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TABLE OF CONTENTS
Index to the Financial Statements

Table of Contents

As filed with the United States Securities and Exchange Commission on March 19, 2013

Registration No. 333-        

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549



FORM F-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933



GW PHARMACEUTICALS PLC
(Exact name of Registrant as specified in its charter)
Not Applicable
(Translation of Registrant's name into English)

 
   
   
England and Wales
(State or other jurisdiction of
incorporation or organization)
  2834
(Primary Standard Industrial
Classification Code Number)
  Not Applicable
(I.R.S. Employer
Identification Number)

Porton Down Science Park, Salisbury
Wiltshire, SP4 0JQ
United Kingdom
(44) 198 055-7000
(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices)



CT Corporation System
111 Eighth Avenue, 13th Floor
New York, NY 10011
(212) 590-9330
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent For Service)



Copies to:

 
   
   
Edward S. Best
David S. Bakst
Mayer Brown LLP
1675 Broadway
New York, NY 10019
Telephone: (212) 506 2500
Facsimile: (212) 262 1910
  Justin D. Gover, Chief Executive Officer
Adam D. George, Chief Financial Officer
GW Pharmaceuticals plc
Porton Down Science Park, Salisbury
Wiltshire, SP4 0JQ
United Kingdom
Telephone: (44) 198 055-7000
Facsimile: (44) 198 055-7111
  Jonathan L. Kravetz
Daniel T. Kajunski
Mintz, Levin, Cohn, Ferris,
Glovsky and Popeo, P.C.
One Financial Center
Boston, MA 02111
Telephone: (617) 542-6000
Facsimile: (617) 542-2241

          Approximate date of commencement of proposed sale to the public:

          As soon as practicable after the effective date of this registration statement.

          If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.    o

          If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o

          If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o

          If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o



CALCULATION OF REGISTRATION FEE

       
 
Title of each class of securities to be registered
  Proposed maximum
aggregate offering
price(1)

  Amount of
registration fee

 

Ordinary Shares, par value £0.001 per share(2)(3)

  $50,000,000   $6,820

 

(1)
Estimated solely for the purpose of determining the amount of registration fee in accordance with Rule 457(o) under the Securities Act of 1933, as amended.

(2)
Includes ordinary shares that the underwriters may purchase solely to cover overallotments, if any.

(3)
American Depositary Shares issuable on deposit of the ordinary shares registered hereby have been registered under a separate registration statement on Form F-6 (File No.: 333-        ). Each American depositary share will represent             ordinary shares.



          The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the registration statement shall become effective on such date as the Commission, acting pursuant to such Section 8(a), may determine.

   


Table of Contents

The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

Subject to Completion
Preliminary Prospectus dated                        , 2013

PROSPECTUS

American Depositary Shares

GRAPHIC

GW PHARMACEUTICALS PLC
(Incorporated in England and Wales)

Representing                     Ordinary Shares



        This is GW Pharmaceuticals plc's initial public offering in the United States. We are offering                        American Depositary Shares (each, an "ADS" and, collectively "ADSs"). Each ADS will represent                ordinary shares, par value £0.001 per share.

        We expect that the initial public offering price will be between $            and $            per ADS. Prior to the offering, there has been no public market for the ADSs. We have applied to list the ADSs on the Nasdaq Global Market under the symbol "GWPH."

        We are an "emerging growth company" as such term is used in the Jumpstart Our Business Startups Act of 2012.

        Investing in the ADSs involves a high degree of risk. See "Risk Factors" beginning on page 13 of this prospectus for certain factors you should consider before investing in the ADSs.



           
 
 
  Price
To Public

  Underwriting
Discounts and
Commissions(1)

  Proceeds
to Us

 

Per ADS

  $               $               $            
 

Total

  $               $               $            

 

(1)
We have agreed to pay Trout Capital LLC a fee of $200,000 for consulting services provided by its affiliate, The Trout Group LLC, in connection with this offering, which amount is included in the underwriting discounts and commissions. See "Underwriting" beginning on page 172 of this prospectus for more information regarding this arrangement.

        The underwriters have an option to purchase up to                     additional ADSs from us at the public offering price, less the underwriting discounts and commissions payable by us, for 30 days after the date of this prospectus to cover overallotments, if any.

        Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.

        Delivery of the ADSs will be made against payment in New York, New York on or about                        , 2013.



Joint Book-Running Managers

LAZARD CAPITAL MARKETS   COWEN AND COMPANY


Lead Manager

 

Co-Manager

CANACCORD GENUITY

 

ROTH CAPITAL PARTNERS

   

The date of this prospectus is                        , 2013.


TABLE OF CONTENTS

 
  Page

Prospectus Summary

  1

The Offering

  9

Summary Consolidated Financial Data

  11

Risk Factors

  13

Special Note Regarding Forward-Looking Statements

  40

Exchange Rates

  42

Price Range of our Ordinary Shares

  43

Use of Proceeds

  44

Dividends and Dividend Policy

  45

Capitalization

  46

Dilution

  47

Selected Consolidated Financial Data

  49

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

  51

Business

  72

Management

  115

Related Party Transactions

  133

Principal Shareholders

  134

Description of Share Capital

  136

Description of American Depositary Shares

  152

Shares and ADSs Eligible for Future Sale

  162

Taxation

  164

Underwriting

  172

Expenses of the Offering

  177

Legal Matters

  178

Experts

  178

Service of Process and Enforcement of Judgments

  178

Where You Can Find More Information

  178

Index to the Financial Statements

  F-1



        You should rely only on the information contained in this prospectus and any related free-writing prospectus that we authorize to be distributed to you. We have not, and the underwriters have not, authorized any person to provide you with information different from that contained in this prospectus or any related free-writing prospectus that we authorize to be distributed to you. This prospectus is not an offer to sell, nor is it seeking an offer to buy, these securities in any state where the offer or sale is not permitted. The information in this prospectus speaks only as of the date of this prospectus unless the information specifically indicates that another date applies, regardless of the time of delivery of this prospectus or of any sale of the securities offered hereby.

        No action is being taken in any jurisdiction outside the United States to permit a public offering of the ADSs or possession or distribution of this prospectus in that jurisdiction. Persons who come into possession of this prospectus in jurisdictions outside the United States are required to inform themselves about and to observe any restrictions as to this offering and the distribution of the prospectus applicable to that jurisdiction.

        Until 25 days after the date of this prospectus, all dealers that buy, sell, or trade the ADSs, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

        Sativex®, the GW logo and other trademarks or service marks of GW Pharmaceuticals plc appearing in this prospectus are the property of GW Pharmaceuticals plc. Trade names, trademarks and


service marks of other companies appearing in this prospectus are the property of their respective owners.

        In this prospectus, "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.

        All references in this prospectus 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, 2012 have been translated into U.S. dollars at the rate at September 28, 2012, the last business day of our year ended September 30, 2012, of £0.6199 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.


Table of Contents


PROSPECTUS SUMMARY

        This summary highlights selected information about us and the ADSs that we are offering. It may not contain all of the information that may be important to you. Before investing in the ADSs, you should read this entire prospectus carefully for a more complete understanding of our business and this offering, including our consolidated financial statements, and the sections entitled "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in this prospectus.

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 14 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, which is approved for the treatment of spasticity due to multiple sclerosis, or MS, in 20 countries outside the United States. We are also evaluating Sativex in a Phase 3 program for the treatment of cancer pain, and we anticipate that top-line results from two Phase 3 trials will be available in 2014, the first of which we expect to be available in mid-2014. This program is intended to support the submission of a New Drug Application, or NDA, for Sativex in cancer pain with the U.S. Food and Drug Administration, or FDA, and in other markets around the world. We believe that MS spasticity represents an attractive indication for Sativex in the United States and we intend to pursue an additional clinical development program for this significant opportunity. We have a deep pipeline of additional cannabinoid product candidates, including two distinct compounds, GWP42004 and GWP42003, in Phase 2 clinical development for Type 2 diabetes and ulcerative colitis, respectively, and at least two additional programs expected to enter clinical trials in the next 12 months.

        Our lead product, Sativex, 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 cannabidiol, or CBD. We are 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. This program represents the lead target indication for Sativex in the United States and is based on positive data from two Phase 2 trials of Sativex involving over 530 patients in this indication. According to Fallon, et al. in the March/April 2006 edition of Clinical Medicine, pain is uncontrolled with opioid treatments in approximately 20% of patients with advanced cancer, or 420,000 people in the United States. There are currently no approved non-opioid treatments for patients who do not respond to, or experience negative side effects with, opioid medications. We believe that Sativex has the potential to address a significant unmet need in this large market by treating patients with a product that employs a differentiated non-opioid mechanism of action, and offers the prospect of pain relief without increasing opioid-related adverse side effects. Our ongoing Phase 3 program is being conducted under an Investigational New Drug Application, or IND, and consists of three clinical trials, the first two of which are expected to enroll 760 patients in total and are intended to form the basis of the NDA. These two Phase 3 trial protocols mirror our Phase 2b trial of Sativex with respect to patient population and treatment duration, and employ a primary efficacy endpoint that yielded statistically significant results in favor of Sativex in both Phase 2 trials. The costs of the Phase 3 program are fully funded by Otsuka.

        We recently initiated commercialization of Sativex for the treatment of MS spasticity in seven countries outside the United States. We have also received regulatory approval for Sativex for MS spasticity in 13 additional countries, and we anticipate commercial launches in the majority of these countries in the next 12 months. Two additional countries have recommended approval for Sativex in this indication and regulatory filings are under review in eight other countries. While we believe that

 

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MS spasticity represents an attractive indication for the United States, we also believe that cancer pain is the optimal entry point for Sativex in the United States from a commercial and regulatory perspective since we performed our MS spasticity pre-clinical and clinical program outside of the United States, and we anticipate that we will be required to conduct an additional development program prior to the submission of an NDA with the FDA for this indication. According to the World Health Organization, MS affects 1.3 million people worldwide, of which up to 80% suffer from spasticity, a symptom of MS characterized by muscle stiffness and uncontrollable spasms. 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.

        In addition to Sativex, we are developing other cannabinoid product candidates, including GWP42004, which has completed a Phase 2a trial in Type 2 diabetes. In this trial, GWP42004 showed evidence of anti-diabetic effects, including the preservation of beta cell function and evidence across a number of endpoints suggesting an increase in insulin sensitivity. We plan to initiate a Phase 2 dose-ranging trial in 2013 of GWP42004 in this indication. In addition, we are developing GWP42003, a cannabinoid which has shown anti-inflammatory properties in pre-clinical studies. GWP42003 is currently in a Phase 2 trial for ulcerative colitis for which we expect data in early 2014. We expect at least two additional cannabinoid programs to advance into clinical trials within the next 12 months. Our early clinical development activities are conducted outside of the United States and we expect to submit INDs in the United States for our product candidates at a later stage in their development.

        Our commercialized product and key ongoing development programs are shown in the table below:

Product/Product Candidates
  Indication   Partner(s)   Status   Expected
Next Steps

Sativex

  MS spasticity   Otsuka, Almirall, Novartis, Bayer and Neopharm   Approved in 20 countries   Additional submissions, approvals and launches

Sativex

 

Cancer pain

 

Otsuka, Almirall, Novartis, Bayer and Neopharm

 

Phase 3 program ongoing

 

Phase 3 data in 2014

GWP42004

 

Type 2 diabetes

 

We retain global rights

 

Phase 2a trial complete

 

Phase 2 dose ranging trial to commence in 2013

GWP42003

 

Ulcerative colitis

 

We retain global rights

 

Phase 2 trial ongoing

 

Phase 2 data in early 2014

GWP42006

 

Epilepsy

 

Otsuka Collaboration*

 

Pre-clinical

 

Phase 1 to commence in 2013

Combination of GWP42002 and GWP42003

 

Glioma

 

Otsuka Collaboration*

 

Pre-clinical

 

Phase 1b/2a to commence in 2013

GWP42003

 

Schizophrenia

 

Otsuka Collaboration*

 

Pre-clinical

 

Phase 2a to commence in 2013


*
Currently funded under the terms of the Otsuka research collaboration agreement. See "Business—Intellectual Property and Technology Licenses" in this prospectus for more information.

 

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Our Strategic Partnerships

        To support the development and commercialization of Sativex, we have entered into collaborations with the following major pharmaceutical companies: Otsuka in the United States; Almirall S.A., or Almirall, in Europe (excluding the United Kingdom) and Mexico; 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, or Bayer, in the United Kingdom and Canada; and Neopharm Group in Israel. These agreements provide our collaborators with the sole right to commercialize Sativex in exclusive territories for all indications. From our incorporation through September 30, 2012, these agreements have yielded cash of £67.2 million in upfront fees and milestone payments. In addition, we are entitled to receive up to an additional £201.0 million in potential payments upon the achievement of regulatory and commercial milestones. Upon commercialization, we are also entitled to receive revenue from the supply of products as well as royalties on product sales. In addition, under the terms of our agreement with Otsuka, all pre-clinical and clinical costs associated with the development of Sativex in the United States are fully funded by Otsuka.

        We also have a research collaboration agreement with Otsuka, under which we are researching novel cannabinoid candidates for disorders of the central nervous system, or CNS, and oncology. This agreement was originally signed in 2007 for a three-year period and was extended in 2010 until June 2013. Under this collaboration, Otsuka has the right until September 2013 to license selected product candidates, and if it exercises this right, it will pay us license fees, milestone payments, revenue from the supply of products and royalties. Detailed financial terms are required to be negotiated only when Otsuka exercises its right to license a particular product candidate. Global rights to product candidates not selected for license by Otsuka will be exclusively licensed back to us from Otsuka.

Our Strengths

        We believe that we offer the following key distinguishing characteristics:

    Commercialized lead product and validated 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 we can expand the approved indications for Sativex and develop a portfolio of additional cannabinoid therapeutics.

    Significant late stage opportunity in cancer pain, a large market.  We are currently evaluating Sativex in a Phase 3 program, which is fully funded by Otsuka, to support the submission of an NDA in the United States and regulatory applications across other parts of the world for the treatment of advanced cancer pain. Our Phase 3 program follows positive Phase 2 data from clinical trials of Sativex involving over 530 patients in this indication and employs several of the same key study features as our Phase 2 trials.

    Additional late stage opportunity in the United States for MS spasticity.    Sativex is approved for MS spasticity in 20 countries outside the United States. We believe that MS spasticity represents an attractive indication for Sativex in the United States and we anticipate that we will be required to conduct an additional development program prior to the submission of a separate NDA with the FDA for this indication.

    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.

    Collaborations with major global pharmaceutical companies.  We have entered into collaboration agreements for Sativex, including with Otsuka, Almirall, Novartis and Bayer. Separately, we have

 

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      a research collaboration agreement with Otsuka under which Otsuka funds our pre-clinical research in the fields of CNS and oncology.

    Strong competitive position in a highly specialized and regulated field.  We believe 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 14 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 34 countries and have substantial expertise in relevant international and national regulations in relation to the research, distribution and commercialization of cannabinoid therapeutics.

    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 28 academic institutions in eight 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 Type 2 diabetes, ulcerative colitis, CNS disorders, including epilepsy and schizophrenia, cancer 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 reproduce the selected chemotypes solely through propagation of plant cuttings, or clones, in order to ensure that all subsequent plant material is genetically uniform. The cultivation process lasts 11 weeks from plant cutting to harvest;

    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;

    global in-house development and regulatory expertise; and

    intellectual property portfolio, which includes multiple 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. The patents and pending patent applications directed to Sativex in the United

 

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      States, if issued, would expire on various dates between 2021 and 2026, excluding possible patent extensions.

        We believe that our focus on the development of therapeutics from plant-derived cannabinoids offers the following important advantages:

    Our plant extract formulations may contain one or more principal cannabinoids offering 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, the complexities of which make the "single-target" approach to development of cannabinoid therapeutics more challenging.

    Our platform enables us to evaluate the therapeutic potential of products containing single cannabinoids as well as combinations of cannabinoids, as demonstrated by Sativex, while remaining defined as a single new medicinal entity by regulatory authorities.

    The chemical complexity of our plant-based formulations may offer superior therapeutic promise compared with the corresponding pure cannabinoids and provide additional hurdles for potential generic competitors.

        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 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 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 January 2011 report entitled "The DEA Position on Marijuana," the DEA expresses support for ongoing research into potential medicinal uses of marijuana's active ingredients, and specifically references Sativex.

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 of Sativex for advanced cancer pain in the United States and around the world. We expect Phase 3 data to be available in 2014 following which we expect to submit an NDA with the FDA and regulatory applications across other parts of the world for Sativex in cancer pain.

    Achieve global commercialization of Sativex for MS spasticity.  Sativex has been approved in 20 countries for MS spasticity and we intend to seek and obtain approval for Sativex in this indication in additional countries throughout the world, and to conduct an additional development program necessary for submission of a separate NDA with the FDA.

    Advance additional product candidates in our pipeline towards commercialization with a particular focus on the United States market.  We have a deep product pipeline that includes two other

 

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      cannabinoid product candidates in Phase 2 trials for the treatment of Type 2 diabetes and ulcerative colitis, and at least two pre-clinical programs that are expected to enter the clinic in the next 12 months.

    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.

    Continue to selectively enter into new collaboration agreements for certain programs and retain full control and/or co-promotion opportunities for other programs. We plan to seek future collaboration agreements for certain programs, while retaining commercial interests in other selected product opportunities where the development and commercialization activities are appropriate for our size and financial resources.

    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.

Risk Factors

        Our business is subject to numerous risks that could prevent us from successfully implementing our business strategy. These and other risks are discussed more fully in "Risk Factors" immediately following this prospectus summary and include the following:

    We are substantially dependent on the commercial success of our only product, Sativex, which is currently being commercialized for MS spasticity outside the United States.

    In addition to Sativex for MS spasticity, we are also dependent on the success of our product candidates, including Sativex for cancer pain, which may never receive regulatory approval or be successfully commercialized.

    If we experience disruptions in or problems with any phase of our manufacturing process and/or fail to comply with manufacturing regulations or maintain licenses relating to the cultivation, possession and supply of controlled substances, our business, results of operations and financial conditions could be materially and adversely affected.

    Sativex and our other product candidates contain controlled substances, the use of which may generate public controversy around our business which could negatively impact the commercial success of any of our approved products or the future development of our product candidates.

    We may not be able to maintain and protect our proprietary technology and assets and third parties may assert that we infringe their patents and proprietary rights, which could impair our proprietary cannabinoid product platform and commercial opportunities.

