Preliminary Results

GW Pharmaceuticals plc

Preliminary Results

Commercial sales growth, Phase III progress, New clinical data demonstrates pipeline value

Porton Down, UK, 28 November 2012: GW Pharmaceuticals plc (AIM: GWP, "GW" or "the Group"), the specialty pharmaceutical company focused on cannabinoid science, announces its preliminary results for the year ended 30 September 2012. 

COMMERCIAL: Sativex in-market sales growth follows new country launches

·; Sativex® in-market net sales by partners grow to £10.0m (2011: £5.3m), reflecting 108% volume growth

·; Positive reimbursement decision received in Germany

·; A total of 22 countries have now approved/recommended approval for Sativex

o 12 new European launches being planned from early 2013 onwards, including Italy

o Regulatory submissions underway in a further eight countries

·; New post-approval data in Germany and UK show positive clinical benefits of Sativex for patients and their carers, as well as the potential to yield cost savings for healthcare systems

·; Milestone payment of €11.9m (£9.8m) received from Almirall, and extension of Almirall's Sativex commercial rights to Mexico

SATIVEX R&D: Sativex Phase III cancer trial programme - initial US target indication

·; Three Sativex Phase III cancer pain trials ongoing - trials fully funded by US partner, Otsuka

PIPELINE R&D: Positive Phase II diabetes data highlights breadth of clinical activity

·; Positive preliminary data reported today from a Phase IIa exploratory clinical trial of the novel cannabinoid medicine GWP42004 in type 2 diabetes (see separate announcement)

·; Phase IIa trial of novel cannabinoid medicine GWP42003 in ulcerative colitis is on-going and due to complete in mid-2013

·; Additional product candidates earmarked for entry to the clinic in 2013: Phase Ib/IIa trial in glioma in planning for 2013. Lead drug candidate GWP42006 identified in pre-clinical epilepsy programme and set to enter Phase I trial in 2013

FINANCIALS: Revenue growth and net cash inflow provides strong balance sheet to support R&D investment to maximise pipeline value

·; Total revenue increased to £33.1m (2011: £29.6m), principally reflecting increased R&D fees and milestone payments. GW Sativex sales of £2.5m (2011: £4.4m) in line with guidance

·; Net profit before tax of £1.2m (2011: £2.5m)

·; Cash and short term deposits at 30 September 2012 increased to £29.3m (30 September 2012: £28.3m)

Dr Geoffrey Guy, GW's Chairman, said, "GW has made strong progress in 2012. We are pleased with the growth of Sativex in-market sales and look forward to further launches in up to 12 countries in Europe next year. In addition, we are now undertaking our largest ever clinical programme to expand the market opportunity for Sativex beyond multiple sclerosis to cancer pain. This programme comprises three global Phase III cancer pain trials and is fully funded by our partner, Otsuka. Importantly, success in this indication is intended to lead to our first commercial launch in the U.S. market. Our strong financial position allows us to invest in advancing our product pipeline and we are encouraged by the positive data reported today from our first Phase II trial for GWP42004, a novel cannabinoid drug candidate, in type 2 diabetes. We look forward to progressing this and other early stage clinical programmes in 2013."

An analyst presentation is being held today at 9.30am at FTI Consulting, Holborn Gate, 26 Southampton Buildings, London WC2A 1PB. Please contact Natalie Garland-Collins at FTI Consulting on +44 20 7269 7121 for details. An audio webcast of the presentation will be available on GW's website at www.gwpharm.com later this afternoon.

Enquiries:

GW Pharmaceuticals plc

("GW" or "the Group")

Preliminary Results for the Year Ended 30 September 2012

INTRODUCTION

In order to reflect the commercial progress of Sativex® as well as the Group's on-going investment in its pipeline, GW's preliminary results statement is structured to reflect the three key components to GW's business: Sativex Commercial; Sativex R&D; and Cannabinoid Platform/Pipeline R&D.

1. Sativex Commercial

GW is increasingly a commercial business generating sales revenues through supply of commercial product to GW's marketing partners. Sativex is now launched in seven countries, an additional 12 launches are in planning, and eight further regulatory applications are in progress. With Sativex having now entered the early phase of its commercial life and with a large number of new markets expected to launch in the next two years, in-market sales growth generated by marketing partners is expected to drive GW revenue growth from product sales.

2. Sativex R&D

Sativex is currently approved /recommended for approval in 22 countries for spasticity due to Multiple Sclerosis (MS) but with three large Phase III studies in cancer pain on-going, we believe that the MS indication represents only the start of Sativex's commercial potential. GW is seeking to maximise the potential of Sativex through these cancer pain trials which are fully funded by Otsuka Pharmaceutical Co. Ltd. This programme is targeted at the important United States (US) market but we also intend to use the data for global regulatory filings in order to address this major unmet need across the world.

3. Cannabinoid Platform / Pipeline R&D

GW occupies a world leading position in cannabinoid science. We believe that there is significant opportunity to leverage this strategic position to develop a number of new medicines. This is underlined by the announcement today of encouraging initial results from a Phase II exploratory trial of a novel cannabinoid, GWP42004, in type 2 diabetes while a Phase II trial in ulcerative colitis for another cannabinoid, GWP42003, is on-going. In addition, following highly promising pre-clinical data in cancer and epilepsy, an initial Phase Ib/IIa clinical trial in glioma is in planning for 2013 and a lead drug candidate for the epilepsy programme has been identified and is expected to enter Phase I trials in 2013.

SATIVEX COMMERCIAL

In March 2012, we signed an amendment to the Sativex licence agreement with our European partner Almirall. As a result, we received a new milestone of €11.9m (£9.8m) in May 2012 based on achievement of a cancer pain trial patient recruitment target. Including this payment, GW has to date received £69m in signature fees, technical access fees and milestone payments from its various licence agreements. GW is eligible to receive up to a further £201m in additional milestone payments and also generates royalty/product supply income derived from sales by its existing commercial partners.

