crude herbal marijuana, however, our prospects may be impacted by
developments of these laws at the state level in the United States.
Risks Related to Ownership of our American Depositary Shares (ADSs) and Ordinary Shares
The liquidity of our ADSs and ordinary shares may have an adverse effect on share price.
As at September 30, 2015, we had 261,180,173 ordinary shares outstanding. Of these shares, 181,690,092
of our ordinary shares were held as ADSs and 79,490,081 were held as ordinary shares outside the ADS facility. In
connection with our May 2013 initial public offering, or IPO, of ADSs on the NASDAQ Global Market, we issued
3,678,000 ADSs. In January 2014 we issued an additional 2,807,275 ADSs in a public offering on the NASDAQ
Global Market. In June 2014 we issued an additional 1,455,000 ADSs and certain selling shareholders sold an
additional 500,000 ADSs in a public offering on the NASDAQ Global Market. In May 2015 we issued an additional
1,840,000 ADSs in a public offering on the NASDAQ Global Market. There is a risk that there may not be sufficient
liquidity in the market to accommodate significant increases in selling activity or the sale of a large block of our
securities. Our ADSs have historically had limited trading volume, which may also result in volatility.
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Additionally, our ADSs are traded on NASDAQ and our ordinary shares are traded on AIM. We cannot
predict the effect of this dual listing on the value of our ordinary shares and ADSs. However, the dual listing of our
ordinary shares and ADSs may dilute the liquidity of these securities in one or both markets and may adversely
affect the development of an active trading market for the ADSs in the United States. The price of the ADSs could
also be adversely affected by trading in our ordinary shares on AIM. From time to time we review whether to
maintain the admission of our ordinary shares to trading on AIM. Cancellation of the admission of our ordinary
shares to trading on AIM would require the requisite consent of shareholders prescribed by the AIM Rules for
Companies unless London Stock Exchange plc agrees otherwise. Subject to London Stock Exchange plc so
agreeing, our directors may resolve to cancel the admission of our ordinary shares to trading on AIM without
requiring shareholder consent at a general meeting. We cannot predict the effect that such cancellation would have
on the market price of the ADSs and it may have an adverse effect on the market price of the ADSs and on
individual shareholders.
The price of our ADSs and ordinary shares may be volatile.
Many factors may have a material adverse effect on the market price of the ADSs, including, but not limited
to:
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the loss of any of our key scientific or management personnel;
announcements of the failure to obtain regulatory approvals or receipt of a complete response
letter from the FDA;
announcements of restricted label indications or patient populations, or changes or delays in
regulatory review processes;
announcements of therapeutic innovations or new products by us or our competitors;
adverse actions taken by regulatory agencies with respect to our clinical trials, manufacturing
supply chain or sales and marketing activities;
changes or developments in laws or regulations applicable to Sativex, Epidiolex and our product
candidates;
any adverse changes to our relationship with licensors, manufacturers or suppliers;
the failure of our testing and clinical trials;
the failure to retain our existing, or obtain new, collaboration partners;
announcements concerning our competitors or the pharmaceutical industry in general;
the achievement of expected product sales and profitability;
the failure to obtain reimbursements for our products or price reductions;
manufacture, supply or distribution shortages;
actual or anticipated fluctuations in our operating results;
our cash position;
changes in financial estimates or recommendations by securities analysts;
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potential
acquisitions;
the trading volume of ADSs on NASDAQ and of our ordinary shares on the Alternative
Investment Market, or AIM;
sales of our ADSs or ordinary shares by us, our executive officers and directors or our
shareholders in the future;
general economic and market conditions and overall fluctuations in the United States equity
markets; and
changes in accounting principles.
In addition, the stock market in general, and NASDAQ in particular, have experienced extreme price and
volume fluctuations that have often been unrelated or disproportionate to the operating performance of individual
companies. Broad market and industry factors may negatively affect the market price of our ADSs, regardless of our
actual operating performance.
30
Our largest shareholder owns a significant percentage of the share capital and voting rights of GW.
As of September 30, 2015, Capital Research and Management Company held approximately 14.01% of our
issued share capital, accounting for approximately 14.01% of the voting rights of GW. To the extent Capital
Research and Management Company continues to hold a large percentage of our share capital and voting rights, it
will remain in a position to exert greater influence in the appointment of the directors and officers of GW and in
other corporate actions that require shareholders’ approval.
Substantial future sales of our ordinary shares or the ADSs in the public market, or the perception that these
sales could occur, could cause the price of the ADSs to decline.
Sales of our ordinary shares or ADSs in the public market, or the perception that these sales could occur,
could cause the market price of the ADSs to decline. The ordinary shares held by our directors, including our
officers, are available for sale and are not subject to contractual and legal restrictions on resale. If any of our large
shareholders or members of our management team seek to sell substantial amounts of our ADSs, particularly if these
sales are in a rapid or disorderly manner, or other investors perceive that these sales could occur, the market price of
our ADSs could decrease significantly.
As a foreign private issuer, we are not subject to certain NASDAQ Global Market corporate governance rules
applicable to U.S. listed companies and are subject to reporting obligations that are different and less frequent
than those of a U.S. listed company. As a result, investors in our securities may not have the same protections
afforded to shareholders of companies that are not foreign private issuers.
We rely on a provision in NASDAQ’s Global Market Listed Company Manual that allows us to follow
English corporate law and the Companies Act 2006 with regard to certain aspects of corporate governance. This
allows us to follow certain corporate governance practices that differ in significant respects from the corporate
governance requirements applicable to U.S. companies listed on the NASDAQ Global Market.
For example, we are exempt from NASDAQ Global Market regulations that require a U.S. listed company
to:
•
•
•
•
•
•
•
have a majority of the board of directors consist of independent directors;
require non-management directors to meet on a regular basis without management present;
promptly disclose any waivers of the code for directors or executive officers that should address
certain specified items;
have an independent nominating committee;
have a compensation committee charter specifying the items enumerated in NASDAQ Stock Market,
Marketplace Rule 5605(d)(1) and a review and assessment of the adequacy of that charter on an annual
basis;
solicit proxies and provide proxy statements for all shareholder meetings; and
seek shareholder approval for the implementation of certain equity compensation plans and issuances
of ordinary shares.
As a foreign private issuer, we are permitted to, and we will continue to, follow home country practice in
lieu of the above requirements.
31
Because we qualify and report as a foreign private issuer under the Exchange Act of 1934, as amended (the
“Exchange Act”), we are exempt from certain provisions of the Exchange Act that are applicable to U.S. public
companies, including (i) the sections of the Exchange Act regulating the solicitation of proxies, consents or
authorizations in respect of a security registered under the Exchange Act, (ii) the sections of the Exchange Act
requiring insiders to file public reports of their stock ownership and trading activities and liability for insiders who
profit from trades made in a short period of time, and (iii) the rules under the Exchange Act requiring the filing with
the Securities and Exchange Commission of quarterly reports on Form 10-Q containing unaudited financial and
other specified information, or current reports on Form 8-K, upon the occurrence of specified significant events. We
intend to continue to furnish quarterly reports to the Securities and Exchange Commission on Form 6-K for so long
as we are subject to the reporting requirements of Section 13(g) or 15(d) of the Exchange Act, although the
information we furnish may not be the same as the information that is required in quarterly reports on Form 10-Q for
U.S. domestic issuers. In addition, while U.S. domestic issuers that are large accelerated filers are required to file
their annual reports on Form 10-K within 60 days after the end of each fiscal year foreign private issuers are not
required to file their annual report on Form 20-F until 120 days after the end of each fiscal year. Foreign private
issuers are also exempt from Regulation Fair Disclosure, aimed at preventing issuers from making selective
disclosures of material information. Although we intend to make quarterly financial reports available to our
shareholders in a timely manner, investors in our securities may not have the same protections afforded to
shareholders of companies that are not foreign private issuers.
Because we are listed on the NASDAQ Global Market, our Audit Committee is required to comply with
the provisions of Section 301 of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, and Rule 10A-3 of the
Exchange Act, both of which are also applicable to NASDAQ Global Market-listed U.S. companies. Because we are
a foreign private issuer, however, our Audit Committee is not subject to additional NASDAQ Global Market
requirements applicable to U.S. listed companies, including an affirmative determination that all members of the
Audit Committee are “independent,” using more stringent criteria than those applicable to us as a foreign private
issuer.
We may lose our foreign private issuer status in the future, which could result in significant additional costs and
expenses.
We are a “foreign private issuer,” as such term is defined in Rule 405 under the Securities Act of 1933 as
amended (the “Securities Act”), and therefore we are not required to comply with all the periodic disclosure and
current reporting requirements of the Exchange Act and related rules and regulations. Under Rule 405, the
determination of foreign private issuer status is made annually on the last business day of an issuer’s most recently
completed second fiscal quarter and, accordingly, the next determination will be made with respect to us on March
31, 2016.
In the future, we would lose our foreign private issuer status if a majority of our ordinary shares (including
those represented by ADSs) are owned by U.S. shareholders and a majority of our shareholders, directors or
management are U.S. citizens or residents and we fail to meet additional requirements necessary to avoid loss of
foreign private issuer status. The regulatory and compliance costs to us under applicable U.S. securities laws as a
U.S. domestic issuer may be significantly higher than our current regulatory and compliance costs. If we are not a
foreign private issuer, we will be required to file periodic reports and registration statements on U.S. domestic issuer
forms with the SEC, which are more detailed and extensive than the forms available to a foreign private issuer. For
example, the annual report on Form 10-K requires domestic issuers to disclose executive compensation information
on an individual basis with specific disclosure regarding the domestic compensation philosophy, objectives, annual
total compensation (base salary, bonus, equity compensation) and potential payments in connection with change in
control, retirement, death or disability, while the annual report on Form 20-F permits foreign private issuers to
disclose compensation information on an aggregate basis. We will also have to report our results under U.S.
Generally Accepted Accounting Principles, rather than under International Financial Reporting Standards, as a
domestic registrant. We will also have to mandatorily comply with U.S. federal proxy requirements, and our
officers, directors and principal shareholders will become subject to the short-swing profit disclosure and recovery
provisions of Section 16 of the Exchange Act. We may also be required to modify certain of our policies to comply
with corporate governance practices required for U.S. domestic issuers. Such conversion and modifications will
involve additional costs. In addition, we may lose our ability to rely upon exemptions from certain corporate
governance requirements of the NASDAQ Global Market that are available to foreign private issuers.
32
We incur significant increased costs as a result of operating as a company whose ADSs are publicly traded in the
United States, and our management is required to devote substantial time to new compliance initiatives.
As a company whose ADSs commenced trading in the United States in May 2013, we incur significant
legal, accounting, insurance and other expenses that we did not previously incur. In addition, the Sarbanes-Oxley
Act, Dodd-Frank Wall Street Reform and Consumer Protection Act and related rules implemented by the SEC and
NASDAQ Global Market have imposed various requirements on public companies including requiring
establishment and maintenance of effective disclosure and financial controls. Because we are no longer an emerging
growth company under the Jumpstart Our Business Startups Act of 2012 (JOBS Act), we are required to comply
with Section 404(b) of the Sarbanes-Oxley Act, which involves considerable management time and expenses. Our
management and other personnel need to devote a substantial amount of time to these compliance initiatives.
Moreover, these rules and regulations increase our legal and financial compliance costs, relative to companies that
are listed solely in the United Kingdom, and make some activities more time-consuming and costly. We estimate
that our annual compliance expenses will be approximately £1.4 million in each of the next two fiscal years. These
rules and regulations have also made it more difficult and more expensive for us to obtain director and officer
liability insurance, and we may be required to incur substantial costs to maintain the same or similar coverage.
These laws and regulations could also make it more difficult and expensive for us to attract and retain qualified
persons to serve on our board of directors, our board committees or as our executive officers. Furthermore, if we are
unable to satisfy our obligations as a public company, we could be subject to delisting of the ADSs, fines, sanctions
and other regulatory action and potentially civil litigation.
We had a material weakness in our internal control over financial reporting for the year ended September 30,
2015, which could result in our financial statements not being prepared properly.
Our management identified a material weakness and concluded that our internal controls over financial
reporting were not effective as of September 30, 2015. A material weakness (within the meaning of PCAOB
Auditing Standard No. 5) is a deficiency, or a combination of deficiencies, in internal controls over financial
reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial
statements will not be prevented or detected on a timely basis. Our management determined that our control over
the completeness and valuation of clinical trial accruals is not effective. Specifically, management does not have
sufficiently precise controls to evaluate the completeness and accuracy of the calculation of clinical trial accruals
due to the incorrect allocation of expenditure to clinical studies. Additionally, we have not established a sufficiently
precise control to ensure completeness of clinical trial accruals in connection with contractual progress payment
liabilities. A material weakness results in a reasonable possibility that a material misstatement of our annual or
interim financial statements will not be prevented or detected on a timely basis. In the event that the material
weakness described above led to our financial statements not being prepared properly (which we currently do not
believe to be the case), we would be required to restate our financial statements, which could result in a loss of
investor confidence and a decline in the price of our ADSs.
U.S. investors may have difficulty enforcing civil liabilities against our Company, our directors or members of
senior management and the experts named in this Annual Report.
Except for Justin Gover and, Julian Gangolli, and Cabot Brown, our directors and the experts named in this
Annual Report are non-residents of the United States, and all or a substantial portion of the assets of such persons
are located outside the United States. As a result, it may not be possible to serve process on such persons or us in the
United States or to enforce judgments obtained in U.S. courts against them or us based on civil liability provisions of
the securities laws of the United States. Mayer Brown International LLP, our English solicitors, advised us that there
is doubt as to whether English courts would enforce certain civil liabilities under U.S. securities laws in original
actions or judgments of U.S. courts based upon these civil liability provisions. In addition, awards of punitive
damages in actions brought in the United States or elsewhere may be unenforceable in the United Kingdom. An
award for monetary damages under the U.S. securities laws would be considered punitive if it does not seek to
compensate the claimant for loss or damage suffered and is intended to punish the defendant. The enforceability of
any judgment in the United Kingdom will depend on the particular facts of the case as well as the laws and treaties
in effect at the time. The United States and the United Kingdom do not currently have a treaty providing for
recognition and enforcement of judgments (other than arbitration awards) in civil and commercial matters.
33
The rights of our shareholders may differ from the rights typically offered to shareholders of a U.S. corporation.
We are incorporated under English law. The rights of holders of ordinary shares, and therefore certain of
the rights of holders of ADSs, are governed by English law, including the provisions of the Companies Act 2006,
and by our Articles. These rights differ in certain respects from the rights of shareholders in typical U.S.
corporations. See “Description of Share Capital — Differences in Corporate Law” in our Registration Statement on
Form F-3 (File No. 333-195747), filed with the SEC May 7, 2014 and which is incorporated by reference into this
Annual Report for a description of the principal differences between the provisions of the Companies Act 2006
applicable to us and, for example, the Delaware General Corporation Law relating to shareholders’ rights and
protections.
We may be classified as a passive foreign investment company, or a PFIC, in any taxable year and U.S. holders
of our ordinary shares could be subject to adverse U.S. federal income tax consequences.
The rules governing passive foreign investment companies, or PFICs, can have adverse effects for U.S.
federal income tax purposes. The tests for determining PFIC status for a taxable year depend upon the relative
values of certain categories of assets and the relative amounts of certain kinds of income. The determination of
whether we are a PFIC depends on the particular facts and circumstances (such as the valuation of our assets,
including goodwill and other intangible assets) and may also be affected by the application of the PFIC rules, which
are subject to differing interpretations. Based on our estimated gross income, the average value of our assets,
including goodwill and the nature of our active business, we do not believe that we are classified as a PFIC for U.S.
federal income tax purposes for our taxable year ended September 30, 2015.
If we are a PFIC, U.S. holders of our ordinary shares would be subject to adverse U.S. federal income tax
consequences, such as ineligibility for any preferred tax rates on capital gains or on actual or deemed dividends,
interest charges on certain taxes treated as deferred, and additional reporting requirements under U.S. federal income
tax laws and regulations. A U.S. holder of our ordinary shares may be able to mitigate some of the adverse U.S.
federal income tax consequences described above with respect to owning the ordinary shares if we are classified as a
PFIC, provided that such U.S. investor is eligible to make, and validly makes, a “mark-to-market” election. In
certain circumstances a U.S. Holder can make a “qualified electing fund” election to mitigate some of the adverse
tax consequences described with respect to an ownership interest in a PFIC by including in income its share of the
PFIC’s income on a current basis. However, we do not currently intend to prepare or provide the information that
would enable a U.S. Holder to make a qualified electing fund election.
Investors should consult their own tax advisors regarding all aspects of the application of the PFIC rules to
our ordinary shares. For more information related to classification as a PFIC, see “Taxation—U.S. Federal Income
Taxation—Passive Foreign Investment Company.”
Item 4
Information on the Company.
A.
History and Development of the Company
GW Pharmaceuticals plc was founded in 1998 and is a public limited company incorporated under the laws
of England and Wales. Since June 28, 2001, our ordinary shares have been admitted to trading on the Alternative
Investment Market, or AIM, a market operated by London Stock Exchange plc, under the symbol GWP. On May 1,
2013, we completed our initial public offering of American Depositary Shares, or ADSs, on the NASDAQ Global
Market. Our ADSs are traded under the symbol GWPH.
Our registered and principal executive offices are located at Sovereign House, Vision Park, Chivers Way,
Histon, Cambridge, CB24 9BZ, United Kingdom, our general telephone number is (44) 1223 266-800 and our
internet address is http://www.gwpharm.com. Our website and the information contained on or accessible through
our website are not part of this document. Our agent for service of process in the United States is CT Corporation
System, 111 Eighth Avenue, 13th Floor, New York, NY 10011.
34
B.
Business
Overview
We are a biopharmaceutical company focused on discovering, developing and commercializing novel
therapeutics from our proprietary cannabinoid product platform in a broad range of disease areas. In our 17 years of
operations, we have established a world leading position in the development of plant-derived cannabinoid
therapeutics through our proven drug discovery and development processes, our intellectual property portfolio and
our regulatory and manufacturing expertise. We commercialized the world’s first plant-derived cannabinoid
prescription drug, Sativex, also known as nabiximols, which is approved for the treatment of spasticity due to
multiple sclerosis, or MS, in 28 countries outside the United States. We have a deep pipeline of additional
cannabinoid product candidates.
Our lead cannabinoid product candidate is Epidiolex, a liquid formulation of pure plant-derived cannabidiol, or
CBD, for which we retain global commercial rights. We received Orphan Drug Designation from the U.S. Food and
Drug Administration, or FDA, for Epidiolex for the treatment of both Dravet syndrome and Lennox-Gastaut
syndrome, or LGS, each of which are severe infantile-onset, genetic, drug-resistant epilepsy syndromes.
Additionally, GW has received Fast Track Designation from the FDA and Orphan Designation from the European
Medicines Agency, or EMA, for Epidiolex for the treatment of Dravet syndrome. We have commenced four pivotal
Phase 3 trials of Epidiolex, two in Dravet syndrome and two in LGS, each of which is due to report top-line results
in 2016. We expect to submit a New Drug Application, or NDA, to the FDA for Epidiolex in the fourth quarter of
2016. We also expect to commence Phase 3 clinical development of Epidiolex in an additional rare pediatric
epilepsy syndrome, Tuberous Sclerosis Complex, or TSC, in early 2016.
In parallel with our formal Epidiolex development program, the FDA has granted 20 intermediate expanded
access Investigational New Drug Applications, or INDs, to independent investigators in the United States to treat a
total of over 450 children and young adults suffering from intractable epilepsy with Epidiolex. In addition, the FDA
has granted further INDs to treat 400 additional patients under expanded access programs supported by 6 U.S. states
and for which GW is supplying Epidiolex. The FDA has also granted to physicians 11 individual emergency INDs.
In December 2015, we obtained physician reported data on 261 patients receiving Epidiolex under these INDs,
which have shown promising signals of clinical effect in reducing seizures.
GW has a deep pipeline of additional cannabinoid product candidates which includes compounds in Phase 1 and
2 development for both orphan (Neonatal Hypoxic Ischemic Encepholapthy and glioma) and non-orphan (type 2
diabetes and schizophrenia) indications. We expect to advance additional orphan drug development opportunities in
the next 12 months.
35
Our Product Candidates
GW Product Pipeline Summary
Epilepsy
Product/Product
Candidates
Epidiolex® (CBD)
Indication
Pediatric
epilepsy
Partner(s)
We retain
global rights
Initial targets:
Dravet syndrome
and LGS Follow-
up target: TSC
Status
Two Phase 3 trials ongoing
in Dravet syndrome. Two
Phase 3 trials ongoing in
LGS. Phase 3 trial in TSC
expected to commence early
2016. Additional INDs
granted by FDA to outside
investigators
Expected Next Steps
Phase 3 data from Dravet
syndrome and LGS trials
expected in 2016. NDA
filing expected Q4 2016.
GWP42006
(CBDV)
Epilepsy
We retain
global rights
Phase 2 study ongoing in
adults.
Phase 2 data in H2 2016.
Phase 2 trial in children
expected to commence H2
2016.
Other Orphan Product Candidates
Product/Product
Candidates
Combination of
GWP42002 and
GWP42003
Intravenous
GWP42003
Indication
Glioma
Partner(s)
We retain
global rights
Status
Phase 2a study ongoing.
FDA orphan designation
Expected Next Steps
Phase 2a data mid-2016
Neonatal
Hypoxic-
Ischemic
Encephalopathy
We retain
global rights
Pre-clinical. FDA orphan
designation
Commence Phase 1 trial in
H1 2016
Other Pipeline Product Candidates
Product/Product
Candidates
GWP42004
Indication
Partner(s)
Status
Type-2 diabetes We retain
global rights
Phase 2 dose ranging trial
ongoing
Expected Next Steps
Phase 2 dose ranging trial
data mid-2016
GWP42003
Schizophrenia
We retain
global rights
Positive
Phase 2b proof-of-concept
Data under review
for next steps
Sativex
(nabiximols)
MS spasticity
Approved in
28 countries
Otsuka,
Almirall,
Novartis,
Bayer,
Neopharm
and Ipsen
Sativex
(nabiximols)
Cancer pain
Otsuka,
Almirall,
Novartis,
Bayer,
Neopharm
and Ipsen
Epidiolex® for Orphan Pediatric Epilepsy
Phase 3 data
reported
FDA
Meeting expected Q1 2016
Our lead cannabinoid product candidate is Epidiolex, a liquid formulation of pure plant-derived CBD, which is
in development for the treatment of a number of rare pediatric epilepsy disorders. Several features of the
pharmacology of certain cannabinoids suggest that they may be candidates for investigation as anti-epileptic drugs.
We have conducted pre-clinical research of CBD in epilepsy for the last eight years, primarily in collaboration with
the University of Reading in the United Kingdom. This research has shown that CBD has significant anti-
epileptiform and anticonvulsant activity using a variety of in vitro and in vivo models and that it has the ability to
treat seizures in acute animal models of epilepsy with significantly fewer side effects than existing anti-epileptic
drugs.
36
Many cases of epilepsy are able to be classified and have clearly defined natural histories providing important
information on the likelihood of seizure control and chance of remission. Some of the rarer electroclinical
syndromes have very poor responses to treatment and negligible remission rates such as Ohtahara in neonates,
Dravet in infants, Lennox-Gastaut in young children and progressive myoclonic epilepsies in adolescence.
Our strategy for the development of Epidiolex within the field of pediatric epilepsy is to initially concentrate
formal development efforts on three orphan indications: Dravet Syndrome, LGS and TSC. We have to date received
Orphan Drug Designation from the U.S. FDA for Epidiolex for the treatment of both Dravet syndrome and LGS.
Additionally, we have received Fast Track Designation from the FDA and Orphan Designation from the EMA for
Epidiolex for the treatment of Dravet syndrome. We expect to further expand the market opportunity by targeting
additional orphan seizure disorders.
The active ingredient in Epidiolex, CBD, is one of the two principal cannabinoids in Sativex. Sativex has over
45,000 patient years of exposure in real world use, during which a favorable safety profile and positive benefit-risk
balance has continued to be established. We believe that this data is supportive of the safety profile for Epidiolex.
Epilepsy Market Overview
Epilepsy is one of the most common neurological disorders in children. According to Russ et al in the February
2012 edition of Pediatrics, there are 466,000 childhood epilepsy patients in the United States and 765,000 patients in
Europe, of which 30%, or about 140,000 patients in the United States and about 230,000 in Europe, are deemed
medically intractable or pharmacoresistant. According to Kwan and Brodie in the February 2000 edition of the New
England Journal of Medicine, 36% of patients with epilepsy were pharmacoresistant. Of the patients in the study,
47% became seizure-free during treatment with their first antiepileptic drug, 13% became seizure-free during
treatment with a second anti-epileptic drug as a monotherapy, and 4% became seizure-free with a third anti-epileptic
drug or treatment with multiple anti-epileptic drugs. The remaining 36% of patients were classified by the authors as
having pharmacoresistant epilepsy. Furthermore it is recognized that some of those that do find relief often suffer
side effects severe enough with their current medication that an alternative or adjunct is often sought. The costs of
uncontrolled epilepsy are significant, with direct and indirect costs associated with epilepsy totaling more than $15
billion per year. 50,000 epilepsy related deaths occur each year, more than breast cancer deaths annually.
Dravet Syndrome
Dravet syndrome is a severe infantile-onset, genetic, drug-resistant epilepsy syndrome with a distinctive but
complex electroclinical presentation. Onset of Dravet syndrome occurs during the first year of life with clonic and
tonic-clonic seizures in previously healthy and developmentally normal infants. Symptoms peak at about five
months of age, and the latest onset beginning by 15 months. Other seizures develop between one and four years of
age such as prolonged focal dyscognitive seizures and brief absence seizures, and duration of these seizures
decreases during this period, but their frequency increases. Prognosis is poor and approximately 14% of children die
during a seizure, because of infection, or suddenly due to uncertain causes, often because of the relentless
neurological decline or from Sudden Unexpected Death in Epilepsy, or SUDEP. Patients develop intellectual
disability and life-long ongoing seizures. Intellectual impairment varies from severe in 50% of patients, to moderate
and mild intellectual disability each accounting for 25% of cases. Patients may rarely return to normal intellect.
According to Forsgren L. et al. in the 2004 edition of Epilepsy in Children, the incidence of epilepsy in the first
year of life is 1.5 per 1,000 people, or, by our estimate, 6,450 new epilepsies per year worldwide. According to
Dravet et al. in the 2012 edition of Epileptic Syndromes in Infancy, Childhood and Adolescence, up to 5% of
epilepsies diagnosed in the first year of life are Dravet syndrome, equating to 320 new cases per year in the United
States with a mortality rate that studies have shown may be as high as 15% in the first 20 years of life, or, by our
estimate, 5,440 patients with Dravet in the United States under the age of 20 years. Applying the same assumptions
in Europe, we believe there are an estimated 6,710 Dravet patients in the European Union. It is likely that these
figures are a low estimate, however, we believe that this syndrome is likely underdiagnosed.
A large percentage of cases of Dravet syndrome have a family history for epilepsy or convulsions. Heterozygous
de novo mutations of the alpha 1 (α-1) subunit of the SCN1A gene, which encodes a voltage-gated sodium channel,
are the major cause of Dravet syndrome and are found in approximately 75%-80% of patients and more than 500
SCN1A mutations have been reported to be associated with this disorder.
37
There are currently no FDA-approved treatments specifically indicated for Dravet syndrome. The standard of
care usually involves a combination of the following anticonvulsants: clobazam, clonazepam, leviteracetam,
topirimate, valproic acid, ethosuximide or zonisamide. Stiripentol is approved in Europe for the treatment of Dravet
syndrome in conjunction with clobazam and valproate. In the United States, stiripentol was granted an Orphan Drug
Designation for the treatment of Dravet syndrome in 2008; however, the drug is not FDA approved. Potent sodium
channel blockers used to treat epilepsy actually increase seizure frequency in patients with Dravet Syndrome. The
most common are phenytoin, carbamazepine, lamotrigine and rufinamide. Management of this disease may also
include a ketogenic diet, and physical and communication therapy. In addition to anti-convulsive drugs, many
patients with Dravet syndrome are treated with anti-psychotic drugs, stimulants and drugs to treat insomnia.
Dravet Syndrome Phase 3 Clinical Program
We held a pre-IND meeting with the FDA in February 2014 to discuss the investigational plan for Epidiolex in
Dravet syndrome, following which we opened a commercial IND in May 2014. In October 2014, we commenced a
Phase 2/3 trial designed as a two-part randomized double-blind, placebo-controlled parallel group dose escalation,
safety, tolerability, pharmacokinetic and efficacy trial of single and multiple doses of Epidiolex to treat Dravet
syndrome in children who are being treated with other anti-epileptic drugs. Part one was completed in February
2015, and included pharmacokinetic and dose-finding data elements in a total of 34 patients over a 3 week treatment
period. Following a review of the Part A data by an independent panel, Part two of the trial commenced in March
2015, and is a placebo-controlled safety and efficacy evaluation of Epidiolex (at a dose of 20mg/kg per day) over a
3-month treatment period. Originally expected to recruit 100 patients, this trial reached a total of 120 patients
randomized.
In April 2015, we commenced an additional Phase 3 trial in Dravet syndrome which is recruiting an additional
150 patients. This placebo-controlled trial differs from the first Phase 3 trial in that it includes two Epidiolex dose
arms, at 20mg/kg and at 10 mg/kg. Both of these studies will be the largest known controlled trials in Dravet
syndrome.
We expect to report top-line results from the Phase 2/3 trial in the first quarter of 2016 and results from the second
Phase 3 trial in mid-2016.
The primary measure of efficacy in both trials will be the comparison between Epidiolex and placebo in the
percentage change from baseline in number of convulsive seizures during the treatment period.
Lennox-Gastaut Syndrome
Lennox-Gastaut syndrome (LGS) is a type of epilepsy with multiple types of seizures, particularly tonic
(stiffening) and atonic (drop) seizures. According to Trevathan et al. in the December 1997 edition of Epilepsia, the
estimated prevalence of Lennox-Gastaut syndrome is between 3 and 4% of childhood epilepsy with the cause of the
disorder unknown in 1 out of 4 children. LGS affects between 14,500 – 18,500 children under the age of 18 in the
U.S. and over 30,000 children and adults in the U.S. 80% of children with LGS continue to experience seizures,
psychiatric, and behavioral deficits in adulthood. Seizures due to LGS are hard to control and they generally require
life-long treatment as LGS usually persists into the adult years. Historically patients with LGS have had few
effective treatment options. Intellectual and behavioral problems associated with LGS are common and add to the
complexity of this syndrome and the difficulties in managing life with LGS.
Drug resistance is one of the main features of LGS. Generally, treatment often requires broad spectrum anti-
epileptic drugs and/or polypharmacy. Treatment will also depend on the seizure type as some treatments that are
effective for one type of seizure may worsen another. The treatments already approved by the FDA for LGS and
used as adjunctive therapy with existing medications are: Onfi (clobazam); Banzel (rufinamide); Lamictal
(lamotrigine); Topamax (topirimate); and Felbatol (felbamate). Although these medicines, when used with other
particular anti-epileptic drugs, show a level of efficacy, many also have severe undesirable side effects. Furthermore,
several of these medicines are based on the same mechanism of action of traditional anti-epileptic drugs. As patients
with LGS generally need to take several treatments to gain any change to their seizure frequency, we believe there is
a need for further pharmacological treatments, particularly those with a different mechanism of action, to give
prescribers more options in treating this rare, pharmacoresistant syndrome.
38
LGS Phase 3 Clinical Program
In May 2015 we commenced the Phase 3 pivotal trials program for Epidiolex in LGS. The first Phase 3 trial is a
placebo-controlled safety and efficacy evaluation of Epidiolex (at a dose of 20mg/kg per day) over a 3-month
treatment period. Originally expected to recruit 100 patients, this trial reached a total of 171 patients randomized.
The second placebo-controlled Phase 3 trial differs from the first Phase 3 LGS trial in that it includes two Epidiolex
dose arms, at 20mg/kg and at 10 mg/kg. Originally expected to recruit 150 patients, it has completed enrollment
above the original target sample size and is expected to reach a total of over 210 patients randomized. We expect to
report top-line results from both trials in the second quarter of 2016. The primary measure of efficacy in both trials
will be the comparison between Epidiolex and placebo in the percentage change from baseline in number of drop
attacks during the treatment period. We have been notified of the death of one of the patients enrolled in the LGS
Phase 3 trial program. This death has been investigated and has been deemed unrelated to Epidiolex by the principal
investigator responsible for the patient.
It is important to note that the protocols for both the Epidiolex Dravet syndrome and LGS Phase 3 trial trials
allow for a prospective pooling of data within each indication, which is endorsed by the FDA in its recent guidance
(Integrated Summary of Effectiveness “ISE” – October 2015). The recommendations in this guidance reflect the
FDA’s current thinking regarding information that the industry should include in an ISE to provide an integrated
analysis that offers insights beyond those observable in individual clinical trials, where NDA filers are “encouraged
to provide an ISE because it represents an opportunity to present a coherent analysis and presentation of the drug’s
benefits.”
Tuberous Sclerosis Complex (TSC)
TSC is a genetic disorder that causes non-malignant tumors to form in many different organs, primarily in the
brain, eyes, heart, kidney, skin and lungs. The brain and skin are the most affected organs. TSC results from a
mutation in tumor suppression genes TSC1 or TSC2. According to the Tuberous Sclerosis Alliance, TSC is
estimated to affect approximately 50,000 patients in the United States. The most common symptom of TSC is
epilepsy, which occurs in 75 – 90% of patients, about 70% of whom experience seizure onset in their first year of
life. Approximately 60% of these TSC patients (or approximately 25,000 of patients in the United States) have
treatment-resistant seizures. The seizures of TSC are typically focal in onset. There are significant co-morbidities
associated with TSC including cognitive impairment in 50%, autism spectrum disorders in up to 40% and
neurobehavioral disorders in over 60% of individuals with TSC.
A number of patients with TSC have been treated with Epidiolex in the expanded access program. According to
Geffrey AL et al. in a poster presentation at the American Epilepsy Society annual meeting in December 2014, of
five TSC patients treated with Epidiolex, four patients experienced a reduction in seizures of 97% (n=2), 77% (n=1)
and 40% (n=1) at week 16 compared to a 4-week baseline period. All three patients with cognitive impairment
experienced cognitive gains and one of the two subjects with behavioral problems showed improvements. Since this
poster presentation, additional TSC patients have commenced treatment with Epidiolex in the expanded access
program. Based on these findings, we have decided to commence a clinical program of Epidiolex in TSC and we
expect to commence Phase 3 clinical development in early 2016.
Cannabinoid Rationale for Treating Epilepsy
Several features of the pharmacology of certain cannabinoids suggest that they may be candidates for
investigation as anti-epileptic drugs. A series of validated laboratory experiments have shown that certain
cannabinoids can modulate neurotransmission, can reduce neuro-inflammation and can affect oxidative stress. These
cannabinoids may simultaneously modulate a number of endogenous systems to attenuate and/or prevent epileptic
neuronal hyperexcitability. These include ion channel control, inflammation, modulation of oxidative stress and
inhibition of gene expression of epilepsy-associated genes.
Several different ion channels influence epileptogenesis (the process by which a normal brain develops epilepsy)
including both ligand-gated and voltage-gated ion channels. It is the former to which a proportion of the actions of
plant cannabinoids can be attributed, for example through agonism and antagonism of G-protein coupled receptors,
including orphan receptors as well as modulation of transient receptor potential (TRP) channels (differentially
activated, repressed and desensitized by different plant cannabinoids). Additionally it is now recognized that there is
a role for inflammation in epilepsy. Some cannabinoids possess anti-inflammatory properties including inhibition of
pro-inflammatory cytokine release and modulation of glial cell/neuronal interactions. Furthermore they modulate
oxidative stress and production of toxic nitric oxide. Research shows that other than THC, most plant cannabinoids
have little or no affinity for the cannabinoid receptors, and therefore do not share the unwanted psychoactivity that
goes along with stimulation of the CB1 receptor in particular.
Finally, certain cannabinoids may possess disease modifying potential through regulation of epilepsy-related
genes, as well as up-regulation of endogenous anti-convulsant neuropeptides and/or compensatory systems.
Based on recent findings in The Journal of Pharmacology and Experimental Therapeutics, CBD is likely to be
acting via more than one mechanism of action with the effect of reducing neuronal hyperexcitability. Importantly,
the anti-seizure effects of CBD are not dependent on cannabinoid receptors, nor on sodium channels.
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CBD Pharmacology in Epilepsy
The epilepsy-relevant pharmacology of CBD can be summarized as follows: inhibition of neutrophil and
microglial migration, anti-inflammatory effects in conventional animal models; inhibition of adenosine uptake and
indirect agonism of the neuroprotective and anti-inflammatory A2a receptor; other neuroprotective effects (TNF
inhibition and anti-oxidant activity); antipsychotic activity; agonism at the orphan receptor GPR55; desensitizer of
TRP channels; anticonvulsant activity in all laboratory models tested; ion channel modulation; reduction of
acetylcholine turnover at neuro-muscular junctions; and perturbation of the negative effects of THC (opposes
euphoric, cognitive and psychotropic effects) via one or more of the above mechanisms.
There is a significant effort to identify the mechanisms of action that underpin the clinical effectiveness of
Epidiolex (and other cannabinoids) in epilepsy, including investigation of the effects of cannabinoids on epilepsy
associated gene expression. CBD has negligible binding at the CB1 receptor, and so shares neither the
pharmacology of CB1 agonists such as THC nor that of CB1 inverse agonists such as Rimonabant. CBD’s
mechanism for treating seizures is not fully understood but is believed to involve a combination of beneficial effects
stacking upon one another (polypharmacology).
Preclinical models suggest a broad role for CBD in generalized and partial seizures, and clinical reports of
benefit extend into other congenital seizure disorders.
Our CBD Pre-Clinical Research in Pediatric Epilepsy
We have conducted pre-clinical research of CBD in epilepsy for several years and have reported significant anti-
epileptiform and anticonvulsant activity using a variety of in vitro and in vivo models. This research has shown the
ability of CBD to treat seizures in acute models of epilepsy with significantly fewer side effects than existing anti-
epileptic drugs. Our cannabinoid research compounds were screened in electrically discharging hippocampal brain
slices caused by the omission of Mg2+ ions from, or addition of the K+ channel blocker, 4-aminopyridine (4-AP) to
the bathing solution. In these models, 100µM of CBD decreased epileptiform amplitude and duration as well as
burst frequency; importantly, this compound exerted no effect upon the propagation of epileptiform activity.
Subsequently, the anti-convulsant actions of 1, 10 and 100 mg/kg CBD were examined in three different in vivo
seizure rodent models. In the PTZ-induced acute, generalized seizures model, 100 mg/kg CBD significantly
decreased mortality rate and the incidence of tonic-clonic seizures. In the acute pilocarpine model of temporal lobe
seizures all doses of CBD significantly reduced the percentage of animals experiencing the most severe seizures. In
this model of partial seizures, 10 and 100 mg/kg CBD significantly decreased the percentage of animals dying as a
result of seizures and all doses of CBD also decreased the percentage of animals experiencing the most severe tonic-
clonic seizures.
During 2013, we received increasing interest among U.S. pediatric epilepsy specialists and patient organizations
in the potential role of CBD in treating intractable childhood epilepsy, in particular Dravet syndrome. This interest
led to a medical conference organized by the New York University School of Medicine on October 4, 2013 titled:
“Cannabidiols: Potential Use in Epilepsy and Other Neurological Disorders.” Epilepsy specialists at the meeting
viewed CBD as attractive for the treatment of these disorders for a variety of reasons, including:
Case reports of its efficacy in severe, refractory patients consistently provide encouraging signals; and
CBD’s “natural” profile and safety data generated to date suggest that it could be an attractive treatment
option without the unwanted side effects of other anti-seizure drugs.
In addition, specialists at this conference concluded the following:
Only a pharmaceutical formulation of CBD which could meet FDA requirements for standardization and
quality control would be appropriate for administering to children; and
Placebo-controlled studies should be performed as a matter of urgency in order to provide robust evidence
of the safety and efficacy of CBD.
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Epidiolex Expanded Access INDs
In parallel with our commercial clinical trials program, the FDA has been receiving and approving INDs from
independent investigators in the U.S. to allow treatment with Epidiolex in children with a range of epilepsy
syndromes. To date, the FDA has granted 20 intermediate expanded access INDs to independent physician
investigators in the United States to treat a total of over 450 children and young adults suffering from intractable
epilepsy with Epidiolex, as well as three individual patient expanded access INDs. The patients in these INDs suffer
not only from Dravet syndrome and LGS, but also from other pediatric epilepsy syndromes. In addition, the FDA
has granted additional INDs to independent investigators operating under expanded access programs supported by
individual states and for which we are supplying Epidiolex. The FDA may authorize expanded access programs to
facilitate access to investigational drugs for treatment use for patients with a serious or immediately life-threatening
disease or condition who lack therapeutic alternatives. In addition to Company and physician-led activities, a
number of U.S. state governments and the government of New South Wales, Australia, are collaborating with GW
on separate state-based clinical trials in epilepsy.
Seven abstracts related to our programs were presented at the 69th Annual Meeting of the American Epilepsy
Society including data from the physician-led Epidiolex expanded access program. On December 7, 2015, at the
Annual Meeting of the American Epilepsy Society, physician reports of clinical effect and safety data was presented
on 261 children and young adults with treatment-resistant epilepsy who have been treated with Epidiolex for a
period of at least 12 weeks (Devinsky et al). This data is from 16 clinical sites in the United States and was
generated under expanded access INDs authorized by the FDA. In addition, physician reports of safety data were
presented on 313 patients (261 patients with 12 weeks treatment effect data plus an additional 52 patients still in
their first 12 weeks of treatment or who withdrew from treatment). The expanded access program comprises clinical
studies performed by individual physicians.
The patients included in the Epidiolex program had Dravet syndrome (17% of the total) and LGS (15% of the
total), epilepsy types that can lead to intellectual disability and lifelong seizures, as well as 14 other types of severe
epilepsy, such as TSC, Aicardi syndrome and Doose syndrome. Many of these other types of epilepsy are severe and
rare, and several patients with these epilepsies have major congenital structural brain abnormalities.
The 261 patients were predominately children with an average age of 11.8 years. In all cases, Epidiolex was
added to current anti-epileptic drug (AED) treatment regimes. On average, patients were taking approximately three
other AEDs. At baseline, the median number of convulsive seizures per month was 31.
Clinical Effect Data – All Patients
Data was presented on all 261 patients who had at least 12 weeks treatment. Treatment was open label. Of these
261 patients, 135 patients had also reached 36 weeks treatment at the time of data analysis. Information collected on
all seizures (convulsive and non-convulsive) is reported for each patient. Data is presented showing the median
change in seizure frequency compared to a 4-week baseline period.
Week 4
Week 8
Week 12
Week 16
Week 24
Week 36
Median change in
seizure frequency
-33.5%
-42.5%
-45.1%
-49.5%
-45.9%
-44.1%
At the end of 12 Weeks, 47% of all patients experienced a ≥50% reduction in seizures and 9% of all
patients were seizure-free.
At the end of 12 Weeks, the median overall reduction in convulsive seizure frequency was 48.8%.
Clinical Effect Data – Dravet syndrome patients only
Data was presented on 44 patients with Dravet syndrome who had at least 12 weeks treatment data. Of
these 44 patients, 25 patients had also reached 36 weeks treatment at the time of data analysis. Information
collected on all seizures (convulsive and non-convulsive) is reported for each patient. Data is presented
showing the median change in seizure frequency compared to a 4-week baseline period.
Week 4
Week 8
Week 12
Week 16
Week 24
Week 36
Median change in
seizure frequency
-36.8%
-56.4%
-62.7%
-56.2%
-55.4%
-50.6%
At the end of 12 Weeks, 13% of Dravet syndrome patients were seizure-free.
Of the 44 patients with Dravet syndrome, 42 patients had convulsive seizures at baseline. At the end of 12
weeks, the median reduction in convulsive seizures in these patients was 52.3%.
Clinical Effect Data – Patients without Dravet syndrome
Data was made available on all 217 patients with diagnoses other than Dravet syndrome who had at least 12
weeks treatment. Of these 217 patients, 110 patients had also reached 36 weeks treatment at the time of data
analysis. Information collected on all seizures (convulsive and non-convulsive) is reported for each patient.
Data is presented showing the median change in seizure frequency compared to a 4-week baseline period.
Week 4
Week 8
Week 12
Week 16
Week 24
Week 36
Median change in
seizure frequency
-33.3%
-41.2%
-41.4%
-47.0%
-45.5%
-44.1%
Clinical Effect Data – LGS patients only
Data was presented on 40 patients with LGS who had at least 12 weeks treatment data. Of these patients, 14
had atonic seizures at baseline. In these patients, there was a 71.1% median reduction in the number of atonic
seizures at the end of 12 weeks.
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Safety Data
Safety data was made available on 313 patients (261 patients with 12 weeks treatment effect data plus 52
additional patients for whom 12 week treatment effect data is not yet available or who withdrew from
treatment) and represents approximately 180 patient-years of exposure to Epidiolex. The most common adverse
events (occurring in 10% or more patients and resulting from all causes) were somnolence (23%), diarrhea
(23%), fatigue (17%), decreased appetite (17%), convulsions (17%) and vomiting (10%). Adverse events led to
discontinuation in four percent of patients. Most adverse events were mild or moderate and transient. 14
patients (4%) reported an adverse event leading to discontinuation. There were 36 (12%) withdrawals from
treatment due to lack of clinical effect. Serious adverse events were reported in 106 patients. Of these, SAEs in
16 (5%) patients were deemed possibly related to treatment, including altered liver enzymes (4 patients), status
epilepticus/convulsion (4), diarrhea (4), decreased weight (3), thrombocytopenia (1). Serious adverse events
reported under the expanded access program include 7 deaths. We are also aware of the death of 1 patient that
received Epidiolex on a compassionate use basis in the United Kingdom. All 8 of these deaths have been
investigated and were all deemed unrelated to Epidiolex by the independent investigators. Clobazam co-
therapy was associated with a higher rate of treatment response (median reduction in convulsive seizures):
56.4% v. 35.0% at week 12; this may reflect elevations in the N-desmethyl clobazam metabolite. This apparent
effect of clobazam co-therapy was not seen in Dravet syndrome or LGS groups - at week 12, 53% of
Dravet/LGS patients on Clobazam were 50% responders compared with 54% not taking Clobazam (odds
ratio 0.97 (95% CI - 0.35-2.65)).
Clinical Effect Data - TSC patients
On December 7, 2015, at the Annual Meeting of the American Epilepsy Society, safety and efficacy data
on 10 patients diagnosed with TSC from the expanded access program was presented by Massachusetts
General Hospital for Children (Geffrey et al) on Epidiolex treatment of refractory epilepsy in these patients. In
this presentation, there was a response rate of 50%, 50%, 40%, 60% and 66% at 2, 3, 6, 9, and 12 months of
treatment with Epidiolex, respectively. Improvements were reported in alertness, verbal
capacity/communication, vocalizations, cognitive availability, and initiation of emotional and physical
connections, as well as heightened expression of emotion. Side effects were seen in 50% of patients (5) and
most were resolved with anti-epileptic drug or CBD dose adjustment.
Clinical Effect Data - Epileptic Spasms
On December 7, 2015, at the Annual Meeting of the American Epilepsy Society, safety and efficacy data on 9
patients suffering from epileptic spasms from the Epidiolex expanded access program were presented by
Massachusetts General Hospital for Children (Abati et al). Epilepsy spasms often remain refractory to standard anti-
epileptic drugs. According to this poster, Epidiolex exerted its effects in a short time course, with a response rate of
67% after two weeks and 78% after 1 month. Three of nine patients became spasm-free after two weeks of
Epidiolex treatment. By parent report, patients also showed cognitive gains including improvements in alertness,
verbal capacity/communication, and cognitive availability.
Note Regarding Expanded Access Studies
The expanded access studies we currently support are uncontrolled, carried out by individual physician
investigators independent from us, and not always conducted in strict compliance with Good Clinical Practices,
all of which can lead to an observed treatment effect that may differ from one seen in placebo-controlled trials.
Data from these studies provide only anecdotal evidence of efficacy for regulatory review, although they may
provide supportive safety information for regulatory review. The patients treated under these expanded access
INDs contain no control or comparator group for reference and these patient data are not designed to be
aggregated or reported as study results. Moreover, data from such small numbers of patients may be highly
variable. Information obtained from these INDs, including the statistical principles that the independent
investigators have chosen to apply to the data, may not reliably predict data collected via systematic evaluation
of efficacy in our sponsored clinical trials, or evaluated via other statistical principles that may be applied in
these trials. Such studies are carried out by individual investigators and not conducted in strict compliance with
Good Clinical Practices. We can offer no assurances that the observations reported by the treating physicians
under these expanded access INDs are due solely to Epidiolex and not as a result of other factors, such as a
beneficial or synergistic drug-drug interaction, as postulated above. Further, due to the non-normal distribution
of the data collected from the small sample size, we have chosen to use median data in its analysis. However,
other statistical principles may be more appropriate to the analysis of the clinical data generated from our
placebo controlled trials of Epidiolex for the treatment of Dravet syndrome and LGS.
We believe the data we have received to date under these expanded access INDs support the continued
investigation of Epidiolex as a potential treatment for epilepsy, including for Dravet syndrome, LGS and TSC.
Emergency INDs
The FDA has also granted to physicians 11 individual emergency INDs. An emergency IND is an IND for the
use of an investigational new drug or biological product for clinical treatment of a patient in an emergency situation.
In order to be granted an emergency IND the following five conditions must all be met: (1) the patient or patients to
be treated have a serious or immediately life-threatening disease or condition, and there is no comparable or
satisfactory alternative therapy to diagnose, monitor, or treat the disease or condition; (2) FDA must determine that
the patient cannot obtain the drug under another IND or protocol; (3) the potential benefits to the patient justify the
potential risks of the treatment and the risks from this investigational treatment are not unreasonable in the context
of the disease or condition treated with this investigational product; (4) providing the investigational drug for the
requested use will not interfere with the initiation, conduct, or completion of clinical investigations that could
support marketing approval of the expanded access use or otherwise compromise the potential development of the
expanded access use; and (5) the physician must determine that the probable risk to the person from the
investigational drug is not greater than the probable risk from the disease or condition. In these cases, we have
responded to, and the FDA has approved, emergency treatment requests from physicians for children hospitalized as
a result of severe and potentially life-threatening seizures. In a poster at the American Epilepsy Society annual
meeting in December 2014, Lopez C. et al. presented information on a four year old patient with super refractory
status epilepticus due to febrile infection related epilepsy syndrome, or FIRES, treated with Epidiolex under an
emergency IND concluding that CBD was very well tolerated and associated with a significant improvement in
clinical and electrographic seizure burden. We believe all but two of the children treated under emergency INDs
remain on Epidiolex treatment. Two children treated under emergency INDs died while receiving treatment with
Epidiolex; both deaths were deemed unrelated to Epidiolex by the independent investigators.
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Epidiolex Manufacturing
We are currently manufacturing Epidiolex through utilization of in-house and external third party facilities for
various steps in the production process. We expect to satisfy near-term requirements for Epidiolex from these
current facilities but we are also in the process of scaling-up various parts of the production process both in-house
and with external third parties. We anticipate that we will need to continue to expand our manufacturing capacity
over the next several years to satisfy expected commercial demand.
GW is actively scaling its growing and manufacturing of Epidiolex to meet anticipated commercial demand, if
approved. From its extensive experience in growing CBD botanical raw material, GW is able to utilize a range of
growing methods to generate significant quantities of CBD botanical raw material derived from its proprietary CBD
plant chemtotypes. In 2015, production increased by a factor of approximately 20 times (4 Tonnes to 92 Tonnes)
compared with the previous year and is expected to double in 2016. This equates to approximately 200 Tonnes in
2016 and when purified and formulated, results in approximately 1.6 million 100mg/ml bottles of Epidiolex. To put
this into context, in 2015 GW shipped just over 20,000 bottles of Epidiolex to clinics in the U.S. for both controlled
trials and expanded access use. With expectations of significant demand for Epidiolex upon approval, GW plans to
continue expansion of its Epidiolex plant growing capacity well beyond this 2016 goal. The finished product,
Epidiolex, is a liquid formulation of pure CBD and there are several processing steps beyond growing to ensure that
the product is pure, meets the required FDA specification, and can be manufactured at scale to current Good
Manufacturing Practice Regulations. Each step has already been scaled and a further increase in scale is anticipated
during 2016. We believe we are on track to be ready for FDA pre-approval inspection in the second half of 2016.
Epidiolex Commercialization
We are planning to commercialize Epidiolex in the United States and elsewhere using our own sales and
marketing organization. In June 2015, we appointed Julian Gangolli to the newly created position of President,
North America and he has been appointed to the GW Board of Directors. Mr. Gangolli is leading our commercial
organization in the United States. We have also recruited a number of U.S. medical affairs, clinical trials and
commercial staff, many of whom have strong epilepsy knowledge and experience. We expect this organization to
expand over the next 12 months. The creation of the medical affairs team has allowed us to open scientific and
consultative communications with key stakeholders, such as the patient and physician communities in the United
States, whilst the commercial staff have begun actively developing our commercial strategy for the United States,
looking at issues like pricing and reimbursement strategy and the structuring of the marketing approach and sales
force.
GWP42006 (CBDV) in Epilepsy
In addition to Epidiolex, our epilepsy product candidates also include GWP42006, which features CBDV as the
primary cannabinoid. CBDV is distinct in chemical structure to CBD and has also shown anti-epileptic properties
across a range of in vitro and in vivo models of epilepsy. In a paper published in the September 2012 issue of The
British Journal of Pharmacology by scientists with whom we collaborate at the University of Reading, United
Kingdom, GWP42006 was reported to have the potential to prevent more seizures, with few of the side effects
caused by many existing anti-epileptic drugs, such as uncontrollable shaking. In the study, GWP42006 strongly
suppressed seizures in six different experimental models commonly used in epilepsy treatment. GWP42006 was also
found to provide additional efficacy when combined with drugs currently used to control epilepsy. Genetic
biomarkers for response have been identified.
We have completed a Phase 1 trial of GWP42006 in 66 healthy subjects. In this trial, GWP42006 was well
tolerated even at the highest tested dose. There were no serious or severe adverse events reported, nor any
withdrawals due to adverse events. We have commenced a Phase 2 trial of GWP42006 in 130 patients with epilepsy
and expect results in the second half 2016. As part of our agreement with the government of New South Wales in
Australia, we expect an additional trial of GWP42006 to commence in 2016 in children with treatment-resistant
epilepsy. We believe that GWP42006 has the potential for development in the field of pediatric epilepsy as well as
the broader epilepsy market.
New South Wales Initiative
In October 2015, we signed a Memorandum of Understanding (MOU) with the Government of New South
Wales in Australia to progress a research program for Epidiolex and CBDV in children with severe, drug resistant
childhood epilepsy. The MOU will facilitate (i) a world first, Phase 2 clinical trial in children for GWP42006, (ii) a
compassionate access program for Epidiolex, (iii) provision for New South Wales to host additional Phase 3 clinical
trials of Epidiolex and (iv) a Phase 4 clinical trial of Epidiolex (to follow completion of the Phase 3 studies).
43
CBD/CBDV Intellectual Property Portfolio
Our patent portfolio related to the use of CBD and/or CBDV includes fourteen patent families containing one or
more pending and/or issued patents with claims in the treatment of epilepsy, compositions, extraction techniques,
CBD and CBDV extracts and highly purified plant-derived CBD. These include Notices of Allowance from the U.S.
Patent and Trademark Office for patent applications protecting the use of CBD in the treatment of partial seizures
and for CBDV in the treatment of patients with epilepsy. The issued patents from these applications will provide an
exclusivity period until June 2030 and March 2031 respectively. We have also had a patent granted in the UK which
claims the use of CBD in combination with certain standard anti-epileptic drugs in the treatment of epilepsy.
Equivalent patent applications are being prosecuted in the US and at the European Patent Office. We also had a
patent granted in the UK in October 2015 which claims the use of CBD in combination with certain standard anti-
epileptic drugs in the treatment of epilepsy. Equivalent patent applications are being prosecuted in the US and at the
European Patent Office.
Other Orphan Product Candidates
Glioma
Beyond epilepsy-related orphan diseases, we are evaluating a combination product containing
GWP42002:GWP42003 in the treatment of recurrent glioblastoma multiforme, or GBM, a particularly aggressive
brain tumor which is considered a rare disease by the FDA and the European Medicines Agency. According to the
New England Journal of Medicine, GBM accounts for approximately 46% of the 22,500 new cases of brain cancer
diagnosed in the United States each year. We have received Orphan Drug Designation from the FDA for GWP
42002:GWP42003 combination for the treatment of GBM.
Market Overview
Glioma describes any tumor that arises from the glial tissue of the brain. Glioblastoma, or GBM, is a particularly
aggressive tumor that forms from abnormal growth of glial tissue. According to the New England Journal of
Medicine, GBM accounts for approximately 46% of the 22,500 new cases of brain cancer diagnosed in the United
States each year. Treatment options are limited and expected survival is a little over one year. GBM is considered a
rare disease by the FDA and the European Medicines Agency, or EMA.
Our Research
In pre-clinical models, we have shown cannabinoids to be orally active in the treatment of gliomas and, in
addition, have shown tumor response to be positively associated with tissue levels of cannabinoids. We have
identified the putative mechanism of action for our cannabinoid product candidates, where autophagy and
programmed cell death are stimulated via inhibition of the akt/mTORC1 axis. We have shown in in vivo studies that
cannabinoids have a synergistic effect with temozolomide, the standard chemotherapeutic agent used in the
treatment of glioma.
A recent study carried out in collaboration with us by specialists at St George’s, University of London, was the
first to show a dramatic effect on brain tumors when combining cannabinoids with irradiation. This research,
published in Molecular Cancer Therapeutics, showed that tumor growth in mouse brain was significantly slowed
when a combination of THC and CBD was used with irradiation and tumor inhibition was higher than observed with
irradiation alone.
