gwph-10q_20190331.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2019

OR

TRANSITION 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

 

Not Applicable

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

Sovereign House, Vision Park
Chivers Way, Histon
Cambridge, CB24 9BZ
United Kingdom

 

+44 1223 266800

(Address of principal executive offices)

 

(Registrant’s telephone number, including area code)

 

 

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 every Interactive Data File required to be submitted 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 such files).    YES ☑  NO ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

 

Smaller reporting company

Emerging growth company

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    YES ☐  NO ☑

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading Symbol

 

Name of exchange on which registered

American Depositary Shares, each representing 12 Ordinary Shares, par value £0.001 per share

 

GWPH

 

The Nasdaq Global Market

 

Securities registered pursuant to Section 12(g) of the Act:

 

None

As of April 30, 2019, 368,625,620 shares were outstanding including 353,893,356 shares held as American Depositary Shares, each representing twelve Ordinary Shares, par value of £0.001 per share and 14,732,264 Ordinary Shares.

 

 

 


Table of Contents

 

 

 

Page

PART I.

FINANCIAL INFORMATION

1

Item 1.

Financial Statements (Unaudited)

 

 

Condensed Consolidated Balance Sheets as of March 31, 2019 and December 31, 2018

1

 

Condensed Consolidated Statements of Operations for the three months ended March 31, 2019 and 2018

2

 

Condensed Consolidated Statements of Comprehensive Loss for the three months ended March 31, 2019 and 2018

3

 

Condensed Consolidated Statements of Stockholders’ Equity for the three months ended March 31, 2019 and 2018

4

 

Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2019 and 2018

5

 

Notes to Unaudited Condensed Consolidated Financial Statements

6

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

15

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

20

Item 4.

Controls and Procedures

21

 

 

 

PART II.

OTHER INFORMATION

22

Item 1.

Legal Proceedings

22

Item 1A.

Risk Factors

22

Item 6.

Exhibits

25

Signatures

26

 

 

 


PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

GW PHARMACEUTICALS PLC

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

(unaudited)

 

 

 

March 31,

 

 

December 31,

 

 

 

2019

 

 

2018

 

Assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

521,669

 

 

$

591,497

 

Accounts receivable, net

 

 

19,251

 

 

 

4,192

 

Inventory

 

 

48,559

 

 

 

33,030

 

Prepaid expenses and other current assets

 

 

19,389

 

 

 

17,903

 

Total current assets

 

 

608,868

 

 

 

646,622

 

Property, plant, and equipment, net

 

 

102,029

 

 

 

90,832

 

Operating lease assets

 

 

20,077

 

 

 

 

Goodwill

 

 

6,959

 

 

 

6,959

 

Deferred tax assets

 

 

8,584

 

 

 

8,720

 

Other assets

 

 

3,040

 

 

 

2,935

 

Total assets

 

$

749,557

 

 

$

756,068

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

Accounts payable

 

$

10,794

 

 

$

9,796

 

Accrued liabilities

 

 

59,782

 

 

 

52,477

 

Current tax liabilities

 

 

1,730

 

 

 

2,384

 

Other current liabilities

 

 

5,651

 

 

 

1,559

 

Total current liabilities

 

 

77,957

 

 

 

66,216

 

Long-term liabilities:

 

 

 

 

 

 

 

 

Finance lease liabilities

 

 

5,801

 

 

 

5,690

 

Operating lease liabilities

 

 

16,374

 

 

 

 

Other liabilities

 

 

9,696

 

 

 

10,082

 

Total long-term liabilities

 

 

31,871

 

 

 

15,772

 

Total liabilities

 

 

109,828

 

 

 

81,988

 

Commitments and contingencies (Note 7)

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Ordinary shares par value £0.001; 368,613,440 shares

   outstanding as of March 31, 2019; 366,616,688 shares

   outstanding as of December 31, 2018

 

 

567

 

 

 

564

 

Additional paid-in capital

 

 

1,593,056

 

 

 

1,581,144

 

Accumulated deficit

 

 

(879,004

)

 

 

(828,940

)

Accumulated other comprehensive loss

 

 

(74,890

)

 

 

(78,688

)

Total stockholders’ equity

 

 

639,729

 

 

 

674,080

 

Total liabilities and stockholders’ equity

 

$

749,557

 

 

$

756,068

 

 

See accompanying notes to these condensed consolidated financial statements.

1


GW PHARMACEUTICALS PLC

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share amounts)

(unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2019

 

 

2018

 

Revenues

 

 

 

 

 

 

 

 

Product net sales

 

$

38,974

 

 

$

2,812

 

Other revenue

 

 

273

 

 

 

229

 

Total revenues

 

 

39,247

 

 

 

3,041

 

Operating expenses

 

 

 

 

 

 

 

 

Cost of product sales

 

 

5,131

 

 

 

1,625

 

Research and development

 

 

30,375

 

 

 

43,485

 

Selling, general and administrative

 

 

55,078

 

 

 

26,173

 

Total operating expenses

 

 

90,584

 

 

 

71,283

 

Loss from operations

 

 

(51,337

)

 

 

(68,242

)

Interest income

 

 

2,087

 

 

 

759

 

Interest expense

 

 

(265

)

 

 

(325

)

Foreign exchange loss

 

 

(1,114

)

 

 

(640

)

Loss before income taxes

 

 

(50,629

)

 

 

(68,448

)

Income tax (benefit) expense

 

 

(565

)

 

 

1,013

 

Net loss

 

$

(50,064

)

 

$

(69,461

)

 

 

 

 

 

 

 

 

 

Net loss per common share, basic and diluted

 

$

(0.14

)

 

$

(0.20

)

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding, basic

   and diluted

 

 

369,823

 

 

 

340,252

 

 

See accompanying notes to these condensed consolidated financial statements.