The 2012 Almirall amendment also granted Almirall extended commercial rights to Sativex beyond Europe to include Mexico. GW also agreed to reduce the Sativex supply price charged by GW to Almirall over the next few years until the launch of Sativex in the cancer pain indication in Europe and agreed to cancel future cancer pain launch milestones of £5.5m.

Regulatory Progress - MS Spasticity

Sativex is currently approved / recommended for approval in 22 countries, including 18 countries in Europe where it is the first new therapeutic solution to treat MS symptoms in over ten years. It is indicated as a treatment for symptom improvement in patients with moderate to severe MS spasticity who have not responded adequately to other anti-spasticity medication and who demonstrate clinically significant improvement in spasticity related symptoms during an initial trial of therapy.

In May 2012, GW successfully completed the Mutual Recognition Procedure (MRP) in ten additional European countries for approval of Sativex. Of these ten countries, Belgium, Finland, Iceland, the Netherlands, Norway, Portugal and Slovakia have now finalised their national regulatory approvals. We expect the remaining countries (Ireland, Luxembourg, Poland) to finalise their approvals in the coming months. In prior years, Sativex had received approvals/recommendations for approval in the UK, Spain, Germany, Denmark, Italy, Sweden, Austria, and the Czech Republic. A regulatory application is ongoing in Switzerland and due to complete in 2013.

Beyond Europe, Sativex has just been approved in Australia for MS spasticity.Earlier this year, Sativex received approval in Israel for the two indications of MS Spasticity and MS neuropathic pain. Sativex has also previously received regulatory approval for MS spasticity in Canada and New Zealand. In addition, regulatory submissions have been filed in seven countries in the Middle East.

Commercialisation

Total Sativex in-market net sales rose to £10.0m (equivalent to £11.1m gross sales) in 2012 from £5.3m last year. The volume of Sativex 10ml vials sold in-market by our partners increased year on year by 108%. Almirall launched the medicine this month in Norway having previously launched in Germany, Spain and Denmark in 2011.

We expect Sativex launches in up to an additional 12 countries in Europe in the next 12 to 24 months following completion of mandatory pricing and reimbursement procedures in each country. The next important market expected to launch is Italy, expected in Q1 2013.

The drug is currently commercialised in 7 countries - Germany, Spain, UK, Denmark, Norway, Canada and Israel.

New Data from Germany and UK Confirm Benefits and Support Cost-Effectiveness

At the European Congress of Multiple Sclerosis (ECTRIMS) in October 2012, Almirall hosted a satellite symposium highlighting the key benefits of Sativex, which was attended by some 900 delegates. At this symposium results of the MObility ImproVEments with Spasticity in Multiple Sclerosis (MOVE) 2 observational study performed in Germany were presented. This study involved 300 patients with moderate to severe MS spasticity treated in 42 specialized MS centres throughout Germany. The study showed that one month's treatment with Sativex reduced moderate to severe spasticity by 20% or more in more than 4 out of 10 patients previously unresponsive to conventional therapies. After three months, the improvement observed was 30% or more. Overall, 55% of the initial patients were eligible for continuing treatment beyond the third month. Mean MS spasticity Numeric Rating Scale (NRS) scores decreased by 25% compared to pre-treatment with Sativex, with 41% of patients improving at least 30% from baseline. Quality of life measurements also improved from baseline in the third month's visit.

In the UK, Sativex prescription use in the UK has been the subject of a recent peer-reviewed publication (Notcutt W, Primary Health Care Research & Development, 2012). 124 patients took part in the survey with a mean duration of treatment with Sativex of 30 months. The majority of respondents and their caregivers reported improvements across a range of daily functional activities, alongside a reduction in the use of concomitant anti-spasticity medication and in the use of other healthcare resources. Key findings include:

·; 31% of Sativex patients had reduced visits to the doctor

·; 31% of Sativex patients had fewer accidents requiring medical attention

·; 21% of Sativex patients reduced or stopped the use of other anti-spasticity medication

·; 16% of Sativex patients reduced their visits to the physiotherapist

·; 14% of Sativex patients were newly able to undertake activities without the need for help or equipment

Also of importance was the fact that the vast majority of caregivers reported that, because of Sativex treatment, there had been a benefit to them. In particular, almost 50% of caregivers reported an improvement in their own sleep quality. This suggests a reduction in the caregiver's burden, which could also impact on their well-being and also the patients. Taken together, these findings suggest Sativex provides important long term clinical benefit, both to patients and their caregivers, and has the potential to yield significant cost savings for healthcare systems.

In addition, a recent publication (Sativex in multiple sclerosis spasticity: a cost-effectiveness model - Slof J et al, Expert Rev. Pharmacoecon. Outcomes 2 Res. 12(4), (2012)) has shown that Sativex is a cost effective treatment.

Germany

In June 2012 the commercial prospects for Sativex in Germany were significantly enhanced following receipt of a positive resolution from the Federal Joint Committee (G-BA) supporting reimbursement of the product. This resolution allows Almirall to proceed with the next and final step in the process, agreement of a price with the German pricing authorities, a process which is expected to conclude in the coming months.

Sativex was launched in Germany by Almirall in July 2011. With over 120,000 people with MS, Germany represents the largest European market opportunity for Sativex. The market performance since launch has been strong with Almirall's ex-factory net sales in the 12 months to 30 September 2012 reaching €4.9m (2011: €0.9m).

Spain

Despite the challenges posed by the economic climate in Spain, GW is pleased with initial sales performance of Sativex since its launch in March 2011. Almirall's ex-factory net sales in the 12 months to 30 September 2012 reached €2.1m (2011: €0.7m). Formulary listings have now been achieved in the majority of key target hospitals and sales growth is expected to continue during the coming year. Sativex is a fully reimbursed medicine under Spain's National Health System.

