Filed Pursuant to Rule 424(b)(4)
Registration No. 333-192969

PROSPECTUS

2,441,110 American Depositary Shares

[GRAPHIC MISSING]

GW PHARMACEUTICALS PLC
(Incorporated in England and Wales)

Representing 29,293,320 Ordinary Shares



 

This is a public offering of American depositary shares, or ADSs, of GW Pharmaceuticals plc. We are offering 2,441,110 American Depositary Shares (each an “ADS,” and collectively “ADSs”). Each ADS will represent 12 ordinary shares, par value £0.001 per share.



 

Our ADSs are listed on the Nasdaq Global Market under the symbol “GWPH.” On January 8, 2014, the last reported sale price of our ADSs on the Nasdaq Global Market was $38.06 per ADS.



 

We are an “emerging growth company” as that term is used in the Jumpstart Our Business Startups Act of 2012 and, as such, have elected to comply with certain reduced public company reporting requirements for this prospectus and future filings.



 

Investing in our ADSs involves a high degree of risk. See “Risk Factors” beginning on page 14.



 

PRICE $36.00 PER ADS



 

     
  Price to
Public
  Underwriting
Discounts and
Commissions(1)
  Proceeds to
Company
Per ADS     $36.00       $2.16       $33.84  
Total     $87,879,960       $5,272,797       $82,607,162  

(1) We have agreed to reimburse the underwriters for certain FINRA-related expenses. See “Underwriting”.

We have granted the underwriters the right to purchase up to an additional 366,165 ADSs from us at the public offering price less the underwriting discounts and commissions.

The Securities and Exchange Commission and state securities regulators have not approved or disapproved these securities, or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The underwriters expect to deliver the ADSs to purchasers on January 14, 2014.



 

Joint Book-Running Managers

 
MORGAN STANLEY
  COWEN AND COMPANY


 

 
Lead Manager   Co-Lead Manager
PIPER JAFFRAY
  CANACCORD GENUITY

January 8, 2014.


 
 

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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.

This prospectus includes statistical and other industry and market data that we obtained from industry publications and research, surveys and studies conducted by third parties. Industry publications and third-party research, surveys and studies generally indicate that their information has been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information. While we believe these industry publications and third-party research, surveys and studies are reliable, we have not independently verified such data.

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.

Sativex®, Epidiolex®, 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.

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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, 2013 have been translated into U.S. dollars at the rate at September 30, 2013, the last business day of our year ended September 30, 2013, of £0.6181 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.

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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 15 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 24 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 at least one of the two ongoing pivotal Phase 3 trials will be available towards the end of 2014. Top-line results from the second pivotal Phase 3 trial are expected shortly after the first Phase 3 trial. 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 also represents an attractive indication for Sativex in the United States and in August 2013, we opened an Investigational New Drug Application, or IND, with the FDA to pursue a Phase 3 clinical development program for Sativex for this significant opportunity. We expect to commence a pivotal U.S. Phase 3 trial in 2014. We have a deep pipeline of additional cannabinoid product candidates, including orphan drug opportunities with a particular focus on pediatric epilepsy. In November 2013, we received Orphan Drug Designation from the FDA for Epidiolex, our proprietary product candidate that contains plant-derived cannabidiol, or CBD, as its active ingredient, for the treatment of Dravet syndrome, a severe infantile-onset, genetic, drug-resistant epilepsy syndrome for which there are currently no FDA approved treatments. The FDA has granted seven expanded access INDs to independent investigators in the United States to treat a total of approximately 125 children suffering from intractable epilepsy with Epidiolex. We have obtained initial data on two children enrolled in these INDs, and we intend to submit a commercial IND to the FDA in the first half of 2014. We expect data from additional patients enrolled in these expanded access INDs to be made available to us from mid-2014 onwards. We expect to advance further orphan drug opportunities in the next 12 months. Our product pipeline also includes compounds in Phase 1 and 2 clinical development for glioma, ulcerative colitis, type-2 diabetes, and schizophrenia.

Our most advanced 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 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 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 Pharmaceutical Co. Ltd., or Otsuka.

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Sativex is commercially available for the treatment of MS spasticity in 11 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 several 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 nine 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. In August 2013, we opened an IND with the FDA and in 2014 we plan to conduct a pivotal Phase 3 clinical trial to evaluate Sativex for the treatment of MS spasticity. The FDA provided initial feedback on design features necessary for the study to serve as a pivotal study in our development program. Consistent with the FDA’s recommendations, we have recently submitted to the FDA a request for Special Protocol Assessment, or SPA, of the Phase 3 study, which we plan to commence in the second half of 2014. If the study is successful, we intend to submit the results, along with the foreign clinical data collected in our clinical development program for MS spasticity to date, in an NDA for MS spasticity. 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 potential orphan drug opportunities with an initial focus on pediatric epilepsy. Several features of the pharmacology of certain cannabinoids suggest that they may be candidates for investigation as anti-epileptic drugs. Our most advanced product candidate in the field of epilepsy is Epidiolex, a liquid formulation of a highly purified CBD extract. We have conducted pre-clinical research of CBD in epilepsy for several years and have reported significant anti-epileptiform and anticonvulsant activity using a variety of in vitro and in vivo models. This research has shown the ability of CBD to treat seizures in acute animal models of epilepsy with significantly fewer side effects than existing anti-epileptic drugs. According to Russ in the February 2012 edition of Pediatrics, there are 466,000 childhood epilepsy patients in the United States and 765,000 patients in Europe, of which 20%, or 93,200 patients in the United States and 153,000 in Europe, are deemed medically intractable. Although we do not currently have a commercial IND open for Epidiolex, in 2013, the FDA granted seven expanded access INDs to independent investigators in the United States to treat a total of approximately 125 children suffering from intractable epilepsy with Epidiolex. We expect treatment data from these INDs to be made available to us from mid-2014 onwards.

In November 2013, we received Orphan Drug Designation for Epidiolex for the treatment of Dravet syndrome. According to Dravet et al in the 2012 edition of Epileptic Syndromes in Infancy, Childhood and Adolescence, up to 5% of epilepsies diagnosed in the first year of life are Dravet syndrome, equating to 5,440 patients in the United States and 6,710 patients in Europe under the age of 20. We believe, however, that this syndrome is under diagnosed. We expect to hold a pre-IND meeting with the FDA in the near future to discuss the investigational plan for Epidiolex in Dravet syndrome, and we expect to commence clinical development in the second half of 2014. In addition to Dravet syndrome, we have recently applied to the FDA for Orphan Drug Designation for Epidiolex for the treatment of Lennox-Gastaut syndrome, another pediatric epilepsy condition.

Clinical experience with Epidiolex in the field of pediatric epilepsy commenced with a request from the treating physician of two children in the United States with drug resistant early-onset epilepsy, and the only information available from clinical administration of Epidiolex in pediatric epilepsy comes from this physician’s observations in these two children. One child has Generalized Epilepsy with Myoclonic Absences and has suffered from more than 100 seizures per day. The other child was born with a severe malformation of the brain called Polymicrogyria resulting in intractable Focal Epilepsy. According to the physician, both children have so far received treatment under FDA expanded access INDs with Epidiolex (liquid and capsule formulations) for seven and four months, respectively, and both children continue to be treated with Epidiolex.

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In a communication to us, the treating physician reported that she has observed seizure reduction up to 90% and subsequent improvement in behavior and cognitive function. The physician also reported that Epidiolex has been well tolerated. These observations have not been confirmed in controlled trials using regulatory endpoints and timepoints.

Our epilepsy product candidates also include GWP42006, which features CBDV as the primary cannabinoid and which has shown anti-epileptic properties in pre-clinical studies. In the second half of 2013, we advanced GWP42006 into a Phase 1 trial and expect data from this trial in the first half of 2014.

Beyond epilepsy-related orphan diseases, in October 2013 we commenced a Phase 1b trial of our GWP42002:GWP42003 product in the treatment of recurrent glioblastoma multiforme, or GBM, a particularly aggressive brain tumor which is considered a rare disease by the FDA and the European Medicines Agency. According to the New England Journal of Medicine, GBM accounts for approximately 46% of the 22,500 new cases of brain cancer diagnosed in the United States each year. We expect to advance at least one additional orphan drug opportunity in the next 12 months.

Our product pipeline also includes GWP42004, which has completed a Phase 2a trial in the treatment of dyslipidemia in subjects with type-2 diabetes. Although, in this small trial, GWP42004 did not show a benefit in lipid control, GWP42004 did show some evidence of anti-diabetic effects. We plan to initiate a Phase 2 dose-ranging trial in early 2014 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 the first half of 2014. We expect at least one additional program to advance into Phase 2 clinical trials in 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. For orphan product candidates, we generally expect to submit INDs in the United States at an earlier stage of clinical development.

