Should You Buy This Marijuana Stock?

Shares of GW Pharmaceuticals (NASDAQ: GWPH  ) have risen nearly 700% since it was listed on the NASDAQ last May, making it one of the top-performing companies over the last 12 months. Should you buy GW Pharmaceuticals, or will this biopharmaceutical marijuana play go up in smoke?

Business lines
GW Pharmaceuticals is in the cannabinoid prescription product business, with its flagship product Sativex treating muscle spasticity in MS patients. It is currently approved for sale in 25 countries.

The company has license agreements with Otsuka Pharmaceutical, which has commercialization rights to Sativex in the U.S., and Novartis (NYSE: NVS  ) , which has commercialization rights to Sativex in Australia, New Zealand, and parts of Asia and the Middle East.

GW Pharmaceuticals is working to get FDA approval for Sativex in the U.S. for muscle spasticity in MS patients and is also working to get FDA approval for the drug to treat pain in cancer patients. The company is also working on developing Epidiolex for the treatment of childhood epilepsy.

Business strategy
GW Pharmaceuticals seems to be pinning its hopes for success on receiving FDA approval for its products in order to tap the lucrative U.S. market. It is currently planning for Phase 3 trials to commence in 2014 for Sativex in the U.S. for spasticity in MS patients. Phase 3 trials for Sativex to treat pain in cancer patients are currently under way, with results expected in the second half of 2014.

These trials are being funded by Otsuka with the intent of submitting an application for New Drug Approval with the FDA upon successful Phase 3 results. GW Pharmaceutics estimates there are 320,000 MS patients in the U.S. affected by spasticity and that there are 420,000 advanced cancer patients in the U.S. suffering from inadequate pain relief from optimized chronic opioid therapy. The FDA has also granted GW Pharmaceutics Orphan Drug Designation for Epidiolex to treat Dravet and Lennox-Gastaut syndromes. 

Sounds promising, but...
GW Pharmaceuticals' success hinges on being able to successfully commercialize Sativex and its other products, which relies on receiving regulatory approvals from the FDA and other governments worldwide (which are far from guaranteed.) Even with government approvals, Sativex faces an uphill battle regarding physician willingness to prescribe and patient willingness to use.

GW Pharmaceuticals admits that it has to rely on government health care systems and insurance companies to reimburse patients, as otherwise most patients won't be able to afford their products. More disturbing than these risks is the fact that Sativex's sales have actually declined over the past three years, despite the drug receiving approval in new countries.

Things don't look any better for the most recent quarter, either. GW Pharmaceutics reported second quarter revenue of $12.6 million last week, and the company suffered a quarterly operating loss of $11.8 million. With a market cap of close to $1 billion, this lack of revenue should be a concern to investors.

GW Pharmaceuticals completed a follow-on offering back in January, which raised roughly $94 million, resulting in cash and cash equivalents of $159 million as of March 31. The company is funded for the time being, but mounting research costs coupled with low revenue mean that the company may be forced to further dilute shareholders with another follow-on offering at some point down the road.

Foolish bottom line
The success or failure of GW Pharmaceuticals seems to hinge on both receiving FDA approval for its products and being able to successfully commercialize them. With sales of Sativex struggling and with FDA approval far from certain, it seems the current market cap of just over $1 billion is unjustified at this time.

Potential investors should pay careful attention to the results of the phase 3 clinical trials for Sativex in the U.S. Any negative results or any indication from the FDA that these products won't receive approval would further erode positive feeling about the stock.

Don't let your portfolio go up in smoke. You can invest like Warren Buffett instead!
Imagine a company that rents a very specific and valuable piece of machinery for $41,000… per hour (that’s almost as much as the average American makes in a year!). And Warren Buffett is so confident in this company’s can’t-live-without-it business model, he just loaded up on 8.8 million shares. An exclusive, brand-new Motley Fool report details this company that already has over 50% market share. Just click HERE to discover more about this industry-leading stock… and join Buffett in his quest for a veritable landslide of profits!

Read/Post Comments (1) | Recommend This Article (5)

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 May 27, 2014, at 2:47 PM, titusicanbe wrote:

    have heard that GWPH is growing industrial amounts of medical marijuana for the U.S.

    Any comment?


Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2965734, ~/Articles/ArticleHandler.aspx, 8/29/2015 2:25:53 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Charles Sherwood

Charles is a long term buy and hold investor who is fascinated with investing and the marketplace.

Today's Market

updated 5 hours ago Sponsored by:
DOW 16,643.01 -11.76 -0.07%
S&P 500 1,988.87 1.21 0.06%
NASD 4,828.33 15.62 0.32%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

8/28/2015 3:59 PM
GWPH $109.38 Up +1.12 +1.03%
GW Pharmaceuticals… CAPS Rating: **
NVS $98.35 Down -0.29 -0.29%
Novartis CAPS Rating: ****