    We depend substantially on the commercial expertise of our collaboration partners, and rely on Otsuka's funding of the clinical program for Sativex in cancer pain.

    We have significant and increasing liquidity needs and may require additional funding.

    Clinical trials for our product candidates are expensive, time consuming, uncertain and susceptible to change, delay or termination.

    Even if Sativex and our other product candidates receive FDA approval, we will be subject to stringent U.S. controlled substances laws and regulations, and any failure by us to comply with such laws and regulations could harm our reputation and operating results.

    New investors will experience substantial dilution as a result of this offering.

 

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    As a foreign private issuer, we are exempt from a number of rules under the U.S. securities laws and Nasdaq corporate governance rules and are permitted to file less information with the Securities and Exchange Commission than U.S. companies. This may limit the information available to holders of the ADSs.

Recent Financial Results

        Set forth below is a summary of certain preliminary financial data as at and for the three months ended December 31, 2012. We have not yet finalized our complete results of operations for this period. These results are the responsibility of management. This summary is not meant to be a comprehensive statement of our financial results for this period and these results are not necessarily indicative of our results for future periods. For the three months ended December 31, 2012, total revenue was £5.2 million, Sativex sales were £0.2 million, research and development expenditure was £6.4 million, and we incurred a loss before tax of £2.4 million.

        Sativex sales in the quarter ended December 31, 2012 were adversely impacted by the recognition of a £0.7 million provision for a rebate to our commercial partner, Almirall, as a consequence of a pricing decision. During March 2013, the German National Association of Statutory Health Insurance Funds imposed a price reduction on Sativex sales in Germany effective for sales from July 1, 2012. Of the additional £0.7 million rebate provision, £0.6 million related to sales recognized in the year ended September 30, 2012. We expect this pricing decision to have a negative impact on Sativex revenues in this fiscal year.

        In early 2013, we reached an agreement with the U.K. tax authority, HM Revenue & Customs, or HMRC, regarding the tax computations we submitted for the year ended September 30, 2012. Pursuant to this agreement, HMRC agreed that our principal research subsidiary company, GW Research Ltd., was able to surrender trading losses that arise from its research and development activity for a tax credit cash rebate. The majority of our pipeline research, clinical trials management and the Sativex chemistry and manufacturing controls development activities, all of which are being carried out by GW Research Ltd., are eligible for inclusion within the tax credit cash rebate claims.

        This agreement with HMRC resulted in an additional tax credit of £3.8 million being recorded during the three months ended December 31, 2012 due to: (i) the recognition of an additional £2.0 million of research and development tax credits in respect of the year ended September 30, 2012 by GW Research Ltd., our principal research subsidiary and (ii) the recognition of a £1.8 million deferred tax asset in respect of cumulative trading losses which we intend to utilize to offset against future trading profits by GW Pharma Ltd., our principal commercial trading subsidiary.

        GW Research Ltd. is also eligible to claim a £0.6 million tax credit for the three months ended December 31, 2012, bringing the total tax credit for the period to £4.4 million. Profit after tax for the three months ended December 31, 2012, was £2.0 million. Net cash outflow for the three months ended December 31, 2012 was £1.7 million. Cash and cash equivalents at December 31, 2012 was £27.6 million. Net assets at December 31, 2012 were £23.3 million.

Corporate Information

        Our registered and principal executive offices are located at Porton Down Science Park, Salisbury, Wiltshire, SP4 0JQ, United Kingdom, our general telephone number is (44) 198 055-7000 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 prospectus. Our agent for service of process in the United States is CT Corporation System, 111 Eighth Avenue, 13th Floor, New York, NY 10011. Since June 28, 2001, our ordinary shares have been listed on the Alternative Investment Market, or AIM, which is a sub-market of the London Stock Exchange. See "Price Range of Our Ordinary Shares" in this prospectus.

 

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Implications of Being an Emerging Growth Company

        As a company with less than $1.0 billion in revenue for our year ending September 30, 2012, we qualify as an "emerging growth company" as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. An emerging growth company may take advantage of specified reduced reporting requirements and is relieved of certain other significant requirements that are otherwise generally applicable to public companies in the United States. Among these provisions is an exemption from the auditor attestation requirement under Section 404 of the Sarbanes-Oxley Act of 2002, in the assessment of the Company's internal control over financial reporting. We have elected to rely on this exemption and will not provide such an attestation from our auditors. We have elected to opt out of all other provisions of the JOBS Act, including the provision that allows us to take advantage of an extended transition period to comply with new or revised accounting standards until such time as private companies would be required to comply. This latter decision to opt out of the extended transition period to comply with new or revised accounting standards under the JOBS Act is irrevocable.

        We will remain an emerging growth company until the earliest of (a) the last day of our fiscal year during which we have total annual gross revenue of at least $1.0 billion; (b) the last day of our fiscal year following the fifth anniversary of the completion of this offering; (c) the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt; or (d) the date on which we are deemed to be a "large accelerated filer" under the Securities Exchange Act of 1934, as amended, which would occur if the market value of our ADSs that are held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter. Once we cease to be an emerging growth company, we will not be entitled to the exemptions provided in the JOBS Act.

 

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THE OFFERING

Issuer

  GW Pharmaceuticals plc

ADSs offered by us

 

            ADSs

Price per ADS

 

We currently estimate that the initial public offering price will be between $            and $            per ADS.

Overallotment option

 

We have granted the underwriters an option for a period of 30 days from the date of this prospectus to purchase up to            additional ADSs from us to cover overallotments, if any.

ADSs to be outstanding immediately after this offering

 

            ADSs

Ordinary to be shares outstanding immediately after this offering

 

            ordinary shares

The ADSs

 

Each ADS represents            ordinary shares.

 

The depositary will hold the ordinary shares underlying your ADSs. You will have rights as provided in the deposit agreement. You may cancel your ADSs and withdraw the underlying ordinary shares. The depositary will charge you fees for, among other acts, any cancellation. In certain limited instances described in the deposit agreement, we may amend or terminate the deposit agreement without your consent. If you continue to hold your ADSs, you agree to be bound by the terms of the deposit agreement then in effect.

 

To better understand the terms of the ADSs, you should carefully read "Description of American Depositary Shares" in this prospectus. You should also read the deposit agreement, which is an exhibit to the registration statement that includes this prospectus.

Depositary

 

Citibank, N.A.

Proposed Nasdaq Global Market symbol

 

"GWPH"

Shareholder approval of offering

 

Under English law, certain steps necessary for the consummation of this offering require the approval of holders of 75% of our ordinary shares voting at a general meeting of shareholders. We expect to receive all such required approvals from our shareholders prior to the completion of this offering.

Lockup agreements

 

We expect to enter into an agreement with the underwriters, subject to certain exceptions, not to sell or dispose of any ordinary shares or ADSs or securities convertible into or exchangeable or exercisable for any of these securities until 180 days after the date of this prospectus. Our directors, including our officers, have agreed to similar lockup restrictions for a period of 180 days. See "Underwriting" in this prospectus.

 

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Use of proceeds

 

We expect to receive total estimated net proceeds from this offering of approximately $            million, after deducting estimated underwriting discounts and commissions and offering expenses. We intend to use the net proceeds of this offering to: (i) fund new clinical trials of multiple product candidates, (ii) expand our Sativex manufacturing capabilities, (iii) discover and develop new product candidates from our proprietary product platform and (iv) fund research and development activities, working capital and other general corporate purposes, including costs and expenses of being a U.S. public company. See "Use of Proceeds" in this prospectus.

Risk Factors

 

You should carefully read the information set forth under "Risk Factors" beginning on page 13 of this prospectus and the other information set forth in this prospectus before investing in the ADSs.

        Unless otherwise indicated, all information in this prospectus, including information relating to the number of ordinary shares to be outstanding immediately after the completion of this offering:

    excludes 3,776,960 ordinary shares issuable upon the exercise of warrants outstanding as at September 30, 2012;

    excludes 11,054,144 ordinary shares, issuable upon exercise of outstanding options under our equity compensation plans, as at September 30, 2012;

    excludes 612,456 ordinary shares, issuable upon exercise of outstanding options granted to non-executive directors and consultants, other than under our equity compensation plans, as at September 30, 2012;

    excludes 15,000,000 ordinary shares potentially issuable pursuant to future awards under our Long-Term Incentive Plan; and

    assumes no exercise by the underwriters of their option to purchase up to            additional ADSs.

 

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SUMMARY CONSOLIDATED FINANCIAL DATA

        The following table summarizes our consolidated financial data as at the dates and for the periods indicated. The consolidated financial data as at September 30, 2012 and 2011 and for the years ended September 30, 2012, 2011 and 2010 have been derived from our consolidated financial statements, 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), and included elsewhere in this prospectus. The consolidated financial data as at September 30, 2010 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 prospectus. 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 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, 2012 have been translated into U.S. dollars at $1.00 = £0.6199 based on the certified foreign exchange rates published by Federal Reserve Bank of New York on September 28, 2012, the last business day of our year ended September 30, 2012. 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 summary consolidated financial data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements included elsewhere in this prospectus.

 
  Year Ended September 30,  
 
  2012   2012   2011   2010  
 
  $
  £
  £
  £
 
 
  (in thousands, except per share data)
 

Income Statement Data:

                         

Revenue

    53,428     33,120     29,627     30,676  

Cost of sales

    (1,353 )   (839 )   (1,347 )   (752 )

Research and development expenditure

    (44,488 )   (27,578 )   (22,714 )   (22,145 )

Management and administrative expenses

    (5,904 )   (3,660 )   (3,298 )   (3,267 )
                   

Operating profit

    1,683     1,043     2,268     4,512  

Interest expense

    (2 )   (1 )   (3 )   (8 )

Interest income

    323     200     263     100  
                   

Profit before tax

    2,004     1,242     2,528     4,604  

Tax

    2,013     1,248     221     37  
                   

Profit for the year

    4,017     2,490     2,749     4,641  
                   

Earnings per share

                         

Basic

    0.03     0.02     0.02     0.04  

Diluted

    0.03     0.02     0.02     0.04  

Weighted average number of shares

                         

Basic

    133.0     133.0     131.7     129.7  

Diluted

    137.5     137.5     135.7     133.2  

 

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  As at September 30,  
 
  2012   2012   2011   2010  
 
  $
  £
  £
  £
 
 
  (in thousands)
 

Balance Sheet Data:

                         

Non-current assets

    12,328     7,642     7,078     6,776  

Current assets

                         

Inventories

    5,706     3,537     1,424     780  

Trade receivables and other current assets

    2,562     1,588     2,281     1,217  

Cash and cash equivalents

    47,322     29,335     28,319     25,219  

Total current assets

    56,912     35,280     32,024     27,216  

Total assets

   
69,240
   
42,922
   
39,102
   
33,992
 

Current liabilities

                         

Trade and other payables

    (14,702 )   (9,114 )   (6,562 )   (4,554 )

Deferred revenue

    (3,951 )   (2,449 )   (3,459 )   (5,120 )

Non-current liabilities

                         

Deferred revenue

    (16,337 )   (10,127 )   (11,422 )   (11,599 )

Net assets/Total equity

   
34,251
   
21,232
   
17,652
   
12,673
 

 

 
  Year Ended September 30,  
 
  2012   2012   2011   2010  
 
  $
  £
  £
  £
 
 
  (in thousands)
 

Cash Flow Data:

                         

Net cash inflow from operating activities

    2,905     1,801     2,361     4,324  

Net cash outflow from investing activities

    (1,710 )   (1,060 )   (647 )   (334 )

Net cash inflow from financing activities

    118     73     1,393     620  

 

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RISK FACTORS

        Investing in the ADSs involves a high degree of risk. You should carefully consider the following risk factors and all other information contained in this prospectus, including our consolidated financial statements, before making an investment decision regarding our securities. The risks and uncertainties described below are those significant risk factors, currently known and specific to us, that we believe are relevant to an investment in our securities. If any of these risks materialize, our business, results of operations or financial condition could suffer, the price of the ADSs could decline and you could lose part or all of your investment. Additional risks and uncertainties not currently known to us or that we now deem immaterial may also harm us and adversely affect your investment in the ADSs.

Risks Related to Our Business

We are substantially dependent on the success of our only commercial product Sativex.

        Our future success will depend heavily on the continued successful commercialization of Sativex, which is now in the early stages of its commercial life. Although Sativex is currently approved in 20 countries outside of the United States for spasticity due to multiple sclerosis, or MS, and is sold in seven of those countries, it may never be successfully commercialized in all of these jurisdictions. Sativex's commercial success 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 and the ability of our marketing partners to generate sales. 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, our business, results of operations and financial condition will be materially harmed.

We are dependent on the success of our product candidates, including Sativex for cancer pain, 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 Sativex for cancer pain, currently in Phase 3 trials, and our other cannabinoid product candidates for Type 2 diabetes, ulcerative colitis, cancer, epilepsy and schizophrenia. We are evaluating Sativex in Phase 3 trials for the treatment of cancer pain in the United States and it may never receive U.S. regulatory approval. We have met with, and received guidance from, the U.S. Food and Drug Administration, or FDA, regarding the development program for Sativex for MS spasticity in the United States, but we may never receive U.S. regulatory approval for this indication either. 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 Sativex for any given indication for several potential reasons, including failure to follow Good Clinical Practice, or GCP, negative assessment of risk:benefit, unacceptable risk of abuse or diversion, insufficient product quality control and standardization, non-GMP compliant manufacturing facilities, unreliable dose counter, and failure to agree on appropriate clinical endpoints. For example, we recently initiated discussions with the FDA about their recommended clinical endpoints for a pivotal study in MS spasticity, which may be different from endpoints upon which our foreign approvals were based.

        Our ability to successfully commercialize Sativex and our other product candidates will depend on, among other things, our ability to:

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        Our failure with respect to any of the factors above could have a material adverse effect on our business, results of operations and financial condition.

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. Although Sativex is already known in certain markets for the treatment of MS spasticity, we cannot assure you that it or our other planned products 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.

Product shipment delays could have a material adverse effect on our business, results of operations and financial condition.

        The shipment, import and export of Sativex and our 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 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 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 or our other product candidates. A partial or total loss of revenue from one or more shipment of Sativex or our other product candidates could have a material adverse effect on our business, results of operations and financial condition.

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If we fail to obtain and sustain an adequate level of reimbursement for our products by third-party payers, sales and profitability would be adversely affected.

        The course of medical treatment for patients is and will continue to be expensive. We expect that most patients and their families will not be capable of paying for our products themselves. There will be no commercially viable market for Sativex or our other product candidates without reimbursement from third-party payers. Additionally, even if there is a commercially viable market, if the level of third-party reimbursement is below our expectations, our revenue and gross margins will be adversely affected.

        Third-party payers, such as government programs, including Medicare, or private health care insurers, carefully review and increasingly question the coverage of, and challenge the prices charged for medical products and services, and many third-party payers limit coverage of or reimbursement for newly approved health care products. Reimbursement rates from private health insurance companies vary depending on the company, the insurance plan and other factors. A current trend in the U.S. health care industry as well as in other countries around the world is toward cost containment. Large public and private payers, managed care organizations, group purchasing organizations and similar organizations are exerting increasing influence on decisions regarding the use of, and reimbursement levels for, particular treatments. In particular, third-party payers may limit the covered indications. Cost-control initiatives could decrease the price we might establish for any product, which could result in product revenue and profitability being lower than anticipated. For example, in March 2013, the German National Association of Statutory Health Insurance Funds imposed a price reduction for Sativex in Germany effective for sales from July 1, 2012. This price reduction adversely affected our Sativex sales in our preliminary financial results for the three months ended December 31, 2012 by £0.7 million due to the recognition of a £0.7 million provision for a rebate we expect to pay to our commercial partner, Almirall, following the pricing decision in Germany. 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 must be obtained on a country-by-country basis. Our partners 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 which 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, in Germany, the price reduction determined in March 2013 has resulted in a price which our partners consider to be uneconomic and are considering various options which may include withdrawal of the product from the German market in order to seek to maintain the price and profit margins in other countries.

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 use in clinical trials. The manufacturing of Sativex necessitates compliance with international Good Manufacturing Practice, or GMP, and other international regulatory requirements. Our ability to successfully manufacture Sativex involves cultivation of botanical raw material from specific cannabinoid plants under highly controlled and standardized conditions, extraction and purification processes, manufacture of finished products and labeling and packaging, which includes product information, tamper evidence and anti-counterfeit features. In addition, we must ensure therapeutic 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

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that our batches conform to complex release specifications. For each step in the manufacturing process, we are currently reliant on single manufacturing facilities and no back-up facilities are yet in place. 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. If we are unable to manufacture Sativex 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 the current demand for Sativex or supply sufficient product for use in clinical trials, and this may also harm our ability to commercialize Sativex and our product candidates on a timely or cost-competitive basis, if at all. In addition, we are in the process of expanding and upgrading parts of our manufacturing facilities in order to meet future demand and FDA requirements, a program which requires significant time and resources. We also expect to expand and upgrade other parts of our manufacturing facilities in the future. These activities may lead to delays, interruptions to supply, or may prove to be more costly than anticipated. Any problems in our manufacturing process could have a material adverse effect on our business, results of operations and financial condition.

        In addition, under the Sativex license agreements, we generate revenue from the supply of commercial product to our partners at a fixed percentage of partners' net sales, and hence any increases in our manufacturing costs will adversely effect our margins and our financial condition.

        In addition, before we can begin commercial manufacture of Sativex 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 and our 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.

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. 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. Most 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.

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Sativex and our product candidates contain controlled substances, the use of which may generate public controversy.

        Since Sativex and our 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.

Business interruptions could delay us in the process of developing our product candidates and could disrupt our product sales.

        Loss of our manufacturing facilities, stored inventory or laboratory facilities through fire 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 for the years ended September 30, 2012 and September 30, 2011 was approximately £8.0 million and £3.0 million, respectively. We expect our operating and management and administrative expenses and cash used for operations to continue to be significant and to increase substantially in connection with our planned research, development and continued product commercialization efforts and as we transition to a U.S. public company. Over the next two years, excluding receipts from product sales, milestone fees and any potential fees resulting from new business development activity, we estimate that cash flow used for operating expenses will be approximately £28.0 million. We may need to raise additional capital following this offering to fund our operations and continue to conduct clinical trials to support potential regulatory approval of marketing applications.

        The amount and timing of our future funding requirements will depend on many factors, including, but not limited to:

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        While we expect to fund our future capital requirements from cash flow from operations, including milestone and other payments from our partners and the proceeds from this offering, we cannot assure you that any of these funding sources will be available to us on favorable terms, or at all.