Our commercialized product and key ongoing development programs are shown in the tables below.

Sativex

       
Product/Product Candidates   Indication   Partner(s)   Status   Expected Next Steps
Sativex   MS spasticity   Otsuka, Almirall, Novartis, Bayer and Neopharm   Approved in 24 countries   US Phase 3 trial to commence in 2014. Additional ex-US submissions, approvals and launches
Sativex   Cancer pain   Otsuka, Almirall, Novartis, Bayer and Neopharm   Phase 3 program ongoing   Phase 3 data towards the end of 2014

Epilepsy

       
Product/Product Candidates   Indication   Partner(s)   Status   Expected Next Steps
Epidiolex (CBD)   Pediatric epilepsy

 
Initial targets: Dravet syndrome and Lennox-Gastaut syndrome
  We retain global rights   Orphan Drug Designation granted by FDA for Dravet syndrome. INDs granted by FDA to outside investigators   Open sponsor IND in Dravet syndrome and commence Phase 2 trial. Obtain additional Orphan Drug Designation for Lennox-Gastaut syndrome. Treatment IND data from mid-2014 onwards
GWP42006 (CBDV)   Epilepsy   We retain global rights   Phase 1 trial ongoing   Phase 1 data in the first half of 2014

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Other Orphan Product Candidates

       
Product/Product Candidates   Indication   Partner(s)   Status   Expected Next Steps
Combination of GWP42002 and GWP42003   Glioma   We retain global rights   Phase 1b trial ongoing   Phase 1b data from initial
phase of trial in 2014
Intravenous
GWP42003
  Neonatal Hypoxic-Ischemic Encephalopathy   We retain global rights   Pre-clinical   Apply for Orphan
Drug Designation

Other Pipeline Product Candidates

       
Product/Product Candidates   Indication   Partner(s)   Status   Expected Next Steps
GWP42004   Type-2 diabetes   We retain global rights   Phase 2a trial complete   Phase 2 dose ranging trial to commence in the first half of 2014
GWP42003   Ulcerative colitis   We retain global rights   Phase 2 trial ongoing   Phase 2 data in the first half of 2014
GWP42003   Schizophrenia   We retain global rights   Phase 1   Phase 2a to commence in the first half of 2014

Our Strategic Partnerships

To support the development and commercialization of Sativex, we have entered into license and development agreements 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, 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, 2013 these agreements have yielded cash of £67.5 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.

Our Strengths

We believe that we offer the following key distinguishing characteristics:

Commercialized most advanced 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 24 countries outside the United States. We believe that MS spasticity represents an attractive indication for Sativex in the United States and we will be required to conduct an additional development program prior to the submission of a separate NDA with the FDA for this

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indication. In August 2013, we opened an IND to the FDA for a proposed Phase 3 trial in the MS spasticity indication and expect this trial to commence in 2014.
A new emerging pipeline of cannabinoid orphan drug opportunities for which we retain global commercial rights.  In November 2013, we received orphan drug designation for Epidiolex in the treatment of Dravet syndrome, a severe, infantile-onset, genetic, drug-resistant epilepsy syndrome. Also in 2013, the FDA granted seven INDs to independent investigators in the United States to treat a total of approximately 125 children suffering from intractable epilepsy. Two children in the United States have been receiving treatment with Epidiolex for seven and four months, respectively. In a communication to us, the treating physician stated that she observed benefits in both patients. We are aware of other independent investigators in the United States who also intend to apply to the FDA for INDs to treat their patients with Epidiolex. We do not currently have a commercial IND open for Epidiolex and we now intend to apply for a commercial IND initially for Dravet syndrome and subsequently to seek commercial INDs for other potential orphan drug indications, including Lennox-Gastaut syndrome. We have commenced a Phase 1b trial of another product, GWP42002:GWP42003, to treat GBM, an aggressive brain tumor and potential orphan drug indication, and also plan on advancing other cannabinoid orphan drug opportunities during 2014.
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 for Sativex.  We have entered into collaboration agreements for Sativex, including with Otsuka, Almirall, Novartis and Bayer.
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 15 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 31 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.

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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 46 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 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 April 2013 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.

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Our Business Strategy

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

Secure regulatory approval of Sativex for advanced cancer pain in the United States and around the world.  We expect data from at least one of the Phase 3 trials to be available towards the end of 2014, and data from the second Phase 3 trial shortly thereafter, following which we expect to submit an NDA to the FDA and submit regulatory applications across other parts of the world for Sativex in cancer pain.
Advance our proprietary pipeline of cannabinoid orphan drug opportunities.  Our strategy for the development of Epidiolex in pediatric epilepsy is to open commercial INDs initially concentrating on potential orphan drug indications, including Dravet syndrome and Lennox-Gastaut syndrome. We have commenced a Phase 1b trial of another product, GWP42002:GWP42003, to treat GBM, an aggressive brain tumor and potential orphan drug indication, and also plan on advancing other cannabinoid orphan drug opportunities during 2014. We retain global commercial rights to our orphan pipeline.
Achieve global commercialization of Sativex for MS spasticity.  Sativex has been approved in 24 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 to 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 cannabinoid product candidates in Phase 2 trials for the treatment of type-2 diabetes and ulcerative colitis, and a product candidate expected to enter Phase 2 trials for the treatment of schizophrenia.
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.

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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.
There is no assurance that we will successfully obtain orphan drug exclusivity for any of our product candidates. Even if we do obtain orphan drug exclusivity for any product candidate, orphan drug exclusive marketing rights may be lost if the FDA later determines that the request for designation was materially defective, or if the manufacturer is unable to assure sufficient quantity of the drug.
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.
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.

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, a market operated by London Stock Exchange plc and since May 1, 2013, our ADSs, which represent 12 ordinary shares each, have been listed on The Nasdaq Global Market, or Nasdaq, under the symbol “GWPH.” See “Price Range of Our Ordinary Shares” and “Price Range of Our ADSs,” respectively, in this prospectus.

Implications of Being an Emerging Growth Company

As a company with less than $1.0 billion in revenue for our year ended September 30, 2013, 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.

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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 ending September 30, 2018; (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 Exchange Act, 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    
    2,441,110 ADSs
Option to purchase additional ADSs    
    We have granted the underwriters an option for a period of 30 days from the date of this prospectus to purchase up to 366,165 additional ADSs from us.
ADSs to be outstanding immediately after this offering    
    7,034,567 ADSs
Ordinary shares to be outstanding immediately after this offering    
    207,324,407 ordinary shares
The ADSs    
    Each ADS represents 12 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.
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 have received all such required approvals from our shareholders.
Lockup agreements    
    We entered 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 90 days after the date of this prospectus. Our directors, including our officers, have agreed to similar lockup restrictions for a period of 90 days. See “Underwriting” in this prospectus.
Use of proceeds    
    We expect to receive total estimated net proceeds from this offering of approximately $81.6 million, after deducting the underwriting discounts and commissions and estimated offering expenses. We intend to use the net proceeds of this offering to: (i) fund Phase 2 and Phase 3 clinical trials for Epidiolex in the treatment of Dravet syndrome and Lennox-Gastaut syndrome, (ii) fund the supply of Epidiolex to U.S. physicians under Expanded Access treatment INDs to treat children with intractable epilepsy, (iii) fund Phase 2 clinical development for GWP42006 (CBDV) in the field of epilepsy, (iv) fund the advancement of other early stage pipeline opportunities, with a

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    particular focus on orphan diseases, from our proprietary cannabinoid platform, (v) fund the expansion of our Epidiolex manufacturing capabilities, (vi) fund the establishment of a U.S. staff presence to manage the orphan epilepsy program and for other general corporate purposes. See “Use of Proceeds” in this prospectus.
Risk Factors    
    You should carefully read the information set forth under “Risk Factors” beginning on page 14 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, 2013;
excludes 12,314,324 ordinary shares, issuable upon exercise of outstanding options under our equity compensation plans, as at September 30, 2013;
excludes 425,856 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, 2013;
excludes 13,141,239 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 366,165 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, 2013 and 2012 and for the years ended September 30, 2013, 2012 and 2011 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.