2


GW PHARMACEUTICALS PLC

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(in thousands)

(unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2019

 

 

2018

 

Net loss

 

$

(50,064

)

 

$

(69,461

)

Other comprehensive gain:

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

3,798

 

 

 

4,108

 

Comprehensive loss

 

$

(46,266

)

 

$

(65,353

)

 

See accompanying notes to these condensed consolidated financial statements.

3


GW PHARMACEUTICALS PLC

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands, except share data)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

Other

 

 

Total

 

 

 

Common Stock

 

 

Paid-in

 

 

Accumulated

 

 

Comprehensive

 

 

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Loss

 

 

Equity

 

Balances at December 31, 2018

 

 

366,617

 

 

$

564

 

 

$

1,581,144

 

 

$

(828,940

)

 

$

(78,688

)

 

$

674,080

 

Issuance of common stock from exercise of

   stock options

 

 

1,996

 

 

 

3

 

 

 

770

 

 

 

 

 

 

 

 

 

773

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(50,064

)

 

 

 

 

 

(50,064

)

Share-based compensation

 

 

 

 

 

 

 

 

11,142

 

 

 

 

 

 

 

 

 

11,142

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,798

 

 

 

3,798

 

Balances at March 31, 2019

 

 

368,613

 

 

$

567

 

 

$

1,593,056

 

 

$

(879,004

)

 

$

(74,890

)

 

$

639,729

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

Other

 

 

Total

 

 

 

Common Stock

 

 

Paid-in

 

 

Accumulated

 

 

Comprehensive

 

 

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Loss

 

 

Equity

 

Balances at December 31, 2017

 

 

337,964

 

 

$

527

 

 

$

1,220,206

 

 

$

(523,683

)

 

$

(73,952

)

 

$

623,098

 

Issuance of common stock from exercise of

   stock options

 

 

549

 

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

1

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(69,461

)

 

 

 

 

 

(69,461

)

Share-based compensation

 

 

 

 

 

 

 

 

6,858

 

 

 

 

 

 

 

 

 

6,858

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,108

 

 

 

4,108

 

Balances at March 31, 2018

 

 

338,513

 

 

$

528

 

 

$

1,227,064

 

 

$

(593,144

)

 

$

(69,844

)

 

$

564,604

 

 

See accompanying notes to these condensed consolidated financial statements.

4


GW PHARMACEUTICALS PLC

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2019

 

 

2018

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

Net loss

 

$

(50,064

)

 

$

(69,461

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Foreign exchange loss

 

 

797

 

 

 

873

 

Share-based compensation

 

 

11,142

 

 

 

6,859

 

Depreciation and amortization

 

 

2,417

 

 

 

2,307

 

Deferred income taxes

 

 

 

 

 

2,128

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable, net

 

 

(14,998

)

 

 

(320

)

Inventory

 

 

(14,295

)

 

 

672

 

Prepaid expenses and other current assets

 

 

(874

)

 

 

(492

)

Other assets

 

 

659

 

 

 

(3

)

Accounts payable

 

 

1,998

 

 

 

652

 

Current tax liabilities

 

 

(654

)

 

 

(2,684

)

Accrued liabilities

 

 

6,328

 

 

 

(7,005

)

Other current liabilities

 

 

191

 

 

 

1,103

 

Long-term liabilities

 

 

(1,029

)

 

 

(30

)

Net cash used in operating activities

 

 

(58,382

)

 

 

(65,401

)

Cash flows from investing activities

 

 

 

 

 

 

 

 

Additions to property, plant and equipment

 

 

(12,087

)

 

 

(6,056

)

Additions to capitalized software

 

 

(199

)

 

 

(338

)

Net cash used in investing activities

 

 

(12,286

)

 

 

(6,394

)

Cash flows from financing activities

 

 

 

 

 

 

 

 

Proceeds from exercise of stock options

 

 

773

 

 

 

1

 

Payments on finance leases

 

 

(179

)

 

 

(72

)

Payments on landlord financing obligation

 

 

(138

)

 

 

(137

)

Net cash provided by (used in) financing activities

 

 

456

 

 

 

(208

)

Effect of exchange rate changes on cash

 

 

384

 

 

 

11

 

Net decrease in cash and cash equivalents

 

 

(69,828

)

 

 

(71,992

)

Cash and cash equivalents at beginning of period

 

 

591,497

 

 

 

559,227

 

Cash and cash equivalents at end of period

 

$

521,669

 

 

$

487,235

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

Income taxes paid

 

 

88

 

 

 

1,672

 

Interest paid

 

 

265

 

 

 

325

 

Supplemental disclosure of noncash information:

 

 

 

 

 

 

 

 

Property and equipment purchases in accounts payable and accrued liabilities

 

 

714

 

 

 

1,823

 

 

See accompanying notes to these condensed consolidated financial statements.