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 products 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, including those relating to misuse of Sativex. 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:

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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 Research and Development Director, 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.

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 competes with, and our other therapeutics, 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. If we are unable to compete successfully, we may be unable to grow and sustain our revenue.

If we are unable to use net operating loss and tax credit carryforwards 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 entity, we are subject to U.K. corporate taxation. At September 30, 2012, we had cumulative carry forward tax losses of £40.9 million. These are available to carry forward and offset against future operating profits. As a company that carries out extensive research and development activities, we benefit from the U.K. research and development tax credit regime, whereby we are able to surrender losses that arise from research and development activity for a cash rebate that equals 24.8% of the eligible research and development expenditure. We also expect to benefit in the future from the new "patent box" initiative, which is due to come into effect in the United Kingdom in April 2013. This initiative allows profits attributable to revenue from patented products to be taxed at a lower rate than other revenues that over time will be reduced to 10%. When taken in combination with the enhanced relief available on our research and development expenditure, we expect that this will result in a long-term low rate of corporation tax. If, however, there are unexpected adverse changes to the U.K. research and development tax credit regime or "patent box" initiative, or we are unable to

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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.

        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 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. 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 back-up 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 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.

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

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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:

        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.

Risks Related to Our Reliance Upon Third Parties

We depend substantially on the commercial expertise of our collaboration partners.

        We do not have a sales and marketing operation and 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 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; 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. A failure by our partners to successfully market Sativex, or the termination of agreements with our partners, will have a material adverse effect on our business, results of operations and financial condition.

We rely heavily on Otsuka for funding of our research and development programs and overhead, and Otsuka is a joint owner of the intellectual property resulting from our collaboration.

        We rely heavily on our relationship with Otsuka for the funding of our research and development programs and for overhead expenses. 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. 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 treatment of cancer pain or face substantial delays in, or possible termination of, that program. In addition, we receive funds from Otsuka as part of a separate global research collaboration for research of cannabinoids in central nervous system, or CNS, and oncology. The term of our research

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collaboration agreement with Otsuka is currently scheduled to end in June 2013; however, Otsuka has the right to terminate this agreement without cause at any time. If this collaboration is terminated or not renewed or Otsuka decides not to license any product candidates from us under this collaboration, we may need to increase in our GW-funded research and development expenditure and discontinue certain research programs.

        In addition, the research collaboration agreement provides that all intellectual property rights (including both patents and non-manufacturing related know-how) that is conceived by either Otsuka or us during the course of the collaboration is to be jointly owned by Otsuka and us. To date, we have 11 patent families with 219 jointly owned patent applications 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, and we anticipate filing additional such patent applications in the future. 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, pursuant to the collaboration, we agreed not to develop or commercialize any competing product either inside or outside the research field during the research term. Accordingly, we may be prevented from pursuing opportunities that we might otherwise wish to pursue absent the collaboration. 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 our current and potential product candidates, including for the commercialization of Sativex. We may 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. 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.

        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.

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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, pump actuator and dose counter. In addition, we rely on a single contractor for commercial supply of botanical raw material. 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; 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 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, may suspend, delay or terminate our clinical trials at any time, 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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Any of the foregoing could have a material adverse effect on our business, results of operations and financial condition.

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. 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. For instance, because a large percentage of subjects in our pivotal trials for Sativex in cancer pain are being enrolled at sites outside the United States, differences in efficacy results between U.S. and ex-U.S. sites could cause the FDA to require additional trials. In the event that we obtain negative results from the Sativex cancer pain Phase 3 trials or receive poor clinical results for our other product candidates, or the FDA places a clinical hold on our Phase 3 trials due to potential Chemistry, Manufacturing and Controls issues or other hurdles or does not approve our New Drug Application, or NDA, for Sativex, 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.

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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:

        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 Sativex or any other 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 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.

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

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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 34 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 any manufacturing or repackaging/relabeling of either Sativex or its active ingredients, or 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.

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 Sativex, or any of our other product candidates, is approved in the United States, it will be subject to ongoing regulatory requirements for labeling, packaging, storage, advertising, promotion, sampling, record-keeping 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, a regulatory agency 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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        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.

The anticipated development of a REMS for Sativex and our other product candidates could cause delays in the approval process and would add additional layers of regulatory requirements that could impact our ability to commercialize Sativex and our other product candidates in the United States and reduce their market potential.

        As a condition of approval of an NDA, the FDA may require a 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 Sativex and our other 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 Sativex and our product candidates, which could create material and significant limits on our ability to successfully commercialize Sativex and 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 Sativex and 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, Sativex and 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.

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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 marketing 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.

        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.

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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 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. For example, although we are currently working with the French authorities regarding a regulatory pathway for Sativex, we have to date been unable to file a regulatory application in France due to a national law which prohibits the approval of cannabis-based medicines. Most recently, in February 2013, the French Minister of Health issued a statement requesting the French regulatory agency to review Sativex. In the case of countries with similar obstacles, we would be unable to market Sativex and our product candidates in those countries in the near future or perhaps at all without modification to laws and regulations.

Sativex 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 and certain 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 may be 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.

        While cannabis is a Schedule I controlled substance, products approved for medical use in the United States that contain cannabis or cannabis extracts must be placed in Schedules II—V, since approval by the FDA satisfies the "accepted medical use" requirement. If and when Sativex receives FDA approval, the DEA will make a scheduling determination and place it 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. Consequently, its manufacture, importation, exportation, domestic distribution, storage, sale and legitimate use will be subject to a significant degree of regulation by the DEA. In addition, the scheduling process may take one or more years, thereby delaying the launch of Sativex in the United States. Furthermore, if the FDA, DEA, or any foreign regulatory authority determines that Sativex 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 Sativex.

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        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. 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 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 contains cannabis extracts, which are Schedule I substances, to conduct clinical trials with Sativex 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 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) in the United States. Sativex is imported in its fully-finished, packaged and labeled dosage form.

        Importation.    If Sativex 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 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.

        If Sativex is approved and classified as a Schedule II controlled substance, federal law may prohibit the import of the substance for commercial purposes. If Sativex is listed as a Schedule II substance, we will not be allowed to import the 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. Moreover, Schedule I controlled substances, including BDSs, have never been registered with the DEA for importation commercial purposes, only

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for scientific and research needs. Therefore, if neither Sativex nor its BDSs could be imported, Sativex 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, 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 ingredient in Sativex 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 is scheduled as Schedule II or III, we would also need to identify wholesale distributors with the appropriate DEA 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 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 the product. 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.

Risks Related to Our Intellectual Property

We may be forced to litigate to enforce or defend our intellectual property rights, and/or the intellectual property rights of our licensors.

        We may be forced to litigate to enforce or defend our intellectual property rights against infringement and unauthorized use by competitors, and to protect our trade secrets. In so doing, we may place our intellectual property at risk of being invalidated, unenforceable, or limited or narrowed in scope. Further, an adverse result in any litigation or defense proceedings may place pending applications at risk of non-issuance. In addition, if any licensor fails to enforce or defend their intellectual property rights, this may adversely affect our ability to develop and commercialize our product candidates and prevent competitors from making, using, and selling competing products. Any such litigation could be very costly and could distract our management from focusing on operating our business. The existence and/or outcome of any such litigation could harm our business, results of operations and financial condition. Further, because the content of much of our intellectual property concerns cannabis and other activities that are not legal in some state jurisdictions, we may face additional difficulties in defending our intellectual property rights.

        Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential and proprietary information could be compromised by disclosure during this type of litigation. In addition, there could be public announcements of the results of hearings, motions or other interim proceedings or developments. If

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securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our ADSs.

We may not be able to protect 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 involves 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 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, have been based on specific formulations of certain previously known cannabinoids found in nature in the cannabis sativa plant. 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 declared invalid. 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. We may also face competition from companies who develop a substantially similar product to Sativex or one of our other product candidates, that is not covered by any of our patents.

        Many companies have encountered significant problems in protecting 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.

We may be unable to adequately prevent disclosure of trade secrets and other proprietary information.

        We rely on trade secrets to protect our proprietary know-how and technological advances, especially where we do not believe patent protection is appropriate or obtainable. However, trade secrets are difficult to protect. We rely in part on confidentiality agreements with our employees, consultants, outside scientific collaborators, sponsored researchers and other advisors to protect our trade secrets and other proprietary information. These agreements may not effectively prevent disclosure of confidential information and may not provide an adequate remedy in the event of unauthorized disclosure of confidential information. In addition, others may independently discover our

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trade secrets and proprietary information. Costly and time-consuming litigation could be necessary to enforce and determine the scope of our proprietary rights. Failure to obtain or maintain trade secret protection, or failure to adequately protect our intellectual property could enable competitors to develop generic products or use our proprietary information to develop other products that compete with our products or cause additional, material adverse effects upon our business, results of operations and financial condition.

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. 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 may not be adequately protected. Although we have reviewed certain third-party patents and patent filings that we believe may be relevant to Sativex, we have not conducted a full freedom-to-operate search or analysis for Sativex, and we may not be aware of patents or pending or future patent applications that, if issued, would block us from commercializing Sativex. Thus, we cannot guarantee that Sativex, or our commercialization thereof, does not and will not infringe any third party's intellectual property.

Risks related to the ADSs and this offering

As a new investor, you will experience substantial dilution as a result of this offering.

        The public offering price per ADS will be substantially higher than the net tangible book value per ADS prior to the offering. Consequently, if you purchase ADSs in this offering at an assumed public offering price of $            , which is the midpoint of the price range set forth on the cover of this prospectus, you will incur immediate dilution of $            per ADS. For further information regarding the dilution resulting from this offering, please see the section entitled "Dilution" in this prospectus. In addition, you may experience further dilution to the extent that additional ordinary shares are issued upon exercise of outstanding options and warrants. This dilution is due in large part to the fact that our earlier investors paid substantially less than the assumed initial public offering price when they purchased their ordinary shares. In addition, if the underwriters exercise the overallotment option, you will experience additional dilution.

There is no established trading market for the ADSs.

        This offering constitutes our initial public offering of ADSs, and no public market for the ADSs currently exists. We have applied to list the ADSs on the Nasdaq Global Market, or Nasdaq, and we expect our ADSs to be quoted on Nasdaq, subject to completion of customary procedures in the United States. Any delay in the commencement of trading of the ADSs on Nasdaq would impair the liquidity of the market for the ADSs and make it more difficult for holders to sell the ADSs.

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        If the ADSs are listed on Nasdaq and quoted on Nasdaq, there can be no assurance that an active trading market for the ADSs will develop or be sustained after this offering is completed. The initial offering price has been determined by negotiations among the lead underwriters and us. Among the factors considered in determining the initial offering price were our future prospects and the prospects of our industry in general, our revenue, net income and certain other financial and operating information in recent periods, and the financial ratios, market prices of securities and certain financial and operating information of companies engaged in activities similar to ours. However, there can be no assurance that following this offering the ADSs will trade at a price equal to or greater than the offering price.

        In addition, the market price of the ADSs 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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        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 these companies. Broad market and industry factors may negatively affect the market price of our ADSs, regardless of our actual operating performance. Further, the current decline in the financial markets and related factors beyond our control, including the credit and mortgage crisis in the United States and worldwide, may cause the price of our ADSs to decline rapidly and unexpectedly.

The dual listing of our ordinary shares and the ADSs following this offering may adversely affect the liquidity and value of the ADSs.

        Following this offering and after the ADSs are traded on Nasdaq, our ordinary shares will continue to be listed on the 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 the AIM. Although our ordinary shares will continue to be listed on the AIM, following this offering, we may decide to delist our ordinary shares from the AIM. We cannot predict the effect such delisting of our ordinary shares would have on the market price of the ADSs.

Securities traded on the AIM may carry a higher risk than shares traded on other exchanges that may impact the value of your investment.

        Our ordinary shares are currently traded on the AIM. Investment in equities traded on the AIM is perceived to carry a higher risk than an investment in equities quoted on exchanges with more stringent listing requirements, such as the London Stock Exchange, New York Stock Exchange or Nasdaq. This is because the AIM imposes less stringent corporate governance and ongoing reporting requirements than those other exchanges. In addition, the AIM requires only semi-annual, rather than quarterly, financial reporting. You should be aware that the value of our ordinary shares may be influenced by many factors, some of which may be specific to us and some of which may affect AIM-listed companies generally, including the depth and liquidity of the market, our performance, a large or small volume of trading in our ordinary shares, legislative changes and general economic, political or regulatory conditions, and that the prices may be volatile and subject to extensive fluctuations. Therefore, the market price of our ordinary shares underlying the ADSs may not reflect the underlying value of our company.

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.

        Additional sales of our ordinary shares or ADSs in the public market after this offering, or the perception that these sales could occur, could cause the market price of the ADSs to decline. Upon completion of this offering, we will have                        ordinary shares outstanding. All ADSs sold in this offering will be freely transferable without restriction or additional registration under the U.S. Securities Act of 1933, as amended, or the Securities Act. The ordinary shares held by our directors, including our officers, will be available for sale upon the expiration of a lock-up period, which we expect will expire 180 days after the date of this prospectus. The remaining ordinary shares will be available for sale after this offering since they are not subject to contractual and legal restrictions on resale. Any or all of these shares may be released prior to expiration of the lock-up period at the discretion of the lead underwriters for this offering. To the extent shares are released before the expiration of the lock-up period and these shares are sold into the market, the market price of the ADSs could decline.

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You may not have the same voting rights as the holders of our ordinary shares and may not receive voting materials in time to be able to exercise your right to vote.

        Except as described in this prospectus, holders of the ADSs will not be able to exercise voting rights attaching to the ordinary shares evidenced by the ADSs on an individual basis. Holders of the ADSs will appoint the depositary or its nominee as their representative to exercise the voting rights attaching to the ordinary shares represented by the ADSs. You may not receive voting materials in time to instruct the depositary to vote, and it is possible that you, or persons who hold their ADSs through brokers, dealers or other third parties, will not have the opportunity to exercise a right to vote.

You may not receive distributions on our ordinary shares represented by the ADSs or any value for them if it is illegal or impractical to make them available to holders of ADSs.

        The depositary for the ADSs has agreed to pay to you the cash dividends or other distributions it or the custodian receives on our ordinary shares or other deposited securities after deducting its fees and expenses. You will receive these distributions in proportion to the number of our ordinary shares your ADSs represent. However, in accordance with the limitations set forth in the deposit agreement, it may be unlawful or impractical to make a distribution available to holders of ADSs. We have no obligation to take any other action to permit the distribution of the ADSs, ordinary shares, rights or anything else to holders of the ADSs. This means that you may not receive the distributions we make on our ordinary shares or any value from them if it is unlawful or impractical to make them available to you. These restrictions may have a material adverse effect on the value of your ADSs.

As a foreign private issuer, we are exempt from a number of rules under the U.S. securities laws and are permitted to file less information with the Securities and Exchange Commission than U.S. companies. This may limit the information available to holders of the ADSs.

        We are a "foreign private issuer," as defined in the Securities and Exchange Commission's, or SEC, rules and regulations and, consequently, we are not subject to all of the disclosure requirements applicable to companies organized within the United States. For example, we are exempt from certain rules under the U.S. Securities Exchange Act of 1934, as amended, or the Exchange Act, that regulate disclosure obligations and procedural requirements related to the solicitation of proxies, consents or authorizations applicable to a security registered under the Exchange Act. In addition, our officers and directors are exempt from the reporting and "short-swing" profit recovery provisions of Section 16 of the Exchange Act and related rules with respect to their purchases and sales of our securities. Moreover, we are not required to file periodic reports and financial statements with the SEC as frequently or as promptly as U.S. public companies. Accordingly, there may be less publicly available information concerning our company than there is for U.S. public companies.

        As a foreign private issuer, we will file an annual report on Form 20-F within four months of the close of each year ended September 30 and reports on Form 6-K relating to certain material events promptly after we publicly announce these events. However, because of the above exemptions for foreign private issuers, our shareholders will not be afforded the same protections or information generally available to investors holding shares in public companies organized in the United States.

As a foreign private issuer, we are not subject to certain Nasdaq corporate governance rules applicable to U.S. listed companies.

        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 Nasdaq.

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        For example, we are exempt from Nasdaq regulations that require a listed U.S. company to:

        As a foreign private issuer, we are permitted to, and we will, follow home country practice in lieu of the above requirements.

        In accordance with our Nasdaq 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-listed U.S. companies. Because we are a foreign private issuer, however, our Audit Committee is not subject to additional Nasdaq 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.

We are an emerging growth company within the meaning of the Securities Act and may take advantage of certain reduced reporting requirements.

        We are an "emerging growth company," as defined in the Jumpstart Our Business Start-ups Act of 2012, or the JOBS Act, and have elected to take advantage of the exemption from the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act. As a result, our investors may not have access to certain information they may deem important.

        Our independent registered public accounting firm will not be required to provide an attestation report on the effectiveness of our internal control over financial reporting as long as we qualify as an "emerging growth company," which may increase the risk that weaknesses or deficiencies in our internal control over financial reporting go undetected and may make it more difficult for investors and securities analysts to evaluate our company. We cannot predict if investors will find the ADSs less attractive because we may rely on these exemptions. If some investors find our ADSs less attractive, there may be a less active trading market for the ADSs, and the price of the ADSs may be more volatile and may decline.

If we fail to establish and maintain proper internal controls, our ability to produce accurate financial statements or comply with applicable regulations could be impaired.

        Section 404(a) of the Sarbanes-Oxley Act, requires that beginning with our annual report for the year ending September 30, 2014, management assess and report annually on the effectiveness of our internal controls over financial reporting and identify any material weaknesses in our internal controls over financial reporting. Although Section 404(b) of the Sarbanes-Oxley Act requires our independent registered public accounting firm to issue an annual report that addresses the effectiveness of our internal controls over financial reporting, we have opted to rely on the exemptions provided in the JOBS Act, and consequently will not be required to comply with SEC rules that implement Section 404(b) of the Sarbanes-Oxley Act until such time as we are no longer an emerging growth company.

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        Our first Section 404(a) assessment will take place beginning with our annual report for the year ending September 30, 2014. The presence of material weaknesses could result in financial statement errors which, in turn, could lead to errors in our financial reports, delays in our financial reporting, we could require us to restate our operating results or our auditors may be required to issue a qualified audit report. We might not identify one or more material weaknesses in our internal controls in connection with evaluating our compliance with Section 404(a) of the Sarbanes-Oxley Act. In order to maintain and improve the effectiveness of our disclosure controls and procedures and internal controls over financial reporting, we will need to expend significant resources and provide significant management oversight. Implementing any appropriate changes to our internal controls may require specific compliance training of our directors and employees, entail substantial costs in order to modify our existing accounting systems, take a significant period of time to complete and divert management's attention from other business concerns. These changes may not, however, be effective in maintaining the adequacy of our internal control.