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, 2013 have been translated into U.S. dollars at $1.00 = £0.6181 based on the certified foreign exchange rates published by Federal Reserve Bank of New York on September 30, 2013, the last business day of our year ended September 30, 2013. 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,
     2013   2013   2012   2011
     (in thousands, except per share data)
Income Statement Data:
                                   
Revenue   $ 44,158     £ 27,295     £ 33,120     £ 29,627  
Cost of sales     (2,064 )      (1,276 )      (839 )      (1,347 ) 
Research and development expenditure     (52,897 )      (32,697 )      (27,578 )      (22,714 ) 
Management and administrative expenses     (6,135 )      (3,792 )      (3,660 )      (3,298 ) 
Operating profit     (16,938 )      (10,470 )      1,043       2,268  
Interest expense     (104 )      (64 )      (1 )      (3 ) 
Interest income     288       178       200       263  
(Loss)/profit before tax     (16,754 )      (10,356 )      1,242       2,528  
Tax     9,395       5,807       1,248       221  
(Loss)/profit for the year     (7,359 )      (4,549 )      2,490       2,749  
(Loss)/earnings per share
                                   
Basic     (0.05 )      (0.03 )      0.02       0.02  
Diluted     (0.05 )      (0.03 )      0.02       0.02  
Weighted average number of shares
                                   
Basic     151.5       151.5       133.0       131.7  
Diluted     158.2       158.2       137.5       135.8  

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  As of September 30,
     2013   2013   2012   2011
     (in thousands)
Balance Sheet Data:
                                   
Non-current assets   $ 17,288     £ 10,686     £ 7,642     £ 7,078  
Current assets
                                   
Inventories     7,541       4,661       3,537       1,424  
Trade receivables and other current assets     8,944       5,528       2,408       2,281  
Cash and cash equivalents     61,588       38,069       29,335       28,319  
Total current assets     78,072       48,258       35,280       32,024  
Total assets     95,360       58,944       42,922       39,102  
Current liabilities
                                   
Trade and other payables     (15,272 )      (9,440 )      (9,114 )      (6,562 ) 
Deferred revenue     (5,146 )      (3,181 )      (2,449 )      (3,459 ) 
Non-current liabilities
                                   
Obligations under finance leases     (3,082 )      (1,905 )             
Deferred revenue     (14,424 )      (8,916 )      (10,127 )      (11,422 ) 
Share capital     288       178       133       133  
Share premium     135,903       84,005       65,947       65,866  
Net assets/Total equity     57,274       35,402       21,232       17,652  

       
  Year Ended September 30,
     2013   2013   2012   2011
     (in thousands)
     $     £     £     £  
Cash Flow Data:
                                   
Net cash (outflow)/inflow from operating activities     (12,080 )      (7,468 )      1,801       2,361  
Net cash outflow from investing activities     (3,359 )      (2,076 )      (1,060 )      (647 ) 
Net cash inflow from financing activities     29,529       18,253       73       1,393  

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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 and the related notes, before investing in the ADSs. 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 the ADSs. 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 24 countries outside of the United States for spasticity due to multiple sclerosis, or MS, and is sold in 11 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, and have opened an Investigational New Drug Application, or IND, with the FDA for this indication. However, 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, discussions with the FDA about its recommended primary endpoints for a pivotal study in MS spasticity are expected to lead to use of the Modified Ashworth Scale (MAS) and the Physician Global Impression of Change (PGIC) rather than the primary endpoints we used in our previous Phase 3 studies. In those studies, we demonstrated statistical improvements on the PGIC and approached statistical significance on the MAS. The new proposed study is powered to detect a statistical difference on both endpoints.

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

successfully complete pre-clinical and clinical trials;
receive regulatory approvals from the FDA and similar foreign regulatory authorities;
produce, through a validated process, in manufacturing facilities inspected and approved by regulatory authorities, including the FDA, sufficiently large quantities of Sativex, the related Botanical Drug Substances, or BDSs, and our product candidates to permit successful commercialization;

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establish collaborations with third parties for the commercialization of our product candidates, or otherwise build and maintain strong sales, distribution and marketing capabilities sufficient to launch commercial sales of our product candidates;
obtain reimbursement from payers such as government health care systems and insurance companies, as well as achieve commercially attractive levels of pricing;
secure acceptance of Sativex and our product candidates from physicians, health care payers, patients and the medical community;
create positive publicity surrounding Sativex and our other product candidates;
manage our spending as costs and expenses increase due to clinical trials and commercialization; and
obtain and enforce sufficient intellectual property for Sativex and our other product candidates.

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.

In respect of our product candidates targeting orphan indications, orphan drug exclusivity may afford limited protection, and if another party obtains orphan drug exclusivity for the drugs and indications we are targeting, we may be precluded from commercializing our product candidates in those indications.

The first NDA applicant to receive FDA approval for a particular active ingredient to treat a particular disease with FDA orphan drug designation is entitled to a seven-year exclusive marketing period in the United States for that product, for that indication. There is no assurance that we will successfully obtain orphan drug exclusivity for any of our product candidates. Even if we do obtain orphan drug exclusivity for any product candidate, orphan drug exclusive marketing rights may be lost if the FDA later determines that the request for designation was materially defective, or if the manufacturer is unable to assure sufficient quantity of the drug. Moreover, a different drug or, under limited circumstances, the same drug, may be approved by the FDA for the same orphan indication during the period of marketing exclusivity. The limited circumstances include an inability to supply the drug in sufficient quantities or where the second drug has been shown to be clinically superior to the drug with marketing exclusivity through a demonstration of superior safety or efficacy or that it makes a major contribution to patient care.

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

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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.

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 2013 fiscal year results by £1.1 million due to the recognition of a £1.1 million provision for a rebate we expect to pay to our commercial partner, Almirall, following the pricing decision in Germany. Subsequently, in September 2013, the German authorities agreed to increase the price from the previously reduced level with effect from January 1, 2014, albeit not to the level at which the product had been launched in that country. Future cost-control initiatives in Germany or other markets could have a material adverse effect on our business, results of operations and financial condition.

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, a revised price has caused us to initiate the renegotiation of supply terms with our partner, Almirall, in order to maintain a level of profitability of our sales of Sativex in Germany. In addition, to date, the Australian reimbursement authorities have not agreed to grant public reimbursement for Sativex in the MS spasticity indication. As a result, our partner, Novartis, has not yet launched commercialization of Sativex

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in Australia and the other countries in its territory and recently informed us that it will not make a decision about launching Sativex in any country in its territory until final data for the two Phase 3 clinical trials we are conducting for Sativex for cancer pain is available. Future price decreases or unfavorable reimbursement decisions could have a material adverse effect on our business, results of operations and financial condition.

Problems in our manufacturing process, failure to comply with manufacturing regulations or unexpected increases in our manufacturing costs could harm our business, results of operations and financial condition.

We are responsible for the manufacture and supply of Sativex to our collaboration partners and for 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 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 affect 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

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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.

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, 2013 and September 30, 2012 was £7.7 million and £8.0 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 continue to establish ourselves as a U.S. public company. Over the next two years, taking into account receipts from product sales and potential milestone fees arising from Sativex license agreements, we estimate that the cash outflow arising from operating and capital expenditures will increase to approximately £15.0 million in 2014 and £11.0 million in 2015 as we continue to increase our investment in research and development and prepare our Sativex manufacturing facilities for U.S. commercialization. Subject to successful completion of this offering, the incremental research and development expenditures associated with the development of Epidiolex and GWP42006 (CBDV) in the field of epilepsy are expected to increase the operating cash outflow to approximately £21.0 million in 2014. The operating cash outflow in 2015 is also expected to increase, the size of such increase being dependent primarily on the extent of clinical trials required to submit a New Drug Application, or NDA, for Epidiolex. We may need to raise additional capital following this offering to fund our operations, continue to conduct clinical trials to support potential regulatory approval of marketing applications, and to fund commercialization of our products.

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

the timing of FDA approval, if any, and approvals in international markets of Sativex and our other product candidates, if at all;
the timing and amount of revenue from sales of Sativex, or revenue from grants or other sources;
the rate of progress and cost of our clinical trials for Epidiolex and other product development programs;
costs of establishing or outsourcing sales, marketing and distribution capabilities;
costs and timing of completion of expanded in-house manufacturing facilities as well as any outsourced commercial manufacturing supply arrangements for Sativex, Epidiolex and our other product candidates;
costs of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights associated with our product candidates;
costs of operating as a U.S. public company;
the effect of competing technological and market developments;
the continuation of our existing collaboration agreements;
personnel, facilities and equipment requirements; and
the terms and timing of any additional collaborative, licensing, co-promotion or other arrangements that we may establish.

While we expect to fund our future capital requirements from 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.

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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:

decreased demand for Sativex and our other product candidates, if such product candidates are approved;
injury to our reputation;
withdrawal of clinical trial participants;
costs of related litigation;
substantial monetary awards to patients and others;
increased cost of liability insurance;
loss of revenue; and
the inability to successfully commercialize our products.

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.

