GW Pharmaceuticals 8.9.16 Results Earnings Conference Call
Posted on Friday, 12 August 2016
"GW Pharmaceuticals' (GWPH) CEO Justin Gover on Fiscal Q3 2016 Results - Earnings Call Transcript
Aug 9 2016, 15:18
GW Pharmaceuticals plc (NASDAQ:GWPH)
Fiscal Q3 2016 Results Earnings Conference Call
August 9, 2016, 08:30 AM ET
Stephen Schultz - Vice President, Investor Relations
Justin Gover - Chief Executive Officer
Stephen Wright - Chief Medical Officer
Adam George - Chief Financial Officer
Julian Gangolli - President, North America
Tazeen Ahmad - Bank of America Merrill Lynch
Phil Nadeau - Cowen & Company
Joshua Schimmer - Piper Jaffray & Co.
Andrew Berens - Morgan Stanley
Greetings. And welcome to the GW Pharmaceuticals third quarter 2016 financial results conference call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.
I would now like to turn the conference over to your host, Steve Schultz, VP, Investor Relations. Thank you. You may begin.
Welcome all of you and thank you for joining us today. Again, I’m Steve Schultz, Vice President of Investor Relations at GW. Today I'm joined by Justin Gover, GW's Chief Executive Officer; Dr. Stephen Wright, our Chief Medical Officer; Adam George, our Chief Financial Officer; and Julian Gangolli, President of North America.
I hope you’ve had a chance to review our press release from earlier today. This document will be supplemented by an additional 6-K filing, which will include a full MD&A.
As a reminder, during today’s call, we’ll be making certain forward-looking statements. These statements reflect GW’s current expectations regarding future events, including, but not limited to, statements regarding financial performance, clinical and regulatory activities, timing of product launches and statements relating to market acceptance and commercial potential.
Forward-looking statements involve risks and uncertainties and actual events could differ materially from those projected therein. A list and description of risks and uncertainties associated with an investment in GW can be found in the company’s filings with the US Securities and Exchange Commission. These forward-looking statements speak only as of today’s date, August 9, 2016.
Finally, an archive of today’s call will be posted to the GW Web site in the Investor Relations section.
I’ll now turn the call over to Justin Gover, GW’s Chief Executive Officer.
Thank you, Steve. And welcome to all those who are able to join us. On today’s call, following my introduction, Dr. Stephen Wright will provide a research and development update, Julian Gangolli will provide an update on our US commercial operations, and Adam George will discuss our financial results. At the conclusion of our prepared remarks, we will open the line for questions.
The last few months have been a truly exciting time for GW. In June, we announced a second set of positive Phase III trial results for Epidiolex, this time in patients with Lennox-Gastaut Syndrome or LGS. This follows the announcement in March of positive results in our Phase III trial in Dravet syndrome. With these latest results, we now have positive pivotal trial data relating to the efficacy of Epidiolex in two different, orphan, child-onset epilepsies, further elevating our excitement in the prospect for Epidiolex.
I’m also happy to report that GW’s pre-NDA meeting with the FDA has recently taken place. It was a constructive meeting and we believe the guidance we received was very positive and supportive of our proposed filing strategy, to submit a single NDA for both the Dravet syndrome and LGS indications, incorporating the single Dravet trial that has already reported results and the two LGS trials.
As a result of these discussions, the filing strategy that we previously announced to investors remains on track. In a moment, Stephen Wright will offer some additional color on this meeting.
As we continue to move closer to Epidiolex approval and launch, Julian Gangolli, who has now been with GW for over a year, will offer comments on his next steps towards commercialization in the United States. I will note that we also are taking early steps towards building an organization to support European commercialization.
Also, in July, we successfully completed a follow-on offering, raising net proceeds of $273 million. With positive Phase III data now in hand, the funds raised in this offering are primarily intended to support prelaunch Epidiolex commercialization activities, further expansion of our Epidiolex manufacturing capability to meet anticipated medium and long-term demand, manufacture of Epidiolex inventory and preparation for launch, expansion of the market opportunity for Epidiolex through clinical development of additional orphan indications. We can clearly appreciate the support of those investors who participated in this important offering.
Let me now hand the call to Dr. Stephen Wright to provide an update on research and development.