        If either we are unable to conclude that we have effective internal controls over financial reporting or, at the appropriate time, our independent auditors are unwilling or unable to provide us with an unqualified report on the effectiveness of our internal controls over financial reporting as required by Section 404(b) of the Sarbanes-Oxley Act, investors may lose confidence in our operating results, the price of our ADSs could decline and we may be subject to litigation or regulatory enforcement actions. In addition, if we are unable to meet the requirements of Section 404 of the Sarbanes-Oxley Act, we may not be able to remain listed on the Nasdaq.

We will incur significant increased costs as a result of operating as a company whose ADSs are publicly traded in the United States, and our management will be required to devote substantial time to new compliance initiatives.

        As a company whose ADSs will be publicly traded in the United States, we will 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, Consumer Protection Act and related rules implemented by the SEC and Nasdaq, have imposed various requirements on public companies including requiring establishment and maintenance of effective disclosure and financial controls. Our management and other personnel will need to devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly. We estimate that our annual compliance expenses following the completion of this offering will be approximately £1.0 million in each of the next two fiscal years. For example, we expect these rules and regulations to make 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.

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 prospectus.

        Our directors and the experts named in this prospectus 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

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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.

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, upon adoption, by our Amended 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 this prospectus 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.

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

        This prospectus contains estimates and forward-looking statements, principally in "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business." Some of the matters discussed concerning our operations and financial performance include estimates and forward-looking statements within the meaning of the Securities Act and the Exchange Act.

        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:

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        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" in this prospectus. 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 prospectus 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 prospectus 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.

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EXCHANGE RATES

        Fluctuations in the exchange rate between the pound sterling and the U.S. dollar will affect the U.S. dollar amounts received by owners of the ADSs on conversion of dividends, if any, paid in pounds sterling on the ordinary shares and will affect the U.S. dollar price of the ADSs on Nasdaq. 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 prospectus and other financial data appearing in this prospectus.

 
  Noon Buying Rate  
 
  Period
End
  Average(1)   High   Low  

Period:

                         

2007

    1.9843     2.0073     2.1104     1.9235  

2008

    1.4619     1.8424     2.0311     1.4395  

2009

    1.6167     1.4499     1.6977     1.3658  

2010

    1.5392     1.5415     1.6370     1.4344  

2011

    1.5537     1.6105     1.6691     1.5358  

2012

    1.6262     1.5924     1.6275     1.5301  

Month:

                         

January 2013

    1.5856     1.5965     1.6255     1.5686  

February 2013

    1.5192     1.5474     1.5814     1.5112  

March 2013 (through March 8, 2013)

    1.4926     1.5035     1.5098     1.4926  

(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.

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PRICE RANGE OF OUR ORDINARY SHARES

        Our ordinary shares have been trading on the AIM under the symbol "GWP" since June 28, 2001.

        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 = £0.6199 based on the certified foreign exchange rates published by Federal Reserve Bank of New York on September 28, 2012.

 
  Price Per
Ordinary Share
  Price Per
Ordinary Share
 
 
  £   $  
 
  High   Low   High   Low  

Annual (Year Ended September 30):

                         

2007

    1.14     0.57     1.84     0.92  

2008

    1.04     0.35     1.68     0.56  

2009

    1.07     0.26     1.73     0.42  

2010

    1.56     0.80     2.52     1.29  

2011

    1.33     0.83     2.15     1.34  

2012

    1.03     0.66     1.66     1.06  

Quarterly:

                         

First Quarter 2010

    1.03     0.80     1.66     1.29  

Second Quarter 2010

    1.41     0.86     2.27     1.39  

Third Quarter 2010

    1.56     1.06     2.52     1.71  

Fourth Quarter 2010

    1.24     0.90     2.00     1.45  

First Quarter 2011

    1.15     0.83     1.86     1.34  

Second Quarter 2011

    1.19     0.93     1.92     1.50  

Third Quarter 2011

    1.30     0.93     2.10     1.50  

Fourth Quarter 2011

    1.33     0.86     2.15     1.39  

First Quarter 2012

    1.03     0.76     1.66     1.23  

Second Quarter 2012

    1.00     0.81     1.61     1.31  

Third Quarter 2012

    0.94     0.72     1.52     1.16  

Fourth Quarter 2012

    0.78     0.66     1.26     1.06  

First Quarter 2013

    0.75     0.54     1.21     0.87  

Most Recent Six Months:

                         

September 2012

    0.77     0.68     1.24     1.10  

October 2012

    0.75     0.67     1.21     1.08  

November 2012

    0.68     0.58     1.10     0.94  

December 2012

    0.64     0.54     1.03     0.87  

January 2013

    0.64     0.58     1.03     0.94  

February 2013

    0.61     0.53     0.98     0.86  

March 2013 (through March 12, 2013)

    0.56     0.54     0.90     0.87  

        On March 12, 2013, the last reported sales price of our ordinary shares on AIM was £0.56 per share ($0.90 per share).

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USE OF PROCEEDS

        We estimate that we will receive total estimated net proceeds from this offering of approximately $             million, based on the midpoint of the range set forth on the cover page of this prospectus, or $             million if the underwriters exercise the overallotment option in full, in each case after deducting estimated underwriting discounts and commissions and estimated expenses of the offering payable by us.

        Each $1.00 increase (decrease) in the public offering price per ADS would increase (decrease) our net proceeds, after deducting estimated underwriting discounts and commissions and offering expenses, by approximately $             million (assuming no exercise of the overallotment option by the underwriters).

        We intend to use the net proceeds we receive from this offering as follows:

        The expected uses of the net proceeds we receive from this offering represent our intentions based upon our current plans and business conditions. The amounts and timing of our actual expenses may vary significantly depending on numerous factors. Accordingly, we will have broad discretion over the uses of the net proceeds in this offering and investors will be relying on the judgment of our management regarding the application of the net proceeds. In addition, it is possible that the amount set forth above will not be sufficient for the purposes described above.

        Pending these uses, we intend to invest the net proceeds from this offering in short or medium term investments.

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DIVIDENDS AND DIVIDEND POLICY

        Since our inception, we have not declared or paid any dividends on our ordinary shares. We intend to retain any earnings for use in our business and do not currently intend to pay dividends on our ordinary shares. The declaration and payment of any future dividends will be at the discretion of our board of directors and will depend upon our results of operations, cash requirements, financial condition, contractual restrictions, restrictions imposed by our indebtedness, any future debt agreements or applicable laws and other factors that our board of directors may deem relevant.

        See "Description of American Depositary Shares—Dividends and Distribution" in this prospectus for more information on the procedure for awarding dividends to nonresidents of the United Kingdom.

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CAPITALIZATION

        The following table presents our total capitalization and cash and cash equivalents as at September 30, 2012:

 
  As at September 30, 2012  
 
  Actual   Pro forma for the
Offering
 
 
  $
  £
  $
  £
 
 
  (in thousands)
 

Cash and cash equivalents

    47,322     29,335              
                   

Long-term debt

                     

Equity:

                         

Share capital

    215     133              

Share premium account

    106,383     65,947              

Other reserves

    32,560     20,184              

Accumulated deficit

    (104,907 )   (65,032 )            
                   

Total equity

    34,251     21,232              
                   

Total capitalization

    34,251     21,232              
                   

        A $1.00 increase or decrease in the assumed initial public offering price per ADS would increase or decrease our pro forma total equity and total capitalization by approximately $             million, after deducting the underwriting discounts and commissions and estimated offering expenses payable by us.

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DILUTION

        If you invest in the ADSs, your interest will be diluted to the extent of the difference between the initial public offering price per ADS and our net tangible book value per ADS after this offering. Dilution results from the fact that the initial public offering price per ordinary share underlying our ADSs is substantially in excess of the net tangible book value per ordinary share. Our net tangible book value as at                        was approximately $            per ordinary share and $            per ADS. Net tangible book value per share represents the amount of total tangible assets, minus the amount of total liabilities, divided by the total number of ordinary shares outstanding. Dilution is determined by subtracting net tangible book value per ordinary share from the assumed initial public offering price per ordinary share, which is the midpoint of the estimated initial public offering price range set forth on the cover page of this prospectus and after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

        Without taking into account any other changes in such net tangible book value after September 30, 2012, other than to give effect to our sale of ADSs offered in this offering at the assumed initial public offering price of $            per ADS after deduction of underwriting discounts and commissions and estimated offering expenses payable by us, our adjusted net tangible book value as at September 30, 2012 would have been $            per outstanding ordinary share, including ordinary shares underlying our outstanding ADSs, or $            per ADS. This represents an immediate increase in net tangible book value of $            per ordinary share, or $            per ADS, to existing shareholders and an immediate dilution in net tangible book value of $            per ordinary share, or $            per ADS, to purchasers of ADSs in this offering. The following table presents this dilution to new investors purchasing ADSs in the offering:

 
   
  As at September 30, 2012
 
   
  (per ADS) (in $) (unaudited)

Initial public offering price

      $                                                   
         

Net tangible book value as at September 30, 2012            

       

Increase in net tangible book value attributable to new investors

       

As adjusted net tangible book value immediately after the offering

       
         

Dilution to new investors

      $                                                   
         

        Each $1.00 increase (decrease) in an assumed public offering price of $            per ADS after deducting underwriting discounts and commissions and estimated offering expenses payable by us would increase (decrease) the net tangible book value after this offering by $            per ordinary share and $            per ADS assuming no exercise of the overallotment option granted to the underwriters and the dilution to investors in the offering by $            per ordinary share and $            per ADS.

        The following table summarizes, on a pro forma basis as at September 30, 2012, the differences between the shareholders as at September 30, 2012 and the new investors with respect to the number of ordinary shares purchased from us, the total consideration paid to us and the average price per ordinary share paid at an assumed initial public offering price of $            per ADS before deducting underwriting discounts and commissions and estimated offering expenses payable by us. The total

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number of ordinary shares does not include                        ADSs issuable pursuant to the exercise of the overallotment option granted to the underwriters.

 
  Ordinary Shares
Purchased
   
   
   
   
 
 
  Total Consideration    
   
 
 
  Average Price
Per Ordinary
Share
  Average Price
Per ADS
 
 
  Number   %   Amount   %  
 
  (in thousands, except percentages and per share data)
 
 
  (unaudited)
 

Existing shareholders

                                   

New investors

                                   
                           

Total

                                   
                           

        Each $1.00 increase (decrease) in the assumed public offering price of $            per ADS would increase (decrease) total consideration paid by new investors, average price per ordinary share and per ADS paid by all shareholders by $             million, $            per ordinary share and $            per ADS, respectively, assuming sale of                         ADSs by us at an assumed initial public offering price of $            per ADS before deducting underwriting discounts and commissions and estimated offering expenses payable by us.

        The share information above:

See "Management—Compensation" in this prospectus.

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SELECTED CONSOLIDATED FINANCIAL DATA

        The following table summarizes our consolidated financial data as at the dates and for the periods indicated. The selected consolidated financial data as at September 30, 2012 and 2011 and for the years ended September 30, 2012, 2011 and 2010 have been derived from our consolidated financial statements, which have been prepared in accordance 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) and included elsewhere in this prospectus. The selected consolidated financial data as at September 30, 2010, 2009 and 2008 and for the years ended September 30, 2009 and 2008 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 prospectus. 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 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, 2012 have been translated into U.S. dollars at $1.00 = £0.6199 based on the certified foreign exchange rates published by Federal Reserve Bank of New York on September 28, 2012. 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 "Management's Discussion and Analysis of Financial Condition and Results of Operations" in this prospectus and our consolidated financial statements included elsewhere in this prospectus.

 
  Year Ended September 30,  
 
  2012   2012(1)   2011(1)   2010(1)   2009(2)   2008(2)  
 
  $
  £
  £
  £
  £
  £
 
 
  (in thousands, except per share data)
 

Income Statement Data:

                                     

Revenue

    53,428     33,120     29,627     30,676     24,121     11,774  

Cost of sales

    (1,353 )   (839 )   (1,347 )   (752 )   (433 )   (249 )

Research and development expenditure

    (44,488 )   (27,578 )   (22,714 )   (22,145 )   (19,649 )   (19,418 )

Management and administrative expenses

    (5,904 )   (3,660 )   (3,298 )   (3,267 )   (3,015 )   (3,110 )
                           

Operating profit/(loss)

    1,683     1,043     2,268     4,512     1,024     (11,003 )

Interest expense

    (2 )   (1 )   (3 )   (8 )   (8 )    

Interest income

    323     200     263     100     136     809  
                           

Profit/(loss) before tax

    2,004     1,242     2,528     4,604     1,152     (10,194 )

Tax

    2,013     1,248     221     37     353     1,974  
                           

Profit/(loss) for the year

    4,017     2,490     2,749     4,641     1,505     (8,220 )
                           

Earnings/(loss) per share

                                     

Basic

    0.03     0.02     0.02     0.04     0.01     (0.07 )

Diluted

    0.03     0.02     0.02     0.03     0.01     (0.07 )

Weighted average number of shares

                                     

Basic

    133.0     133.0     131.7     129.7     122.3     120.3  

Diluted

    137.5     137.5     135.7     133.2     127.9     120.3  

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  As at September 30,  
 
  2012   2012(1)   2011(1)   2010(2)   2009(2)   2008(2)  
 
  $
  £
  £
  £
  £
  £
 
 
  (in thousands)
 

Balance Sheet Data:

                                     

Non-current assets

    12,328     7,642     7,078     6,776     7,068     6,317  

Current assets

                                     

Inventories

    5,706     3,537     1,424     780     551     503  

Trade and other receivables

    2,562     1,588     2,281     1,217     811     774  

Cash and cash equivalents

    47,322     29,335     28,319     25,219     20,601     14,054  

Total current assets

    56,912     35,280     32,024     27,216     22,323     17,129  

Total assets

   
69,240
   
42,922
   
39,102
   
33,992
   
29,391
   
23,446
 

Current liabilities

                                     

Trade and other payables

    (14,702 )   (9,114 )   (6,562 )   (4,554 )   (4,496 )   (5,363 )

Deferred revenue

    (3,951 )   (2,449 )   (3,459 )   (5,120 )   (4,594 )   (4,411 )

Non-current liabilities

                                     

Deferred revenue

    (16,337 )   (10,127 )   (11,422 )   (11,599 )   (13,499 )   (15,399 )

Net assets/Total equity

   
34,251
   
21,232
   
17,652
   
12,673
   
6,722
   
(1,727

)

 

 
  Year Ended September 30,  
 
  2012   2012(1)   2011(1)   2010(1)   2009(2)   2008(2)  
 
  $
  £
  £
  £
  £
  £
 
 
  (in thousands)
 

Cash Flow Data:

                                     

Net cash inflow/(outflow) from operating activities

    2,905     1,801     2,361     4,324     1,220     (7,397 )

Net cash (outflow)/inflow from investing activities

    (1,710 )   (1,060 )   (647 )   (334 )   (934 )   381  

Net cash inflow from financing activities

    118     73     1,393     620     6,261     104  

(1)
The selected historical consolidated financial data as at September 30, 2012 and 2011 and for the years ended September 30, 2012, 2011 and 2010 have been derived from our consolidated financial statements, 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) and included elsewhere in this prospectus.

(2)
The selected historical consolidated financial data as at September 30, 2010, 2009 and 2008 and for the years ended September 30, 2009 and 2008 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 prospectus. Reclassifications made impacted on the presentation of our share-based payment charge in our consolidated income statement. Such reclassification had no impact on operating profit, profit before tax or profit for the year. There are no differences applicable to us between IFRS as issued by the IASB and IFRS-EU for any of the periods presented herein. These consolidated financial statements have not been audited in accordance with the standards of the Public Company Accounting Oversight Board (United States).

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

        The following discussion of our financial condition and results of operations should be read in conjunction with "Selected Consolidated Financial Data," and our consolidated financial statements included elsewhere in this prospectus. 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 EU.

        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 prospectus. 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, 2012 have been translated into U.S. dollars at the rate at September 28, 2012, of £0.6199 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.

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 14 years of operations, we have established a world leading position in the development of plant-derived cannabinoids 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, which is approved for the treatment of spasticity due to multiple sclerosis, or MS, in 20 countries and commercialized in seven countries outside the United States. We are also evaluating Sativex in a Phase 3 program for the treatment of cancer pain. The costs of the Phase 3 program are fully funded by our U.S. collaboration partner, Otsuka Pharmaceutical Co. Ltd., or Otsuka. We anticipate that top-line results from two of these Phase 3 trials will be available in 2014, the first of which we expect to be available in mid-2014. This program is intended to support the submission of a New Drug Application, or NDA, with the U.S. Food and Drug Administration, or FDA, and in other markets around the world. We believe that MS spasticity represents an attractive indication for Sativex in the United States and we anticipate that we will be required to conduct an additional development program in the United States prior to the submission of a separate NDA for this indication. We have a deep pipeline of additional cannabinoid product candidates, including two distinct compounds, GWP42004 and GWP42003, in Phase 2 clinical development for Type 2 diabetes and ulcerative colitis, respectively, and at least two additional programs expected to enter clinical trials in the next 12 months.

        To support the development and commercialization of Sativex, we have entered into collaborations with the following major pharmaceutical companies: Otsuka in the United States; Almirall S.A., or Almirall, in Europe (excluding the United Kingdom) and Mexico; 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, or Bayer, in the United Kingdom and Canada; and Neopharm Group in Israel. These agreements provide our collaborators with the sole right to commercialize Sativex in exclusive territories for all indications. From our incorporation through September 30, 2012, these agreements have yielded cash of £67.2 million in upfront fees and milestone payments, of which £55.7 million has been recognized as revenue. In addition, we are entitled to receive up to an additional £201.0 million in potential payments upon the achievement of regulatory

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and commercial milestones. Upon commercialization, we are also entitled to receive revenue from the supply of products as well as royalties on product sales. In addition, under the terms of our agreement with Otsuka, all pre-clinical and clinical costs associated with the development of Sativex in the United States are fully funded by Otsuka.