5


GW PHARMACEUTICALS PLC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 1: Business Overview

GW Pharmaceuticals plc and its subsidiaries (referred to herein as “we,” “us,” “our,” and the “Company”) are primarily involved in the development of cannabinoid prescription medicines using botanical extracts derived from the cannabis plant. The Company is 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 had American Depository Shares (“ADSs”) registered with the U.S. Securities and Exchange Commission (“SEC”) and has been listed on Nasdaq since May 1, 2013. 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 September 2018, the Company changed its fiscal year end to December 31 from September 30 and filed a transition annual report on Form 10-KT (“Annual Report on Form 10-KT”) with the SEC for the three-month transition period ended December 31, 2018 on February 28, 2019.

Note 2: Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete annual financial statements. These accounting principles were applied on a basis consistent with those of the consolidated financial statements contained in the Company’s Annual Report on Form 10-KT for the three-month transition period ended December 31, 2018. In the Company’s opinion, the accompanying unaudited condensed consolidated financial statements include all adjustments, consisting of only normal recurring adjustments, necessary for a fair statement of our financial statements for interim periods.

The condensed consolidated balance sheet as of December 31, 2018 was derived from audited annual financial statements but does not include all annual disclosures required by U.S. GAAP. These interim financial statements should be read in conjunction with the audited financial statements for the transition period ended December 31, 2018 included in our Annual Report on Form 10-KT. The results of operations for the three months ended March 31, 2019 are not necessarily indicative of the results to be expected for the full year or any other future periods.

The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.

Fair Value of Financial Instruments

The carrying values of the Company’s financial instruments, consisting of cash and cash equivalents, trade receivables, interest and other receivables, and accounts payable and accrued liabilities, approximate fair value due to the relative short-term nature of these instruments.

6


Accounts Receivable

Accounts receivable are recorded net of customer allowances for prompt payment discounts, chargebacks, and doubtful accounts. Allowances for prompt payment discounts and chargebacks are based on contractual terms. The Company estimates the allowance for doubtful accounts based on existing contractual payment terms, actual payment patterns of its customers and individual customer circumstances. As of March 31, 2019 and December 31, 2018, the Company determined that an allowance for doubtful accounts was not required and no accounts were written off during the periods presented.

Inventory

Inventory is stated at the lower of cost or estimated net realizable value. The Company uses a combination of standard and actual costing methodologies to determine the cost basis for its inventories which approximates actual cost. Inventory is valued on a first-in, first-out basis. The Company reduces its inventory to net realizable value for potentially excess, dated or obsolete inventory based on an analysis of forecasted demand compared to quantities on hand, as well as product shelf life.

The Company capitalizes inventory costs associated with its products upon regulatory approval when, based on management’s judgment, future commercialization is considered probable and the future economic benefit is expected to be realized; otherwise, such costs are expensed. Prior to approval of Epidiolex by the United States Food and Drug Administration (“FDA”), all costs related to the manufacturing of Epidiolex were charged to research and development expense in the period incurred.

Revenue Recognition

The Company recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“Topic 606”), the entity performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of Topic 606, the Company assesses the goods or services promised within each contract and determines those that are performance obligations, and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.

Revenue for the Company’s product sales has not been adjusted for the effects of a financing component as the Company expects, at contract inception, that the period between when the Company’s transfers control of the product and when the Company receives payment will be one year or less. Product shipping and handling costs are included in cost of product sales.

Epidiolex Product Net Sales

Epidiolex was approved by the FDA in June 2018. Subsequent to the approval by the FDA, the United States Drug Enforcement Agency (“DEA”) took action to change the classification of Epidiolex from a Schedule I controlled substance to a Schedule V controlled substance, thereby allowing Epidiolex to be prescribed and distributed in the United States. On November 1, 2018, the Company launched sales of Epidiolex to specialty pharmacies (“SPs”) and specialty distributors (“SDs”). The Company recognizes revenue from product sales upon receipt of product at the SPs and SDs, the date at which the control is transferred, net of the following allowances which are reflected each of these as either a reduction to the related account receivable or as an accrued liability, depending on how the allowance is settled:

Distribution Fees: Distribution fees include distribution service fees paid to the SPs and SDs based on a contractually fixed percentage of the wholesale acquisition cost (“WAC”), and prompt payment discounts. Distribution fees are recorded as an offset to revenue based on contractual terms at the time revenue from the sale is recognized.

7


Rebates: Allowances for rebates include mandated discounts under the Medicaid Drug Rebate Program and the Medicare Part D prescription drug benefit, and contractual rebates with commercial payers. Rebates are amounts owed after the final dispensing of the product to a benefit plan participant and are based upon contractual agreements with, or statutory requirements pertaining to, Medicaid and Medicare benefit providers. The allowance for rebates is based on statutory discount rates and expected utilization. The Company’s estimates for expected utilization of rebates is based on utilization data received from the SPs since product launch. Rebates are generally invoiced and paid in arrears so that the accrual balance consists of an estimate of the amount expected to be incurred for the current quarter’s activity, plus an accrual balance for prior quarters’ unpaid rebates. If actual future rebates vary from estimates, the Company may need to adjust prior period accruals, which would affect revenue in the period of adjustment.

Chargebacks: Chargebacks are discounts and fees that relate to contracts with government and other entities purchasing from the SDs at a discounted price. The SDs charge back to the Company the difference between the price initially paid by the SDs and the discounted price paid to the SDs by these entities. The Company also incurs group purchasing organization fees for transactions through certain purchasing organizations. The Company estimates sales with these entities and accrues for anticipated chargebacks and organization fees, based on the applicable contractual terms. If actual future chargebacks vary from these estimates, the Company may need to adjust prior period accruals, which would affect revenue in the period of adjustment.