Thank you, Justin. And good day, everyone. Let me begin with the Phase III Lennox-Gastaut Syndrome results. As we presented the topline results for this trial recently, I don’t intend on reviewing them in detail on today’s call, but instead point you to the call archive and press release on GW’s Web site.
As a brief reminder, the trial involved 171 patients in which Epidiolex or placebo was added to current antiepileptic drug treatment regimens. On average, patients were taking approximately three concomitant AEDs, having previously tried and failed an average of six other drugs. Despite this intensive treatment, the median baseline drop seizure frequency was 74 per month, an observation that emphasizes how high is the unmet medical need in this group of patients.
The trial met its primary efficacy endpoint with patients taking Epidiolex achieving median reduction in monthly drop seizures of 44% compared with a reduction on placebo of 22%, the difference being statistically significant with a p-value of 0.0135. Results of secondary efficacy endpoints reinforced the validity of the primary endpoint.
Regarding safety, Epidiolex was generally well tolerated in this study. The most common adverse events are listed in the trial results press release. Of the patients who completed this trial, 100% have opted to continue into an open label extension trial where they continue to receive Epidiolex.
When looking at both the earlier Dravet syndrome trial and at these Lennox-Gastaut Syndrome trial results, overall, we believe that these data together provide reassurance as to the strength and quality of our clinical data in these two highly refractory patient populations, together with a safety profile which is very consistent between the studies and is similar to that seen in the expanded access program.
We wish to thank the patients, their parents and caregivers, and site investigators and other staff who participated in both trials for their commitment to completing such high-quality programs. I also want to take this opportunity to thank all our colleagues at GW who participated in the design and implementation of these landmark studies.
We are now approaching database lock in the second LGS trial, the results of which are expected at the end of September. This trial differs from the first LGS trial, in that it has an additional 10 mg per kilogram dosing arm. This three-arm trial originally targeted 150 patients, but has, in fact, recruited 225 patients. The results of the first LGS trial give us confidence in the outcome of the second trial as the powering assumptions are the same and the primary endpoint is identical.
Turning now to our FDA discussion, as Justin mentioned, following the success of the first Dravet syndrome Phase III trial, GW requested a pre-NDA meeting with the FDA. This meeting has recently taken place. Whilst the meeting was focused on Dravet syndrome, the FDA did note the company’s press release on the LGS Phase III data and it allowed for a broader discussion on our submission strategy.
While we will limit our comments on the details of the meeting, since the formal meeting minutes have yet to be received, I do feel comfortable communicating that we believe the guidance received was both positive and supportive of the company’s proposed filing strategy to submit a single NDA for both the Dravet syndrome and Lennox-Gastaut Syndrome indications incorporating the single Dravet trial that has already reported results and the two LGS trials. Subject, of course, to satisfactory FDA review, we now anticipate simultaneous submission and approval of both indications.
The work on compiling Epidiolex NDA is progressing on plan and we have been making very good progress towards completing all of the supporting studies for inclusion in the review.
Beyond the pivotal safety and efficacy data, the NDA will include clinical data from approximately 10 Phase I and Phase II studies as well as a substantial safety database that will include over 1,800 patients from both the expanded access and pivotal programs and including well over 450 patients with one year or more of Epidiolex continuous exposure. I believe that the extent of our efficacy and safety data package will make this a very robust filing.
Turning now to ongoing trials, given the FDA pre-NDA meeting discussions and, as noted earlier, GW does not expect to wait for results from the second trial in Dravet syndrome prior to submission. This trial is still open for recruitment and we anticipate results in 2017. We have confirmed with FDA, but the results from the second trial can be communicated to them when available and we do not anticipate this having an impact on the timing of the review cycle.
All patients in randomized, controlled clinical trials who complete the treatment period are eligible to enroll in a long-term open label extension trial. Taken together with patients receiving Epidiolex in the expanded access program, there are now a total of over 1,000 patients currently on treatment.
Beyond the first two indications, we continue to recruit a single 200-patient Phase III trial for our third target indication for Epidiolex, Tuberous Sclerosis Complex. And we intend on commencing a single study in our fourth target indication, infantile spasms, in the fourth quarter this year.