UK

In the UK, Sativex generated in-market net sales in the 12 months to 30 September 2012 of £2.4m (2011: £2.4m). The drug was launched in this market in 2010 by GW's UK marketing partner, Bayer HealthCare

The pace of sales growth in the UK is expected to be determined by Bayer's efforts to secure NHS funding for Sativex from local Primary Care Trusts (PCTs). A significant body of work has been undertaken this year to demonstrate the positive budget impact that Sativex may have for PCTs in terms of the reduced cost burden on the NHS for patients who benefit from Sativex treatment. This new pharmaco-economic data was introduced by Bayer in summer 2012 and will be the focus of their strategy for next year.

In addition, the National Institute for Clinical Excellence (NICE) is reviewing Sativex as part of a proposed updated set of NICE MS Treatment Guidelines. This review process is now underway.

Norway/Denmark

Launch in Norway has taken place this month. Sales to date in Denmark have been modest.

New European Launches

The next major Sativex launch is expected in Italy in early 2013. Launches are also in planning for Sweden, Austria, Czech Republic, Belgium, Finland, Iceland, Ireland, Luxembourg, the Netherlands, Poland, Portugal and Slovakia. In each country, Sativex requires pricing and reimbursement to be agreed with the national authorities prior to launch. The length of time required for pricing/reimbursement varies considerably across countries.

SATIVEX R&D - Entry into the US Market and Expanding the Sativex Label

Sativex in Cancer Pain

Market research suggests the commercial potential of Sativex in the treatment of cancer pain is significant. It is estimated that approximately 38% of advanced cancer patients suffer pain which is not adequately treated by opioid therapy, the current standard of care.

GW's cancer pain clinical programme is being wholly funded by Otsuka, which has licensed the US commercialisation rights to this product. The programme is the largest ever undertaken by GW and involves trial sites in Europe, North America, Latin America and Asia. The trials are designed to obtain approval in this indication from the Food & Drug Administration (FDA) in the US, and these data are also intended to be used by GW for future regulatory applications in this indication in Europe and around the world.

Prior to commencing the Phase III programme, GW completed two Phase II studies including over 530 patients with positive results. Both of these have been published in peer-reviewed journals, the most recent being published earlier this year in the Journal of Pain, the official journal of the American Pain Society (Portenoy R et al 2012, Journal of Pain, Vol 13, Issue 5, pp 438-449). In addition, a study confirming the efficacy and safety of Sativex in long-term use in patients with cancer pain has recently been published (Johnson J et al. J Pain Sympt Management. 2012 Nov 7 doi:pii S0885-00439-3.10.1016/j.painsymman 2012.07.14 [epub ahead of print])

Pivotal Phase III Programme

The pivotal Phase III programme comprises two randomised placebo-controlled multi-centre multinational trials as well as a long term extension study. Patient recruitment for both studies is on-going. Initial recruitment focused on European trial sites and operations have expanded over recent months to a large number of US sites which are due to contribute significant patient numbers for the remainder of the studies. Recruitment to date in Europe has progressed according to expectation. The timing of completion of these two studies will be dependent on US recruitment in 2013. Regulatory filings are intended to be made upon completion of these two studies.

Each Phase III trial is intended to recruit 380 patients and will evaluate the efficacy and safety of Sativex versus placebo over a 5 week treatment period. The primary efficacy analysis is the continuous response analysis, the same analysis that has yielded statistically significant results in both Phase II trials.

Third Phase III Trial

A third supportive Phase III trial commenced in May 2012. The purpose of this trial is to provide, as needed, supplementary data to that generated in the two pivotal studies.

The third Phase III trial differs in design from the first two studies, employing an "enriched study design" akin to that which was successfully employed in the MS spasticity trials programme. The study involves exposing patients to Sativex in a single blind phase of two weeks duration ("Phase A"), following which responders will be randomised either to stay on Sativex or switch to placebo in a double blind phase for a five week treatment period ("Phase B"). The primary efficacy analysis will be the mean change from baseline in Phase B. The study will aim to recruit 540 patients into Phase A and target 216 patients to enter Phase B.

Sativex Investigator Studies

As with any new medicine, the availability of Sativex has provoked interest in its potential for other neurological conditions, particularly motor disorders and neurodegenerative diseases. GW is working with a number of leading academic centres around Europe studying Sativex in conditions such as amyotrophic lateral sclerosis (the most common form of motor neurone disease), Huntington's disease, cervical dystonia and Tourette's syndrome.

CANNABINOID PLATFORM / PIPELINE R&D

GW occupies a world leading position in cannabinoid science. The company has developed a proprietary and validated cannabinoid technology platform and formed constructive collaborations with leading international scientists, universities and institutions in the field. GW's researchnetwork now extends to 28 academic institutions in eight countries and involves research in a wide range of therapeutic areas, including oncology, neuroscience, metabolic disease, inflammatory disease, gastroenterology, and dermatology. The objective of this research effort is to progress a number of GW's new cannabinoid pipeline candidates to full clinical development.

In March 2012, GW announced that Professor Vincenzo Di Marzo has joined the company's research team as Research Director of GW Research Ltd and GW's Cannabinoid Research Institute and is now directing GW's global pre-clinical research programme. Alongside Professor Roger Pertwee, GW's Director of Pharmacology, Professor Di Marzo is one of the world's most eminent cannabinoid scientists.

In-House Funded Research

The principal areas of GW's investment are in diabetes/metabolic disease and inflammatory conditions. GW is selectively investing its resources to advance this part of the cannabinoid pipeline with a view to signing new out-licensing agreements in due course.