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If we are unable to use net operating loss 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, 2013, we had cumulative carry forward tax losses of £33.6 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 24.75% of the eligible research and development expenditure. We also expect to benefit in the future from the new “patent box” initiative, which started to come into effect in the United Kingdom in April 2013. This initiative effectively 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 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,

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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.

Legislative or regulatory reform of the health care system in the United States and foreign jurisdictions may affect our ability to profitably sell our products, if approved.

Our ability to commercialize our future products successfully, alone or with collaborators, will depend in part on the extent to which coverage and reimbursement for the products will be available from government and health administration authorities, private health insurers and other third-party payors. The continuing efforts of the United States and foreign governments, insurance companies, managed care organizations and other payors of health care services to contain or reduce health care costs may adversely affect our ability to set prices for our products which we believe are fair, and our ability to generate revenues and achieve and maintain profitability.

Specifically, in both the United States and some foreign jurisdictions, there have been a number of legislative and regulatory proposals to change the health care system in ways that could affect our ability to sell our products profitably. For example, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, or collectively the PPACA, enacted in the United States in March 2010, substantially changes the way healthcare is financed by both governmental and private insurers.

We expect further federal and state proposals and health care reforms to continue to be proposed by legislators, which could limit the prices that can be charged for the products we develop and may limit our commercial opportunity.

The continuing efforts of government and other third-party payors to contain or reduce the costs of health care through various means may limit our commercial opportunity. It will be time consuming and expensive for us to go through the process of seeking coverage and reimbursement from Medicare and private payors. Our products may not be considered cost effective, and government and third-party private health insurance coverage and reimbursement may not be available to patients for any of our future products or sufficient to allow us to sell our products on a competitive and profitable basis. Our results of operations could be adversely affected by PPACA and by other health care reforms that may be enacted or adopted in the future. In addition, increasing emphasis on managed care in the United States will continue to put pressure on the pricing of pharmaceutical products. Cost control initiatives could decrease the price that we or any potential collaborators could receive for any of our future products and could adversely affect our ability to generate revenue in the U.S. market and maintain profitability.

In some foreign countries, including major markets in the European Union, the pricing of prescription pharmaceuticals is subject to governmental control. In these countries, pricing negotiations with governmental authorities can take 6 to 12 months or longer after the receipt of regulatory marketing approval for a product. To obtain reimbursement or pricing approval in some countries, we may be required to conduct a pharmacoeconomic study that compares the cost-effectiveness of our product candidates to other available therapies. Such pharmacoeconomic studies can be costly and the results uncertain. Our business could be harmed if reimbursement of our products is unavailable or limited in scope or amount or if pricing is set at unsatisfactory levels.

We may acquire other companies which could divert our management’s attention, result in additional dilution to our shareholders and otherwise disrupt our operations and harm our operating results.

We may in the future seek to acquire businesses, products or technologies that we believe could complement or expand our product offerings, enhance our technical capabilities or otherwise offer growth opportunities. The pursuit of potential acquisitions may divert the attention of management and cause us to incur various expenses in identifying, investigating and pursuing suitable acquisitions, whether or not they are consummated. If we acquire additional businesses, we may not be able to integrate the acquired personnel,

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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:

incurrence of acquisition-related costs;
diversion of management’s attention from other business concerns;
unanticipated costs or liabilities associated with the acquisition;
harm to our existing business relationships with collaboration partners as a result of the acquisition;
harm to our brand and reputation;
the potential loss of key employees;
use of resources that are needed in other parts of our business; and
use of substantial portions of our available cash to consummate the acquisition.

In the future, if our acquisitions do not yield expected returns, we may be required to take charges to our operating results arising from the impairment assessment process. Acquisitions may also result in dilutive issuances of equity securities or the incurrence of debt, which could adversely affect our operating results. In addition, if an acquired business fails to meet our expectations, our business, results of operations and financial condition may be adversely affected.

Risks Related to Our Reliance Upon Third Parties

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

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 Pharmaceutical Co. Ltd., or Otsuka, in the United States; Novartis Pharma AG, or Novartis, in Australia and New Zealand, Asia (excluding Japan, China and Hong Kong), the Middle East (excluding Israel) and Africa; Bayer HealthCare AG in the United Kingdom and Canada; 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 pre-clinical research 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. As provided for under the terms of this agreement, we also expect Otsuka to fund pre-clinical and clinical trials required for the development of Sativex in the treatment of MS spasticity in the United States. 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 and MS spasticity or face substantial delays in, or possible termination of, that program. In addition, under a separate global research collaboration for research of cannabinoids in central nervous system, or CNS, and oncology, we received funds from Otsuka from 2007 to June 2013. The term of this research collaboration agreement with Otsuka ended in June 2013 and we expect an increase in our GW-funded research and development expenditure as a result of this change.

In addition, the research collaboration agreement provided that all intellectual property rights (including both patents and non-manufacturing related know-how) that was conceived by either Otsuka or us during the

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course of the collaboration is to be jointly owned by Otsuka and us. We have 14 patent families with 228 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. Because Otsuka exercises some control over this jointly owned intellectual property, we may need to seek Otsuka’s consent to pursue, use, license and/or enforce some of this collaboration intellectual property in the future. In addition, Otsuka has the right to develop and commercialize a synthetic cannabinoid molecule product (a molecule not based on a phytocannabinoid but which has an effect on the endocannabinoid system) subject to payment of a royalty to us. An unexpected deterioration in our relationship with Otsuka would have a material adverse effect on our business, reputation, results of operations and financial condition.

Our existing collaboration arrangements and any that we may enter into in the future may not be successful, which could adversely affect our ability to develop and commercialize Sativex and our product candidates.

We are a party to, and may seek additional, collaboration arrangements with pharmaceutical or biotechnology companies for the development or commercialization of 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. For example, Novartis, our collaborator for Sativex in parts of Asia, the Middle East and Africa, recently informed us that it will not make a determination about launching Sativex in any country in its territory until final data for the two Phase 3 clinical trials we are conducting for Sativex in cancer pain is available.

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.

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

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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:

lack of effectiveness of any product candidate during clinical trials;
discovery of serious or unexpected toxicities or side effects experienced by trial participants or other safety issues;
slower than expected rates of subject recruitment and enrollment rates in clinical trials;
difficulty in retaining subjects who have initiated a clinical trial but may withdraw at any time due to adverse side effects from the therapy, insufficient efficacy, fatigue with the clinical trial process or for any other reason;
delays or inability in manufacturing or obtaining sufficient quantities of materials for use in clinical trials due to regulatory and manufacturing constraints;
inadequacy of or changes in our manufacturing process or product formulation;
delays in obtaining regulatory authorization to commence a trial, including “clinical holds” or delays requiring suspension or termination of a trial by a regulatory agency, such as the FDA, before or after a trial is commenced;
DEA-related recordkeeping, reporting, or security violations at a clinical site, leading the DEA or state authorities to suspend or revoke the site’s controlled substance license and causing a delay or termination of planned or ongoing trials;
changes in applicable regulatory policies and regulation, including changes to requirements imposed on the extent, nature or timing of studies;
delays or failure in reaching agreement on acceptable terms in clinical trial contracts or protocols with prospective clinical trial sites;
delay or failure to supply product for use in clinical trials which conforms to regulatory specification;
unfavorable results from ongoing pre-clinical studies and clinical trials;

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failure of our contract research organizations, or CROs, or other third-party contractors to comply with all contractual requirements or to perform their services in a timely or acceptable manner;
failure by us, our employees, our CROs or their employees to comply with all applicable FDA or other regulatory requirements relating to the conduct of clinical trials or the handling, storage, security and recordkeeping for controlled substances;
scheduling conflicts with participating clinicians and clinical institutions; or
failure to design appropriate clinical trial protocols; or regulatory concerns with cannabinoid products generally and the potential for abuse.

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 from the planned Phase 3 clinical trial of Sativex for MS spasticity or cannot reach agreement with the FDA on the design of the Phase 3 trial for MS spasticity, 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 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.

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:

regulatory authorities may interrupt, delay or halt clinical trials;
regulatory authorities may deny regulatory approval of our product candidates;
regulatory authorities may require certain labeling statements, such as warnings or contraindications or limitations on the indications for use, and/or impose restrictions on distribution in the form of a Risk Evaluation and Mitigation Strategy, or REMS, in connection with approval, if any;
regulatory authorities may withdraw their approval, require more onerous labeling statements or impose a more restrictive REMS of any product that is approved;
we may be required to change the way the product is administered or conduct additional clinical trials;
our relationships with our collaboration partners may suffer;
we could be sued and held liable for harm caused to patients; or
our reputation may suffer.