        We also have a research collaboration agreement with Otsuka, under which we are researching cannabinoid candidates for disorders of the central nervous system, or CNS, and oncology. This agreement was originally signed in 2007 for a three-year period and was extended in 2010 until June 2013. Under this collaboration, Otsuka has the right until September 2013 to license selected product candidates, and if it exercises this right, it will pay us license fees, milestone payments, revenue from the supply of products and royalties. Detailed financial terms are required to be negotiated only when Otsuka exercises its right to license a particular product candidate. Global rights to product candidates not selected for license by Otsuka will be exclusively licensed back to us from Otsuka.

        In each of the last four years, we have generated profit for the year and positive cash inflow from operating activities, resulting in a cash position of £29.3 million at September 30, 2012. The principal factors affecting our profitability and cash flow are the timing and amount of development and approval milestone receipts from our commercial partners, the rate of growth of our Sativex product revenues, and the amount of GW-funded research and development expenditure. In the last four years we have earned significant development and approval milestone fees as a result of having achieved positive Phase 3 trial results, a series of Sativex regulatory approvals, as well as clinical trials initiation and recruitment targets.

        In recent years, we have carefully managed the level of GW-funded research and development expenditure in order to ensure that we maintain a healthy cash position. A significant proportion of our total research and development expenditure has been funded by our development partners. This has slowed down our rate of progress with the clinical development of our pipeline product candidates. We now propose to take steps to advance our clinical development programs in order to potentially realize value from our promising pipeline product candidates.

        We generate Sativex product revenue from commercial sales of Sativex for MS spasticity. Our revenue is calculated as a percentage of the net sales price charged by our commercial partners who commercialize and distribute Sativex. Our sales are therefore determined by the commercial success of our partners in achieving launches in new countries, the level of pricing charged by our partners in each country and the rate of sales growth. As the commercial rollout of Sativex continues, we expect to see growth in Sativex product revenue over time. Sales may increase or decrease in certain years depending on our partners' order schedule as well as changes in price. We also expect to receive reduced development and approval milestone fee income in the next two years. Despite this reduction, it is our intention to increase our investment in GW-funded research and development by increasing the expenditures on the Phase 2 clinical development of our pipeline product candidates. We therefore expect to report a loss and cash outflow for the year ended September 30, 2013. We believe that continued investment in research and development within the near-term will result in the creation of long-term value from our product pipeline.

Important Financial and Operating Terms and Concepts

        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

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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.

        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. Provisions for rebates are established in the same period that the related sales are recorded.

        License 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 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 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 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 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.

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        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 principally includes the cost of materials, direct labor, depreciation of manufacturing assets and overhead associated with our manufacturing facilities.

        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 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 Sativex data.

        We expect to increase our investment in GW-funded research and development in the future as we seek to advance our most promising pipeline product candidates through further clinical development.

        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, (ii) costs incurred in carrying out our pre-clinical toxicology, pharmacology and both in vitro and in vivo pre-clinical models in the fields of CNS disease and oncology, which are chargeable to our partner Otsuka under the terms of the research collaboration agreement and (iii) 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.

        Management and administrative expenses consist primarily of salaries and benefits related to our executive, finance, business development and support functions. Other management 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 the United Kingdom, including

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insurance, general administration overhead, legal and professional fees, audit fees and fees for taxation services. We expect that management and administrative expenses will increase in the future as we expand our operating activities and as we incur incremental costs associated with being a U.S. public company, including increased insurance premiums, legal compliance costs and fees associated with investor relations activities.

        Interest expense consists primarily of interest expense incurred on a single equipment finance lease that expired in 2012.

        Interest income consists primarily of interest earned by investing our cash reserves in short-term interest-bearing deposit accounts.

        As a U.K. resident trading entity, we are 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, whereby our principal research subsidiary company, GW Research Ltd., is able to surrender the trading losses that arise from its research and development activities for a cash rebate of up to 24.8% 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 16%. The majority of our pipeline research, clinical trials management and the Sativex chemistry and manufacturing controls development activities, all of which are being carried out by GW Research Ltd., are eligible for inclusion within these tax credit cash rebate 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 Ltd., our principal commercial trading subsidiary. As GW Pharma Ltd. is currently profitable, it is currently unable to surrender trading losses to seek a research and development tax credit cash rebate.

        We also expect to benefit in the future from the new "patent box" initiative, which is due to come into effect in the United Kingdom in April 2013. This initiative allows 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 will be taxed at this favorably low tax rate. When taken in combination with the enhanced relief available on our research and development expenditure, we expect that this will result in a long-term low rate of corporation tax. As such, we consider that the United Kingdom is a favorable location for us to continue to conduct our business for the long-term.

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 prospectus.

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        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.

        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.

        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, 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.

        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.

        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.

        At September 30, 2012, we have accumulated tax losses of £40.9 million, which are available to offset against future profits. We do not currently recognize the value of tax loss as deferred tax assets on the balance sheet. If the value of these losses and certain other timing differences were recognized within our balance sheet at the balance sheet date, we would be carrying a deferred tax asset of £9.7 million as at September 30, 2012. Our policy is to recognize deferred tax assets only to the extent

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that it is probable that future taxable profits, feasible tax-planning strategies, and deferred tax liabilities will be available against which the brought forward operating losses can be utilized. 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 reporting period end.

Segments

        We operate through three reportable segments, Sativex Commercial, Sativex Research and Development and Pipeline Research and Development.

Results of Operations

        The following table summarizes the results of our operations for the years ended September 30, 2012 and 2011, together with the changes to those items.

 
  Year Ended September 30,   Change 2012 vs. 2011  
 
  2012   2012   2011   Increase/(Decrease)  
 
  $
  £
  £
  £
  %
 
 
  (in thousands, except for percentages)
 

Revenue

    53,428     33,120     29,627     3,493     12 %

Cost of sales

    (1,353 )   (839 )   (1,347 )   (508 )   (38 )%

Research and development expenditure

    (44,488 )   (27,578 )   (22,714 )   4,864     21 %

Management and administrative expenses

    (5,904 )   (3,660 )   (3,298 )   362     11 %
                       

Operating profit

    1,683     1,043     2,268     (1,225 )   (54 )%

Interest expense

    (2 )   (1 )   (3 )   (2 )   (67 )%

Interest income

    323     200     263     (63 )   (24 )%
                       

Profit before tax

    2,004     1,242     2,528     (1,286 )   (51 )%

Tax

    2,013     1,248     221     1,027     465 %
                       

Profit for the year

    4,017     2,490     2,749     (259 )   (9 )%
                       

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        The following table summarizes our revenue for the years ended September 30, 2012 and 2011, together with the changes to those items.

 
  Year Ended September 30,   Change 2012 vs. 2011  
 
  2012   2012   2011   Increase/(Decrease)  
 
  $
  £
  £
  £
  %
 
 
  (in thousands, except for percentages)
 

Product sales

    4,055     2,514     4,409     (1,895 )   (43 )%

Research and development fees

    31,457     19,500     16,038     3,462     22 %

License, collaboration and technical access fees

    2,087     1,294     3,843     (2,549 )   (66 )%

Development and approval milestone fees

    15,828     9,812     5,337     4,475     84 %
                       

Total revenue

    53,428     33,120     29,627     3,493     12 %
                       

        Total revenue grew by 12% to £33.1 million for the year ended September 30, 2012, compared to £29.6 million for the year ended September 30, 2011. This growth was driven by a variety of factors, as explained below.

        Sativex product sales revenue declined by £1.9 million, or 43%, to £2.5 million for the year ended September 30, 2012 when compared to 2011. This decline was driven by two factors. First, at this early stage in the commercialization of Sativex, our deliveries consist principally of launch stock for new countries. During the year ended September 30, 2011, product sales revenue included £1.2 million of launch inventory delivered to Almirall between June and September 2011 in anticipation of a German commercial launch in the first quarter of the year ended September 30, 2012. In comparison, there were no launch stock deliveries during the year ended September 30, 2012. Second, there were lower deliveries of Sativex batches during the year ended September 30, 2012 compared to 2011, as Almirall in Europe and Bayer in the United Kingdom serviced in-market sales principally from their existing inventory. As our partners' level of inventory stabilizes, we expect our revenue from product sales to become more representative of the in-market sales trend. This sales trend will be determined by launches in new countries, the level of pricing charged by our partners in each country and the rate of sales growth. In our 2013 fiscal year, Sativex product sales revenues will be negatively impacted by the decision in March 2013 by the German National Association of Statutory Health Insurance Funds to reduce the price of Sativex in Germany.

        Total Sativex in-market net sales by our commercial partners rose to £10.0 million, for the year ended September 30, 2012 from £5.3 million for the year ended September 30, 2011. The volume of Sativex 10ml vials sold in-market by our partners increased year on year by 108%, which was driven by increased prescription rates in Spain and Germany as a result of Almirall's marketing efforts.

        Research and development fees increased by £3.5 million, or 22%, to £19.5 million for the year ended September 30, 2012 compared to the year ended September 30, 2011. This reflected increased charges to our partners, principally Otsuka, for fees we have incurred in conducting our joint research plans, for which our partners reimburse us under the terms of our license and collaboration agreements. Further discussion regarding the joint research plan activities is included within the research and development expenditure section below.

        License, collaboration and technical access fees declined by £2.5 million, or 66%, to £1.3 million for the year ended September 30, 2012 when compared to the year ended September 30, 2011. This variance was due principally to:

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        Development and approval milestone fees increased by £4.5 million, or 84%, to £9.8 million for the year ended September 30, 2012 compared to £5.3 million for the year ended September 30, 2011. 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 £9.8 million during the year ended September 30, 2012 resulted from a £9.8 million milestone payment received from Almirall upon achievement of an agreed Phase 3 cancer pain trial patient recruitment target.

        During the year ended September 30, 2011, development and approval milestone fees of £5.3 million included:

        Cost of sales decreased by £0.5 million, or 38%, to £0.8 million for the year ended September 30, 2012 compared to £1.3 million for the year ended September 30, 2011. This decline was primarily driven by higher sales of Sativex to Almirall during the year ended September 30, 2011 as compared to 2012 as it prepared for the German commercial launch of Sativex in the first quarter of the year ended September 30, 2012 and sales of Sativex in 2012 by Almirall and Bayer being serviced out of their existing inventory.

        The following table summarizes our research and development expenditure for the years ended September 30, 2012 and 2011, together with the changes to those items.

 
  Year Ended September 30,   Change 2012 vs. 2011  
 
  2012   2012   2011   Increase/(Decrease)  
 
  $
  £
  £
  £
  %
 
 
  (in thousands, except for percentages)
 

GW-funded research and development

    13,031     8,078     6,676     1,402     21 %

Development partner-funded research and development

    31,457     19,500     16,038     3,462     22 %
                       

Total research and development expenditure

    44,488     27,578     22,714     4,864     21 %
                       

        Research and development expenditure increased by £4.9 million, or 21%, to £27.6 million for the year ended September 30, 2012, from £22.7 million for year ended September 30, 2011. 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 £1.4 million increase in GW-funded research and development expenditure was due principally to:

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        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 totalling £1.5 million for the year ended September 30, 2012 and £0.8 million for the year ended September 30, 2011 were tracked by individual project while the remaining £6.6 million for the year ended September 30, 2012 and £5.9 million for the year ended September 30, 2011 consisting largely of internal overhead costs were not allocated to individual projects. We believe that our existing liquidity is sufficient to complete our 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,   Change 2012 vs. 2011  
 
  2012   2012   2011   Increase/(Decrease)  
 
  $
  £
  £
  £
  %
 
 
  (in thousands, except for percentages)
 

Sativex U.S. development program

    22,713     14,080     10,822     3,228     30 %

Otsuka research collaboration expenses

    8,743     5,420     5,216     234     5 %
                       

Total development partner-funded research and development

    31,457     19,500     16,038     3,462     22 %
                       

        Sativex U.S. development expenses increased by £3.2 million, or 30%, to £14.1 million during the year ended September 30, 2012 as compared to the year ended September 30, 2011. This reflected increased patient recruitment into the first two Sativex Phase 3 trials, geographic expansion of the trials into new territories and commencement of the third Phase 3 cancer pain trial.

        Otsuka research collaboration expenses increased by £0.2 million, or 5%, to £5.4 million during the year ended September 30, 2012 as compared to the year ended September 30, 2011. These charges to Otsuka included charges for the cost of employing staff to work on our joint research plan, plus the cost of subcontracted pre-clinical studies and sponsorship of our network of academic scientists. The increase reflected a rise in the amount of sub-contracted pre-clinical studies as we started to focus our research upon the product candidates of most interest to Otsuka to demonstrate efficacy in in vivo models of disease and to refine our understanding of likely mechanisms of action in an effort to further advance this collaboration.

        Management and administrative expenses increased by £0.4 million, or 11%, to £3.7 million for the year ended September 30, 2012 compared to £3.3 million for the year ended September 30, 2011. This reflected the combined effects of increases in share-based payment charges of £0.2 million and other management and administrative expenses of £0.2 million.

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        Interest income declined by £0.1 million to £0.2 million for the year ended September 30, 2012 compared to £0.3 million for the year ended September 30, 2011, reflecting lower interest rates achieved on our cash deposits during the year ended September 30, 2012, principally due to a tightening of our treasury policy, whereby our board of directors decided to keep our cash deposits on a very short term, typically 30 to 60 days, in order to maximize the liquidity of our funds during a period of economic uncertainty and increased concern about counterparty credit risk. This approach to investing our surplus cash deposits resulted in a reduction to the average interest rates achieved on deposits.

        Our tax credit increased by £1.0 million, or 464%, to £1.2 million for the year ended September 30, 2012 compared to £0.2 million for the year ended September 30, 2011. 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. The significant increase in research and development tax credits recognized in the year ended September 30, 2012 arose following an increase in levels of qualifying expenditure supported by a sustained history of agreement by Her Majesty's Revenue and Customs (UK) with such claims.

        The following table summarizes the results of our operations for our Sativex Commercial segment for the years ended September 30, 2012 and 2011, together with the changes to those items.

 
  Year Ended September 30,   Change 2012 vs. 2011  
 
  2012   2012   2011   Increase/(Decrease)  
 
  $
  £
  £
  £
  %
 
 
  (in thousands, except for percentages)
 

Product sales

    4,055     2,514     4,409     (1,895 )   (43 )%

License, collaboration and technical access fees

    2,087     1,294     3,843     (2,549 )   (66 )%

Development and approval milestone fees

    15,828     9,812     5,337     4,475     84 %
                       

Total revenue

    21,971     13,620     13,589     31     0 %

Cost of sales

    (1,353 )   (839 )   (1,347 )   (508 )   (38 )%

Research and development credit

    2,097     1,300     266     1,034     389 %
                       

Segmental result

    22,715     14,081     12,508     1,573     13 %
                       

        We classify all revenue from Sativex collaboration partners, with the exception of research and development fees, as Sativex 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 declined by £0.5 million, or 38%, to £0.8 million for the year ended September 30, 2012 compared to £1.3 million for the year ended September 30, 2011. An explanation of the principal movements in the cost of sales is provided in the cost of sales section above.

        For the Sativex Commercial segment, the research and development credit represents the movement in the provision against inventories manufactured prior to the regulatory approval of Sativex. All inventories manufactured prior to regulatory approval 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 £1.3 million for the year ended September 30, 2012 was higher than the £0.3 million for the year ended September 30, 2011 due to higher estimated future sales of Sativex at September 30, 2012.

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        The following table summarizes the results of our operations for our Sativex R&D segment for the years ended September 30, 2012 and 2011, together with the changes to those items.

 
  Year Ended September 30,   Change 2012 vs. 2011  
 
  2012   2012   2011   Increase/(Decrease)  
 
  $
  £
  £
  £
  %
 
 
  (in thousands, except for percentages)
 

Research and development fees

    22,713     14,080     10,822     3,258     30 %

Research and development expenditure:

                               

GW-funded research and development

    (6,993 )   (4,335 )   (3,935 )   400     10 %

Development partner-funded research and development

    (22,713 )   (14,080 )   (10,822 )   3,258     30 %
                       

Total research and development expenditure

    (29,706 )   (18,415 )   (14,757 )   3,658     25 %
                       

Segmental result

    (6,993 )   (4,335 )   (3,935 )   (400 )   10 %
                       

        Total research and development expenditure related to Sativex during the year ended September 30, 2012 increased by £3.7 million, or 25%, to £18.4 million as compared to the year ended September 30, 2011. This growth was largely attributable to a £3.3 million increase to the expanding Phase 3 cancer pain clinical program and associated development projects that are funded by Otsuka under the terms of the Sativex license and development agreement.

        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.

        The following table summarizes the results of our operations for our Pipeline R&D segment for the years ended September 30, 2012 and 2011, together with the changes to those items.

 
  Year Ended September 30,   Change 2012 vs. 2011  
 
  2012   2012   2011   Increase/(Decrease)  
 
  $
  £
  £
  £
  %
 
 
  (in thousands, except for percentages)
 

Research and development fees

    8,743     5,420     5,216     204     4 %

Research and development expenditure:

                               

GW-funded research and development

    (7,233 )   (4,484 )   (2,618 )   1,866     71 %

Development partner-funded research and development

    (8,743 )   (5,420 )   (5,216 )   204     4 %
                       

Total research and development expenditure

    (15,977 )   (9,904 )   (7,834 )   2,070     26 %
                       

Segmental result

    (7,233 )   (4,484 )   (2,618 )   1,866     71 %
                       

        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 4% year-on-year increase in pipeline research and development fees and development partner-funded research and development fees reflect an increasing amount of in vivo pre-clinical studies as we focused our work on preparing Otsuka's preferred product candidates for potential clinic development.

        GW-funded pipeline research and development expenditure increased by £1.9 million, or 71%, to £4.5 million for the year ended September 30, 2012 as compared to £2.6 million for the year ended

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September 30, 2011. This increase was attributable to us having made progress with the recruitment of our Phase 2 trials, with the result that there was a year-on-year increase in Phase 2 clinical expenses.

        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.

        The following table summarizes the results of our operations for the years ended September 30, 2011 and 2010, together with the changes to those items.

 
  Year Ended September 30,   Change 2011 vs. 2010  
 
  2011   2010   Increase/(Decrease)  
 
  £
  £
  £
  %
 
 
  (in thousands, except for percentages)
 

Revenue

    29,627     30,676     (1,049 )   (3 )%

Cost of sales

    (1,347 )   (752 )   595     79 %

Research and development expenditure

    (22,714 )   (22,145 )   569     3 %

Management and administrative expenses

    (3,298 )   (3,267 )   31     1 %
                   

Operating profit

    2,268     4,512     (2,244 )   (50 )%

Interest expense

    (3 )   (8 )   (5 )   (63 )%

Interest income

    263     100     163     163 %
                   

Profit before tax

    2,528     4,604     (2,076 )   (45 )%

Tax

    221     37     184     497 %
                   

Profit for the year

    2,749     4,641     (1,892 )   (41 )%
                   

        The following table summarizes our revenue for the years ended September 30, 2011 and 2010, together with the changes to those items.