Our pipeline beyond Epidiolex continues to make progress. A summary of this progress is provided in our 6-K filing and includes our activities for CBDV, both within epilepsy and autism spectrum disorders, as well as an update on other pipeline trials that are due to report results later this year.
Thank you. And let me now hand the call to Julian Gangolli for his commentary on the US commercial organization and preparations for launch. Julian?
Thank you, Stephen. And good day to all of you. With the successful results from both Phase III trials now in hand and clear guidance from the FDA regarding our NDA submission strategy, expansion of the US commercial organization is now fully underway.
As I have previously indicated, we now have an experienced US commercial leadership team in place, with extensive epilepsy experience and we are actively recruiting to expand the key organization jobs, medical affairs, market access, marketing and compliance.
Our medical affairs and in-house clinical management team have given GW a terrific head start, establishing strong relationship, trust and high levels of awareness with the US epilepsy physician community. Building on that, we are now in the process of expanding our medical science liaison team that will enable us to increase our reach into key opinion leader and the academic community.
Another key area of focus is the development of our market access and payer strategy. We are in the process of a comprehensive assessment of the federal, state and commercial payer landscape and payer reaction to the positive data from our pivotal studies. Combined with this, we are developing US-specific health economics outcome research data that will enable GW to initiate discussion on the pharamacoeconomic benefit of Epidiolex with payers.
In terms of the clinical communication, we are preparing for a very active American Epilepsy Society annual meeting this coming December. AES is the premier meeting for epilepsy specialists and GW will have a meaningful presence to support the expected high interest from the physician community regarding Epidiolex.
Once again, GW will have a medical affairs booth presence to support the numerous posters and Epidiolex presentations expected to take place. It is our expectation that data from the Phase III pivotal trials for both Dravet syndrome and LGS will be presented at this meeting.
We’re also expecting publication of the Dravet syndrome trial in a peer-reviewed journal later this year.
It is my goal to ensure that GW has the talent and means necessary to deliver a first-class launch for Epidiolex. And I look forward to continuing to update investors periodically as we move closer to this exciting milestone.
Let me now ask Adam George to provide the financial review. Adam?
Thank you, Julian. I will now provide some high-level comments on GW’s Q3 2016 financial results. A more detailed discussion of our results is given in the 6-K to be filed today.
We present GW’s results in accordance with International Financial Reporting Standards in British pound sterling, but for convenience purposes on this call I propose to refer to the US dollar equivalent to certain key numbers using an indicative June 30 exchange rate.
Today’s results for our third quarterly earnings release for the three months and nine months ending June 30, 2016. I’ll begin with the most important line of our income statement, which is our research and development expenditure.
In Q3 2016, our total research and development expenditure increased $34.1 million for the quarter compared to $27.7 million in the three months to June 30, 2015.
Otsuka funding of our Sativex R&D spend has now almost ended, with just $0.5 million in this period. The remaining $33.6 million was GW-funded spend, focused on cost of completing Epidiolex Dravet and LGS studies together with a range of Phase I safety studies and all of the R&D activities required to generate data required for an NDA filing.
Next, I’ll move on to Q3 revenues. Total revenues for the quarter were $3.1 million compared to $11.4 million in Q3 2015. As previously guided, the decrease is entirely due to reduced R&D fee recharges to Otsuka, which we expected to cease by the end of this financial year.
Sativex sales revenues, just over $2 million for the quarter, continued to grow steadily.
Moving to SG&A, our sales, general and admin expenses increased to $7.5 million in Q3 from $4 million in the comparative period. The increase is linked to initiation of a range of commercial planning projects and some headcount additions in our US team as we start to build our US commercial organization following positive Dravet and LGS studies.
Foreign exchange has had a significant favorable impact in Q3. Weakening of pound sterling against the US dollar following the UK’s Brexit decision has resulted in an increase in the value of the dollars that we hold. This has led to a recognition of a net foreign exchange gain of £11.2 million in Q3, equivalent to $14.9 million at June 30.
This has all resulted in a loss after-tax for the three months of $16.2 million and a loss after-tax for the nine months of $62.2 million.