Diabetes/Metabolic Disease

As announced separately today, GW has reported encouraging results from a Phase IIa exploratory study identifying GW's novel cannabinoid, GWP42004, as a promising new treatment for type 2 diabetes. In the study, which examined a number of clinically relevant endpoints in patients with type 2 diabetes, GWP42004, an oral cannabinoid treatment, showed consistent evidence of anti-diabetic effects. These findings are consistent with pre-clinical data showing that GWP42004 protects the insulin-producing cells of the pancreatic islets, a highly desirable feature of a new anti-diabetic medicine, increases insulin sensitivity, and reduces fasting plasma glucose levels. GW will now move ahead and explore the clinical relevance of these desirable anti-diabetic features of a range of doses of GWP42004 in a larger Phase II study.

Initial findings from a separate pilot study exploring the effect of GWP42003 on liver fat in 24 patients with Non-alcoholic Fatty Liver Disease has not showed any meaningful clinical effect. A third Phase IIa study investigating whether GWP42003 and GWP42004 can prevent weight gain in 60 patients taking anti-psychotic therapy has been unsuccessful in achieving a sufficient pace of patient recruitment. In light of the positive findings for GWP42004 in the type 2 diabetes study, it has been decided to terminate this study and to re-focus our anti-psychotic clinical research on investigating GWP42003 as a treatment for psychiatric illness. A Phase II study is in planning for 2013 (see below).

Ulcerative Colitis

Following pre-clinical research demonstrating that cannabinoids show potential in the treatment of Inflammatory Bowel Disease in standard in vivo models, GW commenced this year a Phase IIa clinical study investigating the efficacy and safety of GWP42003 in the treatment of ulcerative colitis. This study aims to include 62 patients and the chief investigator is Dr Peter Irving at Guy's and St Thomas's Hospital, London. This trial is expected to report preliminary results in mid-2013.

Otsuka Funded Research

GW's research activities in the field of CNS disorders and oncology are supported by income from the global cannabinoid research collaboration with Otsuka. This collaboration was originally signed in July 2007 with a three year term, and was extended for a further three years to June 2013. To date, Otsuka's total investment in GW's research activities under this collaboration totals £21.8m.

Cancer

A major focus of the GW-Otsuka research collaboration lies in the area of cancer treatment. Pre-clinical studies are most advanced in the specific areas of glioma and breast cancer.

In light of our promising pre-clinical research in glioma (the most common form of brain cancer), GW has received interest from clinicians in conducting an early proof of concept clinical trial. A phase Ib/IIa study is due to commence in 2013 which will evaluate GW cannabinoids in combination with temozolomide in patients with recurrent glioblastoma, the most common form of brain cancer.

We have identified the putative mechanism of action for cannabinoids in glioma, where autophagy and programmed cell death are stimulated via inhibition of the akt/mTORC1 axis. In vivo studies have shown cannabinoids to have a synergistic effect with temozolomide, a standard treatment for glioma.

GW has also generated promising pre-clinical research evaluating cannabinoids in the treatment of breast cancer. Efforts are now focused on identifying the precise molecular mechanism of action of cannabinoids in breast cancer, and to define the optimum cannabinoid treatment regimen.

Neuroscience

The second major area of focus in the GW-Otsuka research collaboration lies in nervous system disorders, primarily epilepsy and psychiatric illness.

In the area of epilepsy, a lead candidate, GWP42006, has been identified and is supported by strong intellectual property.Additional confirmatory pre-clinical tests are under way prior to progression into clinical trials. Plans are now in place for GWP42006 to enter Phase I clinical trials during 2013.

GWP42006 has shown the ability to treat seizures in models of epilepsy with significantly fewer side effects than existing anti-epileptic drugs. In a paper published in September 2012 in the British Journal of Pharmacology by scientists at the University of Reading, GWP42006 was reported to have the potential to prevent more seizures, with few side effects such as uncontrollable shaking, caused by many existing anti-epileptic drugs (Hill AJ, et al. 2012, Cannabidivarin is anticonvulsant in mouse and rat in vitro and in seizure models, Br J Pharmacol). In the study, GWP42006 strongly suppressed seizures in six different experimental models commonly used in epilepsy drug discovery. GWP42006 was also found to work when combined with drugs currently used to control epilepsy.

As mentioned above, plans are now underway for a Phase II trial investigating GWP42003 as a treatment for psychiatric illness. This trial is due to commence in 2013. There is extensive laboratory evidence in human and animal models indicating that GWP42003 has antipsychotic activity, including both dopamine and glutamate models of psychosis, studies targeting endophenotypes, and sophisticated naturalistic observations. Pre-clinical data generated by GW/Otsuka shows that GWP42003 has the potential not only to enhance symptom improvement, but also to reduce the unwanted motor side-effects of antipsychotic agents. Importantly, unlike current anti-psychotic medications, the mechanism of GWP42003 does not rely on the dopamine D2 receptor for its effect offering the prospect of augmenting the effect of current anti-psychotics without the side effect profile of such treatments.

FINANCIAL REVIEW

Revenues

Total revenues, at £33.1m, were £3.5m higher than the £29.6m recorded in 2011. This reflects increased milestone income and increased R&D fees from our Sativex development partners.

Milestone income of £9.8m (2011: £5.3m) resulted from an amendment to the Almirall licence agreement signed in March 2012. In return for GW's agreement to reduce the Sativex supply price for an agreed period, and in return for waiving certain future cancer pain related milestones, Almirall agreed to pay a milestone of £9.8m upon achievement of a Phase III cancer pain patient recruitment target. The target was achieved in April and the payment was subsequently received in May 2012. The prior year's milestone income comprised a £2.5m milestone from Almirall upon achievement of Spanish pricing approval, £0.25m upon German approval and £2.55m milestone from Otsuka upon the commencement of Phase III cancer pain trials.