 
  Year Ended September 30,   Change 2011 vs. 2010  
 
  2011   2010   Increase/(Decrease)  
 
  £
  £
  £
  %
 
 
  (in thousands, except for percentages)
 

Product sales

    4,409     2,768     1,641     59 %

Research and development fees

    16,038     14,808     1,230     8 %

License, collaboration and technical access fees

    3,843     1,900     1,943     102 %

Development and approval milestone fees

    5,337     11,200     (5,863 )   (52 )%
                   

Total revenue

    29,627     30,676     (1,049 )   (3 )%
                   

        Total revenue decreased by 3% to £29.6 million for the year ended September 30, 2011 compared to £30.7 million for the year ended September 30, 2010. This decrease was driven by a variety of factors, as explained below.

        Sativex product sales revenue increased by £1.6 million, or 59%, to £4.4 million for the year ended September 30, 2011 compared to £2.8 million for the year ended September 30, 2010. This reflected the geographic expansion of Sativex product sales revenue following regulatory approval in the United Kingdom and Spain in mid-2010. In addition, during the year ended September 30, 2011, product sales revenue included £1.2 million of launch inventory delivered to Almirall between June and September 2011 in anticipation of a German commercial launch in the first quarter of the year ended September 30, 2012.

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        Research and development fees increased by £1.2 million, or 8%, to £16.0 million for the year ended September 30, 2011 compared to £14.8 million for the year ended September 30, 2010. This reflected increased charges to our partners, principally Otsuka, for fees we have incurred in conducting our joint research plans, for which our partners reimburse us under the terms of our license and collaboration agreements. Further discussion regarding the joint research plan activities is included within the research and development expenditure section below.

        License, collaboration, and technical access fees increased by £1.9 million, or 102%, to £3.8 million for the year ended September 30, 2011 compared to £1.9 million for the year ended September 30, 2010. This increase was due to the inclusion in the year ended September 30, 2011 of Novartis technical access fees of £1.9 million, which included a £1.8 million fee to grant access to our MS spasticity dossier, which was recognized upon completion and delivery of the dossier during the year ended September 30, 2011.

        Development and approval milestone fees decreased by £5.9 million, or 52%, to £5.3 million for the year ended September 30, 2011 compared to £11.2 million for the year ended September 30, 2010. Development and approval milestone fees consist of milestone payments due to us from Sativex partners under the terms of our agreements. During the year ended September 30, 2011, development and approval milestone fees of £5.3 million included:

        In the year ended September 30, 2010, development and approval milestone fees included £10.0 million from Bayer upon Sativex U.K. regulatory approval for MS spasticity and £1.2 million from Bayer in respect of the Canadian MS spasticity regulatory approval.

        Cost of sales increased by £0.6 million, or 79%, to £1.4 million for the year ended September 30, 2011 compared to £0.8 million for the year ended September 30, 2010, reflecting the increased volume of Sativex sold following approvals during the year ended September 30, 2010 in the United Kingdom and Spain and higher sales of Sativex to Almirall during the year ended September 30, 2011 as it prepared for the German commercial launch of Sativex in the first quarter of the year ended September 30, 2012.

        The following table summarizes our research and development expenditure for the years ended September 30, 2011 and 2010, together with the changes to those items.

 
  Year Ended September 30,   Change 2011 vs. 2010  
 
  2011   2010   Increase/(Decrease)  
 
  £
  £
  £
  %
 
 
  (in thousands, except for percentages)
 

GW-funded research and development

    6,676     7,337     (661 )   (9 )%

Development partner-funded research and development

    16,038     14,808     1,230     8 %
                   

Total research and development expenditure

    22,714     22,145     569     3 %
                   

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        Research and development expenditure increased by £0.6 million, or 3%, to £22.7 million in the year ended September 30, 2011 from £22.1 million for the year ended September 30, 2010. 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.

        GW-funded research and development expenditure decreased by £0.7 million, or 9%, to £6.7 million during the year ended September 30, 2011 from £7.3 million for the year ended September 30, 2010. The decrease in GW-funded research and development expenditure was primarily driven by dedicating an increased proportion of our internal staff and resources to development partner-funded research projects.

        Development partner-funded research and development expenditure was made up of two principal elements, as follows:

 
  Year Ended September 30,   Change 2011 vs. 2010  
 
  2011   2010   Increase/(Decrease)  
 
  £
  £
  £
  %
 
 
  (in thousands, except for percentages)
 

Sativex U.S. development program

    10,822     10,381     441     4 %

Otsuka research collaboration expenses

    5,216     4,427     789     15 %
                   

Total development partner-funded research and development

    16,038     14,808     1,230     8 %
                   

        Sativex U.S. development expenses increased by £0.4 million, or 4%, to £10.8 million during the year ended September 30, 2011 as compared to £10.4 million for the year ended September 30, 2010. The increase in Sativex U.S. development expenses was driven by the geographic expansion of our Phase 3 clinical program in cancer pain, and a transition from the operational set-up and planning phase of these clinical trials into the patient recruitment phase.

        Otsuka research collaboration expenses increased by £0.8 million, or 15%, to £5.2 million during the year ended September 30, 2011 as compared to £4.4 million for the year ended September 30, 2010. This increase was driven by the increase in our headcount that was funded by Otsuka and by increased sponsorship of pre-clinical work by our network of collaborative scientists. The earliest years of our collaboration with Otsuka focused upon pharmacology and toxicology while work for the year ended September 30, 2011 was increasingly focused upon more expensive in vivo models of disease and mode of action studies.

        Management and administrative expenses remained static at £3.3 million for the year ended September 30, 2011, which is comparable to the year ended September 30, 2010.

        Interest income increased by £0.2 million to £0.3 million for the year ended September 30, 2011 compared to £0.1 million for the year ended September 30, 2010. This reflected the increase in our average level of cash deposits following receipt of the £11.2 million of Sativex approval milestones from Bayer in the second half of 2010.

        The tax credit recognized in our income statement increased marginally to £0.2 million for the year ended September 30, 2011 from £37,000 for the year ended September 30, 2010. Research and

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development tax credits recognized vary depending on our available tax losses and the eligibility of our research and development expenditure.

        The following table summarizes the results of our operations for our Sativex Commercial segment for the years ended September 30, 2011 and 2010, together with the changes to those items.

 
  Year Ended September 30,   Change 2011 vs. 2010  
 
  2011   2010   Increase/(Decrease)  
 
  £
  £
  £
  %
 
 
  (in thousands, except for percentages)
 

Product sales

    4,409     2,768     1,641     59 %

License, collaboration and technical access fees

    3,843     1,900     1,943     102 %

Development and approval milestone fees

    5,337     11,200     (5,863 )   (52 )%
                   

Total revenue

    13,589     15,868     (2,279 )   (14 )%

Cost of sales

    (1,347 )   (752 )   595     79 %

Research and development credit

    266     114     152     133 %
                   

Segmental result

    12,508     15,230     (2,722 )   (18 )%
                   

        Sativex Commercial segment revenue decreased by £2.3 million, or 14%, to £13.6 million for the year ended September 30, 2011 compared to £15.9 million for the year ended September 30, 2010. An explanation of the principal movements in revenue is provided in the revenue section above.

        Cost of sales increased by £0.6 million, or 79%, to £1.4 million for the year ended September 30, 2011 compared to £0.8 million for the year ended September 30, 2010. An explanation of the principal movements in cost of sales is provided in the cost of sales section above.

        For the Sativex Commercial segment, the research and development credit represents the movement in the provision against inventories manufactured prior to the regulatory approval of Sativex. All inventories manufactured prior to regulatory approval 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 expected net realizable value, which may not exceed original cost. The provision for inventories release of £0.3 million for the year ended September 30, 2011 was higher than the £0.1 million for the year ended September 30, 2010 due to higher estimated future sales of Sativex at September 30, 2011.

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        The following table summarizes the results of our operations for our Sativex R&D segment for the years ended September 30, 2011 and 2010, together with the changes to those items.

 
  Year Ended September 30,   Change 2011 vs. 2010  
 
  2011   2010   Increase/(Decrease)  
 
  £
  £
  £
  %
 
 
  (in thousands, except for percentages)
 

Research and development fees

    10,822     10,381     441     4 %

Research and development expenditure:

                         

GW-funded research and development

    (3,935 )   (4,137 )   (202 )   (5 )%

Development partner-funded research and development

    (10,822 )   (10,381 )   441     4 %
                   

Total research and development expenditure

    (14,757 )   (14,518 )   239     2 %
                   

Segmental result

    (3,935 )   (4,137 )   (202 )   (5 )%
                   

        Total research and development expenditure incurred by the Sativex R&D segment during the year ended September 30, 2011 increased slightly by £0.2 million, or 2%, to £14.8 million as compared to £14.5 million for the year ended September 30, 2010. Development partner-funded research and development expenditure on the Sativex Phase 3 cancer pain program and associated Sativex development work increased by £0.4 million, or 4%, for the year ended September 30, 2011 as patient recruitment in these trials progressed during the 2011 period.

        The GW-funded element of Sativex research and development expenditure declined slightly by £0.2 million, or 5%, for the year ended September 30, 2011 to £3.9 million as compared to £4.1 million for the year ended September 30, 2010. The year ended September 30, 2010 included the final costs for the MS spasticity Phase 3 trials, which were subsequently used for regulatory approvals achieved during the year ended September 30, 2010.

        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.

        The following table summarizes the results of our operations for our Pipeline R&D segment for the years ended September 30, 2011 and 2010, together with the changes to those items.

 
  Year Ended September 30,   Change 2011 vs. 2010  
 
  2011   2010   Increase/(Decrease)  
 
  £
  £
  £
  %
 
 
  (in thousands, except for percentages)
 

Research and development fees

    5,216     4,427     789     18 %

Research and development expenditure:

                         

GW-funded research and development

    (2,618 )   (2,992 )   (374 )   (13 )%

Development partner-funded research and development

    (5,216 )   (4,427 )   789     18 %
                   

Total research and development expenditure

    (7,834 )   (7,419 )   415     6 %
                   

Segmental result

    (2,618 )   (2,992 )   (374 )   (13 )%
                   

        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. As noted in the

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research and development expenditure section above, the 18% year-on-year increase reflected an increasing amount of in vivo pre-clinical studies and increasing charges to Otsuka in line with increasing our headcount dedicated to this research.

        GW-funded pipeline research and development expenditure declined by £0.4 million, or 13%, to £2.6 million for the year ended September 30, 2011 as compared to £3.0 million for the year ended September 30, 2010. This decrease was attributable to an increase in the proportion of staff and overhead being allocated to joint pipeline research efforts with Otsuka, with the result that while the overall research and development overhead continued to grow, the net amount required to be funded by us decreased as charges to Otsuka increased.

        As the development partner-funded expenditure was fully offset by the associated research and development fees, the segmental results equal the GW-funded pipeline research and development expenditure.

Liquidity and Capital Resources

        In recent years, we have largely funded our operations and growth from research and development fees and milestone payments from our development partners. We have also funded our operations and growth with cash flow from operations including Sativex revenue, research and development tax credits, interest income and issuances of equity securities. Our cash flows may fluctuate, are difficult to forecast and will depend on many factors including:

        We believe that our cash and cash equivalents as at September 30, 2012 of £29.3 million coupled with cash flow from operating activities will be sufficient to fund our operations, including currently anticipated research and development activities and planned capital spending, for the foreseeable future, including for at least the next twelve months.

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        The following table summarizes the results of our cash flows for the years ended September 30, 2012, 2011 and 2010.

 
  Year Ended September 30,  
 
  2012   2012   2011   2010  
 
  $
  £
  £
  £
 
 
  (in thousands)
 

Net cash inflow from operating activities

    2,905     1,801     2,361     4,324  

Net cash outflow from investing activities

    (1,710 )   (1,060 )   (647 )   (334 )

Net cash inflow from financing activities

    118     73     1,393     620  

Cash and cash equivalents at end of the year

    47,322     29,335     28,319     25,219  

        Net cash inflow from operating activities decreased by £0.6 million, or 24%, to £1.8 million for the year ended September 30, 2012 compared to £2.4 million for the year ended September 30, 2011. This decrease was primarily driven by a £3.1 million reduction in receipts of license and technical access fees, a £1.4 million reduction in Sativex product sales and a £1.8 million increase in GW-funded research and development expenditure and management and administrative expenditure, being only partially offset by an increase in milestone payments received of £4.5 million, a £1.0 million reduction in working capital growth and a £0.2 million increase in tax credit receipts.

        Net cash inflow from operating activities decreased by £2.0 million, or 45%, to £2.4 million for the year ended September 30, 2011 compared to £4.3 million for the year ended September 30, 2010. This decrease was primarily driven by a £5.9 million reduction in milestone payments received, a £0.6 million increase in working capital and a £0.2 million reduction to tax credit receipts, being only partially offset by the effects of a £3.1 million increase in license and technical access fee receipts, a £1.0 million increase in Sativex product receipts and a £0.6 million reduction to GW-funded research and development expenditure.

        The net cash outflow from investing activities increased by £0.5 million to £1.1 million for the year ended September 30, 2012 from £0.6 million for the year ended September 30, 2011, principally reflecting an increase in capital expenditure of £0.4 million during the year ended September 30, 2012 as we invested in expanding and upgrading our manufacturing facilities.

        The cash outflow from investing activities increased by £0.3 million to £0.6 million for the year ended September 30, 2011 from £0.3 million for the year ended September 30, 2010, reflecting a £0.5 million increase in capital expenditure, which principally consisted of new laboratory equipment, offset in part by a £0.2 million increase in interest received during the year ended September 30, 2011.

        Cash generated by financing activities, in all reporting periods, relates principally to the proceeds received on exercise of share options. Such cash inflows amounted to £0.1 million in the year ended September 30, 2012, £1.4 million in the year ended September 30, 2011 and £0.6 million in the year ended September 30, 2010.

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        The following table summarizes our contractual commitments and obligations as at September 30, 2012.

 
  Payments Due by Period  
 
  Total   Less than
1 year
  1-3 years   3-5 years   More than
5 years
 
 
  £
  £
  £
  £
  £
 
 
  (in thousands)
 

Operating lease obligations(1)

    3,362     987     1,788     587      

Purchase obligations(2)

    138     138              
                       

Total contractual cash obligations(3)

    3,500     1,125     1,788     587      
                       

(1)
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 24 to our consolidated financial statements included elsewhere in this prospectus.

(2)
Purchase obligations include signed orders for capital equipment, which have been committed but not yet received at the balance sheet date totaling £138,000.

(3)
The table above excludes a potential liability, under the terms of a letter of indemnity given by us to the landlord of proposed new manufacturing facilities, for up to £1.1 million. See Note 28 to our consolidated financial statements included elsewhere in this prospectus.

Off-Balance Sheet Arrangements

        We do not have any off-balance sheet arrangements.

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.

        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, 2012, 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.

        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,

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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.

Jumpstart Our Business Startups Act of 2012

        The Jumpstart Our Business Startups Act of 2012, or JOBS Act, permits an emerging growth company such as us to take advantage of specified reduced reporting and other requirements that are otherwise applicable generally to public companies. Among these provisions is an exemption from the auditor attestation requirement under Section 404 of the Sarbanes-Oxley Act of 2002 in the assessment of the emerging growth company's internal control over financial reporting. We have elected to rely on this exemption and will not provide such an attestation from our auditors. We have elected to opt out of all other provisions of the JOBS Act, including the provision that allows us to take advantage of an extended transition period to comply with new or revised accounting standards until such time as private companies would be required to comply. This latter decision to opt out of the extended transition period to comply with new or revised accounting standards under the JOBS Act is irrevocable.

        We will remain an emerging growth company until the earliest of (a) the last day of our fiscal year during which we have total annual gross revenue of at least $1.0 billion; (b) the last day of our fiscal year following the fifth anniversary of the completion of this offering; (c) the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt; or (d) the date on which we are deemed to be a "large accelerated filer" under the Securities Exchange Act of 1934, as amended, which would occur if the market value of our ADSs that are held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter. Once we cease to be an emerging growth company, we will not be entitled to the exemptions provided in the JOBS Act.

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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 14 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, which is approved for the treatment of spasticity due to multiple sclerosis, or MS, in 20 countries outside the United States. We are also evaluating Sativex a Phase 3 program for the treatment of cancer pain, and we anticipate that top-line results from two Phase 3 trials will be available in 2014, the first of which we expect to be available in mid-2014. This program is intended to support the submission of a New Drug Application, or NDA, for Sativex in cancer pain with the U.S. Food and Drug Administration, or FDA, and in other markets around the world. We believe that MS spasticity represents an attractive indication for Sativex in the United States and we intend to pursue an additional clinical development program for this significant opportunity. We have a deep pipeline of additional cannabinoid product candidates, including two distinct compounds, GWP42004 and GWP 42003, in Phase 2 clinical development for Type 2 diabetes and ulcerative colitis, respectively, and at least two additional programs expected to enter clinical trials in the next 12 months.

        Our lead product, Sativex, 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 cannabidiol, or CBD. We are 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. This program represents the lead target indication for Sativex in the United States and is based on positive data from two Phase 2 trials of Sativex involving over 530 patients in this indication. According to Fallon, et al. in the March/April 2006 edition of Clinical Medicine, pain is uncontrolled with opioid treatments in approximately 20% of patients with advanced cancer, or 420,000 people in the United States. There are currently no approved non-opioid treatments for patients who do not respond to, or experience negative side effects with, opioid medications. We believe that Sativex has the potential to address a significant unmet need in this large market by treating patients with a product that employs a differentiated non-opioid mechanism of action, and offers the prospect of pain relief without increasing opioid-related adverse side effects. Our ongoing Phase 3 program is being conducted under an Investigational New Drug Application, or IND, and consists of three clinical trials, the first two of which are expected to enroll 760 patients in total and are intended to form the basis of the NDA. These two Phase 3 trial protocols mirror our Phase 2b trial of Sativex with respect to patient population and treatment duration, and employ a primary efficacy endpoint which yielded statistically significant results in favor of Sativex in both Phase 2 trials. The costs of the Phase 3 program are fully funded by Otsuka.