Co-Payment Assistance: The Company offers co-payment assistance to commercially insured patients meeting certain eligibility requirements. Co-payment assistance is accrued for based on actual program participation and estimates of program redemption using data provided by third-party administrators.

Product Returns: Consistent with industry practice, the Company offers the SPs and SDs limited product return rights for damages, shipment errors, and expiring product, provided that the return is within a specified period around the product expiration date as set forth in the applicable individual distribution agreement. The Company does not allow product returns for product that has been dispensed to a patient. As the Company receives inventory reports from the SPs and SDs and has the ability to control the amount of product that is sold to the SPs and SDs, it is able to make a reasonable estimate of future potential product returns based on this on-hand channel inventory data and sell-through data obtained from the SPs and SDs. In arriving at its estimate, the Company also considers historical product returns, the underlying product demand, and industry data specific to the specialty pharmaceutical distribution industry.

The total amount deducted from gross sales for the allowances described above was $7.5 million for the three months ended March 31, 2019.

Sativex® Product Net Sales

Sales of Sativex, which is currently being commercialized for spasticity due to multiple sclerosis (“MS”) outside the United States, are made pursuant to license agreements with commercial partners. The Company has entered into license agreements for the commercialization of Sativex in Europe, Canada, Israel, Mexico, and South America. Under these license agreements, the Company sells fully labeled Sativex vials to its commercial partners for a contractually agreed price, which is generally based on percentages of the commercial partners’ in-market net selling price charged to end customers. Product net sales revenue related to Sativex shipments to commercial license partners is recognized when shipped, the date at which the control is transferred. The Company commercializes Sativex in Australia and New Zealand through a consignment relationship with a local distributor. Product net sales revenue related to Sativex sales in Australia and New Zealand are recognized when the product is sold through to the end customer.

Other Revenue

The Company’s other revenue primarily consists of research and development fee revenue for research and development services provided under a collaboration agreement with Otsuka Pharmaceutical Co. Ltd (“Otsuka”) that was terminated in December 2017 and variable consideration milestone payments related to the Sativex license agreements.

The research and development fee revenue is recognized at the time the underlying services are performed.

8


The Sativex license agreements contain provisions for the Company to earn variable consideration in the form of regulatory milestone payments, sales-based milestone payments, and royalty payments. The Company has no further performance obligations related to the regulatory milestone payments and these amounts are recognized in accordance with Topic 606 when receipt of these payments becomes probable and there is no significant risk of revenue reversal. Revenue related to the sales-based milestone payments and product royalty payments are subject to the sales-based royalty exception under Topic 606 and will be recognized when the underlying sales are made.

Research and Development Expenses

Research and development expenses are charged to operations as incurred. Research and development expenses include, among other things, internal and external costs associated with preclinical development, pre-commercialization manufacturing expenses, and clinical trials. The Company accrues for costs incurred as the services are being provided by monitoring the status of the trial or services provided and the invoices received from its external service providers. In the case of clinical trials, a portion of the estimated cost normally relates to the projected cost to treat a patient in the trials, and this cost is recognized based on the number of patients enrolled in the trial. As actual costs become known, the Company adjusts its accruals accordingly.

Research and development expense is presented net of reimbursements from reimbursable tax and expenditure credits from the U.K. government. Reimbursable research and development tax and expenditure credits were $0.8 million and $1.1 million for the three months ended March 31, 2019 and 2018, respectively.

Concentration Risk

Financial instruments, which potentially subject the Company to concentrations of credit risk, principally consist of cash, cash equivalents, investment securities, and accounts receivable. The Company’s cash and cash equivalents balances are primarily in depository accounts at major financial institutions in accordance with the Company’s investment policy. The Company’s investment policy defines allowable investments and establishes guidelines relating to credit quality, diversification, and maturities of its investments to preserve principal and maintain liquidity. Further, the Company specifies credit quality standards for its customers that are designed to limit the Company’s credit exposure to any single party.

Share-based Compensation

The Company recognizes share-based compensation expense for grants of stock options under the Company’s Long-Term Incentive Plans to employees and non-employee members of the Company’s board of directors based on the grant-date fair value of those awards. The grant-date fair value of an award is generally recognized as compensation expense over the award’s requisite service period. Expense related to awards with graded vesting is generally recognized over the vesting period using the accelerated attribution method.

Net Loss Per Share

Basic net loss per share is calculated by dividing the net loss by the weighted average number of common shares outstanding for the period. For the purpose of this calculation, vested nominal strike-price options are considered common shares outstanding. Diluted net loss per share is computed by dividing the net loss by the weighted average number of common shares and dilutive common stock equivalents outstanding for the period determined using the treasury stock method. The Company incurred net losses for all periods presented and therefore excluded all potentially dilutive securities in the calculation of diluted net loss per share. For the three months ended March 31, 2019 and 2018, options totaling approximately 12.4 million and 13.4 million ordinary shares, respectively, were excluded from the calculation of diluted net loss per share as their effect would have been anti-dilutive.

New Accounting Pronouncements

On January 1, 2019, the Company adopted a new accounting standard issued by the Financial Accounting Standards Board (“FASB”) on accounting for leases using the modified retrospective method. This new accounting

9


standard requires a lessee to recognize an asset and liability for most leases on its balance sheet. The Company elected the optional transition method that allowed for a cumulative-effect adjustment as of January 1, 2019 and did not restate previously reported results in the comparative periods. The Company also elected to adopt certain practical expedients allowed by the new standard, which among other things, allowed the Company to carry forward its historical lease classification.