Sativex has made good progress during the year. The volume of Sativex 10ml vials sold in-market by our partners increased year on year by 108%. This principally reflects the growth achieved by Almirall in Germany and Spain during 2012. We can expect continued growth as Almirall conduct commercial launches in up to 12 new countries during 2013.

GW's Sativex sales revenues are based on the volume of vials delivered to our commercial partners during the financial year. As there were no major new territory launches in this period, our Sativex revenues decreased to £2.5m (2011: £4.4m). This is in line with guidance provided at the time of our interim results. We delivered substantial launch stocks to Almirall in the second half of 2011 which have been used to meet in-market demand during 2012. As partner inventory levels reduce, we can expect Sativex deliveries to result in an upward trend in GW's revenues as in-market sales continue to grow.

Licence, collaboration and technical access fee revenues of £1.3m (2011: £3.8m) consist of revenue recognised from signature and technical access fees received in previous years. The £2.5m reduction compared to 2011 reflects the fact that 2011 included a £1.9m technical access fee, received upon signature of the Sativex licence for Australia, Middle-East and Africa in that year. The remaining £0.6m reduction is due to a reduction in the rate of income recognition on the Otsuka licence fee. This was being recognised at the rate of £1.1m per year for the first 4.5 years of the licence agreement, reducing to £0.3m per year for the remainder of the licence. This step-down in the rate of income recognition took effect from the start of the 2012 financial year.

Research and development fee revenues have increased to £19.5m (2011: £16.0m). These fees consist of research and development costs incurred by GW and charged to Otsuka under the Sativex US development agreement, totalling £14.1m (2011: £10.8m) and the global cannabinoid research collaboration agreement of £5.4m (2011: £5.2m). The growth in US development fees reflects progress with patient recruitment into the Phase III cancer pain trials, which are wholly funded by Otsuka.

Research & Development Expenditure

Total research and development expenditure, which is expensed as incurred, was £27.6m (2011: £22.7m), of which £19.5m (2011: £16.0m) was funded by Otsuka. Otsuka-funded research includes both the Sativex Phase III cancer pain programme as well as pre-clinical research in CNS and oncology. GW-funded research totalled £8.1m (2011: £6.7m) representing 29% (2011: 29%) of overall research and development spend.

Research and development expenditure is stated net of a £1.3m credit (2011: £0.4m credit) arising from the reduction to our provision for inventories, in recognition of the increasing net realisable value of our surplus inventory as our Sativex forward sales estimates increase.

Segmental Results

In Note 3, a segmental analysis of our business is provided showing the income statement split into the three business segments of the Group: Sativex Commercial, Sativex R&D and Pipeline R&D.

The Sativex Commercial business generated a contribution of £14.1m (2011: £12.5m) from product sales, milestones and licence fee revenues received from commercial partners.

Investment in Sativex R&D was £18.4m (2011: £14.8m), of which £14.1m (£10.8m) was Otsuka funded Phase III cancer pain expenditure. The remaining £4.3m (2011: £4.0m) was funded by GW.

Investment in Pipeline R&D was £9.9m (2011: £7.8m), of which Otsuka funded £5.4m (2011: £5.2m). The remaining £4.5m (2011: £2.6m) was funded by GW.

Expenditure

Management and administration expenditure increased to £3.7m (2011: £3.3m). This includes £0.6m (2011: £0.4m) of share-based payment charges.

Interest income of £0.2m in 2012 (2011: £0.3m) represents interest earned on cash deposits. GW continues to take a conservative approach to managing counterparty credit risk on its cash deposits.

Taxation

The Group plans to submit a research and development tax credit claim for the year ended 30 September 2012 of £0.8m (2011: £nil). A taxation recoverable debtor of £0.8m has therefore been recognised on the September 2012 balance sheet.

The £1.2m tax credit shown in the 2012 income statement includes £0.4m successfully claimed in respect of a 2011 claim, plus the accrued credit of £0.8m in respect of 2012. This 2012 credit remains subject to the agreement of the Inland Revenue.

GW welcomes the forthcoming implementation of the Government's patent box scheme. Under this scheme, we expect most of GW's future product revenues, milestone income and licence fees to be eligible for the 10% rate of taxation. The combination of this low rate of taxation and enhanced expenditure reliefs available under the R&D tax credit scheme should result in a long-term low rate of future corporation tax.

Profitability

Pre-tax profit for the year was £1.2m (2011: £2.5m). This is in line with guidance.

This was further increased by the research and development tax credit, resulting in a post-tax profit for the year of £2.5m (2011: £2.7m).

Cash Flow

The Group recorded a net cash inflow for the year of £1.0m (2011: £3.1m inflow).

Receipts include £9.8m of milestone income (2011: £5.3m) from Almirall and the exercise of share options by GW staff which generated proceeds of £0.1m (2011: £1.4m).

Capital expenditure of £1.3m (2011: £0.9m) consisted mainly of upgrades to our research and development premises and new laboratory and manufacturing equipment.

Financial Position

The Group's net funds comprise cash balances together with amounts held on short term deposit totalling £29.3m (2011: £28.3m).

Inventory of £3.5m (2011: £1.4m) consists of finished goods, consumable items and work in progress and is stated net of a realisable value provision of £2.1m (2011:£3.4m). This provision is calculated in accordance with the inventory accounting policy set out in Note 2.

Trade and other receivables at 30 September 2012 were £1.6m (2011: £2.3m), consisting of £0.8m (2011: £1.5m) of trade debtors (from sales of Sativex) and £0.8m (2011: £0.8m) of other receivables and prepayments.

At 30 September 2012 the Group had received £1.1m (2011: £2.1m) of advance payments for research activities to be carried out on behalf of Otsuka in the next six months. This has been disclosed as an advance payment received, within deferred revenue due within one year.

Deferred licence, collaboration and technical access fee income amounts to £11.5m (2011: £12.7m) and represents the balance of non-refundable Sativex licence agreement and technical access fees. £1.4m (2011: £1.3m) is shown as due within one year and £10.1m (2011: £11.4m) is shown as due after more than one year and. These will be recognised as revenue in future periods.