In light of this promising pre-clinical research, in 2014, we commenced an early proof of concept Phase 1b/2a
clinical trial in 20 patients with recurrent GBM evaluating GWP42002:GWP42003 (THC/CBD) in combination with
temozolomide, the current standard of care. This study is a two part study with an open-label phase to assess safety
and tolerability followed by a double blind, randomized, placebo-controlled phase with patients randomized to
receive active or placebo. The first phase, an open-label safety evaluation of GWP42002:GWP42003 comprising
two cohorts of three patients each completing two cycles (months) of treatment is now complete. Safety data from
these initial patient cohorts has been assessed by the independent safety monitoring board and their approval was
given to proceed into a Phase 2a placebo-controlled phase.
44
We have now completed recruitment of the 20 patient placebo-controlled 2a phase of the trial, and top-line data
is expected around mid-2016. The primary outcome measure is 6 month progression free survival.
The principal cannabinoids we have studied in pre-clinical models of glioma are GWP42002 and GWP42003 in
various ratios, and this first trial employs Sativex, which contains an equal ratio of GWP42002 and GWP42003, to
establish a proof of principle. It is anticipated that subsequent development would focus on a product candidate with
a different ratio of GWP42002 and GWP42003.
Neonatal Hypoxic-Ischemic Encephalopathy (NHIE)
NHIE is acute or sub-acute brain injury due to asphyxia caused during birth resulting from deprivation of oxygen
during birth (hypoxia) as a result of a sentinel event such as ruptured placenta, parental shock and even increased
heart rate. Hypoxic damage can occur to most of the infant’s organs, but brain damage is the most serious and least
likely to heal, resulting in encephalopathy. This can later manifest itself as either mental retardation (including
developmental delay and/or intellectual disability) or physical disabilities such as spasticity, blindness and deafness.
Indeed, spastic diplegia and the other forms of cerebral palsy almost always feature asphyxiation during the birth
process as a contributing factor. The exact timing and underlying causes of these outcomes remains unknown but it
is widely recognized that interventions need to be administered within six hours of hypoxic insult.
Market Overview
According to Kurinczuk et al. in the 2010 edition of Early Human Development, the incidence of NHIE is 1.5 to
2.8 per 1,000 births in the United States, or, by our estimate, 6,500 to 12,000 cases per year. Of these, 35% are
expected to die in early life and 30% will end up with permanent disability. There are currently no FDA-approved
medicines specifically indicated for NHIE. The only FDA-approved treatment is the Olympic Cool-Cap System and
treatment guidelines in many European countries also support use of whole body hypothermia. Clinical studies have
shown the Cool-Cap to reduce the occurrence of disability due to NHIE but not death, while whole body
hypothermia had a more marginal effect on disability but is able to reduce mortality. This treatment is only available
in specialized neonatal intensive care units and must be started within 6 hours of birth. Even if a patient is put into
induced hypothermia there is still a significant rate of morbidity and mortality, with a meta-analysis of the available
data revealing a 27% death rate. Among the patients who survive NHIE, 28% suffer from major neurodevelopment
issues and 26% develop Cerebral Palsy. There are academic initiatives looking to develop treatments in this area. In
addition, one intervention being investigated by the pharmaceutical industry is an IV infusion of 2-Iminobiotin.
Neurophyxia B.V. attained orphan drug designation for this treatment in both Europe and the United States and is
conducting a Phase 2 study.
Cannabinoid Rationale for Treating NHIE
The pathophysiology of NHIE includes processes such as apoptosis, oxidative stress, inflammation and
excitotoxicity, and may involve not only the brain, but also other organs. Some plant cannabinoids are able to
influence all of these processes, but unlike other therapeutic compounds under development, can combine these
neuroprotective strategies within a single molecule. Firstly they can act on nuclear receptors that control neuronal
homeostasis and survival. Secondly, not only do they have important free radical scavenging actions, but may also
upregulate and activate endogenous antioxidant defenses. Thirdly, they influence the immune network and modulate
phenomena associated with infection or inflammation, via inhibition of macrophage and neutrophil migration,
natural killer cell proliferation, and by their ability to inhibit harmful cytokine production. It has been widely
reported that endocannabinoids are able to protect the glial cell, an effect that may be independent of CB receptors.
Finally, the endocannabinoid system, or ECS, has been shown to be neuroprotective in animal models—the levels of
endogenous cannabinoids become enhanced in the brains of newborn rats after acute injury, acting as a protective
response, and it has been proposed that one additional mechanism by which plant cannabinoids work is by
preventing the enzymatic degradation of endocannabinoids, thus enhancing endogenous defense mechanisms.
Recent research into the neuroprotection that has been shown by cannabinoids in animal models of neonatal hypoxia
has also suggested a role for the 5HT1A receptor, since some of the beneficial effects can be blocked by 5HT1A
receptor antagonists.
45
CBD as the Primary Cannabinoid Product Candidate in NHIE
In addition to its other properties, the possible neuroprotective effects of CBD have been examined. These
neuroprotective effects are thought to be based mainly on the potent anti-inflammatory and anti-oxidant properties
of CBD, although other actions of CBD that might also account for CBD-induced neuroprotection including:
inhibition of calcium transport across membranes; inhibition of anandamide uptake and enzymatic hydrolysis;
inhibition of iNOS protein expression and NF-κB activation; and inhibition of adenosine uptake. In a similar fashion
to endocannabinoids, adenosine is thought to be part of a natural neuroprotective system, because adenosine levels
rise in response to hypoxic insult in the brain and increasing extracellular adenosine acts as a neuroprotectant. It has
been demonstrated that CBD enhances adenosine signaling through the inhibition of adenosine re-uptake and
therefore indirectly activates the A2A receptor. Previously, it was demonstrated that CBD reduces brain damage after
ischemic injury in adult animals. In a newborn piglet model of NHIE, CBD improved brain activity as measured by
an EEG and reduced the numbers of seizures by half, while histological analysis of brain tissues showed that neuron
degeneration was reduced. Neurological exams showed improved neurobehavioral performance up to three days
after insult. There were also significant beneficial extra cerebral effects and the dose of dopamine needed by the
animals to maintain blood pressure was less than half of what was required in vehicle-treated animals.
Our NHIE Research
In a paper by Castillo et al, published in Neurobiology of Disease in 2010, reporting results from our pre-clinical
collaboration, CBD protected newborn mice forebrain slices from oxygen and glucose deprivation. We have further
demonstrated that CBD was neuroprotective even when administered 18 hours after the hypoxic insult. A study from
our pre-clinical collaboration with Lafuente, published in Paediatric Research in 2011, showed that administration of
CBD to newborn piglets at doses much lower than those reported in the literature appears to protect brain cells,
preserve brain activity, prevent seizures and improve neurobehavioral performance. These neuroprotective effects
were not only free from side effects in the piglets but also associated with some cardiac, hemodynamic and
ventilatory benefits unlike other promising compounds with neuroprotective activity. This data supports the view of
CBD as a possible therapy for asphyxiated newborns. In a paper by Pazos et al. published in Neuropharmacology in
2012, post hypoxic-ischemic administration of CBD to newborn rats was shown to reduce the volume of brain
damage, restore neurobehavioral function long term and reserve myelinization. In a second paper by Pazos et al,
published in Neurpharmacology in 2013, reporting results from our pre-clinical collaboration, post hypoxic-
ischemic administration of CBD was shown, in a piglet model, to reduce necrotic and apoptotic cell death, recover
brain activity, restore neurobehavioral function in the short term and enhance hypothermia protection.
Our NHIE clinical program
We held a pre-IND meeting with the FDA to discuss the development program for an intravenous CBD
formulation (GWP42003) in the treatment of NHIE. In April 2015, we received Orphan Drug Designation from the
FDA for CBD for the treatment of NHIE in July 2015 we received Orphan Drug Designation from the EMA for
CBD for the treatment of perinatal asphyxia. In addition, in July 2015 we received Fast Track Designation from the
FDA. We expect to commence a Phase 1 trial in healthy volunteers in the first half of 2016.
46
Other Pipeline Product Candidates
Type-2 Diabetes
Market Overview
According to the American Diabetes Association, 25.8 million individuals in the United States, or 8.3% of the
population, have diabetes, of which at least 90% have the type-2 form. According to the World Health Organization,
between 2010 and 2030, diabetes rates in developing countries will increase by 70% and by 20% in developed
countries. Type-2 diabetes is associated with two pathological features—insulin resistance in peripheral tissues
causing an increase in the insulin requirement and a failure of the insulin-producing cells in the pancreas to meet this
increased demand. Insulin resistance is driven by obesity, as well as a genetic predisposition, age and lack of
exercise. Insulin resistance causes elevated blood glucose levels, which is associated with various complications of
diabetes, including increased risk of cardiovascular disease, kidney damage, nerve damage and eye disease. There is
no cure for diabetes, so treatments are aimed primarily at controlling blood glucose levels. There is recognition that
advances in the treatment of type-2 diabetes should focus not merely on glucose control but in protecting the
overworked pancreatic islet cells from failure. Thus, there is an unmet need for improved insulin sensitizer drugs
and oral treatments that result in a restoration of normal insulin production and glucose-dependent release of insulin
from pancreatic islets.
Our Research
We have completed a Phase 2a trial in the treatment of dyslipedemia in patients with type-2 diabetes. This five-
arm trial was a 13 week randomized, double-blind, placebo-controlled, parallel group, pilot trial of GWP42004
(5mg), GWP42003 (100mg) and two separate ratios (5mg:5mg and 100mg:5mg) of GWP42003 and GWP42004.
Each treatment was delivered in the form of oral capsules and administered twice daily. The trial enrolled a total of
62 type-2 diabetes patients, such that each treatment group had 11 to 14 patients. Although GWP42004 showed no
benefit in lipid control, the trial showed that GWP42004, an oral cannabinoid treatment, produced the following
desirable anti-diabetic effects: reduced fasting plasma glucose levels (p=0.04), with an increase in fasting insulin
(p=0.289), and improved pancreatic beta-cell function (p=0.0074). Other trends of interest included increased serum
adiponectin (p=0.0024), reduced systolic blood pressure (p=0.099), reduced serum IL-6 levels (p=0.076), and
reduced serum C-Reactive Protein (CRP) levels (p=0.107). GWP42004 also showed numerical improvement in
increased insulin sensitivity (p=0.275), improvements in both glucose and insulin response to glucose load (OGTT)
(p=0.889 and p=0.417, respectively), and raised GLP-1 (glucagon-like peptide-1) (p=0.254). In this small study,
GWP42004 was numerically better than placebo in reduction of HbA1c, the standard primary endpoint for Phase 3
diabetes studies, but failed to demonstrate significance (p=0.278). Because baseline HbA1c levels were normal, a
significant reduction would not be expected. We are designing future studies of GWP42004 to focus on patients
with elevated baseline HbA1c levels. The trial did not show meaningful effects in the other treatment arms.
Several of these findings are consistent with pre-clinical data generated at the GW Metabolic Research
Laboratory, University of Buckingham. In particular, pre-clinical data suggests that GWP42004 protects the insulin-
producing cells of the pancreatic islets, a highly desirable feature of a new anti-diabetic medicine, increases insulin
sensitivity and reduces fasting plasma glucose levels.
In March 2014, we commenced a larger placebo-controlled Phase 2 dose ranging trial of GWP42004.
GWP42004 is an orally administered product which features plant-derived tetrahydrocannabivarin (THCV) as its
active ingredient. THCV is distinct from THC and does not share its intoxicating psychoactive effects. The primary
objective of this study is to compare the change in glycemic control in participants with type-2 diabetes when treated
with one of three doses of GWP42004 or placebo as add-on therapy, to metformin with the primary endpoint being
change from baseline to the end of treatment in mean glycosylated hemoglobin A1c (HbA1c) level. The safety and
tolerability of GWP42004 compared with placebo will also be assessed.
This study has now completed recruitment of its target 200 patients and top-line data is expected in mid-2016.
We believe that if the Phase 2 study confirms the Phase 2a findings, GWP42004 would have the potential to
offer a novel orally administered treatment option in this large potential market.
47
Schizophrenia
Market Overview
Schizophrenia is a chronic disease that manifests through disturbances of perception, thought, cognition,
emotion, motivation and motor activity. Over a lifetime, about 1% of the population will develop schizophrenia. All
antipsychotic treatments for schizophrenia rely primarily upon their antagonistic action at the dopamine D2 receptor
for their antipsychotic effect. They produce a wide range of adverse events, and are often poorly tolerated by
patients resulting in poor compliance with treatment. Current antipsychotics also have little or no effect upon the
“negative” symptoms (blunted mood and lack of pleasure, motivation and movement) of schizophrenia or the
associated cognitive deficit. Furthermore, the “positive” symptoms (such as hallucinations, delusions and thought
disorder) of at least one‒third of patients fail to respond adequately to current treatments.
Our Research
GWP42003 has shown notable anti-psychotic effects in accepted pre-clinical models of schizophrenia and
importantly has also demonstrated the ability to reduce the characteristic movement disorders induced by currently
available anti-psychotic agents. In September 2015, we announced positive top line results from an exploratory
Phase 2a placebo-controlled clinical trial of CBD in 88 patients with schizophrenia who had previously failed to
respond adequately to first line anti-psychotic medications. Over a series of exploratory endpoints, CBD was
consistently superior to placebo, with the most notable differences being in the PANSS positive sub-scale (p=0.018),
the Clinical Global Impression of Severity (p=0.04) and Clinical Global Impression of Improvement (p=0.02). The
proportion of responders (improvement in PANSS Total score greater than 20%) on CBD was higher than that of
participants on placebo and the Scale for Assessment of Negative Symptoms showed a trend in favor of CBD which
reached statistical significance for patients taking CBD together with one of the leading first line anti-psychotic
medications. The safety profile of CBD was reassuring, with no serious adverse events and an overall frequency of
adverse events very similar to placebo
We believe that the signals of efficacy demonstrated in this trial, together with a notably reassuring safety
profile, provide us with the prospect of new and distinct cannabinoid neuropsychiatric product pipeline opportunity
as the mechanism of CBD does not appear to rely on the dopamine D2 receptor augmentation of standard
antipsychotics. We are now analyzing the data to fully understand the appropriate next steps regarding product
development in schizophrenia with future research likely focused on pediatric orphan neuropsychiatric indications.
Additionally, our pre-clinical research findings suggest that a range of other psychiatric conditions may be
promising targets for cannabinoid therapeutics.
Sativex for Cancer Pain
Sativex, or nabiximols, is an oromucosal spray consisting of a formulated extract of the cannabis sativa plant that
contains the principal cannabinoids delta-9-tetrahydrocannabinol, or THC, and CBD. We have been evaluating
Sativex in a Phase 3 program to treat persistent pain in people with advanced cancer who experience inadequate pain
relief from optimized chronic opioid therapy, the current standard of care. The costs of the Phase 3 cancer pain
program have been fully funded by Otsuka Pharmaceutical Co. Ltd, who hold exclusive rights to commercialize
Sativex in the U.S.
This Phase 3 program consisted of three pivotal Phase 3 trials. In January 2015, we announced top-line results
from the first trial, in which Sativex did not meet the primary endpoint of demonstrating a statistically significant
difference from placebo. In October, 2015, we reported on the additional two Sativex Phase 3 trials. Whilst Sativex
did not meet the primary endpoint in these trials, a pre-specified subgroup analysis of US patients across the Phase 3
trials showed a statistically significant improvement for Sativex compared to placebo (n=248, p=0.02), with several
significantly positive secondary efficacy endpoints. We and Otsuka plan to meet with the FDA with a view to
identifying the extent of additional clinical data required for a possible future NDA submission.
Long-term Safety and Efficacy
Results from a long-term, open-label, follow-up trial in 43 cancer pain patients who had previously participated
in the Phase 2a trial were published by Jeremy Johnson, et al. in the November 2012 issue of Journal of Pain and
Symptom Management. These results showed that the long-term use of Sativex was generally well tolerated, with no
evidence of a loss of effect for the relief of pain with long-term use. Furthermore, patients who kept using Sativex
did not seek to increase their dose of Sativex or other pain-relieving medication over time.
48
Sativex for Cerebral Palsy in Children
GW is currently conducting a study to assess the efficacy, safety and tolerability of Sativex as an adjunctive
treatment to existing anti-spasticity medications in children aged 8 to 18 with spasticity due to cerebral palsy or
traumatic central nervous system injury who have not responded adequately to existing anti-spasticity medications.
This study is a randomized, double-blind, placebo-controlled study followed by a 24-week open label extension
phase and is expected to enroll approximately 70 patients and to be completed in mid-2016.
Autism Spectrum Disorders
Many of the pediatric intractable epilepsy conditions within the Epidiolex Expanded Access Program share
considerable overlap with Autism Spectrum Disorders (ASD). Early clinical observations from treating
physicians suggest a potential role for cannabinoids in addressing problems associated with ASD; they may be
able to treat deficits in cognition, behavior and communication. Consequently, we have several ongoing
initiatives to evaluate a range of cannabinoids in pre-clinical models of ASD, with a focus on, but not limited
to, those caused by single genetic aberrations. These conditions often fall within the orphan disease space and
we are working with investigators to gain clinical experience in the use of different cannabinoids with the aim
to commence clinical trials in the second half of 2016.
Pre-clinical developments
In addition to our extensive in-house research organization, we have established a global network of leading
scientists in the cannabinoid field including 36 academic institutions in nine countries. Our proprietary cannabinoid
product platform allows us to discover, develop and commercialize additional novel first-in-class cannabinoid
products across a broad range of therapeutic areas. Some of the more advanced programs include:
Assessment of the effect of cannabinoids on cognitive and behavioural function in animal models of conditions
characterised as being on the 'autism spectrum'. These animal models include both genetically determined
abnormalities of neurobehaviour, and chemically-induced models, and include Rett syndrome and Fragile X
among others
The use of CBD and other cannabinoid candidates in Duchenne muscular dystrophy (DMD), the most common
inherited lethal childhood orphan disease in the world, where new discoveries lead researchers to conclude that
muscle cells respond positively to CBD by increasing metabolic output and improving mitochondrial function
In Glioma, cannabinoids induce glioma stem-like cell differentiation and inhibit gliomagenesis and research
suggests that a combination of cannabinoids with other anticancer agents can eliminate GICs (Glioma Initiating
Cells) which can cause recurrence of tumors after surgery. These findings are significant as GICs are resistant
to most anticancer therapies and therefore reduce the apparent effectiveness of conventional brain cancer
therapies
In various other cancers including ovarian and pancreatic cancer, pre-clinical research has shown that
cannabinoids can act in concert with current cancer treatments such as chemotherapy and radio therapy to
enhance therapeutic response in animal models
The use of the cannabinoid CBG in the treatment of chemotherapy-induced cachexia where pre-clinical data
supports a multi-modal action that includes a protective effect on overall loss of muscle mass, stimulation of
feeding, and a normalized metabolic profile
Our Commercialized Product: Sativex® for MS Spasticity
Sativex is an oromucosal spray of a formulated extract of the cannabis sativa plant that contains the
principal cannabinoids THC and CBD as well as specific minor cannabinoids and other non-cannabinoid
components. We developed Sativex to be administered as an oral spray, whereby the active ingredients are absorbed
in the lining of the mouth, either under the tongue or inside the cheek. This route of administration is intended to
achieve a reliable rate of absorption and high level of bioavailability of THC and CBD. The spray cannot be inhaled
due to the particle size. The spray provides patients with the flexibility to self-manage their dosage in order to
achieve and maintain an optimal therapeutic response. Because cannabinoids are virtually insoluble in water, we use
organic solvents, ethanol and propylene glycol, to formulate the extract. The product has been granted the U.S.
Adopted Name, or USAN, of nabiximols.
49
Our licensing partners are commercializing Sativex for MS spasticity in 15 countries outside the United
States. We have also received regulatory approval in an additional 13 countries, and we anticipate commercial
launches in several of these countries in the next 12 months. Two additional countries have recommended approval
for Sativex and regulatory filings are ongoing in 11 other countries, principally in the Middle East where we expect
approvals over the next 12 months.
Regulatory Status of Sativex for MS Spasticity
Approved
(pending launch)
Regulatory
submission filed
Australia
Belgium
Czech Republic
France
Ireland
Kuwait
Luxembourg
Malaysia
Netherlands
New Zealand
Portugal
Slovakia
United Arab Emirates
Algeria
Bahrain
Brazil
Chile
Colombia
Egypt
Morocco
Oman
Qatar
Saudi Arabia
South Africa
Launched
Austria
Canada
Denmark
Finland
Germany
Iceland
Israel
Italy
Liechtenstein
Norway
Poland
Spain
Sweden
Switzerland
United Kingdom
MS Spasticity Opportunity
MS is the most common disabling neurological condition affecting young adults. According to the World
Health Organization, MS affects more than 1.3 million people worldwide, of which over 400,000 are in the United
States and over 600,000 are in Europe. MS affects twice as many women as men and typically develops between the
ages of 20 and 40 years. The hallmark pathology of MS is patchy demyelination, leading to nerve damage, which in
most cases causes symptoms that adversely affect quality of life. Spasticity is one of the most common, chronic and
disabling of these symptoms, affecting up to 80% of MS patients over their lifetimes. Spasticity refers to an
abnormal, involuntary tightness of muscles, which increases when the muscles are rapidly stretched, so that the
associated joint appears to resist movement. Some of the features of spasticity include muscle stiffness, difficulty
straightening joints, reduced mobility, limb weakness, shaking, intermittent spasms and pain. As a result of the
increased muscle tone due to spasticity, “simple” everyday movements become difficult or impossible altogether. In
addition, painful muscle spasms can lead to difficulty with sleeping, sitting in a chair or lying in bed. Occasionally,
spasms may be triggered by fairly minor irritations such as tight clothing, a full bladder or bowel, urinary tract
infection or skin irritation, such as from a pressure sore. Moderate to severe spasticity can lead to significant
impairment. There is no cure for spasticity, and it is widely recognized that currently available oral treatments afford
only partial relief and have unpleasant side effects. Sativex offers the prospect of treating patients who have failed
existing oral therapies and who might otherwise require invasive and costly alternative treatment options such as
intrathecal baclofen or surgery.
Pharmacology
Sativex has been investigated for anti-spasticity effects in chronic relapsing experimental allergic
encephalomyelitis, or CREAE, the accepted animal model of MS spasticity. In this model, Sativex rapidly reduces
spasticity in a dose-dependent way, achieving the same overall reduction in spasticity as baclofen, the standard first
line treatment for MS spasticity, without causing as much disability in the animals. Each of the two principal
cannabinoids within Sativex, THC and CBD, possess pharmacological properties that provide a rationale to support
the efficacy of Sativex in MS spasticity. In animal models of MS, the CB1 receptor plays a key role in the
modulation of spasticity and spasms. While CBD has little activity at cannabinoid receptors, it does have
neuroprotective properties, which are most likely mediated by its ability to modulate intra-cellular calcium. The key
pharmacology of CBD in MS likely relates to its role as an agonist at TRP channels, critical for maintaining calcium
homeostasis and as an inhibitor of adenosine uptake, providing a non-cannabinoid receptor mechanism for its anti-
inflammatory properties. In addition, CBD has an anxiolytic effect, is anti-psychotic and is believed to mitigate
some of the undesirable side effects of THC.
50
MS Spasticity Clinical Program
In clinical trials, Sativex has been shown to provide effective relief of spasticity symptoms, including
reduced spasms, improved sleep and improved functions of daily living, in patients for whom existing anti-spasticity
treatments have failed. During the course of the development program for Sativex in MS spasticity, we have
conducted Phase 2 and Phase 3 double-blind, randomized, placebo-controlled trials involving 1,294 patients. These
trials have all been published in peer-reviewed journals. In each trial, patients were permitted to remain on stable
doses of their background oral anti-spasticity medication and spasticity was measured using a 0 to 10 NRS. This
scale has been validated for use in spasticity clinical trials.
The largest and most recent of the Phase 3 trials, published by A. Novotna, et al. in the April 2011 issue of
European Journal of Neurology, was a two-part trial and employed an enriched trial design. During the first four-
week period, all patients received Sativex single-blind. This was followed by a 12-week, double-blind period in
which patients who had achieved a pre-determined level of response of > 20% improvement in their spasticity NRS
scores at the end of the prior four-week period were randomized to Sativex or placebo in a conventional parallel
double blind group design. We designed this trial to demonstrate the size of clinical benefit achieved from Sativex in
patients who had clearly shown a capacity to respond to treatment in a clinically meaningful way.
The primary efficacy endpoint of the trial was the difference between Sativex and placebo in the mean
change in spasticity as measured by the patient using a 0 to 10 NRS in the 12-week period from randomization to the
end of treatment. There were a number of functional secondary measures that are important in contributing to an
assessment of the clinical relevance of a change in the primary outcome measure. In particular, the objective view of
the physician was considered important by regulatory authorities and was therefore included as a secondary
endpoint.
After the four-week, single-blind period, of 572 patients enrolled 538 patients completed and had a
reduction in the mean score for spasticity on the NRS scale by 3.01 points from a baseline of 6.91 points, or 44%. In
addition, Of the 538 patients’ 48% of patients’ improved their NRS score by 20% or more during this initial period,
the pre-defined level of response required to be included in the randomized phase.
As a result, 241 patients proceeded into the 12-week, randomized, double blind, placebo-controlled trial
phase. The primary endpoint, the mean difference between treatment groups at the end of the randomized treatment
period was statistically significant in favor of Sativex (p=0.0002). Furthermore, 74% of Sativex responders
experienced a reduction of 30% or more in their spasticity score from their original pre-treatment baseline, which
represents a meaningful clinical improvement in this patient population.
The secondary efficacy measures were in line with the primary outcome of the trial. In particular, the
functional measures added to the existing evidence that patients achieve a benefit that is apparent to both their
caregiver and their physician. The following secondary efficacy measures showed statistically significant
improvements of Sativex over placebo: spasm score (p=0.005), sleep disturbance (p<0.0001), Subject Global
Impression of Change (p=0.023), Physician Global Impression of Change (p=0.005), Carer Global Impression of
Function (p=0.005) and Barthel Activities of Daily Living (p=0.0067). Of the other secondary efficacy measures,
the timed ten-meter walk and Modified Ashworth Scale approached statistical significance (p=0.069 and p=0.094,
respectively).
The safety profile of Sativex across placebo-controlled trials conducted in MS patients shows that the drug
is generally well tolerated, with the most commonly occurring individual adverse events (occurring at a rate greater
than 10%) being dizziness (25% vs. 8% for placebo), fatigue (13% vs. 8% for placebo) and nausea (10% vs. 6% for
placebo). Adverse events were typically mild or moderate in severity and the pattern of common adverse events is
similar in both short-term and long-term exposure to Sativex. The most common adverse events tend not to be
recurrent, occurring in the first four weeks of treatment and much less commonly thereafter.
51
Long-Term Efficacy
We have demonstrated the long-term efficacy of Sativex in a placebo-controlled trial published by William
Notcutt, et al. in the February 2011 issue of Multiple Sclerosis. This randomized withdrawal trial recruited 36
patients with MS that had been receiving Sativex on prescription for a mean duration of 3.6 years. Patients were
randomized to continue with Sativex or switched to placebo in a double-blind, four-week treatment period. The
primary efficacy endpoint of the trial was the time to treatment failure, with treatment failure being defined as
cessation of the randomized treatment before the end of the trial, a worsening of spasticity (defined as an increase in
the mean spasticity NRS over the last seven days of the treatment period of at least 20% and at least one unit from
the treatment baseline), or a clinically relevant increase in or addition to anti-spasticity drugs or disease modifying
medications after randomization.
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Kaplan-Meier Plot: Time to Treatment Failure
The primary efficacy endpoint was statistically significant in favor of Sativex (p=0.013). Of the key
secondary measures, both the Subject Global Impression of Change (p=0.017) and the Carer Global Impression of
Functional Ability (p=0.0011) were also statistically significant.
In addition to this controlled trial, there is a significant body of evidence from long-term open-label
extension trials to support the evidence of maintenance of efficacy in long-term use of Sativex, many of which have
been published in peer-reviewed journals.
The withdrawal rate from open-label, long-term extension trials is low, and withdrawals due to a lack of
efficacy are uncommon. For those patients who remained in open-label, long-term extension trials for a year, the
symptom score for spasticity remained low, providing supportive evidence that continued use of Sativex is
associated with long-term maintenance of efficacy.
The pattern of adverse events seen in long-term use of Sativex is very similar to that seen in the short-term
placebo-controlled trials. Since Sativex first became commercially available, there has been an estimated additional
20,000 patient-years of exposure to Sativex outside of clinical trials and no new significant safety issues have been
identified.
Post-Approval Evidence of Sativex Clinical Benefits
Since launch, studies have been completed which report on the long-term effectiveness of Sativex clinical
benefit and which support the commercialization efforts of our partners.
52
An observational, prospective, multi-center and non-interventional study of prescription use in Germany
has been published in the European Neurology Journal in February 2014 by Flachenecker et al. This study observed
335 patients of whom 276 fit the efficacy criterion and showed that the clinical response rate on Sativex is consistent
with that seen in the Phase 3 trials and it is an effective and well tolerated treatment option in clinical practice for
resistant multiple sclerosis spasticity.
A formal prospective trial of prescription use in Germany was presented in October 2012 at the
28th Congress of the European Committee for Treatment and Research in Multiple Sclerosis (ECTRIMS) in Lyon,
France. This trial involved 300 patients and showed that the clinical response rate on Sativex is consistent with, and
somewhat better than, that seen in the Phase 3 trials.
A recent publication, November 2015 in European Neurology by Trojano et al reports on a prospective,
non-interventional mobility improvement study that looks at real life data on clinical outcomes of patients with
treatment resistant multiple sclerosis spasticity receiving routine treatment with Sativex in Italy. In this interim
analysis, 322 patients showed a decrease in NRS of -1.6 points (p=< 0.0001) and in the mean modified Ashworth
score a decrease from 2.6 to 2.3 (p=< 0.0001), from baseline to month 3 of treatment. The study concluded that in
everyday clinical practice in Italy, Sativex provides symptomatic relief of MS spasticity with good tolerability in a
number of previously resistant patients.
Post-Approval Evidence of Sativex Safety Profile
In October 2014, Vachova et al published the results in the Journal of Multiple Sclerosis from a 12-month
multicenter, double-blind, randomized parallel group, placebo-controlled study in 121 patients with MS spasticity.
The study was required as a post-approval commitment by the UK regulatory authority, the Medicines and
Healthcare products Regulatory Agency, or MHRA, with the primary objective of evaluating whether Sativex may
have long-term adverse effects on cognitive function or mood. The primary endpoint was the change in cognitive
function as assessed by the total Paced Auditory Serial Addition Test, or PASAT, score from baseline to end of
treatment. Mood was assessed by the Beck Depression Inventory-II. There was a slight improvement in the PASAT
score from the beginning to the end of the study in both the Sativex and placebo groups, thus confirming that the
effects of Sativex on long-term cognitive impairment were the same as the effects of placebo. Similarly, the change
in mood over the 12-month period was more or less identical in the Sativex and the placebo group, confirming no
untoward effect on mood. Of the efficacy secondary endpoints, each of the global impression of change scores as
assessed by the patient, physician and carer was highly significantly in favor of Sativex (p<0.0001, p=0.002 and
p=0.0014 respectively). This study concluded that long-term use of Sativex is not associated with any cognitive
decline or significant mood changes in this prone population.
Abuse Liability
A study published in the June 2011 issue of Human Psychopharmacology by Kerri Schoedel, et al.
compared the abuse liability of Sativex at three dose levels (four sprays taken consecutively, eight sprays taken
consecutively and 16 sprays taken consecutively) with placebo and two doses of dronabinol (synthetic THC)
capsules (20mg and 40mg) in a randomized, double-blind, crossover study in 23 healthy subjects with a history of
non-dependent but regular recreational cannabis use. The subjective effects of 20 and 40mg dronabinol were
consistently and significantly greater than placebo, demonstrating that it has measurable abuse potential. The effects
of Sativex were consistently lower than dronabinol. Four sprays of Sativex taken consecutively (containing 10.8mg
of THC) was not significantly different from placebo with regard to changes in primary variables, suggesting low
abuse potential at this dosage. Eight sprays of Sativex taken consecutively had a mixed profile of effects suggesting
modest abuse potential, while 16 sprays of Sativex taken consecutively was significantly different from placebo in
most outcome measures suggesting significant abuse potential. In contrast to this abuse liability study in which
Sativex doses were administered together, patients in the Phase 3 trials administer between three and ten sprays over
a 24-hour period.
MS Spasticity Indication in the United States
We believe that we will be required to conduct an additional development program prior to the submission
of an NDA with the FDA for this indication. Consistent with the FDA’s recommendations, we have requested a
Special Protocol Assessment, or SPA, for a proposed Phase 3 trial, for which we have not reached agreement. We
have elected not to continue with the SPA process at the present time and intend to review plans for this indication
in the U.S. during 2016.
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Our Strengths
We believe that we offer the following key distinguishing characteristics:
• Commercialized product validates development and regulatory pathway. We believe that the
successful development and regulatory approval of Sativex in MS spasticity provides important
validation of our proprietary cannabinoid product platform. On this basis, we believe that we can
develop a portfolio of additional cannabinoid therapeutics.
• A late stage cannabinoid orphan program in pediatric epilepsy for which we retain global commercial
rights. We have commenced two Phase 3 trials for Epidiolex in the treatment of Dravet syndrome and
two Phase 3 trials in the treatment of LGS. Each of these conditions is a severe, infantile-onset,
genetic, drug-resistant epilepsy syndrome. We expect to report top-line data from these four Phase 3
trials during 2016. We have obtained initial physician reported data on 261 patients receiving
Epidiolex under physician-sponsored INDs, which have shown promising signals of clinical effect in
reducing seizures.
• Additional pipeline programs to expand epilepsy market opportunity. We believe that there is
potential for the development of Epidiolex in additional rare pediatric epilepsy indications. Physician
reported data on patients receiving Epidiolex under physician-led INDs includes promising signals of
clinical effect in patients with conditions other than Dravet syndrome and LGS. One of these additional
indications is TSC and we expect to commence development in this indication in early 2016. We
expect to commence clinical development in an additional pediatric epilepsy indication in 2016. In
addition, we are in Phase 2 clinical development for an additional product candidate, GWP42006
(CBDV), in adult epilepsy patients and expect to commence an additional investigator-led trial of this
product candidate in children during 2016.
• A pipeline of additional cannabinoid orphan drug opportunities for which we retain global
commercial rights. We are conducting a Phase 1b/2a trial of another product, our combination
GWP42002:GWP42003, to treat GBM, an aggressive brain tumor and potential orphan drug
indication. In addition, we have received orphan designation from the FDA for CBD in the treatment
of NHIE, acute or sub-acute brain injury due to asphyxia caused during birth resulting from
deprivation of oxygen during birth, and plan to commence Phase 1 development of an intravenous
CBD formulation in the treatment of NHIE in the first half of 2016.
• A pipeline of additional cannabinoid non-orphan drug opportunities, including Sativex in the United
States. In the United States, Sativex has been evaluated in a Phase 3 program in the treatment of
advanced cancer pain, which was fully funded by Otsuka. We have submitted a request to meet with
the FDA to discuss potential paths forward for this indication and we also expect to evaluate the
prospect for clinical development in the United States of alternative indications for Sativex. Beyond
Sativex, we have successfully completed a Phase 2 trial in schizophrenia for our product candidate,
GWP42003. In addition, our product candidate THCV is currently in Phase 2 clinical development in
the treatment of type 2 diabetes.
• Opportunity for first-in-class treatments across a large number of therapeutic targets. We are at the
forefront of the commercialization of cannabinoid therapeutics using our proprietary product platform
to identify, validate and develop innovative first-in-class therapeutics that are designed to meet
significant unmet medical needs.
•
Strong competitive position in a highly specialized and regulated field. We believe that we are
uniquely positioned to benefit from the significant potential within the field of cannabinoid
therapeutics in which we have developed a successful track record and expertise, as well as an
intellectual property portfolio, during our 17 years of operations.
•
In-house manufacturing capabilities and expertise in controlled substances. We operate under Good
Manufacturing Practice commercial manufacturing licenses in the United Kingdom, which give us the
capability to supply our products to global markets. We have successfully exported cannabinoid
commercial or research materials to 37 countries and have substantial expertise in relevant
international and national regulations in relation to the research, distribution and commercialization of
cannabinoid therapeutics.
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• Highly experienced management team and network of leading scientists. Several members of our
leadership team have been in place for over ten years. We have a fully integrated in-house research and
development organization, regulatory capabilities and commercial manufacturing expertise. We
closely collaborate with a broad network of leading scientists in the cannabinoid field, including 36
academic institutions in nine countries
Our Proprietary Cannabinoid Product Platform
The cannabis plant is the unique source of more than 70 structurally-related, plant-derived cannabinoids.
Although one cannabinoid, THC, is known to cause psychoactive effects associated with the use of illicit herbal
cannabis, none of the other cannabinoids are known to share this property. In recent decades, there have been major
scientific advances that have led to the discovery of new plant-derived cannabinoids and a cannabinoid receptor
system in the human body, or endocannabinoid system. We are at the forefront of this new area of science, and we
believe that our proprietary cannabinoid product platform uniquely positions us to discover and develop
cannabinoids as new therapeutics. We are currently evaluating the potential for cannabinoids in the treatment of
central nervous system, or CNS, disorders, including epilepsy, multiple sclerosis and schizophrenia, cancer and
cancer pain, type-2 diabetes, and neurodegenerative disease.
Our proprietary cannabinoid product platform consists of our:
•
•
•
•
•
•
continually evolving library of internally generated novel cannabis plant types that produce selected
cannabinoids, or chemotypes. We can reproduce the selected chemotypes through propagation of plant
cuttings, or clones, in order to ensure that all subsequent plant material is genetically uniform. We can
also generate seeds of selected chemotypes for large scale production;
in-house extraction, processing methodologies and analytical techniques, which yield well-
characterized and standardized chemotype extracts;
discovery of novel cannabinoid pharmacology through conducting in vitro and in vivo pharmacologic
evaluation studies in validated disease models to determine the most promising potential therapeutic
areas for each extract;
in-house formulation and manufacturing capabilities, supplemented by third party contractors;
global in-house development and regulatory expertise; and
intellectual property portfolio, which includes 60 patent families with issued and/or pending claims
directed to plants, plant extracts, extraction technology, pharmaceutical formulations, drug delivery
and the therapeutic uses of cannabinoids, as well as plant variety rights, know-how and trade secrets.
We believe that the successful development and regulatory approval of Sativex for MS spasticity provide
important validation of our proprietary cannabinoid product platform.
The prospect for cannabinoid therapeutics to be approved through the FDA approval pathway has been the
subject of statements from the White House, Congress, the Drug Enforcement Administration, or DEA, and the
FDA. The White House Office of National Drug Control Policy states on its “Facts and Answers to the Frequently
Asked Questions about Marijuana” on the White House website that the FDA has recognized and approved the
medicinal use of isolated components of the marijuana plant and related synthetic compounds, and it specifically
references Sativex as a product that is currently in late-stage clinical trials with the FDA. In its June 2012 report
entitled “Reducing the U.S. Demand for Illegal Drugs,” the U.S. Senate Caucus on International Narcotics Control
expresses the view that the development of marijuana-based therapeutics through an approved FDA process is the
best route to explore and references Sativex as a promising product currently in the final phase of the FDA’s trials
for approved use in the United States. In that report, the Senate Caucus urged the FDA to complete a careful review
of Sativex in a timely manner. In its May 2014 report entitled “The Dangers and Consequences of Marijuana
Abuse,” the DEA expresses support for ongoing research into potential medicinal uses of marijuana’s active
ingredients, and specifically references Sativex and Epidiolex. A presentation in March 2015 by Douglas C.
Throckmorton, Deputy Director for Regulatory Programs, Center for Drug Evaluation and Review, FDA, referenced
Epidiolex and Sativex as examples of drugs in clinical testing, and concluded that drug development, grounded in
rigorous scientific research is essential to determining the appropriate uses of marijuana in the treatment of human
disease, and that the FDA is committed to making this process as efficient as possible and looking for ways to speed
the availability of new drugs from marijuana for the American public.
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Our Business Strategy
Our goal is to capitalize on our leading position in the field of cannabinoid therapeutics by pursuing the
following strategies:
•
Secure regulatory approval and launch using our own commercial organization our lead product
candidate Epidiolex in Dravet syndrome and LGS in the United States and around the world. We expect
to report top-line data from the four Phase 3 trials in Dravet syndrome and LGS in 2016, following which
we expect to submit an NDA to the FDA in the fourth quarter of 2016. We are building a commercial
launch.
organization
preparation
product
for
in
• Expand the market opportunity for our epilepsy portfolio. We expect to commence Phase 3 clinical
development of Epidiolex for TSC in early 2016 and to continue to commence clinical development of
an additional epilepsy indication during 2016. In addition, we have a second epilepsy product candidate,
GWP42006, for which a Phase 2 clinical trial is underway with data expected in 2016. We believe this
product may further address unmet needs within the epilepsy patient population.
• Expand our cannabinoid research within the field of pediatric neurology. We expect to commence a
Phase 1 clinical trial in 2016 for an intravenous CBD formulation in the treatment of NHIE, an orphan
indication for which we have received fast track designation from the FDA. We also expect to expand
our clinical research during the first half of 2016 within the field of autism spectrum disorders. In
addition, following positive proof of concept data in a Phase 2 schizophrenia trial, we expect to conduct
further research within the field of psychiatric disease in children. We retain global commercial rights
to these programs.
• Advance additional product candidates in our pipeline towards commercialization with a particular
focus on the U.S. market. We have a deep product pipeline that includes other cannabinoid product
candidates in Phase 2 trials for the treatment of GBM and type-2 diabetes. For Sativex, where we have
generated Phase 2 and 3 data in models of pain, spasticity as well as other neurological symptoms, we
expect during 2016 to determine the optimum clinical and regulatory pathway for Sativex in the United
States.
•
Leverage our proprietary cannabinoid product platform to discover, develop and commercialize
additional novel first-in-class cannabinoid products. We believe our established platform, including our
in-house development expertise, allows us to achieve candidate selection and proof of concept in an
efficient manner.
• Further strengthen our competitive position. We will continue to develop our extensive international
network of the most prominent scientists in the cannabinoid field and secure additional intellectual
property rights.
Our Proprietary Cannabinoid Product Platform
We believe we have established a world-leading position in cannabinoid therapeutics through our proven
proprietary cannabinoid product platform. Our platform consists of a continually evolving library of internally
generated novel cannabis plant types that produce selected cannabinoids, discovery of novel cannabinoid
pharmacology through our network of world leading scientists, an intellectual property portfolio, in-house
formulation, processing and manufacturing capabilities, and development and regulatory expertise. We further
believe that we are in a unique position to develop and manufacture plant-derived cannabinoid formulations
worldwide at sufficient quality, uniformity, scale and sophistication for the purposes of pharmaceutical development
and to meet international regulatory requirements.
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Cannabinoid Science Overview
Although one cannabinoid, THC, is known to cause psychoactive effects associated with the use of illicit
herbal cannabis, none of the other cannabinoids are known to share these properties. In recent decades, there have
been major scientific advances that have led to the discovery of new plant-derived cannabinoids and the
endocannabinoid system. We are at the forefront of this new area of science and our research into a large number of
these cannabinoids suggests that each has distinct pharmacological effects and potential therapeutic applications.
Our research to date has focused on the following plant-based cannabinoids:
THC (Delta-9 Tetrahydrocannabinol)
D8-THC (Delta-8 Tetrahydrocannabinol)
THCA (Tetrahydrocannabinol—Acid)
THCV (Tetrahydrocannabivarin)
THCVA (Tetrahydrocannabivarin—Acid)
CBD (Cannabidiol)
CBDA (Cannabidiol—Acid)
CBDV (Cannabidivarin)
CBDVA (Cannabidivarin—Acid)
CBC (Cannabichromene)
CBG (Cannabigerol)
CBGA (Cannabigerol—Acid)
CBGV (Cannabigerovarin)
CBN (Cannabinol)
CBNV (Cannabinovarin)
Initial academic research in the field of cannabinoid science focused almost exclusively on THC. It has
been widely published in scientific literature that THC has pain suppression, anti-spasmodic, anti-tremor, anti-
inflammatory, appetite stimulant and anti-nausea properties. Our research and development, however, has focused
primarily on exploring cannabinoids other than THC and identifying potential therapeutic applications of these other
cannabinoids. We have focused particularly on CBD, which has shown in pre-clinical testing conducted by us and
supported by publications in scientific literature to have anti-inflammatory, anti-convulsant, anti-psychotic, anti-
oxidant, neuroprotective and immunomodulatory effects. In addition, we believe CBD is not intoxicating as
evidenced by its distinct pharmacology from THC as well as evidence from clinical trials. In particular, the
intoxicating effects of THC result from its activity as a partial agonist at the CB1 receptor; CBD does not have this
same pharmacologic activity. There is a significant body of scientific literature on the properties of CBD, which
consistently describes CBD as a cannabinoid without psychotropic effects. Furthermore, according to publications in
scientific literature, in particular pre-clinical research published by Zuardi, et al. in the Journal of
Psychopharmacology 1982 and clinical research published by Karniol, et al. in the European Journal of
Pharmacology 1974, research suggests that the presence of CBD may mitigate some of the side-effects of THC. We
have also identified important pharmacological effects of other cannabinoids, such as the anti-convulsant effects of
CBDV, anti-diabetic effects of THCV, anti-nausea effects of CBDA and anti-cancer effects of CBG.
There are at least two types of cannabinoid receptors, CB1 and CB2, in the human endocannabinoid
system. CB1 receptors are considered to be among the most widely expressed G protein-coupled receptors in the
brain and are particularly abundant in areas of the brain concerned with movement and postural control, pain and
sensory perception, memory, cognition, emotion, and autonomic and endocrine function. CB1 receptors are also
found in peripheral tissues including peripheral nerves and non-neuronal tissues such as muscle, liver tissues and fat.
CB2 receptors are expressed primarily in tissues in the immune system and are believed to mediate the
immunological effects of cannabinoids. In addition, research suggests the endocannabinoid system interacts with
other important neurotransmitter and neuromodulatory systems in the human body, including TRP channels,
adenosine uptake and serotonin receptors. We believe that the far-reaching and diverse pharmacology of the
numerous cannabinoids provides significant potential for development of cannabinoid therapeutics across many
indications and disease areas.
Our Product Development Approach
Our approach to early product development of novel cannabinoids consists of the following stages:
Cannabinoid Chemotype Development. Our research activities commence with the generation of novel and
proprietary cannabinoid plant types that produce selected cannabinoids. Our plant geneticists breed unique and
protected “chemotypes,” or plants characterized by their chemical content, such that we can precisely control the
cannabinoid composition of a plant. We employ traditional methods of plant breeding, with no use of genetic
modification. We select chemotypes on the basis of their cannabinoid profile, appropriate levels of concentration
and botanical characteristics that enable commercial viability. We seek protection for chemotypes in the form of
plant variety rights, which protect the plants and the material obtained therefrom in Europe.
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Extract Preparation. After we generate the unique and protected chemotypes, we develop and characterize
preparations from an extract of the chemotype. In addition to preparing whole plant extracts, we also modify the
extract preparations by adding or removing certain components or purifying preparations to produce a purified
cannabinoid. Each of these steps may give rise to patentable opportunities.
Pharmacologic Evaluation. We then conduct in vitro and in vivo pharmacologic evaluation studies in validated
disease models, testing the potential activity, safety and routes of drug metabolism of each cannabinoid preparation
as well as combinations of preparations. These studies seek to identify the pharmacology of cannabinoid
preparations and allow us to determine the potential therapeutic area in which they might have promise. We then
conduct additional pharmacology, toxicology and pre-clinical development on promising preparations.
We conduct most of our pharmacologic evaluations in collaboration with cannabinoid scientists at academic
institutions around the world. We enter into research collaboration agreements and other arrangements that enable us
to benefit from the expertise of external scientists while retaining intellectual property rights that emerge from the
study of our research materials.
Product Composition and Formulation Development. In parallel with the later stages of pharmacological
evaluation, we identify optimum extraction and processing methods for the most promising preparations and then
develop clinical formulations from the plant extract and analytical methodologies to further study the formulations.
We are able to develop formulations of potential product candidates that focus on one or more cannabinoids as key
active constituents as well as formulations that focus on a single cannabinoid. Each of these steps may give rise to
patentable opportunities.
With respect to complex extracts, our formulation approach is exemplified by Sativex, the first approved
cannabinoid therapeutic based on whole plant extracts from the cannabis plant. The main active ingredients of
Sativex, THC and CBD, are extracted from two protected chemotypes. In addition to THC and CBD, Sativex
contains additional cannabinoid and non-cannabinoid plant components. In order to achieve a fully standardized
formulation of these complex extracts, we employ a range of advanced analytical technologies to demonstrate batch-
to-batch uniformity. We standardize the formulation across the extracts as a whole, not simply by reference to their
key active components.
With respect to pure cannabinoid formulations, our approach is exemplified by Epidiolex. The active ingredient,
CBD, is extracted from proprietary CBD containing chemotypes and then undergoes various processing steps to
generate the isolated pure compound.
Clinical development. Selected cannabinoid product candidates progress into clinical development. We have an in-
house clinical operations team that has the proven capability to execute Phase 1, 2 and 3 trials rapidly and cost-
effectively. Since our inception, we have undertaken an extensive program of clinical trials in over 4,370 patients,
including over 44 Phase 2 and Phase 3 trials and have undertaken post-market safety studies involving over 1,000
patients.
Cannabinoid Product Production Process
There are three principal steps in the manufacturing process for Sativex and our cannabinoid product candidates—
production of botanical raw material, or BRM, botanical drug substance, or BDS, and botanical drug product, or
BDP, in each instance as defined by FDA Guidance for Industry—Botanical Drug Products. We hold inventories of
BRM and BDS, both of which have extended shelf lives that enable us to manufacture BDP on demand. We have in-
house facilities that can perform all steps in the production process.
BRM Production. Each of our product candidates is derived from one or more selected chemotypes. For products
such as Sativex that comprise complex extracts, we reproduce the chemotype solely through propagation of plant
cuttings, or clones, in order to ensure that all subsequent plant material is genetically uniform. The plants are then
grown under highly controlled conditions in indoor glasshouses, in which all key features of the growing climate
and growing process are standardized. Plant material is grown throughout the year and batches are harvested each
week. Following harvest, plant material is dried and milled under standardized conditions. For pure cannabinoid
product candidates, such as Epidiolex, selected chemotypes can be grown in a range of conditions to produce plant
material that meets the necessary specifications for further processing. The BRM for Sativex and our other pipeline
product candidates are sourced from either our own in-house growing operations or from growing sub-contractors.
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BDS Production. BRM from each chemotype is processed and controlled separately to yield a well-characterized
and standardized extract as our BDS for a particular product or product candidate. Conversion from BRM to BDS
involves several processing steps as well as employment of extraction technologies. A proprietary liquid carbon
dioxide extraction method is employed for Sativex production. For Epidiolex, the BDS undergoes subsequent
processing steps to yield pure CBD.
BDP Production. BDP is the finished product manufactured from one or more BDSs at our in-house manufacturing
facility. We manufacture Sativex and our other product candidates through a controlled series of processes resulting
in a reproducible finished product manufactured to GMP standards. We are able to manufacture spray products
(such as Sativex), liquids (such as Epidiolex) and capsules.
Advantages of Our Approach
We believe that our focus on the development of therapeutics from plant-derived cannabinoids offers the following
important advantages:
• Our approach offers advantages over development programs that focus on synthetic single-target
potent molecules. There is an increasing recognition within the pharmaceutical industry that the
aetiology of complex disease is multifactorial and that improved treatments will involve multiple or
poly-pharmacology. We believe that the development of plant extract formulations containing one or
more principal cannabinoids offers a multi-target profile designed to address many of the causative
factors of complex diseases.
• Our approach is optimally suited to targeting the endocannabinoid system. This system has been
shown to be altered by, and to contribute to, several chronic conditions, especially involving the CNS.
The inherent complexity of this system and the ability of one part of the system to compensate for
abnormalities elsewhere in the system make the “single-target” approach to therapeutics unlikely to be
successful.
• Our platform enables us to evaluate the therapeutic potential of single cannabinoids as well as
combinations of cannabinoids. As demonstrated with Sativex, this approach offers the prospect of
developing a product that enhances the efficacy and safety features of one cannabinoid with
complementary features of another cannabinoid while remaining defined as a single new medicinal
entity by regulatory authorities.
• Our research has generated pre-clinical evidence in a number of disease areas where cannabinoids
contained within plant extract formulations may offer superior therapeutic promise compared with the
corresponding pure cannabinoids.
• The chemical complexity of our plant-based formulations provides additional hurdles for potential
generic competitors who will be required to demonstrate essential similarity.
Scientific Collaborators
Our research network extends to 36 academic institutions in nine countries. We work closely with the most
eminent cannabinoid pharmacologists in the world, including Professor Roger Pertwee, Aberdeen University and
Professor Vincenzo di Marzo, the Institute of Biomolecular Chemistry of the National Research Council (ICB-
CNR). In target disease areas, we identify lead scientists and institutions with relevant expertise and enter into
collaborations to advance our research efforts. We conduct epilepsy research with Dr. Ben Whalley, University of
Reading. All research with our collaborators is conducted under collaboration agreements, and any expert advice
provided outside of research activity is governed by consulting agreements. The expertise of these collaborators
relates principally to the pharmacology of cannabinoids and the early pre-clinical phases of product development.
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All results and the accumulated knowledge gained from this work is written up and reported to us on a
quarterly basis and is usually shared among the network of collaborators such that no specific individuals have
retained knowledge that is critical to any of our development programs. In addition, having completed the early
phases of product development for our main product candidates, future developments will largely be focused on
human clinical trials which are entirely managed by our in-house clinical management teams. As a result, we do not
consider any single collaboration in isolation to be material to our business.
Sativex Collaboration Agreements
We have entered into six separate collaboration agreements for Sativex with major pharmaceutical
companies. Each agreement provides the respective partner with exclusive rights in a defined geographic territory to
commercialize Sativex in all indications, while we retain the exclusive right to manufacture and supply Sativex to
such partner on commercial supply terms for the duration of the commercial life of the product. These agreements
typically carry a 15- year initial term, with automatic renewal periods. However, our agreement with Novartis
continues on a country-by-country basis for the commercial life of the products. Our partners have the right, under
certain circumstances, to terminate their agreements with us, and three of our partners, Almirall, Otsuka and
Novartis, have the right to terminate their agreements with us without cause.
Each of our collaboration agreements for Sativex incorporates different supply and royalty terms. With the
exception of the Novartis agreement, described below, each of our supply agreements requires us to supply fully
labeled Sativex vials at a price that is expressed as a percentage of a partner’s in-market net sales revenue. In some
cases, part of this revenue is structured as a combination of product supply price plus a royalty, although both types
of revenue are accounted for similarly. Sativex supply revenue is invoiced when product inventory is delivered to or
collected by the marketing partner. Royalties will be received in arrears based upon quarterly in- market net sales
declarations from partners.
The price charged for Sativex in the market is controlled by our marketing partners. However, our contracts
do not anticipate us being obligated to supply Sativex at a loss. In such event, if the in-market supply price would
cause us to supply Sativex at a loss we would have the right to renegotiate supply terms to prevent this. For example,
following the price reduction in Germany in March 2013, the resultant supply price would have led to us providing
Sativex to our partner, Almirall, at a loss. We completed an amendment to the supply terms with Almirall in 2014,
and this amendment provides for us to generate a margin on supply of product for countries in which a price
reduction would otherwise have led to us supplying product at a loss.
Please see Note 3 to our audited consolidated financial statements included as part of this Annual Report
for a breakdown of our revenue by geographic location.
Sativex in the United States
In 2007, we entered into a Sativex U.S. license agreement with Otsuka, the Japanese pharmaceutical
company.
Under the terms of the Sativex U.S. license agreement, we granted Otsuka an exclusive license to develop
and market Sativex in the United States. We are responsible for the manufacture and supply of Sativex to Otsuka.
Both companies jointly oversee all U.S. clinical development and regulatory activities for the first cancer pain
indication. We will be the holder of the IND until the filing of an NDA, which will be in Otsuka’s name. Otsuka will
assume development and regulatory responsibility for the second and any subsequent indications. Otsuka will bear
the costs of all U.S. development activities for Sativex in the treatment of cancer pain, additional indications and
future formulations.
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The financial terms of this agreement include total milestone payments and license fees to us of up to
$272.0 million, of which approximately $18.0 million relates to license fees, $54.0 million are linked to regulatory
milestones, such as initiation of Phase 3 trials, submission of an NDA to the FDA and other regulatory approvals,
and $200.0 million are linked to various commercial milestones, as well as revenue from the supply of products and
royalties on product sales. Our combined supply price and royalty to Otsuka equates to a percentage in the mid-
twenties of Otsuka’s in-market net sales revenue. Otsuka paid us the license fee of $18.0 million upfront and has
since paid an additional milestone payment of $4.0 million upon commencing the first Phase 3 clinical trial in cancer
pain.
Sativex in Latin America, Asia, the Middle East and Africa
Novartis Pharma AG. In 2011, we entered into an exclusive agreement with Novartis to commercialize
Sativex in Australia and New Zealand, Asia (excluding Japan, China and Hong Kong), the Middle East (excluding
Israel) and Africa.
Under the terms of this agreement, Novartis has exclusive commercialization rights to Sativex in the above-
mentioned territories and will act as the marketing authorization holder for Sativex. We will be responsible for the
manufacture and supply of Sativex to Novartis.
The financial terms of the agreement included an upfront fee of $5.0 million from Novartis. In addition, we
are eligible to receive additional payments of up to $28.8 million, of which $12.0 million is linked to achievement of
regulatory approvals and $16.8 million is linked to commercial performance targets. We will also receive revenue
from the supply of products and royalties on net sales of Sativex. Our supply terms to Novartis are structured
differently from those of our other partners. We supply batches of unlabeled Sativex vials and Novartis completes
the labeling and packaging process. Our supply price is structured as cost of goods plus a margin plus a further
royalty that is expected to grow with volume. Over the long-term, we expect our revenue to average a percentage in
the teens of Novartis’ Sativex in-market net sales revenue.