As a result of adoption of the new standard, the Company recorded operating lease assets and liabilities of approximately $20.5 million and $21.1 million, respectively as of January 1, 2019. The operating lease liability was determined based on the present value of the remaining minimum rental payments and the operating lease asset was determined based on the value of the lease liability, adjusted for existing deferred rent balances, which were previously included in other current liabilities and other liabilities. Accounting for the Company’s finance leases remains substantially unchanged. As a result of the adoption of the new leasing accounting standard, the Company’s build-to-suit asset has been reclassified to buildings and the build-to-suit financing obligation has been reclassified to finance lease obligation in the condensed consolidated balance sheets. The adoption of the new standard did not materially impact the Company’s consolidated results of operations or cash flows.

In addition, the adoption of this new accounting standard resulted in increased qualitative and quantitative disclosures regarding the amount, timing, and uncertainty of cash flows arising from leases. For further details, see Note 8 Leases.

Note 3: Fair Value Measurements

At March 31, 2019 and December 31, 2018, the Company’s cash equivalents consisted of money market funds, which are classified as Level 1 within the fair value hierarchy defined by authoritative guidance.

Investment securities classified as Level 1 are valued using quoted market prices. The Company does not hold any securities classified as Level 2, which are securities valued using inputs that are either directly or indirectly observable, or Level 3, which are securities valued using unobservable inputs. The Company has not transferred any investment securities between the classification levels.

Note 4: Composition of Certain Balance Sheet Captions:

Inventory consisted of the following:

 

 

 

March 31,

 

 

December 31,

 

 

 

2019

 

 

2018

 

 

 

(in thousands)

 

Raw materials

 

$

1,255

 

 

$

676

 

Work in process

 

 

41,179

 

 

 

28,709

 

Finished goods

 

 

6,125

 

 

 

3,645

 

 

 

$

48,559

 

 

$

33,030

 

 

Property, plant and equipment, net, consisted of the following:

 

 

 

March 31,

 

 

December 31,

 

 

 

2019

 

 

2018

 

 

 

(in thousands)

 

Buildings

 

$

4,710

 

 

$

4,573

 

Machinery and equipment

 

 

33,717

 

 

 

32,598

 

Leasehold improvements

 

 

37,142

 

 

 

36,004

 

Office and IT equipment

 

 

2,689

 

 

 

2,481

 

Construction-in-process

 

 

55,847

 

 

 

44,546

 

 

 

 

134,105

 

 

 

120,202

 

Accumulated depreciation

 

 

(32,076

)

 

 

(29,370

)

 

 

$

102,029

 

 

$

90,832

 

10


 

Depreciation of property and equipment was $2.1 million and $2.2 million for the three months ended March 31, 2019 and 2018, respectively. The Company did not retire any property, plant, or equipment in the three months ended March 31, 2019 and 2018.

Accrued liabilities consisted of the following:

 

 

 

March 31,

 

 

December 31,

 

 

 

2019

 

 

2018

 

 

 

(in thousands)

 

Accrued compensation and benefits

 

$

18,223

 

 

$

18,482

 

Accrued vendor fees

 

 

15,108

 

 

 

11,452

 

Clinical trial accruals

 

 

12,309

 

 

 

10,059

 

Accrued growing fees

 

 

1,958

 

 

 

2,717

 

Accrued sales rebates and discounts

 

 

5,181

 

 

 

628

 

Other

 

 

7,003

 

 

 

9,139

 

 

 

$

59,782

 

 

$

52,477

 

 

Other current liabilities consisted of the following:

 

 

 

March 31,

 

 

December 31,

 

 

 

2019

 

 

2018

 

 

 

(in thousands)

 

Finance lease liabilities

 

$

291

 

 

$

400

 

Operating lease liabilities

 

 

4,531

 

 

 

 

Landlord financing

 

 

563

 

 

 

539

 

Other

 

 

266

 

 

 

620

 

 

 

$

5,651

 

 

$

1,559

 

 

Other liabilities consisted of the following:

 

 

 

March 31,

 

 

December 31,

 

 

 

2019

 

 

2018

 

 

 

(in thousands)

 

Landlord financing obligation

 

$

9,569

 

 

$

9,434

 

Other

 

 

127

 

 

 

648

 

 

 

$

9,696

 

 

$

10,082

 

 

Note 5: Stockholders’ Equity

In October 2018, the Company completed a public offering of 2,185,000 ADSs listed on the Nasdaq Global Market, representing 26,220,000 ordinary shares of the Company, at a price of $158.00 per ADS. The net proceeds from this transaction after underwriting discounts and commissions were approximately $324.6 million.

Note 6: Share-Based Compensation

Compensation expense for share-based awards is recognized over the requisite service period using the accelerated attribution method. An estimated forfeiture rate has been applied to unvested awards for the purpose of calculating compensation cost. Changes in forfeiture estimates impact compensation cost in the period in which the change in estimate occurs.

The fair value of stock option awards is estimated using the Black-Scholes option-pricing model. The determination of fair value using the Black-Scholes model is affected by the Company’s ADS price as well as assumptions regarding a number of complex and subjective variables, including expected ADS price volatility, risk-free interest rate, expected dividends and projected employee stock option exercise behaviors.