Turning to cash flow, net cash outflow for the nine months to June 30, 2016 from operating activities was $76 million compared to $32 million for the prior period. Capital expenditure for the nine months is now $8.8 million compared to $18.9 million for the nine months to June 30, 2015. The reduction is primarily linked to timing of spend on our new extraction facilities, the first phase of which is now almost complete.
Taking into account the impact of foreign exchange gains, which have increased our closing cash balance, our core net cash outflow to date excluding capital expenditure was $49.3 million. So, in total, we have recorded a net outflow for the nine months to June 30, 2016 of $58.1 million.
At June 30, we held closing cash equivalent to £191.2 million or $254.3 million which was strengthened further in early July by our successful fundraising, raising net proceeds of $273.1 million and taking our cash over $500 million.
Turning to guidance, we remain on track to meet the expenditure guidance given at Q2, albeit that the exchange rate gain of £11.2 million experienced in Q3 has reduced the projected net cash outflow for the 2016 financial year. Subject to further exchange rate related volatility, our Q4 expenditure plans remain consistent with previous guidance and I will provide guidance for 2017 with our year-end financial results.
Thank you. I’ll now hand the call back to Justin.
Thank you, Adam. Before I close, let me refer to another separate disclosure that GW made this morning, announcing that Stephen Wright has decided that he will be retiring next year. As he reaches the age of 65, Stephen’s departure as Chief Medical Officer is expected to take place in May of 2017. We have worked closely together to plan, so as to ensure it is as smooth as possible, whilst at the same time ensuring that GW continues to benefit from Stephen’s expertise throughout the Epidiolex NDA process.
Importantly, when Stephen steps down from his full-time position next May, he will thereafter stay on as a part-time employee of the company throughout the NDA review period for Epidiolex and he will continue to take a leading and active role in this process.
While Stephen will still be with us for quite some time to come, on behalf of the entire GW organization, I do want to take this opportunity to put on record our gratitude for his leadership and major contribution for the successes we have achieved to date.
The follow-on to Julian’s comments regarding GW’s participation at the American Epilepsy Society meeting, GW will also host an investor event on Monday, December 5. We are currently working on the precise timing and format, but do feel free to reach out to Steve Schultz in the meantime with any questions or interest.
Again, let me thank those investors that have supported the company in recent years and those long-standing and new investors that participated in our recent financing. Without your support, we would not have been able to achieve the substantial progress in such a short period of time.
Let me also echo Stephen’s thanks to all those involved in our clinical trial, including GW clinical management team, investigators and especially those patients and their families who participated in the trials program. We strive each day to have the opportunity to make a real difference for the life of those patients and their families affected by these highly treatment-resistant epilepsy syndromes.
In closing, we’re very pleased with recent progress, not just the positive Phase III data and pre-NDA meeting, but with all the other plans necessary to submit the NDA. Our confidence is high as we now focus our efforts on the company’s NDA submission to the FDA and plan towards commercialization.
Thank you for your time today and for your interest in GW and I would now like to open the call for questions.
Thank you. [Operator Instructions] Our first question today comes from Tazeen Ahmad of Bank of America. Please go-ahead.
Good morning, everybody. Thanks for taking my questions. Maybe a couple for Stephen. And in advance, Stephen, congratulations on your retirement. You will certainly be missed [indiscernible] for sure. Just wanted to ask you in terms of your plan for applying for Dravet with a single positive study, is it your understanding that FDA will not want to see the results of the second Dravet study before giving you an approval? And if so, what’s the difference there between Dravet [indiscernible] and LGS where you have submitted [indiscernible] studies?
Hi, Tazeen. I’m happy to take that. And thank you for your kind sentiment. I appreciate it.
We are comfortable after the pre-NDA meeting that a single Dravet is sufficient to allow the FDA to review for efficacy and safety. If the results of the second Dravet come in during the review period, then we do know that FDA would like to see those results. If they don’t, then they won’t. So those results are not mandatory to support the submission and filing. That’s, I think, quite clear and we’re very happy about that.
And the reason that it’s different with Lennox-Gastaut is simply a question of timing. The fact is that we will have two Lennox-Gastaut studies available well before the date we anticipate submitting the NDA. So were we to have two Dravet studies available prior to NDA submission date, then we would no doubt include them. The fact is we won’t. So the second part of your question really is a matter of timing.