Australia represents the largest potential market in the territory licensed to Novartis. To date, the Australian
reimbursement authorities have not agreed to grant public reimbursement for Sativex in the MS spasticity indication
and therefore the product is not yet launched in that country. The position in Australia has impacted Novartis’
commercialization strategy for its licensed territory and the parties agreed to allow Novartis to put its activities on
hold whilst it waits for the results of the US cancer pain trials. Novartis is currently in a three month period of
assessment, at the end of which it must recommence activities with Sativex if the results of the US cancer pain trials
show, to Novartis’s reasonable satisfaction, that the endpoints for these trials have been achieved. As the results of
the US cancer pain trials show that the endpoints have not been met, Novartis has 3 months to consider its options,
which may include exercising its right to terminate the agreement with us without cause.
Ipsen Biopharm Ltd. In 2014, we entered into an exclusive agreement with Ipsen. Under the terms of this
agreement, Ipsen will promote and distribute Sativex in Latin America (excluding Mexico and the Islands of the
Caribbean).
Neopharm Group. Under an agreement signed in 2010, Neopharm, an Israeli pharmaceutical company,
holds exclusive commercial rights to Sativex in Israel. The financial terms of this agreement did not include a
license fee and we are not entitled to any milestone payments. We will receive revenue from the supply of products
to Neopharm, expected to equate to a percentage equal to forty to fifty of Neopharm’s in-market net sales revenue.
To date, we have received less than £400,000 under this collaboration agreement.
Under the terms of this agreement, Neopharm acts as market authorization holder in the territory. We are
responsible for commercial product supply to Neopharm for which we generate sales revenue.
Sativex in the European Union
Almirall S.A. In 2005, we entered into an exclusive agreement with Almirall, an international
pharmaceutical company with headquarters in Spain and 2014 total revenue of €1,407.4 million, to commercialize
Sativex in the European Union (excluding the United Kingdom) and E.U. accession countries, as well as
Switzerland, Norway and Turkey. In 2012, this agreement was amended to add Mexico to the licensed territory. In
countries where Almirall has no direct presence at the time of product launch, we will jointly agree on the
appointment of distribution partners. In such countries, we may elect to distribute the product ourselves.
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Under the agreement, we are the marketing authorization holder for Sativex in all countries in the territory
except where local regulations require a locally registered entity to assume this responsibility. In addition, we are
responsible for commercial product supply to Almirall. The financial terms of the agreement included an upfront fee
of £12.0 million. In addition, milestone payments are payable to us upon the successful completion of certain
development activities, as well as on regulatory approvals and the achievement of specified sales targets. Since its
initial execution in 2005, the agreement has been the subject of various amendments, two of which included the
provision of new milestone payments. Since 2005, in total, we have received £20.8 million of milestone payments
from Almirall. We have the potential to receive a further £17.0 million in future milestone payments in the event
that the relevant milestones are achieved. Of such £17.0 million in potential future milestone payments, £4.0 million
are linked to regulatory and clinical milestones and £13.0 million are linked to commercial milestones. We also
receive revenue from the supply of Sativex, currently equating to a percentage in the low to mid-twenties of
Almirall’s in-market net sales revenue, a percentage which, following an amendment currently under discussion, is
expected to be subject to a floor price equal to cost of goods plus a margin. This percentage would increase to the
mid-thirties if Sativex is approved for cancer pain in Europe.
Bayer HealthCare AG. In 2003, we entered into an agreement with Bayer whereby we granted Bayer an
exclusive license to market Sativex in the United Kingdom. This agreement was amended later in 2003 to include
Canada.
Under the agreement, we are the marketing authorization holder for Sativex in the United Kingdom and
Canada. In addition, we are responsible for commercial product supply to Bayer.
The financial terms of the agreement included an upfront fee of £5.0 million. In addition, milestone
payments are payable on the successful completion of certain development activities, as well as on regulatory
approvals and the achievement of specified sales targets. Since its initial execution in 2003, the agreement has been
the subject of various amendments, one of which included the provision of new milestone payments. In total, we
have received £14.8 million in milestone payments from Bayer. We have the potential to receive a further
£9.0 million in milestone payments in the event that the relevant milestones are achieved, all of which are related to
future regulatory approvals. We also receive revenue from supply of Sativex, equating to a percentage in the mid-
thirties to forty of Bayer’s in-market net sales revenue.
Intellectual Property and Technology Licenses
Our success depends in significant part on our ability to protect the proprietary nature of Sativex,
Epidiolex, our other product candidates, technology and know- how, to operate without infringing on the proprietary
rights of others, and to defend challenges and oppositions from others and prevent others from infringing on our
proprietary rights. We have sought, and plan to continue to seek, patent protection in the United States and other
countries for our proprietary technologies. Our intellectual property portfolio at September 30, 2015, includes 60
patent families with issued and/or pending claims directed to plants, plant extracts, extraction technology,
pharmaceutical formulations, drug delivery and the therapeutic uses of cannabinoids, as well as plant variety rights,
know-how and trade secrets. From these families, as of September 30, 2015, we own 353 pending patent
applications worldwide. Within the United States, we already have 32 issued patents with a further 32 pending
patent applications under active prosecution. There are an additional 349 issued patents outside of the United States.
Our policy is to seek patent protection for the technology, inventions and improvements that we consider important
to the development of our business, but only in those cases where we believe that the costs of obtaining patent
protection is justified by the commercial potential of the technology, and typically only in those jurisdictions that we
believe present significant commercial opportunities.
We also rely on trademarks, trade secrets, know-how and continuing innovation to develop and maintain our
competitive position.
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Our strategy is to seek and obtain patents related to Sativex across all major pharmaceutical markets around
the world. In the United States, our patents and/or pending applications (if they were to issue) relating to Sativex
would expire on various dates between 2021 and 2026, excluding possible patent term extensions. We have at least
seven different patent families containing one or more pending and/or issued patents directed to the Sativex
formulation, the extracts from which Sativex is composed, the extraction technique used to produce the extracts and
the therapeutic use of Sativex. In the key indication, treatment of cancer pain, we have obtained a patent in the
United States, titled “Pharmaceutical Compositions for the Treatment of Pain,” which would expire in September
2026. This patent is specific to the United States, and we will not seek to file, or obtain corresponding rights under,
this patent in other countries.
Under the 2007 research collaboration agreement with Otsuka, which expired in June 2013, all intellectual
property (including both patents and non-manufacturing related know-how) that was conceived by either Otsuka or
us during the course of the collaboration is jointly owned by Otsuka and us, and is referred to as “collaboration IP.”
Since no product/product candidate(s) were licensed by Otsuka at the end of the collaboration, we have an exclusive
sub-licensable royalty-bearing license to use collaboration IP both outside and within the fields of CNS and
oncology.
Under the collaboration agreement, we are responsible for the filing, prosecution, maintenance and defense
of any patents filed on the jointly owned collaboration IP, and Otsuka is responsible for all out-of-pocket expenses
associated therewith. In the event Otsuka no longer wishes to reimburse us for our out-of-pocket costs associated
with any of the jointly owned patents, Otsuka is required to assign its rights to the patents in question back to us.
Otsuka has the first right to bring and control any action for infringement of any joint patent rights in the research
field, and we have the right to join such action at our own expense. In the event Otsuka fails to bring such an action,
we have the right to bring and control any such action at our own expense. Neither party shall have the right to settle
any infringement litigation regarding the joint patent rights inside the research field without the prior written consent
of the other party.
We have a portfolio of intellectual property relating to CBD and CBDV in epilepsy. This portfolio includes
eleven distinct patent families which are either granted or filed, protecting the use of these product candidates. The
latest expiry date of these families runs to June 2035. Several of these patent families are collaboration IP derived
from the now expired Otsuka research collaboration, and to which we have an exclusive sub-licensable royalty-
bearing license. These patent families include claims to the use of CBD and/or CBDV in the treatment of epilepsy as
well as other families which provide protection for compositions, extraction techniques, CBD and CBDV extracts
and highly purified CBD. We anticipate additional patent applications being filed as new data is generated. The
trademark Epidiolex is registered in the United Kingdom and the United States.
We have a portfolio of intellectual property relating to CBD in schizophrenia. This portfolio includes two
distinct patent families which are either granted or filed, protecting the use of these product candidates. One of these
patent families is collaboration IP derived from the now expired Otsuka research collaboration, and to which we
have an exclusive sub-licensable royalty-bearing license. The latest expiry date of these families runs to September
2035. These patent families include claims to use of CBD alone or in combination with other cannabinoids / anti-
psychotics in the treatment of schizophrenia as well as other families which provide protection for compositions,
extraction techniques, CBD extracts and highly purified CBD. We anticipate additional patent applications being
filed as new data is generated.
The term of individual patents depends upon the countries in which they are obtained. In most countries in
which we have filed, the patent term is 20 years from the earliest date of filing a non-provisional patent application.
In the United States, a patent’s term may be lengthened by patent term adjustment, which compensates a patentee
for administrative delays by the U.S. Patent and Trademark Office, or PTO, in granting a patent, or may be
shortened if a patent is terminally disclaimed over another patent.
The term of a patent that covers an FDA-approved drug may also be eligible for extension, which permits
term restoration as compensation for the term lost during the FDA regulatory review process. The Drug Price
Competition and Patent Term Restoration Act of 1984, or the Hatch-Waxman Act, permits an extension of up to five
years beyond the expiration of the patent. The length of the patent term extension is related to the length of time the
drug is under regulatory review. Extensions cannot extend the remaining term of a patent beyond 14 years from the
date of product approval and only one patent applicable to an approved drug may be extended. Similar provisions to
extend the term of a patent that covers an approved drug are available in Europe and other non-U.S. jurisdictions;
indeed Supplementary Protection Certificates have been applied for such that the European formulation patent for
Sativex will be extended to 2025 in Europe. In the future, if and when our pharmaceutical product candidates
receive FDA approval, we may apply for extensions on patents covering those products.
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To protect our rights to any of our issued patents and proprietary information, we may need to litigate
against infringing third parties, avail ourselves of the courts or participate in hearings to determine the scope and
validity of those patents or other proprietary rights.
We also rely on trade secret protection for our confidential and proprietary information, and it is our policy
to require our employees, consultants, outside scientific collaborators, sponsored researchers and other advisors to
execute confidentiality agreements upon the commencement of employment or consulting relationships with us.
From time to time, in the normal course of our operations, we will be a party to litigation and other dispute
matters and claims relating to intellectual property. Litigation can be expensive and disruptive to normal business
operations. Moreover, the results of complex legal proceedings are difficult to predict and our view of these matters
may change in the future as the litigation and events related thereto unfold. An unfavorable outcome to any legal
matter, if material, could have a materially adverse effect on our operations or our financial position, liquidity or
results of operations.
Our wholly-owned subsidiary GW Pharma Limited is currently subject to a claim of trademark
infringement by G&W Laboratories for the use of the GW PHARMACEUTICALS name and logo in the US. We
intend to robustly defend this claim, but should we be unsuccessful it may result in us being unable to
commercialize our products under the GW Pharmaceuticals name in the US. An unsuccessful result would not
prevent us from commercializing our products in the US per se, or prevent us from commercializing our products
outside the US.
Manufacturing
We are responsible for the manufacture and supply of our products for commercial and clinical trial
purposes. We operate under GMP manufacturing licenses issued by the Medicines and Healthcare products
Regulatory Agency, or MHRA, in the United Kingdom and our facilities have been audited by the MHRA on
several occasions. We have personnel with extensive experience in production of botanical raw material,
pharmaceutical production, quality control, quality assurance and supply chain.
For commercial Sativex production, the BRM is currently contracted to an external third party, although
our staff is at the contract site to monitor activity and production quality on a weekly basis. All other steps in the
commercial production process for Sativex are performed in-house. We routinely hold significant inventories of
Sativex BRM and BDS, both of which have extended shelf lives that enable us to manufacture finished product on
demand. We believe that these inventories are currently sufficient to enable us to continue to meet anticipated
commercial demand for Sativex in the event of an interruption in our supply of BRM.
We are in the process of expanding and upgrading parts of our manufacturing facilities in order to meet
future demand and FDA requirements. We are constructing a new BDS production facility at our current site where
we expect to install new BDS processing equipment. Construction work for this new facility commenced in
September 2013 and is expected to be completed in Q1 2016. Longer term, depending on volume requirements, we
anticipate the need to construct a new BDP facility.
For Epidiolex production, the BRM is currently contracted to the same external third party used for Sativex
production plus an additional third party. We are planning a significant expansion of growing facilities over the next
few years in order to meet potential demand for Epidiolex, including working with several new third party
contractors and adopting new methods in order to handle and process bulk quantities of BRM. All other steps in the
production process for Epidiolex are currently performed in-house and we are working with a number of third party
contractors in the scale-up of various steps in the process in order to be in a position to manufacture commercial
quantities.
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We have successfully exported cannabinoid commercial or research materials to 37 countries and have the
necessary in-house expertise to manage the import/export process worldwide. We have substantial expertise in, and
experience with, relevant international and national regulations in relation to the research, distribution and
commercialization of cannabinoid therapeutics. We have formed relationships with relevant international and
national agencies in order to enable licensing of research sites, establishing appropriate product distribution channels
and securing licensed storage, obtaining import/export licenses, and facilitating amendments to relevant legislation if
required prior to commercialization.
Competition
The biotechnology and pharmaceutical industries are characterized by rapidly advancing technologies,
intense competition and a strong emphasis on proprietary products. While we believe that our scientific knowledge,
technology and development experience provide us with competitive advantages, we face potential competition
from many different sources, including major pharmaceutical, specialty pharmaceutical and biotechnology
companies, academic institutions, governmental agencies and public and private research institutions. Any product
candidates that we successfully develop and commercialize will compete with existing therapies and new therapies
that may become available in the future.
A synthetic THC (dronabinol) oral capsule has been approved and distributed in the United States for
anorexia associated with weight loss in patients with AIDS. Dronabinol and nabilone (a synthetic molecule similar
to THC) capsules have been approved and distributed in the United States for the treatment of nausea and vomiting
associated with cancer chemotherapy in patients who have failed to respond adequately to conventional antiemetic
treatments. We are also aware of exploratory research into the effects of THC formulations in other areas.
We are aware of discovery research within the pharmaceutical industry into synthetic agonists and
antagonists of CB1 and CB2 receptors. We are also aware of companies that supply synthetic cannabinoids and
cannabis extracts to researchers for pre-clinical and clinical investigation. We are also aware of various companies
that cultivate cannabis plants with a view to supplying herbal cannabis or non-pharmaceutical cannabis-based
formulations to patients. These activities have not been approved by the FDA.
In both MS spasticity and cancer pain, Sativex aims to treat patients who do not respond adequately to
standard care. In MS spasticity, such treatments include baclofen and tizanidine, and in cancer pain such treatments
include morphine and other opioids. In cancer pain, the principal focus of ongoing clinical research by our potential
competitors is in the development of alternative formulations of opioids.
With respect to CBD, a number of non-approved and non-standardized “artisanal” CBD preparations
derived from crude herbal cannabis have been made available in limited quantities by producers of “medical
marijuana” in the United States. In addition, certain pharmaceutical companies that currently manufacture synthetic
THC are likely to have the capability to manufacture synthetic CBD and may already be doing so. Insys
Therapeutics, Inc. has publicly stated its intention to develop CBD in Dravet syndrome, LGS, glioma and potentially
other orphan indications. Zogenix, Inc. is developing low dose fenfluramine in Dravet syndrome. Zynerba
Pharmaceuticals, Inc. is developing a transdermal formulation of CBD.
We have never endorsed or supported the idea of distributing or legalizing crude herbal cannabis, or
preparations derived from crude herbal cannabis, for medical use and do not believe prescription cannabinoids are
the same, and therefore competitive, with crude herbal cannabis. We have consistently maintained that only a
cannabinoid medication, one that is standardized in composition, formulation and dose, administered by means of an
appropriate delivery system, and tested in properly controlled pre-clinical and clinical studies, can meet the
standards of regulatory authorities around the world, including those of the FDA. We have also repeatedly stressed
that these regulatory processes provide important protections for patients, and we believe that any cannabinoid
medication must be subjected to, and satisfy, such rigorous scrutiny.
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The prospect for cannabinoid therapeutics to be approved through the FDA approval pathway has been the
subject of statements from the White House, Congress and the Drug Enforcement Administration, or DEA. The
White House Office of National Drug Control Policy states on its “Facts and Answers to the Frequently Asked
Questions about Marijuana” on the White House website that the FDA has recognized and approved the medicinal
use of isolated components of the marijuana plant and related synthetic compounds, and it specifically references
Sativex as a product that is currently in late-stage clinical trials with the FDA. In its June 2012 report titled
“Reducing the U.S. Demand for Illegal Drugs,” the U.S. Senate Caucus on International Narcotics Control expresses
the view that the development of marijuana-based therapeutics through an approved FDA process is the best route to
explore and references Sativex as a promising product currently in the final phase of the FDA’s trials for approved
use in the United States. In that report, the Senate Caucus urged the FDA to complete a careful review of Sativex in
a timely manner. In its May 2014 report titled “The Dangers and Consequences of Marijuana Abuse,” the DEA
expresses support for ongoing research into potential medicinal uses of marijuana’s active ingredients, and
specifically references Sativex and Epidiolex.
Government Regulation and Product Approval
FDA Approval Process
In the United States, pharmaceutical products are subject to extensive regulation by the FDA. The Federal
Food, Drug, and Cosmetic Act, or the FDC Act, and other federal and state statutes and regulations, govern, among
other things, the research, development, testing, manufacture, storage, recordkeeping, approval, labeling, promotion
and marketing, distribution, post-approval monitoring and reporting, sampling, and import and export of
pharmaceutical products. Failure to comply with applicable U.S. requirements may subject a company to a variety of
administrative or judicial sanctions, such as FDA refusal to approve pending NDAs, warning letters, product recalls,
product seizures, total or partial suspension of production or distribution, injunctions, fines, civil penalties and
criminal prosecution.
Pharmaceutical product development in the United States typically involves pre-clinical laboratory and
animal tests, the submission to the FDA of an IND, which must become effective before clinical testing may
commence, and adequate, well-controlled clinical trials to establish the safety and effectiveness of the drug for each
indication for which FDA approval is sought. Satisfaction of FDA pre-market approval requirements typically takes
many years and the actual time required may vary substantially based upon the type, complexity and novelty of the
product or disease.
Pre-clinical tests include laboratory evaluation of product chemistry, formulation and toxicity, as well as
animal trials to assess the characteristics and potential safety and efficacy of the product. The conduct of the pre-
clinical tests must comply with federal regulations and requirements, including good laboratory practices. The
results of pre- clinical testing are submitted to the FDA as part of an IND along with other information, including
information about product chemistry, manufacturing and controls, and a proposed clinical trial protocol. Long term
pre-clinical tests, such as animal tests of reproductive toxicity and carcinogenicity, may continue after the IND is
submitted.
A 30-day waiting period after the submission of each IND is required prior to the commencement of
clinical testing in humans. If the FDA has not imposed a clinical hold on the IND or otherwise commented or
questioned the IND within this 30-day period, the clinical trial proposed in the IND may begin.
Clinical trials involve the administration of the investigational new drug to healthy volunteers or patients
under the supervision of a qualified investigator. Clinical trials must be conducted: (i) in compliance with federal
regulations, (ii) in compliance with Good Clinical Practice, or GCP, an international standard meant to protect the
rights and health of patients and to define the roles of clinical trial sponsors, administrators and monitors, and
(iii) under protocols detailing the objectives of the trial, the parameters to be used in monitoring safety and the
effectiveness criteria to be evaluated. Each protocol involving testing on U.S. patients and subsequent protocol
amendments must be submitted to the FDA as part of the IND.
The FDA may order the temporary, or permanent, discontinuation of a clinical trial at any time or impose
other sanctions if it believes that the clinical trial either is not being conducted in accordance with FDA
requirements or presents an unacceptable risk to the clinical trial patients. The trial protocol and informed consent
information for patients in clinical trials must also be submitted to an institutional review board, or IRB, for
approval. An IRB may also require the clinical trial at the site to be halted, either temporarily or permanently, for
failure to comply with the IRB’s requirements or may impose other conditions.
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Clinical trials to support NDAs for marketing approval are typically conducted in three sequential phases,
but the phases may overlap. In Phase 1, the initial introduction of the drug into healthy human subjects or patients,
the drug is tested to assess metabolism, pharmacokinetics, pharmacological actions, side effects associated with
increasing doses and, if possible, early evidence on effectiveness. Phase 2 usually involves trials in a limited patient
population to determine the effectiveness of the drug for a particular indication, dosage tolerance and optimum
dosage, and to identify common adverse effects and safety risks. If a compound demonstrates evidence of
effectiveness and an acceptable safety profile in Phase 2 evaluations, Phase 3 trials are undertaken to obtain the
additional information about clinical efficacy and safety in a larger number of patients, typically at geographically
dispersed clinical trial sites, to permit the FDA to evaluate the overall benefit-risk relationship of the drug and to
provide adequate information for the labeling of the drug. In most cases, the FDA requires two adequate and well-
controlled Phase 3 clinical trials to demonstrate the efficacy of the drug. A single Phase 3 trial with other
confirmatory evidence may be sufficient in rare instances where the trial is a large multicenter trial demonstrating
internal consistency and a statistically very persuasive finding of a clinically meaningful effect on mortality,
irreversible morbidity, or prevention of a disease with potentially serious outcome, and confirmation of the result in
a second trial would be practically or ethically impossible.
After completion of the required clinical testing, an NDA is prepared and submitted to the FDA. FDA
approval of the NDA is required before marketing of the product may begin in the United States. The NDA must
include the results of all pre-clinical, clinical, and other testing and a compilation of data relating to the product’s
pharmacology, chemistry, manufacture, and controls. The cost of preparing and submitting an NDA is substantial.
Under federal law, the submission of most NDAs is additionally subject to a substantial application user fee, for
Fiscal Year 2016 $2,374,200, and the manufacturer and/or sponsor under an approved NDA are also subject to
annual product and establishment user fees, for Fiscal Year 2016 $114,450 per product and $585,200 per
establishment. These fees are typically increased annually.
The FDA has 60 days from its receipt of an NDA to determine whether the application will be accepted for
filing based on the agency’s threshold determination that it is sufficiently complete to permit substantive review.
Once the submission is accepted for filing, the FDA begins an in-depth review. The FDA has agreed to certain
performance goals in the review of NDAs. Most such applications for standard review drug products are reviewed
within 10 to 12 months, while most applications for priority review drugs are reviewed in six to eight months.
Priority review can be applied to drugs that the FDA determines offer major advances in treatment, or provide a
treatment where no adequate therapy exists. For biologics, priority review is further limited only for drugs intended
to treat a serious or life-threatening disease relative to the currently approved products. The review process for both
standard and priority review may be extended by FDA for three additional months to consider certain late-submitted
information, or information intended to clarify information already provided in the submission.
The FDA may also refer applications for novel drug products, or drug products that present difficult
questions of safety or efficacy, to an advisory committee, which is typically a panel that includes clinicians and
other experts, for review, evaluation and a recommendation as to whether the application should be approved. The
FDA is not bound by the recommendation of an advisory committee, but it generally follows such
recommendations. Before approving an NDA, the FDA will typically inspect one or more clinical sites to assure
compliance with GCP. Additionally, the FDA will inspect the facility or the facilities at which the drug is
manufactured. The FDA will not approve the product unless compliance with current good manufacturing practices,
or cGMP, is satisfactory and the NDA contains data that provide substantial evidence that the drug is safe and
effective in the indication studied.
After the FDA evaluates the NDA and the manufacturing facilities, it issues either an approval letter or a
complete response letter. A complete response letter generally outlines the deficiencies in the submission and may
require substantial additional testing, or information, in order for the FDA to reconsider the application. If, or when,
those deficiencies have been addressed to the FDA’s satisfaction in a resubmission of the NDA, the FDA will issue
an approval letter. The FDA has committed to reviewing such resubmissions in two or six months depending on the
type of information included.
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An approval letter authorizes commercial marketing of the drug with specific prescribing information for
specific indications. As a condition of NDA approval, the FDA may require a risk evaluation and mitigation
strategy, or REMS, to help ensure that the benefits of the drug outweigh the potential risks. REMS can include
medication guides, communication plans for health care professionals, and elements to assure safe use, or ETASU.
ETASU can include, but are not limited to, special training or certification for prescribing or dispensing, dispensing
only under certain circumstances, special monitoring, and the use of patient registries. The requirement for a REMS
can materially affect the potential market and profitability of the drug. Moreover, product approval may require
substantial post-approval testing and surveillance to monitor the drug’s safety or efficacy. Once granted, product
approvals may be withdrawn if compliance with regulatory standards is not maintained or problems are identified
following initial marketing.
Disclosure of Clinical Trial Information
Sponsors of clinical trials of certain FDA-regulated products, including prescription drugs, are required to
register and disclose certain clinical trial information on a public website maintained by the U.S. National Institutes
of Health. Information related to the product, patient population, phase of investigation, study sites and investigator,
and other aspects of the clinical trial is made public as part of the registration. Sponsors are also obligated to disclose
the results of these trials after completion. Disclosure of the results of these trials can be delayed until the product or
new indication being studied has been approved. Competitors may use this publicly available information to gain
knowledge regarding the design and progress of our development programs.
Fast Track Designation and Accelerated Approval
FDA is required to facilitate the development, and expedite the review, of drugs that are intended for the
treatment of a serious or life-threatening disease or condition for which there is no effective treatment and which
demonstrate the potential to address unmet medical needs for the condition. Under the Fast Track Program, the
sponsor of a new drug candidate may request that FDA designate the drug candidate for a specific indication as a
Fast Track drug concurrent with, or after, the filing of the IND for the drug candidate. FDA must determine if the
drug candidate qualifies for Fast Track designation within 60 days of receipt of the sponsor’s request.
Under the Fast Track Program and FDA’s accelerated approval regulations, FDA may approve a drug for a
serious or life-threatening illness that provides meaningful therapeutic benefit to patients over existing treatments
based upon a surrogate endpoint that is reasonably likely to predict clinical benefit, or on a clinical endpoint that can
be measured earlier than irreversible morbidity or mortality, that is reasonably likely to predict an effect on
irreversible morbidity or mortality or other clinical benefit, taking into account the severity, rarity or prevalence of
the condition and the availability or lack of alternative treatments.
In clinical trials, a surrogate endpoint is a measurement of laboratory or clinical signs of a disease or
condition that substitutes for a direct measurement of how a patient feels, functions or survives. Surrogate endpoints
can often be measured more easily or more rapidly than clinical endpoints. A drug candidate approved on this basis
is subject to rigorous post-marketing compliance requirements, including the completion of Phase 4 or post-
approval clinical trials to confirm the effect on the clinical endpoint. Failure to conduct required post-approval
studies, or confirm a clinical benefit during post-marketing studies, will allow FDA to withdraw the drug from the
market on an expedited basis. All promotional materials for drug candidates approved under accelerated regulations
are subject to prior review by FDA.
In addition to other benefits such as the ability to use surrogate endpoints and engage in more frequent
interactions with FDA, FDA may initiate review of sections of a Fast Track drug’s NDA before the application is
complete. This rolling review is available if the applicant provides, and FDA approves, a schedule for the
submission of the remaining information and the applicant pays applicable user fees. However, FDA’s time period
goal for reviewing an application does not begin until the last section of the NDA is submitted. Additionally, the
Fast Track designation may be withdrawn by FDA if FDA believes that the designation is no longer supported by
data emerging in the clinical trial process.
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The Hatch-Waxman Act
Orange Book Listing
In seeking approval for a drug through an NDA, applicants are required to list with the FDA each patent
whose claims cover the applicant’s product. Upon approval of a drug, each of the patents listed in the application for
the drug is then published in the FDA’s Approved Drug Products with Therapeutic Equivalence Evaluations,
commonly known as the Orange Book. Drugs listed in the Orange Book can, in turn, be cited by potential generic
competitors in support of approval of an abbreviated new drug application, or ANDA. An ANDA provides for
marketing of a drug product that has the same active ingredients in the same strengths and dosage form as the listed
drug and has been shown through bioequivalence testing to be therapeutically equivalent to the listed drug. Other
than the requirement for bioequivalence testing, ANDA applicants are not required to conduct, or submit results of,
pre-clinical or clinical tests to prove the safety or effectiveness of their drug product. Drugs approved in this way are
commonly referred to as “generic equivalents” to the listed drug, and can often be substituted by pharmacists under
prescriptions written for the original listed drug.
The ANDA applicant is required to certify to the FDA concerning any patents listed for the approved
product in the FDA’s Orange Book. Specifically, the applicant must certify that: (i) the required patent information
has not been filed; (ii) the listed patent has expired; (iii) the listed patent has not expired, but will expire on a
particular date and approval is sought after patent expiration; or (iv) the listed patent is invalid or will not be
infringed by the new product. The ANDA applicant may also elect to submit a section viii statement, certifying that
its proposed ANDA label does not contain (or carves out) any language regarding the patented method-of- use,
rather than certify to a listed method-of-use patent.
If the applicant does not challenge the listed patents, the ANDA application will not be approved until all
the listed patents claiming the referenced product have expired.
A certification that the new product will not infringe the already approved product’s listed patents, or that
such patents are invalid, is called a Paragraph IV certification. If the ANDA applicant has provided a Paragraph IV
certification to the FDA, the applicant must also send notice of the Paragraph IV certification to the NDA and patent
holders once the ANDA has been accepted for filing by the FDA. The NDA and patent holders may then initiate a
patent infringement lawsuit in response to the notice of the Paragraph IV certification. The filing of a patent
infringement lawsuit within 45 days of the receipt of a Paragraph IV certification automatically prevents the FDA
from approving the ANDA until the earlier of 30 months, expiration of the patent, settlement of the lawsuit, or a
decision in the infringement case that is favorable to the ANDA applicant.
The ANDA application also will not be approved until any applicable non- patent exclusivity listed in the
Orange Book for the referenced product has expired.
Exclusivity
Upon NDA approval of a new chemical entity or NCE, which is a drug that contains no active moiety that
has been approved by the FDA in any other NDA, that drug receives five years of marketing exclusivity during
which time the FDA cannot receive any ANDA seeking approval of a generic version of that drug. Certain changes
to a drug, such as the addition of a new indication to the package insert, are associated with a three-year period of
exclusivity during which the FDA cannot approve an ANDA for a generic drug that includes the change.
An ANDA may be submitted one year before NCE exclusivity expires if a Paragraph IV certification is
filed. If there is no listed patent in the Orange Book, there may not be a Paragraph IV certification and thus no
ANDA may be filed before the expiration of the exclusivity period.
For a botanical drug, FDA may determine that the active moiety is one or more of the principle components
or the complex mixture as a whole. This determination would affect the utility of any 5-year exclusivity as well as
the ability of any potential generic competitor to demonstrate that it is the same drug as the original botanical drug.
Patent Term Extension
After NDA approval, owners of relevant drug patents may apply for up to a five-year patent extension. The
allowable patent term extension is calculated as half of the drug’s testing phase—the time between IND submission
and NDA submission—and all of the review phase—the time between NDA submission and approval up to a
maximum of five years. The time can be shortened if FDA determines that the applicant did not pursue approval
with due diligence. The total patent term after the extension may not exceed 14 years.
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For patents that might expire during the application phase, the patent owner may request an interim patent
extension. An interim patent extension increases the patent term by one year and may be renewed up to four times.
For each interim patent extension granted, the post-approval patent extension is reduced by one year. The director of
the PTO must determine that approval of the drug covered by the patent for which a patent extension is being sought
is likely. Interim patent extensions are not available for a drug for which an NDA has not been submitted.
Advertising and Promotion
Once an NDA is approved, a product will be subject to certain post-approval requirements. For instance,
FDA closely regulates the post-approval marketing and promotion of drugs, including standards and regulations for
direct-to-consumer advertising, off-label promotion, industry- sponsored scientific and educational activities and
promotional activities involving the internet.
Drugs may be marketed only for the approved indications and in accordance with the provisions of the
approved labeling. Changes to some of the conditions established in an approved application, including changes in
indications, labeling, or manufacturing processes or facilities, require submission and FDA approval of a new NDA
or NDA supplement before the change can be implemented. An NDA supplement for a new indication typically
requires clinical data similar to that in the original application, and the FDA uses the same procedures and actions in
reviewing NDA supplements as it does in reviewing NDAs.
Adverse Event Reporting and GMP Compliance
Adverse event reporting and submission of periodic reports is required following FDA approval of an
NDA. The FDA also may require post-marketing testing, known as Phase 4 testing, REMS and surveillance to
monitor the effects of an approved product, or the FDA may place conditions on an approval that could restrict the
distribution or use of the product. In addition, quality-control, drug manufacture, packaging, and labeling procedures
must continue to conform to current good manufacturing practices, or cGMPs, after approval. Drug manufacturers
and certain of their subcontractors are required to register their establishments with FDA and certain state agencies.
Registration with the FDA subjects entities to periodic unannounced inspections by the FDA, during which the
agency inspects manufacturing facilities to assess compliance with cGMPs. Accordingly, manufacturers must
continue to expend time, money and effort in the areas of production and quality control to maintain compliance
with cGMPs. Regulatory authorities may withdraw product approvals or request product recalls if a company fails to
comply with regulatory standards, if it encounters problems following initial marketing or if previously
unrecognized problems are subsequently discovered.
Pediatric Exclusivity and Pediatric Use
The Best Pharmaceuticals for Children Act, or BPCA, provides NDA holders a six-month extension of any
exclusivity—patent or non-patent—for a drug if certain conditions are met. Conditions for exclusivity include a
determination by the FDA that information relating to the use of a new drug in the pediatric population may produce
health benefits in that population; a written request by the FDA for pediatric studies; and agreement by the applicant
to perform the requested studies and the submission to the FDA, and the acceptance by the FDA, of the reports of
the requested studies within the statutory timeframe. Applications under the BPCA are treated as priority
applications.
In addition, under the Pediatric Research Equity Act, or PREA, NDAs or supplements to NDAs must
contain data to assess the safety and effectiveness of the drug for the claimed indications in all relevant pediatric
subpopulations and to support dosing and administration for each pediatric subpopulation for which the drug is safe
and effective, unless the sponsor has received a deferral or waiver from the FDA. Unless otherwise required by
regulation, PREA does not apply to any drug for an indication for which orphan designation has been granted. The
required pediatric assessment must assess the safety and effectiveness of the product for the claimed indications in
all relevant pediatric subpopulations and support dosing and administration for each pediatric subpopulation for
which the product is safe and effective. The sponsor or FDA may request a deferral of pediatric studies for some or
all of the pediatric subpopulations. A deferral may be granted for several reasons, including a finding that the drug is
ready for approval for use in adults before pediatric studies are complete or that additional safety or effectiveness
data need to be collected before the pediatric studies begin. Under PREA, the FDA must send a non-compliance
letter requesting a response with 45 days to any sponsor that fails to submit the required assessment, keep a deferral
current or fails to submit a request for approval of a pediatric formulation.
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Orphan Drugs
Under the Orphan Drug Act, the FDA may grant orphan drug designation to drugs intended to treat a rare
disease or condition—generally a disease or condition that affects fewer than 200,000 individuals in the U.S. Orphan
drug designation must be requested before submitting an NDA. After the FDA grants orphan drug designation, the
generic identity of the drug and its potential orphan use are disclosed publicly by the FDA. Orphan drug designation
does not convey any advantage in, or shorten the duration of, the regulatory review and approval process. The first
NDA applicant to receive FDA approval for a particular active ingredient to treat a particular disease with FDA
orphan drug designation is entitled to a seven-year exclusive marketing period in the U.S. for that product, for that
indication. During the seven-year exclusivity period, the FDA may not approve any other applications to market the
same drug for the same disease, except in limited circumstances, such as a showing of clinical superiority to the
product with orphan drug exclusivity. Orphan drug exclusivity does not prevent the FDA from approving a different
drug for the same disease or condition, or the same drug for a different disease or condition. Among the other
benefits of orphan drug designation are tax credits for certain research and a waiver of the NDA application user fee.
Special Protocol Assessment
A company may reach an agreement with the FDA under the Special Protocol Assessment, or SPA, process
as to the required design and size of clinical trials intended to form the primary basis of an efficacy claim. According
to its performance goals, the FDA is supposed to evaluate the protocol within 45 days of the request to assess
whether the proposed trial is adequate, and that evaluation may result in discussions and a request for additional
information. An SPA request must be made before the proposed trial begins, and all open issues must be resolved
before the trial begins. If a written agreement is reached, it will be documented and made part of the administrative
record. Under the FDC Act and FDA guidance implementing the statutory requirement, an SPA is generally binding
upon the FDA except in limited circumstances, such as if the FDA identifies a substantial scientific issue essential to
determining safety or efficacy after the study begins, public health concerns emerge that were unrecognized at the
time of the protocol assessment, the sponsor and FDA agree to the change in writing, or if the study sponsor fails to
follow the protocol that was agreed upon with the FDA.
Controlled Substances
The federal Controlled Substances Act of 1970, or CSA, and its implementing regulations establish a
“closed system” of regulations for controlled substances. The CSA imposes registration, security, recordkeeping and
reporting, storage, manufacturing, distribution, importation and other requirements under the oversight of the U.S.
Drug Enforcement Administration, or DEA. The DEA is the federal agency responsible for regulating controlled
substances, and requires those individuals or entities that manufacture, import, export, distribute, research, or
dispense controlled substances to comply with the regulatory requirements in order to prevent the diversion of
controlled substances to illicit channels of commerce.
The DEA categorizes controlled substances into one of five schedules—Schedule I, II, III, IV or V—with
varying qualifications for listing in each schedule. Schedule I substances by definition have a high potential for
abuse, have no currently accepted medical use in treatment in the United States and lack accepted safety for use
under medical supervision. They may be used only in federally approved research programs and may not be
marketed or sold for dispensing to patients in the United States. Pharmaceutical products having a currently accepted
medical use that are otherwise approved for marketing may be listed as Schedule II, III, IV or V substances, with
Schedule II substances presenting the highest potential for abuse and physical or psychological dependence, and
Schedule V substances presenting the lowest relative potential for abuse and dependence. The regulatory
requirements are more restrictive for Schedule II substances than Schedule III substances. For example, all
Schedule II drug prescriptions must be signed by a physician, physically presented to a pharmacist in most situations
and cannot be refilled.
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Following NDA approval of a drug containing a Schedule I controlled substance, that substance must be
rescheduled as a Schedule II, III, IV or V substance before it can be marketed. On November 17, 2015, H.R. 639,
Improving Regulatory Transparency for New Medical Therapies Act, passed through both houses of Congress. On
November 25, 2015 the Bill was signed into law. The new law removes uncertainty associated with timing of the
DEA rescheduling process after NDA approval. Specifically, it requires DEA to issue an “interim final rule,”
pursuant to which a manufacturer may market its product within 90 days of FDA approval. The new law also
preserves the period of orphan marketing exclusivity for the full seven years such that this period only begins after
DEA scheduling. This contrasts with the previous situation whereby the orphan “clock” began to tick upon FDA
approval, even though the product could not be marketed until DEA scheduling was complete.
Facilities that manufacture, distribute, import or export any controlled substance must register annually
with the DEA. The DEA registration is specific to the particular location, activity(ies) and controlled substance
schedule(s). For example, separate registrations are required for importation and manufacturing activities, and each
registration authorizes which schedules of controlled substances the registrant may handle. However, certain
coincident activities are permitted without obtaining a separate DEA registration, such as distribution of controlled
substances by the manufacturer that produces them.
The DEA inspects all manufacturing facilities to review security, recordkeeping, reporting and handling
prior to issuing a controlled substance registration. The specific security requirements vary by the type of business
activity and the schedule and quantity of controlled substances handled. The most stringent requirements apply to
manufacturers of Schedule I and Schedule II substances. Required security measures commonly include background
checks on employees and physical control of controlled substances through storage in approved vaults, safes and
cages, and through use of alarm systems and surveillance cameras. An application for a manufacturing registration
as a bulk manufacturer (not a dosage form manufacturer or a repacker/relabeler) for a Schedule I or II substance
must be published in the Federal Register, and is open for 30 days to permit interested persons to submit comments,
objections or requests for a hearing. A copy of the notice of the Federal Register publication is forwarded by DEA to
all those registered, or applicants for registration, as bulk manufacturers of that substance. Once registered,
manufacturing facilities must maintain records documenting the manufacture, receipt and distribution of all
controlled substances. Manufacturers must submit periodic reports to the DEA of the distribution of Schedule I and
II controlled substances, Schedule III narcotic substances, and other designated substances. Registrants must also
report any controlled substance thefts or significant losses, and must obtain authorization to destroy or dispose of
controlled substances. As with applications for registration as a bulk manufacturer, an application for an importer
registration for a Schedule I or II substance must also be published in the Federal Register, which remains open for
30 days for comments. Imports of Schedule I and II controlled substances for commercial purposes are generally
restricted to substances not already available from domestic supplier or where there is not adequate competition
among domestic suppliers. In addition to an importer or exporter registration, importers and exporters must obtain a
permit for every import or export of a Schedule I and II substance or Schedule III, IV and V narcotic, and submit
import or export declarations for Schedule III, IV and V non-narcotics. In some cases, Schedule III non-narcotic
substances may be subject to the import/export permit requirement, if necessary to ensure that the United States
complies with its obligations under international drug control treaties.
For drugs manufactured in the United States, the DEA establishes annually an aggregate quota for the
amount of substances within Schedules I and II that may be manufactured or produced in the United States based on
the DEA’s estimate of the quantity needed to meet legitimate medical, scientific, research and industrial needs. This
limited aggregate amount of cannabis that the DEA allows to be produced in the United States each year is allocated
among individual companies, which, in turn, must annually apply to the DEA for individual manufacturing and
procurement quotas. The quotas apply equally to the manufacturing of the active pharmaceutical ingredient and
production of dosage forms. The DEA may adjust aggregate production quotas a few times per year, and individual
manufacturing or procurement quotas from time to time during the year, although the DEA has substantial discretion
in whether or not to make such adjustments for individual companies.
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The states also maintain separate controlled substance laws and regulations, including licensing,
recordkeeping, security, distribution, and dispensing requirements. State Authorities, including Boards of Pharmacy,
regulate use of controlled substances in each state. Failure to maintain compliance with applicable requirements,
particularly as manifested in the loss or diversion of controlled substances, can result in enforcement action that
could have a material adverse effect on our business, operations and financial condition. The DEA may seek civil
penalties, refuse to renew necessary registrations, or initiate proceedings to revoke those registrations. In certain
circumstances, violations could lead to criminal prosecution.
Europe/Rest of World Government Regulation
In addition to regulations in the United States, we are and will be subject, either directly or through our
distribution partners, to a variety of regulations in other jurisdictions governing, among other things, clinical trials
and any commercial sales and distribution of our products, if approved.
Whether or not we obtain FDA approval for a product, we must obtain the requisite approvals from
regulatory authorities in non-U.S. countries prior to the commencement of clinical trials or marketing of the product
in those countries. Certain countries outside of the United States have a process that requires the submission of a
clinical trial application much like an IND prior to the commencement of human clinical trials. In Europe, for
example, a clinical trial application, or CTA, must be submitted to the competent national health authority and to
independent ethics committees in each country in which a company intends to conduct clinical trials. Once the CTA
is approved in accordance with a country’s requirements, clinical trial development may proceed in that country.
The requirements and process governing the conduct of clinical trials, product licensing, pricing and
reimbursement vary from country to country, even though there is already some degree of legal harmonization in the
European Union member states resulting from the national implementation of underlying E.U. legislation. In all
cases, the clinical trials are conducted in accordance with GCP and other applicable regulatory requirements.
To obtain regulatory approval of an investigational drug under E.U. regulatory systems, we must submit a
marketing authorization application. This application is similar to the NDA in the United States, with the exception
of, among other things, country-specific document requirements. Drugs can be authorized in the European Union by
using (i) the centralized authorization procedure, (ii) the mutual recognition procedure, (iii) the decentralized
procedure or (iv) national authorization procedures. The initial Sativex approvals were a consequence of an
application under the De-Centralized Procedure, or DCP, to the E.U. member states of the United Kingdom and
Spain.
The EMA implemented the centralized procedure for the approval of human drugs to facilitate marketing
authorizations that are valid throughout the European Union. This procedure results in a single marketing
authorization granted by the European Commission that is valid across the European Union, as well as in Iceland,
Liechtenstein and Norway. The centralized procedure is compulsory for human drugs that are: (i) derived from
biotechnology processes, such as genetic engineering, (ii) contain a new active substance indicated for the treatment
of certain diseases, such as HIV/AIDS, cancer, diabetes, neurodegenerative diseases, autoimmune and other immune
dysfunctions and viral diseases, (iii) officially designated “orphan drugs” (drugs used for rare human diseases) and
(iv) advanced-therapy medicines, such as gene- therapy, somatic cell-therapy or tissue-engineered medicines. The
centralized procedure may at the request of the applicant also be used for human drugs which do not fall within the
above mentioned categories if the human drug (a) contains a new active substance which, on the date of entry into
force of this Regulation, was not authorized in the Community; or (b) the applicant shows that the medicinal product
constitutes a significant therapeutic, scientific or technical innovation or that the granting of authorization in the
centralized procedure is in the interests of patients or animal health at the European Community level.
Under the centralized procedure in the European Union, the maximum timeframe for the evaluation of a
marketing authorization application by the EMA is 210 days (excluding clock stops, when additional written or oral
information is to be provided by the applicant in response to questions asked by the Committee for Medicinal
Products for Human Use, or CHMP), with adoption of the actual marketing authorization by the European
Commission thereafter. Accelerated evaluation might be granted by the CHMP in exceptional cases, when a
medicinal product is expected to be of a major public health interest from the point of view of therapeutic
innovation, defined by three cumulative criteria: the seriousness of the disease to be treated; the absence of an
appropriate alternative therapeutic approach, and anticipation of exceptional high therapeutic benefit. In this
circumstance, EMA ensures that the evaluation for the opinion of the CHMP is completed within 150 days and the
opinion issued thereafter.
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The mutual recognition procedure, or MRP, for the approval of human drugs is an alternative approach to
facilitate individual national marketing authorizations within the European Union. Basically, the MRP may be
applied for all human drugs for which the centralized procedure is not obligatory. The MRP is applicable to the
majority of conventional medicinal products, and is based on the principle of recognition of an already existing
national marketing authorization by one or more member states. Since the first approvals for Sativex were national
approvals in the United Kingdom and Spain (following a DCP), the only route open to us for additional marketing
authorizations in the European Union was the MRP.
The characteristic of the MRP is that the procedure builds on an already‒existing marketing authorization
in a member state of the E.U. that is used as a reference in order to obtain marketing authorizations in other E.U.
member states. In the MRP, a marketing authorization for a drug already exists in one or more member states of the
E.U. and subsequently marketing authorization applications are made in other European Union member states by
referring to the initial marketing authorization. The member state in which the marketing authorization was first
granted will then act as the reference member state. The member states where the marketing authorization is
subsequently applied for act as concerned member states.
The MRP is based on the principle of the mutual recognition by European Union member states of their
respective national marketing authorizations. Based on a marketing authorization in the reference member state, the
applicant may apply for marketing authorizations in other member states. In such case, the reference member state
shall update its existing assessment report about the drug in 90 days. After the assessment is completed, copies of
the report are sent to all member states, together with the approved summary of product characteristics, labeling and
package leaflet. The concerned member states then have 90 days to recognize the decision of the reference member
state and the summary of product characteristics, labeling and package leaflet. National marketing authorizations
shall be granted within 30 days after acknowledgement of the agreement.
Should any Member State refuse to recognize the marketing authorization by the reference member state,
on the grounds of potential serious risk to public health, the issue will be referred to a coordination group. Within a
timeframe of 60 days, member states shall, within the coordination group, make all efforts to reach a consensus. If
this fails, the procedure is submitted to an EMA scientific committee for arbitration. The opinion of this EMA
Committee is then forwarded to the Commission, for the start of the decision making process. As in the centralized
procedure, this process entails consulting various European Commission Directorates General and the Standing
Committee on Human Medicinal Products or Veterinary Medicinal Products, as appropriate. Since the initial
approvals of Sativex in the United Kingdom and Spain, there have been three “waves” of additional approvals under
three separate MRPs. Each of these procedures have been completed without any referral, and therefore without any
delay.
For other countries outside of the European Union, such as countries in Eastern Europe, Latin America or
Asia, the requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary
from country to country. In all cases, again, the clinical trials are conducted in accordance with GCP and the other
applicable regulatory requirements.
If we fail to comply with applicable foreign regulatory requirements, we may be subject to, among other
things, fines, suspension of clinical trials, suspension or withdrawal of regulatory approvals, product recalls, seizure
of products, operating restrictions and criminal prosecution.
In addition, most countries are parties to the Single Convention on Narcotic Drugs 1961, which governs
international trade and domestic control of narcotic substances, including cannabis extracts. Countries may interpret
and implement their treaty obligations in a way that creates a legal obstacle to our obtaining marketing approval for
Sativex and our other products in those countries. These countries may not be willing or able to amend or otherwise
modify their laws and regulations to permit Sativex or our other products to be marketed, or achieving such
amendments to the laws and regulations may take a prolonged period of time. In that case, we would be unable to
market our products in those countries in the near future or perhaps at all.
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Reimbursement
Sales of pharmaceutical products in the United States will depend, in part, on the extent to which the costs
of the products will be covered by third-party payers, such as government health programs, commercial insurance
and managed health care organizations. These third-party payers are increasingly challenging the prices charged for
medical products and services. Additionally, the containment of health care costs has become a priority of federal
and state governments, and the prices of drugs have been a focus in this effort. The United States government, state
legislatures and foreign governments have shown significant interest in implementing cost-containment programs,
including price controls, restrictions on reimbursement and requirements for substitution of generic products.
Adoption of price controls and cost-containment measures, and adoption of more restrictive policies in jurisdictions
with existing controls and measures, could further limit our net revenue and results. If these third-party payers do
not consider our products to be cost-effective compared to other available therapies, they may not cover our
products after approval as a benefit under their plans or, if they do, the level of payment may not be sufficient to
allow us to sell our products on a profitable basis.
The Medicare Prescription Drug, Improvement, and Modernization Act of 2003, or the MMA, imposed
new requirements for the distribution and pricing of prescription drugs for Medicare beneficiaries and included a
major expansion of the prescription drug benefit under Medicare Part D. Under Part D, Medicare beneficiaries may
enroll in prescription drug plans offered by private entities which will provide coverage of outpatient prescription
drugs. Part D plans include both stand-alone prescription drug benefit plans and prescription drug coverage as a
supplement to Medicare Advantage plans. Unlike Medicare Part A and B, Part D coverage is not standardized.
Part D prescription drug plan sponsors are not required to pay for all covered Part D drugs, and each drug plan can
develop its own drug formulary that identifies which drugs it will cover and at what tier or level. However, Part D
prescription drug formularies must include drugs within each therapeutic category and class of covered Part D drugs,
though not necessarily all the drugs in each category or class. Any formulary used by a Part D prescription drug plan
must be developed and reviewed by a pharmacy and therapeutic committee. Government payment for some of the
costs of prescription drugs may increase demand for products for which we receive marketing approval. However,
any negotiated prices for our products covered by a Part D prescription drug plan will likely be lower than the prices
we might otherwise obtain. Moreover, while the MMA applies only to drug benefits for Medicare beneficiaries,
private payers often follow Medicare coverage policy and payment limitations in setting their own payment rates.
Any reduction in payment that results from the MMA may result in a similar reduction in payments from non-
governmental payers.
On February 17, 2009, President Obama signed into law The American Recovery and Reinvestment Act of
2009. This law provides funding for the federal government to compare the effectiveness of different treatments for
the same illness. A plan for the research will be developed by the Department of Health and Human Services, the
Agency for Healthcare Research and Quality and the National Institutes for Health, and periodic reports on the
status of the research and related expenditures will be made to Congress. Although the results of the comparative
effectiveness studies are not intended to mandate coverage policies for public or private payers, it is not clear how
such a result could be avoided and what if any effect the research will have on the sales of our product candidates, if
any such product or the condition that it is intended to treat is the subject of a study. It is also possible that
comparative effectiveness research demonstrating benefits in a competitor’s product could adversely affect the sales
of our product candidates. Decreases in third-party reimbursement for our product candidates or a decision by a
third-party payer to not cover our product candidates could reduce physician usage of the product candidate and
have a material adverse effect on our sales, results of operations and financial condition.
The Patient Protection and Affordable Care Act, as amended by the Health Care and Education
Affordability Reconciliation Act of 2010 (collectively, the ACA) enacted in March 2010, is expected to have a
significant impact on the health care industry. The ACA is expected to expand coverage for the uninsured while at
the same time contain overall health care costs. With regard to pharmaceutical products, among other things, the
ACA is expected to expand and increase industry rebates for drugs covered under Medicaid programs and make
changes to the coverage requirements under the Medicare D program. We cannot predict the impact of the ACA on
pharmaceutical companies as many of the ACA reforms require the promulgation of detailed regulations
implementing the statutory provisions which has not yet occurred. In addition, although the United States Supreme
Court has upheld the constitutionality of most of the ACA, some states have stated their intentions to not implement
certain sections of the ACA and some members of Congress are still working to repeal the ACA. These challenges
add to the uncertainty of the changes enacted as part of ACA. In addition, the current legal challenges to the ACA,
as well as Congressional efforts to repeal the ACA, add to the uncertainty of the legislative changes enacted as part
of the ACA.
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In addition, in some foreign countries, the proposed pricing for a drug must be approved before it may be
lawfully marketed. The requirements governing drug pricing vary widely from country to country. For example, the
European Union provides options for its member states to restrict the range of medicinal products for which their
national health insurance systems provide reimbursement and to control the prices of medicinal products for human
use. A member state may approve a specific price for the medicinal product or it may instead adopt a system of
direct or indirect controls on the profitability of the company placing the medicinal product on the market. There can
be no assurance that any country that has price controls or reimbursement limitations for pharmaceutical products
will allow favorable reimbursement and pricing arrangements for any of our products. Historically, products
launched in the European Union do not follow price structures of the United States and generally tend to be
significantly lower.
Other Health Care Laws and Compliance Requirements
In the United States, our activities are potentially subject to regulation by various federal, state and local
authorities in addition to the FDA, including the Centers for Medicare and Medicaid Services (formerly the Health
Care Financing Administration), or CMS, other divisions of the U.S. Department of Health and Human Services
(e.g., the Office of Inspector General), the U.S. Department of Justice and individual U.S. Attorney offices within
the Department of Justice, and state and local governments. For example, sales, marketing and scientific/educational
grant programs must comply with the anti-fraud and abuse provisions of the Social Security Act, the False Claims
Act, the privacy provisions of the Health Insurance Portability and Accountability Act, or HIPAA, and similar state
laws, each as amended. Pricing and rebate programs must comply with the Medicaid rebate requirements of the
Omnibus Budget Reconciliation Act of 1990 and the Veterans Health Care Act of 1992, or VHCA, each as
amended. If products are made available to authorized users of the Federal Supply Schedule of the General Services
Administration, additional laws and requirements apply. Under the VHCA, drug companies are required to offer
certain drugs at a reduced price to a number of federal agencies including the U.S. Department of Veteran Affairs
and U.S. Department of Defense, the Public Health Service and certain private Public Health Service‒designated
entities in order to participate in other federal funding programs including Medicare and Medicaid. Recent
legislative changes purport to require that discounted prices be offered for certain U.S. Department of Defense
purchases for its TRICARE program via a rebate system. Participation under the VHCA requires submission of
pricing data and calculation of discounts and rebates pursuant to complex statutory formulas, as well as the entry
into government procurement contracts governed by the Federal Acquisition Regulations.
In order to distribute products commercially, we must comply with state laws that require the registration of
manufacturers and wholesale distributors of pharmaceutical products in a state, including, in certain states,
manufacturers and distributors who ship products into the state, even if such manufacturers or distributors have no
place of business within the state. Some states also impose requirements on manufacturers and distributors to
establish the pedigree of product in the chain of distribution, including some states that require manufacturers and
others to adopt new technology capable of tracking and tracing product as it moves through the distribution chain.
Several states have enacted legislation requiring pharmaceutical companies to establish marketing compliance
programs, file periodic reports with the state, make periodic public disclosures on sales, marketing, pricing, clinical
trials and other activities or register their sales representatives. Other legislation has been enacted in certain states
prohibiting pharmacies and other health care entities from providing certain physician prescribing data to
pharmaceutical companies for use in sales and marketing, and prohibiting certain other sales and marketing
practices. All of our activities are potentially subject to federal and state consumer protection and unfair competition
laws.
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Expanded Access to Investigational Drugs
An investigational drug may be eligible for clinical use outside the context of a manufacturer’s clinical trial
of the drug. “Expanded access” refers to the use of an investigational drug where the primary purpose is to diagnose,
monitor, or treat a patient’s disease or condition rather than to collect information about the safety or effectiveness
of a drug. Expanded access INDs are typically sponsored by individual physicians to treat patients who fall into one
of three FDA-recognized categories of expanded access: expanded access for individual patients, including for
emergency use; expanded access for intermediate-size patient populations; and expanded access for large patient
populations under a treatment IND or treatment protocol. For all types of expanded access, FDA must determine
prior to authorizing expanded access that: (1) the patient or patients to be treated have a serious or life threatening
disease or condition and there is no comparable or satisfactory alternative therapy; (2) the potential patient benefit
justifies the potential risks of use and that the potential risks are not unreasonable in the context of the disease or
condition to be treated; and (3) granting the expanded access will not interfere with the initiation, conduct, or
completion of clinical studies in support of the drug’s approval. In addition, the sponsor of an expanded access IND
must submit IND safety reports and, in the cases of protocols continuing for one year or longer, annual reports to the
FDA. Expanded access programs are not intended to yield information relevant to evaluating a drug’s effectiveness
for regulatory purposes.