11


The Company estimates its stock price volatility using a combination of historical stock price volatility and the average implied volatility of options traded in the open market. The risk-free interest rate assumption is based on observed interest rates for the appropriate term of the Company’s stock options. The Company has never declared or paid dividends and has no plans to do so in the foreseeable future. The expected option life assumption is estimated using the simplified method prescribed by ASC Topic 718, Compensation – Stock Compensation, and is based on the mid-point between vest date and expiration date since the Company does not have sufficient exercise history to estimate expected option life of historical grants.

The table below summarizes the total share-based compensation expense included in the Company’s statements of operations for the periods presented:

 

 

 

Three months ended March 31,

 

 

 

2019

 

 

2018

 

 

 

(in thousands)

 

Research and development

 

$

2,398

 

 

$

1,287

 

Sales, general and administrative

 

 

8,113

 

 

 

5,158

 

 

 

$

10,511

 

 

$

6,445

 

 

For the three months ended March 31, 2019 and 2018, $0.6 million and $0.4 million of share-based compensation related to manufacturing operations was capitalized into inventory, respectively.

Note 7: Commitments and Contingencies

As of March 31, 2019, the Company was not a party to any material legal proceedings. The Company is not aware of any other proceedings or claims that it believes will have, individually or in the aggregate, a material adverse effect on its business, financial condition or results of operations.

Note 8: Leases

The Company leases buildings, land, equipment, and automobiles and has growing contracts that contain embedded leases for growing facilities. The Company determines if an arrangement is a lease or contains a lease at contract inception. For contracts that are or contain leases, the Company records right-of-use (“ROU”) lease assets and lease liabilities at lease commencement based on the present value of lease payments over the lease term. The lease term includes renewal option periods when those options are reasonably certain to be exercised. The present value of lease payments is calculated using the Company’s incremental collateralized borrowing rate unless an implicit rate is readily determinable. ROU lease assets include any upfront payments and exclude lease incentives. The Company accounts for lease and non-lease components as a single lease component for all of its leases except embedded leases, for which the lease and non-lease components are accounted for separately.

Leases are classified at lease commencement as either operating leases or finance leases. Operating lease assets are included in non-current assets and operating lease liabilities are included in other current liabilities and operating lease liabilities in our condensed consolidated balance sheets. Operating lease cost is recognized on a straight-line basis over the lease term. Finance lease assets are included in property, plant and equipment, net, and finance lease liabilities are included in other current liabilities and finance lease liabilities in our condensed consolidated balance sheets. Finance lease cost is recognized as depreciation expense of fixed assets and interest expense on finance lease liabilities. Leases with an initial term of 12 months or less are not recorded in the consolidated balance sheets and expense for these leases is recognized on a straight-line basis over the lease term.

 

As of March 31, 2019, the Company has a lease agreement for office space that has not yet commenced with fixed lease payments totaling $3.2 million. The lease is expected to commence in mid-2019.

 

No operating or finance lease assets were exchanged for lease liabilities in the three months ended March 31, 2019.

 

12


The Company’s lease costs consist of the following:

 

 

 

Three Months Ended

March 31,

 

 

 

2019

 

 

 

(in thousands)

 

Lease cost

 

 

 

 

Operating lease cost (1)

 

$

1,423

 

Finance lease cost

 

 

 

 

Amortization of leased assets

 

 

98

 

Interest on lease liabilities

 

 

84

 

Total lease cost

 

$

1,605

 

 

 

(1)

Includes short-term lease expense and variable cost, which are immaterial.

 

For the three months ended March 31, 2019, approximately $0.4 million of operating and finance lease cost related to manufacturing operations was capitalized into inventory.

 

The following table summarizes cash flow information related to the Company’s lease obligations:

 

 

 

Three Months Ended

March 31,

 

 

 

2019

 

 

 

(in thousands)

 

Operating cash used for operating leases

 

$

1,100

 

Operating cash used for finance leases

 

$

84

 

Financing cash used for finance leases

 

$

179

 

 

The following table summarizes the Company’s lease assets and liabilities:

 

 

 

As of March 31,

 

 

 

2019

 

 

 

(in thousands)

 

Lease assets

 

 

 

 

Operating lease assets

 

$

20,077

 

Finance lease assets

 

 

5,391

 

Total lease assets

 

$

25,468

 

 

 

 

 

 

Lease liabilities

 

 

 

 

Current

 

 

 

 

Operating lease liabilities

 

 

4,531

 

Finance lease liabilities

 

 

291

 

Non-current

 

 

 

 

Operating lease liabilities

 

 

16,374

 

Finance lease liabilities

 

 

5,801

 

Total lease liabilities

 

$

26,997

 

13


 

The following table summarizes other supplemental information related to the Company’s lease obligations:

 

 

 

As of March 31,

 

 

 

2019

 

Weighted average remaining lease term (years)

 

 

 

 

Operating leases

 

 

7.6

 

Finance leases

 

 

14.9

 

 

 

 

 

 

Weighted average discount rate

 

 

 

 

Operating leases

 

 

5.8

%

Finance leases

 

 

7.6

%

 

The Company’s future minimum annual lease payments under operating and finance leases as of March 31, 2019 are as follows:

 

 

 

Operating Leases

 

 

Finance Leases

 

 

 

(in thousands)

 

2019 (remaining 9 months)

 

$

3,606

 

 

$

574

 

2020

 

 

4,673

 

 

 

726

 

2021

 

 

3,769

 

 

 