Okay, thanks. And then secondly, for the second LGS study on the 10 mg dose, is that something that FDA had asked for you to include in the study or is it something that you feel will be beneficial from a commercial standpoint?
Perhaps I can answer from an R&D point of view first and then maybe hand over to Julian for a commercial perspective on that. From the approvability point of view, it strengthens an application if you have some dose ranging information, both about efficacy and about safety. So from a development point of view, it simply makes for a stronger overall package if you can include dose ranging efficacy and safety. So that’s the main purpose of doing that.
And, Julian, do you want to add a comment about commercial implications?
No, I think that you perfectly explained that the ability to communicate with a physician, where on the dosing spectrum a patient may get a response, I think those are very helpful in a physician making a therapeutic decision.
Okay, thank you.
The next question comes from Phil Nadeau of Cowen & Company. Please go-ahead.
Good morning. Thanks for taking my questions. That’s right, let me add my congratulations on your upcoming retirement. I guess, first, just on the timing, you mentioned the TSC trial is ongoing and the IS trial is going to start in the fourth quarter. Can you give us some idea when we could see results from those two studies?
We anticipate seeing results from the TSC trial during 2017. We haven’t guided more specifically to which part of the year. And it’s still early in the study setup and recruitment process, but I think we’re going to stick to that level of fairly broad guidance.
With infantile spasms, again, the study setup is ongoing. First patients will be in before the end of this year. And I think at the time that we see the rate of recruitment and the rate of setup and so on, the rate of IRB approvals and ethical approvals and so on, we’ll be in a much better position to project the final closure of that study. Justin, do you want to add anything to those expected timelines?
Yeah. I think for IS it’s certainly too early for that at this point with a study that has not even started yet. So we’ll provide guidance during 2017 on when we expect IS results.
Good, okay. And then second question, following the pre-NDA meeting, I was curious if you’re thinking on how the FDA is going to deal with the clobazam interaction has changed. In the past, you’ve suggested it would be a review issue, but something that would be likely to be handled [indiscernible]. Has your thinking around that changed at all now that you’ve sat down with the FDA?
I think we believe our approach and the way we’ve described any clobazam interaction remains the case, that the guidance we’ve previously given that we believe there is good efficacy with or without clobazam, but it may appear that the efficacy is somewhat better when co-administered with clobazam is the position that we still maintain and that we still maintain that post our pre-NDA meeting. So it’s not really a place where you discuss labeling in any detail at pre-NDA meeting. So it would be a bit, what can I say, presumptuous of me to make any kind of speculation on that. But, certainly, we would be very comfortable with a label that proposed that there may be some additive efficacy when co-administered with clobazam.
And as we’ve said before, we don’t think that would be in any way surprising. I think more or less every prescriber recognizes that the great majority of patients will need more than one drug, so a combination treatment of one sort or another is required. If we’re able to identify an optimal combination, then we believe that’s a very positive contribution to be a more effective treatment of these very difficult conditions.
Great. And the second LGS study, I think we all expect it to succeed. But in case we’re surprised, do you expect that you can still pool the two LGS trials to get the statistics of the combined patient population?
The pooling has already been agreed. That’s something we’re definitely doing. So the answer is yes. Again, how that gets viewed by FDA in the unhappy circumstances that it wasn’t fully positive is a review issue and I think we can’t – we couldn’t determine in advance how it would reviewed. But, clearly, pooling the two studies given the [indiscernible] of the two studies together will certainly add to the ability of the FDA to review it comprehensively.
Great. And then last question for Julian. Julian, can you give us an update on the strategies that you are thinking of following to allow use in a wide range of refractory epilepsies and seizure disorders and what sort of [indiscernible] or systems that you are working with the payers to put in place to get free access among the refractory patient population?
So we are, obviously, about a year, year and a half away from finalizing our strategies there. So we are in early discussion with the payer community. Obviously, there are some fairly traditionally established ways of supporting the indigent community and those who have issues with regard to payment of co-pays or whatever. So we are evaluating those.
Obviously, this is a he changing landscape, as you know. And what may now be a concept that is readily available and useful to the physician may have changed by the time the product comes to launch. So we are being very agile [indiscernible] thinking about reimbursement.