Legal Proceedings and Related Matters
From time to time, we may be party to litigation that arises in the ordinary course of our business. We do
not have any pending litigation that, separately or in the aggregate, would, in the opinion of management, have a
material adverse effect on our results of operations, financial condition or cash flows.
C.
Organizational Structure
The following is a list of our subsidiaries:
Country of
registration
Name of undertaking
England and Wales
GW Pharma Limited
England and Wales
GW Research Limited
United States
GW Pharmaceuticals Inc.
GWP Trustee Company Limited
England and Wales
Cannabinoid Research Institute Limited England and Wales
Guernsey Pharmaceuticals Limited
G-Pharm Limited
Guernsey
England and Wales
Activity
Research and Development
Research and Development
Pharmaceutical development services
Employee Share Ownership
Dormant
Dormant
Dormant
%
holding
100
100
100
100
100
100
100
D.
Property, Plant and Equipment
Type
Executive office
Executive office
Executive office
Executive office
Executive office
Research and manufacturing
Research and manufacturing
Research and manufacturing
Research and manufacturing
Growing facility
Location
Size (sq ft)
3,113
Andover, United Kingdom
London, United Kingdom
2,680
Cambridge, United Kingdom 12,120
4,911
Carlsbad, United States
526
Durham, United States
64,620
Southern United Kingdom
15,222
Southern United Kingdom
3,261
Southern United Kingdom
8,500
Southern United Kingdom
560,800
Eastern United Kingdom
Expiry
April 2020
September 2020
May 2021
January 2019
September 2015
January 2019
December 2027
September 2029
September 2015
June 2020
All of our property is leased. We believe that our office, research and manufacturing facilities are sufficient
to meet our current needs. However, in anticipation of future commercial and research demand, construction and fit-
out is continuing for a new bespoke 10,000 square feet manufacturing facility. The lease for this facility will be
signed upon completion of construction.
We are not aware of any environmental issues that may affect our utilization of our property.
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Further details of our Property, Plant and Equipment are given in Note 14 to our consolidated financial
statements set out on page F-22.
Item 4A.
Unresolved Staff Comments.
There are no written comments from the staff of the U.S. Securities and Exchange Commission which
remain unresolved before the end of the fiscal year to which the annual report relates.
Item 5.
Operating and Financial Review and Prospects.
The following discussion of our financial condition and results of operations should be read in conjunction
with “Selected Financial Data,” and our consolidated financial statements included elsewhere in this Annual Report.
We present our consolidated financial statements in pounds sterling and in accordance with International Financial
Reporting Standards, or IFRS, as issued by the International Accounting Standards Board, or IASB, and as adopted
by the European Union, or E.U.
The statements in this discussion regarding industry outlook, our expectations regarding our future
performance, liquidity and capital resources and other non-historical statements are forward-looking statements.
These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, the
risks and uncertainties described in “Risk Factors” and “Forward-Looking Statements” in this Annual Report. Our
actual results may differ materially from those contained in or implied by any forward-looking statements.
Solely for the convenience of the reader, unless otherwise indicated, all pound sterling amounts as at and
for the year ended September 30, 2015 have been translated into U.S. dollars at the rate at September 30, 2015, of
£0.6611 to $1.00 and unless otherwise indicated, all pounds sterling amounts as at and for the year ended September
30, 2014 have been translated into U.S. dollars at the rate at September 30, 2014, the last business day of our year
ended September 30, 2014, of £0.6166 to $1.00. These translations should not be considered representations that any
such amounts have been, could have been or could be converted into U.S. dollars at that or any other exchange rate
as at that or any other date.
A.
Operating Results.
Important Financial and Operating Terms and Concepts
Revenue
We generate revenue from product sales, license fees, collaboration fees, technical access fees,
development and approval milestone fees, research and development fees and royalties. Agreements with our
commercial partners generally include a non-refundable upfront fee (attributed to separately identifiable components
including license fees, collaboration fees and technical access fees), milestone payments, the receipt of which is
dependent upon the achievement of certain clinical, regulatory or commercial milestones, royalties on product sales
of licensed products if and when such product sales occur and revenue from the supply of products. For these
agreements, total arrangement consideration is attributed to separately identifiable components on a reliable basis
that reasonably reflects the selling prices that might be achieved in stand-alone transactions. The allocated
consideration is recognized as revenue in accordance with our accounting policies for each revenue stream.
Product sales
We recognize revenue from the sale of products when we have transferred the significant risks and rewards
of ownership of the goods to the buyer, when we no longer have effective control over the goods sold, when the
amount of revenue and costs associated with the transaction can be measured reliably, and when it is probable that
we will receive future economic benefits associated with the transaction. Product sales have no rights of return.
We maintain a rebate provision for expected reimbursements to our commercial partners in circumstances
in which actual net revenue per vial differs from expected net revenue per vial as a consequence of, as an example,
ongoing pricing negotiations with local health authorities. The amount of our rebate provision is based on, among
other things, monthly unit sales and in-market sales data received from commercial partners, and represents
management’s best estimate of the rebate expected to be required to settle the present obligation at the end of the
reporting period. Provisions for rebates are established in the same period that the related sales are recorded.
78
Licensing fees
Licensing fees are upfront payments received under our product out-licensing agreements from our
commercial partners for the right to commercialize products. Such fees are generally received upfront, are non-
refundable and are deferred and recognized over the period of the expected license term.
Collaboration fees
Collaboration fees are amounts received from our commercial partners for our participation in joint
development activities. Such fees are generally received upfront, are non-refundable and are deferred and
recognized as services are rendered based on the percentage of completion method.
Technical access fees
Technical access fees represent amounts charged to licensing partners to provide access to, and allow them
to commercially exploit, data that we possess or that can be expected to result from our research programs that are in
progress. Non-refundable technical access fees that involve the delivery of data that we possess and that permit our
licensing partners to use the data freely and where we have no remaining obligations to perform are recognized as
revenue upon delivery of the data. Non-refundable technical access fees relating to data where the research program
is ongoing are recognized based on the percentage of completion method.
Development and approval milestone fees
Development and approval milestones represent amounts received from our commercial partners, the
receipt of which is dependent upon the achievement of certain clinical, regulatory or commercial milestones. We
recognize development and approval milestone fees as revenue based on the percentage of completion method on
the assumption that all stages will be completed successfully, but with cumulative revenue recognized limited to
non-refundable amounts already received or reasonably certain to be received.
Research and development fees
Research and development fees represent amounts chargeable to our development partners relating to the
conduct of our joint research plans. Revenue from development partner-funded contract research and development
agreements is recognized as research and development services are rendered. Where services are in-progress at
period end, we recognize revenue proportionately, in line with the percentage of completion of the service. Where
such in-progress services include the conduct of clinical trials, we recognize revenue in line with the stage of
completion of each trial so that revenue is recognized in line with the expenditures.
Royalties
Royalty revenue arises from our contractual entitlement to receive a fixed percentage of our commercial
partner’s in-market net product sales revenue. Royalty revenue is recognized on an accrual basis in accordance with
the substance of the relevant agreement provided that it is probable that the economic benefits will flow to us and
the amount of revenue can be measured reliably.
Costs of sales
Costs of sales principally includes the cost of materials, direct labor, depreciation of manufacturing assets
and overhead associated with our manufacturing facilities.
79
Research and development expenditure
Expenses on research and development activities are recognized as an expense in the period in which the
expense is incurred.
An internally generated intangible asset arising from our development activities is recognized only when an
asset is created that can be identified, it is probable that the asset created will generate future economic benefits and
the development cost of the asset can be measured reliably.
We have determined that regulatory approval is the earliest point at which the probable threshold for the
creation of an internally generated intangible asset can be achieved. All research and development expenditure
incurred prior to achieving regulatory approval is therefore expensed as incurred.
GW-funded research and development expenditure
GW-funded research and development expenditure consists of costs associated with our research activities.
These costs include costs of conducting our pre-clinical studies or clinical trials, payroll costs associated with
employing our team of research and development staff, share-based payment expenses, property costs associated
with leasing laboratory and office space to accommodate our research teams, costs of growing botanical raw
material, costs of consumables used in the conduct of our in-house research programs, payments for research work
conducted by sub-contractors and sponsorship of work by our network of academic collaborative research scientists,
costs associated with safety studies and costs associated with the development of further Epidiolex, Sativex or our
other pipeline product data.
Development partner-funded research and development expenditure
Development partner-funded research and development expenditure represent costs incurred by us in
conducting the joint research plans under our collaborations. These costs include (i) costs incurred under our Phase 3
cancer pain program and other Sativex related U.S. market development activities that are chargeable to Otsuka
under the terms of the 2007 Sativex U.S. development license and (ii) costs that we incur in providing support to the
regulatory and research activities of our other Sativex development partners, which are recoverable under the terms
of our agreements.
Sales, general and administrative expenses
Sales, general and administrative expenses consist primarily of salaries and benefits related to our
executive, finance, commercial, business development and support functions. Other sales, general and administrative
expenses include costs associated with managing our commercial activities and the costs of compliance with the
day-to-day requirements of being a listed public company in both the United Kingdom and the United States,
including insurance, general administration overhead, legal and professional fees, audit fees and fees for taxation
services.
We expect that sales, general and administrative expenses will increase in the future as we expand our
operating activities and start to build our commercial team in preparation for commercialization of Epidiolex.
Net foreign exchange gains/losses
Net foreign exchange gains/losses consist primarily of gains or losses recorded on our foreign currency
cash and cash equivalents translated to Pounds Sterling at the balance sheet date.
Interest expense and income
Interest expense consists primarily of interest expense incurred on two finance leases. One lease was settled
in the year ended September 30, 2015, and the remaining lease will expire in 2027, respectively.
Interest income consists primarily of interest earned by investing our cash reserves in short-term interest-
bearing deposit accounts.
80
Taxation
As a U.K. resident trading company, we are predominantly subject to U.K. corporate taxation. Our tax
recognized represents the sum of the tax currently payable or recoverable, and deferred tax. Deferred tax liabilities
are generally recognized for all taxable temporary differences and deferred tax assets are recognized only to the
extent that it is probable that taxable profits will be available against which deductible temporary differences can be
utilized.
As a company that carries out extensive research and development activities, we benefit from the U.K.
research and development tax credit regime for small and medium sized companies, whereby our principal research
subsidiary company, GW Research Limited, is able to surrender a portion of trading losses that arise from its
research and development activities for a refundable credit of up to 33.35% of eligible research and development
expenditures. Qualifying expenditures largely comprise employment costs for research staff, consumables and
certain internal overhead costs incurred as part of research projects. Subcontracted research expenditures are eligible
for a cash rebate of up to 21.68%. The majority of our pipeline research, clinical trials management and the
Epidiolex and Sativex chemistry and manufacturing controls development activities, all of which are being carried
out by GW Research Limited, are eligible for inclusion within these tax credit claims.
The Sativex Phase 3 cancer pain clinical trials program, which is fully funded by Otsuka, and certain other
Sativex safety studies are being carried out by GW Pharma Limited, our principal commercial trading subsidiary. As
GW Pharma Limited is currently profitable, it is currently unable to surrender losses to seek a research and
development tax credit.
We may also benefit from the U.K.’s “patent box” regime in the future. This would allow certain profits
attributable to revenues from patented products to be taxed at a lower rate than other revenue that over time will be
reduced to 10%. As we have many different patents covering our products, we expect that future upfront fees,
milestone fees, product revenues and royalties could be taxed at this favorably low tax rate. When taken in
combination with the enhanced relief available on our research and development expenditure, this could result in a
long-term low rate of corporation tax. As such, we consider that the U.K. is a favorable location for us to continue to
conduct our business for the long-term.
Our U.S. subsidiary, GW Pharmaceuticals Inc., is currently profitable and incurs a U.S. tax liability on
taxable profits earned in the United States.
Critical Judgments in Applying our Accounting Policies
In the application of our accounting policies, we are required to make judgments, estimates and
assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The
estimates and associated assumptions are based on historical experience and other factors that are considered to be
relevant. Actual results may differ from these estimates.
Our estimates and assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are
recognized in the period in which the estimate is revised if the revision affects only that period or in the period of the
revisions and future periods if the revision affects both current and future periods.
The following are our critical judgments, except those involving estimation uncertainty, that we have made
in the process of applying our accounting policies and that have the most significant effect on the amounts
recognized in our consolidated financial statements included elsewhere in this Annual Report.
Recognition of clinical trials expenses and liabilities
We recognize expenses incurred in carrying out clinical trials during the course of conduct of each clinical
trial in line with the state of completion of each trial. This involves the calculation of clinical trial accruals at each
period end to account for incurred expenses. This requires estimation of the expected full cost to complete the trial
as well as the current stage of trial completion.
81
Clinical trials usually take place over extended time periods and typically involve a set-up phase, a
recruitment phase and a completion phase which ends upon the receipt of a final report containing full statistical
analysis of trial results. Accruals are prepared separately for each in-process clinical trial and take into consideration
the stage of completion of each trial including the number of patients that have entered the trial, the number of
patients that have completed treatment and whether we have received the final report. In all cases, the full cost of
each trial is expensed by the time we have received the final report.
Revenue recognition
We recognize revenue from product sales, license fees, collaboration fees, technical access fees,
development and approval milestone fees, research and development fees and royalties. Agreements with our
commercial partners generally include a non-refundable upfront fee (attributed to separately identifiable components
including license fees, collaboration fees and technical access fees), milestone payments (the receipt of which is
dependent upon the achievement of certain clinical, regulatory or commercial milestones), and royalties on product
sales of licensed products if and when such product sales occur and revenue from the supply of products to our
commercial partners. For these agreements, we are required to apply judgment in the allocation of total agreement
consideration to the separately identifiable components on a reliable basis that reasonably reflects the selling prices
that might be expected to be achieved in stand-alone transactions.
Product revenue received is based on a contractually agreed percentage of our commercial partner’s in-
market net sales revenue. The commercial partner’s in-market net sales revenue is the price per vial charged to end
customers, less set defined deductible overheads incurred in distributing the product. In developing estimates, we
use monthly unit sales and in-market sales data received from commercial partners during the course of the year. For
certain markets, where negotiations are ongoing with local reimbursement authorities, an estimated in-market sales
price is used, which requires the application of judgement in assessing whether an estimated in-market sales price is
reliably measurable. In our assessment, we consider, inter alia, identical products sold in similar markets and
whether the agreed prices for those identical products support the estimated in-market sales price. In the event that
we consider there to be significant uncertainty with regards to the in-market sales price to be charged by the
commercial partner as a result of, as an example, ongoing pricing negotiations with local health authorities, such that
it is not possible to reliably measure the amount of revenue that will flow to us, we would not recognize revenue
until that uncertainty has been resolved.
We apply the percentage of completion revenue recognition method to certain classes of revenue. The
application of this approach requires our judgment with regards to the total costs incurred and total estimated costs
expected to be incurred over the length of the agreement.
Key Sources of Estimation Uncertainty
The key assumptions concerning the future, and other key sources of estimation uncertainty at the balance
sheet date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and
liabilities within the next year are discussed below.
Provision for inventories
We maintain inventories which, based upon current sales levels and the current regulatory status of the
product in each indication, are in excess of the amount that is expected to be utilized in the manufacture of finished
product for future commercial sales. Provision is therefore made to reduce the carrying value of the excess
inventories to their expected net realizable value.
Our provision for inventories, and adjustments thereto, are estimated based on evaluation of the status of
the regulatory approval, projected sales volumes and growth rates. The timing and extent of future provision
adjustments will be contingent upon the timing and extent of future regulatory approvals and post-approval in-
market sales demand, which remain uncertain at this time. The total inventory provision at September 30, 2015 was
£0.1 million.
82
Deferred taxation
Our policy is to recognize deferred tax assets only to the extent that it is probable that future taxable profits,
feasible tax-planning strategies and deferred tax liabilities will be available against which the deferred tax assets can
be utilized. At September 30, 2015, we have accumulated tax losses of £74.0 million and other deductible temporary
differences of £20.7 million, which are available to offset against future profits. If the value of these losses and other
deductible temporary differences were recognized within the Group’s balance sheet at September 30, 2015, the
Group would be carrying a deferred tax asset of £18.9 million compared to £9.2 million at September 30, 2014. Due
to cumulative losses in recent years and uncertainties with respect to achieving certain future milestones, our ability
to rely on estimated future taxable profits for purposes of recognizing deferred tax assets is limited to short term
profit projections of GW Pharmaceuticals Inc., our U.S. subsidiary. We recognized a deferred tax asset of
£0.4 million on our balance sheet at September 30, 2015.
Research and Development Tax Credit
The Group's research and development tax credit claim is complex and requires management to interpret
and apply UK research and development tax legislation to the Group's specific circumstances and requires the use of
certain assumptions in estimating the portion of current year research costs that are eligible for the claim.
Rebate provision
We maintain a rebate provision for expected reimbursements to our commercial partners in circumstances
in which actual net revenue per vial differs from the invoiced net revenue per vial as a consequence of, as an
example, ongoing pricing negotiations with local health authorities.
The amount of our rebate provision is based on, among other things, monthly unit sales and in-market sales
data received from commercial partners and represents our best estimate of the rebate expected to be required to
settle the present obligation at the end of the reporting period.
Pricing decisions made by local health authorities, including revisions and clarifications that have
retroactive application, can result in changes to management’s estimates of the rebates reported in prior periods.
Aggregate rebate provision accruals at September 30, 2015 were £0.8 million.
Segments
We operate through three reportable segments, Commercial, Sativex Research and Development and
Pipeline Research and Development.
Commercial. The Commercial segment distributes and sells the Group’s commercial products.
Currently Sativex is promoted through strategic collaborations with major pharmaceutical companies for
the currently approved indication of spasticity due to MS. The commercial segment will include revenues
from the direct marketing of other future approved commercial products. The Group has licensing
agreements for the commercialization of Sativex with Almirall S.A. in Europe (excluding the United
Kingdom) and Mexico, Otsuka Pharmaceutical Co. Ltd. (“Otsuka”) in the U.S., Novartis Pharma AG in
Australia, New Zealand, Asia (excluding Japan, China and Hong Kong), the Middle East and Africa, Bayer
HealthCare AG in the United Kingdom and Canada, Neopharm Group in Israel and Ipsen Biopharm Ltd. in
Latin America (excluding Mexico and the Islands of the Caribbean). Commercial segment revenues include
product sales, royalties, license, collaboration, and technical access fees, and development and approval
milestone fees.
Sativex Research and Development. The Sativex Research and Development (“Sativex R&D”)
segment seeks to maximize the potential of Sativex through the development of new indications. The focus
during the period for this segment was the Phase 3 clinical development program of Sativex for use in the
treatment of cancer pain. Sativex R&D segment revenues consist of research and development fees charged
to Sativex licensees.
83
Pipeline Research and Development. The Pipeline Research and Development (“Pipeline R&D”)
segment seeks to develop cannabinoid medications other than Sativex across a range of therapeutic areas
using our proprietary cannabinoid technology platform. The Group’s product pipeline includes Epidiolex®,
in development as a treatment for Dravet syndrome and Lennox-Gastaut syndrome, a second epilepsy
product candidate as well as other product candidates in Phase 1 and 2 clinical development for glioma,
adult epilepsy, type-2 diabetes and schizophrenia. Pipeline R&D segment revenues consist of research and
development fees charged to Otsuka under the terms of our pipeline research collaboration agreement.
Results of Operations
Comparison of Years Ended September 30, 2015 and 2014
The following table summarizes the results of our operations for the years ended September 30, 2015 and
2014, together with the changes to those items.
2015
$
Year Ended September 30,
2015
£
2014
£
(in thousands, except for percentages)
£
Change
2015 vs. 2014
Increase/(Decrease)
%
Revenue
Cost of sales
Research and development expenditure
Sales, general and administrative
43,172
(3,960)
(116,153)
expenses
Net foreign exchange gains
Operating loss
Interest expense
Interest income
Loss before tax
Tax benefit
Loss for the year
Revenue
(19,013)
9,382
(86,572)
(113)
369
(86,316)
18,906
(67,410)
28,540
(2,618)
(76,785)
(12,569)
6,202
(57,230)
(75)
244
(57,061)
12,498
(44,563)
30,045
(2,060)
(43,475)
(7,337)
3,188
(19,639)
(61)
130
(19,570)
4,911
(14,659)
(1,505)
(558)
(33,310)
(5,232)
3,014
(37,591)
(14)
114
(37,491)
7,587
(29,904)
(5)%
27%
(77)%
(71)%
95%
(191)%
(23)%
88%
(192)%
154%
(204)%
The following table summarizes our revenue for the years ended September 30, 2015 and 2014, together
with the changes to those items.
Year Ended September 30,
2015
$
2015
£
2014
£
(in thousands, except for percentages)
£
Change
2015 vs. 2014
Increase/
(Decrease)
%
Product sales
Research and development fees
License, collaboration and technical
access fees
Development and approval milestone
fees
Total revenue
6,437
34,504
4,255
22,810
4,382
24,285
(127)
(1,475)
1,947
1,287
1,378
(91)
284
43,172
188
28,540
-
30,045
188
(1,505)
(3)%
(6)%
(7)%
-
(5)%
84
Total revenue decreased by 5% to £28.5 million for the year ended September 30, 2015, compared to
£30.0 million for the year ended September 30, 2014. This decrease was driven by a variety of factors, as explained
below.
Sativex product sales revenue decreased by £0.1 million, or 3%, to £4.3 million for the year ended
September 30, 2015 compared to £4.4 million for the year ended September 30, 2014. This decrease was primarily
due to inclusion in the year ended September 30, 2015 of a £0.2 million rebate provision for amounts expected to be
paid to Almirall following the decision of the Italian Medicines Agency to impose a maximum budget for Sativex
sales in Italy for 2013 and 2014.
Research and development fees decreased by £1.5 million, or 6%, to £22.8 million for the year ended
September 30, 2015 compared to £24.3 million for the year ended September 30, 2014. This decrease was due to
decreased research and development costs, linked to the Otsuka-funded Phase 3 cancer pain clinical program.
License, collaboration and technical access fees decreased by £0.1 million, or 7%, to £1.3 million for the
year ended September 30, 2015 compared to £1.4 million for the year ended September 30, 2014. This decrease was
due to the completion of the recognition of a Novartis cancer pain technical access fee during 2015.
Development and approval milestone fees increased by £0.2 million, to £0.2 million for the year ended
September 30, 2015 compared to £nil for the year ended September 30, 2014. Development and approval milestone
fees consist of milestone payments due to us from Sativex partners under the terms of our agreements. Development
and approval milestone payments of £0.2 million during the year ended September 30, 2015 resulted from two
milestone payments received from Ipsen upon submission of regulatory dossiers in two South American territories
for Sativex. We had no such payment during the year ended September 30, 2014.
Cost of sales
Cost of sales increased by £0.5 million, or 27%, to £2.6 million for the year ended September 30, 2015
compared to £2.1 million for the year ended September 30, 2014. This increase was due to a 22% increase in the
volume of Sativex vials shipped to partners during the year ended September 30, 2015 compared to the year ended
September 30, 2014. Costs of sales per unit shipped remained consistent across periods.
Research and development expenditure
The following table summarizes our research and development expenditure for the years ended
September 30, 2015 and 2014, together with the changes to those items.
Change
2015 vs.
2014
Increase/
(Decrease)
%
Year Ended September 30,
2015
$
2015
£
2014
£
(in thousands, except for percentages)
£
81,649
53,975
19,190
34,785
181%
34,504
22,810
24,285
(1,475)
(6)%
77%
GW-funded research and development
Development partner-funded research
and development
Total research and development
expenditure
116,153
76,785
43,475
33,310
Total research and development expenditure increased by £33.3 million, or 77%, to £76.8 million for the
year ended September 30, 2015, from £43.5 million for year ended September 30, 2014. As shown in the table
above, research and development expenditure consists of two elements, GW-funded research and development
expenditure and development partner-funded research and development expenditure.
85
The £34.8 million increase in GW-funded research and development expenditure was due principally to:
£17.5 million increase in epilepsy and other GW-funded clinical program costs reflecting the costs
associated with GW's ongoing Phase 3 Dravet and Lennox-Gastaut syndrome Epidiolex studies, costs of
our other pipeline studies and costs of providing regulatory support and Epidiolex under FDA-authorized
expanded access INDs.
£9.2 million increase in staff and employment-related expenses as a result of increased headcount as the
Group expands its team in the UK and the U.S. to enable execution of the epilepsy development program.
£4.1 million increase in costs of growing an increased volume of high CBD plant material for the
Epidiolex development program.
£4.0 million increase in other property-related overheads and depreciation of R&D assets.
We track all research and development expenditures against detailed budgets but do not seek to allocate
and monitor all research and development costs by individual project. As noted in the segmental analysis below, we
do analyze GW-funded research and development into Sativex related expenditures and pipeline related
expenditures. External third-party costs of running clinical trials totaling £13.4 million for the year ended
September 30, 2015 and £2.6 million for the year ended September 30, 2014 were tracked by individual project
while the remaining £40.6 million for the year ended September 30, 2015 and £16.5 million for the year ended
September 30, 2014 consisting largely of internal overhead costs were not allocated to individual projects. We
believe that our existing liquidity is sufficient to complete our currently ongoing GW-funded research and
development projects.
Development partner-funded research and development projects are funded in advance by our development
partners, which involves the receipt of advanced funds every three months, sufficient to cover projected expenditure
for the next three months. For further information on the risks our research and development program face, see
“Risk Factors—Risks Related to Development and Regulatory Approval of Sativex and Our Product Candidates.”
Development partner-funded research and development expenditure was made up of two principal
elements, as follows:
Year Ended September 30,
2015
$
2015
£
2014
£
(in thousands, except for percentages)
£
Change
2015 vs. 2014
Increase/
(Decrease)
%
Sativex U.S. development program
33,695
22,275
23,618
(1,343)
(6)%
Otsuka research collaboration expenses
809
535
667
(132)
(20)%
Total development partner-funded
research and development
34,504
22,810
24,285
(1,475)
(6)%
Sativex U.S. development expenses decreased by £1.3 million, or 6%, to £22.3 million during the year
ended September 30, 2015 as compared to £23.6 million for the year ended September 30, 2014. This reflects
decreased expenditure following the completion of the three Sativex Phase 3 cancer pain trials.
Otsuka research collaboration expenses decreased by £0.2 million, or 20%, to £0.5 million during the year
ended September 30, 2015 as compared to £0.7 million for the year ended September 30, 2014. The decrease
reflects the fact that the Otsuka research collaboration term ended on June 30, 2013 and the remaining revenue
relates to income recognized to offset the depreciation expense of property, plant and equipment purchased under
the collaboration agreement, which will shortly all be fully depreciated. Most of the pre-clinical programs that
Otsuka was funding are now proceeding into Phase 1/2 clinical trials as part of the GW-funded clinical programs.
86
Sales, general and administrative expenses (formerly management and administrative expenses)
Sales, general and administrative expenses (formerly Management and administrative expenses) increased
by £5.3 million, or 71%, to £12.6 million for the year ended September 30, 2015 compared to £7.3 million for the
year ended September 30, 2014. The increase reflects a £4.4 million increase in respect of pre-launch
commercialization costs in the U.S., £0.8 million increase in respect of property and travel costs, primarily to the
U.S. by staff involved in the establishment of U.S. based operations, £0.7 million increase in respect of increased
accountancy, audit and investor relation costs arising from GW's U.S. listing and Sarbanes-Oxley compliance, £0.6
million decrease in respect of employee-related expenses, comprising a £2.0 million decrease in the charge in
respect of the provision for payroll taxes on unrealized staff share option gains; and offset by a £1.4 million increase
in payroll costs driven by increased headcount.
Net foreign exchange gains
Net foreign exchange gains increased by £3.0 million, or 95%, to £6.2 million for the year ended
September 30, 2015 compared to £3.2 million for the year ended September 30, 2014. This represents foreign
exchange gains, due to unrealized gains on our U.S.-dollar denominated cash deposits at the closing balance sheet
exchange rate.
Interest expense
Interest expense of £0.1 million for the year ended September 30, 2015 was consistent with the £0.1 million
recorded for the year ended September 30, 2014.
Interest income
Interest income increased by £0.1 million, or 88%, to £0.2 million for the year ended September 30, 2015
compared to £0.1 million for the year ended September 30, 2014. The increase reflects the increase in the Group’s
cash and cash equivalents balance.
Tax
Our tax benefit increased by £7.6 million, or 154%, to £12.5 million for the year ended September 30, 2015
compared to £4.9 million for the year ended September 30, 2014. This benefit consists of:
• Accrual for an expected research and development tax credit claim of £12.6 million in respect of the
year ended September 30, 2015 for GW Research Limited. We expect to submit this claim in the
quarter ending March 31, 2016 and this claim is subject to agreement by HMRC.
• Recognition of an additional £0.2 million of research and development tax credit in respect of the year
ended September 30, 2014 for GW Research Limited.
• Recognition of U.S. current tax expense of £0.3 million in respect of the year ended September 30,
2015 for the Group’s U.S. subsidiary, GW Pharmaceuticals Inc.
Research and development tax credits recognized vary depending on our available tax losses, the eligibility
of our research and development expenditure and the level of certainty relating to the recoverability of the claim.
Segmental review
Commercial segment
The following table summarizes the results of our operations for our Commercial segment for the years
ended September 30, 2015 and 2014, together with the changes to those items.
87
Year Ended September 30,
2015
$
2015
£
2014
£
(in thousands, except for percentages)
£
Change
2015 vs. 2014
Increase/
Decrease
%
Product sales
License, collaboration and technical
access fees
Development and approval milestone
fees
Total revenue
Cost of sales
Research and development credit
Segmental result
6,437
4,255
4,382
(127)
1,947
1,287
1,378
(91)
284
8,668
(3,960)
-
4,708
188
5,730
(2,618)
-
3,112
-
5,760
(2,060)
847
4,547
188
(30)
(558)
(847)
(1,435)
(3)%
(7)%
-
(1)%
(27)%
(100)%
(32)%
We classify all revenue from Sativex collaboration partners, with the exception of research and
development fees, as Commercial segment revenue. The principal variances in these revenue streams are
summarized in the table above. An explanation of the principal movements in the revenue streams is provided in the
revenue section above.
Cost of sales increased by £0.5 million, or 27%, to £2.6 million for the year ended September 30, 2015
compared to £2.1 million for the year ended September 30, 2014 driven by a 22% year‒on‒year increase in the
volume of Sativex vials shipped to partners as previously discussed.
For the Commercial segment, the research and development credit represents the movement in the
provision against inventories manufactured prior to the regulatory approval of Sativex (such inventories were
capitalized as an asset but provided for, with the charge recognized in the research and development expenditure
line, until there was a high probability of regulatory approval). When we determined that there was a high
probability of regulatory approval of Sativex, the provision was revised to adjust the carrying value of Sativex
inventories to the expected net realizable value, which may not exceed original cost. The provision for inventories
release of £nil for the year ended September 30, 2015 was lower than the release of £0.8 million for the year ended
September 30, 2014. The higher provision release in the year ended September 30, 2014 was due to us having
reassessed and increased our estimated future sales of Sativex, resulting in release of provision.
Sativex Research and Development segment
The following table summarizes the results of our operations for our Sativex R&D segment for the years
ended September 30, 2015 and 2014, together with the changes to those items.
Year Ended September 30,
2015
$
2015
£
2014
£
(in thousands, except for percentages)
£
Change
2015 vs.
2014
Increase/
(Decrease)
%
Research and development fees
Research and development expenditure:
GW-funded research and
development
33,695
22,275
23,618
(1,343)
(6)%
(6,237)
(4,123)
(2,826)
(1,297)
(46)%
Development partner-funded research
and development
Total research and development
expenditure
Segmental result
(33,695)
(22,275)
(23,618)
1,343
(39,932)
(26,398)
(6,237)
(4,123)
(26,444)
(2,826)
46
(1,297)
6%
0%
46%
Total research and development expenditure related to Sativex of £26.4 million for the year ended
September 30, 2015 was consistent with the £26.4 million recorded for the year ended September 30, 2014. This
movement consisted of a £1.3 million decrease due to the conclusion of the three Phase 3 cancer pain clinical trials
offset by a £1.3 million increase in Phase 1 trials, pre-clinical, regulatory and abuse liability planning activities that
are being carried out to support the cancer pain development program and are funded by Otsuka under the terms of
the Sativex license and development agreement.
88
As all of the development partner-funded research and development expenditure is reimbursed to us under
the terms of our license agreements, the net result for this segment equals the GW-funded research and development
expenditure on Sativex related projects.
Pipeline Research and Development segment
The following table summarizes the results of our operations for our Pipeline R&D segment for the years
ended September 30, 2015 and 2014, together with the changes to those items.
Year Ended
September 30,
2015
$
2015
£
2014
£
(in thousands, except for percentages)
£
Change
2015 vs.
2014
Increase/
(Decrease)
%
Research and development fees
Research and development expenditure
GW-funded research and
development
Development partner-funded research
and development
Total research and development
expenditure
Segmental result
809
535
667
(132)
(20)%
(73,105)
(48,327)
(16,436)
(31,891)
(194)%
(809)
(535)
(667)
132
20%
(73,914)
(73,105)
(48,862)
(48,327)
(17,103)
(16,436)
(31,759)
(31,891)
(186)%
(194)%
GW-funded pipeline research and development expenditure increased by £31.9 million, or 194%, to
£48.3 million for the year ended September 30, 2015 as compared to £16.4 million for the year ended September 30,
2014. This reflects the impact of carrying out GW-funded clinical trials and research and development, including the
costs associated with GW’s ongoing Phase 3 Dravet and Lennox-Gastaut syndrome Epidiolex studies, preclinical
and scale up work associated with our epilepsy program. Additionally, we have completed a Phase 2 clinical trial
with GWP42003 and have ongoing Phase 2 trials in glioma with a THC:CBD product candidate, and in diabetes
with GWP42004.
Pipeline research and development fees are equal to the development partner-funded research and
development expenditure incurred by us in conducting our joint pipeline research program and recharged to Otsuka
under the terms of our 2007 research collaboration agreement. The 20% year-on-year decrease in pipeline research
and development fees reflects the ending, effective June 30, 2013, of our pre-clinical research collaboration with
Otsuka in the field of CNS disorders and unwinding of remaining revenue associated with this collaboration. GW
has a worldwide license to all data and product candidates generated under the collaboration.
As the development partner-funded research and development expenditure was fully offset by the
associated research and development fees, the segmental result equals the GW-funded pipeline research and
development expenditure.
Comparison of Years Ended September 30, 2014 and 2013
The following table summarizes the results of our operations for the years ended September 30, 2014 and
2013, together with the changes to those items.
89
2014
$
Year Ended September 30,
2014
£
2013 (1)
£
(in thousands, except for percentages)
£
Change
2014 vs. 2013
Increase/(Decrease)
%
Revenue
Cost of sales
Research and development expenditure
Management and administrative
expenses
Net foreign exchange gains/(losses)
Operating (loss)/profit
Interest expense
Interest income
(Loss)/profit before tax
Tax
(Loss)/profit for the year
48,730
(3,341)
(70,512)
(11,899)
5,170
(31,852)
(99)
210
(31,741)
7,965
(23,776)
30,045
(2,060)
(43,475)
(7,337)
3,188
(19,639)
(61)
130
(19,570)
4,911
(14,659)
27,295
(1,276)
(32,697)
(3,555)
(237)
(10,470)
(64)
178
(10,356)
5,807
(4,549)
2,750
(784)
(10,778)
(3,782)
3,425
(9,169)
3
(48)
(9,214)
(896)
(10,110)
10%
(61)%
(33)%
(106)%
1445%
(88)%
5%
(27)%
(89)%
(15)%
(222)%
(1) The selected historical consolidated financial data for the year ended September 30, 2013 reflects a
reclassification to report foreign exchange gains and losses, primarily from balance sheet revaluation,
previously reported within “Management and administrative expenses” in a new income statement line item,
titled “Net foreign exchange gains/(losses).” Such reclassification had no impact on operating profit, profit
before tax or profit for the year.
Revenue
The following table summarizes our revenue for the years ended September 30, 2014 and 2013, together
with the changes to those items.
Year Ended September 30,
2014
$
2014
£
2013
£
(in thousands, except for percentages)
£
Change
2014 vs. 2013
Increase/
(Decrease)
%
Product sales
Research and development fees
License, collaboration and technical
access fees
Development and approval milestone
fees
Total revenue
7,107
39,388
4,382
24,285
2,157
23,594
2,225
691
2,235
1,378
1,294
84
103%
3%
6%
-
48,730
-
30,045
250
27,295
(250)
2,750
(100)%
10%
Total revenue increased by 10% to £30.0 million for the year ended September 30, 2014, compared to
£27.3 million for the year ended September 30, 2013. This increase was driven by a variety of factors, as explained
below.
Sativex product sales revenue increased by £2.2 million, or 103%, to £4.4 million for the year ended
September 30, 2014 compared to £2.2 million for the year ended September 30, 2013. This increase was primarily
due to the combined effects of a 65% increase in the sales volumes of Sativex shipped to partners, primarily in Italy
and Germany, and the inclusion in the year ended September 30, 2013 of a £1.1 million rebate provision for
amounts expected to be paid to Almirall following an adverse German pricing decision in March 2013, which was
effective for all sales recognized from March 2012.
Research and development fees increased by £0.7 million, or 3%, to £24.3 million for the year ended
September 30, 2014 compared to £23.6 million for the year ended September 30, 2013. This increase was due to
increased partner-funded research and development, linked to the Otsuka-funded Phase 3 cancer pain clinical
program.
90
License, collaboration and technical access fees increased by £0.1 million, or 6%, to £1.4 million for the
year ended September 30, 2014 compared to £1.3 million for the year ended September 30, 2013. This increase was
due to fees recorded from Ipsen pursuant to the Ipsen Sativex distribution agreement which was signed in 2014.
Development and approval milestone fees decreased by £0.3 million, or 100%, to £nil for the year ended
September 30, 2014 compared to £0.3 million for the year ended September 30, 2013. Development and approval
milestone fees consist of milestone payments due to us from Sativex partners under the terms of our agreements.
Development and approval milestone payments of £0.3 million during the year ended September 30, 2013 resulted
from a single milestone payment received from Almirall upon agreement of Italian pricing and reimbursement
approval for Sativex. We had no such payment during the year ended September 30, 2014.
Cost of sales
Cost of sales increased by £0.8 million, or 61%, to £2.1 million for the year ended September 30, 2014
compared to £1.3 million for the year ended September 30, 2013. This increase was due to a 65% increase in the
volume of Sativex vials shipped to partners during the year ended September 30, 2014 compared to the year ended
September 30, 2013. Costs of sales per unit shipped remained consistent across periods.
Research and development expenditure
The following table summarizes our research and development expenditure for the years ended
September 30, 2014 and 2013, together with the changes to those items.
Year Ended September 30,
2014
$
2014
£
2013
£
(in thousands, except for percentages)
£
Change
2014 vs.
2013
Increase/
(Decrease)
%
GW-funded research and development
Development partner-funded research
and development
Total research and development
expenditure
31,124
19,190
9,103
10,087
111%
39,388
24,285
23,594
691
70,512
43,475
32,697
10,778
3%
33%
Total research and development expenditure increased by £10.8 million, or 33%, to £43.5 million for the
year ended September 30, 2014, from £32.7 million for year ended September 30, 2013. As shown in the table
above, research and development expenditure consists of two elements, GW- funded research and development
expenditure and development partner-funded research and development expenditure.
The £10.1 million increase in GW-funded research and development expenditure was due principally to:
•
•
£3.3 million increase in staff and employment-related expenses linked to increased headcount as we
expand our team to enable execution of our epilepsy development program.
£2.7 million increase in epilepsy and other GW-funded clinical program costs – reflecting the costs
associated with the set-up phase for our Dravet and Lennox Gastaut syndrome Epidiolex studies, cost of
completion of the ulcerative colitis study and costs of providing regulatory support and Epidiolex under
the increasing number of FDA-approved expanded access INDs.
•
•
£1.5 million increase in the provision held for future payroll taxes on unrealized staff share option gains,
driven by the increase in the GW share price during the year.
£1.0 million increase in growing costs driven by growing of an increased volume of high CBD plant
material for the Epidiolex development program.
91
•
•
•
£0.9 million increase in preclinical activities associated primarily with our Epidiolex program.
£0.4 million increase in share-based payment charges.
£0.3 million increase in depreciation on R&D assets.
We track all research and development expenditures against detailed budgets but do not seek to allocate
and monitor all research and development costs by individual project. As noted in the segmental analysis below, we
do analyze GW-funded research and development into Sativex related expenditures and pipeline related
expenditures. External third-party costs of running clinical trials totaling £2.6 million for the year ended
September 30, 2014 and £1.4 million for the year ended September 30, 2013 were tracked by individual project
while the remaining £16.5 million for the year ended September 30, 2014 and £7.7 million for the year ended
September 30, 2013 consisting largely of internal overhead costs were not allocated to individual projects. We
believe that our existing liquidity is sufficient to complete our currently ongoing GW-funded research and
development projects.
Development partner-funded research and development projects are funded in advance by our development
partners, which involves the receipt of advanced funds every three months, sufficient to cover projected expenditure
for the next three months. For further information on the risks our research and development program face, see
“Risk Factors—Risks Related to Development and Regulatory Approval of Sativex and Our Product Candidates.”
Development partner-funded research and development expenditure was made up of two principal
elements, as follows:
Year Ended September 30,
2014
$
2014
£
2013
£
(in thousands, except for percentages)
£
Change
2014 vs. 2013
Increase/
(Decrease)
%
Sativex U.S. development program
38,306
23,618
19,333
4,285
22%
Otsuka research collaboration expenses
1,082
667
4,261
(3,594)
(84)%
Total development partner-funded
research and development
38,388
24,285
23,594
691
3%
Sativex U.S. development expenses increased by £4.3 million, or 22%, to £23.6 million during the year
ended September 30, 2014 as compared to the year ended September 30, 2013. This reflects increased patient
recruitment into the three Sativex Phase 3 cancer pain trials and set-up costs for a Sativex Phase 3 MS trial .
Otsuka research collaboration expenses decreased by £3.6 million, or 84%, to £0.7 million during the year
ended September 30, 2014 as compared to £4.3 million for the year ended September 30, 2013. The decrease
reflects the fact that the Otsuka research collaboration term ended on June 30, 2013. Most of the pre-clinical
programs that Otsuka was funding are now proceeding into Phase 1/2 clinical trials as part of the GW-funded
clinical programs.
Management and administrative expenses
Management and administrative expenses increased by £3.7 million, or 106%, to £7.3 million for the year
ended September 30, 2014 compared to £3.6 million for the year ended September 30, 2013. The increase reflects a
£3.0 million increase in respect of employee-related expenses, a £0.5 million increase in respect of additional
accountancy, audit and investor relations costs arising from our listing and related regulatory compliance, and a £0.2
million increase in respect of property and increased travel costs for our U.S. operations.
92
Net foreign exchange gains/losses
Net foreign exchange gains/losses increased by £3.4 million, or 1445%, to a gain of £3.2 million for the
year ended September 30, 2014 compared to a loss of £0.2 million for the year ended September 30, 2013. This
represents foreign exchange gains, due to an unrealized gain on our U.S.-dollar denominated cash deposits at the
closing balance sheet exchange rate.
Interest expense
Interest expense of £0.1 million for the year ended September 30, 2014 was consistent with the £0.1 million
recorded for the year ended September 30, 2013.
Interest income
Interest income decreased by £0.1 million, or 27%, to £0.1 million for the year ended September 30, 2014
compared to £0.2 million for the year ended September 30, 2013.
Tax
Our tax benefit decreased by £0.9 million, or 15%, to £4.9 million for the year ended September 30, 2014
compared to £5.8 million for the year ended September 30, 2013. This benefit consists of:
• Accrual for an expected research and development tax credit claim of £5.3 million in respect of the
year ended September 30, 2014 for GW Research Ltd. We expect to submit this claim in the quarter
ending March 31, 2015 and this claim is subject to agreement by HMRC.
• Recognition of an additional £0.3 million of research and development tax credit in respect of the year
ended September 30, 2013 for GW Research Ltd.
• Recognition of a deferred tax asset of £0.8 million arising from the expected utilization of brought
forward corporation tax trading losses which we intend to utilize to offset against future trading profits
by GW Pharma Ltd., our principal commercial trading subsidiary.
• Recording of deferred tax expenses of £1.5 million resulting from the utilization of previously
recognized deferred tax assets.
Research and development tax credits recognized vary depending on our available tax losses, the eligibility
of our research and development expenditure and the level of certainty relating to the recoverability of the claim.
Segmental review
Commercial segment
The following table summarizes the results of our operations for our Commercial segment (formerly
Sativex Commercial) for the years ended September 30, 2014 and 2013, together with the changes to those items.
Year Ended September 30,
2014
$
2014
£
2013
£
(in thousands, except for percentages)
£
Change
2014 vs. 2013
Increase/
Decrease
%
Product sales
7,107
4,382
2,157
2,225
103%
License, collaboration and technical
access fees
Development and approval milestone
fees
Total revenue
Cost of sales
Research and development credit
Segmental result
2,235
1,378
1,294
84
6%
-
9,342
(3,341)
1,374
7,375
-
5,760
(2,060)
847
4,547
250
3,701
(1,276)
597
3,022
(250)
2,059
(784)
250
1,525
(100)%
56%
(61)%
(42)%
50%
93
We classify all revenue from Sativex collaboration partners, with the exception of research and
development fees, as Commercial segment revenue. The principal variances in these revenue streams are
summarized in the table above. An explanation of the principal movements in the revenue streams is provided in the
revenue section above.
Cost of sales increased by £0.8 million, or 61%, to £2.1 million for the year ended September 30, 2014
compared to £1.3 million for the year ended September 30, 2013 driven by a 65% year‒on‒year increase in the
volume of Sativex vials shipped to partners as previously discussed.
For the Commercial segment, the research and development credit represents the movement in the
provision against inventories manufactured prior to the regulatory approval of Sativex (such inventories were
capitalized as an asset but provided for, with the charge recognized in the research and development expenditure
line, until there was a high probability of regulatory approval). When we determined that there was a high
probability of regulatory approval of Sativex, the provision was revised to adjust the carrying value of Sativex
inventories to the expected net realizable value, which may not exceed original cost. The provision for inventories
release of £0.8 million for the year ended September 30, 2014 was higher than the £0.6 million for the year ended
September 30, 2013. The higher provision release in the year ended September 30, 2013 was due to us having
reassessed and increased our estimated future sales of Sativex, resulting in release of provision.
The higher provision release in the year ended September 30, 2014 reflects increased projected sales of
Sativex relative to the year ended September 30, 2013 estimate of forward sales and a consequential decrease in the
volume of inventory expected to expire prior to use.
Sativex Research and Development segment
The following table summarizes the results of our operations for our Sativex R&D segment for the years
ended September 30, 2014 and 2013, together with the changes to those items.
Year Ended September 30,
2014
$
2014
£
2013
£
(in thousands, except for percentages)
£
%
Change
2014 vs.
2013
Increase/
Decrease
Research and development fees
Research and development expenditure:
GW-funded research and
development
Development partner-funded research
and development
Total research and development
expenditure
Segmental result
38,306
23,618
19,333
4,285
22%
(4,583)
(2,826)
(4,404)
1,578
(38,306)
(23,618)
(19,333)
(4,285)
(42,889)
(4,583)
(26,444)
(2,826)
(23,737)
(4,404)
(2,709)
1,578
36%
22%
(11)%
36%
Total research and development expenditure related to Sativex during the year ended September 30, 2014
increased by £2.7 million, or 11%, to £26.4 million compared to £23.7 million for the year ended September 30,
2013. This growth consisted of a £4.3 million increase due to the expansion of the Phase 3 cancer pain clinical
program offset by a £1.6 million decrease in Phase 1 trials, pre-clinical, regulatory and abuse liability planning
activities that are being carried out to support the cancer pain development program and are funded by Otsuka under
the terms of the Sativex license and development agreement.
94
As all of the development partner-funded research and development expenditure is reimbursed to us under
the terms of our license agreements, the net result for this segment equals the GW-funded research and development
expenditure on Sativex related projects.
Pipeline Research and Development segment
The following table summarizes the results of our operations for our Pipeline R&D segment for the years
ended September 30, 2014 and 2013, together with the changes to those items.
Year Ended
September 30,
2014
$
2014
£
2013
£
(in thousands, except for percentages)
£
%
Change
2014 vs.
2013
Increase/
Decrease
Research and development fees
Research and development expenditure
GW-funded research and
development
Development partner-funded research
and development
Total research and development
expenditure
Segmental result
1,082
667
4,261
(3,594)
(84)%
(26,658)
(16,436)
(4,979)
(11,457)
(230)%
(1,082)
(667)
(4,261)
3,594
84%
(27,740)
(26,658)
(17,103)
(16,436)
(9,240)
(4,979)
(7,863)
(11,457)
(85)%
(230)%
GW-funded pipeline research and development expenditure increased by £11.4 million, or 230%, to
£16.4 million for the year ended September 30, 2014 as compared to £5.0 million for the year ended September 30,
2013. This reflects the impact of carrying out GW-funded clinical trials and research and development, including
preclinical and scale up work associated with our epilepsy program. Additionally, we have completed a Phase 1
clinical trial with GWP42006 and have ongoing Phase 2 trials in glioma with a THC:CBD product candidate, in the
field of schizophrenia with GWP42003, and in diabetes with GWP42004.
Pipeline research and development fees are equal to the development partner-funded research and
development expenditure incurred by us in conducting our joint pipeline research program and recharged to Otsuka
under the terms of our 2007 research collaboration agreement. The 85% year-on-year decrease in pipeline research
and development fees reflects the ending, effective June 30, 2013, of our pre-clinical research collaboration with
Otsuka in the field of CNS disorders. GW has a worldwide license to all data and product candidates generated
under the collaboration.
As the development partner-funded research and development expenditure was fully offset by the
associated research and development fees, the segmental result equals the GW-funded pipeline research and
development expenditure.
B.
Liquidity and Capital Resources.
In recent years, we have largely funded our operations and growth from issuances of equity securities,
research and development fees and tax credits and milestone payments from our development partners. We have
also funded our operations and growth with cash flows from operating activities, including Sativex revenue credits
and interest income. Our cash flows may fluctuate, are difficult to forecast and will depend on many factors,
including:
95
•
•
•
•
•
•
•
•
•
•
the timing of achievement of the milestones receivable if Epidiolex is approved and launched in the
United States;
the extent to which we seek to retain development rights to our pipeline of new product candidates or
whether we seek to out-license them to a partner who will fund future research and development
expenditure in return for a right to share in future commercial revenue;
the extent of success in our early pre-clinical and clinical stage research programs which will
determine the amount of funding required to further the development of our product candidates;
the terms and timing of new strategic collaborations;
the number and characteristics of the product candidates that we seek to develop;
the outcome, timing and cost of regulatory approvals of Epidiolex and our other product candidates;
the costs involved in constructing larger, FDA-compliant manufacturing facilities for Epidiolex and
our other product candidates;
the costs involved in filing and prosecuting patent applications and enforcing and defending potential
patent claims;
the costs of hiring additional skilled employees to support our continued growth; and
the rate of growth of our Sativex revenue, which relies upon the marketing efforts of our commercial
partners and factors such as the timing of further national approvals, the price levels achieved by our
partners in each country, and the availability of reimbursement in countries in which the product is
able to be marketed.
We believe that, our cash and cash equivalents as at September 30, 2015 of £234.9 million, coupled with
cash flows from operating activities will be sufficient to fund our operations, including currently anticipated
research and development activities and planned capital expenditures, for the foreseeable future, including for at
least the next 12 months.
Cash Flows
The following table summarizes the results of our cash flows for the years ended September 30, 2015, 2014
and 2013.
Net cash outflow from operating activities
Net cash outflow from investing activities
Net cash inflow from financing activities
Cash and cash equivalents at end of the year
Operating activities
2015
$
Year Ended September 30,
2014
2015
£
£
(in thousands)
2013
£
(70,296)
(26,912)
194,259
355,292
(46,471)
(17,791)
128,419
234,872
(12,626)
(7,095)
144,267
164,491
(7,468)
(2,076)
18,253
38,069
Net cash flow from operating activities increased by £33.9 million to a £46.5 million outflow for the year
ended September 30, 2015 compared to a £12.6 million outflow for the year ended September 30, 2014. This
increase was primarily driven by a £34.8 million increase in GW-funded research and development expenditure.
Net cash flow from operating activities increased by £5.1 million to a £12.6 million outflow for the year
ended September 30, 2014 compared to a £7.5 million outflow for the year ended September 30, 2013. This
decrease was primarily driven by a £10.2 million increase in GW-funded research and development expenditure,
partially offset by a £4.5 million reduction in cash used for working capital.
96
Investing activities
The net cash outflow from investing activities increased by £10.7 million to £17.8 million for the year
ended September 30, 2015 from £7.1 million for the year ended September 30, 2014, reflecting an increase in capital
expenditure of £10.7 million during the year ended September 30, 2015 as we accelerated our investment in
expanding and upgrading our cannabinoid extraction and Epidiolex manufacturing and growing facilities.
The net cash outflow from investing activities increased by £5.0 million to £7.1 million for the year ended
September 30, 2014 from £2.1 million for the year ended September 30, 2013, reflecting an increase in capital
expenditure of £7.3 million during the year ended September 30, 2014 as we invested in expanding and upgrading
our manufacturing and research laboratory facilities.
Financing activities
Net cash inflow from financing activities decreased by £15.9 million to £128.4 million for the year ended
September 30, 2015 from £144.3 million for the year ended September 30, 2014 primarily as a result of a decrease
of £7.8 million in the receipt of fit-out funding receipts, a decrease of £5.3 million in the receipt of warrant exercise
proceeds, a decrease of £3.8 million in proceeds from the exercise of employee share options offset by a £1.2
million increase in new equity funding, net of expenses.
Net cash inflow from financing activities increased by £126.0 million to £144.3 million for the year ended
September 30, 2014 from £18.3 million for the year ended September 30, 2013 primarily as a result of an increase of
£108.2 million in the receipt of net proceeds from new equity issuances of ADSs. £126.3 million of net proceeds
was received from new equity issuances of ADSs in our follow-on U.S. public offerings in January and June 2014
compared to receipt of £18.1 million of net proceeds from the U.S. initial public offering in May 2013. In addition,
proceeds received on the exercise of share options and warrants amounted to £10.3 million for the year ended
September 30, 2014.
C.
Research and Development, Patents and Licenses, etc.
Full details of our research and development activities and expenditures are given in the Business section
and Operating and Financial Review and Prospects sections of this Annual Report above.
D.
Trend information
The following charts illustrate the key financial trends in our business:
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97
Our revenues consist of R&D fees, product sales revenues, royalties, licence collaboration and technical
access fees and development and approval milestone fees.
For the year ended 30 September 2015, we recorded revenues of £4.3 million for Sativex product sales, a
decrease of £0.1 million from the £4.4 million recorded for the year ended 30 September 2014. This decrease was
due primarily to price reductions in Italy, offset by an increase in the volume of shipments to partners of 22%.
In both 2011 and 2012, we received substantial development and approval milestones from our Sativex
licensees. In 2013, we received only one £250,000 development and approval milestone. In 2014, we received no
development and approval milestones. In 2015, we received two €150,000 development and approval milestones
linked to regulatory filings by Ipsen, our commercial partner in Latin America.
In the year to 30 September 2015 we have seen a decline in our research and development fee income, as
the level of rechargeable activity associated with our recently completed cancer pain trials program has tailed off
during the course of the year. We consider our licence, collaboration and technical access fees and our product sales
revenues to be recurring revenues. The milestone revenues recognized in each of the financial years above tend to be
individual items linked to specific development milestones achieved in a particular financial year. These are items
which tend to have a significant impact upon the profitability and cash flow of our business in each financial year in
which they are received and earned.
The Sativex in-market vial sales volumes graph above illustrates the trend in in-market commercial sales
volumes of Sativex by our commercial marketing partners Bayer in U.K./Canada, Almirall in Europe and Neopharm
in Israel. In-market sales volumes grew by 22% from 2014 to 2015.
In 2011, vial sales consisted of our existing Bayer market territories of Canada and the UK and those
launched by Almirall in Spain, Germany and Denmark. In 2012 commercial sales to private patients started in
Sweden and in 2013 commercial sales by Almirall commenced in Norway, Austria, Italy, Poland and by Neopharm
in Israel. In 2014, Almirall launched Sativex in Switzerland and Finland. 2015 saw volume growth driven primarily
by increased prescribing in Germany and Italy. We expect new launches in markets such as France and Belgium to
continue to drive growth in 2016.
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98
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As illustrated in the total group R&D spend graph above, our R&D expenditures have shown a consistent
growth trend over the last five financial years from £22.7 million in 2011 to £76.8 million in 2015. The growth
during 2015 of £33.3 million from the £43.5 million of research and development incurred in 2014 demonstrates the
significant expansion of the scope of our epilepsy clinical research with Epidiolex as well as progress with a number
of other pipeline product candidates.
In the last five years, a significant proportion of the partner-funded R&D expenditures has been driven by
our US Phase 3 cancer pain clinical trials program, which included three pivotal Phase 3 cancer pain trials plus a
series of supporting Phase 1 clinical trials and regulatory activities. All of this clinical activity was funded by our
development partner Otsuka. These activities are now expected to come to an end in 2016.
From 2011 to 2013, Otsuka also funded a significant amount of pre-clinical activity as part of our six year
pre-clinical research collaboration. This pre-clinical collaboration ended on June 30, 2013. GW now has a
worldwide license to all data and product candidates generated under this collaboration.
From 2011 to 2015 GW-funded R&D increased from £6.7 million in 2011 to £54.0 million in 2015. In
2014 GW-funded R&D increased significantly to £19.2 million, reflecting our investment in the development of
Epidiolex, cannabidivarin (“CBDV”) and other pipeline candidates. In 2015 GW-funded R&D increased further to
£54.0 million, as we initiated Phase 3 clinical trials in Dravet syndrome and Lennox Gastaut syndrome, as well as
continuing to progress multiple active Phase 1/2 clinical trials in other disease areas such as epilepsy partial seizures,
glioma and diabetes.