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

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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 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

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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:

issue warning letters;
impose civil or criminal penalties;
suspend regulatory approval;
suspend any of our ongoing clinical trials;
refuse to approve pending applications or supplements to approved applications submitted by us;
impose restrictions on our operations, including closing our contract manufacturers’ facilities, if any; or
seize or detain products or require a product recall.

Any government investigation of alleged violations of law could require us to expend significant time and resources in response, and could generate negative publicity. Any failure to comply with ongoing regulatory requirements may significantly and adversely affect our ability to commercialize and generate revenue from Sativex and our product candidates. If regulatory sanctions are applied or if regulatory approval is withdrawn, the value of our business and our operating results will be adversely affected. Additionally, if we are unable to generate revenue from sales of Sativex, our potential for achieving profitability will be diminished and the capital necessary to fund our operations will be increased.

Any action against us for violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses, divert our management’s attention from the operation of our business and damage our reputation. We expend significant resources on compliance efforts and such expenses are unpredictable and might adversely affect our results. Changing laws, regulations and standards might also create uncertainty, higher expenses and increase insurance costs. As a result, we intend to invest all reasonably necessary resources to comply with evolving standards, and this investment might result in increased management and administrative expenses and a diversion of management time and attention from revenue-generating activities to compliance activities.

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,

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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.

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

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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.

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, we are currently unable to file a regulatory application in Mexico due to a national law which the regulators consider prevents the approval of a cannabis-based medicine. Until recently, France had similar legal obstacles in place preventing the filing of a regulatory application for Sativex, but that legal obstacle was satisfactorily resolved in 2013 and the French regulatory authorities have recently recommended approval of Sativex. In the case of countries with similar obstacles, we would be unable to market Sativex and our product candidates in countries in the near future or perhaps at all if the laws and regulations in those countries do not change.

Sativex 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 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

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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.

The approval and use of “medical marijuana” in the United States may impact our business.

There is a substantial amount of change occurring in various states of the United States regarding the use of “medical marijuana.” While marijuana is a Schedule 1 substance as defined under federal law, and its possession and use is not permitted according to federal law, a number of individual states have enacted state laws to enable possession and use of marijuana for medical purposes, and in some states for recreational purposes also. Our business is quite distinct from that of crude herbal marijuana, however, our prospects may be impacted by developments of these laws at the state level in the United States.

Risks Related to 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 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

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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 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

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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 Ownership of our American Depositary Shares (ADSs) and Ordinary Shares

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

The public offering price per ADS is substantially higher than the net tangible book value per ADS prior to the offering. Consequently, if you purchase ADSs in this offering at the public offering price of $36.00 per ADS, you will incur immediate dilution of $28.51 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 public offering price when they purchased their ordinary shares. In addition, if the underwriters exercise their option to purchase additional ADSs, you will experience additional dilution.

The Price of our ADSs and Ordinary Shares May be Volatile.

Many factors may have a material adverse effect on the market price of the ADSs, including, but not limited to:

the loss of any of our key scientific or management personnel;
announcements of the failure to obtain regulatory approvals or receipt of a complete response letter from the FDA;
announcements of restricted label indications or patient populations, or changes or delays in regulatory review processes;
announcements of therapeutic innovations or new products by us or our competitors;
adverse actions taken by regulatory agencies with respect to our clinical trials, manufacturing supply chain or sales and marketing activities;
changes or developments in laws or regulations applicable to Sativex and our product candidates;
any adverse changes to our relationship with licensors, manufacturers or suppliers;
the failure of our testing and clinical trials;
the failure to retain our existing, or obtain new, collaboration partners;
announcements concerning our competitors or the pharmaceutical industry in general;
the achievement of expected product sales and profitability;
the failure to obtain reimbursements for our products or price reductions;
manufacture, supply or distribution shortages;

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actual or anticipated fluctuations in our operating results;
our cash position;
changes in financial estimates or recommendations by securities analysts;
potential acquisitions;
the trading volume of ADSs on Nasdaq and of our ordinary shares on the Alternative Investment Market, or AIM;
sales of our ADSs or ordinary shares by us, our executive officers and directors or our shareholders in the future;
general economic and market conditions and overall fluctuations in the United States equity markets; and
changes in accounting principles.

In addition, the stock market in general, and Nasdaq in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of individual companies. Broad market and industry factors may negatively affect the market price of our ADSs, regardless of our actual operating performance.

The liquidity of our ADSs and ordinary shares may have an adverse effect on share price.

As at September 30, 2013, we had 177,521,287 ordinary shares outstanding. 43,741,692 of these shares are held as ADSs and 133,779,595 held as ordinary shares (which are not held in the form of ADSs). In connection with our May 2013 initial public offering, or IPO, of ADSs on the Nasdaq Global Market, we issued 3,678,000 million ADSs. There is a risk that there may not be sufficient liquidity in the market to accommodate significant increases in selling activity or the sale of a large block of our securities. Our ADSs have historically had limited trading volume, which may also result in volatility.

Additionally, our ADSs are traded on Nasdaq and our ordinary shares are traded 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. We are actively considering whether to delist our ordinary shares from the AIM in the future. 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.

Sales of our ordinary shares or ADSs in the public market, or the perception that these sales could occur, could cause the market price of the ADSs to decline. The ordinary shares held by our directors, including our officers, will be available for sale upon the expiration of a lock-up period, which will expire 90 days after the

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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. If any of our large shareholders or members of our management team seek to sell substantial amounts of our ADSs, particularly if these sales are in a rapid or disorderly manner, or other investors perceive that these sales could occur, the market price of our ADSs could decrease significantly.

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.

As a holder of ADSs, you will not have the right to vote the shares underlying the ADSs directly unless you cancel the ADS in accordance with the terms of the Deposit Agreement and vote the underlying shares at the applicable shareholders meeting. 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

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follow certain corporate governance practices that differ in significant respects from the corporate governance requirements applicable to U.S. companies listed on Nasdaq.

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

have a majority of the board of directors consist of independent directors;
require non-management directors to meet on a regular basis without management present;
promptly disclose any waivers of the code for directors or executive officers that should address certain specified items;
have an independent nominating committee;
solicit proxies and provide proxy statements for all shareholder meetings; and
seek shareholder approval for the implementation of certain equity compensation plans and issuances of ordinary shares.

As a foreign private issuer, we are permitted to, and we will, 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.

If we fail to establish and maintain proper internal controls, our ability to produce fairly presented 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 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. This 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. We will not be required to comply with SEC rules that implement Section 404(b) of the Sarbanes-Oxley Act until the earlier of such time as we are no longer an emerging growth company or our annual report for our year ending September 30, 2018.

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

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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 Nasdaq.

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

As a company whose ADSs commenced trading in the United States in May 2013, we incur significant legal, accounting, insurance and other expenses which 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 need to devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations increase our legal and financial compliance costs, relative to companies that are listed solely in the United Kingdom, and make some activities more time-consuming and costly. We estimate that our annual compliance expenses are approximately £1.0 million in each of the next two fiscal years. For example, these rules and regulations have made it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to incur substantial costs to maintain the same or similar coverage. These laws and regulations could also make it more difficult and expensive for us to attract and retain qualified persons to serve on our board of directors, our board committees or as our executive officers. Furthermore, if we are unable to satisfy our obligations as a public company, we could be subject to delisting of the ADSs, fines, sanctions and other regulatory action and potentially civil litigation.

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 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 by our Articles. These rights differ in certain respects from the rights of shareholders in typical U.S. corporations. See “Description of Share Capital — Differences in Corporate Law” in 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:

the inherent uncertainty of product development;
manufacturing and commercialization;
patents, including, but not limited to, legal challenges;
government regulation and approval, including, but not limited to, the expected regulatory approval dates for Sativex and Epidiolex;
future revenue being lower than expected;
the level of pricing and reimbursement for our products;
increasing competitive pressures in the industry;
general economic conditions or conditions affecting demand for the services offered by us in the markets in which it operates, both domestically and internationally, being less favorable than expected;
fluctuations in the price of raw materials and utilities;
currency fluctuations and hedging risks;
worldwide economic and business conditions and conditions in the industries in which we operate;
our relationships with our customers and suppliers;
increased competition from other companies in the industries in which we operate;
changing technology;
claims for personal injury or death arising from the use of products produced by us;
the occurrence of accidents or other interruptions to our production processes;
changes in our business strategy or development plans, and our expected level of capital expenses;
our ability to attract and retain qualified personnel;
regulatory, environmental, legislative and judicial developments;
our intention to pay dividends; and
factors that are not known to us at this time.