726

 

2022

 

 

2,728

 

 

 

718

 

2023

 

 

2,007

 

 

 

716

 

Thereafter

 

 

9,850

 

 

 

6,869

 

Total lease payments

 

$

26,633

 

 

$

10,329

 

Less amounts representing interest

 

 

5,728

 

 

 

4,237

 

Total lease obligations

 

$

20,905

 

 

$

6,092

 

 

 

 

 

 

 

 

 

 

Prior to January 1, 2019, the Company accounted for leases under the previous U.S. GAAP lease guidance, Accounting Standards Codification Topic 840, Leases. Rent expense for operating leases for the three months ended March 31, 2018 was $1.0 million. The aggregate future minimum rent payments under leases in effect as of December 31, 2018 were $6.4 million in 2019, $6.9 million in 2020, $5.7 million in 2021, $4.2 million in 2022, $2.8 million in 2023, and $11.8 million thereafter

Note 9: Subsequent Events

On March 15, 2019, the Company entered into a definitive agreement to sell its Rare Pediatric Disease Priority Review Voucher (“PRV”) for $105.0 million. The Company was awarded the PRV under a FDA program intended to encourage the development of treatments for rare pediatric diseases. The Company received the PRV when Epidiolex was approved by the FDA for the treatment of seizures associated with Lennox-Gastaut Syndrome (“LGS”) or Dravet syndrome.

The closing of the sale of the PRV was subject to antitrust review by U.S. federal agencies. Clearance of the transaction was received by the federal agencies subsequent to March 31, 2019 and the transaction closed on April 5, 2019. Because the contingencies preventing the closing of the transaction were not resolved until after March 31, 2019 and the Company maintained control of the PRV as of March 31, 2019, the sale of the PRV will be reflected in the Company’s financial statements in the second quarter of 2019.

14


Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our consolidated financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes included in this quarterly report on Form 10-Q, or this Quarterly Report, and the audited financial statements and notes thereto as of and for the transition period ended December 31, 2018 included with our Annual Report on Form 10-KT, or our Annual Report, filed with the Securities and Exchange Commission, or SEC.

This discussion contains forward-looking statements that reflect our plans, estimates and beliefs and involve numerous risks and uncertainties, including but not limited to those described in the “Risk Factors” section of this Quarterly Report and our Annual Report. Actual results may differ materially from those contained in any forward-looking statements.

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 20 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 regulatory and manufacturing expertise. Our lead cannabinoid product is Epidiolex, a pharmaceutical formulation of cannabidiol (“CBD”) for which we retain global commercial rights. Epidiolex was approved by the FDA on June 25, 2018, for the treatment of seizures associated with LGS, or Dravet syndrome, in patients two years of age and older. LGS and Dravet syndrome are severe childhood-onset, drug-resistant epilepsy syndromes. Epidiolex became commercially available in the United States on November 1, 2018.

On May 6, 2019, we announced positive top-line results of a randomized, double-blind, placebo-controlled Phase 3 clinical trial of Epidiolex in the treatment of seizures associated with Tuberous Sclerosis Complex (“TSC”), a rare and severe form of childhood-onset epilepsy. In this trial, Epidiolex met its primary endpoint, which was the reduction in seizure frequency of the 25 mg/kg/day dose group vs. placebo (p=0.0009). Results for both the 25 and 50 mg/kg/day dose groups were similar, with seizure reductions of 48.6% and 47.5% from baseline, respectively, vs. 26.5% for placebo (50 mg/kg/day vs. placebo, p=0.0018). All key secondary endpoints were supportive of the effects on the primary endpoint. The safety profile observed was consistent with findings from previous studies, with no new safety risks identified. We expect to file a supplemental new drug application for this indication in the fourth quarter of 2019.

In Europe, we submitted an application to the Committee for Medicinal Products for Human Use (“CHMP”) in December 2017.  We continue to work through the regulatory process and expect an opinion from the CHMP  mid-2019. We have received Orphan Drug Designation from the FDA and the Committee for Orphan Medical Products (“COMP”) for Epidiolex for LGS, Dravet syndrome and TSC. We continue to develop Epidiolex for additional indications and will soon commence a pivotal trial in the treatment of Rett syndrome, a rare, non-inherited neurodevelopmental disorder affecting approximately one in 10,000 to 15,000 live female births. This trial will focus on the behavioral abnormalities associated with the disorder.

Previously, we developed the world’s first plant-derived cannabinoid prescription drug, Sativex (nabiximols), which is approved for the treatment of spasticity due to multiple sclerosis in numerous countries outside the United States. In the United States, we met with the FDA in December 2018 to discuss the optimal regulatory pathway for U.S. approval of Sativex and are now in the process of planning a pivotal Phase 3 trial, which is expected to commence in the fourth quarter of 2019.

We have a deep pipeline of additional cannabinoid product candidates that includes compounds in Phase 1 and 2 trials for orphan childhood-onset neurological conditions, glioblastoma, and schizophrenia. Our pipeline includes research in autism spectrum disorder and Rett syndrome, using both CBD and cannabidivarin (CBDV). We reported positive Phase 2 data for our CBD:THC product in the treatment of glioblastoma multiforme. We have also reported positive Phase 2 data in schizophrenia. In addition, we have received Orphan Drug Designation and Fast Track Designation from the FDA for intravenous CBD for the treatment of Neonatal Hypoxic Ischemic Encephalopathy (“NHIE”), for which a Phase 1 trial has been completed. NHIE is an acute or sub-acute brain injury due to asphyxia from a sentinel event at birth, such as ruptured placenta, parental shock and even increased heart rate.