The Total Group Cash graph above illustrates the trend in our financial year-end closing cash position for
each of the last five years.
From 2011 and 2012 we recorded a positive net operating cash inflow in each financial year, largely as a
result of the substantial milestone receipts. In 2013, we recorded a positive cash inflow of £8.7 million following our
receipt of £18.1 million of net new funds from issue of equity as part of our NASDAQ initial public offering on 1
May 2013. In the year ended 30 September 2014 we recorded a positive cash inflow of £126.4 million following the
raising of £131.6 million of net new funds and the exercise of 1.9 million of warrants. In the year ended 30
September 2015 we recorded a positive cash inflow of £70.4 million having raised £127.5 million of net new funds
from the follow-on issue of equity on NASDAQ in May 2015.
E.
Off Balance Sheet Arrangements.
We do not have any off-balance sheet arrangements.
99
F.
Tabular Disclosure of Contractual Obligations.
The following table summarizes our contractual obligations as at September 30, 2015.
Payments Due by Period
Operating lease obligations(1)
Finance lease obligations(2)
Purchase obligations(3)
Borrowings(4)
Total contractual obligations
8,224
2,085
678
14,475
25,462
Total
£
Less than
1 year
£
1 - 3 years 3 - 5 years
£
(in thousands)
3,129
351
-
1,930
5,410
1,642
176
678
864
3,360
More than
5 years
£
£
1,471
351
-
1,930
3,752
1,982
1,207
-
9,751
12,940
(1)
(2)
(3)
(4)
We enter into operating leases in the normal course of business. Most lease arrangements provide us with
the option to renew the leases on defined terms. The future operating lease obligations would change if we
exercise our renewal options or if we were to enter into additional new operating leases. See Note 25 to our
consolidated financial statements included elsewhere in this Annual Report.
We enter into finance leases when beneficial to the Group. See Note 19 to our consolidated financial
statements included elsewhere in this Annual Report.
Purchase obligations include signed orders for capital equipment, which have been committed but not yet
received at the balance sheet date totaling £0.7 million.
We enter into borrowings when beneficial to the Group. See Note 18 to our consolidated financial
statements included elsewhere in this Annual Report.
G.
Safe Harbor.
See the section titled “Information Regarding Forward-Looking Statements” at the beginning of this
Annual Report.
Item 6
Directors, Senior Management and Employees.
A.
Directors and Senior Management.
The following table sets forth the names, ages and positions of our executive officers and non-employee
directors:
Age
Position
Name
Executive Officers
Dr. Geoffrey Guy(3)
Justin Gover
Dr. Stephen Wright
Adam George
Chris Tovey
Julian Gangolli
Non-Employee Directors
James Noble(1)(2)(3)(4)
Cabot Brown(1)(2)(3)(4)
61 Chairman of the Board of Directors and member of Board of Directors
44 Chief Executive Officer and member of Board of Directors
63 Chief Medical Officer and member of Board of Directors
45 Chief Financial Officer and member of Board of Directors
50 Chief Operating Officer and member of Board of Directors
57 President, North America and member of Board of Directors
56 Deputy Chairman
54 Non-Executive Director
Thomas Lynch(1)(2)(4)
57 Non-Executive Director
(1)
(2)
(3)
(4)
Member of the Audit Committee.
Member of the Remuneration Committee.
Member of the Nomination Committee.
An “independent director” as such term is defined in Rule 10A-3 under the Exchange Act.
100
Executive Officers
Dr. Geoffrey Guy is our founder and has served as Chairman since 1998. Dr. Guy has over 30 years of
experience in medical research and global drug development, previously as Chairman and Chief Executive of
Ethical Holdings plc, a NASDAQ-quoted drug delivery company (now Amarin Corporation plc, or Amarin), which
he founded in 1985 and led to its NASDAQ listing in 1993. He also founded Phytopharm plc in 1989, of which he
was Chairman until 1997. Dr. Guy has been the physician in charge of over 300 clinical studies including first dose
in man, pharmacokinetics, pharmacodynamics, dose-ranging, controlled clinical trials and large scale multi-centred
studies and clinical surveys. He is also an author on numerous scientific publications and has contributed to six
books. Dr. Guy was appointed as Visiting Professor in the School of Science and Medicine at the University of
Buckingham in July 2011. He also received the “Deloitte Director of the Year Award in Pharmaceuticals and
Healthcare” in 2011. Dr. Guy holds a BSc in pharmacology from the University of London, an MBBS at St
Bartholomew’s Hospital, an MRCS Eng and LRCP London, an LMSSA Society of Apothecaries and a Diploma of
Pharmaceutical Medicine from the Royal Colleges of Physicians.
Justin Gover has been Chief Executive Officer of GW since January 1999, shortly after the Company was
founded. Throughout GW’s history, he has been responsible for managing the Group’s operations, equity financing
and business development activities as a private and public company. This includes managing the evolution of GW
from start-up to present day, entering into six collaboration agreements, listings of the company’s shares on Aim and
NASDAQ, and raising over $500 million in equity financing. Mr. Gover has approximately 20 years’ experience in
the biotech industry and was previously Head of Corporate Affairs at Ethical Holdings plc, the NASDAQ-quoted
drug delivery company. In this role, he was responsible for the company’s strategic corporate activities, including
mergers and acquisitions, strategic investments, equity financing and investor relations. He holds a MBA from the
INSEAD business school.
Dr. Stephen Wright has served as our Research and Development Director and Chief Medical Officer since
January 2004 and as a Director since March 2005. Dr. Wright has more than 20 years of experience in drug
development. Prior to joining our company, Dr. Wright was Senior Vice President of Clinical Research &
Development and a member of the U.K. Board of Directors at Ipsen Limited, where he led teams responsible for
regulatory success in both the United States and the European Union. Dr. Wright also has direct U.S. drug
development experience, first as Medical Director of Immunosciences, then as Venture Head of Neuroscience at
Abbott Laboratories. In these roles he has been closely associated with at least 8 successful NDAs for new drug
products, both small molecules, peptides and botanicals. Dr. Wright is a Fellow of the Royal College of Physicians
of Edinburgh and the Faculty of Pharmaceutical Medicine. Dr. Wright is also a Visiting Professor in the School of
Chemistry, Food and Pharmacy at The University of Reading and is the author of more than 100 publications, and
several book chapters. Dr. Wright received an M.D. and an M.A. in Social and Political Science from the University
of Cambridge and qualified in Medicine (MBBS) at The Royal London Hospital.
Adam George has served as our Chief Financial Officer since June 2012. Mr. George also acts as our
Company Secretary. Prior to taking on his current role, Mr. George served as our Financial Controller since 2007.
Mr. George has previously occupied several senior finance roles within both public and privately-owned companies,
most recently as Finance Director from 2004 to 2007 and as Group Financial Controller from 2001 to 2004 of
Believe It Group Limited (now 4Com plc), a telecommunications service provider. Mr. George holds a BSc. in
Biology from Bristol University and is qualified as a chartered accountant.
Chris Tovey has served as our Chief Operating Officer since October 2012. Mr. Tovey has over 25 years of
experience in the pharmaceutical industry. Prior to joining our Company, Mr. Tovey was at UCB Pharmaceuticals
from 2006 to 2012. Most recently, Mr. Tovey was the Vice President of Global Marketing Operations where he was
responsible for worldwide marketing activities on a portfolio of UCB products including Keppra (anti-epileptic)
generating over €2.0 billion in annual sales. Previous experience and roles at UCB included Managing Director
Greece and Cyprus, and leader of all UCB activities on the orphan narcotic medication Xyrem®, used in the
treatment of narcolepsy. Mr. Tovey previously spent 18 years at GlaxoSmithKline plc in senior commercial roles in
both the European and U.K. organizations. These roles included Director Commercial Strategy Distribution Europe,
Director European Vaccine Therapy Director Commercial Development U.K., Director Vaccines Business Unit
U.K. and Business Unit Manager Oncology U.K. While at GSK, Mr. Tovey worked across a wide range of
therapeutic areas including epilepsy, infectious diseases, neurology, oncology, diabetes, respiratory, and
immunology. Mr. Tovey holds a BSc. degree in Marine Biology from the University of Liverpool.
101
Julian Gangolli has served as our President, North America since June, 2015. Mr. Gangolli has more than
two decades of senior management experience with large pharmaceutical, specialty pharmaceutical, and start-up
biotechnology companies. Prior to joining our Company, Mr. Gangolli, was, from 2004 until April 2015, President
of the North American Pharmaceutical division of Allergan Inc., with responsibility for a 1,400-person integrated
commercial operation with sales exceeding $3.8 billion in 2014. Prior to Allergan, Mr. Gangolli was Vice President,
Sales and Marketing at VIVUS, Inc. where he established from inception a fully functioning commercial operation.
Prior to VIVUS, Mr. Gangolli held roles at Syntex Pharmaceuticals, Inc. and Ortho-Cilag Pharmaceuticals Ltd. in
the United Kingdom. Mr. Gangolli received a BSc (Honors) in Applied Chemistry from Kingston University in
England, and is a U.S. citizen.
Non-Employee Directors
James Noble has served as a non-executive Director since January 2007. Mr. Noble has extensive
experience in the biotech industry and currently serves as Chief Executive Officer of Adaptimmune Therapeutics
plc, a NASDAQ listed company (ADAP) involved in T cell therapeutics. Mr. Noble was previously Chief Executive
Officer of Avidex Limited, a private biotech company and, until March 2014, was Chief Executive Officer of
Immunocore Limited. Mr. Noble qualified as a chartered accountant with PriceWaterhouse in 1983 and then spent
seven years at investment bank Kleinwort Benson Limited, where he became a Director in 1990. He then joined
British Biotech plc as Chief Financial Officer and secured the company’s IPO on NASDAQ and London in 1992.
From 1997 to 2001, he held numerous non-executive Director positions, including at PowderJect Pharmaceuticals
plc, Oxford GlycoSciences plc, MediGene AG, and Advanced Medical Solutions plc. Mr. Noble graduated from the
University of Oxford in 1980.
Cabot Brown Mr. Brown joined the GW Board in February 2013. Mr. Brown is the Founder and Chief
Executive Officer of Carabiner LLC, a strategic and financial advisory firm based in San Francisco and London that
specializes in healthcare and education. Previously, Mr. Brown served as a Managing Director and Head of the
Healthcare Group at GCA Savvian, an international financial advisory firm, from 2011 to 2012. Before joining GCA
Savvian, Mr. Brown worked for 10 years at Seven Hills Group, an investment banking group he co-founded where
he also directed the firm’s healthcare activities. He also was Managing Director of Brown, McMillan & Co, an
investment firm he co-founded that sponsored buy-outs and venture capital investments. From 1987 until 1995, Mr.
Brown worked at Volpe, Welty & Company, a boutique investment bank where he co-founded and ran the
healthcare practice and served as a member of its Executive Committee. Mr. Brown holds an MBA from Harvard
Business School with high distinction as a George F Baker Scholar and an AB cum laude in Government from
Harvard College.
Thomas Lynch has served as a Non-Executive Director since July 2010. Mr. Lynch has over 19 years of
experience in the biotechnology industry. Mr. Lynch currently serves as Chairman of ICON plc, a clinical research
company, and Profectus BioSciences Inc., a company conducting research into immunological diseases and is
Chairman of Chrontech AB, a Swedish company conducting research in infectious diseases. Previously, Mr. Lynch
served as Chairman and Chief Executive Officer of Amarin from 2000 and 2007, respectively, until December 2009.
During his tenure as Chief Executive Officer, Mr. Lynch led the repositioning of Amarin as a cardiovascular
company, over $100 million in equity financings and the de-listing of Amarin’s shares from the AIM while
maintaining the company’s primary listing on NASDAQ. Mr. Lynch continues as Chairman of Amarin
Pharmaceuticals (Ireland) Limited, having stepped down from its parent board of directors in October 2010. From
1993 to 2004, Mr. Lynch worked in a variety of capacities in Elan Corporation plc, including Chief Financial
Officer, Executive Vice-President, Vice-Chairman and senior adviser. Mr. Lynch holds an economics degree from
Queen’s University Belfast. Our board of directors believes Mr. Lynch’s qualifications to serve as a member of our
board include his extensive experience in the pharmaceutical industry and his years of experience in his leadership
roles as a director and executive officer.
102
B.
Compensation.
The following discussion provides the amount of compensation paid, and benefits in‒kind granted, by us
and our subsidiaries to our directors and members of the executive management board for services in all capacities
to us and our subsidiaries for the year ended September 30, 2015, as well as the amount contributed by us or our
subsidiaries into money purchase plans for the year ended September 30, 2015 to provide pension, retirement or
similar benefits to, our directors and members of the executive management board.
Directors and Executive Management Board Compensation
Directors Compensation
For the year ended September 30, 2015, the table below sets forth the compensation paid to our directors,
and, in the case of Messrs. Guy, Gover, Wright and George, reflects the compensation paid for their services as our
executives.
Year Ended September 30, 2015 Directors Compensation(1)
Name
Dr. Geoffrey Guy
Executive Director
Chairman
Justin Gover
Executive Director
Chief Executive Officer
Adam George
Executive Director
Salary/Fees
£
Annual
Bonus
£
Benefit(2)
Excluding
Pension
£
Pension
Benefit (3) Total
£
£
345,212
170,897
29,843
53,850
599,802
286,188
140,531
202,289
48,817
677,825
Chief Financial Officer
193,408
95,275
18,471
30,853
338,007
Dr. Stephen Wright
Executive Director
Chief Medical Officer
237,618
117,331
22,435
41,583
418,967
Chris Tovey
Executive Director
Chief Operating Officer
Julian Gangolli
Executive Director
209,980
103,438
18,724
36,746
368,888
President, North America
80,631
James Noble
Non-Executive Director
Deputy Chairman
Cabot Brown
Non-Executive Director
Thomas Lynch(4)
Non-Executive Director
65,000
58,000
-
-
-
-
-
-
-
80,631
-
-
-
-
65,000
-
58,000
-
-
(1)
For the year ended September 30, 2015, the compensation of Dr Geoffrey Guy, Adam George, Dr. Stephen
Wright, Chris Tovey, and James Noble are set and paid in pounds sterling (£). Compensation of Justin
Gover, Julian Gangolli and Cabot Brown are set in pounds sterling (£) and remunerated in US dollars ($).
(2)
For our Executive Directors, these amounts represent the value of the personal benefits granted to our
senior management for the year ended September 30, 2015, which include car allowance and medical and
life insurance. For Justin Gover, the amount includes a relocation payment of £181,653 in relation to his
relocation to the United States.
103
(3)
(4)
These amounts represent our contribution into money purchase plans.
Mr. Lynch has waived his right to receive remuneration for his service as a Non-Executive Director.
Executive Management Compensation
The compensation for each member of our executive management board is comprised of the following
elements: base salary, annual bonus, personal benefits and long-term incentives. The total amount of compensation
paid and benefits in kind granted to the members of our executive management board, whether or not a director, for
the year ended September 30, 2015 was £2.6 million.
Bonus Plans
The discussion set forth below describes each bonus plan pursuant to which compensation was paid to our
directors and members of our executive management board for our last full year.
Executive Directors are eligible for an annual bonus at the discretion of the Remuneration Committee.
Bonus awards are reviewed at the end of each calendar year and any such awards are determined by the performance
of the individual and the Group as a whole based upon the achievement of strategic objectives set at the beginning of
the year. The awards are normally limited to a maximum of 50% of basic salary, however in exceptional
circumstances the annual maximum may increase up to 150% of base salary.
Outstanding Equity Awards, Grants and Option Exercise
During the year ended September 30, 2015, 1,051,466 options to purchase ordinary shares were awarded to
the directors under our Long Term Incentive Plan.
Name of Director Type of Plan Granted
Nominal value Exercise price Date of exercise Date of expiry
Dr. Geoffrey W.
Guy
Justin Gover
Adam George
Dr. Stephen Wright
LTIP
LTIP
LTIP
LTIP
LTIP
LTIP
LTIP
LTIP
LTIP
LTIP
LTIP
LTIP
LTIP
LTIP
LTIP
LTIP
LTIP
LTIP
LTIP
LTIP
LTIP
LTIP
LTIP
LTIP
69,202
9,740
9,740
129,870
9,740
9,740
75,874
10,679
10,679
142,391
10,679
10,679
25,720
3,620
3,620
48,269
3,620
3,620
31,599
4,448
4,448
59,301
4,448
4,448
0.1p
0.1p
0.1p
0.1p
0.1p
0.1p
0.1p
0.1p
0.1p
0.1p
0.1p
0.1p
0.1p
0.1p
0.1p
0.1p
0.1p
0.1p
0.1p
0.1p
0.1p
0.1p
0.1p
0.1p
671.0p
0.1p
0.1p
0.1p
0.1p
0.1p
671.0p
0.1p
0.1p
0.1p
0.1p
0.1p
671.0p
0.1p
0.1p
0.1p
0.1p
0.1p
671.0p
0.1p
0.1p
0.1p
0.1p
0.1p
June 24, 2018
June 24, 2016
June 24, 2017
June 24, 2018
June 24, 2018
June 24, 2019
June 24, 2018
June 24, 2016
June 24, 2017
June 24, 2018
June 24, 2018
June 24, 2019
June 24, 2018
June 24, 2016
June 24, 2017
June 24, 2018
June 24, 2018
June 24, 2019
June 24, 2018
June 24, 2016
June 24, 2017
June 24, 2018
June 24, 2018
June 24, 2019
June 24, 2025
June 24, 2023
June 24, 2024
June 24, 2025
June 24, 2025
June 24, 2026
June 24, 2025
June 24, 2023
June 24, 2024
June 24, 2025
June 24, 2025
June 24, 2026
June 24, 2025
June 24, 2023
June 24, 2024
June 24, 2025
June 24, 2025
June 24, 2026
June 24, 2025
June 24, 2023
June 24, 2024
June 24, 2025
June 24, 2025
June 24, 2026
Chris Tovey
Julian Gangolli
LTIP
LTIP
LTIP
LTIP
LTIP
LTIP
LTIP
LTIP
LTIP
LTIP
LTIP
LTIP
27,924
3,930
3,930
52,404
3,930
3,930
75,369
10,608
10,608
141,444
10,608
10,608
0.1p
0.1p
0.1p
0.1p
0.1p
0.1p
0.1p
0.1p
0.1p
0.1p
0.1p
0.1p
104
671.0p
0.1p
0.1p
0.1p
0.1p
0.1p
671.0p
0.1p
0.1p
0.1p
0.1p
0.1p
June 24, 2018
June 24, 2016
June 24, 2017
June 24, 2018
June 24, 2018
June 24, 2019
June 24, 2018
June 24, 2016
June 24, 2017
June 24, 2018
June 24, 2018
June 24, 2019
June 24, 2025
June 24, 2023
June 24, 2024
June 24, 2025
June 24, 2025
June 24, 2026
June 24, 2025
June 24, 2023
June 24, 2024
June 24, 2025
June 24, 2025
June 24, 2026
As of September 30, 2015, directors held options to purchase 5,294,348 ordinary shares. During the year
ended September 30, 2015, directors exercised and sold options of 1,326,525 ordinary shares.
We periodically grant share options to employees, directors and consultants to enable them to share in our
successes and to reinforce a corporate culture that aligns employee interests with that of our shareholders. Since
September 30, 2012, we have granted a number of additional options to purchase ordinary shares to 215 participants
who are not members of our executive management board.
Options issued under our Long Term Incentive Plan generally have an exercise price of £0.001 per share
and a three-year vesting period (although this could be shorter) and expire ten years from the date of grant (save in
relation to options granted to a participant subject to the federal income tax laws of the United States, which may
only be exercised for a short period following vesting). Generally, these options are also subject to a number of
different performance conditions. If the relevant performance conditions are not achieved by the vesting date, the
options lapse. In addition, generally, an option holder must remain an employee, director or consultant throughout
the relevant vesting period, or the options will lapse. Options issued under the other share option schemes were all
issued with an exercise price equal to the closing market price on the day prior to grant, a three-year vesting period
and an expiration ten years from date of grant. The only condition linked to these awards was continued employment
throughout the vesting period.
Pension, Retirement and Similar Benefits
For the year ended September 30, 2015, we and our subsidiaries contributed a total of £0.2 million into
money purchase plans to provide pension, retirement or similar benefits to our directors and members of the
executive management board.
Employment Agreements
Dr. Geoffrey Guy
On March 14, 2013, GW Research Limited entered into a service agreement with Dr. Guy, our Chairman
and Founder. Dr. Guy’s service agreement provides that his service will continue until either party provides no less
than 12 months’ written notice. Upon notice of termination, GW Research Limited may require Dr. Guy not to
attend work for all or any part of the period of notice, during which time he will continue to receive his salary and
other contractual entitlements. GW Research Limited may terminate Dr. Guy’s employment with immediate effect
at any time by notice in writing for certain circumstances as described in his service agreement, including
bankruptcy, criminal convictions, gross misconduct or serious or repeated breaches of obligations of his service.
Dr. Guy’s service agreement provides for a base salary of £341,794 per annum (to be reviewed annually), a
car allowance of £24,960 per annum, plus a monthly pension contribution of 17.5% of salary, permanent health
insurance coverage, life assurance coverage and private health insurance, and a bonus on such terms and of such
amount as approved from time to time by the Remuneration Committee in its sole discretion. Dr. Guy’s service
agreement provides that for 12 months following termination of his employment with GW Research Limited, he will
not entice, induce or encourage any customer or employee to end their relationship with GW Research Limited or
any other member of the Group, solicit or accept business from customers or engage in competitive acts more fully
described in his service agreement.
105
Justin Gover
On February 26, 2013, GW Research Limited entered into a service agreement with Mr. Gover, our Chief
Executive Officer. Mr. Gover’s service agreement provides that his service will continue until either party provides
no less than 12 months’ written notice. Upon notice of termination, GW Research Limited may require Mr. Gover
not to attend work for all or any part of the period of notice, during which time he will continue to receive his salary
and other contractual entitlements. GW Research Limited may terminate Mr. Gover’s employment with immediate
effect at any time by notice in writing for certain circumstances as described in his service agreement, including
bankruptcy, criminal convictions, gross misconduct or serious or repeated breaches of obligations of his service.
Mr. Gover’s service agreement provides for a base salary of £281,061 per annum (to be reviewed
annually), plus a monthly pension contribution of 17.5% of salary, car allowance of £15,600 per annum, permanent
health insurance coverage, life assurance coverage and private health insurance, and a bonus on such terms and of
such amount as approved from time to time by the Remuneration Committee in its sole discretion.
Mr. Gover’s service agreement provides that, for 12 months following termination of his employment with
GW Research Limited, he will not entice, induce or encourage any customer or employee to end their relationship
with GW Research Limited or any other member of the Group, solicit or accept business from customers or engage
in competitive acts more fully described in his service agreement.
On July 21, 2015, (i) this service agreement was novated to GW Pharmaceuticals plc by GW Research
Limited and at the same time Mr. Gover’s commitment to GW Pharmaceutical plc was reduced to no more than 30
days per annum, to be worked outside the United States, and his base salary was reduced pro rata to £33,079
($51,482) per annum (to be reviewed annually) and his entitlement to a car allowance and private health insurance
were removed, and (ii) GW Pharmaceuticals Inc. entered into a service agreement with Mr. Gover, which provides
that his service will continue until either party provides no less than 12 months’ written notice. Upon notice of
termination, GW Pharmaceuticals Inc. may require Mr. Gover not to attend work for all or any part of the period of
notice, during which time he will continue to receive his salary and other contractual entitlements. GW Research
Limited may terminate Mr. Gover’s employment with immediate effect at any time by notice in writing for certain
circumstances as described in his service agreement, including bankruptcy, criminal convictions, gross misconduct
or serious or repeated breaches of obligations of his service.
Mr. Gover’s service agreement provides for a base salary of $446,177 per annum less the amount to be paid
to Mr. Gover by GW Pharmaceuticals plc in the UK in respect of his role as its Chief Executive Officer (initially
$51,482 per annum), plus a monthly pension contribution of 17.5% of salary once GW Pharmaceuticals Inc. has
established its 401(k) Plan, car allowance of $24,279 per annum, permanent health insurance coverage, life
assurance coverage and private health insurance, and a bonus on such terms and of such amount as approved from
time to time by the Remuneration Committee in its sole discretion.
Dr. Stephen Wright
On January 18, 2013, GW Research Limited entered into a service agreement with Dr. Stephen Wright, our
Chief Medical Officer. The service agreement provides that his service will continue until either party provides no
less than 12 months written notice. Upon notice of termination, GW Research Limited may require Dr. Wright not to
attend work for all or any part of the period of notice, during which time he will continue to receive his salary and
other contractual entitlements. GW Research Limited may terminate Dr. Wright’s employment with immediate
effect at any time by notice in writing for certain circumstances as described in his service agreement, including
bankruptcy, criminal convictions, gross misconduct or serious or repeated breaches of obligations of his service.
Dr. Wright’s service agreement provides for a base salary of £234,106 per annum (to be reviewed
annually), plus a monthly pension contribution of 17.5% of salary, a car allowance of £15,600 per annum, life
assurance coverage, the cost of membership for Dr. Wright, his spouse and children in a private patients medical
plan, access to a permanent health insurance plan, and a bonus on such terms and of such amount as approved from
time to time by the Remuneration Committee in its sole discretion.
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Dr. Wright’s service agreement provides that for 12 months following termination of his employment with
GW Research Limited, he will not entice, induce or encourage any customer or employee to end their relationship
with GW Research Limited or any other member of the Group, solicit or accept business from customers or engage
in competitive acts more fully described in his service agreement.
Adam George
On June 1, 2012, GW Pharma Limited entered into a service agreement with Mr. George, our Chief
Financial Officer. The service agreement provides for a base salary of £190,550 per annum (to be reviewed
annually), plus a monthly pension contribution of 17.5% of salary, a car allowance of £15,600 per annum, life
assurance coverage, the cost of membership for Mr. George, his spouse and children in a private patients medical
plan, access to a permanent health insurance plan, and a discretionary bonus on such terms and of such amount as
decided from time to time by the Remuneration Committee in its sole discretion.
Mr. George’s service agreement provides that, his service will continue until either party provides no less
than 12 months’ written notice. Upon notice of termination, GW Pharma Limited may require Mr. George not to
attend work for all or any part of the period of notice, during which time he will continue to receive his salary and
other contractual entitlements. GW Pharma Limited may terminate Mr. George’s employment with immediate effect
at any time by notice in writing for certain circumstances as described in his service agreement, including
bankruptcy, criminal convictions, gross misconduct or serious or repeated breaches of obligations of his service.
Mr. George’s service agreement provides that for a period of 12 months following termination of his
employment with GW Pharma Limited, he will not entice, induce or encourage any customer or employee to end
their relationship with GW Pharma Limited or any member of the Group, solicit or accept business from customers
or engage in competitive acts more fully described in his service agreement.
Chris Tovey
On July 11, 2012, GW Pharma Limited entered into a service agreement with Mr. Tovey, our Chief
Operating Officer. The service agreement provides for a base salary of £206,876 per annum (to be reviewed
annually), plus a monthly pension contribution of 17.5% of salary, a car allowance of £15,600 per annum, life
assurance coverage, the cost of membership for Mr. Tovey, his spouse and children in a private patients medical
plan, access to a permanent health insurance plan, and a discretionary bonus on such terms and of such amount as
decided from time to time by the Remuneration Committee in its sole discretion.
Mr. Tovey’s service agreement provides that his service will continue until either party provides no less
than 12 months’ written notice. Upon notice of termination, GW Pharma Limited may require Mr. Tovey not to
attend work for all or any part of the period of notice, during which time he will continue to receive his salary and
other contractual entitlements. GW Pharma Limited may terminate Mr. Tovey’s employment with immediate effect
at any time by notice in writing for certain circumstances as described in his employment agreement, including
bankruptcy, criminal convictions, gross misconduct, or serious or repeated breaches of obligations to his service.
Mr. Tovey’s service agreement provides that for a period of 12 months following termination of his
employment with GW Pharma Limited, he will not entice, induce or encourage any customer or employee to end
their relationship with GW Pharma Limited or any other member of the Group, solicit or accept business from
customers or engage in competitive acts more fully described in his service agreement.
Julian Gangolli
On May 6, 2015, GW Pharmaceutical Inc. entered into a service agreement with Mr. Gangolli, our
President, North America. Mr. Gangolli’s service agreement provides that his service will continue until either party
provides no less than one month’s written notice. Upon notice of termination, GW Pharmaceuticals Inc. may pay
Mr. Gangolli his salary in lieu of giving a month’s written notice.
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Mr. Gangolli’s service agreement provides for a base salary of $400,000 per annum (to be reviewed
annually), less any amounts paid under his service agreement with GW Pharmaceuticals plc (described below), a
bonus on such terms and of such amount as approved from time to time by the Remuneration Committee in its sole
discretion, plus life assurance coverage, matching contributions to a 401(k) plan and private health insurance once
GW Pharmaceuticals Inc. has established these benefit programs.
On July 21, 2015, GW Pharmaceuticals plc entered into a service agreement with Mr. Gangolli for Mr.
Gangolli to provide GW Pharmaceuticals plc with no fewer than 12 days of work per annum, to be worked outside
the United States. The Service Agreement provides for a base salary of $1,550 per day (to be reviewed annually).
Mr. Gangolli’s service agreement with GW Pharmaceuticals plc provides that his service will continue until
either party provides no less than 6 months’ written notice. Upon notice of termination, GW Pharmaceuticals plc
may require Mr. Gangolli not to attend work for all or any part of the period of notice. GW Pharmaceuticals plc may
terminate Mr. Gangolli’s employment with immediate effect at any time by notice in writing for certain
circumstances as described in his service agreement, including bankruptcy, criminal convictions, gross misconduct
serious or repeated breaches of obligations of his service.
Mr. Gangolli’s service agreement with GW Pharmaceuticals plc provides that, for 12 months following
termination of his employment with GW Pharmaceuticals plc, he will not entice, induce or encourage any customer
or employee to end their relationship with GW Pharmaceuticals plc or any other member of the Group, solicit or
accept business from customers or engage in competitive acts more fully described in his service agreement.
James Noble
On January 19, 2007, GW Pharmaceuticals plc appointed Mr. Noble Deputy Chairman and Non-Executive
Director with effect from January 26, 2007. On February 26, 2013, GW Pharmaceuticals plc entered into an
appointment letter with Mr. Noble, which continues for no specific duration. The appointment letter provides for
Director’s fees of £65,000 per annum, plus reimbursement for all reasonable out-of-pocket expenses incurred on
GW Pharmaceutical plc business and director’s and officer’s liability insurance, subject to the provisions governing
such insurance and on such terms as our board of directors may from time to time decide. Mr. Noble’s agreement
provides that he is not entitled to participate in any pension or employee share schemes and is not eligible for any
other benefits.
Mr. Noble’s appointment letter provides that his appointment will continue until either party provides no
less than three months’ written notice and that he should be prepared to spend at least 12 days per year on company
business. Mr. Noble’s appointment may be automatically terminated if he is removed from office by a resolution of
the shareholders, is not re-elected to office, vacates his office, commits any act that would justify summary
termination of an employment contract, or is unable to perform his duties under his appointment for six months
consecutively or in aggregate in any period of one year. Mr. Noble’s agreement provides that GW
Pharmaceuticals plc may, during any period of notice, ask Mr. Noble not to attend any board or general meetings or
to perform any other services on its behalf. The agreement includes a non-compete clause, to take effect on
termination, for 12 months following termination of his office.
Cabot Brown
We originally appointed Mr. Brown as a Non-Executive Director on February 19, 2013. Mr. Brown serves
as a member of the Audit Committee, the Remuneration Committee and Nominations Committee.
On November 7, 2013, Mr. Brown entered into a new employment contract with GW Pharmaceuticals Inc.,
the terms of which provides for an agreed salary of £58,000 plus reimbursement for all reasonable out‒of‒pocket
expenses incurred on GW Pharmaceuticals Inc.’s business and director’s and officer’s liability insurance, subject to
the provisions governing such insurance and on such terms as GW Pharmaceuticals Inc.’s board of directors may
from time to time decide. The contract provides that he is not entitled to participate in any pension and will not be
eligible for other benefits.
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Mr. Brown’s contract also provides that his employment will continue until either party provides no less
than three months’ written notice and that he should be prepared to spend at least 12 days per year attending board
and general meetings of GW Pharmaceuticals plc representing GW Pharmaceuticals Inc.’s business interests.
Mr. Brown’s appointment may be automatically terminated if he is removed from office as a director of GW
Pharmaceuticals plc by a resolution of the shareholders, is not re-elected to office, vacates his office, commits any
act that would justify summary termination of an employment contract or if he is unable to perform his duties under
his appointment for six months consecutively or in aggregate in any period of one year. Mr. Brown’s employment
contract provides that GW Pharmaceuticals Inc. may, during any period of notice, ask Mr. Brown not to attend any
board or general meetings or to perform any other services on its behalf. The contract includes a non-compete
clause, to take effect on termination, for one year.
Thomas Lynch
On July 22, 2010, GW Pharmaceuticals plc appointed Mr. Lynch a Non-Executive Director. On
February 26, 2013, Mr. Lynch entered into an updated appointment letter with GW Pharmaceuticals plc, which
continues for no specific duration. Mr. Lynch has waived his right to receive remuneration for this role. Mr. Lynch’s
agreement provides for reimbursement for all reasonable out-of-pocket expenses incurred on GW
Pharmaceutical plc business and director’s and officer’s liability insurance, subject to the provisions governing such
insurance and on such terms as our Board of Directors may from time to time decide. Mr. Lynch’s agreement
provides that he is not entitled to participate in any pension or employee share schemes and is not eligible for any
other benefits.
Mr. Lynch’s agreement provides that his appointment will continue until either party provides no less than
three months’ written notice and that he should be prepared to spend at least 12 days per year on company business.
Mr. Lynch’s appointment may be automatically terminated if he is removed from office by a resolution of the
shareholders, is not re-elected to office, vacates his office, commits any act that would justify summary termination
of an employment contract or if he is unable to perform his duties under his appointment for six months
consecutively or in aggregate in any period of one year.
Mr. Lynch’s agreement provides that GW Pharmaceuticals plc may, during any period of notice, ask
Mr. Lynch not to attend any board or general meetings or to perform any other services on its behalf. The agreement
includes a non-compete clause, to take effect on termination, for 12 months following termination of his office.
Equity Compensation Plans
GW Pharmaceuticals plc Long-Term Incentive Plan
Our board of directors adopted and our shareholders approved the GW Pharmaceuticals plc Long-Term
Incentive Plan, or the Long-Term Incentive Plan, on March 18, 2008, and it has subsequently been amended in
accordance with its terms.. The Long-Term Incentive Plan permits the grant of awards over our ordinary shares to be
granted to our employees, directors and consultants, referred to in this annual report as Awards, all summarized
below.
Types of Award. Under the Long-Term Incentive Plan, the Remuneration Committee may grant Matching
Awards (which are granted in connection with invitations to participants to acquire Investment Shares, see the
following paragraph) or Performance Awards (awards other than Matching Awards). Awards are in the form of
either an option to purchase our ordinary shares, referred to in this Annual Report as an Option or a conditional right
to acquire a number of our ordinary shares for no payment upon vesting, referred to in this Annual Report as a
Conditional Award. Awards may be granted only within the six weeks beginning with the dealing date after the date
on which we announce our results for any period or at any other time that the Committee determines that the
circumstances justify the grant. The Remuneration Committee may determine that any Conditional Award or Option
may be settled in cash rather than ordinary shares unless it would be unlawful to do so or if it would cause adverse
tax or social security contribution consequences for the participant or us or our affiliates.
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Matching Awards and Investment Shares. The Remuneration Committee may invite any eligible
employee to participate in the Long-Term Incentive Plan by purchasing ordinary shares, which are referred to as
Investment Shares in this Annual Report. The invitation will specify the maximum amount of Investment Shares
which can be purchased, the procedure for purchasing the Investment Shares, the maximum number of ordinary
shares which may be received as a Matching Award and other terms of the Award. A “Return Date” will also be
specified which is the date by which the invitation to participate must be accepted. As soon as practicable after the
Return Date, we procure the acquisition of the Investment Shares and the participant is granted a Matching Award..
The participant will have full rights with respect to the Investment Shares. Any ordinary shares subject to a
Matching Award with respect to Investment Shares will be transferred to the participant when the Matching Award
vests.
Vesting of Awards. Awards generally vest on the later of the date on which the Remuneration Committee
determines whether any applicable performance conditions or other vesting condition have been met or the third
anniversary of the grant date (or such other date as the Remuneration Committee may determine prior to the grant of
the applicable Award, which may be before the third anniversary of the grant date). In addition, a Matching Award
will lapse on the date on which the participant does any act in breach of the terms relating to Investment Shares or
loses his entitlement to, transfers, charges or otherwise disposes of the Investment Shares to which the Matching
Award relates and the lapse shall be pro rata to the number of the affected Investment Shares. Options, once vested,
will generally remain exercisable until the tenth anniversary of the grant date (subject to earlier lapse in accordance
with the rules), however Options granted to a participant who is subject to the federal income tax laws of the United
States may only be exercised for a short period following vesting.
If a participant ceases to be a director or employee of, or a consultant to, us or our affiliates before the
normal vesting date of an Award by reason of (i) death, (ii) retirement with the agreement of the Remuneration
Committee (in the case of our executive directors or senior management) or the employer or company to whom the
participant provides services (in the case of other participants), (iii) ill health, injury or disability, (iv) redundancy,
(v) his office, employment or consultancy contract is with a company that ceases to be one of our affiliates or
relating to a business or part of a business which is transferred to an unrelated third party or (vi) for any other reason
that the Remuneration Committee determines, then the Award will vest on the normal vesting date unless the
Remuneration Committee decides that the Award will vest on the date of cessation (and an Option could generally
be exercised for six months thereafter). If a participant ceases to be a director, employee or consultant in other
circumstances, the Award will lapse immediately upon cessation of service. Special rules apply to determine the
number of ordinary shares that will vest in any specified circumstances, including application of any performance
conditions.
Limits on Ordinary Shares and Awards. No Award may be made under the Long-Term Incentive Plan in
any calendar year if, at the time of the proposed grant date, it would cause the number of our ordinary shares
allocated on or after June 28, 2001 and in the period of ten calendar years ending with that calendar year under the
Long-Term Incentive Plan, any other employee share plan operated by us or any other share incentive arrangement
operated by us for the benefit of directors or consultants to any participating company to exceed ten percent of our
ordinary share capital in issue at that time. Ordinary shares are generally considered to be allocated if they are
subject to outstanding options to acquire unissued shares or treasury shares, if they are issued or transferred from
treasury otherwise than pursuant to an option or other right to acquire the ordinary shares, or, in certain
circumstances, if they are issued or may be issued to any trustees to satisfy the grant of an option or other
contractual right. Existing shares other than treasury shares that are transferred or over which options or other
contractual rights are granted are not treated as allocated. Special rules apply to the determination of whether shares
are allocated in the case of awards that expire or are settled in cash or where institutional investor guidelines cease to
require the shares to be counted as allocated. In addition, the aggregate number of shares in relation to which
Awards may be made pursuant to the Long-Term Incentive Plan after March 14, 2013 shall not exceed 15 million.
As approved at our Annual General Meeting on February 5, 2015, the maximum total market value of our
ordinary shares over which Award may be granted to any director, employee or consultant during any year is 600%
of such person’s base salary or fees. These Awards can now include restricted stock options which have service but
no other performance conditions. The expected value of an Award shall be calculated as at the date of grant in
accordance with generally accepted methodologies based on Black Scholes or binomial stochastic models.
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Takeovers and Corporate Events. If a person or group obtains control of us pursuant to a general offer to
acquire our ordinary shares or has obtained control of us and then makes such an offer or such an offer becomes
unconditional in all respects, then the Remuneration Committee will notify all participants and all Awards will vest
on the date determined by the Remuneration Committee (but no later than the date of the change in control or offer
becoming unconditional) and any Option can be exercised within one month after such early vesting date. Special
vesting rules apply in the context of a winding up of us or in the event of a demerger, special dividends or other
events which, in the opinion of the Remuneration Committee would affect the market price of our ordinary shares to
a material extent. In certain cases, the Remuneration Committee, with the consent of an acquiring company if
applicable, may decide before the change of control that an Award will not vest under the special vesting provisions
but shall instead be surrendered in consideration for the grant of a new award which the Remuneration Committee
determines is equivalent in value to the Award that it replaces. Special rules apply to determine the numbers of
ordinary shares that will vest in any specified circumstances, including application of any performance conditions.
Adjustment of Awards. In the event that there is any variation in our share capital or any demerger,
special dividend or other similar event which affects the market price of our ordinary shares to a material extent, the
Remuneration Committee may make such adjustments as it considers appropriate, taking into account where
relevant, any adjustment to the related holding of Investment Shares. Any such adjustments may be made to one or
more of the number of ordinary shares subject to an Award, the option price or the number of ordinary shares that
may be transferred pursuant to a vested Award which has not yet been settled. Limitations apply to the extent that
any such adjustments may reduce the price at which ordinary shares may be purchased pursuant to the exercise of an
Option.
Transferability. No award under the Long-Term Incentive Plan may be transferred, assigned, charged or
otherwise disposed of (except on death to the recipient’s personal representatives) and will lapse immediately upon
an attempt to do so. In addition, an award under the Long-Term Incentive Plan will lapse immediately if the
recipient of an Award is declared bankrupt.
Amendment and Termination. The Long-Term Incentive Plan will expire ten years after the date that it
was approved by our shareholders and no awards may be granted thereunder after the expiration date. The
Committee may, at any time, alter the Long-Term Incentive Plan or the terms of any Award; provided, however, that
no alteration to the benefit of a participant or potential participants will be made to the provisions relating to the
individual limits on participation, the overall limits on the issue of ordinary shares or transfer of treasury shares, the
overall limit on the number of ordinary shares which may be subject to Awards or the foregoing restrictions without
approval of our ordinary shareholders. Minor alterations to benefit the administration of the Long-Term Incentive
Plan, to take into account changes in law or obtain or maintain favorable tax treatment, exchange control or
regulatory treatment for participants or us and our affiliates or alterations to performance conditions are not subject
to shareholder approval. Alterations to the disadvantage of participants (other than changes to performance
conditions) may not be made unless all participants have the opportunity to approve the change and the change is
approved by a majority of the participants. Although performance conditions can generally be altered by the
Committee, we have undertaken to consult with our major shareholders prior to altering any performance conditions
existing as of January 18, 2008.
GW Pharmaceuticals All Employee Share Scheme
GW Pharma Limited. (then GW Pharmaceuticals Ltd.) adopted the GW Pharmaceuticals All Employee
Share Scheme, or the Share Scheme, on August 16, 2000 and it was approved by the U.K.’s Inland Revenue on
August 25, 2000 as what is now known as an approved share incentive plan. The Share Scheme provides for the
grant of awards of our ordinary shares, which may be Free Shares, Matching Shares or Partnership Shares, or,
collectively, Share Scheme Awards, all summarized below, in a tax advantageous manner. Dividends payable in
relation to Share Scheme Awards may be reinvested as Dividend Shares subject to the scheme. Shares awarded are
held by the trustees of the scheme, or the Trustees, in a specially established trust on behalf of the participants. The
scheme originally operated over ordinary shares in GW Pharma Limited, but following our acquisition of GW
Pharma Limited the scheme was amended so that it operated over our ordinary shares.
Eligibility. Generally, employees of GW Pharma or certain of its subsidiaries are eligible to receive Share
Scheme Awards under the Plan. In order to satisfy certain U.K. tax rules, certain participants, referred to in this
Annual Report as Qualifying Employees, must be invited to participate in the Share Scheme if they are otherwise
eligible.
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Generally, all Qualifying Employees who are required to be invited (or who have been invited) to
participate in a Share Scheme Award under the Share Scheme will participate on the same terms. We may, however,
make awards of Free Shares to Qualifying Employees which vary by reference to their remuneration, length of
service or hours worked or by reference to their performance.
Free Shares. The Trustees, with the prior consent of GW Pharma Limited., may award Free Shares. The
number of Free Shares to be awarded to each Qualifying Employee will be determined by GW Pharma Limited. and
the initial market value of any such Share Scheme Award in any tax year will not exceed £3,000. The number of
Free Shares granted to a Qualifying Employee on any date may be determined by reference to performance
allowances. If such performance allowances are used, they will apply to all Qualifying Employees. The Share
Scheme sets forth methodologies for determining how to calculate the number of Free Shares that are awarded to a
Qualifying Employee by reference to performance allowances. With respect to the grant of Free Shares, a holding
period is specified through which a participant who has been granted Free Shares must be bound by the terms of a
Free Share agreement. The length of the holding period will not be less than three nor more than five years
beginning on the award date and will be the same for all participants who receive a grant at the same time.
Partnership Shares. GW Pharma Limited. may invite every Qualifying Employee to enter into an
agreement with respect to the grant of Partnership Shares. Partnership Shares are subject to the terms and conditions
of the Share Scheme and are not subject to any forfeiture provisions. Participants are required to have amounts
deducted from their compensation to pay for Partnership Shares, such amounts referred to in this Annual Report as
Partnership Share Money; provided, however, that the maximum amount of Partnership Share Money for any month
cannot exceed £125 or such lower figure that may be specified and the total Partnership Share Money for any period
during which contributions are accumulated to purchase Partnership Shares such period referred to in this Annual
Report as the Accumulation Period, cannot exceed 10% of the payments of salary made to the participant over the
Accumulation Period. There may also be a minimum amount of Partnership Share Money for any month (applied
uniformly to all participants), which minimum cannot exceed £10. Any Partnership Share Money that is deducted in
excess of the limitations, less applicable taxes, will be paid to the participant as soon as practicable.
If there is an Accumulation Period, the maximum number of Partnership Shares that may be acquired for
that Accumulation Period will be determined by reference to the lower of the value of our shares at the beginning of
the Accumulation Period or the value of ordinary shares on the acquisition date. Any excess Partnership Share
Money remaining after purchase of the ordinary shares may, with the agreement of the participant, be carried over to
the next Accumulation Period or in other cases be paid to the participant less applicable taxes. The number of
Partnership Shares that may be purchased as of any date may be reduced if the applications to purchase exceed the
permitted limits.
An employee may withdraw from purchasing Partnership Shares at any time. Unless otherwise specified by
the employee, the withdrawal will take effect 30 days after we receive the notice. In the event of a withdrawal, any
Partnership Purchase Money held on behalf of the withdrawing employee, less applicable taxes, will be returned to
the employee as soon as practicable.
If approval of the Share Scheme is withdrawn or if the Share Scheme is terminated, all Partnership Share
Money, less applicable taxes, will be repaid to employees as soon as practicable.
Matching Shares. Matching Shares are granted on the basis set forth in the Partnership Agreement relating
to the grant of Partnership Shares. No payment is made by the participants in relation to Matching Shares. Generally,
Matching Shares are awarded to all participants on the same basis. In no event will the ratio of Matching Shares to
Partnership Shares exceed 2:1.
Dividend Shares. If any dividends are paid in relation to ordinary shares held pursuant to the Share
Scheme for participants, GW Pharma Limited may specify that some or all of those dividends shall be applied to
purchase Dividend Shares or they may give the participants the choice between such dividends being applied to
purchase Dividend Shares or being paid in cash. Special rules apply to reinvestment of dividends. Dividend Shares
are subject to a three year holding period.
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Limits on Shares and Awards. No ordinary shares will be issued under the Share Scheme if the issue
would result in the aggregate number of our ordinary shares which have been allocated under the Share Scheme, any
other employees’ share plan adopted by us or any other share incentive arrangements for employees, directors,
officers and consultants of our affiliates during the period of ten years ending on the date of the issue to exceed 10%
of our ordinary shares then in issue. “Allocated” for these purposes means the grant of options or other rights to
acquire ordinary shares which may be satisfied by the issue of new shares, or, where no such rights are granted, the
issue of ordinary shares. Rights which have lapsed are no longer taken into account.
Amendment. GW Pharma Limited. may, with the Trustees’ written consent, amend the Share Scheme,
provided that no amendment which may increase the limits described in the preceding paragraph may be made
without the approval of our shareholders. In addition, no amendment may be made which would adversely prejudice
to a material extent the rights attached to any ordinary shares awarded, and certain amendments would require the
approval of the UK tax authorities.
Reconstructions and Rights Issues. The Share Scheme sets forth special rules that apply in the case of
reconstructions and rights issues.
GW Pharmaceuticals Unapproved Share Option Scheme 2001
Our shareholders approved and adopted the GW Pharmaceuticals Unapproved Share Option Scheme 2001,
or the Executive Option Scheme, on May 31, 2001. In the United Kingdom, generally, an “unapproved” share
option scheme means that it does not qualify for certain tax breaks since it has not been “approved” by the U.K. tax
authority, although these terms are now less common for new share schemes, as the approval system has been
replaced by a self-certification system for tax advantaged schemes. It was typical for U.K. companies to have both
“approved” and “unapproved” share options schemes due, in part, to the individual participation limits found in
“approved” schemes. Under the Executive Option Scheme, Options were granted to our employees, such employees
referred to in this Annual Report as eligible employees. The scheme terminated on May 31, 2011, and no further
options will be granted under the scheme. Termination of the scheme did not affect the rights of existing
participants.
Options granted under the Executive Option Scheme may be designated as “EMI Options” which are
intended to qualify for advantageous tax treatment as enterprise management incentives under applicable UK tax
law. Generally, EMI Options are subject to the same terms and conditions as those that apply to Options. Other
terms and conditions may also apply to EMI Options, particularly where the Committee determines that such
alternative treatment is appropriate to obtain, protect or maximize beneficial tax or national insurance treatment of
the participant, us or our affiliates.
Exercise of Options. Options generally may not be exercised prior to the third anniversary of the grant,
however all outstanding options are currently exercisable. If applicable, any performance targets and other
conditions on exercise must also be satisfied. Vesting provisions and performance targets may be waived only to the
extent provided in the grant terms or, in the case of a performance target, an event occurs which makes the condition
more onerous to achieve.
Generally, Options must be exercised while the participant is an eligible employee. In the event, however,
that a participant ceases to be an eligible employee as the result of injury, illness or disability, redundancy or
retirement on or after attaining his normal retirement age (age 60 or such other date on which he is required to retire
pursuant to his employment contract) or at the specific request of his employer, the Option may be exercised during
the period of six months (or such longer period as the Committee may specify) commencing on the date he ceases to
be an eligible employee. If a participant dies while he is an eligible employee or during the extended exercise period
described in the preceding sentence, the participant’s personal representatives may exercise the Option for 12
months after the participant’s death. In all other cases, the Remuneration Committee may permit post-cessation
exercise during such period from the date of cessation as they may notify to the participant. All Options lapse upon
the tenth anniversary of the date of grant although the Committee has discretion to extend this date by up to 12
months.
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Takeovers and Corporate Events. If any person obtaining control of us (as determined in accordance
with specified U.K. tax law) as the result of making an offer to acquire all of our issued share capital that is either
unconditional or which is made on a condition which, if satisfied will cause the person making the offer to have
control of us or a general offer to acquire all of our ordinary shares, any such offer referred to in this document as a
Takeover Offer, Options may be exercised within the relevant period after the time the person has obtained control
and any conditions subject to which the Takeover Offer have been satisfied. Options may also be exercisable for the
relevant period in the event of certain court sanctioned restructurings or amalgamations of us or if another company
becomes bound or entitled to acquire our ordinary shares pursuant to certain provisions of U.K. corporate law. If the
Remuneration Committee determines that it is likely that we will come under the control of another company such
that our ordinary shares will cease to satisfy specified conditions of U.K. tax law, the Remuneration Committee may
permit exercise of the Options prior to the change of control.
In the event of a Takeover Offer or court sanctioned restructuring or amalgamation, the participant may, by
agreement with the other company, release Options in consideration for the grant of a new option with respect to the
acquiring company’s shares and subject to certain other terms and conditions. The Remuneration Committee may
also permit exercise of the Options within a relevant period following the date on which we pass a resolution for
voluntary winding up or certain other transactions involving a change in control of us.
With respect to any event, the “relevant period” is generally the period of three months or such different
period not less than 30 days and not more than six months that the Remuneration Committee may determine in
connection with a relevant particular event which may allow Options to be exercised. Options not exercised by the
end of that period will lapse.
Adjustment of Awards. In the event that there is any variation in our share capital the Remuneration
Committee may make adjustments as it considers fair and reasonable to preserve the participant’s position to the
number of ordinary shares subject to an Option and/or the acquisition price and/or the aggregate maximum number
of ordinary shares. Limitations apply to the extent to which any such adjustments may reduce the price at which
ordinary shares may be purchased pursuant to the exercise of an Option.
Transferability. No Option under the Executive Option Scheme may be transferred, assigned, charged or
otherwise disposed of (except on death to the recipient’s personal representatives) and will lapse immediately upon
an attempt to do so. In addition, an award under the Executive Option Scheme will lapse immediately if the recipient
of an Award is declared bankrupt or if there is a compulsory winding up of us.
Amendment. The Committee may, at any time, alter the Executive Option Scheme.
GW Pharmaceuticals Approved Share Option Scheme 2001
Our shareholders approved and adopted the GW Pharmaceuticals Approved Share Option Scheme 2001, or
the “Company Option Scheme”, on May 31, 2001 and it was approved by the U.K.’s Inland Revenue on July 3,
2001. Under the Company Option Scheme, Options were granted to our employees who were not ineligible to
participate in the Company Option Scheme under applicable U.K. tax law and who, in the case of a director, is
required to work not less than 25 hours per week, such individuals referred to in this Annual Report as Option
Scheme eligible employees. The scheme terminated on May 31, 2011, and no further options will be granted under
the scheme. Termination of the scheme did not affect the rights of existing participants.
Exercise of Options. Options generally may not be exercised prior to the third anniversary of the grant. All
outstanding options, however, are currently exercisable. If applicable, any performance targets and other conditions
on exercise must also be satisfied. Vesting provisions and performance targets may be waived only to the extent
provided in the grant terms or, in the case of a performance target, an event occurs which makes the condition more
onerous to achieve.
Generally, Options must be exercised while the participant is an Option Scheme eligible employee. In the
event, however, that a participant ceases to be an Option Scheme eligible employee as the result of injury, illness or
disability, redundancy or retirement on or after attaining his normal retirement age (age 60 or such other date on
which he is required to retire pursuant to his employment contract) or at the specific request of his employer, the
Option may be exercised during the period commencing on the date he ceases to be an Option Scheme eligible
employee and ending on the later of six months thereafter or three years and six months after the date of grant. If a
participant dies while he is an Option Scheme eligible employee or during the extended exercise period described in
the preceding sentence, the participant’s personal representatives may exercise the Option for 12 months after the
participant’s death (unless the participant would have been precluded from exercising the option during that period
under applicable U.K. tax law). In all other cases, the Remuneration Committee may permit post-cessation exercise
for up to six months from the date of cessation or, if later three years and six months after the date of grant. All
Options lapse upon the tenth anniversary of the date of grant.
114
Takeovers and Corporate Events. If any person obtains control of us (as determined in accordance with
specified U.K. tax law) as a result of making a Takeover Offer, any Options may be exercised within the relevant
period after the time the person has obtained control and any conditions subject to which the Takeover Offer have
been satisfied. Options may also be exercisable for the relevant period in the event of certain court sanctioned
restructurings or amalgamations of us or if another company becomes bound or entitled to acquire our ordinary
shares pursuant to certain provisions of U.K. corporate law. If the Remuneration Committee determines that it is
likely that we will come under the control of another company such that our ordinary shares will cease to satisfy the
conditions of applicable U.K. tax law, the Remuneration Committee may permit exercise of the Options prior to the
change of control.
In the event of a Takeover Offer or court sanctioned restructuring or amalgamation, the participant may, by
agreement with the other company, release Options in consideration for the grant of a new option with respect to the
acquiring company’s shares and subject to certain other terms and conditions, in such a manner as to preserve the
tax advantages applicable to the Options.
The Remuneration Committee may also permit exercise of the Options within a relevant period following
the date on which we pass a resolution for voluntary winding up or certain other transactions involving a change in
control of us.
With respect to any event, the “relevant period” is generally the period of three months or such different
period not less than 30 days and not more than six months that the Remuneration Committee may determine in
connection with a relevant particular event which may allow Options to be exercised. Options not exercised by the
end of that period will lapse.
Adjustment of Awards. In the event that there is any variation in our share capital the Remuneration
Committee may make adjustments as it considers fair and reasonable to preserve the participant’s position to the
number of ordinary shares subject to an Option and/or the acquisition price and/or the aggregate maximum number
of ordinary shares. Limitations apply to the extent to which any such adjustments may reduce the price at which
ordinary shares may be purchased pursuant to the exercise of an Option and no adjustment will take effect until it
has been approved by the United Kingdom tax authorities in accordance with applicable U.K. tax law.
Transferability. No Option under the Company Option Scheme may be transferred, assigned, charged or
otherwise disposed of (except on death to the recipient’s personal representatives) and will lapse immediately upon
an attempt to do so. In addition, an award under the Company Option Scheme will lapse immediately if the recipient
of an award is declared bankrupt or if there is a compulsory winding up of us.
Amendment. The Remuneration Committee may, at any time, alter the Company Option Scheme provided
that no alterations shall be effective unless approved by the U.K. tax authorities in accordance with applicable U.K.
tax law.
Options granted to non-employees
Our consultants and non-executive directors, who are not employees of companies in the Group, are not
eligible to participate in our equity compensation plans described above. Certain of these consultants and non-
executive directors have been granted options to acquire our shares pursuant to separate option agreements. These
options are generally on comparable terms to options granted under the Executive Option Scheme.
115
Limitations on Liability and Indemnification Matters
To the extent permitted by the Companies Act 2006, we shall indemnify our directors against any liability.
We maintain directors and officers insurance to insure such persons against certain liabilities.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors,
officers or persons controlling us under the foregoing provisions, we have been advised that in the opinion of the
SEC, such indemnification is against public policy as expressed in the Securities Act and therefore is unenforceable.