        We recently initiated commercialization of Sativex for the treatment of MS spasticity in seven countries outside the United States. We have also received regulatory approval for Sativex for MS spasticity in 13 additional countries, and we anticipate commercial launches in the majority of these countries in the next 12 months. Two additional countries have recommended approval for Sativex in this indication and regulatory filings are under review in eight other countries. While we believe that MS spasticity represents an attractive indication for the United States, we also believe that cancer pain is the optimal entry point for Sativex in the United States from a commercial and regulatory perspective since we performed our MS spasticity pre-clinical and clinical program outside of the United States, and we anticipate that we will be required to conduct an additional development program prior to the submission of an NDA with the FDA for this indication. According to the World Health Organization, MS affects 1.3 million people worldwide, of which up to 80% suffer from

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spasticity, a symptom of MS characterized by muscle stiffness and uncontrollable spasms. 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.

        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, known as 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 proprietary cannabinoid product 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 worldwide network of leading scientists, our intellectual property portfolio, in-house formulation, processing and manufacturing capabilities, and development and regulatory expertise. We believe that our proprietary cannabinoid product platform uniquely positions us to discover and develop cannabinoids as new therapeutics, and we are evaluating the potential for cannabinoids in the treatment of Type 2 diabetes, ulcerative colitis, disorders of the central nervous system, or CNS, including epilepsy and schizophrenia, cancer, and neurodegenerative disease.

        We believe that the successful development and regulatory approval of Sativex provides important validation of our proprietary cannabinoid product platform. In addition to Sativex, we are developing other cannabinoid product candidates, including GWP42004, which has completed a Phase 2a trial in Type 2 diabetes. In this trial, GWP42004 showed evidence of anti-diabetic effects, including the preservation of beta cell function and evidence across a number of endpoints suggesting an increase in insulin sensitivity. We plan to initiate a Phase 2 dose-ranging trial in 2013 of GWP42004 for this indication. In addition, we are developing GWP42003, a cannabinoid which has shown anti-inflammatory properties in pre-clinical studies. GWP42003 is currently in a Phase 2 trial for ulcerative colitis for which we expect data in early 2014. We expect at least two additional cannabinoid programs to advance into clinical trials within the next 12 months. Our early clinical development activities are conducted outside of the United States and we expect to submit INDs in the United States for our product candidates at a later stage in their development.

        Our commercialized product and key ongoing development programs are shown in the table below:

Product/Product Candidates
  Indication   Partner(s)   Status   Expected
Next Steps

Sativex

  MS spasticity   Otsuka, Almirall, Novartis, Bayer and Neopharm   Approved in 20 countries   Additional submissions, approvals and launches

Sativex

 

Cancer pain

 

Otsuka, Almirall, Novartis, Bayer and Neopharm

 

Phase 3 program ongoing

 

Phase 3 data in 2014

GWP42004

 

Type 2 diabetes

 

We retain global rights

 

Phase 2a trial complete

 

Phase 2 dose ranging trial to commence in 2013

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Product/Product Candidates
  Indication   Partner(s)   Status   Expected
Next Steps

GWP42003

 

Ulcerative colitis

 

We retain global rights

 

Phase 2 trial ongoing

 

Phase 2 data in early 2014

GWP42006

 

Epilepsy

 

Otsuka Collaboration*

 

Pre-clinical

 

Phase 1 to commence in 2013

Combination of GWP42002 and GWP42003

 

Glioma

 

Otsuka Collaboration*

 

Pre-clinical

 

Phase 1b/2a to commence in 2013

GWP42003

 

Schizophrenia

 

Otsuka Collaboration*

 

Pre-clinical

 

Phase 2a to commence in 2013


*
Currently funded under the terms of the Otsuka research collaboration agreement. See "Business—Intellectual Property and Technology Licenses" for more information.

        To support the development and commercialization of Sativex, we have entered into license and development agreements with the following major pharmaceutical companies in selected territories: Otsuka in the United States; Almirall S.A., or Almirall, in Europe (excluding the United Kingdom) and Mexico; 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, or Bayer, in the United Kingdom and Canada; and Neopharm Group, or Neopharm, in Israel. These agreements provide our collaborators with the sole right to commercialize Sativex in exclusive territories for all indications. From our incorporation through September 30, 2012, these agreements have yielded cash of £67.2 million in upfront fees and milestone payments. In addition, we are entitled to receive up to an additional £201.0 million in potential payments upon the achievement of regulatory and commercial milestones. Upon commercialization, we are also entitled to receive revenue from the supply of products and royalties on product sales. In addition, under the terms of our agreement with Otsuka, all pre-clinical and clinical costs associated with the development of Sativex in the United States are fully funded by Otsuka.

        We also have a research collaboration agreement with Otsuka, under which we are researching novel cannabinoid candidates for CNS disorders and oncology. This agreement was originally signed in 2007 for a three-year period and was extended in 2010 until June 2013. Under this collaboration, Otsuka has the right until September 2013 to license selected product candidates, and if it exercises this right, it will pay us license fees, milestone payments, revenue from the supply of product and royalties. Detailed financial terms are required to be negotiated only at the time at which Otsuka exercises its right to license a particular product candidate. Global rights to product candidates not selected for license by Otsuka will be exclusively licensed back to us from Otsuka.

Our Strengths

        We are a leading biopharmaceutical company focused on discovering, developing and commercializing novel plant-derived cannabinoid therapeutics. We believe that we offer the following key distinguishing characteristics:

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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.

        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)   CBDVA (Cannabidivarin—Acid)
  D8-THC (Delta-8 Tetrahydrocannabinol)   CBC (Cannabichromene)
  THCA (Tetrahydrocannabinol—Acid)   CBG (Cannabigerol)
  THCV (Tetrahydrocannabivarin)   CBGA (Cannabigerol—Acid)
  THCVA (Tetrahydrocannabivarin—Acid)   CBGV (Cannabigerovarin)
  CBD (Cannabidiol)   CBN (Cannabinol)
  CBDA (Cannabidiol—Acid)   CBNV (Cannabinovarin)
  CBDV (Cannabidivarin)    

        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

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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, 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 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.

        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.

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        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.

        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.

        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 3,000 patients, including over 20 Phase 2 and Phase 3 trials.

        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.    Once a cannabinoid plant type is selected to form the basis of a pharmaceutical product candidate, we reproduce the chemotype solely through propagation of plant cuttings, or clones, in order to ensure that all subsequent plant material is genetically uniform. Our plants are grown under highly controlled conditions in indoor glasshouses, in which all key features of the growing climate and growing process are standardized. The cultivation process lasts 11 weeks from plant cutting to harvest. Plant material is grown throughout the year and batches are harvested each week. Following harvest, plant material is dried and milled under standardized conditions.

        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.

        BDP Production.    BDP is the finished product manufactured from one or more BDS's 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) and capsules.

        We believe that our focus on the development of therapeutics from plant-derived cannabinoids offers the following important advantages:

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        Our research network extends to 28 academic institutions in eight countries. We work closely with the most eminent cannabinoid pharmacologists in the world, including Professor Raphael Mechoulam, Hebrew University, 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. In cancer, we collaborate with the research team at Complutense University, Madrid and with Professor Karol Sikora, Dean of Buckingham University and former Global Clinical Expert in Oncology at AstraZeneca. We conduct metabolic and inflammation research in collaboration with Professor Mike Cawthorne, University of Buckingham, Professor Jimmy Bell, Imperial College, London, and Professor Angelo Izzo, University of Naples. 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.

        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.

Our Business Strategy

        Our goal is to capitalize on our leading position in the field of cannabinoid therapeutics by pursuing the following strategies:

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Sativex

        Our lead product, 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. Because cannabinoids are virtually insoluble in water, we use organic solvents, ethanol and propylene glycol, to formulate the extract.

        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. In the United States, the FDA will require the spray to be incorporated within additional packaging which features a dose counter in order to reduce the potential for diversion. We are developing a dose counter with funding from Otsuka in parallel with our Phase 3 cancer pain program.

        Although Sativex contains THC, both the composition of its formulation and its route of administration means that the resulting THC blood levels achieved are quite distinct from those associated with smoked cannabis. We have compared the pharmacokinetics of Sativex to data reported in a separate study published by Marilyn Huestis, et al., in the September 1992 issue of Journal of

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Analytical Toxicology involving smoked cannabis. This comparison illustrates differences in the speed of absorption and maximum concentration, or Cmax, of THC in the blood. Rapid concentration of high levels of THC in the blood, as achieved by smoked cannabis, is known to be associated with intoxication.

Comparison of the Plasma Concentration Time Curves for Smoked Cannabis
and Sativex Oromucosal Spray

GRAPHIC

        We are 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. This program represents the lead target indication for Sativex in the United States and is also intended to form the basis for future regulatory applications in the rest of the world. This Phase 3 program follows positive data from two Phase 2 trials of Sativex in this indication involving over 530 patients. We believe that Sativex has the potential to address a significant unmet need in this large market by treating patients with a product that employs a differentiated non-opioid mechanism of action, and offering the prospect of pain relief without increasing opioid-related adverse side effects.

        Cancer Pain Opportunity.    Chronic, unremitting persistent pain in deep tissues that results from cancer adversely affects a significant patient population.

        The primary treatment for cancer pain is analgesic narcotics, also known as opioids. Morphine and oxycodone are the most prescribed opioids, and morphine is the standard regimen for treating cancer pain in palliative care and hospice care programs and facilities. Opioids are often added to non-opioid analgesics and other adjuvant medications to control cancer pain. These agents act on the CNS by binding to various opiate receptors. The use of opioids is frequently met with undesirable side effects such as constipation, sedation, respiratory depression and analgesic tolerance as well as the risk of addiction. Studies in animal models of pain suggest that there may be pharmacodynamic synergy between cannabinoids and opioids.

        According to Data Monitor Stakeholder Insight: Cancer Pain, Dec 2009, there were 4.75 million cancer patients in the United States in 2009. Approximately 70% of those patients, or 3.3 million individuals, experience pain. According to market research conducted on behalf of Otsuka as part of our collaboration, approximately 72%, or 2.4 million of these patients, have advanced cancer, of which 89%, or approximately 2.1 million patients, are treated with opioid medications. According to Fallon,

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et al. in the March/April 2006 edition of Clinical Medicine, pain is uncontrolled with opioid treatments in approximately 20% of patients with advanced cancer, or 420,000 people in the United States.

        There are currently no approved non-opioid treatments for patients who do not respond to, or experience negative side effects with, opioid medications.

        Pharmacology.    We believe there is a strong pharmacologic rationale for the use of Sativex in cancer pain. Cannabinoid receptors have been found in all of the principal pain transmission pathways, including the dorsal horn of the spinal cord, the descending tracts from the peri-aqueductal grey and rostral-ventral medulla and within the cortical structures, the medial thalamus, amygdala and limbic cortex. In animal models, not only does local administration of endogenous cannabinoids produce pain relief, but THC and CBD also produce pain relief in animal models of both nociceptive and neuropathic pain.

        In this context, the CB1 receptor, of which THC is a partial agonist, has been identified as being most implicated in cannabinoid-induced pain relief. CBD is a potent inhibitor of adenosine uptake, and it is also known to be an agonist at the TRPV-1 (vanilloid) receptor. Both of these activities may produce pain relief. Furthermore, CBD has anti-inflammatory activity in standard animal models of inflammation and is a potent inhibitor of neutrophil chemotaxis. Finally, CBD also has an anxiolytic effect, is anti-psychotic and is believed to mitigate some of the undesirable side effects of THC.

        Phase 2 Clinical Data.    We have completed two Phase 2 multinational, randomized, placebo-controlled trials for Sativex in patients with advanced cancer who experienced inadequate pain relief from the use of optimized chronic opioid therapy. In each of the two trials, patients received Sativex or placebo as add-on treatment to strong opioid therapy while remaining on stable doses of their background optimized opioid therapy.

        In both Phase 2 trials, pain was assessed daily by the patient using a 0 to 10 Numeric Rating Scale, or NRS. The change in pain severity was measured by comparing pain scores at the end of the trial with baseline scores at the beginning of the trial. There are two primary approaches to analyzing these changes in pain, either by assessing the mean numeric change in NRS or by responder analyses which assess percentage improvements.

        Historically, application of responder analyses required choosing a specific cut-off point on the NRS, or alternatively a percentage threshold, deemed to be clinically meaningful. More recently, an alternative approach to responder analyses, known as the Cumulative Proportion of Responders Analysis, or CPR Analysis, has been proposed as an improvement to previous approaches. This analysis was first published by John Farrar, et al. in the November 2001 issue of Pain and was proposed to overcome concerns with previous approaches which had required a pre-determined choice of the level of response which would be considered clinically meaningful. The CPR Analysis is one of the key efficacy parameters discussed in the FDA-approved package insert of the analgesic medications pregabalin and duloxetine and analyzes the full range of responses achieved across the entire patient population within a trial. We believe the CPR Analysis offers several advantages over using a single cut-off response rate, including:

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        The specific method used is to analyze the cumulative proportion of patients who reach each level of response rate, calculated and displayed up to the response rate cut-off point. The CPR Analysis graph displays patient data in order of the calculated level of response for both active treatment and placebo. For each level of response, it shows the proportion of the total number of patients that equaled or exceeded that level of response.

        Results of our Phase 2 trials have been analyzed using three methodologies—mean change in NRS scores, analysis of patients with a response of 30% or more, and the CPR Analysis. Following our end of Phase 2 discussions with FDA, we chose to employ the CPR Analysis as the primary efficacy analysis in the first two of our Phase 3 trials.

        Results from a Phase 2a trial in 177 patients were published by Jeremy Johnson, et al. in the February 2010 issue of Journal of Pain and Symptom Management, the official journal of the American Academy of Hospice and Palliative Medicine, the National Hospice and Palliative Care Organization, and the U.S. Cancer Pain Relief Committee. This three-arm trial compared the efficacy and safety of Sativex to a THC-only extract spray formulation and placebo as add-on treatments to strong opioid therapy administered over a two-week period. A co-primary efficacy endpoint of the trial was the change in mean pain score (on the 0 to 10 NRS) from baseline to end of treatment. The results showed a statistically significant improvement of 0.67 points in the Sativex group compared with the placebo group (p=0.014). Changes in pain scores using responder analyses not specified in the trial protocol showed the following:

Sativex in Cancer Pain—Phase 2a CPR Analysis

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        During the trial, patients were permitted to administer between 0-48 sprays per day. The median dose in the Sativex treatment group was 8.15 sprays per day.

        While Sativex showed a statistically significant improvement over placebo in the trial, it is noteworthy that the THC-only extract spray showed a smaller improvement of 0.32 points over placebo, which was not statistically significant, providing evidence that the combination of THC and CBD, the main ingredients in Sativex, is an improved cannabinoid formulation for this patient population as compared to THC alone.

        Results from a Phase 2b dose ranging trial were published by Russell Portenoy, et al. in the May 2012 issue of The Journal of Pain, the official journal of the American Pain Society. This randomized, double-blind, placebo-controlled, parallel-group trial recruited a total of 360 patients in 14 countries in North America, Europe, Latin America and South Africa, and evaluated three dose range groups of Sativex—a low-dose (one to four sprays per day), mid-dose (six to ten sprays per day), and high-dose (11 to 16 sprays per day)—and placebo, over a five-week treatment period. The primary objectives of this trial were to determine the effective dose range and to demonstrate a non-effective dose of Sativex in patients with advanced cancer who experience inadequate pain relief during optimized chronic opioid therapy.

        The trial provided data to support entry into a Phase 3 program, showing statistically significant differences in favor of Sativex over placebo in two key analyses of pain scores. The trial also provided information sufficient to select a dose range of Sativex in the patient population and confirmed key features of the trial design of our Phase 3 trials.

        The primary efficacy measure of the trial was a patient assessment of pain using a 0 to 10 NRS. This endpoint was analyzed using a primary and two secondary statistical methodologies, including 30% responder analysis (where a response was defined as a 30% or greater reduction in the NRS score during the last three days of treatment versus the three-day baseline period at the beginning of the trial), CPR Analysis and change from baseline analysis in NRS average pain. The 30% responder analysis was specified as the primary analysis in the protocol. Results of these analyses for the low and mid-dose groups are provided below:

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Sativex in Cancer Pain—Phase 2b
CPR Analysis for Low-Dose Group

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Sativex in Cancer Pain—Phase 2b
CPR Analysis for Mid-Dose Group

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Sativex in Cancer Pain—Phase 2b
CPR Analysis for Combined Low and Mid-Dose Groups

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        The Sativex high-dose level did not show superior efficacy to placebo. While tolerability does not completely account for this lack of efficacy, it is noteworthy that discontinuation due to adverse events was 28% in the high-dose group and was substantially higher than the rates of discontinuation in the placebo group (18% discontinuation), the low-dose group (14% discontinuation) and in the mid-dose group (17% discontinuation). In addition, 34% of patients in the high-dose group took their medication below their target dose at the end of the treatment period.

        The trial included several secondary endpoints, including sleep disruption, which is identified in the Phase 3 trials as the key secondary endpoint. In the Phase 2b trial, the Sativex low-dose group showed a statistically significant difference compared to placebo in reducing sleep disruption (treatment difference 0.88 points, p=0.003). While the mid-dose group showed no improvement over placebo, the low and mid-dose Sativex groups, when combined, did show a statistically significant reduction in sleep disruption compared to placebo (treatment difference 0.61 points, p=0.016).

        The safety profile of Sativex in the two Phase 2 trials was consistent. In the Phase 2a trial, the most common treatment-related adverse events (occurring at a rate greater than or equal to 10% for the Sativex population) reported for the Sativex treatment group were somnolence (13% vs. 10% for placebo), dizziness (12% vs. 5% for placebo) and nausea (10% vs. 7% for placebo). In the Phase 2b trial, the most common treatment-related adverse events (occurring at a rate greater than 10% for the combined Sativex population) reported for the Sativex treatment groups were dizziness (17% vs. 10% for placebo), nausea (11% vs. 8% for placebo) and somnolence (12% vs. 4% for placebo). An analysis of treatment-related severe adverse events showed that such events occurred at a similarly low rate in the mid-dose and low-dose Sativex groups as in the placebo group (3% and 3% vs. 1%). More patients in the high-dose Sativex group experienced treatment-related severe adverse events, with 17% of subjects doing so. The most severe treatment related events observed in the Sativex arm (occurring in

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more than two patients for the combined Sativex population) were disturbance in attention, dizziness, sedation, anorexia, vomiting, nausea and vertigo.