15


Critical Accounting Estimates

Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). These accounting principles require us to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements, as well as the reported amounts of revenues and expenses during the periods presented. We believe that the estimates, judgments and assumptions are reasonable based upon information available to us at the time that these estimates, judgments and assumptions are made. To the extent there are material differences between these estimates, judgments or assumptions and actual results, our financial statements will be affected. Historically, revisions to our estimates have not resulted in a material change to our financial statements.

For a discussion of our critical accounting estimates, please read Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-KT for the transition period ended December 31, 2018. There have been no material changes to the critical accounting estimates previously disclosed in our Annual Report on Form 10-KT for the transition period ended December 31, 2018.

Recent Accounting Pronouncements

The adoption of new accounting standards, including the new standard related to accounting for leases, is discussed in Note 2 to our interim unaudited condensed consolidated financial statements. For further details regarding our leases, refer to Note 8 to our interim unaudited condensed consolidated financial statements.

Results of Operations

The following table summarizes the results of our operations for the three months ended March 31, 2019 and 2018:

 

 

 

Three Months Ended

March 31,

 

 

 

 

 

 

 

2019

 

 

2018

 

 

Increase/Decrease

 

 

 

(in thousands, except per share amounts)

 

Consolidated Statement of Operations Data:

 

 

 

 

 

 

 

 

 

 

 

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

Product net sales

 

$

38,974

 

 

$

2,812

 

 

$

36,162

 

Other revenue

 

 

273

 

 

 

229

 

 

 

44

 

Total revenues

 

 

39,247

 

 

 

3,041

 

 

 

36,206

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Cost of product sales

 

 

5,131

 

 

 

1,625

 

 

 

3,506

 

Research and development

 

 

30,375

 

 

 

43,485

 

 

 

(13,110

)

Selling, general and administrative

 

 

55,078

 

 

 

26,173

 

 

 

28,905

 

Total operating expenses

 

 

90,584

 

 

 

71,283

 

 

 

19,301

 

Loss from operations

 

 

(51,337

)

 

 

(68,242

)

 

 

16,905

 

Interest income

 

 

2,087

 

 

 

759

 

 

 

1,328

 

Interest expense

 

 

(265

)

 

 

(325

)

 

 

60

 

Foreign exchange loss

 

 

(1,114

)

 

 

(640

)

 

 

(474

)

Loss before income taxes

 

 

(50,629

)

 

 

(68,448

)

 

 

17,819

 

Income tax (benefit) expense

 

 

(565

)

 

 

1,013

 

 

 

(1,578

)

Net loss

 

$

(50,064

)

 

$

(69,461

)

 

$

19,397

 

 

Product net sales

Our product net sales consist of sales of Epidiolex, which we launched in the United States in November of 2018 and also sell through certain early access programs outside of the United States, and sales of Sativex outside of the United States pursuant to license agreements with commercial partners.

16


Product net sales for the three months ended March 31, 2019 consist of $33.5 million in net sales of Epidiolex in the United States, $1.2 million of Epidiolex sales under early access programs outside of the United States, and $4.3 million in net sales of Sativex.

The $36.2 million increase in product net sales to $39.0 million for the three months ended March 31, 2019 compared to $2.8 million for the three months ended March 31, 2018 was primarily due to the recent launch of Epidiolex in the United States.

Other revenue

Other revenue for the three months ended March 31, 2019 and 2018 consists of remaining development fees related to the Otsuka license agreement that was terminated in December 2017.

Costs of product sales

Cost of product sales increased $3.5 million, or 216%, for the three months ended March 31, 2019 to $5.1 million, or 13% of product net sales, compared to $1.6 million, or 58% of product net sales for the three months ended March 31, 2018. The increase in cost of product sales is primarily due to an increase in product net sales, which is primarily due to the launch of Epidiolex in the United States. The reduction in cost of product sales as a percentage of product net sales is due to the positive impact in the three months ended March 31, 2019 of directly commercializing Epidiolex in the United States compared to the same period in the prior year when products net sales consisted only of Sativex sales outside of the United States through license partners.

Research and development expenses

We believe that our future revenues and cash flows are most likely to be affected by the successful development and approval of our significant late-stage research and development candidates. As of March 31, 2019, we consider the following research and development projects to be our most significant late-stage product candidates:

 

Epidiolex for the treatment of Dravet syndrome and LGS (Europe)

 

Epidiolex for the treatment of TSC (United States)

 

Sativex for spasticity associated with MS (United States)

We have submitted a marketing authorization application in December 2017 for both the Dravet syndrome and LGS indications in Europe. This application has been validated by the European Medicines Agency. We continue to work through the regulatory process and expect an opinion from the CHMP mid-2019. We have also received Orphan Designation from the COMP for Epidiolex for Dravet syndrome, LGS and TSC.

We have completed our Phase 3 trial in TSC and have reported positive top-line results. We expect to file an sNDA for this indication in Q4 2019.

In December 2017, we terminated our license agreement with Otsuka and we have reacquired full ownership of the development and commercialization rights to Sativex in the United States. We met with the FDA in December 2018 to discuss the optimal regulatory pathway for U.S. approval of Sativex and are now in the process of planning a pivotal Phase 3 trial, which is expected to commence in the fourth quarter of 2019.

17


R