Average headcount of the Group for the year was 177 (2011: 152). The increase in staff numbers reflects the expansion of operations necessary to support the commercial growth of Sativex and the increasing levels of research and development activity for both Sativex and our growing pipeline of promising product candidates.

2013 Guidance:

Sales

As Sativex increases its market penetration and undergoes further launches, GW can expect to look forward to continued growth in in-market sales by our commercial partners.

GW's sales revenues are generated as sales of bulk product to licensing partners. As a result, and as previously indicated, the rate of GW's product sales growth in the next few years is likely to be influenced by a variety of factors, including the timing of new commercial launches, the timing of delivery of batches to partners, partner stock-holding policies, pricing and reimbursement discussions, and the rate of market uptake.

Having successfully achieved a large number of additional approvals in Europe during 2012, we expect further commercial launches in up to twelve European countries during 2013. These launches, together with sales from countries in which Sativex is already marketed, are expected to translate into growth in GW sales revenues in 2013.

R&D Spend

As a result of GW's strategic decision to advance further pipeline product candidates into clinical development, we expect GW-funded R&D spend for the coming year to increase by 10-20% over 2012.

Milestones

In early 2013, Sativex pricing approval in Italy is expected to result in a £0.25m milestone payment from Almirall. No other milestones from existing Sativex licence agreements are currently expected during the 2013 financial year.

Profitability

In the last few years, significant milestone income receipts from Sativex licence agreements have led to the Group reporting small pre-tax profits. In line with market expectations, we are not expecting significant milestone receipts in 2013 and this factor, together with our increasing investment in the pipeline, leads us to expect to report a loss for the 2013 financial year. This is consistent with market expectations and is in accordance with our strategic plan to create long-term value from our pipeline by investing in R&D. It should be noted that a loss in 2013 should enable the Group to claim an R&D tax credit for the year.

BOARD

On June 1st 2012, Adam George became GW's Finance Director, having previously served as GW's Company Secretary and Group Financial Controller since 2007. This followed David Kirk's decision to stand down from the Board having served as Finance Director for the last ten years.

In addition, on October 1st 2012, Chris Tovey joined the Board in the newly created role of Chief Operating Officer. The decision to appoint a Chief Operating Officer reflects the significant expansion in the Group's operations over recent years. Chris was most recently Vice President Global Marketing Operations at UCB Pharmaceuticals, responsible for worldwide marketing activities on a portfolio of UCB products generating over €2 billion in annual sales. His previous experience includes 18 years at GlaxoSmithKline in senior commercial roles in both the European and UK organisations.

At our forthcoming Annual General Meeting on 18th January 2013, Richard Forrest, a non-executive director, will be retiring by rotation. After six years of service, Richard has chosen not to seek re-election at the AGM for a third 3-year term and will therefore formally step down from the Board on that date. The Nominations Committee has commenced the process of identifying a suitable independent non-executive director candidate to be appointed in his place and aims to make this appointment as soon as possible following Richard's retirement. The company would like to take this opportunity to thank Richard for his valuable contribution to the Board over the last six years.

SUMMARY

GW has made strong progress in 2012. We are pleased with the significant growth of Sativex in-market sales and look forward to further launches in up to 12 countries in Europe next year. In addition, we are now undertaking our largest ever clinical programme to expand the market opportunity for Sativex beyond MS to cancer pain. This programme comprises three global Phase III cancer pain trials and is fully funded by our partner, Otsuka. Importantly, success in this indication is intended to lead to our first commercial launch in the US market. Our strong financial position allows us to invest in advancing our product pipeline and we are encouraged by the positive data reported today from our first Phase II trial for GWP42004, a novel cannabinoid drug candidate, in type 2 diabetes. We look forward to progressing this and other early stage clinical programmes in 2013.

This news release may contain forward-looking statements that reflect GWs current expectations regarding future events, including development and regulatory clearance of the GW's products. Forward-looking statements involve risks and uncertainties. Actual events could differ materially from those projected herein and depend on a number of factors, including (inter alia), the success of the GW's research strategies, the applicability of the discoveries made therein, the successful and timely completion of uncertainties related to the regulatory process, and the acceptance of Sativex® and other products by consumer and medical professionals.

GW Pharmaceuticals plc

Consolidated income statement

For the year ended 30 September 2012

All activities relate to continuing operations.

The Group has no gains or losses other than those shown above and therefore no separate statement of recognised income and expense has been presented.

GW Pharmaceuticals plc

Consolidated balance sheet

As at 30 September 2012

(1) The Group has reclassified certain equity account balances at 1 October 2009. The impact of this reclassification was a decrease in the share premium account and an increase in other reserves as presented in the consolidated balance sheet above, of £922,000 at 30 September 2011. This reclassification had no impact on total equity or income for the year.

This announcement was approved by the Board of Directors on 27 November 2012.

GW Pharmaceuticals plc

Consolidated statement of changes in equity

For the year ended 30 September 2012

(1) The Group has reclassified certain equity account balances at 1 October 2009. The impact of this reclassification was a decrease in the share premium account and an increase in other reserves in the amount of £922,000 at this date. This reclassification had no impact on total equity or income for the year.

1. General Information

The financial information set out above does not constitute the company's statutory accounts for the years ended 30 September 2012 or 2011, but is derived from those accounts. Statutory accounts for 2011 have been delivered to the Registrar of Companies and those for 2012 will be delivered following the Company's Annual General Meeting. The auditors have reported on those accounts; their reports were unqualified, did not draw attention to any matters by way of emphasis without qualifying their report and did not contain statements under section s498(2) or (3) Companies Act 2006.

The Board of Directors of the Company approved this statement on 27 November 2012.