Additional factors that could cause actual results, financial condition, liquidity, performance, prospects, opportunities, achievements or industry results to differ materially include, but are not limited to, those discussed under “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” or elsewhere 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,”

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“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:
                                   
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  
2013     1.6574       1.5642       1.6574       1.4837  
2014 (through January 3, 2014)     1.6424       1.6433       1.6441       1.6424  
Month:
                                   
January 2013     1.5856       1.5965       1.6255       1.5686  
February 2013     1.5192       1.5474       1.5814       1.5112  
March 2013     1.5193       1.5080       1.5239       1.4877  
April 2013     1.5539       1.5311       1.5539       1.5113  
May 2013     1.5185       1.5297       1.5578       1.5038  
June 2013     1.5210       1.5493       1.5709       1.5210  
July 2013     1.5177       1.5179       1.5368       1.4837  
August 2013     1.5468       1.5505       1.5678       1.5145  
September 2013     1.6179       1.5885       1.6179       1.5544  
October 2013     1.6068       1.6098       1.6224       1.5904  
November 2013     1.6373       1.6100       1.6373       1.5916  
December 2013     1.6574       1.6383       1.6574       1.6254  
January 2014 (through January 3, 2014)     1.6424       1.6433       1.6441       1.6424  

(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 = £0.6181 based on the certified foreign exchange rates published by Federal Reserve Bank of New York on September 30, 2013.

       
  Price Per Ordinary Share   Price Per Ordinary Share
     High   Low   High   Low
Annual (Year Ended September 30):
                                   
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  
2013   £ 0.90     £ 0.40     $ 1.46     $ 0.65  
2014 (through January 8, 2014)   £ 1.99     £ 0.85     $ 3.22     $ 1.38  
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  
Second Quarter 2013   £ 0.63     £ 0.40     $ 1.02     $ 0.65  
Third Quarter 2013   £ 0.70     £ 0.46     $ 1.13     $ 0.74  
Fourth Quarter 2013   £ 0.87     £ 0.47     $ 1.41     $ 0.76  
First Quarter 2014   £ 1.99     £ 0.85     $ 3.23     $ 1.38  
Second Quarter 2014 (through January 8, 2014)   £ 1.99     £ 1.90     $ 3.22     $ 3.07  
Most Recent Six Months:
                                   
August 2013   £ 0.63     £ 0.54     $ 1.02     $ 0.87  
September 2013   £ 0.87     £ 0.63     $ 1.41     $ 1.02  
October 2013   £ 1.73     £ 0.83     $ 2.80     $ 1.34  
November 2013   £ 1.91     £ 1.46     $ 3.09     $ 2.36  
December 2013   £ 1.99     £ 1.53     $ 3.23     $ 2.48  
January 2014 (through January 8, 2014)   £ 1.99     £ 1.90     $ 3.22     $ 3.07  

On January 8, 2014, the last reported sales price of our ordinary shares on AIM was £1.90 per share ($3.07 per share). Our ordinary shares are also quoted on the OTC Pink Marketplace under the symbol “GWPRF” and the bid and ask quotes are published electronically by OTC Markets Group Inc. OTC Pink Marketplace is not a securities exchange and OTC Markets Group Inc. is not registered with the Securities and Exchange Commission in any way and it is not a Financial Industry Regulatory Authority (FINRA) broker-dealer.

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PRICE RANGE OF OUR ADSs

Our ADSs, each representing 12 ordinary shares, have been listed on Nasdaq since May 1, 2013. Our ADSs are listed for trading on Nasdaq under the symbol “GWPH.”

The following table sets forth, for the periods indicated, the reported high and low closing sale prices of our ADSs on Nasdaq in U.S. dollars.

   
  Price Per ADS
     High   Low
Annual (Year Ended September 30):
                 
2013 (May 1, 2013 through September 30, 2013)   $ 17.95     $ 8.46  
2014 (through January 8, 2014)   $ 41.54     $ 17.01  
Quarterly:
                 
Third Quarter 2013   $ 9.20     $ 8.46  
Fourth Quarter 2013   $ 17.95     $ 8.50  
First Quarter 2014   $ 41.54     $ 17.01  
Second Quarter 2014 (through January 8, 2014)   $ 40.58     $ 38.06  
Most Recent Six Months:
                 
May 2013   $ 9.20     $ 8.72  
June 2013   $ 9.08     $ 8.46  
July 2013   $ 11.50     $ 8.50  
August 2013   $ 12.50     $ 9.87  
September 2013   $ 17.95     $ 12.50  
October 2013   $ 35.00     $ 16.60  
November 2013   $ 36.50     $ 28.92  
December 2013   $ 41.54     $ 30.56  
January 2014 (through January 3, 2014)   $ 40.58     $ 38.06  

On January 8, 2014, the last reported sales price of our ADSs on Nasdaq was $38.06 per ADS.

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USE OF PROCEEDS

We estimate that we will receive total estimated net proceeds from this offering of approximately $81.6 million, based on a public offering price of $36.00 per ADS, or $94.0 million if the underwriters exercise their option to purchase additional ADSs in full, in each case after deducting underwriting discounts and commissions and estimated expenses of the offering payable by us.

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

approximately $40.0 million to fund Phase 2 and Phase 3 clinical trials for Epidiolex in the treatment of Dravet syndrome and Lennox-Gastaut syndrome;
approximately $5.0 million to fund the supply of Epidiolex to U.S. physicians under Expanded Access treatment INDs to treat children with intractable epilepsy;
approximately $10.0 million to fund Phase 2 clinical development for GWP42006 (CBDV) in the field of epilepsy;
approximately $8.0 million to fund the advancement of other early stage pipeline opportunities, with a particular focus on orphan diseases, from our proprietary cannabinoid platform;
approximately $12.0 million to fund the expansion of our Epidiolex manufacturing capabilities; and
6.6 million to fund the establishment of a U.S. staff presence to manage the orphan epilepsy program and for other general corporate purposes.

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.

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, 2013:

on an actual basis; and
on a pro forma basis to give effect to the sale by us of ADSs in this offering at a public offering price of $36.00 per ADS, after deduction of the underwriting discounts and commissions and estimated offering expenses payable by us in connection with this offering and assuming no exercise of the option to purchase additional ADSs by the underwriters.

       
  As of September 30, 2013
     Actual   Pro forma for the Offering
     (in thousands)
Cash and cash equivalents   $ 61,590     £ 38,069     $ 143,202     £ 88,513  
Long-term debt   $ 3,082     £ 1,905     $ 3,082     £ 1,905  
Equity:
                                   
Share capital   $ 288     £ 178     $ 335     £ 207  
Share premium account   $ 135,908     £ 84,005     $ 217,473     £ 134,420  
Other reserves   $ 32,655     £ 20,184     $ 32,655     £ 20,184  
Accumulated deficit   $ (111,576 )    £ (68,965 )    $ (111,576 )    £ (68,965 ) 
Total equity   $ 57,275     £ 35,402     $ 138,887     £ 85,846  
Total capitalization   $ 60,357     £ 37,307     $ 141,969     £ 87,751  

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DILUTION

If you invest in the ADSs, your interest will be diluted to the extent of the difference between the public offering price per ADS and our net tangible book value per ADS after this offering. Dilution results from the fact that the 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 September 30, 2013 was approximately $0.27 per ordinary share and $3.20 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 public offering price per ordinary share which is $3.00, or $36.00, per ADS 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, 2013, other than to give effect to our sale of ADSs offered in this offering at the public offering price of $36.00 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, 2013 would have been $0.62 per outstanding ordinary share, including ordinary shares underlying our outstanding ADSs, or $7.49 per ADS. This represents an immediate increase in net tangible book value of $0.35 per ordinary share, or $4.29 per ADS, to existing shareholders and an immediate dilution in net tangible book value of $2.38 per ordinary share, or $28.51 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, 2013
       (per ADS)
(in $) (unaudited)
Public offering price              36.00  
Net tangible book value as at September 30, 2013(1)     3.20           
Increase in net tangible book value attributable to new investors     4.29        
As adjusted net tangible book value immediately after the offering           7.49  
Dilution to new investors           28.51  

(1) Net tangible book value at September 30, 2013, excludes a deferred tax asset of $1.45 million.

The following table summarizes, on a pro forma basis as at September 30, 2013, the differences between the shareholders as at September 30, 2013 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 a public offering price of $36.00 per ADS before deducting underwriting discounts and commissions and estimated offering expenses payable by us. The total number of ordinary shares does not include ADSs issuable pursuant to the exercise of the option to purchase additional ADSs granted to the underwriters.