Obviously, this product lives in the orphan drug space which typically command premium pricing. So our strategy is to continue to work closely with the payers. Importantly, develop pharmaco cost offset [indiscernible] model, so that we can have a persuasive discussion with the payer community at whatever level, state, federal or commercial.
But at this present moment in time, as opposed to locking ourselves into any specific type of reimbursement or product support initiatives, we are keeping all our options open and continue to innovate on our discussions with them. So, hopefully, that gives you a flavor of our open-mindedness here. But we do have to think very, very thoughtfully around the payer community and how we approach them and the patient community.
That’s very helpful. Thanks for taking my questions.
The next question comes from Josh Schimmer of Piper Jaffray. Please go-ahead.
Thanks for taking the questions. Congrats on the progress and congrats to Stephen for being such an important part of it. But I do think Stephen is probably too young for retirement.
A few questions. Maybe first on the expanded access program, do you anticipate additional enrollment into that? How big might that program be at the time of launch? And how many patients will be on the second Dravet syndrome trial by the time of launch?
Thank you. I’ll take that question, Josh. So the expanded access program continues to enroll new patients under the existing IND. So we’re not seeing new expanded access IND sites. I think the expanded access, obviously, grew very, very substantially and focus over the last 12 months has been – certainly both within the company, but also amongst many of these sites, has been switching to pivotal trials program. So there are also state expanded access programs that continue to enroll. So I think our expectation is that with 1,000 patients now on treatment and many patients still to come in expanded access on the existing IND and trials that are still enrolling and that will lead to open label extension patients that we’ll be heading well north of that 1,000 patient number during 2017. But we’re not anticipating a material increase in the number of new expanded access sites at this point, given the focus on the pivotal trials program.
In terms of the Dravet 2, I don’t think we give specific enrollment numbers of trials. But, clearly, it’s not just a question of when patients are in the trial, but most importantly when they leave the trial with regard to data collection etc. So we’ll be enrolling that study for some months to come and then, of course, the patients will exit the study during the first half of 2017.
Okay. And what type of lag might there be between approval and formal launch of the product?
We anticipate that there is – an up to 90-day process for the DEA to reschedule Epidiolex. And so, and as soon as that happens, we’ll be ready. So a maximum of 90 days.
Great. And then one quick question maybe for Julian, are there other weight-based drugs you used in seizure disorders which then helped guide decisions on [indiscernible] and how are you thinking about managing around the wide range of patient age and size to ensure access for all [indiscernible] significant challenge or not? Thanks.
Thank you. Yes, obviously, there are some reasonable markets out there which will be called by the payer community that they are likely to look at, one being [indiscernible] in terms of products in the marketplace. So as they continue to debate inflationary measures between now and between when we launch, obviously, that baseline of pricing is likely to go up. Both companies have taken relatively assertive pricing over the previous timeframe and unlikely to abate over the next two inflationary years. So we are watching that carefully.
On your second question, just remind me of the nuance there.
Sorry. I was just asking whether there is…
On the age group. Yes, that is an important question. Obviously, straight out of launch, it is very likely that the age range is going to be skewed to the pediatric age range, given the number of individuals we might have in EAP or we have in randomized controlled clinical studies. We do anticipate that in the early phase of the launch that the payer community is probably looking at – could be looking at it being used in the pediatric community. We do anticipate – because we have been given insights from other dependency specialists that there is very keen interest in using this in pharmaco-resistant epilepsy patients irrespective of their age. So we’re conducting a lot of research at this time to see exactly where those specific indications may be and then calculating what a weighted average basis would be for a payer [indiscernible] years of being in the marketplace. So that is an evolving argument that we are developing at this time. But I think as we start this discussion with the payer community, the most important thing we need to do is to make sure that the pediatric patients have very strong coverage very soon after approval of the product. So that will most likely be our orientation.
Great. Thanks very much.
The next question comes from Andrew Berens of Morgan Stanley. Please go-ahead
Hi, guys. Thanks and good morning. My congrats to Stephen too. We’ll definitely miss you, Stephen. [indiscernible] GW will. Very jealous. We hear they don’t let you retire at 65.