2. Accounting Policies

The principal Group accounting policies are summarised below.

Basis of Accounting

The financial statements, upon which this announcement is based, have been prepared in accordance with International Financial Reporting Standards (IFRSs). The financial statements have also been prepared in accordance with IFRSs as endorsed by the European Union and therefore the Group financial statements comply with Article 4 of the EU IAS regulation and in accordance with IFRS as issued by the International Accounting Standards Board ("IASB").

The financial statements have been prepared under the historical cost convention, except for the revaluation of financial instruments. Historical cost is generally based on the fair value of the consideration given in exchange for the assets. The principal accounting policies are set out below.

Going Concern

The Directors have considered the financial position of the Group, its cash position and forecast cash flows for the twelve month period from the date of signing these financial statements when considering going concern. They have also considered the Group's business activities, the key policies for managing financial risks and the key factors affecting the likely development of the business in 2013. In the light of this review, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing these financial statements despite the uncertain economic climate.

Basis of Consolidation

The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries) made up to 30 September each year. Subsidiaries are all entities over which the Group has the power to govern the financial and operating policies of the entity concerned, generally accompanying a shareholding of more than one half of the voting rights.

Intangible Assets - Goodwill

Goodwill arising in a business combination is recognised as an asset at the date that control is acquired. Goodwill is measured as the excess of the sum of consideration transferred, the amount of any non-controlling interest in the acquiree and the fair value of the acquirer's previously held equity interest (if any) in the entity over the net of the acquisition date amounts of the identifiable assets and liabilities assumed. 

Goodwill is not amortised but is tested for impairment at least annually.

Revenue

The Group's revenue arises from product sales, licensing fees, collaboration fees, technical access fees, development and approval milestone fees, research and development fees and royalties. Agreements with commercial partners generally include a non-refundable up-front licence and collaboration fees, milestone payments, the receipt of which is dependent upon the achievement of certain clinical, regulatory or commercial milestones, as well as royalties on product sales of licensed products, if and when such product sales occur. For these agreements, total arrangement consideration is attributed to separately identifiable components on a reliable basis that reasonably reflects the prices that might be expected to be achieved in stand-alone transactions. The then allocated consideration is recognised as revenue in accordance with the principles described below.

Product Sales

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

Licensing Fees

Licence fees received in connection with product out-licensing agreements, even where such fees are non-refundable, are deferred and recognised over the period of the licence term.

Collaboration Fees

Collaboration fees are deferred and recognised as services are rendered based on the percentage of completion method.

Technical Access Fees

Technical access fees represent amounts charged to licensing partners to provide access to, and to commercially exploit data that the Group possesses or which can be expected to result from Group research programmes that are in progress. Non-refundable technical access fees that involve the delivery of data that the Group possesses and that permit the licensing partner to use the data freely and where the Group has no remaining obligations to perform are recognised as revenue upon delivery of the data. Non-refundable technical access fees relating to data where the research programme is on-going are recognised based on the percentage of completion method.

Development and Approval Milestone Fees

Development and approval milestone fees are recognised as revenue based on the percentage of completion method on the assumption that all stages will be completed successfully, but with cumulative revenue recognised limited to non-refundable amounts already received or reasonably certain to be received.

Research and Development Fees

Revenue from partner funded contract research and development agreements is recognised as research and development services are rendered. Where services are in-progress at period end, the Group recognises revenues proportionately, in line with the percentage of completion of the service. Where such in-progress services include the conduct of clinical trials, the Group recognises revenue in line with the stage of completion of each trial so that revenues are recognised in line with the expenditures.

Research and Development

Expenditure on research and development activities is recognised as an expense in the period in which it is incurred.

An internally generated intangible asset arising from the Group's development activities is recognised only if the following conditions are met:

- an asset is created that can be identified

- it is probable that the asset created will generate future economic benefits, and

- the development cost of the asset can be measured reliably.

The Group has determined that regulatory approval is the earliest point at which the probable threshold can be achieved. All research and development expenditure incurred prior to achieving regulatory approval is therefore expensed as incurred.

Property, Plant and Equipment

Property, plant and equipment are stated at cost, net of accumulated depreciation and any recognised impairment loss. Depreciation is provided so as to write off the cost of assets, less their estimated residual values, over their useful lives using the straight line method, as follows:

Inventories

Inventories are stated at the lower of cost and net realisable value. Cost is calculated using the weighted average cost method. Cost includes materials, direct labour, depreciation of manufacturing assets and an attributable proportion of manufacturing overheads based on normal levels of activity. Net realisable value is the estimated selling price, less all estimated costs of completion and costs to be incurred in marketing, selling and distribution.

If net realisable value is lower than the carrying amount, a write down provision is recognised for the amount by which the carrying amount exceeds its net realisable value.

Inventories manufactured prior to regulatory approval are capitalised as an asset but provided for until there is a high probability of regulatory approval of the product. At the point when a high probability of regulatory approval is obtained, the provision is adjusted appropriately to adjust the carrying value to expected net realisable value, which may not exceed original cost.

Adjustments to the provision against inventories manufactured prior to regulatory approval are recorded as a component of research and development expenditure. Adjustments to the provision against commercial product related inventories manufactured following achievement of regulatory approval are recorded as a component of cost of goods.

Taxation

The tax expense represents the sum of the tax currently payable or recoverable and deferred tax.

The tax payable or recoverable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the consolidated income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group's liability for current tax is calculated using tax rates and laws that have been enacted or substantively enacted by the balance sheet date.

Deferred tax is the tax expected to be payable or recoverable on differences between carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised only to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from the initial recognition of goodwill or from the initial recognition (other than in a business combination) of assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates, and interests in joint ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised based on tax laws and rates that have been enacted at the balance sheet date. Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited in other comprehensive income, in which case the deferred tax is also dealt with in other comprehensive income.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis.