           
  Ordinary Shares Purchased   Total Consideration   Average Price Per Ordinary Share   Average
Price Per
ADS
     Number   %   Amount   %
     (in $)
     (unaudited)
Existing shareholders     177,521,287       86       137,748,000       61       0.78       9.31  
New investors     29,293,320       14       87,879,960       39       3.00       36.00  
Total     206,814,607       100       225,627,960       100       1.09       13.09  

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The share information above:

excludes 3,776,960 ordinary shares issuable upon the exercise of all of our warrants outstanding as at September 30, 2013;
excludes 12,314,324 ordinary shares, issuable upon exercise of outstanding options under equity compensation plans, as at September 30, 2013;
excludes 425,856 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, 2013;
excludes 13,141,239 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 366,165 additional ADSs.

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 consolidated financial statement data as at September 30, 2013 and 2012 and for the years ended September 30, 2013, 2012 and 2011 have been derived from our consolidated financial statements, as presented elsewhere in this prospectus, which have been prepared in accordance with IFRS, as issued by the IASB, and as adopted by the European Union and audited in accordance with the standards of the Public Company Accounting Oversight Board (United States), The consolidated financial statement data as at September 30, 2011 and for the year ended September 30, 2010 have been derived from our consolidated financial statements, which are not presented herein, which have also been prepared in accordance with IFRS as issued by the IASB, and as adopted by the European Union and audited in accordance with the standards of the Public Company Accounting Oversight Board (United States).The selected consolidated financial data as at September 30, 2010 and 2009 and for the year ended September 30, 2009 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. 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, 2013 have been translated into U.S. dollars at $1.00 = £0.6181 based on the certified foreign exchange rates published by Federal Reserve Bank of New York on September 30, 2013. 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 Operation” in this prospectus, and our audited consolidated financial statements included elsewhere in this prospectus.

           
  Year Ended September 30,
     2013   2013(1)   2012(1)   2011(1)   2010(1)   2009(2)
     (in thousands, except per share data)
Income Statement Data:
                                                     
Revenue   $ 44,158     £ 27,295     £ 33,120     £ 29,627     £ 30,676     £ 24,121  
Cost of sales     (2,064 )      (1,276 )      (839 )      (1,347 )      (752 )      (433 ) 
Research and development expenditure     (52,897 )      (32,697 )      (27,578 )      (22,714 )      (22,145 )      (19,649 ) 
Management and administrative expenses     (6,135 )      (3,792 )      (3,660 )      (3,298 )      (3,267 )      (3,015 ) 
Operating (loss)/profit     (16,938 )      (10,470 )      1,043       2,268       4,512       1,024  
Interest expense     (104 )      (64 )      (1 )      (3 )      (8 )      (8 ) 
Interest income     288       178       200       263       100       136  
(Loss)/profit before tax     (16,754 )      (10,356 )      1,242       2,528       4,604       1,152  
Tax     9,395       5,807       1,248       221       37       353  
(Loss)/profit for the year   $ (7,359 )    £ (4,549 )    £ 2,490     £ 2,749     £ 4,641     £ 1,505  
(Loss)/earnings per share
                                                     
Basic     (0.05 )      (0.03 )      0.02       0.02       0.04       0.01  
Diluted     (0.05 )      (0.03 )      0.02       0.02       0.03       0.01  
Weighted average number of shares
                                                     
Basic     151.5       151.5       133.0       131.7       129.7       122.3  
Diluted     158.2       158.2       137.5       135.8       133.2       127.9  

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  As at September 30,
     2013   2013(1)   2012(1)   2011(1)   2010(2)   2009(2)
     (in thousands)
Balance Sheet Data:
                                                     
Non-current assets   $ 17,288     £ 10,686     £ 7,642     £ 7,078     £ 6,776     £ 7,068  
Current assets
                                                     
Inventories     7,541       4,661       3,537       1,424       780       551  
Trade and other receivables     8,944       5,528       2,408       2,281       1,217       811  
Cash and cash equivalents     61,588       38,069       29,335       28,319       25,219       20,601  
Total current assets     78,072       48,258       35,280       32,024       27,216       22,323  
Total assets     95,360       58,944       42,922       39,102       33,992       29,391  
Current liabilities
                                                     
Trade and other payables     (15,272 )      (9,440 )      (9,114 )      (6,562 )      (4,554 )      (4,496 ) 
Deferred revenue     (5,146 )      (3,181 )      (2,449 )      (3,459 )      (5,120 )      (4,594 ) 
Non-current liabilities
                                                     
Obligations under finance leases     (3,082 )      (1,905 )                  (6 )      (45 ) 
Deferred revenue     (14,424 )      (8,916 )      (10,127 )      (11,422 )      (11,599 )      (13,499 ) 
Share capital     288       178       133       133       131       129  
Share premium     135,903       84,005       65,947       65,866       64,433       63,755  
Net assets/Total equity     57,274       35,402       21,232       17,652       12,673       6,722  

           
  Year Ended September 30,
     2013   2013(1)   2012(1)   2011(1)   2010(1)   2009(2)
     (in thousands)
Cash Flow Data:
                                                     
Net cash inflow/(outflow) from operating activities   $ (12,080 )    £ (7,468 )    £ 1,801     £ 2,361     £ 4,324     £ 1,220  
Net cash (outflow) from investing activities     (3,359 )      (2,076 )      (1,060 )      (647 )      (334 )      (934 ) 
Net cash inflow from financing activities     29,529       18,253       73       1,393       620       6,261  

(1) The selected historical consolidated financial data as at September 30, 2013 and 2012 and for the years ended September 30, 2013, 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).
(2) The selected historical consolidated financial data as at September 30, 2010 and 2009 and for the year ended September 30, 2009 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, 2013 have been translated into U.S. dollars at the rate at September 30, 2013, of £0.6181 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 15 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 24 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 at least one of the two ongoing pivotal Phase 3 trials will be available towards the end of 2014. Top-line results from the second pivotal Phase 3 trial are expected shortly after the first Phase 3 trial. 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 also represents an attractive indication for Sativex in the United States and in August 2013 we opened an Investigational New Drug Application, or IND, with the FDA to pursue a Phase 3 clinical development program for this significant opportunity. We expect to commence a pivotal U.S. Phase 3 trial in 2014. If successful, we intend to submit the results of that study, along with the foreign clinical data collected in our clinical development program for MS spasticity to date, in an NDA for MS spasticity. We have a deep pipeline of additional cannabinoid product candidates, including orphan drug opportunities with a particular focus on pediatric epilepsy. In November 2013, we received Orphan Drug Designation from the FDA for Epidiolex, our proprietary product candidate that contains plant-derived cannabidiol, or CBD, as its active ingredient, for the treatment of Dravet syndrome, a severe infantile-onset, genetic, drug-resistant epilepsy syndrome for which there are currently no FDA approved treatments. The FDA has granted seven expanded access INDs to independent investigators in the United States to treat a total of approximately 125 children suffering from intractable epilepsy with Epidiolex and we expect treatment data from these INDs to be available from mid-2014 onwards. We expect to advance further orphan drug opportunities in the next 12 months. Our product pipeline also includes compounds in Phase 1 and 2 clinical development for glioma, ulcerative colitis type-2 diabetes and schizophrenia.

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

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sole right to commercialize Sativex in exclusive territories for all indications. From our incorporation through September 30, 2013, these agreements have yielded cash of £67.5 million in upfront fees and milestone payments. In addition, we are entitled to receive up to an additional £201 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.

Important Financial and Operating Terms and Concepts

Revenue

We generate revenue from product sales, license fees, collaboration fees, technical access fees, development and approval milestone fees, research and development fees and royalties. Agreements with our commercial partners generally include a non-refundable upfront fee (attributed to separately identifiable components including license fees, collaboration fees and technical access fees), milestone payments, the receipt of which is dependent upon the achievement of certain clinical, regulatory or commercial milestones, royalties on product sales of licensed products if and when such product sales occur and revenue from the supply of products. For these agreements, total arrangement consideration is attributed to separately identifiable components on a reliable basis that reasonably reflects the selling prices that might be achieved in stand-alone transactions. The allocated consideration is recognized as revenue in accordance with our accounting policies for each revenue stream.

Product sales

We recognize revenue from the sale of products when we have transferred the significant risks and rewards of ownership of the goods to the buyer, when we no longer have effective control over the goods sold, when the amount of revenue and costs associated with the transaction can be measured reliably, and when it is probable that we will receive future economic benefits associated with the transaction. Product sales have no rights of return. Provisions for rebates are established in the same period that the related sales are recorded.

License fees

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

Collaboration fees are amounts received from our commercial partners for our participation in joint development activities. Such fees are generally received upfront, are non-refundable and are deferred and recognized as services are rendered based on the percentage of completion method.