C.
Board Practices.
Board Composition
Our business affairs are managed under the direction of our board of directors, which is currently composed
of eight members. As a foreign private issuer, we have elected to follow home country practices in lieu of NASDAQ
Global Market requirement that a majority of our board qualify as independent directors. Three of our directors
qualify as independent directors under Rule 5605(a)(2) of the NASDAQ Stock Market, Marketplace Rules.
Terms of Directors and Executive Officers
Our executive officers are selected by and serve at the discretion of our board of directors. A director may
be removed by an ordinary resolution passed by a majority of our shareholders.
Committees of the Board of Directors and Corporate Governance
We have established an Audit Committee, a Remuneration Committee and a Nominations Committee. Each
of these committees has the responsibilities described below. Our board of directors may also establish other
committees from time to time to assist in the discharge of its responsibilities.
Audit Committee
Our Audit Committee is comprised of our three non-executive directors, Mr. James Noble, Mr. Cabot
Brown and Mr. Thomas Lynch, and each of these members satisfies the independence requirements of Rule
5605(a)(2) of the NASDAQ Stock Market, Marketplace Rules and the independence requirements of Rule 10A-
3(b)(1) under the Exchange Act. Mr. Noble serves as chair of the Audit Committee. Our board of directors has
determined that Mr. Noble is a financial expert as contemplated by applicable SEC rules. Our Audit Committee
oversees the monitoring of our internal control over financial reporting, our accounting and financial reporting
processes and the audits of the financial statements of our company. Our Audit Committee is responsible for, among
other things:
selecting our independent auditors, approving their reappointment or removal and pre-approving
all auditing and non-auditing services permitted to be performed by our independent auditors;
reviewing all related‒party transactions on an ongoing basis;
discussing the annual audited financial statements with management and our independent auditors;
annually reviewing and reassessing the adequacy of our Audit Committee charter;
meeting separately and periodically with management and our independent auditors;
reporting regularly to our full board of directors; and
such other matters that are specifically delegated to our Audit Committee by our board of directors
from time to time.
116
Remuneration Committee
Our Remuneration Committee is comprised of our three non-executive directors, Mr. James Noble,
Mr. Cabot Brown and Mr. Thomas Lynch, and each of the members satisfies the independence requirements of Rule
5605(a)(2) of the NASDAQ Stock Market, Marketplace Rules and the independence requirements of Rule 10A-
3(b)(1) under the Exchange Act. Mr. Lynch serves as chair of this committee. Under NASDAQ Stock Market,
Marketplace Rules, there are heightened independence standards for members of the Remuneration Committee,
including a prohibition against the receipt of any compensation from us other than standard director compensation.
All of our compensation committee members meet this heightened standard.
Our Remuneration Committee assists our board of directors in reviewing and approving the compensation
structure of our directors and executive officers, including all forms of compensation to be provided to our directors
and executive officers. Members of the Remuneration Committee are prohibited from direct involvement in
determining their own compensation, including participation in meetings about their individual compensation. It is a
policy of the Remuneration Committee that no individual, including our chief executive officer and other executive
directors, participates in discussions or decisions concerning his own Remuneration and such persons may not be
present at any Remuneration Committee meeting during which their compensation is deliberated.
The Remuneration Committee is responsible for, among other things:
reviewing the compensation plans, policies and programs adopted by our management;
reviewing and approving the compensation package for our executive officers;
reviewing and approving corporate goals and objectives relevant to the compensation of our
executive directors, including, our chief executive officer, evaluating the performance of those
executive directors in light of those goals and objectives, and setting the compensation level of
those executive directors, including, our chief executive officer, based on this evaluation; and
reviewing periodically and making recommendations to the board of directors regarding any long-
term incentive compensation or equity plans, programs or similar arrangements, annual bonuses,
employee pension and welfare benefit plans.
Nominations Committee
As permitted for foreign private issuers, we have elected to follow our home country’s practice in lieu of
the NASDAQ Global Market requirement for U.S. listed companies to have a nominating committee comprised of
independent directors. The members of the Nominations Committee comprise Dr. Geoffrey Guy, Mr. James Noble
and Mr. Cabot Brown, with Mr. Noble and Mr. Brown being independent directors. Dr. Guy serves as Chair of the
Nominations Committee and oversees the evaluation of the board’s performance. Dr. Guy’s performance as
Chairman is reviewed by Mr. Noble, in his capacity as independent director, taking into account feedback from
other members of the board of directors. The Nominations Committee meets at least twice a year and reviews the
structure, size and composition of the board of directors, supervising the selection and appointment process of
directors, making recommendations to the board of directors with regard to any changes and using an external
search consultancy if considered appropriate. For new appointments, the Nominations Committee makes a final
recommendation to the board of directors, and the board has the opportunity to meet the candidate prior to approving
the appointment. Once appointed, the Nominations Committee oversees the induction of new directors and provides
the appropriate training to the board during the course of the year in order to ensure that each member has the
knowledge and skills necessary to operate effectively. The Nominations Committee is also responsible for annually
evaluating the performance of the board, both on an individual basis and for the board as a whole, taking into
account such factors as attendance record, contribution during board meetings and the amount of time that has been
dedicated to board matters during the course of the year.
Code of Business Conduct and Ethics
Our Code of Business Conduct and Ethics is applicable to all of our employees, officers and directors and
is available on our website at http://www.gwpharm.com. Our Code of Business Conduct and Ethics provides that
our directors and officers are expected to avoid any action, position or interest that conflicts with the interests of our
company or gives the appearance of a conflict. Our directors and officers have an obligation under our Code of
Business Conduct and Ethics to advance our company’s interests when the opportunity to do so arises. We expect
that any amendment to this code, or any waivers of its requirements, will be disclosed on our website. Information
contained on, or that can be accessed through, our website is not incorporated by reference into this document, and
you should not consider information on our website to be part of this document.
117
D.
Employees.
The number of employees by function and geographic location as of the end of the period for our fiscal
years ended September 30, 2015, 2014 and 2013 was as follows:
By Function:
Research and development
Manufacturing and operations
Quality control and assurance
Commercial
Management and administrative
Total
By Geography:
United Kingdom
North America
Rest of the World
Total
2015
2014
2013
207
56
51
7
48
369
342
27
-
369
165
44
29
-
27
265
263
2
-
265
108
43
23
-
20
194
194
-
-
194
We have never had a work stoppage and none of our employees are covered by collective bargaining
agreements or represented by a labor union. We believe our relationships with our employees around the world are
good.
E.
Share Ownership.
See Item 7, below.
Item 7 Major Shareholders and Related Party Transactions.
A.
Major Shareholders.
The following table and related footnotes set forth information with respect to the beneficial ownership of
our ordinary shares, as of September 30, 2015, by:
•
•
each of our directors and executive officers; and
each person known to us to own beneficially more than 5% of our ordinary shares as of September 30,
2015.
Beneficial ownership is determined in accordance with the rules and regulations of the SEC. In computing
the number of ordinary shares owned by a person and the percentage ownership of that person, we have included
shares that the person has the right to acquire within 60 days, including through the exercise of any option, warrant
or other right or the conversion of any other security. These ordinary shares, however, are not included in the
computation of the percentage ownership of any other person. Ownership of our ordinary shares by the “principal
shareholders” identified above has been determined by reference to our share register, which provides us with
information regarding the registered holders of our ordinary shares but generally provides limited, or no, information
regarding the ultimate beneficial owners of such ordinary shares. As a result, we may not be aware of each person or
group of affiliated persons who beneficially owns more than 5% of our ordinary shares.
Unless otherwise indicated, the address for each of the shareholders in the table below is c/o GW
Pharmaceuticals plc, Sovereign House, Vision Park, Chivers Way, Histon, Cambridge CB24 9BZ, United Kingdom.
118
Name of Beneficial Owner(1)
Greater than 5% Shareholders
Capital Research and Management Company (3)
Fidelity Management & Research Co. (4)
Prudential plc group of companies (5)
Oppenheimer (6)
Named Executive Officers and Directors
Dr. Geoffrey Guy (7)
Mr. Justin Gover (8)
Mr. Thomas Lynch
Mr. James Noble
Mr. Adam George (9)
Dr. Stephen Wright (10)
Mr. Julian Gangolli
Mr. Chris Tovey
Mr. Cabot Brown
All Named Executive Officers and Directors as a Group (9 persons)
Ordinary Shares Beneficially
Owned(2)
Number
Percent
36,573,289
25,970,808
24,188,479
14,400,000
15,813,507
2,513,759
56,344
27,500
226,726
559,303
-
2,500
-
14.0
9.9
9.3
5.5
5.5
*
*
*
*
*
*
*
*
*
*
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
Indicates beneficial ownership of less than one percent of our ordinary shares.
The business addresses for the listed beneficial owners are as follows: Prudential plc group of
companies—Laurence Pountney Hill, London, EC4R 0HH, VHCP Management LLC—3340 Hillview
Avenue, Palo Alto, CA 94304.
Number of shares owned as shown both in this table and the accompanying footnotes and percentage
ownership is based on 261,180,173 ordinary shares outstanding on September 30, 2015.
Capital Research and Management Company, or CRMC, a U.S.–based investment management company,
holds these shares in the form of ADSs. The Capital Group Companies, Inc. is the parent company of
CRMC. The business address for CRMC is 333 South Hope Street, Los Angeles, CA 90071.
Fidelity Management & Research Co., or FMRC, a U.S.-based investment management company, holds
these shares in the form of ADSs.
Includes (i) 24,188,479 ordinary shares indirectly held by Prudential plc, (ii) 24,188,479 ordinary shares
indirectly held by M&G Group Limited, a wholly owned subsidiary of Prudential plc, (iii) 24,188,479
ordinary shares indirectly held by M&G Limited, a wholly owned subsidiary of M&G Group Limited,
(iv) 24,188,479 ordinary shares indirectly held by M&G Investment Management Limited, a wholly
owned subsidiary of M&G Limited and (v) 24,188,479 ordinary shares held of record by M&G Securities
Limited, a wholly owned subsidiary of M&G Limited.
Oppenheimer Funds, Inc, or Oppenheimer, a U.S.-based investment management company, holds these
shares in the form of ADSs.
Includes 25,000 ordinary shares beneficially owned by Dr. Guy’s immediate family, 1,174,958 shares held
by his personal pension plan and options to purchase 1,369,859 ordinary shares that have vested.
Includes 2,143,314 ordinary shares beneficially owned by The Gover Family Investment LLP, of which
Mr. Gover owns 99% and the remaining 1% is held by his spouse.
(9)
(10)
Includes 21,696 shares held by his personal pension plan and options to purchase 2,057,030 ordinary
shares that have vested.
Includes 5,000 ordinary shares beneficially owned by Dr. Wright’s spouse and options to purchase
553,388 ordinary shares that have vested.
Our major shareholders do not have different voting rights. We are not aware of any arrangement that may,
at a subsequent date, result in a change of control of our company.
Citibank, N.A. is the holder of record for our ADS program, whereby each ADS represents twelve ordinary
shares. As of September 30, 2015, Citibank, N.A. held 181,690,092 ordinary shares representing 70% of our issued
share capital held at that date. As of September 30, 2015, we had a further 473,517 ordinary shares held by 11 U.S.
resident shareholders of record, representing less than one percent of total voting power. Certain of these ordinary
shares and ADSs were held by brokers or other nominees. As a result, the number of holders of record or registered
holders in the U.S. is not representative of the number of beneficial holders or of the residence of beneficial holders.
119
To our knowledge, there has been no significant change in the percentage ownership held by the principal
shareholders listed above since September 30, 2015.
B.
Related Party Transactions.
During the three year period ended September 30, 2015, there has not been, nor is there currently proposed,
any material transaction or series of similar material transactions to which we were or are a party in which any of
our directors, members of our executive management board, associates, holders of more than 10% of any class of
our voting securities, or any affiliates or member of the immediate families of any of the foregoing persons, had or
will have a direct or indirect material interest, other than the compensation and shareholding arrangements we
describe where required in the section of this Annual Report titled “Management.”
We have adopted a related person transaction policy which sets forth our procedures for the identification,
review, consideration and approval or ratification of related person transactions. For purposes of our policy only, a
related person transaction is a transaction, arrangement or relationship, or any series of similar transactions,
arrangements or relationships, in which we and any related person are, were or will be participants. Transactions
involving compensation for services provided to us as an employee or director are not covered by this policy. A
related person is any employee, director or beneficial owner of more than 3% of any class of our voting securities,
including any of their immediate family members and any entity owned or controlled by such persons.
Under the policy, if a transaction has been identified as a related person transaction, including any
transaction that was not a related person transaction when originally consummated or any transaction that was not
initially identified as a related person transaction prior to consummation, our management must present information
regarding the related person transaction to our Audit Committee, or, if Audit Committee approval would be
inappropriate, to another independent body of our board of directors, for review, consideration and approval or
ratification. The presentation must include a description of, among other things, the material facts, the interests,
direct and indirect, of the related persons, the benefits to us of the transaction and whether the transaction is on terms
that are comparable to the terms available to or from, as the case may be, an unrelated third-party or to or from
employees generally. Under the policy, we will collect information that we deem reasonably necessary from each
director, executive officer and, to the extent feasible, significant shareholder to enable us to identify any existing or
potential related person transactions and to effectuate the terms of the policy. In addition, under our Code of
Business Conduct and Ethics, our employees and directors have an affirmative responsibility to disclose any
transaction or relationship that reasonably could be expected to give rise to a conflict of interest.
C.
Interests of Experts and Counsel.
Not Applicable.
Item 8 Financial Information.
A.
Consolidated Statements and Other Financial Information.
See “Item 18. Financial Statements.”
B.
Significant Changes.
There have been no significant changes since September 30, 2015.
120
Item 9 The Offer and Listing.
A.
Offer and Listing Details.
Price History of Stock
The following table sets forth, for the periods indicated, the reported high and low closing sale prices of our
ordinary shares on the AIM in pounds sterling and U.S. dollars. U.S. dollar per ordinary share amounts have been
translated into U.S. dollars at $1.00 = £0.6616 based on the certified foreign exchange rates published by Federal
Reserve Bank of New York on September 30, 2015.
Annual (Year Ended September 30):
2011
2012
2013
2014
2015
Quarterly:
First Quarter 2014
Second Quarter 2014
Third Quarter 2014
Fourth Quarter 2014
First Quarter 2015
Second Quarter 2015
Third Quarter 2015
Fourth Quarter 2015
First Quarter 2016 (through December 4, 2015)
Most Recent Six Months:
June 2015
July 2015
August 2015
September 2015
October 2015
November 2015
December 2015 (through December 4, 2015)
Price Per Ordinary Share Price Per Ordinary Share
High
Low
High
Low
£
£
£
£
£
£
£
£
£
£
£
£
£
£
£
£
£
£
£
£
£
1.33 £
1.03 £
0.90 £
5.24 £
6.96 £
1.99 £
4.11 £
5.10 £
5.24 £
4.30 £
5.60 £
6.96 £
6.93 £
5.05 £
6.96 £
6.93 £
6.12 £
6.18 £
5.05 £
4.78 £
5.05 £
0.83 $
0.66 $
0.40 $
0.85 $
3.20 $
0.85 $
1.90 $
2.19 $
4.00 $
3.21 $
3.69 $
5.06 $
4.90 $
4.23 $
6.27 $
6.02 $
5.36 $
4.90 $
4.23 $
4.40 $
4.55 $
2.01 $
1.56 $
1.36 $
7.92 $
10.52 $
3.01 $
6.21 $
7.71 $
7.92 $
6.50 $
8.46 $
10.52 $
10.47 $
7.63 $
10.52 $
10.47 $
9.25 $
9.34 $
7.63 $
7.22 $
7.63 $
1.25
1.00
0.60
1.28
4.84
1.28
2.87
3.31
6.05
4.85
5.58
7.65
7.41
6.39
9.48
9.10
8.10
7.41
6.39
6.65
6.88
On September 30, 2015, and December 4, 2015, the last reported sale prices of our ordinary shares on AIM
were £4.99 per share ($7.54 per share) and £4.55 per share ($6.88 per share), respectively.
The following table sets forth, for the periods indicated, the reported high and low closing sale prices of our
ADSs on the NASDAQ Global Market in U.S. dollars.
Annual (Year Ended September 30):
2013 (May 1, 2013 through September 30, 2013)
2014
2015
Quarterly:
First Quarter 2014
Price Per ADS
High
Low
$
$
$
$
17.75 $
107.35 $
129.90 $
8.51
17.01
61.55
42.00 $
17.01
Second Quarter 2014
Third Quarter 2014
Fourth Quarter 2014
First Quarter 2015
Second Quarter 2015
Third Quarter 2015
Fourth Quarter 2015
First Quarter 2016 (through December 4, 2015)
Most Recent Six Months:
June 2015
July 2015
August 2015
September 2015
October 2015
November 2015
December 2015 (through December 4, 2015)
121
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
83.05 $
107.29 $
107.35 $
82.50 $
100.48 $
129.90 $
12.95 $
92.91 $
129.90 $
128.95 $
114.90 $
114.93 $
92.21 $
87.72 $
90.96 $
37.98
44.00
80.70
61.55
69.61
90.53
88.84
77.18
115.58
112.02
100.15
88.84
77.18
80.68
83.59
On September 30, 2015, and December 4, 2015, the last reported sale prices of our ADSs on the NASDAQ
Global Market were $91.28 per ADS and $83.59 per ADS, respectively.
B.
Plan of Distribution.
Not Applicable.
C.
Markets.
181,690,092 of our ordinary shares underlie ADSs listed on the NASDAQ Global Market under the symbol
“GWPH.” The depositary for the ADSs holds twelve ordinary shares for every ADS. 79,490,081 of our ordinary
shares are admitted to trading on the AIM outside the ADS facility. Our ordinary shares have been trading on the
AIM under the symbol “GWP” since June 28, 2001.
D.
Selling Shareholders.
Not Applicable.
E.
Dilution.
Not Applicable.
F.
Expenses of the Issue.
Not Applicable.
Item 10
Additional Information.
A.
Share Capital.
Not Applicable.
B.
Memorandum and Articles of Association.
The information called for by this item has been reported previously in our Registration Statement on
form F-3 (File No. 333-195747), filed with the SEC May 7, 2014 under the heading “Description of Share Capital”
and is incorporated by reference into this Annual Report.
C.
Material Contracts.
Except as otherwise disclosed in this Annual Report (including the exhibits thereto), we are not currently,
and have not been in the last two years, party to any material contract, other than contracts entered into in the
ordinary course of our business.
122
D.
Exchange Controls.
There are no governmental laws, decrees, regulations or other legislation in the United Kingdom that may
affect the import or export of capital, including the availability of cash and cash equivalents for use by us, or that
may affect the remittance of dividends, interest, or other payments by us to non-resident holders of our ordinary
shares or ADSs, other than withholding tax requirements. There is no limitation imposed by English law or our
articles of association on the right of non-residents to hold or vote shares.
E.
Taxation
U.S. Federal Income Taxation
The following discussion describes the material U.S. federal income tax consequences to U.S. Holders (as
defined below) under present law of the purchase, ownership and disposition of the ADSs. This discussion is based
on the U.S. Internal Revenue Code of 1986, as amended, in effect as of the date of this Annual Report on Form 20-F
and on U.S. Treasury regulations in effect or, in some cases, proposed, as of the date of this Annual Report on Form
20-F, as well as judicial and administrative interpretations thereof available on or before such date. All of the
foregoing authorities are subject to change, which change could apply retroactively and could affect the tax
consequences described below.
This discussion applies only to U.S. Holders that hold the ADSs as capital assets for U.S. federal income
tax purposes. It does not purport to be a comprehensive description of all tax considerations that may be relevant to a
decision to purchase the ADSs by any particular investor. In particular, this discussion does not address tax
considerations applicable to a U.S. Holder that may be subject to special tax rules, including, without limitation, a
dealer in securities or currencies, a trader in securities that elects to use a mark-to-market method of accounting for
securities holdings, banks, thrifts, or other financial institutions, an insurance company, a tax-exempt organization, a
person that holds the ADSs as part of a hedge, straddle or conversion transaction for tax purposes, a person whose
functional currency for tax purposes is not the U.S. dollar, certain former citizens or residents of the United States, a
person subject to the U.S. alternative minimum tax, or a person that owns or is deemed to own 10% or more of the
company’s voting stock. In addition, the discussion does not address tax consequences to an entity treated as a
partnership for U.S. federal income tax purposes that holds the ADSs, or a partner in such partnership. The U.S.
federal income tax treatment of each partner of such partnership generally will depend upon the status of the partner
and the activities of the partnership. Prospective purchasers that are partners in a partnership holding the ADSs
should consult their own tax advisers.
YOU ARE URGED TO CONSULT YOUR TAX ADVISORS ABOUT THE APPLICATION OF
THE U.S. FEDERAL INCOME TAX RULES TO YOUR PARTICULAR CIRCUMSTANCES AS WELL AS
THE STATE, LOCAL, NON-U.S. AND OTHER TAX CONSEQUENCES OF THE PURCHASE,
OWNERSHIP AND DISPOSITION OF THE ADSs.
The discussion below of the U.S. federal income tax consequences to “U.S. Holders” will apply to you if
you are a beneficial owner of ADSs and you are, for U.S. federal income tax purposes,
•
•
•
•
an individual who is a citizen or resident of the United States;
a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) organized
under the laws of the United States, any state therein or the District of Columbia;
an estate whose income is subject to U.S. federal income taxation regardless of its source; or
a trust that (i) is subject to the primary supervision of a court within the United States and subject to the
control of one or more U.S. persons for all substantial decisions or (ii) has a valid election in effect under
applicable U.S. Treasury regulations to be treated as a U.S. person.
If you hold ADSs, you should be treated as the holder of the underlying ordinary shares represented by
those ADSs for U.S. federal income tax purposes.
123
Taxation of Dividends and Other Distributions on the ADSs
Subject to the PFIC rules discussed below, the gross amount of cash distributions made by us to you with
respect to the ADSs will generally be includable in your gross income as dividend income on the date of receipt by
the depositary bank, but only to the extent that the distribution is paid out of our current or accumulated earnings and
profits (as determined under U.S. federal income tax principles). To the extent, if any, that the amount of the
distribution exceeds our current and accumulated earnings and profits, it will be treated first as a tax-free return of
your tax basis in your ADSs, and to the extent the amount of the distribution exceeds your tax basis, the excess will
be taxed as capital gain. We do not intend to calculate our earnings and profits under U.S. federal income tax
principles. Therefore, a U.S. Holder should expect that a distribution will generally be treated as a dividend even if
that distribution would otherwise be treated as a non-taxable return of capital or as capital gain under the rules
described above. U.S. Holders should consult their own tax advisors regarding the tax consequences to them if we
pay dividends in any non-U.S. currency. A dividend in respect of the ADSs will not be eligible for the dividends-
received deduction allowed to corporations in respect of dividends received from other U.S. corporations.
With respect to non-corporate U.S. Holders, including individual U.S. Holders, dividends will generally be
taxed at the preferential rate applicable to qualified dividend income, provided that (i) the ADSs are readily tradable
on an established securities market in the United States, or we are eligible for the benefits of an approved qualifying
income tax treaty with the United States that includes an exchange of information program, (ii) we are not a PFIC
(as discussed below) for either our taxable year in which the dividend is paid or the preceding taxable year, (iii)
certain holding period requirements are met and (iv) you are not under any obligation to make related payments with
respect to positions in substantially similar or related property. You should consult your tax advisors regarding the
availability of the preferential rate for dividends paid with respect to the ADSs.
Dividends generally will constitute income from sources outside the United States for U.S. foreign tax
credit purposes. However, if 50% or more of our stock is treated as held by U.S. persons, we will be treated as a
“U.S.-owned foreign corporation.” In that case, dividends may be treated for U.S. foreign tax credit purposes as
income from sources outside the United States to the extent paid out of our non-U.S. source earnings and profits,
and as income from sources within the United States to the extent paid out of our U.S. source earnings and profits.
We cannot assure you that we will not be treated as a U.S.-owned foreign corporation. If the dividends are taxed as
qualified dividend income (as discussed above), the amount of the dividend taken into account for purposes of
calculating the U.S. foreign tax credit limitation will generally be limited to the gross amount of the dividend,
multiplied by the preferential rate divided by the highest rate of tax normally applicable to dividends. The limitation
on foreign taxes eligible for credit is calculated separately with respect to specific classes of income. For this
purpose, dividends distributed by us with respect to the ADSs will generally constitute “passive category income.”
Taxation of Dispositions of ADSs
Subject to the PFIC rules discussed below, you will recognize taxable gain or loss on any sale, exchange or
other taxable disposition of an ADS equal to the difference between the amount realized (in U.S. dollars) for the
ADS and your tax basis (in U.S. dollars) in the ADS. The gain or loss will generally be capital gain or loss. If you
are a non-corporate U.S. Holder, including an individual U.S. Holder, who has held the ADS for more than one year,
you may be eligible for preferential tax rates. The deductibility of capital losses is subject to limitations. Any such
gain or loss that you recognize will generally be treated as U.S. source income or loss for U.S. foreign tax credit
purposes.
Medicare Tax
Certain U.S. Holders that are individuals, estates or trusts and whose income exceeds certain thresholds
will be subject to an additional 3.8% Medicare tax on some or all of such U.S. Holder’s “net investment income.”
Net investment income generally includes income from the ADSs unless such income is derived in the ordinary
course of the conduct of a trade or business (other than a trade or business that consists of certain passive or trading
activities). You should consult your tax advisors regarding the effect this Medicare tax may have, if any, on your
acquisition, ownership or disposition of the ADSs.
124
Disposition of Foreign Currency
U.S. Holders are urged to consult their tax advisors regarding the tax consequences of receiving, converting
or disposing of any non-U.S. currency received as dividends on the ADSs or on the sale or retirement of an ADS.
Passive Foreign Investment Company
Special U.S. tax rules apply to companies that are considered to be PFICs. We will be classified as a PFIC
in a particular taxable year if either (i) 75% or more of our gross income for the taxable year is passive income; or
(ii) on average at least 50% of the value of our assets produce passive income or are held for the production of
passive income. Passive income for this purpose generally includes, among other things, certain dividends, interest,
royalties, rents and gains from commodities and securities transactions and from the sale or exchange of property
that gives rise to passive income. In making this determination, we will be treated as earning our proportionate share
of any income and owning our proportionate share of any assets of any corporation in which we hold a 25% or
greater interest (by value).
Based on our estimated gross income, the average value of our assets, including goodwill, and the nature of
our active business, we do not believe that we were classified as a PFIC for U.S. federal income tax purposes for our
taxable year ended September 30, 2015. Our status for any taxable year will depend on our assets and activities in
each year, and because this is a factual determination made annually after the end of each taxable year, there can be
no assurance that we will not be considered a PFIC for any future taxable year. The market value of our assets may
be determined in large part by reference to the market price of the ADSs and our ordinary shares, which is likely to
fluctuate (and may fluctuate considerably given that market prices of life sciences companies can be especially
volatile). Furthermore, because the value of our gross assets is likely to be determined in large part by reference to
our market capitalization and the value of our goodwill, a decline in the value of our shares could affect the
determination of whether we are a PFIC. We do not intend to make a determination of our or any of our future
subsidiaries’ PFIC status in the future.
A U.S. Holder may be able to mitigate some of the adverse U.S. federal income tax consequences described
below with respect to owning the ADSs if we are classified as a PFIC for any taxable year, provided that such U.S.
Holder is eligible to make, and validly makes a mark-to-market election, described below. In certain circumstances a
U.S. Holder can make a qualified electing fund election, or QEF election, to mitigate some of the adverse tax
consequences described with respect to an ownership interest in a PFIC by including in income its share of the
PFIC’s income on a current basis. However, we do not currently intend to prepare or provide the information that
would enable a U.S. Holder to make a qualified electing fund election.
In the event we are classified as a PFIC, in any year in which you hold the ADSs, and you do not make the
election described in the following paragraphs, any gain recognized by you on a sale or other disposition (including
a pledge) of the ADSs would be allocated ratably over your holding period for the ADSs. The amounts allocated to
the taxable year of the sale or other disposition and to any year before we became a PFIC would be taxed as ordinary
income. The amount allocated to each other taxable year would be subject to tax at the highest rate in effect for
individuals or corporations, as appropriate, for that taxable year, and an interest charge would be imposed. Further,
to the extent that any distribution received by you on your ADSs were to exceed 125% of the average of the annual
distributions on the ADSs received during the preceding three years or your holding period, whichever is shorter,
that distribution would be subject to taxation in the same manner as gain on the sale or other disposition of shares,
described above. Classification as a PFIC may also have other adverse tax consequences, including, in the case of
individuals, the denial of a step-up in the basis of your ADSs at death.
125
If we are a PFIC for any taxable year during which you holds the ADSs, then in lieu of being subject to the
special tax regime and interest charge rules discussed above, you may make an election to include gain on the ADSs
as ordinary income under a mark-to-market method, provided that such the ADSs are treated as “regularly traded”
on a “qualified exchange.” In general, the ADSs will be treated as “regularly traded” for a given calendar year if
more than a de minimis quantity of the ADSs are traded on a qualified exchange on at least 15 days during each
calendar quarter of such calendar year. Although the U.S. Internal Revenue Service (“IRS”) has not published any
authority identifying specific exchanges that may constitute “qualified exchanges,” Treasury Regulations provide
that a qualified exchange is (a) a U.S. securities exchange that is registered with the Securities and Exchange
Commission, (b) the U.S. market system established pursuant to section 11A of the Securities and Exchange Act of
1934, or (c) a non-U.S. securities exchange that is regulated or supervised by a governmental authority of the
country in which the market is located, provided that (i) such non-U.S. exchange has trading volume, listing,
financial disclosure, surveillance and other requirements designed to prevent fraudulent and manipulative acts and
practices, to remove impediments to and perfect the mechanism of a free and open, fair and orderly, market, and to
protect investors; and the laws of the country in which such non-U.S. exchange is located and the rules of such non-
U.S. exchange ensure that such requirements are actually enforced and (ii) the rules of such non-U.S. exchange
effectively promote active trading of listed shares. No assurance can be given that the ADSs will meet the
requirements to be treated as “regularly traded” for purposes of the mark-to-market election. In addition, because a
mark-to-market election cannot be made for any lower-tier PFICs that we may own, you may continue to be subject
to the special tax regime with respect to your indirect interest in any investments held by us that are treated as an
equity interest in a PFIC for U.S. federal income tax purposes, including shares in any future subsidiary of ours that
is treated as a PFIC.
If you make this mark-to-market election, you will be required in any year in which we are a PFIC to
include as ordinary income the excess of the fair market value of your ADSs at year-end over your basis in those
ADSs. In addition, the excess, if any, of your basis in the ADSs over the fair market value of your ADSs at year-end
is deductible as an ordinary loss in an amount equal to the lesser of (i) the amount of the excess or (ii) the amount of
the net mark-to-market gains that have been included in income in prior years. Any gain recognized upon the sale of
the ADSs will be taxed as ordinary income in the year of sale. Amounts treated as ordinary income will not be
eligible for the preferential tax rate applicable to qualified dividend income or long-term capital gains. Your adjusted
tax basis in the ADSs will be increased by the amount of any income inclusion and decreased by the amount of any
deductions under the mark-to-market rules. If you make a mark-to market election, it will be effective for the taxable
year for which the election is made and all subsequent taxable years unless the ADSs are no longer regularly traded
on a qualified exchange or the IRS consents to the revocation of the election.
The U.S. federal income tax rules relating to PFICs are complex. You are urged to consult your tax
advisors with respect to the purchase, ownership and disposition of the ADSs, any elections available with respect to
such ADSs and the U.S. Internal Revenue Service information reporting obligations with respect to the purchase,
ownership and disposition of the ADSs.
Information Reporting and Backup Withholding
Distributions with respect to ADSs and proceeds from the sale, exchange or disposition of ADSs may be
subject to information reporting to the U.S. Internal Revenue Service and possible U.S. backup withholding. Backup
withholding will not apply, however, to a U.S. Holder who furnishes a correct taxpayer identification number and
makes any other required certification or who is otherwise exempt from backup withholding. U.S. Holders who are
required to establish their exempt status generally must provide such certification on U.S. Internal Revenue Service
Form W-9. U.S. Holders should consult their tax advisors regarding the application of the U.S. information reporting
and backup withholding rules.
Backup withholding is not an additional tax. Amounts withheld as backup withholding may be credited
against your U.S. federal income tax liability, and you may obtain a refund of any excess amounts withheld under
the backup withholding rules by filing the appropriate claim for refund with the U.S. Internal Revenue Service and
furnishing any required information. If a U.S. Holder owns ADS during any year in which we are a PFIC, such U.S.
Holder (including, potentially, indirect holders) generally must file a U.S. Internal Revenue Service Form 8621 with
such holder’s federal income tax return for that year.
126
Specified Foreign Financial Assets
Tax reporting obligations are imposed on certain U.S. persons that own “specified foreign financial assets,”
including securities issued by any foreign person, either directly or indirectly or through certain foreign financial
institutions, if the aggregate value of all of those assets exceeds $50,000 on the last day of the taxable year or
$75,000 at any time during the taxable year. This reporting requirement applies to individuals and, if specified by
the U.S. Internal Revenue Service, domestic entities formed or availed of for the purpose of holding, directly or
indirectly, specified foreign financial assets. The ADSs may be treated as specified foreign financial assets, and
investors may be subject to this information reporting regime. Significant penalties and an extended statute of
limitations may apply to a U.S. Holder subject to this reporting requirement that fails to file information reports.
Each prospective investor that is a U.S. person should consult its own tax advisor regarding this information
reporting obligation.
United Kingdom Tax Considerations
The following is a general summary of certain U.K. tax considerations relating to the ownership and
disposal of the ordinary shares or the ADSs and does not address all possible tax consequences relating to an
investment in the ordinary shares or the ADSs. It is based on current U.K. tax law and published HM Revenue &
Customs, (or “HMRC”), practice as at the date of this Annual Report on Form 20-F, both of which are subject to
change, possibly with retrospective effect.
Save as provided otherwise, this summary applies only to persons who are resident (and, in the case of
individuals, domiciled) in the United Kingdom for tax purposes and who are not resident for tax purposes in any
other jurisdiction and do not have a permanent establishment or fixed base in any other jurisdiction with which the
holding of the ordinary shares or ADSs is connected (“U.K. Holders”). Persons (a) who are not resident (or, if
resident are not domiciled) in the United Kingdom for tax purposes, including those individuals and companies who
trade in the United Kingdom through a branch, agency or permanent establishment in the United Kingdom to which
the ordinary shares or the ADSs are attributable, or (b) who are resident or otherwise subject to tax in a jurisdiction
outside the United Kingdom, are recommended to seek the advice of professional advisors in relation to their
taxation obligations.
This summary is for general information only and is not intended to be, nor should it be considered to be,
legal or tax advice to any particular investor. It does not address all of the tax considerations that may be relevant to
specific investors in light of their particular circumstances or to investors subject to special treatment under U.K. tax
law. In particular:
•
•
this summary only applies to the absolute beneficial owners of the ordinary shares or the ADSs and
any dividends paid in respect of the ordinary shares where the dividends are regarded for U.K. tax
purposes as that person’s own income (and not the income of some other person);
this summary: (a) only addresses the principal U.K. tax consequences for investors who hold the
ordinary shares or ADSs as capital assets/investments, (b) does not address the tax consequences that
may be relevant to certain special classes of investor such as dealers, brokers or traders in shares or
securities and other persons who hold the ordinary shares or ADSs otherwise than as an investment, (c)
does not address the tax consequences for holders that are financial institutions, insurance companies,
collective investment schemes, pension schemes, charities or tax-exempt organizations, (d) assumes
that the holder is not an officer or employee of the company (or of any related company) and has not
(and is not deemed to have) acquired the ordinary shares or ADSs by virtue of an office or
employment, and (e) assumes that the holder does not control or hold (and is not deemed to control or
hold), either alone or together with one or more associated or connected persons, directly or indirectly
(including through the holding of the ADSs), an interest of 10% or more in the issued share capital (or
in any class thereof), voting power, rights to profits or capital of the company, and is not otherwise
connected with the company.
This summary further assumes that a holder of ADSs is the beneficial owner of the underlying ordinary
shares for U.K. tax purposes.
POTENTIAL INVESTORS IN THE ADSs SHOULD SATISFY THEMSELVES PRIOR TO INVESTING
AS TO THE OVERALL TAX CONSEQUENCES, INCLUDING, SPECIFICALLY, THE CONSEQUENCES
UNDER U.K. TAX LAW AND HMRC PRACTICE OF THE ACQUISITION, OWNERSHIP AND DISPOSAL
OF THE ORDINARY SHARES OR ADSs, IN THEIR OWN PARTICULAR CIRCUMSTANCES BY
CONSULTING THEIR OWN TAX ADVISERS.
127
Taxation of dividends
Withholding Tax
Dividend payments in respect of the ordinary shares or ADSs may be made without withholding or
deduction for or on account of U.K. tax.
Income Tax
Dividends received by individual U.K. Holders will be subject to U.K. income tax on the gross amount of
the dividend paid (including the amount of the non-refundable U.K. dividend tax credit referred to below).
An individual holder of ordinary shares or ADSs who is not a U.K. Holder will not be chargeable to U.K.
income tax on dividends paid by the company, unless such holder carries on (whether solely or in partnership) a
trade, profession or vocation in the United Kingdom through a branch or agency in the United Kingdom to which
the ordinary shares or ADSs are attributable. In these circumstances, such holder may, depending on his or her
individual circumstances, be chargeable to U.K. income tax on dividends received from the company.
The rate of U.K. income tax that is chargeable on dividends received in the tax year 2015/2016 by (i)
additional rate taxpayers is 37.5%, (ii) higher rate taxpayers is 32.5%, and (iii) basic rate taxpayers is 10%.
Individual U.K. Holders will be entitled to a non-refundable tax credit equal to one-ninth of the full amount of the
dividend received from the company, which will be taken into account in computing the gross amount of the
dividend that is chargeable to U.K. income tax. The tax credit will be credited against such holder’s liability (if any)
to U.K. income tax on the gross amount of the dividend. After taking into account the tax credit, the effective rate of
tax for the 2015/2016 tax year (i) for additional rate taxpayers will be 30.6% of the dividend paid, (ii) for higher rate
taxpayers will be 25% of the dividend paid, and (iii) for basic rate taxpayers will be nil. An individual holder who is
not subject to U.K. income tax on dividends received from the company or whose liability to U.K. income tax in
respect of gross dividends received is less than the tax credit will not generally be entitled to claim repayment of the
tax credit in respect of such dividends. An individual’s dividend income is treated as the top slice of their total
income that is chargeable to U.K. income tax.
Individual U.K. Holders should note that the U.K. government announced in the July 2015 budget that it
intends to introduce legislation in Finance Bill 2016 to abolish the dividend tax credit system for individuals and to
replace it with a new tax-free dividend allowance of £5,000, with effect from April 2016. Furthermore, dividend
income in excess of this allowance would be taxed at a rate of 7.5% for basic rate taxpayers, 32.5% for higher rate
taxpayers and 38.1% for additional rate taxpayers.
Corporation Tax
A U.K. Holder within the charge to U.K. corporation tax may be entitled to exemption from U.K.
corporation tax in respect of dividend payments. If the conditions for the exemption are not satisfied, or such U.K.
Holder elects for an otherwise exempt dividend to be taxable, U.K. corporation tax will be chargeable on the gross
amount of any dividends. If potential investors are in any doubt as to their position, they should consult their own
professional advisers.
A corporate holder of ordinary shares or ADSs that is not a U.K. Holder will not be subject to U.K.
corporation tax on dividends received from the company, unless it carries on a trade in the United Kingdom through
a permanent establishment to which the ordinary shares or ADSs are attributable. In these circumstances, such
holder may, depending on its individual circumstances and if the exemption from U.K. corporation tax discussed
above does not apply, be chargeable to U.K. corporation tax on dividends received from the company.
128
Taxation of disposals
U.K. Holders
A disposal or deemed disposal of ordinary shares or ADSs by an individual U.K. Holder may, depending
on his or her individual circumstances, give rise to a chargeable gain or to an allowable loss for the purpose of U.K.
capital gains tax. The principal factors that will determine the capital gains tax position on a disposal of ordinary
shares or ADSs are the extent to which the holder realizes any other capital gains in the tax year in which the
disposal is made, the extent to which the holder has incurred capital losses in that or any earlier tax year and the
level of the annual allowance of tax-free gains in that tax year (the “annual exemption”). The annual exemption for
the 2015/2016 tax year is £11,100. If, after all allowable deductions, an individual U.K. Holder’s total taxable
income for the year exceeds the basic rate income tax limit, a taxable capital gain accruing on a disposal of ordinary
shares or ADSs will be taxed at 28%. In other cases, a taxable capital gain accruing on a disposal of ordinary shares
or ADSs may be taxed at 18% or 28% or at a combination of both rates.
A disposal of ordinary shares or ADSs by a corporate U.K. Holder may give rise to a chargeable gain or an
allowable loss for the purpose of U.K. corporation tax. Such a holder should be entitled to an indexation allowance,
which applies to reduce capital gains to the extent that such gains arise due to inflation. The allowance may reduce a
chargeable gain but will not create or increase an allowable loss.
Any gains or losses in respect of currency fluctuations over the period of holding the ADSs would also be
brought into account on the disposal.
Non-U.K. Holders
An individual holder who is not a U.K. Holder will not be liable to U.K. capital gains tax on capital gains
realized on the disposal of his or her ordinary shares or ADSs unless such holder carries on (whether solely or in
partnership) a trade, profession or vocation in the United Kingdom through a branch or agency in the United
Kingdom to which the ordinary shares or ADSs are attributable. In these circumstances, such holder may, depending
on his or her individual circumstances, be chargeable to U.K. capital gains tax on chargeable gains arising from a
disposal of his or her ordinary shares or ADSs.
A corporate holder of ordinary shares or ADSs that is not a U.K. Holder will not be liable for U.K.
corporation tax on chargeable gains realized on the disposal of its ordinary shares or ADSs unless it carries on a
trade in the United Kingdom through a permanent establishment to which the ordinary shares or ADSs are
attributable. In these circumstances, a disposal of ordinary shares or ADSs by such holder may give rise to a
chargeable gain or an allowable loss for the purposes of U.K. corporation tax.
Inheritance Tax
If for the purposes of the Taxes on Estates of Deceased Persons and on Gifts Treaty 1978 between the
United States and the United Kingdom an individual holder is domiciled in the United States and is not a national of
the United Kingdom, any ordinary shares or ADSs beneficially owned by that holder will not generally be subject to
U.K. inheritance tax on that holder’s death or on a gift made by that holder during his/her lifetime, provided that any
applicable United States federal gift or estate tax liability is paid, except where (i) the ordinary shares or ADSs are
part of the business property of a U.K. permanent establishment or pertain to a U.K. fixed base used for the
performance of independent personal services; or (ii) the ordinary shares or ADSs are comprised in a settlement
unless, at the time the settlement was made, the settlor was domiciled in the United States and not a national of the
U.K. (in which case no charge to U.K. inheritance tax should apply).
Stamp Duty and Stamp Duty Reserve Tax
Issue and transfer of ordinary shares
The Finance Act 2014 introduced provisions that exempt securities admitted to trading on a “recognized
growth market” (currently including AIM) from U.K. stamp duty and stamp duty reserve tax (“SDRT”) with effect
from April 28, 2014, provided that those securities are not “listed” on any market. As such, the issue of the ordinary
shares and the transfer of the ordinary shares for value should not give rise to either U.K. stamp duty or SDRT.
129
Transfer of ADSs
Based on current HMRC published practice, no U.K. stamp duty should be payable on a written instrument
transferring an ADS or on a written agreement to transfer an ADS.
No SDRT will be payable in respect of an agreement to transfer an ADS.
F.
Dividends and Paying Agents.
Not Applicable.
G.
Statement by Experts.
Not Applicable.
H.
Documents on Display.
We are subject to the informational requirements of the Exchange Act. Accordingly, we are required to file
reports and other information with the SEC, including annual reports on Form 20-F and reports on Form 6-K. You
may inspect and copy reports and other information filed with the SEC at the Public Reference Room at 100 F
Street, N.E., Washington, D.C. 20549. Information on the operation of the Public Reference Room may be obtained
by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an Internet website that contains reports and
other information about issuers, like us, that file electronically with the SEC. The address of that website is
www.sec.gov.
We also make available on our website, free of charge, our Annual Report and the text of our reports on
Form 6-K, including any amendments to these reports, as well as certain other SEC filings, as soon as reasonably
practicable after they are electronically filed with or furnished to the SEC. Our website address is
“www.gwpharm.com.” The information contained on our website is not incorporated by reference in this Annual
Report.
I.
Subsidiary Information
Not Applicable.
Item 11
Quantitative and Qualitative Disclosures About Market Risk.
Market risk arises from our exposure to fluctuation in interest rates and currency exchange rates. These
risks are managed by maintaining an appropriate mix of cash deposits in various currencies, placed with a variety of
financial institutions for varying periods according to expected liquidity requirements.
Interest Rate Risk
We are exposed to interest rate risk as we place surplus cash funds on deposit to earn interest income. We
seek to ensure that we consistently earn commercially competitive interest rates by using the services of an
independent broker to identify and secure the best commercially available interest rates from those banks that meet
our stringent counterparty credit rating criteria. In doing so, we manage the term of cash deposits, up to 365 days, in
order to maximize interest earnings while also ensuring that we maintain sufficient readily available cash in order to
meet short-term liquidity needs.
At September 30, 2015, our cash and cash equivalents consisted of very short-term cash deposits with
maturities of less than 90 days, in order to maximize the liquidity of our funds during a period of economic
uncertainty and increased concern about counterparty credit risk.
We do not have any balance sheet exposure to assets or liabilities that would increase or decrease in fair
value with changes to interest rates.
130
Currency Risk
Our functional currency is pounds sterling and the majority of our transactions are denominated in that
currency. However, we receive revenue and incur expenses in other currencies and are exposed to the effects of
exchange rates. We seek to minimize this exposure by passively maintaining other currency cash balances at levels
appropriate to meet foreseeable expenses in these other currencies, converting surplus currency balances of these
other currencies into pounds sterling as soon as they arise. We do not use forward exchange contracts to manage
exchange rate exposure.
For additional information about our quantitative and qualitative risks, see Note 21 to the consolidated
financial statements.
Item 12
Description of Securities Other than Equity Securities.
A.
Debt Securities.
Not Applicable.
B.
Warrants and Rights.
Not Applicable.
C.
Other Securities.
Not Applicable.
D.
American Depositary Shares.
Fees and Charges
The following table shows the fees and charges that a holder of our ADSs may have to pay, either directly
or indirectly. The majority of these costs are set by the Depositary and are subject to change:
Service
Issuance of ADSs
Cancellation of ADSs
Distribution of cash dividends or other cash distributions
Distribution of ADSs pursuant to stock dividends, free stock
Fees
Up to U.S. 5¢ per ADS issued
Up to U.S. 5¢ per ADS canceled
Up to U.S. 5¢ per ADS held
distributions or exercise of rights
Up to U.S. 5¢ per ADS held
Distribution of securities other than ADSs or rights to purchase
additional ADSs
Depositary Services
Up to U.S. 5¢ per ADS held
Up to U.S. 5¢ per ADS held on the applicable
record date(s) established by the depositary bank
ADS holders may also be responsible to pay certain fees and expenses incurred by the depositary bank and
certain taxes and governmental charges such as:
•
Fees for the transfer and registration of ordinary shares charged by the registrar and transfer agent for
the ordinary shares in England and Wales (i.e., upon deposit and withdrawal of ordinary shares).
• Expenses incurred for converting foreign currency into U.S. dollars.
• Expenses for cable, telex and fax transmissions and for delivery of securities.
• Taxes and duties upon the transfer of securities (i.e., when ordinary shares are deposited or withdrawn
from deposit).
•
Fees and expenses incurred in connection with the delivery or servicing of ordinary shares on deposit.
131
Item 13.
Defaults, Dividend Arrearages and Delinquencies.
PART II
None
Item 14. Material Modifications To The Rights of Security Holders and Use of Proceeds.
Not Applicable.
Item 15.
Controls and Procedures.
A.
Disclosure Controls and Procedures.
As required by Rules 13a-15 and 15d-15 under the Exchange Act, management, including our chief
executive officer and our chief financial officer, has evaluated the effectiveness of our disclosure controls and
procedures as of the end of the period covered by this report. Disclosure controls and procedures refer to controls
and other procedures designed to ensure that information required to be disclosed in the reports we file or submit
under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the
rules and forms of the SEC. Disclosure controls and procedures include, without limitation, controls and procedures
designed to ensure that information required to be disclosed by us in our reports that we file or submit under the
Exchange Act is accumulated and communicated to management, including our principal executive and principal
financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding our
required disclosure.
Based on the foregoing, our chief executive officer and our chief financial officer have concluded that, as
of September 30, 2015, our disclosure controls and procedures were not effective due to the material weakness in
internal control over financial reporting described below.
B.
Management’s Annual Report on Internal Control over Financial Reporting.
Management is responsible for establishing and maintaining adequate internal control over financial
reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial
reporting is a process to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with International Financial Reporting
Standards, or IFRS, as endorsed by the European Union and as issued by the International Accounting Standards
Board, or IASB. We have a program for the review of our internal control over financial reporting to ensure
compliance with the requirements of the Exchange Act and Section 404 of the Sarbanes-Oxley Act. Our internal
control over financial reporting includes those policies and procedures that:
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of our assets;
provide reasonable assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with IFRS, as endorsed by the European Union and as issued
by IASB;
provide reasonable assurance that our receipts and expenditures are being made only in
accordance with authorizations of our management and directors; and
provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of our assets that could have a material effect on the financial
statements.
132
Because of its inherent limitations, internal control over financial reporting may not prevent or detect all
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
Our management, with the participation of our chief executive officer and our chief financial officer,
assessed the effectiveness of our internal control over financial reporting as of September 30, 2015. In conducting its
assessment of internal control over financial reporting, management based its evaluation on the Internal Control –
Integrated Framework (2013) issued by the COSO as at September 30, 2015. Based on its evaluation, our
management has concluded that due to the material weakness described below, our internal control over financial
reporting was not effective as at September 30, 2015.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial
reporting such that there is a reasonable possibility that a material misstatement of the company’s annual or interim
financial statements will not be prevented or detected on a timely basis.
Our assessment has identified one material weakness related to the controls over the accounting for the
completeness and valuation of clinical trial accruals. The material weakness relates to Trade and Other Payables on
the consolidated balance sheet and Research and Development Expenditure within the consolidated income
statement. At September 30, 2015, the date on which we have assessed our internal controls:
We had not established sufficiently precise controls over the completeness and accuracy of the
calculation of clinical trial accruals. During the preparation of our 2015 year end accruals, the clinical
trial accruals were not complete due to the incorrect allocation of expenditure to clinical studies, which
resulted in various accounting errors related to the valuation of clinical trial accruals. We consider that
these errors arose due to deficiencies in the design of our controls over the completeness and accuracy
of clinical study budgets and costs incurred to date.
We had not established a sufficiently precise control to ensure completeness of clinical trial accruals in
connection with progress payment liabilities. During the preparation of our 2015 year end accruals for
progress payments linked to research and development sub-contracts, our control over the review of
contracts to identify liabilities at year-end failed to identify progress payments due under the contracts
as a result of reaching certain milestones within the trial. This led to an immaterial error which was
corrected following additional procedures carried out to ensure the completeness of such accruals. We
consider that the error could have been material and that changes to the design of the control are
required to ensure correct operation of the control in future.
The Group’s internal control over financial reporting at September 30, 2015 has been audited by Deloitte
LLP, an independent registered public accounting firm who also audit the Group’s consolidated financial statements.
Their audit report on internal control over financial reporting is included in Item 15C. Deloitte LLP has also audited
the consolidated financial statements as at and for the year ended September 30, 2015 and their report expressed an
unqualified opinion on those financial statements.
Remedial Actions
As a result of our conclusion that we need to strengthen our controls in respect of these findings, we have identified
the following steps to remediate the identified weaknesses:
We will improve the design of our controls over the monitoring of clinical study expenditures to ensure
the completeness and accuracy of the budgeted and actual clinical study costs related to each clinical
trial. These controls over the clinical accrual calculation will comprise: (i) a detailed review of the
initial budget for each trial including a comparison to underlying contracts and amendments, (ii) a
review of actual costs incurred to date are allocated to the appropriate trial and are both accurate and
complete and (iii) a revised assessment that the remaining costs to complete reflect the expected future
expenditure. The objective of these reviews is to ensure that, at each period end, the clinical study
budget accurately reflects additional costs as they arise and the identification and correction of any
incorrect allocation of costs to each clinical study. These additional controls are expected to ensure the
completeness and accuracy of the estimates used for the determination of the valuation of clinical trial
accruals at each period end.
133
We will establish a control to identify and monitor all contracts where payments are linked to progress
based milestones. The objective of this control is to identify potential contractual liabilities whereby
progress milestones have been achieved and for which the payment liability needs to be accrued at
each period end. This additional control, in combination with the existing controls for the review of
contractual liabilities, is expected to ensure the completeness of accruals for milestone based
contractual liabilities.
Under the direction of the Audit Committee of our Board of Directors, we will continue to develop and
implement policies and procedures to improve the overall effectiveness of our internal control over financial
reporting. Management believes that the foregoing efforts will effectively remediate the material weakness that we
identified as at September 30, 2015. As we continue to evaluate and work to improve our internal control over
financial reporting, management may determine to take additional measures to address control deficiencies or
determine to modify the remediation plan described above.
C.
Attestation Report of the Registered Public Accounting Firm.
To the Board of Directors and Shareholders of GW Pharmaceuticals plc
We have audited the internal control over financial reporting of GW Pharmaceuticals plc and subsidiaries
(the “Group”) as at 30 September 2015, based on criteria established in Internal Control — Integrated Framework
(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Group's
management is responsible for maintaining effective internal control over financial reporting and for its assessment
of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report
on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Group's internal
control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether effective internal control over financial reporting was maintained in all material respects. Our audit
included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness of internal control based on that risk,
and performing such other procedures as we considered necessary in the circumstances. We believe that our audit
provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed by, or under the supervision of,
the company's principal executive and principal financial officers, or persons performing similar functions, and
effected by the company's board of directors, management, and other personnel to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company's internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of
collusion or improper management override of controls, material misstatements due to error or fraud may not be
prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal
control over financial reporting to future periods are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
134
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial
reporting, such that there is a reasonable possibility that a material misstatement of the Group’s annual or interim
financial statements will not be prevented or detected on a timely basis. The following material weakness has been
identified and included in management's assessment: design deficiencies related to the controls over the
completeness and valuation of clinical trial accruals that resulted in a reasonable possibility that the controls would
not prevent or detect a material misstatement arising in the consolidated financial statements or the related
disclosures. This material weakness was considered in determining the nature, timing, and extent of audit tests
applied in our audit of the financial statements as at and for the year ended 30 September 2015 of the Group and this
report does not affect our report on such financial statements.
In our opinion, because of the effect of the material weakness identified above on the achievements of the
internal control criteria, the Group has not maintained effective internal control over financial reporting as at 30
September 2015, based on the criteria established in Internal Control— Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the consolidated financial statements of the Group as at and for the year ended September 30,
2015 and our report dated 7 December 2015 expressed an unqualified opinion on those financial statements.
/s/ Deloitte LLP
London, United Kingdom
7 December 2015
D.
Changes in Internal Control Over Financial Reporting.
During fiscal 2015, we implemented changes in our internal control over financial reporting (as defined in
Rule 13a-15(f) under the Exchange Act) that materially affected, or is reasonably likely to materially affect, the
Group’s internal control over financial reporting. As disclosed in our Annual Report on Form 20-F for the year
ended September 30, 2014, we concluded that we did not have adequate internal controls to address the risk of
accounting for non-routine transactions.
With the oversight of our management and the Audit Committee, we have implemented additional
measures to remediate the underlying causes of the material weakness related to non-routine transactions described
above. Our remediation actions included: (i) engaging an outside professional accounting advisor with sufficient
technical accounting expertise to provide technical IFRS accounting and disclosure advice in respect of complex
accounting matters, (ii) designing and operating a precise financial reporting control to identify and evaluate non-
routine transactions (including consultation with our professional accounting advisor, when applicable), and (iii)
involving the Audit Committee in the oversight of our controls related to such transactions. We believe the
previously identified material weakness for accounting for non-routine transactions has been remediated.
Item 16A. Audit Committee Financial Expert.
Our Audit Committee consists of James Noble, Cabot Brown and Thomas Lynch and is chaired by Mr.
James Noble. Each of our Audit Committee members satisfies the independence requirements of Rule 5605(a)(2) of
the NASDAQ Stock Market, Marketplace Rules, and the independence requirements of Rule 10A-3(b)(1) under the
Exchange Act. Our board of directors has determined that Mr. Noble qualifies as an Audit Committee financial
expert within the meaning of the applicable SEC rules.
135
Item 16B. Code of Ethics.
Our Code of Business Conduct and Ethics is applicable to all of our employees, officers and directors and
is available on our website at http://www.gwpharm.com. Our Code of Business Conduct and Ethics provides that
our directors and officers are expected to avoid any action, position or interest that conflicts with the interests of our
company or gives the appearance of a conflict. Our directors and officers have an obligation under our Code of
Business Conduct and Ethics to advance our company’s interests when the opportunity to do so arises. We expect
that any amendment to this code, or any waivers of its requirements, will be disclosed on our website. Information
contained on, or that can be accessed through, our website is not incorporated by reference into this document, and
you should not consider information on our website to be part of this document.
Item 16C. Principal Accountant Fees and Services.
Our financial statements have been prepared in accordance with IFRS and are audited by Deloitte LLP, a
firm registered with the Public Company Accounting Oversight Board in the United States.
Deloitte LLP has served as our independent registered public accountant for each of the years ended
September 30, 2013, September 30, 2014 and September 30, 2015 for which audited statements appear in this
Annual Report.
