This Medical Marijuana Stock Is Not What You Think

Despite its research into marijuana, GW Pharmaceuticals (NASDAQ: GWPH  ) isn't going to run into legal troubles.

Unlike many of the medical-marijuana companies producing and selling marijuana in states where it's legal, GW Pharmaceuticals isn't stuck in limbo where state laws permit the sale of marijuana but federal laws still say it's illegal.

Source: GW Pharmaceuticals

Instead, GW Pharmaceuticals is staying well within the federal laws with plans to seek approval by the Food and Drug Administration to sell its marijuana-derived prescription drugs.

Which explains why GW Pharmaceuticals is a $685 million company while most of the medical marijuana companies are penny stocks.

A different kind of risk
GW Pharmaceuticals doesn't have to deal with legal uncertainty, but like any biotech company, GW Pharmaceuticals has to get its prescription drugs approved by the FDA. If it can't, GW Pharmaceuticals is in no better position than the penny stocks.

GW Pharmaceuticals' lead product, Sativex, is approved in Europe to treat spasticity due to multiple sclerosis where it's sold by partners Almirall and Bayer HealthCare. It's never going to reach the sales level of Biogen Idec's (NASDAQ: BIIB  ) Avonex or Teva Pharmaceuticals' (NYSE: TEVA  ) Copaxone -- both multi-billion dollar multiple sclerosis products -- because it's only used to treat spasticity, the tightening of muscles or involuntary contractions, while Biogen's and Teva's drugs are given continuously to treat patients that may only have occasional attacks. Shipments of Acorda Therapeutics' (NASDAQ: ACOR  ) spasticity treatment Zanaflex reached $60 million in 2011 before the drug hit generic competition .

That's nothing to get too excited about, especially since Sativex will probably only be used in patients where generic Zanaflex isn't working. In the U.S., GW Pharmaceuticals isn't even prioritizing approval for multiple sclerosis spasticity.

Its lead indication is in cancer pain. A phase 3 trial with its U.S. partner Otsuka Pharmaceutical testing Sativex in cancer pain will read out toward the end of this year. It's potentially a larger market -- sales of Teva's pain medication Actiq peaked at more than $600 million -- but the sales potential will depend on how well Sativex reduces pain, its side effects, and the potential for abuse. There are quite a few opioid pain medications that are available as cheap generics, but they can cause constipation as a side effect, which could give Sativex a leg up.

For multiple sclerosis spasticity, GW plans to start a phase 3 trial in the second half of this year to get the drug approved in the U.S.

A pot full of drug candidates
Beyond Sativex, GW Pharmaceuticals is developing Epidiolex, another marijuana-derived chemical called, cannabidiol, or CBD, for two types of childhood epilepsy: Dravet and Lennox-Gastaut. Independent investigators are currently testing Epidiolex on their own, and GW plans to start a clinical trial in the second half of this year, which would put it on track to start pivotal trials in 2015.

GW also has four other marijuana-derived drugs in its pipeline, for a variety of other diseases including diabetes, schizophrenia, and lucerative colitis.

Source: GW Pharmaceuticals

Risk and reward
Investors need to forget that GW Pharmaceuticals is a medical marijuana stock and treat it like any other drug company. There's plenty of upside from here; if Sativex can produce sales of $500 million, it's not hard to see GW Pharmaceuticals being valued at $2.5 billion. However, the stock has been very volatile over the last few months.

GWPH Market Cap Chart

GWPH Market Cap data by YCharts

And there's risk that the company won't get Sativex approved or that it won't sell well if clinical trials show that it's not better than generic pain medications. I like the risk-reward situation here, at a market cap under $700 million, than I did when the company was over $1.2 billion, but only for an investor that's willing to hold for multiple years.

In this biotech market, it's hard to say whether GW Pharmaceuticals has hit bottom, especially since it's trading considerably higher than it was a year ago. Investors may need to wait until one of the other pipeline drugs is approved before GW Pharmaceuticals reaches its full potential.

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Read/Post Comments (3) | Recommend This Article (4)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 19, 2014, at 11:51 PM, SELLmtg wrote:

    My opinion: Buy ERBB (Tranzbyte Corp)

    ERBB successfully unveiled its ZaZZZ marijuana

    vending machine on 4/12 in Avon,CO. ERBB gets

    more orders from dispensaries for its ZaZZ right

    after unveiled (Yahoo,finance, news 4/16) and more

    orders to come. ERBB=0.0563 (went up 8.2% on

    4/17) and will go up higher. ZaZZZ is coming to

    California (Source: LA Times) and other states.