Just wanted to ask a question on the expanded access program, the information you put out, you said 99% of patients went into the program and then 19% withdrew. Can you give us some color on how long that took and were any of the patients up-dosed above the 20 mg?
Certainly, Andrew. And thank you again. It’s important to draw a distinction between our long-term open label extension studies – these are studies which are monitored by GW. They are sponsored by GW. Patients are followed subject to a pretty flat protocol and dose adjustments upwards is not permitted within those. So those are very formal. In those studies where the recruitment has been more or less 100% of the patients who complete the randomized controlled trials. So that’s important.
The expanded access program of course comprises exclusively of investigator led studies. The common ground between the two is that the withdrawal rate is in the high teens to approximately 20% maximum over a very long period of exposure. You’ll appreciate that the expanded access program has been going for two, nearly three-and-a-half years now and clearly the long-term open labels have been going more or less since the randomized control period of study started, hence the very prolonged exposure we’ve got in our numbers. And to have a more or less 15% to 20% withdrawal rate over that very prolonged period of exposure I think actually is additional, albeit indirect, testimony not only to how well the drug is being tolerated, but also to the fact that it must be producing some kind of meaningful benefit simply for parents to keep their – mostly their children, but also the adult patients in LGS on the drug for that period of time. So that essentially is I think the overview that you’re asking for on [indiscernible] rates within those two different long-term exposure studies. Does that answer your question?
Well, I guess, I wanted to understand the long term extension trial. My apologies for misstating that. What you guys released in the 6-K indicated that 19% have withdrawn. Were any of those patients allowed to go higher than the 20 mg or were they limited to the 20 mg?
No, that stayed limited to the 20 mg mainly because we’re looking for maintenance of efficacy in a very tightly controlled GW-sponsored setting. And in order to demonstrate that it’s probably important that we maintain the dose at which efficacy was obtained in the randomized controlled trial. So that contrasts with the EAP where patients have been dose suggesting upwards as and where investigators felt that that was warranted and subject to FDA opposition.
Okay. I guess I’m just -- in a real-world that they could actually go higher, it seems like that rate might come down from 19% given the flexibility.
It may do. We don’t get indication that the reason for the withdrawal in prolonged exposure is due to lack of efficacy. In general, patients withdraw from that because of an adverse event of one sort or another. And the profile of adverse events, you’ve seen in our previous announcements. On the other hand, if they were getting very good efficacy, it may be there’s some minor adverse events which will be tolerable. So it’s always a kind of a balance. But I think the bottom line is 20% or so withdrawal rate in very long-term use is very acceptable to us.
Okay. And then the filing also mentions some facts about the manufacturing. Can you guys just give us a little bit of background on that, what you’re doing with scale-ups? and I think it mentions the approval inspection too.
Hi, Andy. This is Adam. Clearly, we’re scaling up in multiple different areas of the manufacturing process. We are increasing, are growing. I think, in 2017, we plan to grow enough material for roughly 50,000 children per year equivalent. [indiscernible] use of proceeds from our fundraising that we’re going to further expand our extraction and production capacity, so that will be – I think by the end of 2017 we’ll be capable of producing extract sufficient to provide medicine to the equivalent of 33,000 children per year. And then by launch, we are aiming to have API inventory equivalent to about 40,000 children, a year’s worth of material.
Okay. And some of that is outsourced now and some of it is in-house. Can you give us an idea of what that is at this point?
Most of it is in-house at the moment. We’re in the process of setting up outsourced arrangements with a number of different CMOs for different stages of the process. So we retain control over the early stages of the process and so it’s our own in-house facilities that will be initially inspected by FDA and then we are using subcontractor arrangements to create the additional capacity over time.
Okay. Great. Well, thanks, guys. And again, thanks and congratulations, Stephen, for retiring.
Ladies and gentlemen, there are no further questions at this time. I would like to turn the call back over to management for closing remarks.
Thank you. This is Justin speaking. So it just remains for me to thank everyone for joining on the call today. Next update from us will be around end of September for the LGS 2 trial results and then we’ll be moving towards the American Epilepsy Society later in December. Thanks for your time today and look forward to updating on progress later in the year. Bye-bye.
This concludes today’s conference. Thank you for your participation. You may disconnect your lines at this time.