The following table shows the aggregate fees for services rendered by Deloitte LLP to us, including some
of our subsidiaries, in fiscal years ended September 30, 2014 and 2015.
Audit fees:
– Audit of the Company’s annual accounts1
– Audit of the Company’s subsidiaries pursuant to legislation
Total audit fees
Other services
– Audit-related assurance2
– Other assurance services3
– All other services4
Total non-audit fees
2015
£000’s
2014
£000’s
400
50
450
53
92
243
41
284
46
193
145
239
1 For the years ended September 30, 2015 and 2014, the audit fees include amounts for the audit of the
consolidated financial statements in accordance with the International Standards of Auditing, and standards of
the Public Company Accounting Oversight Board. For the year ended September 30, 2015 and 2014, audit fees
also include amounts for the audit of the Group’s internal controls over financial reporting. An additional
£156,000 was billed in respect of the 2014 audit during the year to September 30, 2015.
2 Audit related assurance fees relate to fees for the performance of interim reviews, and other procedures on our
interim results.
3 Other assurance services represents assurance reporting on historical financial information included in the
Company’s shelf registration and SEC registration statements in connection with following offerings on the
NASDAQ Global Market.
4 All other fees represent other assurance services provided to the Group.
Our Audit Committee reviews and pre-approves the scope and the cost of audit services related to us and
permissible non-audit services performed by the independent auditors, other than those for de minimis services
which are approved by the Audit Committee prior to the completion of the audit. All of the services related to our
company provided by Deloitte LLP during the last fiscal year have been approved by the Audit Committee.
Item 16D. Exemptions From the Listing Standards For Audit Committees.
Not Applicable.
Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers.
Not Applicable.
Item 16F. Change in the Registrant’s Certifying Accountant.
Not Applicable.
136
Item 16G. Corporate Governance.
We rely on a provision in NASDAQ’s Listed Company Manual that allows us to follow English corporate
law and the Companies Act 2006 with regard to certain aspects of corporate governance. This allows us to follow
certain corporate governance practices that differ in significant respects from the corporate governance requirements
applicable to U.S. companies listed on the NASDAQ Global Market.
For example, we are exempt from regulations that require a listed company to:
•
•
•
•
•
•
•
have a majority of the board of directors consist of independent directors;
require non-management directors to meet on a regular basis without management present;
promptly disclose any waivers of the code for directors or executive officers that should address
certain specified items;
have an independent nominating committee;
solicit proxies and provide proxy statements for all shareholder meetings;
have a compensation committee charter specifying the items enumerated in NASDAQ Stock Market,
Marketplace Rule 5605(d)(1) and a review and assessment of the adequacy of that charter on an annual
basis; and
seek shareholder approval for the implementation of certain equity compensation plans and issuances
of ordinary shares.
As a foreign private issuer, we are permitted to, and we will continue to, follow home country practice in
lieu of the above requirements.
In accordance with our NASDAQ Global Market listing, our Audit Committee is required to comply with
the provisions of Section 301 of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, and Rule 10A-3 of the
Exchange Act, both of which are also applicable to NASDAQ Global Market-listed U.S. companies. Because we are
a foreign private issuer, however, our Audit Committee is not subject to additional NASDAQ Global Market
requirements applicable to listed U.S. companies, including an affirmative determination that all members of the
Audit Committee are “independent,” using more stringent criteria than those applicable to us as a foreign private
issuer.
Item 16H. Mine Safety Disclosure.
Not Applicable.
137
PART III
Item 17
Financial Statements.
We have elected to provide financial statements pursuant to Item 18.
Item 18
Financial Statements.
The financial statements are filed as part of this Annual Report beginning on page F-1.
Item 19
Exhibits
Exhibit
Number
Description of Exhibit
1.1*
2.1*
2.2(1)*
Memorandum & Articles of Association of GW Pharmaceuticals plc. (incorporated by reference to
Exhibit 3.1 to our Registration Statement on Form F-1 (file no. 333-187356), as amended, initially filed
with the SEC on March 19, 2013).
Form of specimen certificate evidencing ordinary shares (incorporated by reference to Exhibit 4.1 to
our Registration Statement on Form F-1 (file no. 333-187356), as amended, initially filed with the SEC
on March 19, 2013).
Form of Deposit Agreement among GW Pharmaceuticals plc, Citibank, N.A., as the depositary bank
and all Holders and Beneficial Owners of ADSs issued thereunder (incorporated by reference to Exhibit
4.2 to our Registration Statement on Form F-1 (file no. 333-187356), as amended, initially filed with
the SEC on March 19, 2013).
2.3(1)*
Form of American Depositary Receipt (included in Exhibit 2.2) (incorporated by reference to Exhibit
4.3 to our Registration Statement on Form F-1 (file no. 333-187356), as amended, initially filed with
the SEC on March 19, 2013).
4.1†*
Licence and Distribution Agreement between Bayer AG Division Pharma and GW Pharma Limited.,
dated May 20, 2003 (incorporated by reference to Exhibit 10.1 to our Registration Statement on Form
F-1 (file no. 333-187356), as amended, initially filed with the SEC on March 19, 2013).
4.2†*
Amendment Number 1 to the Licence and Distribution Agreement, dated November 4, 2003
(incorporated by reference to Exhibit 10.2 to our Registration Statement on Form F-1 (file no. 333-
187356), as amended, initially filed with the SEC on March 19, 2013).
4.3*
Amendment Number 2 to the Licence and Distribution Agreement between GW Pharma Limited. and
Bayer Healthcare AG Division Pharma, dated January 14, 2004 (incorporated by reference to Exhibit
10.3 to our Registration Statement on Form F-1 (file no. 333-187356), as amended, initially filed with
the SEC on March 19, 2013).
4.4†*
Amendment Number 3 to the Licence and Distribution Agreement between GW Pharma Limited. and
Bayer Healthcare AG Division Pharma, dated March 1, 2005 (incorporated by reference to Exhibit 10.4
to our Registration Statement on Form F-1 (file no. 333-187356), as amended, initially filed with the
SEC on March 19, 2013).
4.5†*
Amendment Number 4 to the Licence and Distribution Agreement between GW Pharma Limited. and
Bayer Healthcare AG Division Pharma, dated May 10, 2005 (incorporated by reference to Exhibit 10.5
to our Registration Statement on Form F-1 (file no. 333-187356), as amended, initially filed with the
SEC on March 19, 2013).
4.6*
Amendment Number 5 to the Licence and Distribution Agreement between GW Pharma Limited. and
Bayer Schering Pharma AG (f/k/a Bayer AG, Bayer HealthCare, Division Pharma), dated March 10,
2010 (incorporated by reference to Exhibit 10.6 to our Registration Statement on Form F-1 (file no.
333-187356), as amended, initially filed with the SEC on March 19, 2013).
138
4.7†*
Supply Agreement between Bayer AG and GW Pharma Limited, dated May 20, 2003 (incorporated by
reference to Exhibit 10.7 to our Registration Statement on Form F-1 (file no. 333-187356), as amended,
initially filed with the SEC on March 19, 2013).
4.8†*
Amendment Number 1 to the Supply Agreement between GW Pharma Limited. and Bayer Healthcare
AG, dated November 4, 2003 (incorporated by reference to Exhibit 10.8 to our Registration Statement
on Form F-1 (file no. 333-187356), as amended, initially filed with the SEC on March 19, 2013).
4.9†*
Amendment Number 2 to the Supply Agreement between GW Pharma Limited. and Bayer Healthcare
AG, dated May 10, 2005 (incorporated by reference to Exhibit 10.9 to our Registration Statement on
Form F-1 (file no. 333-187356), as amended, initially filed with the SEC on March 19, 2013).
4.10†*
Amendment Number 3 to the Supply Agreement between GW Pharma Limited. and Bayer Schering
Pharma AG (f/k/a Bayer AG, Bayer HealthCare, Division Pharma), dated March 10, 2010
(incorporated by reference to Exhibit 10.10 to our Registration Statement on Form F-1 (file no. 333-
187356), as amended, initially filed with the SEC on March 19, 2013).
4.11†*
Product Commercialisation and Supply Consolidated Agreement between GW Pharma Limited and
Almirall Prodesfarma, S.A., dated June 6, 2006 (incorporated by reference to Exhibit 10.11 to our
Registration Statement on Form F-1 (file no. 333-187356), as amended, initially filed with the SEC on
March 19, 2013).
4.12†*
Amendment No. 1 to the Product Commercialisation and Supply Consolidated Agreement between
GW Pharma Limited. and Laboratorios Almirall S.A., dated March 4, 2009 (incorporated by reference
to Exhibit 10.12 to our Registration Statement on Form F-1 (file no. 333-187356), as amended, initially
filed with the SEC on March 19, 2013).
4.13†*
Amendment to the Product Commercialisation and Supply Consolidated Agreement, dated June 6,
2006 between GW Pharma Limited. and Almirall S.A., dated July 23, 2010 (incorporated by reference
to Exhibit 10.13 to our Registration Statement on Form F-1 (file no. 333-187356), as amended, initially
filed with the SEC on March 19, 2013).
4.14†*
Supplementary Agreement to the Product Commercialisation and Supply Consolidated Agreement,
dated June 6, 2006 between GW Pharma Limited. and Almirall S.A., dated November 17, 2011
(incorporated by reference to Exhibit 10.14 to our Registration Statement on Form F-1 (file no. 333-
187356), as amended, initially filed with the SEC on March 19, 2013).
4.15†*
Amendment and Supplementary Agreement to the Product Commercialisation and Supply
Consolidated Agreement, dated June 6, 2006 between GW Pharma Limited. and Almirall S.A., dated
March 13, 2012 (incorporated by reference to Exhibit 10.15 to our Registration Statement on Form F-1
(file no. 333-187356), as amended, initially filed with the SEC on March 19, 2013).
4.16†*
Research Collaboration and Licence Agreement between GW Pharma Limited. and GW
Pharmaceuticals plc and Otsuka Pharmaceutical Co., Ltd., dated July 9, 2007 (incorporated by
reference to Exhibit 10.16 to our Registration Statement on Form F-1 (file no. 333-187356), as
amended, initially filed with the SEC on March 19, 2013).
4.17†*
Amendment No. 1 to Research Collaboration and Licence Agreement, dated March 14, 2008
(incorporated by reference to Exhibit 10.17 to our Registration Statement on Form F-1 (file no. 333-
187356), as amended, initially filed with the SEC on March 19, 2013).
4.18†*
Amendment No. 2 to Research Collaboration and Licence Agreement, dated June 29, 2010
(incorporated by reference to Exhibit 10.18 to our Registration Statement on Form F-1 (file no. 333-
187356), as amended, initially filed with the SEC on March 19, 2013).
139
4.19†*
Development and Licence Agreement between GW Pharma Limited. and GW Pharmaceuticals Plc and
Otsuka Pharmaceutical Co., Ltd., dated February 14, 2007 (incorporated by reference to Exhibit 10.19
to our Registration Statement on Form F-1 (file no. 333-187356), as amended, initially filed with the
SEC on March 19, 2013).
4.20†*
Amendment No. 1 to Development and Licence Agreement, dated November 1, 2008 (incorporated by
reference to Exhibit 10.20 to our Registration Statement on Form F-1 (file no. 333-187356), as
amended, initially filed with the SEC on March 19, 2013).
4.21†*
Letter amending Development and Licence Agreement, dated October 21, 2010 (incorporated by
reference to Exhibit 10.21 to our Registration Statement on Form F-1 (file no. 333-187356), as
amended, initially filed with the SEC on March 19, 2013).
4.22†*
Distribution and Licence Agreement, dated April 8, 2011, by and between GW Pharma Limited. and
Novartis Pharma AG (incorporated by reference to Exhibit 10.22 to our Registration Statement on
Form F-1 (file no. 333-187356), as amended, initially filed with the SEC on March 19, 2013).
4.23†*
Manufacturing and Supply Agreement, dated November 9, 2011, by and between Novartis Pharma AG
and GW Pharma Limited. (incorporated by reference to Exhibit 10.23 to our Registration Statement on
Form F-1 (file no. 333-187356), as amended, initially filed with the SEC on March 19, 2013).
4.24†*
Production Supply Agreement, dated March 7, 2007 (incorporated by reference to Exhibit 10.24 to our
Registration Statement on Form F-1 (file no. 333-187356), as amended, initially filed with the SEC on
March 19, 2013).
4.25†*
Lease, dated July 6, 2009 (incorporated by reference to Exhibit 10.25 to our Registration Statement on
Form F-1 (file no. 333-187356), as amended, initially filed with the SEC on March 19, 2013).
4.26†*
Lease, dated October 9, 2009 (incorporated by reference to Exhibit 10.26 to our Registration Statement
on Form F-1 (file no. 333-187356), as amended, initially filed with the SEC on March 19, 2013).
4.27†*
Lease, dated April 6, 2011 (incorporated by reference to Exhibit 10.27 to our Registration Statement on
Form F-1 (file no. 333-187356), as amended, initially filed with the SEC on March 19, 2013).
4.28†*
Lease, dated October 12, 2011 (incorporated by reference to Exhibit 10.28 to our Registration
Statement on Form F-1 (file no. 333-187356), as amended, initially filed with the SEC on March 19,
2013).
4.29†*
Lease, dated January 6, 2012 (incorporated by reference to Exhibit 10.29 to our Registration Statement
on Form F-1 (file no. 333-187356), as amended, initially filed with the SEC on March 19, 2013).
4.30†*
Agreement for Lease, dated April 4, 2012 (incorporated by reference to Exhibit 10.30 to our
Registration Statement on Form F-1 (file no. 333-187356), as amended, initially filed with the SEC on
March 19, 2013).
4.31*
Occupational Underlease, dated August 11, 2010 (incorporated by reference to Exhibit 10.31 to our
Registration Statement on Form F-1 (file no. 333-187356), as amended, initially filed with the SEC on
March 19, 2013).
4.32*
Lease, dated May 24, 2011 (incorporated by reference to Exhibit 10.32 to our Registration Statement
on Form F-1 (file no. 333-187356), as amended, initially filed with the SEC on March 19, 2013).
140
4.33*
Tenancy Agreement, dated November 19, 2012 (incorporated by reference to Exhibit 10.33 to our
Registration Statement on Form F-1 (file no. 333-187356), as amended, initially filed with the SEC on
March 19, 2013).
4.34*
Service Agreement by and between GW Pharma Limited, and Adam George, dated June 1, 2012
(incorporated by reference to Exhibit 10.34 to our Registration Statement on Form F-1 (file no. 333-
187356), as amended, initially filed with the SEC on March 19, 2013).
4.35†*
Service Agreement by and between GW Pharma Limited, and Chris Tovey, dated July 11, 2012
(incorporated by reference to Exhibit 10.35 to our Registration Statement on Form F-1 (file no. 333-
187356), as amended, initially filed with the SEC on March 19, 2013).
4.36*
Service Agreement by and between GW Research Limited and Dr. Geoffrey Guy, dated March 14,
2013 (incorporated by reference to Exhibit 10.36 to our Registration Statement on Form F-1 (file no.
333-187356), as amended, initially filed with the SEC on March 19, 2013).
4.37*
Service Agreement by and between GW Research Limited and Justin Gover, dated February 26, 2013
(incorporated by reference to Exhibit 10.37 to our Registration Statement on Form F-1 (file no. 333-
187356), as amended, initially filed with the SEC on March 19, 2013).
4.38*
Service Agreement by and between GW Research Limited and Dr. Stephen Wright, dated January 18,
2013 (incorporated by reference to Exhibit 10.38 to our Registration Statement on Form F-1 (file no.
333-187356), as amended, initially filed with the SEC on March 19, 2013).
4.39*
Letter of Appointment by and between GW Pharmaceuticals plc and James Noble, dated February 26,
2013 (incorporated by reference to Exhibit 10.39 to our Registration Statement on Form F-1 (file no.
333-187356), as amended, initially filed with the SEC on March 19, 2013).
4.40*
Letter of Appointment by and between GW Pharmaceuticals plc and Thomas Lynch, dated February
26, 2013 (incorporated by reference to Exhibit 10.40 to our Registration Statement on Form F-1 (file
no. 333-187356), as amended, initially filed with the SEC on March 19, 2013).
4.41*
Service Agreement by and between GW Pharmaceuticals Inc. and Cabot Brown, dated November 7,
2013 (incorporated by reference to Exhibit 10.41 to our Annual Report (file no. 001-35892), filed with
the SEC on November 25, 2013).
4.42*
Long Term Incentive Plan (incorporated by reference to Exhibit 4.1 to our Registration Statement on
Form S-8 (file no. 333-204389), filed with the SEC on May 22, 2015).
4.43*
GW Pharmaceuticals All Employee Share Scheme (incorporated by reference to Exhibit 10.43 to our
Registration Statement on Form F-1 (file no. 333-187356), as amended, initially filed with the SEC on
March 19, 2013).
4.44* GW Pharmaceuticals Approved Share Option Scheme 2001, as amended.
4.45* GW Pharmaceuticals Unapproved Share Option Scheme 2001, as amended.
4.46†*
Lease, dated May 24, 2013 (incorporated by reference to Exhibit 4.46 to our Annual Report (file no.
001-35892), as amended, originally filed with the SEC on November 25, 2013).
4.47†*
Lease, dated May 24, 2013 (incorporated by reference to Exhibit 4.47 to our Annual Report (file no.
001-35892), as amended, originally filed with the SEC on November 25, 2013).
4.48†*
Lease, dated May 24, 2013 (incorporated by reference to Exhibit 4.48 to our Annual Report (file no.
001-35892), as amended, originally filed with the SEC on November 25, 2013).
141
4.49*
Lease, dated August 1, 2013 (incorporated by reference to Exhibit 4.49 to our Annual Report (file no.
001-35892), as amended, originally filed with the SEC on November 25, 2013).
4.50*
Lease, dated July 16, 2013 (incorporated by reference to Exhibit 4.50 to our Annual Report (file no.
001-35892), as amended, originally filed with the SEC on November 25, 2013).
4.51*
Amendment to the Distribution and Licence Agreement, dated May 5, 2014 between Novartis Pharma
AG and GW Pharma Limited (incorporated by reference to Exhibit 99.4 to our Report on Form 6-K,
filed with the SEC on May 7, 2014).
4.52*††
Amendment and Supplementary Agreement to the Product Commercialisation and Supply
Consolidated Agreement dated June 6, 2006, between GW Pharma Limited and Almirall, S.A., dated
September 30, 2014.
4.53**
Transfer of Contract, dated July 20, 2015 among GW Pharmaceuticals plc, GW Research Limited and
Justin Gover.
4.54** Offer Letter, dated July 17, 2015 between GW Pharmaceuticals Inc. and Justin Gover.
4.55** Offer Letter, dated May 5, 2015 between GW Pharmaceuticals Inc. and Julian Gangolli.
4.56**
Discretionary Benefits Letter, dated May 5, 2015 between GW Pharmaceuticals Inc. and Julian
Gangolli.
4.57**
Service Agreement by and between GW Pharmaceuticals plc and Julian Gangolli, effective July 21,
2015.
8.1**
List of Subsidiaries.
12.1**
Certificate of Chief Executive Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-
14(a) as adopted pursuant to §302 of the Sarbanes-Oxley Act of 2002.
12.2**
Certificate of Chief Financial Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-
14(a) as adopted pursuant to §302 of the Sarbanes-Oxley Act of 2002.
13.1**
Certificate of Chief Executive Officer pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the
Sarbanes-Oxley Act of 2002.
13.2**
Certificate of Chief Financial Officer pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the
Sarbanes-Oxley Act of 2002.
15.1** Consent of Deloitte LLP.
* Previously filed.
** Filed herewith.
† Confidential treatment previously requested and granted as to portions of the exhibit. Confidential materials
omitted and filed separately with the Securities and Exchange Commission.
†† Confidential treatment requested as to portions of the exhibit. Confidential materials omitted and filed
separately with the Securities and Exchange Commission.
(1) Incorporated by reference to the Registration Statement on Form F-6 (File No. 333-187978), filed with the
Securities and Exchange Commission with respect to ADSs representing ordinary shares.
142
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has
duly caused and authorized the undersigned to sign this Annual Report on its behalf.
Signature
Date: December 7, 2015
GW PHARMACEUTICALS PLC
By:/s/ JUSTIN GOVER
Name:Justin Gover
Title: Chief Executive Officer
143
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
Consolidated Income Statements for the years ended September 30, 2015, 2014 and 2013
Consolidated Statements of Comprehensive Income for the years ended September 30, 2015, 2014 and
2013
Consolidated Statements of Changes in Equity for the years ended September 30, 2015, 2014 and 2013
Consolidated Balance Sheets as at September 30, 2015 and 2014
Consolidated Cash Flow Statements for the years ended September 30, 2015, 2014 and 2013
Notes to the Consolidated Financial Statements
F-2
F-3
F-4
F-4
F-5
F-6
F-8
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of GW Pharmaceuticals plc
We have audited the accompanying consolidated balance sheets of GW Pharmaceuticals plc and
subsidiaries (the "Group") as at 30 September 2015 and 2014, and the related consolidated income statements,
consolidated statements of comprehensive loss, consolidated statements of changes in equity, and consolidated cash
flow statements for each of the three years in the period ended 30 September 2015. These financial statements are
the responsibility of the Group's management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An audit also includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial
position of GW Pharmaceuticals plc and subsidiaries as at 30 September 2015 and 2014, and the results of their
operations and their cash flows for each of the three years in the period ended 30 September 2015, in conformity
with International Financial Reporting Standards as issued by the International Accounting Standards Board.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the Group's internal control over financial reporting as at 30 September 2015, based on the
criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission and our report dated 7 December 2015 expressed an adverse opinion on
the Group's internal control over financial reporting.
/s/ DELOITTE LLP
London, United Kingdom
7 December 2015
F-2
Consolidated Income Statements
For the year ended 30 September
Revenue
Cost of sales
Research and development expenditure
Sales, general and administrative expenses
Net foreign exchange gain/(loss)
Operating loss
Interest expense
Interest income
Loss before tax
Tax benefit
Loss for the year
Loss per share – basic
Loss per share – diluted
Notes
3
4
9
9
5
10
11
11
2015
£000s
28,540
(2,618)
(76,785)
(12,569)
6,202
(57,230)
(75)
244
(57,061)
12,498
(44,563)
2014
£000s
30,045
(2,060 )
(43,475 )
(7,337 )
3,188
(19,639 )
(61 )
130
(19,570 )
4,911
(14,659 )
2013
£000s
27,295
(1,276)
(32,697)
(3,555)
(237)
(10,470)
(64)
178
(10,356)
5,807
(4,549)
(18.1)p
(18.1)p
(7.0 )p
(7.0 )p
(3.0)p
(3.0)p
The accompanying notes are an integral part of these consolidated income statements.
All activities relate to continuing operations.
F-3
Consolidated Statements of Comprehensive Loss
For the year ended 30 September
Loss for the year
Items that may be reclassified subsequently to profit or
loss
Exchange differences on translation of foreign
operations
Other comprehensive loss for the year
Total comprehensive loss for the year
Notes
2015
£000s
(44,563)
2014
£000s
(14,659)
2013
£000s
(4,549)
(71)
(71)
(44,634)
(2)
(2)
(14,661)
–
–
(4,549)
The accompanying notes are an integral part of these consolidated statements of comprehensive loss.
Consolidated Statement of Changes in Equity
For the year ended 30 September
Group
At 1 October 2012
Issue of share capital
Expenses associated with new equity
issue
Exercise of share options
Share-based payment transactions
Loss for the year
Balance at 30 September 2013
Issue of share capital (note 22)
Expenses associated with new equity
issue
Exercise of share options
Exercise of warrants
Share-based payment transactions
Loss for the year
Other comprehensive expense
Balance at 30 September 2014
Issue of share capital
Expenses associated with new equity
issue
Exercise of share options
Share-based payment transactions
Loss for the year
Deferred tax attributable to unrealized
share option gains
Other comprehensive expense
Balance at 30 September 2015
Share
Capital
£000s
133
45
Share
Premium
Account
£000s
65,947
19,725
–
–
–
–
178
51
–
4
4
–
–
–
237
22
–
2
–
–
(1,670)
3
–
–
84,005
127,315
(1,067)
5,014
5,284
–
–
–
220,551
127,812
(271)
1,183
–
–
Other
Reserves
£000s
20,184
–
Accumulated
Deficit
£000s
(65,032)
–
Total Equity
£000s
21,232
19,770
–
–
–
–
20,184
–
–
–
(922)
–
–
(2)
19,260
–
–
–
–
–
–
–
616
(4,549)
(68,965)
–
–
–
922
1,238
(14,659)
–
(81,464)
–
–
–
2,488
(44,563)
(1,670)
3
616
(4,549)
35,402
127,366
(1,067)
5,018
5,288
1,238
(14,659)
(2)
158,584
127,834
(271)
1,185
2,488
(44,563)
–
–
261
–
–
349,275
–
(71)
19,189
84
–
(123,455)
84
(71)
245,270
The accompanying notes are an integral part of these consolidated statements of changes in equity.
F-4
Consolidated Balance Sheets
As at 30 September
Non-current assets
Intangible assets – goodwill
Other intangible assets
Property, plant and equipment
Deferred tax asset
Current assets
Inventories
Taxation recoverable
Trade receivables and other current assets
Cash and cash equivalents
Total assets
Current liabilities
Trade and other payables
Current tax liabilities
Obligations under finance leases
Deferred revenue
Non-current liabilities
Trade and other payables
Obligations under finance leases
Deferred revenue
Total liabilities
Net assets
Equity
Share capital
Share premium account
Other reserves
Accumulated (deficit)/profit
Total equity
Group
2015
£000s
Notes
12
13
14
10
15
10
16
21
17
10
19
20
17
19
20
22
24
5,210
245
28,733
418
34,606
4,756
12,641
2,873
234,872
255,142
289,748
(24,022)
(366)
(111)
(3,269)
(27,768)
(8,445)
(1,540)
(6,725)
(44,478)
245,270
261
349,275
19,189
(123,455)
245,270
2014
£000s
5,210
–
11,639
277
17,126
4,777
5,251
1,857
164,491
176,376
193,502
(12,376)
–
(126)
(4,827)
(17,329)
(7,927)
(1,781)
(7,881)
(34,918)
158,584
237
220,551
19,260
(81,464)
158,584
The financial statements of GW Pharmaceuticals plc, registered number 04160917, on pages 46 to 77 were
authorised by the Board and approved for issue on 7 December 2015.
The accompanying notes are an integral part of these consolidated balance sheets.
F-5
Consolidated Cash Flow Statements
For the year ended 30 September
(Loss)/profit for the year
Adjustments for:
Interest expense
Interest income
Tax
Depreciation of property, plant and equipment
Impairment of property, plant and equipment
Amortization of intangible assets
Net foreign exchange gains
Decrease in allowance for doubtful debts
Increase/(decrease) in provision for inventories
Share-based payment charge
Loss on disposal of property, plant and equipment
(Increase)/decrease in inventories
Increase in trade receivables and other current assets
Increase/(decrease) in trade and other payables and deferred revenue
Cash used in operations
Research and development tax credits received
Net cash outflow from operating activities
Investing activities
Interest received
Increase in loan to subsidiary
Purchase of property, plant and equipment
Purchase of intangible assets
Proceeds from sale of property, plant and equipment
Net cash outflow from investing activities
Financing activities
Proceeds on exercise of share options
Proceeds of new equity issue
Expenses of new equity issue
Proceeds of warrant exercise
F-6
2015
£000s
(44,563)
75
(244)
(12,498)
2,250
606
52
(6,282)
–
33
2,478
1
(58,092)
(12)
(1,010)
7,228
(51,886)
5,415
(46,471)
236
–
(17,915)
(114)
2
(17,791)
Group
2014
£000s
(14,659)
61
(130)
(4,911)
1,398
–
–
(1,876)
–
(408)
1,238
2
(19,285)
292
(142)
3,328
(15,807)
3,181
(12,626)
145
–
(7,254)
–
14
(7,095)
2013
£000s
(4,549)
64
(178)
(5,807)
989
–
–
(25)
(26)
(530)
616
–
(9,446)
(594)
(108)
(152)
(10,300)
2,832
(7,468)
167
–
(2,243)
–
–
(2,076)
1,185
127,834
(271)
–
5,018
127,367
(1,067)
5,288
3
19,770
(1,670)
–
Interest paid
Proceeds from fit out funding
Proceeds from finance leases
Repayments of obligations under finance leases
Net cash inflow from financing activities
Effect of foreign exchange rate changes
Net increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at end of the year
2015
£000s
(74)
–
–
(255)
128,419
6,224
70,381
164,491
234,872
The accompanying notes are an integral part of these consolidated cash flow statements.
F-7
Group
2014
£000s
(61)
7,822
–
(100)
2013
£000s
(64)
–
225
(11)
144,267 18,253
25
8,734
38,069 29,335
164,491 38,069
1,876
126,422
Notes to the Consolidated Financial Statements
1. General Information
GW Pharmaceuticals plc (the “Company”) and its subsidiaries (the “Group”) are primarily involved in the
development of cannabinoid prescription medicines using botanical extracts derived from the Cannabis Sativa plant.
The Group are developing a portfolio of cannabinoid medicines, of which the lead product is Epidiolex®, an oral
medicine for the treatment of refractory childhood epilepsies.
The Company is a public limited company, which has been listed on the Alternative Investment Market (“AIM”),
which is a sub-market of the London Stock Exchange, since 28 June 2001. The Company is incorporated and
domiciled in the United Kingdom. The address of the Company’s registered office and principal place of business is
Sovereign House, Vision Park, Histon, Cambridgeshire.
In addition, since 1 May 2013 the Company has American Depository Receipts (“ADRs”) registered with the US
Securities and Exchange Commission (“SEC”) and is listed on NASDAQ.
2. Significant Accounting Policies
The principal Group accounting policies are summarised below.
Basis of Accounting
The financial statements have been prepared in accordance with International Financial Reporting Standards
(“IFRS”) as endorsed by the European Union and as issued by the International Accounting Standards Board
(“IASB”). The Group financial statements also comply with Article 4 of the European Union IAS regulation.
The financial statements have been prepared under the historical cost convention, except for the revaluation of
financial instruments. Historical cost is generally based on the fair value of the consideration given in exchange for
the assets and received for the liabilities. The principal accounting policies are set out below.
Going Concern
The Directors have considered the financial position of the Group, its cash position and forecast cash flows for the
12-month period from the date of signing these financial statements when considering going concern. They have
also considered the Group’s key risks and uncertainties affecting the likely development of the business. In the light
of this review, the Directors have a reasonable expectation that the Company and the Group have adequate resources
to continue in operational existence for at least a 12-month period from the balance sheet date. Accordingly, they
continue to adopt the going concern basis in preparing these financial statements.
Basis of Consolidation
The consolidated financial statements incorporate the financial statements of the Company and entities controlled by
the Company (its subsidiaries) made up to 30 September each year. Subsidiaries are all entities over which the
Group has the power to govern the financial and operating policies of the entity concerned, generally accompanying
a shareholding of more than one half of the voting rights.
The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement
from the effective date of acquisition or up to the effective date of disposal, as appropriate. Where necessary,
adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with
those used by the Group. All intra-group transactions, balances, income and expenses are eliminated on
consolidation. Acquisitions are accounted for under the acquisition method.
In future business combinations, if a non-controlling interest in a subsidiary arises, such non-controlling interest will
be identified separately from the Group’s equity therein. The interests of non-controlling shareholders that are
present ownership interests entitling their holders to a proportionate share of net assets upon liquidation may initially
be measured at fair value or at the non-controlling interests’ proportionate share of the fair value of the acquiree’s
identifiable net assets. The choice of measurement is made on an acquisition-by-acquisition basis. Other non-
controlling interests are initially measured at fair value. Subsequent to acquisition, the carrying amount of non-
controlling interests is the amount of those interests at initial recognition plus the non-controlling interests’ share of
subsequent changes in equity. Total comprehensive income is attributed to non-controlling interests even if this
results in the non-controlling interests having a deficit balance.
F-8
Changes in the Group’s interests in subsidiaries that do not result in a loss of control are accounted for as equity
transactions. The carrying amount of the Group’s interests and the non-controlling interests are adjusted to reflect
the changes in their relative interests in the subsidiaries. Any difference between the amount by which the non-
controlling interests are adjusted and the fair value of the consideration paid or received is recognised directly in
equity and attributed to the owners of the Company.
When the Group loses control of a subsidiary, the profit or loss on disposal is calculated as the difference between
(i) the aggregate of the fair value of the consideration received and the fair value of any retained interest and (ii) the
previous carrying amount of the assets (including goodwill), less liabilities of the subsidiary and any non-controlling
interests. Amounts previously recognised in other comprehensive income in relation to the subsidiary are accounted
for (i.e. reclassified to profit or loss or transferred directly to accumulated deficit) in the same manner as would be
required if the relevant assets or liabilities are disposed of. The fair value of any investment retained in the former
subsidiary at the date when control is lost is regarded as the fair value on initial recognition for subsequent
accounting under IAS 39 Financial Instruments: Recognition and Measurement or, when applicable, the costs on
initial recognition of an investment in an associate or jointly controlled entity.
Intangible Assets – Goodwill
Goodwill arising in a business combination is recognised as an asset at the date that control is acquired. Goodwill is
measured as the excess of the sum of consideration transferred, the amount of any non-controlling interest in the
acquiree and the fair value of the acquirer’s previously held equity interest (if any) in the entity over the net of the
acquisition date amounts of the identifiable assets and liabilities assumed.
Goodwill is not amortised but is tested for impairment at least annually. For the purpose of impairment testing,
goodwill is allocated to each of the Group’s cash-generating units expected to benefit from the synergies of the
combination. Cash-generating units to which goodwill has been allocated are tested for impairment annually, or
more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the cash-
generating unit is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the
carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro rata on the basis of
the carrying amount of each asset in the unit. An impairment loss recognised for goodwill is not reversed in a
subsequent period.
On disposal of a subsidiary, the attributable amount of goodwill is included in the determination of the profit or loss
on disposal.
Intangible Assets – Other
Other intangible assets are stated at cost less provisions for amortisation and impairments. Licences, patents, know-
how, software and marketing rights separately acquired or acquired as part of a business combination are amortised
over their estimated useful lives using the straight-line basis from the time they are available for use. The estimated
useful lives for determining the amortisation take into account patent lives and related product application, but do
not exceed their lifetime. Asset lives are reviewed annually and adjusted where necessary. Contingent milestone
payments are recognised at the point that the contingent event becomes certain. Any subsequent development costs
incurred by the Group and associated with acquired licences, patents, know-how or marketing rights are written off
to the income statement when incurred, unless the criteria for recognition of an internally generated intangible asset
are met, usually when a regulatory filing has been made in a major market and approval is considered highly
probable.
Revenue
Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable
for goods and services provided in the normal course of business net of value added tax and other sales-related
taxes. The Group recognises revenue when the amount can be reliably measured; when it is probable that future
economic benefits will flow to the Group; and when specific criteria have been met for each of the Group’s
activities, as described below.
The Group’s revenue arises from product sales, licensing fees, collaboration fees, technical access fees, development
and approval milestone fees, research and development fees and royalties. Agreements with commercial partners
generally include non-refundable up-front license and collaboration fees, milestone payments, the receipt of which is
dependent upon the achievement of certain clinical, regulatory or commercial milestones, as well as royalties on
product sales of licensed products, if and when such product sales occur, and revenue from the supply of products.
For these agreements, total arrangement consideration is attributed to separately identifiable components on a
reliable basis that reasonably reflects the selling prices that might be expected to be achieved in stand-alone
transactions. The then allocated consideration is recognised as revenue in accordance with the principles described
below.
F-9
The percentage of completion method is used for a number of revenue streams of the Group. For each of the three
years ended 30 September 2015, there were no discrete events or adjustments which caused the Group to revise its
previous estimates of completion associated with those revenue arrangements accounted for under the percentage of
completion method.
Product Sales
Revenue from the sale of products is recognised when the Group has transferred to the buyer the significant risks
and rewards of ownership of the goods, the Group no longer has effective control over the goods sold, the amount of
revenue and costs associated with the transaction can be measured reliably, and it is probable that the Group will
receive future economic benefits associated with the transaction. Product sales have no rights of return other than
where products are damaged or defective.
The Group maintains a rebate provision for expected reimbursements to our commercial partners in circumstances in
which actual net revenue per vial differs from expected net revenue per vial as a consequence of, as an example,
ongoing pricing negotiations with local health authorities. The amount of our rebate provision is based on, amongst
other things, monthly unit sales and in-market sales data received from commercial partners and represents
management’s best estimate of the rebate expected to be required to settle the present obligation at the end of the
reporting period. Provisions for rebates are established in the same period that the related sales are recorded.
Licensing Fees
Licensing fees received in connection with product out-licensing agreements, even where such fees are non-
refundable, are deferred and recognised over the period of the license term.
Collaboration Fees
Collaboration fees are deferred and recognised as services are rendered based on the percentage of completion
method.
Technical Access Fees
Technical access fees represent amounts charged to licensing partners to provide access to, and to commercially
exploit data that the Group possesses or which can be expected to result from Group research programmes that are in
progress. Non-refundable technical access fees that involve the delivery of data that the Group possesses and that
permit the licensing partner to use the data freely and where the Group has no remaining obligations to perform are
recognised as revenue upon delivery of the data. Non-refundable technical access fees relating to data where the
research programme is ongoing are recognised based on the percentage of completion method.
Development and Approval Milestone Fees
Development and approval milestone fees are recognised as revenue based on the percentage of completion method
on the assumption that all stages will be completed successfully, but with cumulative revenue recognised limited to
non-refundable amounts already received or reasonably certain to be received.
Research and Development Fees
Revenue from partner-funded contract research and development agreements is recognised as research and
development services are rendered. Where services are in-progress at period end, the Group recognises revenues
proportionately, in line with the percentage of completion of the service. Where such in-progress services include
the conduct of clinical trials, the Group recognises revenue in line with the stage of completion of each trial so that
revenues are recognised in line with the expenditures.
Royalties
Royalty revenue is recognised on an accrual basis in accordance with the substance of the relevant agreement,
provided that it is probable that the economic benefits will flow to the Group and the amount of revenue can be
measured reliably.
Research and Development
Expenditure on research and development activities is recognised as an expense in the period in which it is incurred
prior to achieving regulatory approval.
An internally generated intangible asset arising from the Group’s development activities is recognised only if the
following conditions are met:
an asset is created that can be identified;
it is probable that the asset created will generate future economic benefits; and
the development cost of the asset can be measured reliably.
F-10
The Group has determined that regulatory approval is the earliest point at which the probable threshold can be
achieved. All research and development expenditure incurred prior to achieving regulatory approval is therefore
expensed as incurred.
Government Grants
Government grants are not recognised until there is reasonable assurance that the Group will comply with the
conditions attaching to them and that the grants will be received. Government grants for research programmes are
recognised as revenue over the periods necessary to match them with the related costs incurred, and in the
consolidated income statement are deducted from the related costs. Government grants related to property, plant and
equipment are treated as deferred income and released to the consolidated income statement over the expected
useful lives of the assets concerned.
Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are
assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the
cost of those assets, until such time as the assets are substantially ready for their intended use or sale. All other
borrowing costs are recognised in the income statement using the effective interest method.
Property, Plant and Equipment
Property, plant and equipment are stated at cost, net of accumulated depreciation and any recognised impairment
loss. Depreciation is provided so as to write off the cost of assets, less their estimated residual values, over their
useful lives using the straight-line method, as follows:
Plant, machinery and lab equipment
Office and IT equipment
Leasehold improvements
3–10 years
3–4 years
4–15 years or term of the lease if shorter
Assets under finance leases are depreciated over their expected useful lives on the same basis as owned assets or,
where shorter, over the term of the relevant lease.
No depreciation is provided on assets under the course of construction. Cost includes professional fees and, for
qualifying assets, borrowing costs capitalised in accordance with the Group’s accounting policy. Depreciation on
these assets commences when the assets are available for use.
The gain or loss arising on disposal or scrappage of an asset is determined as the difference between the sales
proceeds and the carrying amount of the asset and is recognised in operating profit.
Investments in Subsidiary Companies
Investments are shown at cost less any provision for impairment. Investments in subsidiary companies which are
accounted for under merger accounting principles are shown at the nominal value of shares issued in accordance
with the provisions of Section 131 of the Companies Act 2006.
The carrying value of investments in subsidiary companies in the Company balance sheet is increased annually by
the value of the capital contribution deemed to have been made by the Company in its subsidiary by the grant of
equity-settled share-based payments to the employees of the subsidiary company. The value attributable to these
equity-settled share-based payments is calculated in accordance with IFRS 2 Share-based payments.
Inventories
Inventories are stated at the lower of cost and net realisable value. Cost is calculated using the weighted average cost
method. Cost includes materials, direct labour, depreciation of manufacturing assets and an attributable proportion
of manufacturing overheads based on normal levels of activity. Net realisable value is the estimated selling price,
less all estimated costs of completion and costs to be incurred in marketing, selling and distribution.
If net realisable value is lower than the carrying amount, a write down provision is recognised for the amount by
which the carrying amount exceeds its net realisable value.
Inventories manufactured prior to regulatory approval are capitalised as an asset but provided for until there is a high
probability of regulatory approval of the product. At the point when a high probability of regulatory approval is
obtained, the provision is adjusted appropriately to increase the carrying value to expected net realisable value,
which may not exceed original cost.
Adjustments to the provision for inventories manufactured prior to regulatory approval are recorded as a component
of research and development expenditure. Adjustments to the provision against commercial product related
inventories manufactured following achievement of regulatory approval are recorded as a component of cost of
goods.
F-11
Taxation
The tax expense represents the sum of the tax currently payable or recoverable and deferred tax. Current and
deferred taxes are recognised in profit or loss, except when they relate to items that are recognised in other
comprehensive income or directly in equity, in which case, the current and deferred tax are also recognised in other
comprehensive income or directly in equity, respectively. Where current or deferred tax arises from the initial
accounting for a business combination, the tax effect is included in the accounting for the business combination.
The tax payable or recoverable is based on taxable profit for the year. Taxable profit differs from profit before tax as
reported in the consolidated income statement because it excludes items of income or expense that are taxable or
deductible in other years and it further excludes items that are never taxable or deductible. The Group’s liability for
current tax is calculated using tax rates and laws that have been enacted or substantively enacted by the balance
sheet date.
Deferred tax is the tax expected to be payable or recoverable on differences between carrying amounts of assets and
liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and
is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all
taxable temporary differences and deferred tax assets are recognised only to the extent that it is probable that taxable
profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities
are not recognised if the temporary difference arises from the initial recognition of goodwill or from the initial
recognition (other than in a business combination) of assets and liabilities in a transaction that affects neither the
taxable profit nor the accounting profit.
Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and
associates, and interests in joint ventures, except where the Group is able to control the reversal of the temporary
difference and it is probable that the temporary difference will not reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is
no longer probable that sufficient future taxable profits will be available to allow all or part of the asset to be
recovered.
Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the
asset is realised based on tax laws and rates that have been enacted at the balance sheet date. Deferred tax is charged
or credited in the consolidated income statement, except when it relates to items charged or credited in other
comprehensive income, in which case the deferred tax is also dealt with in other comprehensive income.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets
against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the
Group intends to settle its current tax assets and liabilities on a net basis.
(Loss)/Earnings per Share
Basic earnings or loss per share represents the profit or loss for the year, divided by the weighted average number of
ordinary shares in issue during the year, excluding the weighted average number of ordinary shares held in the GW
Pharmaceuticals All Employee Share Scheme (the “ESOP”) during the year to satisfy employee share awards.
Diluted earnings or loss per share represents the profit or loss for the year, divided by the weighted average number
of ordinary shares in issue during the year, excluding the weighted average number of shares held in the ESOP
during the year to satisfy employee share awards, plus the weighted average number of dilutive shares resulting
from share options or warrants where the inclusion of these would not be antidilutive.
Retirement Benefit Costs
The Group does not operate any pension plans, but makes contributions to personal pension arrangements of its
Executive Directors and employees. The amounts charged to the consolidated income statement in respect of
pension costs are the contributions payable in the year. Differences between contributions payable in the year and
contributions paid are shown as either accruals or prepayments in the consolidated balance sheet.
Foreign Currency
The individual financial statements of each Group company are presented in the currency of the primary economic
environment in which it operates (its functional currency). For the purpose of the consolidated financial statements,
the results and financial position of each Group company are expressed in Pounds Sterling.
F-12
In preparing the financial statements of the individual companies, transactions in currencies other than the entity’s
functional currency (foreign currencies) are recorded at the rate of exchange at the date of the transaction. Monetary
assets and liabilities denominated in foreign currencies at the balance sheet date are retranslated at the rates of
exchange prevailing at that date. Non-monetary items carried at fair value that are denominated in foreign currencies
are translated at the rates prevailing at the date when the fair value was determined. Non-monetary items that are
measured in terms of historical cost in a foreign currency are not retranslated.
For the purpose of presenting consolidated financial statements, the assets and liabilities of the Group’s foreign
operations are translated at exchange rates prevailing on the balance sheet date. Income and expense items are
translated at the average exchange rate for the period, unless exchange rates fluctuate significantly during the period,
in which case the exchange rates at the date of transactions are used. Exchange differences arising, if any, are
recognised in other comprehensive income and accumulated in equity.
Share-based payments
The Group operates a number of equity-settled share-based compensation plans under which the Company receives
services from employees as consideration for equity instruments (options) of the Company. The fair value of the
employee services received in exchange for the grant of the awards is recognised as an expense. The total amount to
be expensed is determined by reference to the fair value of the options granted (excluding the effect of any non-
market-based performance and service vesting conditions) at the date of grant.
The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line
basis over the vesting period, based on the Group’s estimate of shares that will eventually vest. At each balance
sheet date, the Group revises its estimate of the number of equity instruments expected to vest as a result of the
effect of non-market-based performance and service vesting conditions. The impact of the revision of the original
estimates, if any, is recognised in profit or loss such that the cumulative expense reflects the revised estimate, with a
corresponding adjustment to equity reserves.
Equity-settled share-based payment transactions with parties other than employees are measured at the fair value of
the goods or services received, except where that fair value cannot be estimated reliably, in which case they are
measured at the fair value of the equity instruments granted, measured at the date of grant.
Leases
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards
of ownership to the lessee. All other leases are classified as operating leases.
Rentals under operating leases are charged on a straight-line basis over the term of the relevant lease except where
another more systematic basis is more representative of the time pattern in which economic benefits from the lease
are consumed. Contingent rentals arising under operating leases are recognised as an expense in the period in which
they are incurred.
In the event that lease incentives are received to enter into operating leases, such incentives are recognised as a
liability. The aggregate benefit of incentives is recognised as a reduction of rental expense on a straight-line basis,
except where another systematic basis is more representative of the time pattern in which economic benefits from
the leased asset are consumed.
Assets held under finance leases are recognised as assets of the Group at their fair value or, if lower, the present
value of the minimum lease payments, each determined at the inception of the lease. The corresponding liability to
the lessor is included in the balance sheet as a finance lease obligation. Lease payments are apportioned between
finance charges and reduction of the finance lease obligation so as to achieve a constant rate of interest on the
remaining balance of the liability. Finance expenses are recognised immediately in profit or loss, unless they are
directly attributable to qualifying assets, in which case they are capitalised in accordance with the Group’s general
policy on borrowing costs. Contingent rentals are recognised as an expense in the periods in which they are incurred.
Financial Instruments
Financial assets and liabilities are recognised in the Group’s balance sheet when the Group becomes party to the
contractual provisions of the instrument.
All financial assets are recognised and derecognised on a trade date where the purchase or sale of a financial asset is
under a contract whose terms require delivery of the financial asset within the timeframe established by the market
concerned, and are initially measured at fair value, plus transaction costs, except for those financial assets classified
as at fair value through profit or loss, which are initially measured at fair value.
F-13
Financial assets are classified into the following specified categories: financial assets “at fair value through profit or
loss”, “held-to-maturity” investments, “available-for-sale” financial assets and “loans and receivables”. The
classification depends on the nature and purpose of the financial assets and is determined at the time of initial
recognition.
For each reporting period covered herein, the Group’s financial assets were restricted to “loans and receivables”.
Loans and Receivables
Trade receivables that have fixed or determinable payments that are not quoted in an active market are classified as
“loans and receivables”. Loans and receivables are measured at amortised cost, less any impairment. Interest income
is recognised by applying the effective interest rate, except for short-term receivables when the recognition of
interest would be immaterial.
Trade receivables are assessed for indicators of impairment at each balance sheet date. Trade receivables are
impaired where there is objective evidence that, as a result of one or more events that occurred after initial
recognition, the estimated future cash flows of the receivables have been affected. Appropriate allowances for
estimated irrecoverable amounts are recognised in the consolidated income statement. The allowance recognised is
measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows
discounted at the effective interest rate computed at initial recognition.
Cash and Cash Equivalents
Cash and cash equivalents comprise cash in hand and on-call deposits held with banks and other short-term highly
liquid investments with a maturity of three months or less.
Financial Liabilities
Financial liabilities are classified as either financial liabilities “at fair value through profit and loss” or “other financial
liabilities”. For each reporting period covered herein, the Group’s financial liabilities were restricted to “other financial
liabilities”.
Other Financial Liabilities
Trade payables are initially recognised at fair value and then held at amortised cost which equates to nominal value.
Long-term payables are discounted where the effect is material.
All borrowings are initially recorded at the amount of proceeds received, net of transaction costs. Borrowings are
subsequently carried at amortised cost, using the effective interest method. The difference between the proceeds, net
of transaction costs, and the amount due on redemption being recognised as a charge to the income statement over the
period of the relevant borrowing.
The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating
interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future
cash payments through the expected life of the financial liability, or, where appropriate, a shorter period, to the net
carrying amount on initial recognition.
Critical Judgements in Applying the Group’s Accounting Policies
In the application of the Group’s accounting policies, which are described above, the Board of Directors are required
to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not
readily apparent from other sources. The estimates and associated assumptions are based on historical experience
and other factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised
in the period in which the estimate is revised if the revision affects only that period or in the period of the revisions
and future periods if the revision affects both current and future periods.
The following are the critical judgements, apart from those involving estimations (which are dealt with separately
below), that the Directors have made in the process of applying the Group’s accounting policies and that have the
most significant effect on the amounts recognised in the financial statements.
Recognition of Clinical Trials Expenditure
The Group recognises expenditure incurred in carrying out clinical trials during the course of conduct of each
clinical trial in line with the state of completion of each trial. This involves the calculation of clinical trial accruals at
each period end to account for expenditure which has been incurred. This requires estimation of the expected full
cost to complete the trial and also estimation of the current stage of trial completion.
F-14
Clinical trials usually take place over extended time periods and typically involve a set-up phase, a recruitment
phase and a completion phase which ends upon the receipt of a final report containing full statistical analysis of trial
results. Accruals are prepared separately for each in-process clinical trial and take into consideration the stage of
completion of each trial including the number of patients that have entered the trial, the number of patients that have
completed treatment and whether the final report has been received. In all cases, the full cost of each trial is
expensed by the time the final report has been received.
Revenue Recognition
The Group recognises revenue from product sales, licensing fees, collaboration fees, technical access fees,
development and approval milestone fees, research and development fees and royalties. Agreements with
commercial partners generally include a non-refundable up-front fee, milestone payments, the receipt of which is
dependent upon the achievement of certain clinical, regulatory or commercial milestones, as well as royalties on
product sales of licensed products, if and when such product sales occur. For these agreements, the Group is
required to apply judgement in the allocation of total agreement consideration to the separately identifiable
components on a reliable basis that reasonably reflects the selling prices that might be expected to be achieved in
stand-alone transactions.
Product revenue received is based on a contractually agreed percentage of our commercial partner’s in-market net
sales revenue. The commercial partner’s in-market net sales revenue is the price per vial charged to end customers,
less set defined deductible overheads incurred in distributing the product. In developing estimates, the Group uses
monthly unit sales and in-market sales data received from commercial partners during the course of the year. For
certain markets, where negotiations are ongoing with local reimbursement authorities, an estimated in-market sales
price is used, which requires the application of judgement in assessing whether an estimated in-market sales price is
reliably measurable. In the Group’s assessment, the Group considers, inter alia, identical products sold in similar
markets and whether the agreed prices for those identical products support the estimated in-market sales price. In the
event that the Group considers there to be significant uncertainty with regards to the in-market sales price to be
charged by the commercial partner as a result of, as an example, ongoing pricing negotiations with local health
authorities, such that it is not possible to reliably measure the amount of revenue that will flow to the Group, the
Group would not recognise revenue until that uncertainty has been resolved.
The Group applies the percentage of completion revenue recognition method to certain classes of revenue. The
application of this approach requires the judgement of the Group with regards to the total costs incurred and total
estimated costs expected to be incurred over the length of the agreement.
Key Sources of Estimation Uncertainty
The key assumptions concerning the future, and other key sources of estimation uncertainty at the balance sheet
date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities
within the next financial year, are discussed below.
Rebate Provision
The Group maintains a rebate provision for expected reimbursements to our commercial partners in circumstances in
which actual net revenue per vial differs from the invoiced net revenue per vial as a consequence of, as an example,
ongoing pricing negotiations with local health authorities.
The amount of the rebate provision is based on, amongst other things, monthly unit sales and in-markets sales data
received from commercial partners and represents management’s best estimate of the rebate expected to be required
to settle this present obligation at the end of the reporting period.
Pricing decisions made by local health authorities, including revisions and clarifications that have retroactive
application can result in changes to management’s estimates of the rebates reported in prior periods.
Aggregate rebate provision accruals as at 30 September 2015 and 2014 were £0.8 million and £1.4 million,
respectively.
Provision for Inventories
The Group maintains inventories which, based upon current sales levels and the current regulatory status of the
product in each indication, is in-excess of the amount that is expected to be utilised in the manufacture of finished
product for future commercial sales.
F-15
Provision is therefore made to reduce the carrying value of the excess inventories to their expected net realisable
value.
The provision for inventories and adjustments thereto, are estimated based on evaluation of the status of the
regulatory approval, projected sales volumes and growth rates. The timing and extent of future provision
adjustments will be contingent upon timing and extent of future regulatory approvals and post-approval in-market
sales demand, which remain uncertain at this time.
Deferred Taxation
At the balance sheet date, the Group has accumulated tax losses of £74.0 million (2014: £34.3 million) and other
temporary differences of £20.7 million (2014: £11.6 million) available to offset against future profits. If the value of
these losses and other temporary differences were recognised within the Group’s balance sheet at the balance sheet
date, the Group would be carrying an additional deferred tax asset of £18.9 million (2014: £9.2 million). However,
as explained in the tax accounting policy note, the Group’s policy is to recognise deferred tax assets only to the
extent that it is probable that future taxable profits, feasible tax-planning strategies, and deferred tax liabilities will
be available against which the brought forward trading losses can be utilised. Estimation of the level of future
taxable profits is therefore required in order to determine the appropriate carrying value of the deferred tax asset at
each balance sheet date.
Research and Development Tax Credit
The Group's research and development tax credit claim is complex and requires management to interpret and apply
UK research and development tax legislation to the Group's specific circumstances and requires the use of certain
assumptions in estimating the portion of current year research costs that are eligible for the claim.
Adoption of New and Revised Standards
In the current year, the following revised standards have been adopted in these financial statements. Adoption has
not had a significant impact on the amounts reported in these financial statements but may impact the accounting for
future transactions and arrangements.
Amendments to IAS19 Defined Benefit Plans: Employee Contributions (Nov 2013)
Annual Improvements to IFRSs 2011–2013 Cycle (Dec 2013)
Annual Improvements to IFRSs 2010–2012 Cycle (Dec 2013)
At the date of authorisation of these financial statements, the following Standards and Interpretations which have not
been applied in these financial statements were issued by the IASB but not yet effective:
IFRS 9 Financial Instruments (Jul 2014)
IFRS 14 Regulatory Deferral Accounts (Jan 2014)
IFRS 15 Revenue from Contracts with Customers (May 2014)
Annual Improvements to IFRSs 2012–2014 Cycle (Sep 2014)
Amendments to IFRS 10, IFRS 12 and IAS 28: Investment Entities - Applying the Consolidation Exception (Dec
2014)
Amendments to IAS 1: Disclosure Initiative (Dec 2014)
Amendments to IFRS 10 and IAS 28: Sale or Contribution of Assets between an Investor and its Associate or Joint
Venture (Sep 2014)
Amendments to IAS 27: Equity Method in Separate Financial Statements (Aug 2014)
Amendments to IAS 16 and IAS 41: Bearer Plants (Jun 2014)
Amendments to IAS 16 and IAS 38: Clarification of Acceptable Methods of Depreciation and Amortisation (May
2014)
Amendments to IFRS 11: Accounting for Acquisitions of Interests in Joint Operations (May 2014)
IFRS 15 establishes comprehensive guidelines for determining when to recognise revenue and how much revenue to
recognise. The core principle in that framework is that a company should recognise revenue to depict the transfer of
promised goods or services to the customer in an amount that reflects the consideration to which the company
expects to be entitled in exchange for those goods or services. The standard was published in May 2014 and the
effective date has been delayed to reporting periods beginning on or after 1 January 2018. The Group has delayed
the finalisation of its work on the implementation due to the recent uncertainty regarding the final effective date.
However, the impact is expected to be limited to historic revenue-generative partner agreements. The Directors do
not expect that the adoption of other standards and Interpretations in future periods will have a material impact on
the financial statements of the Group.
F-16
3. Segmental Information
Information reported to the Company’s Board of Directors, the chief operating decision maker for the Group, for the
purposes of resource allocation and assessment of segment performance is focused on the stage of product
development. The Group’s reportable segments are as follows:
Commercial: The Commercial segment distributes and sells the Group’s commercial products. Currently Sativex
is promoted through strategic collaborations with major pharmaceutical companies for the currently approved
indication of spasticity due to MS. The commercial segment will include revenues from the direct marketing of
other future approved commercial products. The Group has licensing agreements for the commercialisation of
Sativex with Almirall S.A. in Europe (excluding the United Kingdom) and Mexico, Otsuka Pharmaceutical Co.