    ERBB's ZaZZZ is an age-verifying, face-verifying,

    marijuana vending machine that is a winner.

  • Report this Comment On April 20, 2014, at 4:55 AM, PReynoldsCLEAR wrote:

    For the benefit of those who have fallen for the great GW Pharma confidence trick, allow me to set out a few facts that have been covered up, twisted and distorted.

    1. With the connivance of the UK Home Office and government, GW Pharmaceuticals has been allowed to develop a monopoly cannabis business against all the provisions of the Misuse of Drugs Act 1971 and the UN Single Convention on Narcotic Drugs 1961. Cannabis is a very effective and safe medicine for a wide variety of conditions but in order to facilitate GW’s monopoly, the British public has been systematically misled and misinformed by government propaganda. Most seriously, people in pain, suffering and disability, seeking to provide their own cannabis medicine, have been ruthlessly and cruelly pursued by a corrupt law enforcement policy.

    2. Sativex IS cannabis. It is pharmacologically identical to the plants from which it is made. It is NOT just an extract of THC and CBD, it contains all the cannabinoids, terpenes, flavonoids and other compounds included in cannabis. As GW founder and chairman, Geoffrey Guy, says “Most people in our industry said it was impossible to turn cannabis into a prescription medicine. We had to rewrite the rule book. We have the first approval of a plant extract drug in modern history. It has 420 molecules, whereas every other drug has just one.”

    3. Sativex DOES get you high, just as every form of cannabis (except industrial hemp). See the Sativex Summary of Product Characteristics (SPC) which describes “euphoric mood” as a “common” side effect.

    4. GW’s licence to cultivate cannabis issued in 1998 was for research purposes only. Since at least 2003, GW has been involved in commercial exploitation of cannabis and has therefore been acting unlawfully. The Home Secretary RETROSPECTIVELY LEGALISED GW’s licence by statutory instrument dated 13th March 2013. For the 10 years prior to that, GW, its directors and employees should have been subject to the same criminal penalties as anyone else producing a class B drug.

    5. GW is engaged with the Home Secretary in an unlawful conspiracy falsely to distinguish Sativex from cannabis.Note that when re-scheduling Sativex in schedule 4 it has used a 75 word definition whereas every other drug in all five other schedules is defined by one word. The definition of Sativex even includes its method of delivery by an oral-mucosal spray. No other drug is scheduled by its method of delivery.

    6. GW is engaged with the Home Secretary in an unlawful conspiracy to protect its unlawful monopoly of medicinal cannabis with the support of the British police which acts as armed enforcers of a private commercial interest.

    7. The Home Office overrides doctors prescriptions for medicinal cannabis produced by Bedrocan, the Dutch government’s official producer. Home Office officials intimidate and threaten GPs who write such prescriptions.

    8. Sativex is fantastically expensive. The NHS is charged at least 10 times the price for Sativex that organised crime sells cannabis for on the streets and between six and 17 times what Bedrocan is available for.

  • Report this Comment On April 21, 2014, at 2:43 AM, lucrevision wrote:

    PrReynoldsClear--You are the first person I have come across speaking about these issues---The following is from a patent website discussing patent law concerning U.S. Patent No. 6,630,507 for controlling cannabinoids---

    "Can someone help me here? So lemme get this straight-the Us Gov owns a patent on the APPLICATION OR USE of 26 discrete cannabinoids for specific illness. So does that not create a stranglehold on their use by smaller businesses, competitors etc etc? and essentially does that not mean they own those cannabinoids by default, in the sense that NOONE else can use them for any of the specific maladies that everyone is beginning to understand they can be used for…what is the essential difference? If i patent “using” a hammer for nailing a nail, but not the hammer itself then am I not essentially destroying everyones ability to use the hammer for building without paying me? Is this not the equivalent?

    In response

    Although this contained some good information, to suggest that we “don’t blame patent law” is ludicrous. What the government owns is a blanket patent on the use of CBD’s for neuroprotective and antioxident treatments. The only medicinal benefits of CBD’s are neuroprotective and antioxident. They effectively patented cannabis / CBD for medicinal purposes across the board without having to patent the plant.

    So the funny thing is is that in one of the GWpharma broadsides i wade through I noticed they are in litigation with the Us Gov, over patent claims. I believe we are seeing an attempt under the radar to establish a whole new set of patent laws and the giants are clashing behind the scenes.

    http://inventingpatents.com/us-patent-66305070-methods-using...

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