Technical access fees

Technical access fees represent amounts charged to licensing partners to provide access to, and allow them to commercially exploit, data that we possess or that can be expected to result from our research programs that are in progress. Non-refundable technical access fees that involve the delivery of data that we possess and that permit our licensing partners to use the data freely and where we have no remaining obligations to perform are recognized as revenue upon delivery of the data. Non-refundable technical access fees relating to data where the research program is ongoing are recognized based on the percentage of completion method.

Development and approval milestone fees

Development and approval milestones represent amounts received from our commercial partners, the receipt of which is dependent upon the achievement of certain clinical, regulatory or commercial milestones. We recognize development and approval milestone fees as revenue based on the percentage of completion method on the assumption that all stages will be completed successfully, but with cumulative revenue recognized limited to non-refundable amounts already received or reasonably certain to be received.

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Research and development fees

Research and development fees represent amounts chargeable to our development partners relating to the conduct of our joint research plans. Revenue from development partner-funded contract research and development agreements is recognized as research and development services are rendered. Where services are in-progress at period end, we recognize revenue proportionately, in line with the percentage of completion of the service. Where such in-progress services include the conduct of clinical trials, we recognize revenue in line with the stage of completion of each trial so that revenue is recognized in line with the expenditures.

Royalties

Royalty revenue arises from our contractual entitlement to receive a fixed percentage of our commercial partner’s in-market net product sales revenue. Royalty revenue is recognized on an accrual basis in accordance with the substance of the relevant agreement provided that it is probable that the economic benefits will flow to us and the amount of revenue can be measured reliably.

Costs of sales

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

Research and development expenditure

Expenses on research and development activities are recognized as an expense in the period in which the expense is incurred.

An internally-generated intangible asset arising from our development activities is recognized only when an asset is created that can be identified, it is probable that the asset created will generate future economic benefits and the development cost of the asset can be measured reliably.

We have determined that regulatory approval is the earliest point at which the probable threshold for the creation of an internally generated intangible asset can be achieved. All research and development expenditure incurred prior to achieving regulatory approval is therefore expensed as incurred.

GW-funded research and development expenditure

GW-funded research and development expenditure consists of costs associated with our research activities. These costs include costs of conducting our pre-clinical studies or clinical trials, payroll costs associated with employing our team of research and development staff, share-based payment expenses, property costs associated with leasing laboratory and office space to accommodate our research teams, costs of growing botanical raw material, costs of consumables used in the conduct of our in-house research programs, payments for research work conducted by sub-contractors and sponsorship of work by our network of academic collaborative research scientists, costs associated with safety studies and costs associated with the development of further 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

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 were chargeable to our partner Otsuka under the terms of the research collaboration agreement until its conclusion on June 30, 2013 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.

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Management and administrative expenses

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 both the United Kingdom and the United States, including insurance, general administration overhead, legal and professional fees, audit fees and fees for taxation services. We expect that management and administrative expenses will increase in the future as we expand our operating activities.

Interest expense and income

Interest expense consists primarily of interest expense incurred on two finance leases which expire in 2018 and 2027, respectively.

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

Taxation

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 24.75% 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 in the United Kingdom. This effectively 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.

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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.

Recognition of clinical trials expenses

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.

Revenue recognition

We recognize revenue from product sales, license fees, collaboration fees, technical access fees, development and approval milestone fees, research and development fees and royalties. Agreements with our commercial partners generally include a non-refundable upfront fee (attributed to separately identifiable components including license fees, collaboration fees and technical access fees), milestone payments, the receipt of which is dependent upon the achievement of certain clinical, regulatory or commercial milestones, royalties on product sales of licensed products if and when such product sales occur and revenue from the supply of products to our commercial partners. For these agreements, we are required to apply judgment in the allocation of total agreement consideration to the separately identifiable components on a reliable basis that reasonably reflects the selling prices that might be expected to be achieved in stand-alone transactions.

Product revenue received is based on a contractually agreed percentage of our commercial partner’s in-market net sales revenue. The commercial partner’s in-market net sales revenue is the price per vial charged to end customers, less set defined deductible overheads incurred in distributing the product. In developing estimates, we use monthly unit sales and in-market sales data received from commercial partners during the course of the year. For certain markets, where negotiations are ongoing with local reimbursement authorities, an estimated in-market sales price is used, which requires the application of judgement in assessing whether an estimated in-market sales price is reliably measurable. In our assessment, we consider, inter alia, identical products sold in similar markets and whether the agreed prices for those identical products support the estimated in-market sales price. In the event that we consider there to be significant uncertainty with regards to the in-market sales price to be charged by the commercial partner as a result of, as an example, ongoing pricing negotiations with local health authorities, such that it is not possible to reliably measure the amount of revenue that will flow to us, we would not recognize revenue until that uncertainty has been resolved.

We apply the percentage of completion revenue recognition method to certain classes of revenue. The application of this approach requires our judgment with regards to the total costs incurred and total estimated costs expected to be incurred over the length of the agreement.

Key Sources of Estimation Uncertainty

The key assumptions concerning the future, and other key sources of estimation uncertainty at the balance sheet date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next year, are discussed below.

Provision for inventories

We maintain inventories which, based upon current sales levels and the current regulatory status of the product in each indication, are in-excess of the amount that is expected to be utilized in the manufacture of finished product for future commercial sales. Provision is therefore made to reduce the carrying value of the excess inventories to their expected net realizable value.

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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.

Deferred taxation

At September 30, 2013, we have accumulated tax losses of £33.6 million, which are available to offset against future profits. Our policy is to recognize deferred tax assets only to the extent that it is probable that future taxable profits, feasible tax-planning strategies and deferred tax liabilities will be available against which the brought forward trading 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 balance sheet date. We recognize the value of certain tax losses as deferred tax assets on the balance sheet. A deferred tax asset of £0.9 million was recognized on our balance sheet at September 30, 2013.

If the value of the remaining losses and certain other timing differences were recognized within our balance sheet at the balance sheet date, we would be carrying a further deferred tax asset of £6.1 million as at September 30, 2013.

Rebate provision

We maintain a rebate provision for expected reimbursements to our commercial partners in circumstances in which actual net revenue per vial differs from expected net revenue per vial as a consequence of, as an example, ongoing pricing negotiations with local health authorities.

The amount of our rebate provision is based on, amongst other things, monthly unit sales and in-market sales data received from commercial partners and represents our best estimate of the rebate expected to be required to settle the present obligation at the end of the reporting period.

Pricing decisions made by local health authorities, including revisions and clarifications that have retroactive application can result in changes to management’s estimates of the rebates reported in prior periods.

Aggregate rebate provision accruals at September 30, 2013 were £1.2 million.

Segments

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

Sativex Commercial.  The Sativex Commercial segment promotes Sativex through strategic collaborations with major pharmaceutical companies for the currently approved indication of MS spasticity. We entered into agreements with: Otsuka in the United States; Almirall in Europe (excluding the United Kingdom) and Mexico; Novartis in Australia and New Zealand, Asia (excluding Japan, China and Hong Kong), the Middle East (excluding Israel) and Africa; Bayer in the United Kingdom and Canada; and Neopharm Group in Israel.

Sativex Research and Development.  The Sativex R&D segment seeks to maximize the potential of Sativex through the development of new indications. The current focus for this segment is the Phase 3 clinical development program of Sativex for use in the treatment of cancer pain. We also 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. In addition, Sativex has shown promising efficacy in Phase 2 trials in other indications such as neuropathic pain, but these areas are not currently the subject of full development programs.

Pipeline Research and Development.  The Pipeline R&D segment seeks to develop cannabinoid medications other than Sativex across a range of therapeutic areas using our proprietary cannabinoid product platform. The Group’s product pipeline includes an orphan childhood epilepsy program as well as other product candidates in Phase 1 and 2 clinical development for glioma, ulcerative colitis, type-2 diabetes and schizophrenia.

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Results of Operations

Comparison of Years Ended September 30, 2013 and 2012

The following table summarizes the results of our operations for the years ended September 30, 2013 and 2012, together with the changes to those items.

         
  Year Ended September 30,   Change 2013 vs. 2012
     2013   2013   2012   Increase/(Decrease)
     (in thousands, except for percentages)
Revenue   $ 44,158     £ 27,295     £ 33,120     £ (5,825 )      (18 )% 
Cost of sales     (2,064 )      (1,276 )      (839 )      437       52 % 
Research and development expenditure     (52,897 )      (32,697 )      (27,578 )      5,119       19 % 
Management and administrative expenses     (6,135 )      (3,792 )      (3,660 )      132       4 % 
Operating (loss)/profit     (16,938 )      (10,470 )      1,043       (11,513 )      (1,104 )% 
Interest expense     (104 )      (64 )      (1 )      63        
Interest income     288       178       200       (22