Ltd. (“Otsuka”) in the U.S., Novartis Pharma AG in Australia, New Zealand, Asia (excluding Japan, China and
Hong Kong), the Middle East and Africa, Bayer HealthCare AG in the United Kingdom and Canada, Neopharm
Group in Israel and Ipsen Biopharm Ltd. in Latin America (excluding Mexico and the Islands of the Caribbean).
Commercial segment revenues include product sales, royalties, license, collaboration, and technical access fees,
and development and approval milestone fees.
Sativex Research and Development: The Sativex Research and Development (“Sativex R&D”) segment seeks to
maximise the potential of Sativex through the development of new indications. The focus during the period for this
segment was the Phase 3 clinical development programme of Sativex for use in the treatment of cancer pain. The
Group also believe that MS spasticity represents an attractive indication for the U.S. and consequently, the Group
intends to pursue an additional clinical development programme for this significant market opportunity. In addition,
Sativex has shown promising efficacy in Phase 2 trials in other indications such as neuropathic pain, but these areas
are not currently the subject of full development programmes. Sativex Research and Development segment
revenues consist of research and development fees charged to Sativex licensees.
Pipeline Research and Development: The Pipeline Research and Development (“Pipeline R&D”) segment seeks
to develop cannabinoid medications other than Sativex across a range of therapeutic areas using the Group's
proprietary cannabinoid technology platform. The Group’s product pipeline includes Epidiolex®, a treatment for
Dravet syndrome and Lennox-Gastaut syndrome, a second epilepsy product candidate as well as other product
candidates in Phase 1 and 2 clinical development for glioma, adult epilepsy, type-2 diabetes and schizophrenia.
Pipeline Research and Development segment revenues consist of research and development fees charged to Otsuka
under the terms of our pipeline research collaboration agreement.
The accounting policies of the reportable segments are consistent with the Group’s accounting policies described in
note 2. Segment result represents the result of each segment without allocation of share-based payment expenses,
and before management and administrative expenses, interest expense, interest income and tax.
No measures of segment assets and segment liabilities are reported to the Group's Board of Directors in order to
assess performance and allocate resources. There is no intersegment activity and all revenue is generated from
external customers.
F-17
Segment Results
For the Year Ended 30 September 2015
Sativex
R&D
£000s
Pipeline
R&D
£000s
Total
Reportable
Segments
£000s
Unallocated
Costs1
£000s
Consolidated
£000s
Commercial
£000s
Revenue:
Product sales
Research and development fees
License, collaboration and technical
access fees
Development and approval milestones
Total revenue
Cost of sales
Research and development expenditure
Segmental result
Sales, general and administrative
expenses
Net foreign exchange gain
Operating loss
Interest expense
Interest income
Loss before tax
Tax benefit
Loss for the year
4,255
–
– 22,275
–
535
4,255
22,810
–
–
4,255
22,810
1,287
188
–
–
–
–
535
5,730 22,275
–
–
(2,618)
– (26,398) (48,862)
(4,123) (48,327)
3,112
1,287
188
28,540
(2,618)
(75,260)
(49,338)
–
–
–
–
(1,525)
(1,525)
1,287
188
28,540
(2,618)
(76,785)
(50,863)
(12,569)
6,202
(57,230)
(75)
244
(57,061)
12,498
(44,563)
The following is an analysis of depreciation, impairment of property, plant and equipment and the movement in the
provision for inventories by segment for the year ended 30 September 2015:
Depreciation
Amortization
Impairment of property, plant, and
equipment
Increase in provision for inventories
Commercial
£000s
(107)
–
Sativex
R&D
£000s
(530)
–
Pipeline
R&D
£000s
(1,500)
(4)
Unallocated
Costs
£000s
(113)
(48)
Consolidated
£000s
(2,250)
(52)
£000s
(2,137)
(4)
Total
Reportable
Segments
–
(33)
(606)
–
–
–
(606)
(33)
–
–
(606)
(33)
1 Unallocated costs represent the portion of share-based payment expenditures which is included in research and
development expenditure, but which is not allocated to segments. The remaining share-based payment
expenditure is included within sales, general and administrative expenses, which is similarly excluded from
segmental result.
F-18
Segment Results
For the Year Ended 30 September 2014
Revenue:
Product sales
Research and development fees
License, collaboration and technical
access fees
Total revenue
Cost of sales
Research and development
credit/(expenditure)
Segmental result
Sales, general and administrative
expenses
Net foreign exchange gain
Operating loss
Interest expense
Interest income
Loss before tax
Tax benefit
Loss for the year
Commercial1
£000s
Sativex
R&D
£000s
Pipeline
R&D
£000s
Total
Reportable
Segments
£000s
Unallocated
Costs2
£000s
Consolidated
£000s
4,382
–
– 23,618
–
667
4,382
24,285
1,378
–
5,760 23,618
–
(2,060)
–
667
–
1,378
30,045
(2,060)
–
–
–
–
–
4,382
24,285
1,378
30,045
(2,060)
847 (26,444) (17,103)
(2,826) (16,436)
4,547
(42,700)
(14,715)
(775)
(775)
(43,475)
(15,490)
(7,337)
3,188
(19,639)
(61)
130
(19,570)
4,911
(14,659)
The following is an analysis of depreciation and the movement in the provision for inventories by segment for the
year ended 30 September 2014:
Depreciation
Decrease/(increase) in provision for
inventories
Commercial
£000s
(111)
Sativex
R&D
£000s
(662)
Pipeline
R&D
£000s
(566)
Unallocated
Costs
£000s
(59)
Consolidated
£000s
(1,398)
£000s
(1,339)
Total
Reportable
Segments
847
(261)
(178)
408
–
408
1 The research and development credit in the commercial segment is the element of the inventory provision
movement that relates to commercial inventory.
2 Unallocated costs represent the portion of share-based payment expenditures which is included in research and
development expenditure, but which is not allocated to segments. The remaining share-based payment
expenditure is included within sales, general and administrative expenses, which is similarly excluded from
segmental result.
F-19
Segment Results
For the Year Ended 30 September 2013
Revenue:
Product sales
Research and development fees
License, collaboration and technical
access fees
Development and approval milestone
fees
Total revenue
Cost of sales
Research and development
credit/(expenditure)
Segmental result
Sales, general and administrative
expenses
Net foreign exchange loss
Operating loss
Interest expense
Interest income
Loss before tax
Tax benefit
Loss for the year
Commercial1
£000s
Sativex
R&D
£000s
Pipeline
R&D
£000s
Total
Reportable
Segments
£000s
Unallocated
Costs2
£000s
Consolidated
£000s
2,157
–
– 19,333
–
4,261
2,157
23,594
1,294
–
–
1,294
250
–
3,701 19,333
–
(1,276)
–
4,261
–
250
27,295
(1,276)
–
–
–
–
–
–
2,157
23,594
1,294
250
27,295
(1,276)
597 (23,737)
(4,404)
3,022
(9,240)
(4,979)
(32,380)
(6,361)
(317)
(317)
(32,697)
(6,678)
(3,555)
(237)
(10,470)
(64)
178
(10,356)
5,807
(4,549)
The following is an analysis of depreciation and the movement in the provision for inventories by segment for the
year ended 30 September 2013:
Depreciation
Decrease/(increase) in provision for
inventories
Commercial
£000s
–
Sativex
R&D
£000s
(560)
Pipeline
R&D
£000s
(429)
Unallocated
Costs
£000s
–
Consolidated
£000s
(989)
£000s
(989)
Total
Reportable
Segments
597
(67)
–
530
–
530
1 The research and development credit in the commercial segment is the element of the inventory provision
movement that relates to commercial inventory.
2 Unallocated costs represent the portion of share-based payment expenditures which is included in research and
development expenditure, but which is not allocated to segments. The remaining share-based payment
expenditure is included within sales, general and administrative expenses, which is similarly excluded from
segmental result.
F-20
Segment Results
Revenues from the Group’s largest customer are included within the above segments as follows:
Year ended 30 September 2015
Year ended 30 September 2014
Year ended 30 September 2013
Commercial
£000s
280
280
280
Sativex
R&D
£000s
22,275
23,618
19,333
Pipeline
R&D
£000s
535
667
4,261
Total
£000s
23,090
24,565
23,874
Revenues from the Group's second largest customer, the only other customer where revenues amount for more than
10% of the Group's revenues, are included within the above segments as follows:
Year ended 30 September 2015
Year ended 30 September 2014
Year ended 30 September 2013
Commercial
£000s
3,385
3,494
1,463
Sativex
R&D
£000s
–
–
–
Pipeline
R&D
£000s
–
–
–
Geographical Analysis of Revenue by Destination of Customer:
UK
Europe (excluding UK)
United States
Canada
Asia/Other
4. Research and Development Expenditure
GW-funded research and development
Development partner-funded research and development
2015
£000s
1,158
3,592
22,555
700
535
28,540
2015
£000s
53,975
22,810
76,785
2014
£000s
1,099
3,864
23,904
518
660
30,045
2014
£000s
19,190
24,285
43,475
Total
£000s
3,385
3,494
1,463
2013
£000s
577
2,290
19,508
587
4,333
27,295
2013
£000s
9,103
23,594
32,697
GW-funded research and development expenditure consists of costs associated with the Group's research activities.
These costs include costs of conducting pre-clinical studies or clinical trials, payroll costs associated with employing
a team of research and development staff, share-based payment expenses, property costs associated with leasing
laboratory and office space to accommodate research teams, costs of growing botanical raw material, costs of
consumables used in the conduct of in-house research programs, payments for research work conducted by sub-
contractors and sponsorship of work by a network of academic collaborative research scientists, costs associated
with safety studies and costs associated with the development of further Sativex Epidiolex, Sativex or other pipeline
product data.
Development partner-funded research and development expenditures include the costs of employing staff to work on
joint research and development plans, plus the costs of subcontracted pre-clinical studies and sponsorships of
academic scientists who collaborate with the Group. These expenditures are charged to the Group’s commercial
partners, principally Otsuka. The Group is the primary obligor for these activities and under the terms of the Sativex
development agreements, the Group uses both its internal resources and third-party contractors to provide contract
research and development services to its commercial partners.
F-21
5. Loss Before Tax
Loss before tax is stated after charging/(crediting):
Operating lease rentals – land and buildings
Depreciation of property, plant and equipment
Impairment of property, plant and equipment
Amortization of intangible assets
Increase/(decrease) provision for inventories
Allowance for doubtful debts – trade receivables
Foreign exchange (gain)/loss
Staff costs (see note 7)
6. Auditor’s Remuneration
The auditor for the years ended 30 September 2015, 2014 and 2013
was Deloitte LLP
Audit fees:
– Audit of the Group's annual accounts1
– Audit of the Company and subsidiaries pursuant to legislation
Total audit fees
Other services
– Audit-related assurance2
– Other assurance services3
Total non-audit fees
2015
£000s
1,473
2,250
606
52
33
–
(6,202)
23,083
2014
£000s
1,301
1,398
–
–
(408)
–
(3,188)
17,725
2013
£000s
1,186
989
–
–
(530)
(26)
237
10,686
2015
£000s
2014
£000s
2013
£000s
400
50
450
53
92
145
243
41
284
46
193
239
70
40
110
40
306
346
1 For the years ended 30 September 2015, 2014 and 2013, audit fees include amounts for the audit of the
consolidated financial statements in accordance with the International Standards of Auditing, and standards of the
Public Company Accounting Oversight Board (United States). For the years ended 30 September 2015 and 2014,
audit fees also include amounts for the audit of the Group’s internal controls over financial reporting. An
additional £156,000 was billed in respect of the 2014 audit during the year to 30 September 2015.
2 Audit-related assurance fees relate to fees for the performance of interim reviews, and other procedures on
interim results.
3 Other assurance services represents assurance reporting on historical financial information included in the
Company’s initial, shelf and follow-on US registration statements.
Audit-related fees include audit-related assurance and other assurance services. Other fees include all other services.
The audit committee’s policy is to pre-approve all audit, audit-related and other services performed by the auditor.
All such services were pre-approved during the years ended 30 September 2015, 2014 and 2013 under the audit
committee’s policy.
7. Staff Costs
The average number of Group employees (including Executive Directors) for the year ended 30 September was:
Research and development
2015
Number
288
2014
Number
202
2013
Number
170
Management and administration
34
322
21
223
18
188
F-22
Group aggregate remuneration comprised:
Wages and salaries
Social security costs
Other pension costs
Share-based payment
2015
£000s
2014
£000s
17,092
2,748
765
2,478
23,083
11,470
4,484
533
1,238
17,725
2013
£000s
8,442
1,103
525
616
10,686
Included in social security costs is UK National Insurance on unrealised share option gains.
8. Directors’ Remuneration
Directors’ remuneration and other benefits for the year ended 30 September were as follows:
Emoluments
Money purchase contributions to Directors’ pension arrangements
Gain on exercise of share options
2015
£000s
2,395
211
7,910
10,516
2014
£000s
2,688
203
5,526
8,417
2013
£000s
1,733
200
–
1,933
During 2015, five Directors were members of defined contribution pension schemes (2014 and 2013: five).
9. Interest
Interest expense – finance lease interest
Interest income – bank interest
10. Tax
a) Analysis of Tax Credit for the Year
Current year research and development tax credit
Current period tax charge
Adjustment in respect of prior year tax credit
Recognition of previously unrecognised deferred tax asset
Current year utilisation of deferred tax assets
Tax benefit
2015
£000s
(75)
244
2014
£000s
(61)
130
2013
£000s
(64)
178
2015
£000s
(12,641)
366
(165)
(335)
277
(12,498)
2014
£000s
(5,251)
-
(278)
(829)
1,447
(4,911)
2013
£000s
(2,900)
-
(2,012)
(2,872)
1,977
(5,807)
Tax credits relate to UK research and development tax credits claimed under the Finance Act 2000. The current
period tax charge relates to US taxation on the taxable profit for the Group's U.S. subsidiary.
Prior to 2013, the Group recognised uncertain benefits of enhanced research and development deductions and the
resulting tax credits when acceptance of the claim was reached with Her Majesty’s Revenue and Customs (UK)
(“HMRC”), resulting in a 2013 prior year adjustments of £2.0 million to the tax credit as shown above. Given that
there is now a sustained history of agreeing such claims with HMRC, the Group now recognises in full the estimated
benefit for qualifying current year research and development expenditures. Any difference in the credit ultimately
received is recorded as an adjustment in respect of prior year.
F-23
At 30 September 2015 the Group had tax losses available for carry forward of approximately £74.0 million (2014:
£34.3 million). Of such carried forward losses, the Group has recognized a deferred tax asset of £1.9 million (2014:
£0.6 million) up to the level of deferred tax liabilities arising in the same jurisdiction and additionally an asset
supportable by taxable income projections of £nil million (2014: £1.4 million). The Group has also recognized a
deferred tax asset of £0.4 million (2014: £nil) in respect of taxable temporary timing differences relating to future
potential share option deductions in another jurisdiction supportable by taxable income projections. In addition, the
Group has not recognized deferred tax assets relating to other temporary differences of £20.7 million (2014: £11.6
million). These deferred tax assets have not been recognized as the Group's management considers that there is
insufficient future taxable income, taxable temporary differences and feasible tax-planning strategies to utilize all of the
cumulative losses and therefore it is probable that the deferred tax assets will not be realized in full. If future income
differs from current projections, this could significantly impact the tax charge or benefit in future periods.
b) Factors Affecting the Tax Benefit for the Year
The tax benefit for the year can be reconciled to the tax benefit on the Group’s loss for the year at the standard UK
corporation tax rate as follows:
Loss before tax
Tax credit on Group loss before tax at the standard UK corporation tax
rate of 20.5% (2014: 22.0%; 2012: 23.5%)
Effects of:
Expenses not deductible in determining taxable profit
Impact of employee share acquisition relief
Income not taxable in determining taxable profit
Current year research and development tax credit
R&D enhanced tax relief and surrender of losses
Effect of unrecognised losses and temporary differences
Recognition of previously unrecognised deferred tax asset
Adjustment in respect of prior year tax credit
Tax
2015
£000s
(57,061)
2014
£000s
(19,570)
2013
£000s
(10,356)
(11,698)
(4,305)
(2,434)
233
(2,519)
-
(12,641)
7,756
6,536
-
(165)
(12,498)
1,070
(1,053)
(1)
(5,251)
3,875
1,861
(829)
(278)
(4,911)
-
-
(8)
(2,900)
2,225
2,150
(2,872)
(2,012)
(5,807)
The following are the major deferred tax liabilities and assets recognised by the Group and movements thereon
during the current and prior reporting periods:
At 1 October 2012
(Charged)/credited to profit or loss
At 1 October 2013
Credited/(charged) to profit or loss
At 1 October 2014
Credited/(charged) to profit or loss
Credited/(charged) to equity
At 30 September 2015
Accelerated
Tax
Depreciation
£000s
(277)
(463)
(740)
135
(605)
(1,290)
–
(1,895)
Other
Temporary
Differences
£000s
277
(277)
–
–
–
–
–
–
Tax
Losses
£000s
–
1,635
1,635
(753)
882
1,002
–
1,884
Share
Based
Payment
£000s
–
–
–
–
–
345
84
429
Total
£000s
–
895
895
(618)
277
57
84
418
Deferred tax assets and liabilities have been offset where the Group has a legally enforceable right to do so, and
intends to settle on a net basis. The taxing authority permits the Group to make or receive a single net payment for
all UK subsidiaries. The Group's U.S. subsidiary operates in a different jurisdiction with no legally enforceable right
to offset against UK tax charges or credits.
On 26 October 2015, the UK Government substantively enacted a reduction in the main rate of corporation tax from
20% to 19% with effect from 1 April 2017. The main rate of corporation will be reduced by a further 1% to 18%
with effect from 1 April 2020. The enacted UK tax rate until 1 April 2015 was 21%.
F-24
11. Loss Per Share
The calculations of loss per share are based on the following data:
Loss for the year – basic and diluted
Weighted average number of ordinary shares
Less ESOP trust ordinary shares1
Weighted average number of ordinary shares for purposes of basic
earnings per share
Effect of potentially dilutive shares arising from share options2
Weighted average number of ordinary shares for purposes of diluted
earnings per share
Loss per share – basic
Loss per share – diluted
2015
£000s
(44,563)
2014
£000s
(14,659)
2013
£000s
(4,549)
Number of Shares
2015
Million
246.4
–
2014
Million
210.4
–
2013
Million
151.5
–
246.4
–
246.4
(18.1)p
(18.1)p
210.4
–
151.5
–
210.4
(7.0)p
(7.0)p
151.5
(3.0)p
(3.0)p
1 As at 30 September 2015, 33,054 ordinary shares were held in the ESOP trust (2014 and 2013: 34,706). The
effect is less than 0.1 million shares, and consequently these have not been presented above.
2 The Group incurred a loss in each of the financial years above. As a result, the inclusion of potentially dilutive
share options in the diluted loss per share calculation would have an antidilutive effect on the loss per share for
the period. The impact of 7.8 million share options have therefore been excluded from the diluted loss per share
calculation for the year ended 30 September 2015 (30 September 2014: 9.5 million and 30 September 2013: 6.7
million).
12. Intangible Assets – Goodwill
Group
Cost – As at 1 October
Net book value – As at 30 September
2015
£000s
5,210
5,210
2014
£000s
5,210
5,210
Goodwill arose upon the acquisition of GW Research Limited (formerly G-Pharm Limited) by GW Pharma Limited
in 2001. For impairment testing purposes, all goodwill has been allocated to the commercial segment as a separate
cash-generating unit. Goodwill has an indefinite useful life and is tested annually for impairment or more frequently
if there are indications of impairment.
The Company has determined the recoverable amount of the commercial segment based on a value-in-use
calculation. This calculation uses pre-tax cash flow projections based on financial budgets approved by management
covering a two-year period. Cash flows beyond the two-year period are based upon detailed internal and external
third party analysis of the Company's product opportunity or are extrapolated using the estimated growth rates stated
below.
Management has determined the following assumptions to be the key assumptions in the calculation of value-in-use
for the Commercial segment:
Growth rate – sales volume in each period is the main driver for revenue and costs. The same growth rates have
been used in financial budgets and are consistent with in-market run rates, guidance from marketing partners and
internal commercial forecasts based on a 10 year period.
Long-term growth rate – A 0% growth rate has been applied after 10 years (2014: 0% after five years). This
approach has been adopted by management as it is representative of product lifecycles in the pharmaceutical sector.
In future periods, depending on the performance of the Commercial segment, it may be necessary to revise the
terminal growth rate.
F-25
Discount rate – a 14.3% (2014: 13.2%) pre-tax rate has been used. This is considered appropriate for the purpose of
impairment reviews as it reflects the current market assessment of the time value of money and the risks specific to
the cash-generating unit.
Any reasonably possible change in the key assumptions on which value-in-use is based would not cause the carrying
amount to exceed the recoverable amount of the commercial segment.
F-26
13. Other Intangible Assets
Group
Cost
At 1 October 2014
Additions
Reclassifications from Property, Plant and Equipment
At 30 September 2015
Accumulated amortization
At 1 October 2014
Charge for the year
Reclassifications
At 30 September 2015
Net book value
At 30 September 2015
At 30 September 2014
Intangible
Assets Under
the Course of
Construction
£000’s
Software
£000's
Licences
£000's
Total
£000’s
–
55
11
66
–
–
–
–
66
–
–
76
144
220
–
48
48
96
124
–
–
59
–
59
–
4
–
4
55
–
–
190
155
345
–
52
48
100
245
–
Included in additions are £0.1 million of other intangible assets which are unpaid at the balance sheet date and are
included in trade and other payables (2014: £nil).
14. Property, Plant and Equipment
Group
Cost
At 1 October 2013
Additions
Transfers of completed assets
Disposals
At 1 October 2014
Additions
Reclassifications to Other Intangible
Assets
Transfers of completed assets
Disposals
At 30 September 2015
Accumulated depreciation and
impairment
At 1 October 2013
Disposals
Charge for the year
At 1 October 2014
Disposals
Assets Under
the Course of
Construction
Plant,
Machinery
and Lab
Equipment
Office and IT
Equipment
Leasehold
Improvements
£000’s
£000’s
£000’s
£000’s
1,164
5,617
(291)
–
6,490
12,374
(11)
(1,570)
–
17,283
–
–
–
–
–
4,272
383
–
–
4,655
3,056
–
570
(366)
7,915
2,862
–
522
3,384
(365)
1,092
256
130
–
1,478
2,054
(144)
–
(41)
3,347
611
–
307
918
(41)
3,203
1,321
161
(28)
4,657
2,574
–
1,000
(67)
8,164
782
(12)
569
1,339
(67)
Total
£000’s
9,731
7,577
–
(28)
17,280
20,058
(155)
–
(474)
36,709
4,255
(12)
1,398
5,641
(473)
F-27
Assets Under
the Course of
Construction
Plant,
Machinery
and Lab
Equipment
Office and IT
Equipment
Leasehold
Improvements
Charge for the year
Impairment of assets
Reclassifications
At 30 September 2015
Net book value
At 30 September 2015
At 30 September 2014
£000’s
–
606
–
606
16,677
6,490
£000’s
746
–
–
3,765
4,150
1,271
£000’s
510
–
(48)
1,339
2,008
560
£000’s
994
–
–
2,266
Total
£000’s
2,250
606
(48)
7,976
5,898
3,318
28,733
11,639
The impairment loss on assets under the course of construction arose in connection with the proposed change in use
of manufacturing assets whereby the recoverable value of the assets did not exceed their carrying value.
The net book value of property, plant and equipment at 30 September 2015 includes £1.5 million in respect of assets
held under finance leases (2014: £1.7 million). In addition, assets under the course of construction include £1.0
million of capitalised interest (2014: £0.3 million). Included in additions is £1.4 million of property, plant and
equipment which is unpaid and is included in trade and other payables (2014: £nil).
15. Inventories
Raw materials
Work in progress
Finished goods
Total inventories, net of provision
2015
£000s
317
3,686
753
4,756
2014
£000s
210
3,885
682
4,777
Inventories with a carrying value of £2.7 million are considered to be recoverable after more than one year from the
balance sheet date, but within the Group’s normal operating cycle (2014: £3.2 million).
The provision for inventories relates to inventories expected to be utilised in the Group’s R&D activities. The
movement in the provision for inventories is as follows:
Opening balance – as at 1 October
Write down of inventories
Write off of inventories included in the provision
Reversal of write down of inventories
Closing balance as at 30 September
2015
£000s
351
98
(318)
(65)
66
2014
£000s
1,601
625
(842)
(1,033)
351
The reversal of write down is as a result of an increased level of production, reducing the level of work in progress
expected to expire before use.
Write off of inventories previously provided for does not impact cash flow.
F-28
16. Trade and Other Receivables
Amounts falling due within one year
Trade receivables
Prepayments and accrued income
Other receivables
Group
2015
£000s
373
1,544
956
2,873
2014
£000s
612
436
809
1,857
Trade receivables disclosed above are classified as loans and receivables and are therefore measured at amortised
cost.
Trade receivables at 30 September 2015 represent five days of sales (2014: seven days). The average trade
receivable days during the year ended 30 September 2015 was 22 days (2014: 37 days). The credit period extended
to customers is 30 to 60 days.
The trade receivables balance at 30 September 2015 consisted of balances due from four customers (2014: seven
customers) with the largest single customer representing 46% (2014: 45%) of the total amount due. The Group’s
customers consist of a small number of large pharmaceutical companies, where the risk attributable to each customer
is considered to be low. The Group seeks to mitigate credit risk by seeking payments in advance from
pharmaceutical partners for expenditure to be incurred on their behalf.
No interest is charged on trade receivables. No impairment losses were recognised during the year ended 30
September 2015 (2014: £nil).
The Directors consider that the carrying value of trade receivables approximates to their fair value due to the short
maturity thereof.
17. Trade and Other Payables
Amounts falling due within one year
Other creditors and accruals
Clinical trial accruals
Trade payables
Fit out funding (see note 18)
Other taxation and social security
Amounts falling due after one year
Fit out funding (see note 18)
Group
2015
£000s
2014
£000s
10,714
8,374
3,795
348
791
24,022
5,976
3,138
2,342
218
702
12,376
8,445
32,467
7,927
20,303
Trade payables principally comprise amounts outstanding for trade purchases and ongoing costs.
Trade payables at 30 September 2015 represent the equivalent of 17 days purchases (2014: 23 days).
The average credit period taken for trade purchases during the year ended 30 September 2015 was 17 days (2014: 20
days).
F-29
For most suppliers, no interest is charged on invoices that are paid within a pre-agreed trade credit period. The
Group has procedures in place to ensure that invoices are paid within agreed credit terms so as to ensure that interest
charges by suppliers are minimised.
The Directors consider that the carrying value of trade payables approximates to their fair value due to the short
maturity thereof.
18. Fit out funding
On 19 November 2013 the Group entered into an agreement with its landlord to receive fit out funding of £7.8 million
to fund the expansion and upgrades to manufacturing facilities. The funds were received in tranches, with the final
amount received on 1 July 2014. The repayment of the borrowing will take the form of quarterly rental payments
totalling £1.0 million annually over a period of 15 years, commencing on the date the Group enters into the associated
lease of the building. As at 30 September 2015 no repayments have been made and the first repayment is expected to
commence during the second quarter of the year ending 30 September 2016. As at 30 September 2015 associated
interest of £1.0 million has been incurred (30 September 2014: £0.3 million). The total liability at 30 September 2015
is £8.8 million (30 September 2014: £8.1 million). The Group has estimated that £0.4 million of the total liability will
be due within one year and the remaining £8.4 million is due after one year.
The liability in respect of the funding was initially recognised at the amount of proceeds received, net of transaction
costs and has been subsequently carried at amortised cost using the effective interest method and a rate of 7.2% (30
September 2014: 8.0%).
The following table detail the Group’s remaining contractual maturity for its borrowings and the related interest
payments. The tables are based on the undiscounted cash flows of financial liabilities based on the earliest date on
which the Group could be required to pay. The table includes cash flows for both interest, based on the rate applicable
as at 30 September 2015, and principal amounts:
Forward projection of cash flows as at 30 September 2015
<1 year
£’000
348
516
864
1-2
years
£’000
369
596
965
2-3
years
£’000
397
568
965
Principal
Interest
Total
Forward projection of cash flows as at 30 September 2014
<1 year
£’000
218
204
422
1-2
years
£’000
327
638
965
2-3
years
£’000
338
627
965
Principal
Interest
Total
3-4
years
£’000
426
539
965
3-4
years
£’000
366
599
965
4-5
years
£’000
456
509
965
4-5
years
£’000
396
569
965
5+
years
£’000
7,011
2,740
9,751
5+
years
£’000
6,767
3,426
10,193
Total
£’000
9,007
5,468
14,475
Total
£’000
8,412
6,063
14,475
F-30
19. Obligations Under Finance Leases
Group
Amounts payable under finance leases:
Within one year
In the second to fifth years inclusive
After five years
Less: future finance charges
Present value of lease obligations
Amounts payable under finance leases:
Amounts due for settlement within 12 months
Amounts due for settlement after 12 months
Minimum Lease Payments
2014
£000s
2015
£000s
176
703
1,206
2,085
(434)
1,651
200
838
1,382
2,420
(513)
1,907
Present Value of
Lease Payments
2015
£000s
111
1,540
1,651
2014
£000s
126
1,781
1,907
It is the Group’s policy to lease certain of its property, plant and equipment under finance leases. The weighted
average lease term remaining is 12.1 years (2014: 12.3 years). For the year ended 30 September 2015, the average
effective borrowing rate was 4% (2014: 4%). Interest rates are fixed at the contract date. All leases to date have been
on a fixed repayment basis and no arrangements have been entered into for contingent rental payments.
All lease obligations are denominated in Pounds Sterling.
The carrying value of the Group’s lease obligations as at 30 September 2015 approximates to their fair value.
The Group’s obligations under finance leases are generally secured by the lessors’ rights over the leased assets.
20. Deferred Revenue
Amounts falling due within one year
Deferred license, collaboration, and technical access fee income1
Advance research and development fees2
Amounts falling due after one year
Deferred license, collaboration and technical access fee income1
Group
2015
£000s
1,260
2,009
3,269
2014
£000s
1,366
3,461
4,827
6,725
7,881
1 Deferred revenue primarily relates to up-front license fees received in 2005 of £12.0 million from Almirall S.A.
(deferred revenue balance as at 30 September 2015: £4.3 million; 30 September 2014: £5.1 million) and
collaboration and technical access fees from other Sativex licensees. Amounts deferred under each agreement
will be recognised in revenue as disclosed in note 2.
2 Advance payments received represent payments for research and development activities to be carried out in the
next year on behalf of Otsuka. These amounts will be recognised as revenue in future periods as the services are
rendered.
21. Financial Instruments
The Group manages its capital to ensure that entities in the Group will be able to continue operating as a going
concern while maximising shareholder returns. The Group’s overall strategy remains unchanged from 2014.
F-31
Group senior management are responsible for monitoring and managing the financial risks relating to the operations
of the Group, which include credit risk, market risks arising from interest rate risk and currency risk, and liquidity
risk. The Board of Directors and the Audit Committee review and approve the internal policies for managing each of
these risks, as summarised below. The Group is not subject to any externally imposed capital requirements.
The Group’s financial instruments, as at 30 September, are summarised below:
Categories of Financial Instruments
Financial assets – loans and receivables
Cash and cash equivalents
Trade receivables – at amortised cost
Other receivables
Total financial assets
Financial liabilities – amortised cost
Other creditors and accruals
Clinical trial accruals
Trade payables
Fit out funding
Obligations under finance leases
Total financial liabilities
2015
£000s
2014
£000s
234,872
373
248
235,493
164,491
612
277
165,380
10,426
8,374
3,795
8,793
1,651
33,039
5,976
3,138
2,342
8,145
1,907
21,508
All financial assets and financial liabilities, other than the non-current element of £1.5 million in respect of the
obligations under finance leases (2014: £1.8 million) and £8.4 million (2014: £7.9 million) of fit out funding
received from the Group’s landlord, are current in nature. In all instances, the Directors consider that the carrying
value of financial assets and financial liabilities approximates to their fair value.
It is, and has been throughout the period under review, the Group’s policy that no speculative trading in financial
instruments shall be undertaken.
Credit Risk
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to
the Group. The Group has a policy of only dealing with creditworthy counterparties, principally involving the major
UK clearing banks and their wholly owned subsidiaries, when placing cash on deposit. In addition the Group
operates a treasury policy that dictates the maximum cash balance that may be placed on deposit with any single
institution or group. This policy is reviewed and approved by the Audit Committee and the Board of Directors.
Trade receivables represent amounts due from customers for the sale of commercial product and research funding
from development partners, consisting primarily of a small number of major pharmaceutical companies where the
credit risk is considered to be low. The Group seeks to minimise credit risk by offering only 30 days credit to new
commercial customers and by requesting payment in advance from its development partners for the majority of its
research activities.
At the balance sheet date the maximum credit risk attributable to any individual counterparty was £113.2 million
(2014: £80.8 million).
The carrying amount of the financial assets recorded in the financial statements represents the Group’s maximum
exposure to credit risk as no collateral or other credit enhancements are held.
Market Risk
The Group’s activities expose it primarily to financial risks of changes in interest rates and foreign currency
exchange rates. These risks are managed by maintaining an appropriate mix of cash deposits in various currencies,
placed with a variety of financial institutions for varying periods according to the Group’s expected liquidity
requirements. There has been no material change to the Group’s exposure to market risks or the manner in which it
manages and measures risk.
F-32
i) Interest Rate Risk
The Group is exposed to interest rate risk as it places surplus cash funds on deposit to earn interest income. The
Group seeks to ensure that it secures the best commercially available interest rates from those banks that meet the
Group’s stringent counterparty credit rating criteria. In doing so the Group manages the term of cash deposits, up to
a maximum of 90 days, in order to maximise interest earnings while also ensuring that it maintains sufficient readily
available cash in order to meet short-term liquidity needs.
Interest income of £0.2 million (2014: £0.1 million; 2013: £0.2 million) during the year ended 30 September 2015
was earned from deposits with a weighted average interest rate of 0.24% (2014: 0.54%; 2013: 0.97%). Therefore, a
100 basis point increase in interest rates would have increased interest income, and reduced the loss for the year, by
£1.0 million (2014: reduced loss by £0.5 million; 2013: reduced loss by £0.2 million).
The Group does not have any balance sheet exposure to assets or liabilities which would increase or decrease in fair
value with changes to interest rates.
ii) Currency Risk
The functional currency of the Company, and each of its subsidiaries apart from GW Pharmaceuticals Inc., is
Pounds Sterling and the majority of transactions in the Group are denominated in that currency. The functional
currency of GW Pharmaceuticals Inc. is US$. The Group receives revenues and incurs expenditures in foreign
currencies and is exposed to the risks of foreign exchange rate movements, with the impact recognised in the
consolidated income statement. The Group seeks to minimise this exposure by passively maintaining foreign
currency cash balances at levels appropriate to meet foreseeable foreign currency expenditures, converting surplus
foreign currency balances into Pounds as soon as they arise. The Group does not use derivative contracts to manage
exchange rate exposure.
The table below shows an analysis of the Pounds Sterling equivalent of the year end cash and cash equivalents
balances by currency:
Cash at bank and in hand:
Pounds Sterling
Euro
US Dollar
Canadian Dollar
Total
Short-term deposits (less than 30 days):
Pounds Sterling
US Dollar
Total cash and cash equivalents
2015
£000s
18,756
2,070
98,417
804
120,047
2014
£000s
16,115
1,877
62,676
412
81,080
31,516
83,309
234,872
42,102
41,309
164,491
The table below shows those transactional exposures that give rise to net currency gains and losses recognised in the
consolidated income statement. Such exposures comprise the net monetary assets and monetary liabilities of the
Group that are not denominated in the functional currency of the relevant Group entity. As at 30 September these
exposures were as follows:
Net Foreign Currency Assets/(Liabilities)
US Dollar
Euro
2015
£000s
177,797
768
2014
£000s
100,950
1,415
Canadian Dollar
Other
953
(55)
179,463
307
(35)
102,637
F-33
Foreign Currency Sensitivity Analysis
The most significant currencies in which the Group transacts, other than Pounds Sterling, are the US Dollar and the
Euro. The Group also trades in the Canadian Dollar, the Czech Crown and the Polish Zloty. The Group's sensitivity
to foreign currency has increased during the current period primarily due to the issuance of 22 million new shares on
NASDAQ (see Note 22).
The following table details the Group’s sensitivity to a 10% change in the year end rate, which the Group feels is the
maximum likely change in rate based upon recent currency movements, in the key foreign currency exchange rates
against Pounds Sterling:
Year Ended 30 September 2015
Loss before tax
Equity
Year Ended 30 September 2014
Loss before tax
Equity
Year Ended 30 September 2013
Loss before tax
Equity
Euro
£000s
77
77
US Dollar
£000s
17,780
17,780
Can Dollar
£000s
95
95
Euro
£000s
141
141
US Dollar
£000s
10,095
10,095
Can Dollar
£000s
31
31
Euro
£000s
71
71
US Dollar
£000s
242
242
Can Dollar
£000s
43
43
Other
£000s
(6)
(6)
Other
£000s
(3)
(3)
Other
£000s
(5)
(5)
In management's opinion, the sensitivity analysis is unrepresentative of the inherent foreign exchange risk as the
year-end exposure does not reflect the exposure during the year.
Liquidity Risk
Responsibility for liquidity risk management rests with the Board of Directors, which has built a liquidity risk
management framework to enable the monitoring and management of short, medium and long-term cash
requirements of the business.
The Board of Directors actively monitor Group cash flows and regularly review projections of future cash
requirements to ensure that appropriate levels of liquidity are maintained. The Group manages its short-term
liquidity primarily by planning the maturity dates of cash deposits in order to time the availability of funds as
liabilities fall due for payment. The Group does not maintain any borrowing facilities.
Cash deposits, classified as cash and cash equivalents on the balance sheet, comprise deposits placed on money
markets for periods of up to three months and on call. The weighted average time for which the rate was fixed was
32 days (2014: 40 days).
All of the Group’s financial liabilities at each balance sheet date have maturity dates of less than 12 months from the
balance sheet date, other than the £1.5 million in respect of the obligations under finance leases (2014: £1.8 million)
and £8.4 million (2014: £7.9 million) of fit out funding received from the Group’s landlord. The obligations under
finance leases will be repaid over a weighted average 12.1 year term (2014: 12.3-year term) and the fit out funding
received will be repaid over a 15-year finance term which the Group expects to commence in 2016. There have been
no material changes to the Group’s exposure to liquidity risks or the manner in which it manages and measures
liquidity risk.
F-34
22. Share Capital
As at 30 September 2015 the share capital of the Company allotted, called-up and fully paid amounts were as
follows:
Allotted, called-up and fully paid
Changes to the number of ordinary shares in issue have been as follows:
2015
£000s
261
2014
£000s
237
As at 1 October 2013
Issue of new shares (net of issuance costs)
Exercise of share options
Exercise of warrants
As at 1 October 2014
Issue of new shares (net of issuance costs)
Exercise of share options
As at 30 September 2015
Number
of Shares
177,521,287
51,147,300
4,201,348
3,776,960
236,646,895
22,093,601
2,439,677
261,180,173
Total
Nominal
Value
£000s
178
51
4
4
237
22
2
261
Total Share
Premium
Total
Consideration
£000s
84,183
126,299
5,018
5,288
220,788
127,563
1,185
349,536
£000s
84,005
126,248
5,014
5,284
220,551
127,541
1,183
349,275
In May 2015, the Group completed an equity financing, issuing 22,080,000 ordinary shares in the form of American
Depositary Shares ("ADSs") listed on the NASDAQ Global market, raising net proceeds after expenses of $193.3
million (£127.5 million). This took the form of 1,840,000 ADSs at a price to the public of $112.00 per ADS. Each
ADS represents 12 ordinary shares of 0.1p each in the capital of the Company.
On 14 June 2014, the Group completed an equity financing, issuing 17,460,000 ordinary shares in the form of ADSs
listed on the NASDAQ Global market, raising net proceeds after expenses of US$118.0 million (£69.5 million).
This took the form of 1,455,000 ADSs at a price to the public of US$86.83 per ADS. Each ADS represents 12
ordinary shares of 0.1p each in the capital of the Company.
On 14 January 2014, the Group completed an equity financing, issuing 33,687,300 ordinary shares in the form of
American Depositary Shares (“ADSs”) listed on the NASDAQ Global market, raising net proceeds after expenses of
US$94.1 million (£56.8 million). This took the form of 2,807,275 ADSs at a price to the public of US$36.00 per
ADS. Each ADS represents 12 ordinary shares of 0.1p each in the capital of the Company.
23. Share-based Payments
Equity-settled Share Option Schemes
The Company operates various equity-settled share option schemes for employees of the Group. All options granted
under these schemes are exercisable at the share price on the date of the grant, with the exception of certain options
issued under the GW Pharmaceuticals Long Term Incentive Plan (“LTIP”) which are issued with an exercise price
equivalent to the par value of the shares under option. The vesting period for all options granted range between one
and four years from the date of grant and options lapse after 6 months to 7 years from the vesting date. Options
generally also lapse if the employee leaves the Group before the options vest. However, at the discretion of the
Remuneration Committee, under the “Good Leaver” provisions of the various share option scheme rules, employees
may be allowed to retain some or all of the share options upon ceasing employment by the Group. Vested options
usually need to be exercised within six months of leaving. In the year ended 30 September 2015, no employee
designated as a “Good Leaver” was permitted to retain some or all of his/her options upon ceasing employment.
LTIP awards granted to employees (excluding Executive Directors) are subject to service and non-market-based
performance conditions which must be achieved before the options vest and become exercisable. LTIP awards
granted to Executive Directors are subject to service and performance conditions which are determined by the
Remuneration Committee. These are usually a mixture of market-based and non-market-based performance
conditions which are intended to link executive compensation to the key value drivers for the business whilst
aligning the interests of the Executive Directors with those of shareholders and employees. In the event that the
performance conditions (non-market and market) are not achieved within the required vesting period, the options
lapse.
F-35
2012 Awards
In the year ended 30 September 2012, all awards granted were LTIP awards.
The 2012 LTIP awards are subdivided into four equal tranches, each of which vests on 6 June 2015 upon
achievement of the following performance conditions:
one quarter of the award vests upon achievement of first positive cancer pain clinical trial results;
one quarter of the award vests upon filing of a New Drug Application (“NDA”) for Sativex with the US Food and
Drug Administration (“FDA”);
one quarter of the award vests upon signature of a new non-Sativex product license agreement; and
one quarter of the award vests subject to the Company share price performance over the three-year vesting
period. This will be ranked against the share price performance of a comparator group made up of the
constituents of the FTSE SmallCap index. Awards will only vest if the Company is ranked at median or above.
25% of this element of the award will vest if the Company achieves a median ranking and 100% will vest if the
Company achieves an upper quartile ranking, with a straight-line approach used to calculate the percentage
vesting between these two extremes.
The 2012 LTIP awards are subject to a service condition whereby the awards vest on the third anniversary of the
date of the grant if the holders remain in employment, subject to the performance conditions above.
2013 Awards
In the year ended 30 September 2013, all awards granted were LTIP awards.
The 2013 LTIP awards are subject to performance conditions whereby 100% of the awards vest on the third
anniversary of the date of the grant if the ADS price has increased by 75% or more during the three-year vesting
period ended 24 September 2016. 25% of the awards vests if 25% growth is achieved, with a straight-line basis of
calculation being used to calculate the number of options vesting between these two extremes. No options vest if the
share price growth is below 25% over the three-year vesting period.
The 2013 LTIP awards are subject to a service condition whereby the awards vest on the third anniversary of the
date of the grant if the holders remain in employment, subject to the performance conditions above.
2014 Awards
In the year ended 30 September 2014, all awards granted were LTIP awards.
The 2014 LTIP awards are subject to a service condition whereby 100% of the awards vest on the third anniversary
of the date of the grant if the holders remain in employment.
2015 Awards
In the year ended 30 September 2015, all awards granted were LTIP awards.
The 2015 LTIP awards are subject to performance conditions, whereby:
25% of the Awards are in the form of market-priced options, whereby the options have an exercise
price equivalent to the market price at market close on the day prior to grant ($127.26 per ADS,
equivalent to 671 pence per Ordinary Share). These options become exercisable on the third
anniversary of the date of grant. Future gains upon exercise of these options will be linked to the extent
of share price growth over the vesting period.
F-36
50% of the Awards are in the form of Performance stock options, whereby the options will vest upon
the third anniversary of the date of grant subject to certain corporate performance conditions having
been achieved. In this case, vesting of half of the Performance stock options will occur upon receipt
from FDA of their confirmation of acceptance of an Epidiolex NDA filing and half will vest upon
FDA grant of Epidiolex regulatory approval.
25% of the Awards are in the form of restricted stock options whereby these options are subject to a
four year service condition and vesting period. 25% of the options will vest on each anniversary of the
date of grant over the next four years.
Consultant Share Options
In addition to the above, prior to 1 October 2011, options were issued to a small number of expert consultants in
return for services provided to the Group. Such share-based payment transactions were measured at the fair value of
the goods or services received, except where that fair value could not be estimated reliably, in which case they were
measured at the fair value of the equity instruments granted, measured at the date of grant.
The number of outstanding options under each scheme can be summarised as follows:
Employee share option schemes
Employee LTIP awards
Consultant share options
Options outstanding
30 Sept 2014
30 Sept 2015
Number
Number
of Share
of Share
Options
Options
770,936 1,868,699
7,660,564 7,471,320
104,806
8,431,500 9,444,825
-
The movement in share options in each scheme during the year can be summarised as follows:
Employee Options
Employee LTIP
Consultant Options
Total Options
Number
of Share
Options
Weighted
Average Exercise
Price £
Number
of Share
Options
Weighted
Average Exercise
Price £
Number
of Share
Options
Weighted
Average Exercise
Price £
Number
of Share
Options
Weighted
Average
Exercise Price £
Outstanding at 1
October 2013
Granted during
the year
Exercised during
5,535,581
1.16 6,778,743
0.001 425,856
1.28 12,740,180
–
– 1,061,743
0.001
–
– 1,061,743
the year
(3,666,882)
1.26
(213,416)
0.001 (321,050)
1.29 (4,201,348)
Lapsed during the
year
Outstanding at 1
October 2014
Granted during
the year
Exercised during
–
–
(155,750)
0.001
–
–
(155,750)
1,868,699
0.98 7,471,320
0.001 104,806
1.27 9,444,825
–
– 2,009,231
1.09
–
– 2,009,231
the year
(1,097,763)
0.96 (1,237,108)
0.001 (104,806)
1.27 (2,439,677)
0.57
0.001
1.19
0.001
0.21
1.09
0.49
Lapsed during the
year
Outstanding at
30 September
2015
–
–
(582,879)
0.001
–
–
(582,879)
0.001
770,936
1.02 7,660,564
0.29
–
– 8,431,500
0.35
F-37
September 2015
Share options outstanding at 30 September 2015 can be summarised as follows:
Employee Options
Weighted
Average
Remaining
Contractua
l
Life/Years
Number
of Share
Options
4,000
547,81
2.97
2
1.52
219,12
4
–
0.36
–
770,93
Employee LTIP
Weighted
Average
Remaining
Contractua
l
Life/Years
Number
of Share
Options
7,333,94
Consultant Options
Weighted
Average
Remaining
Contractua
l
Life/Years
Number
of
Share
Options
Total Options
Weighted
Average
Remaining
Contractua
l
Life/Years
Number
of Share
Options
7,337,94
0
–
–
326,624
7,660,56
6.95
–
–
9.74
–
–
–
–
–
–
–
0
6.95
– 547,812
1.52
– 219,124
– 326,624
8,431,50
0.36
9.74
–
–
0
6.53
2,978,81
1
4.00
6
1.20
4
7.07
770,93
2,207,87
6
1.20
5
4.98
Range of exercise
prices
£0.00–£0.50
£0.51–£1.00
£1.01–£1.50
£1.51+
Outstanding at 30
September 2015
Exercisable at 30
September 2015
Share options outstanding at 30 September 2014 can be summarised as follows:
Employee Options
Employee LTIP
Weighted
Average
Remaining
Contractua
l
Life/Years
Number
of Share
Options
Weighted
Average
Remaining
Contractua
l
Life/Years
Number
of Share
Options
7,471,32
Consultant Options
Weighted
Average
Remaining
Contractua
l
Life/Years
Number
of Share
Options
Total Options
Weighted
Average
Remaining
Contractua
l
Life/Years
Number
of Share
Options
7,475,32
Range of exercise
prices
£0.00–£0.50
4,000
3.97
£0.51–£1.00
9
2.21
1,410,67
454,020
1,868,69
1.16
£1.01–£1.50
Outstanding at 30
September 2014
Exercisable at 30
September 2014
0
–
–
7.45
–
–
–
–
104,80
–
–
0
7.45
1,410,67
9
2.21
6
0.82 558,826
1.09
7,471,32
104,80
9,444,82
9
1.96
0
7.45
6
0.82
5
6.29
1,868,69
2,621,59
104,80
4,595,10
9
1.96
6
5.30
6
0.82
1
3.84
Charges for share-based payments have been allocated to the research and development expenditure and
management and administrative expenses in the consolidated income statements as follows:
Research and development expenditure
Management and administrative expenses
2015
£000s
1,525
953
2014
£000s
774
464
2013
£000s
317
299
2,478
1,238
616
In the year ended 30 September 2015, options were granted on 24 December 2014, 9 January 2015, 25 February
2015, 20 March 2015, 9 April 2015, 6 May 2015, 24 June 2015 and 22 September 2015. The aggregate of the
estimated fair values of the options granted on those dates is £10.6 million and the weighted average fair value of the
awards made during 2015 was £5.30 per option.
In the year ended 30 September 2014, options were granted on 17 January 2014, 9 May 2014, 31 May 2014, 11
August 2014, 12 August 2014 and 21 August 2014. The aggregate of the estimated fair values of the options granted
on those dates is £3.2 million and the weighted average fair value of the awards made during 2014 was £3.03 per
option.
F-38
Fair values were calculated using the Black-Scholes share option pricing model for grants with non-market-based
performance conditions. The Monte Carlo share option pricing model has been used for grants with market-based
performance conditions. The following weighted average assumptions were used in calculating these fair values:
Weighted average share price
Weighted average exercise price
Expected volatility
Expected life
Risk-free rate
Expected dividend yield
2015
579p
109p
59%
3.6 years
1.32%
Nil
2014
303 p
0.1 p
58 %
2013
55p
0.1p
44%
5.0 years 5.0 years
0.5%
Nil
0.5 %
Nil
Expected volatility was determined by calculating the historical volatility of the Group’s share price over previous
years. The expected life used in the model has been adjusted, based on management’s best estimate, for the effects
of non-transferability, exercise restrictions, performance conditions and behavioural considerations.
24. Other Reserves
Other reserves of £19.2 million (30 September 2014: £19.3 million) relate to a £19.3 million merger reserve (30
September 2014: £19.3 million) offset by a £0.1 million exchange difference on translation of foreign operations (30
September 2014: £nil). The merger reserve was created as a result of the acquisition by the Company of the entire
issued share capital of GW Pharma Limited in 2001. This acquisition was effected by a share for share exchange
which was merger accounted under UK Generally Accepted Accounting Practice (“UK GAAP”), in accordance with
the merger relief provisions of Section 131 of the Companies Act 1985 (as amended) relating to the accounting for
business combinations involving the issue of shares at a premium. In preparing consolidated financial statements,
the amount by which the fair value of the shares issued exceeded their nominal value was recorded in a merger
reserve on consolidation, rather than in a share premium account. The merger reserve was retained upon transition to
IFRSs, as allowed under UK law. This reserve is not considered to be distributable.
ESOP Reserve
The Group’s “ESOP” is an Inland Revenue approved all employee share scheme constituted under a trust deed. The
trust holds shares in the Company for the benefit of and as an incentive for the employees of the Group. The trustee
of the ESOP is GWP Trustee Company Limited, a wholly owned subsidiary of the Company. Costs incurred by the
trust are expensed in the Group’s financial statements as incurred. Distributions from the trust are made in
accordance with the scheme rules and on the recommendation of the Board of Directors of the Company.
Shares held in trust represent issued and fully paid up 0.1p ordinary shares and remain eligible to receive dividends.
The shares held by the ESOP were originally acquired in 2000 for nil consideration by way of a gift from a
shareholder and hence the balance on the ESOP reserve is nil (2014: nil).
As at 30 September the ESOP held the following shares:
Unconditionally vested in employees
Shares available for future distribution to employees
Total
2015
Number
115,352
33,054
148,406
2014
Number
207,545
34,706
242,251
The valuation methodology used to compute the share-based payment charge related to the ESOP is based on fair
value at the grant date, which is determined by the application of a Black-Scholes share option pricing model. The
assumptions underlying the Black-Scholes model for the ESOP shares are as detailed in note 23 relating to the LTIP
awards. The exercise price for shares granted under the ESOP is nil, and the vesting conditions include employment
by the Group over a three-year vesting period from the date of grant. The share-based payment charge for shares
granted under the ESOP plan amounted to £nil in the year ended 30 September 2015 (2014: £nil).
As at 30 September 2015 the number and market value of shares held by the trust which have not yet
unconditionally vested in employees is 33,054 (2014: 34,706) and £0.2 million (2014: £0.1 million) respectively.
F-39
25. Financial Commitments
The Group had capital commitments for property, plant and equipment contracted but not provided for at 30
September 2015 of
£0.7 million (2014: £5.4 million).
At the balance sheet date the Group and Company had outstanding commitments for future minimum lease
payments under non-cancellable operating leases, which fall due as follows:
Within one year
Between two and five years
After five years
Group
2015
£000s
1,642
4,600
1,982
8,224
2014
£000s
1,307
1,609
1,014
3,930
In addition to the commitments disclosed in the table above, the Group is committed to the lease of a building in
which substantial internal fit out is ongoing. This fit out is funded by the fit out funding explained in note 18. The
lease is expected to commence during the second quarter of the year ended 30 September 2016. Upon
commencement the annual minimum lease payments is expected to be £0.4 million per annum of the principal rent
(excluding fit out payments).
The minimum lease payments payable under operating leases recognised as an expense in the year were £1.5 million
(2014: £1.3 million).
Operating lease payments represent rentals payable by the Group for certain of its leased properties. Manufacturing
and laboratory facilities are subject to five to 15 year leases, some of which have a lease break three years prior to
the conclusion of the lease at the Group’s option. Office properties are subject to 1 to 10 year leases.
26. Contingent Liabilities
As at 30 September 2015 certain fees associated with ongoing capital expenditure have been estimated. The final fees
payable are expected to be agreed and paid when construction is completed, scheduled for the second quarter of the
year ending 30 September 2016. The Group estimates that there is a possible contingent liability for incremental fees
of up to £0.4 million of capital expenditure.
27. Related Party Transactions
Remuneration of Key Management Personnel
The remuneration of the Directors, who are the key management personnel of the Group, is set out below in
aggregate for each of the categories specified in IAS 24 Related Party Disclosures.
Short-term employee benefits
Post-employment benefits
Share-based payments
Other Related Party Transactions
Group
2015
£000s
2,395
211
1,164
3,770
2014
£000s
2,688
203
666
3,557
2013
£000s
1,733
200
539
2,472
The Group purchased various regulatory support services from Icon Clinical Research Limited and Icon Clinical
Research (UK) Limited, which are part of Icon plc. Tom Lynch, a non-executive Director of the group, acts as
Chairman for Icon plc. These services were at a cost of £12,762 (2014: £12,166; 2013: £nil). The fees paid were in
line with fees paid to other GW regulatory support services. As at 30 September 2015 there was £nil due (2014:
£2,799).
The Group paid £263 (2014: £3,441; 2013: £nil) under a consultancy agreement for medical writing services to
Kathryn Wright, wife of the Group’s Chief Medical Officer Stephen Wright. The fees paid were in line with fees
paid to other GW medical writers. As at 30 September 2015 there was no amount due to Kathryn Wright (2014:
£nil).
F-40
Principal Bankers
HSBC Bank plc
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London SW1Y 5EZ
Public Relations Advisers
FTI Consulting
Holborn Gate
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London WC2A 1PB
Registrars
Capita Registrars
Northern House
Woodsome Park
Fenay Bridge
Huddersfield
West Yorkshire HD8 0LA
Advisers
Registered Office
GW Pharmaceuticals plc
Sovereign House
Vision Park
Hilston
Cambridgeshire CB24 9BZ
United Kingdom
T: +44 (0)1223 266800
F: +44 (0)1223 235667
E: info@gwpharm.com
Registered Number
04160917 England and Wales
Nominated Adviser and Broker
Peel Hunt LLP
120 London Wall
London EC2Y 5ET
Solicitors to the Company
Mayer Brown LLP
201 Bishopsgate
London EC2M 3AF
Auditor
Deloitte LLP
2 New Street Square
London EC4A 3BZ
Cautionary statement:
This annual report release contains forward-looking
statements that reflect GW’s current expectations regarding
future events, including statements regarding financial
performance, the timing of clinical trials, the relevance of
GW products commercially available and in development,
the clinical benefits of Sativex® and Epidiolex® and the safety
profile and commercial potential of Sativex and Epidiolex.
Forward-looking statements involve risks and uncertainties.
Actual events could differ materially from those projected
in this news release and depend on a number of factors,
including (inter alia), the success of GW’s research strategies,
the applicability of the discoveries made therein, the
successful and timely completion of uncertainties related
to the regulatory process, and the acceptance of Sativex,
Epidiolex and other products by consumer and medical
professionals. A further list and description of risks and
uncertainties associated with an investment in GW can be
found in GW’s filings with the US Securities and Exchange
Commission. Existing and prospective investors are cautioned
not to place undue reliance on these forward-looking
statements, which speak only as of the date hereof. GW
undertakes no obligation to update or revise the information
contained in this press release, whether as a result of new
information, future events or circumstances or otherwise.
GW Pharmaceuticals plc
Porton Down Science Park Salisbury Wiltshire SP4 0JQ UK
T: +44 (0)1980 557000 F: +44 (0)1980 557111
www.gwpharm.com