        The Phase 2 trials provided us data sufficient to support entry into Phase 3 trials of Sativex in cancer pain, to determine the optimum dose range to be used in Phase 3 trials, and determine the choice of primary efficacy analysis to be used in the first two Phase 3 trials.

        We believe that the Phase 2b trial achieved one of its key objectives in determining the effective dose range for Sativex and demonstrating a non-effective dose range. Efficacy was observed in both the low (one to four sprays per day) and mid-dose (six to ten sprays per day) groups and these groups were also associated with a lower or similar rate of adverse events to placebo, and a low rate of withdrawal from the trial due to adverse events. In contrast, the data suggests that a high-dose range of Sativex reaches a maximum tolerated dose without improved efficacy over placebo. These results are consistent with those seen in the Phase 2a trial where the median daily dose taken by the Sativex treatment group was 8.15 sprays per day.

        We have therefore concluded that an appropriate approach to dosing in the Phase 3 trials is to employ a single dose range of three to ten sprays per day.

        The table below summarizes Phase 2 results for three statistical analyses of changes in pain scores:

 
  Phase 2a Trial   Phase 2b Trial

Number of Patients

  Sativex (n=60) vs. placebo (n=59)   Sativex low and mid-dose groups (n=179) vs. placebo (n=91)

CPR Analysis*

  p=0.044   p=0.006

NRS Mean Change

  p=0.014**   p=0.019

30% Responder Analysis

  p=0.006   p=0.38**

*
The primary analysis selected for first two Phase 3 trials.

**
The primary analysis in Phase 2 trial.

        Following our End of Phase 2 discussions with the FDA, we decided to employ the CPR Analysis as the primary efficacy analysis in the first two of our Phase 3 trials. In the third Phase 3 trial, which employs a different 'enriched' trial design, the primary efficacy analysis is the mean change from baseline in NRS scores. These analyses have provided statistically significant results in favor of Sativex in both Phase 2 trials.

        Phase 3 Program.    As a result of the positive data seen in our Phase 2 program, we and Otsuka held discussions with the FDA regarding the proposed Phase 3 program for the continued development of Sativex for cancer pain. We are now conducting three multi-national, randomized, placebo-controlled, multi-center Phase 3 trials, two of which will employ an identical trial design and endpoints and are expected to support the NDA submission. These two Phase 3 trials include the following key features:

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        The ongoing Phase 3 program, is being performed with and funded by Otsuka.

        Patients are being recruited into these two trials at hospital sites in the United States, Europe and Mexico. Professor Marie Fallon, Professor of Palliative Care, University of Edinburgh, is the principal investigator of the first trial, and Dr. Russell K. Portenoy, Chairman of the Department of Pain Medicine and Palliative Care, Beth Israel Medical Center in New York City, is the principal investigator of the second trial. We anticipate that top-line results from these two Phase 3 trials will be available in 2014, the first of which will be available in mid-2014. This program is intended to support the submission of an NDA with the FDA and in other markets around the world.

        We are also in the process of conducting a third Phase 3 trial, which we expect to enroll approximately 540 patients, that is designed to provide additional information on the effects of Sativex in treating opioid resistant cancer pain. The results of this third trial are not intended to be included in the initial regulatory filings if the results of the first two pivotal Phase 3 trials provide a sufficient basis to demonstrate the safety and efficacy of Sativex in the target indication. The third Phase 3 trial differs in design from the first two trials, employing a two-part "enriched trial design" akin to that which was successfully employed in the MS spasticity trials program. The trial involves exposing all enrolled patients to Sativex in a two-week single-blind phase, or Phase A, following which responders will be randomized either to stay on Sativex or switch to placebo in a double-blind phase for a five-week treatment period, or Phase B. The primary efficacy analysis will be the mean change from baseline in Phase B as measured using a 0 to 10 NRS. The trial is designed to enroll 216 patients in Phase B.

        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.

        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

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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.

        If Sativex receives FDA approval, it will be a controlled substance, as is the case with opioids, and the U.S. Drug Enforcement Administration, or DEA, will place it in a schedule under the Controlled Substances Act of 1970, or CSA, in order for it to be able to be prescribed to patients in the United States. The schedule into which a product is placed reflects the DEA's determination of its potential for abuse or dependence. We expect Sativex to be listed by the DEA as a Schedule II or III controlled substance. As part of the NDA, we will submit information on abuse liability which will be reviewed by the Controlled Substances Staff at the FDA who, in consultation with the National Institute on Drug Abuse, will in turn make a scheduling recommendation to the DEA.

        In February 2013, the Advisory Council on the Misuse of Drugs, which is the advisory body to the U.K. government with respect to controlled substances, confirmed its recommendation to the U.K. government that it deems Sativex to have low abuse potential and low risk of diversion, and that Sativex thereafter should be scheduled as a Schedule IV substance. We have received correspondence from the U.K. Home Office that the legal steps to place Sativex in Schedule IV are now progressing with a view to securing ministerial approval for the implementation of the Advisory Council on the Misuse of Drugs recommendation.

        Potential Expansion of Cancer Pain Market.    Following successful completion of the development of Sativex in the treatment of pain in patients with advanced cancer, we may consider, together with Otsuka, expanding the target market of Sativex by conducting Phase 3 trials in the treatment of pain in patients with earlier stage cancer. A future submission of a supplemental NDA in this expanded indication would represent a significant additional market opportunity for Sativex in the United States and the rest of the world. Under the terms of our Otsuka collaboration, such additional development costs would be fully funded by Otsuka.

        The approved label for Sativex is as a "treatment for symptom improvement in patients with moderate to severe MS spasticity who have not responded adequately to other anti-spasticity medication and who demonstrate clinically significant improvement in spasticity related symptoms during an initial trial of therapy".

        We recently initiated the commercialization of Sativex for MS spasticity in seven countries outside the United States. We have also received regulatory approval in an additional 13 countries, and we anticipate commercial launches in the majority of these countries in the next 12 months. Two additional countries have recommended approval for Sativex and regulatory filings are ongoing in eight other countries.

        We believe that MS spasticity represents an attractive indication for the United States and we intend to pursue an additional clinical development program for this significant market opportunity. Although Sativex has been approved for the treatment of MS spasticity in 20 countries outside the United States, we believe that from a commercial and regulatory perspective, Sativex for cancer pain represents the optimal entry point into the United States market. This is because we believe the size of the commercial opportunity for the cancer pain indication in the United States is larger than the MS spasticity opportunity. Moreover, because patients with MS spasticity would typically use Sativex for an extended treatment duration, we expect that additional pre-clinical carcinogenicity data will be required as part of the submission of an NDA in this indication. The timing of the availability of such data is expected to follow the expected timing of the submission of an NDA in the cancer pain indication potentially allowing us to obtain U.S. approvals for this indication before we would be able to obtain U.S. approvals in MS spasticity. The initial development of Sativex focused on the European MS

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spasticity market, hence pre-clinical carcinogenicity data was originally generated prior to our first interactions with the FDA.

        We held our first meeting with the FDA in December 2012 to discuss the MS spasticity indication. This pre-IND meeting has provided us with guidance on the U.S. development program and we are now preparing an investigational plan, including a Phase 3 trial protocol, for a potential IND submission in the future.

Regulatory Status of Sativex for MS Spasticity

Launched   Approved (pending launch)   Recommended for approval   Regulatory submission filed
Canada   Australia   Ireland   Bahrain
Denmark   Austria   Italy   Egypt
Germany   Belgium       Kuwait
Israel   Czech Republic       Oman
Norway   Finland       Qatar
Spain   Iceland       Saudi Arabia
United Kingdom   Luxembourg
Netherlands
New Zealand
Poland
Portugal
Slovakia
Sweden
      Switzerland
United Arab Emirates

        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.

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        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.

        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 function, 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 at the end of the prior four-week period were randomized to Sativex or placebo in a conventional parallel group design. We designed this trial to demonstrate the size of clinical benefit achieved from Sativex in patients who had previously shown a capacity to respond to treatment.

        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 in 572 patients, Sativex reduced the mean score for spasticity on the NRS scale by 3.01 points from a baseline of 6.91 points, or 44%. In addition, 48% of patients' NRS score improved 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, 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=0.0046), 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=0.007).

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        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.

        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.

Kaplan-Meier Plot: Time to Treatment Failure

GRAPHIC

        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.

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        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 12,000 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, two studies have been completed which support the commercialization efforts of our partners. An independent survey of Sativex prescription use in the United Kingdom has been the subject of a paper published by William Notcutt in the July 2012 issue of the peer-reviewed publication Primary Health Care Research and Development. In this survey of 124 Sativex patients with a mean duration of treatment of 30 months, the majority of respondents and their caregivers reported improvements across a range of daily functional activities, alongside a reduction in the use of concomitant anti-spasticity medication and other health care resources.

        Also, 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 with consistent with, and somewhat better than, that seen in the Phase 3 trials.

        Sativex is approved to treat MS neuropathic pain in Israel and Canada (under a Notice of Compliance with conditions, or NOC/c, policy) and also has an NOC/c approval in Canada for cancer pain. The NOC/c policy applies to drugs that show promising Phase 2 evidence of efficacy in a patient population with a high, unmet medical need for which there is currently no approved treatment. NOC/c approvals are granted subject to the completion of subsequent Phase 3 confirmatory trials. Although we are not actively pursuing the following indications, we have generated positive Phase 2 data and believe that there may be potential for the use of Sativex to be expanded into the following areas:

Our Strategic Alliances and Collaborations

        We have entered into five 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

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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 labelled 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.

        In 2007, we entered into a strategic alliance with Otsuka, the second largest Japanese pharmaceutical company based on global sales and the developer of Abilify® (aripiprazole), one of the world's highest selling antipsychotic medications. This alliance is comprised of two separate agreements—a Sativex U.S. license agreement and a global cannabinoid research collaboration agreement.

        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.

        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.

        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.

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        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 unlabelled Sativex vials and Novartis completes the labelling 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.

        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 $100,000 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.

        Almirall S.A.    In 2005, we entered into an exclusive agreement with Almirall, an international pharmaceutical company with headquarters in Spain and 2011 global sales of €768.0 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.

        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 £20.6 million in milestone payments from Almirall. We have the potential to receive a further £19.8 million in future milestone payments in the event that the relevant milestones are achieved. Of such £19.8 million in potential future milestone payments, £6.8 million are linked to regulatory 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 is expected to 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.

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        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.

        Under a research collaboration agreement with Otsuka, we are jointly conducting pre-clinical research on a range of our cannabinoids, both alone and in combination, as potential new drug candidates for the treatment of CNS disorders and oncology. This agreement was originally signed in 2007 for a three-year period, and in 2010 the research term of the collaboration was extended by three years to June 2013. To date, Otsuka's total investment in research activities under this collaboration exceeds £21.0 million.

        Our research collaboration with Otsuka is led by a joint research team, which incorporates senior scientists from both companies and works in close collaboration with a number of leading cannabinoid scientists around the world.

        Under the research collaboration agreement, Otsuka has the right, at any time prior to the end of the research term or three months thereafter, to select one or more product candidates for full development. Any product candidate(s) selected by Otsuka will automatically become the subject of an exclusive license from us to Otsuka in the field of CNS and oncology. Financial terms for each license are subject to negotiations and are expected to include upfront license fees, potential milestone payments, as well as revenue from the supply of products and royalties on product sales. Global rights to product candidates not selected for license by Otsuka will be exclusively licensed back to us from Otsuka. To date, no product candidates have been designated as a licensed product candidate by Otsuka under the collaboration agreement.

        Since the collaboration was formed, our joint research efforts have yielded promising data and new intellectual property with particular focus on epilepsy, schizophrenia and various oncology indications, including glioma. These efforts are currently focused on a few cannabinoid drug candidates, which include CBD, THCV, CBG, CBDV, alone and/or in combination.

Pipeline Research and Development

        There are over 70 cannabinoid compounds, and our research explores their potential therapeutic applications across a broad range of disease areas, including in the treatment of Type 2 diabetes, ulcerative colitis, CNS disorders, including epilepsy and schizophrenia, cancer and neurodegenerative disease.

        Our lead pipeline programs comprise distinct product candidates with the following primary cannabinoid components:

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        In addition to these programs, we are conducting pre-clinical research into the potential application of our cannabinoids in neuroprotection, nausea and anorexia/cachexia.

        Our early clinical development activities are conducted outside of the United States and we expect to submit INDs in the United States for our product candidates at a later stage in their development.

        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 lesions—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 age and lack of exercise. Insulin resistance causes elevated blood glucose levels, which in turn lead to 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 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.

        We have completed a Phase 2a trial that examined a number of clinical endpoints 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 formulated as 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.

        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, improved pancreatic beta-cell function (p=0.0074), increased serum adiponectin (p=0.0024), reduced systolic blood pressure (p=0.099), and reduced serum IL-6 levels (p=0.076). The trial did not show meaningful effects in the other treatment arms.

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        Several of these findings are consistent with pre-clinical data generated in collaboration with Professor Mike Cawthorne 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.

        We are now planning a larger placebo-controlled Phase 2 dose ranging trial of GWP42004 which is expected to start in 2013.

        Ulcerative colitis, or UC, is a chronic, relapsing inflammatory bowel disease affecting the colon which can cause pain, urgent diarrhea, severe tiredness and loss of weight. In addition, patients with chronic intestinal inflammation have an increased risk of developing bowel cancers. According to the Crohn's & Colitis Foundation of America, UC may affect as many as 700,000 Americans.

        Medical treatment for UC has two main goals: achieving remission (the absence of symptoms) and, once that is accomplished, maintaining remission (prevention of flare-ups). To accomplish these goals, treatment is aimed at controlling the ongoing inflammation in the intestine. The four major classes of medication used today to treat ulcerative colitis are aminosalicylates (5-ASA), steroids, immune modifiers and antibiotics. According to the Centers for Disease Control and Prevention, in one-quarter to one-third of patients with ulcerative colitis, medical therapy is not completely successful or complications arise. Under these circumstances, surgical removal of the colon may be considered.

        We have shown that GWP42003 has anti-inflammatory properties in a number of accepted animal models of inflammation, notably of the gut and the joints. In addition, we have shown the capacity of GWP42003 to inhibit the production in tissues of chemical mediators of inflammation, such as TNFa. In particular, we have demonstrated potential in the treatment of UC in standard in vivo models.

        We have initiated a 62-patient Phase 2a trial to investigate the efficacy and safety of GWP42003 compared with placebo for the treatment of UC in patients refractory to 5-ASA. This trial is due to report results in early 2014.

        Epilepsy is a complex neurological disorder characterized by spontaneous recurrence of unprovoked seizures, which are surges of electrical activity in the brain. Epilepsy is estimated to affect 50 million people worldwide including, according to the Centers for Disease Control and Prevention, 2.2 million people in the United States. Drug therapy remains ineffective for seizure control in up to 30% of patients with epilepsy because either the drugs do not control the seizures or the patients cannot tolerate the side effects. Currently available drugs can cause significant side effects to individuals' movement and cognitive abilities that can adversely affect the quality of life for epileptic patients.

        Selected cannabinoids have shown anti-convulsant effects across a range of in vitro and in vivo models of epilepsy. We have identified a lead product candidate, GWP42006, which has shown the ability to treat seizures in animal models of epilepsy with significantly fewer side effects than existing

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anti-epileptic drugs. 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.

        We are currently conducting a final round of confirmatory pre-clinical tests, expected to be completed in the first half of 2013 and plan to initiate a Phase 1 trial for GWP42006 shortly thereafter.

        Separately, there is emerging interest amongst U.S. paediatric epilepsy specialists and patient organizations in the potential role of CBD in treating intractable childhood epilepsy. We have recently agreed to a request from epilepsy specialists in the U.S. to support an observational study of CBD in patients with Dravet's and Lennox Gastaut Syndrome, two rare and severe forms of paediatric epilepsy. With advice from these specialists, we are evaluating the prospects for consulting with the FDA regarding an investigational plan for CBD in intractable childhood epilepsy in the U.S.

        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 50% 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, or orphan, disease by the FDA and the European Medicines Agency, or EMA.

        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, a standard treatment for glioma.

        In light of this promising pre-clinical research, we plan to conduct an early proof of concept Phase 1b clinical trial in patients with recurrent GBM, which we expect to commence in 2013. The trial will compare a combination of GWP42002 and GWP42003 with placebo, in each case in combination with temozolomide, the current standard of care. The principal cannabinoids we have studied in pre-clinical models of glioma are GWP42002 and GWP42003 in various ratios, and this first trial will employ 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.

        We have also generated promising pre-clinical data to suggest that our cannabinoids could have benefits in other cancers, notably breast cancer, colon cancer and prostate cancer. In particular, in a model of Her2 positive breast cancer, we have shown cannabinoids to have the ability to inhibit not only local metastases, but also the occurrence of distant metastases. Our efforts are now focused on identifying the precise molecular mechanism of action of cannabinoids in breast cancer, and to define the optimum cannabinoid treatment regimen.

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        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 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.

        Current antipyschotics 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.

        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. The mechanism of GWP42003 does not appear to rely on the D2 receptor augmentation of standard antipsychotics and therefore has the potential to offer a novel treatment option in this therapeutic area. We are currently preparing to commence a Phase 2a trial of GWP42003 in the treatment for schizophrenia in 2013.

        Additionally, our pre-clinical research findings suggest that a range of other psychiatric conditions may be promising targets for cannabinoid therapeutics.

Intellectual Property and Technology Licenses

        Our success depends in significant part on our ability to protect the proprietary nature of Sativex, our product candidates, technology and know-how, to operate without infringing on the proprietary rights of others, and to 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. As of September 30, 2012, we own 335 pending patent applications worldwide. Within the United States, we already have 14 issued patents with a further 30 pending patent applications under active prosecution. There are an additional 154 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.

        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, entitled "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.

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        Under the 2007 research collaboration agreement with Otsuka, all intellectual property (including both patents and non-manufacturing related know-how) that is 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". We have an exclusive royalty-bearing sub-licensable license to use collaboration IP outside the fields of CNS and oncology (other than collaboration IP relating to cannabinoid drug candidates specifically being researched within the collaboration).

        At the end of the term of the collaboration, our rights will depend upon what, if any, product/product candidate(s) Otsuka selects to license. In the event Otsuka licenses one or more product/product candidate(s) from us, we cannot develop or commercialize products which compete with those products/product candidate(s). With respect to any product/product candidate(s) not licensed, we will 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.

        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.

        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.

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