Earnings per Share

Basic earnings or loss per share represents the profit or loss for the year, divided by the weighted average number of ordinary shares in issue during the year, excluding the weighted average number of ordinary shares held in the GW Pharmaceuticals All Employee Share Scheme (the "ESOP") during the year to satisfy employee share awards.

Diluted earnings or loss per share represents the profit or loss for the year, divided by the weighted average number of ordinary shares in issue during the year, excluding the weighted average number of shares held in the ESOP during the year to satisfy employee share awards, plus the weighted average number of dilutive shares resulting from share options or warrants where the inclusion of these would not be antidilutive.

Share-based Payment

Equity-settled share-based payments to employees and others providing similar services are measured at fair value (excluding the effect of non-market based vesting conditions) at the date of grant.

The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Group's estimate of shares that will eventually vest. At each balance sheet date, the Group revises its estimate of the number of equity instruments expected to vest as a result of the effect of non-market based vesting conditions. The impact of the revision of the original estimates, if any, is recognised in profit or loss such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to equity reserves.

Equity-settled share-based payment transactions with parties other than employees are measured at the fair value of the goods or services received, except where that fair value cannot be estimated reliably, in which case they are measured at the fair value of the equity instruments granted, measured at the date of grant. 

3. Business Segments

Information reported to the Group's Board of Directors for the purposes of resource allocation and assessment of segment performance is focused on the stage of product development. The Group's reportable segments are as follows:

·; Sativex Commercial: The Sativex Commercial segment promotes Sativex through strategic collaborations with major pharmaceutical companies for the currently approved indication of spasticity due to MS. Sativex Commercial segment revenues include product sales, and licensing fees in the form of licence collaboration, technical access fees, development and approval milestones and sales milestones.

·; Sativex Research and Development: The Sativex Research and Development segment seeks to maximise the potential of Sativex through the development of new indications. The current focus for this segment is the Phase III clinical development program of Sativex for use in treatment of cancer pain. Sativex research and development segment revenues consist of research and development fees charged to Sativex licensees.

·; Pipeline Research and Development: The Pipeline Research and Development segment seeks to develop cannabinoid medications other than Sativex across a range of therapeutic areas using our proprietary cannabinoid technology platform and partnerships with international scientists. The Group has two product candidates in Phase II trials in the field of diabetes and inflammation, as well as pre-clinical research programs evaluating the use of selected cannabinoids for the treatment of glioma, epilepsy and psychiatric illness. Pipeline Research and Development segment revenues consist of research and development fees charged to Otsuka under the terms of our pipeline research collaboration agreement.

The accounting policies of the reportable segments are the same as the Group's accounting policies described in Note 2. Segment result represents the result of each segment without allocation of share-based payment expenses and before management and administrative expenses, interest expense, interest income receivable and tax. This is the measure reported to the Group's Board of Directors for the purpose of resource allocation and assessment of segment performance.

No measures of segment assets and segment liabilities are reported to the Board of Directors in order to assess performance and allocate resources. Intersegment activity has been eliminated. There are no intersegment sales and all revenue is generated from external customers.

For the Year Ended 30 September 2012

For the Year Ended 30 September 2011

Geographical analysis of revenue:

All revenue and profits before taxation originated in the UK. All assets and liabilities are held in the UK.

4. Research and Development Expenditure

5. Share-based Payment

Charges for share-based payment have been allocated to the research and development and management and administrative expenses lines of the consolidated income statement as follows:

In previous periods, share-based payment was disclosed as a separate line on the face of the income statement. This presentational change has resulted in a restatement of the prior year comparatives to reflect this amendment.

6. Tax Credit

The UK Corporation tax credit relates to research and development expenditure claimed under the Finance Act 2000.

At 30 September 2012 the Group had tax losses available for carry forward of approximately £40.9m (2011: £46.0m). The Group has not recognised deferred tax assets relating to carried forward losses, of approximately £9.4m (2011: £11.4m). In addition, the Group has not recognised deferred tax assets relating to other temporary differences of £0.3m (2011: £0.4m). These deferred tax assets have not been recognised as the Group's management considers that there is insufficient future taxable income, taxable temporary differences and feasible tax-planning strategies to overcome cumulative losses and therefore it is probable that the relevant deferred tax assets will not be realised in full.

7. Earnings per Share

The calculations of earnings per share are based on the following data:

The weighted average number of shares in 2011 has been adjusted to take into account the deduction of the ESOP trust ordinary shares and the addition of the potentially dilutive warrants. This has not impacted basic or diluted earnings per share.

8. Inventory

Inventory is stated net of a provision for inventories, calculated in accordance with the accounting policy set out in Note 2. The movement in the provision for inventories is as follows:

Inventory with a carrying value of £2.3m is considered to be recoverable after more than one year (2011: Nil).

9. Financial Assets

Trade and other receivables

10. Financial Liabilities

Trade and other payables

11. Deferred Revenue

Deferred licence, collaboration and technical access fee revenues result mainly from the up-front licence fees received in 2005 of £12.0 million from Almirall S.A. (deferred revenue balance as at 30 September 2012 - £6.6 million, and 30 September 2011 - £7.4 million) and collaboration and technical access fees from other Sativex licensees. Amounts deferred under each agreement will be recognised in revenue as discussed in Note 2.

Advance payments received represents payments for research and development activities to be carried out in the next financial year on behalf of Otsuka. These amounts will be recognised as revenue in future periods as the services are rendered.

12. Share Capital

As at 30 September 2012 the authorised share capital of the Company and the allotted, called-up and fully paid amounts were as follows:

Changes to the number of ordinary shares in issue have been as follows:

13. Availability of Information

A copy of this statement is available from the company website at www.gwpharm.com or from the Company Secretary at Porton Down Science Park, Salisbury, Wiltshire, SP4 0JQ.