Earlier this year, GW Pharmaceuticals (NASDAQ:GWPH) stock rallied on clinical success with its cannabis-derived epilepsy treatment. After falling more than 40% in the first months of 2016, the volatile marijuana stock is up about 16% year to date.
After the recent run-up, there are a few reasons to believe GW Pharmaceuticals could rise even further. Here are a couple of near-term catalysts to watch for, as well as an important development that could help the stock keep packing on gains.
Continued clinical success
This March, GW Pharma soared on news that its first pivotal phase 3 trial had success in patients with a rare, severe form of epilepsy known as Dravet syndrome. Most patients in the study had tried more than four antiepileptic drugs without success. Dravet patients receiving Epidiolex saw a significant 39% reduction in monthly seizures versus a 19% reduction among patients receiving a placebo, which catapulted the stock. A similar phase 3 win for Epidiolex among patients with a slightly more common form of epilepsy, Lennox-Gastaut syndrome, kept the stock rising in June.
Results from these two Epidiolex studies are highly encouraging, but ongoing phase 3 trials could cement and expand its potential. First up is a larger phase 3 trial with Lennox-Gastaut patients that includes a lower dose, with results expected at the end of September. Further ahead, GW Pharma expects results from another phase 3 trial, which is currently enrolling Dravet patients, next year.
Beyond the relatively limited Lennox-Gastaut and Dravet indications, GW Pharma is recruiting 200 patients with tuberous sclerosis complex for a phase 3 trial and intends to begin a clinical study in a fourth indication -- infantile spasms -- in the present quarter. Success in these indications would increase Epidiolex's addressable patient population significantly. Combined, roughly three in 10,000 people suffer from these two rare disorders, although incidence rates at birth are much higher.
Dual Epidiolex applications
It's too early for timelines on possible infantile spasm and tuberous sclerosis applications, but GW Pharmaceuticals will probably submit a combined application for Lennox-Gastaut and Dravet in the near future. Following Epidiolex's first phase 3 success among Dravet patients, management scheduled a meeting with the FDA to discuss a new drug application (NDA) for Epidiolex. During the discussions, agency staff noted the more recent phase 3 success among Lennox-Gastaut patients. The ensuing discussions made GW Pharma's chief medical officer, Stephen Wright, "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."
In other words, applications for treatment of both indications could follow phase 3 Dravet results expected this September. Results from the still-enrolling Lennox-Gastaut trial would be added to the application as they become available.
This could save the emerging Epidiolex salesforce a lot of legwork. Lennox-Gastaut affects roughly three times as many Americans as Dravet, but sales representatives will probably pitch Epidiolex to the same neurologists for both indications. A simultaneous approval could help GW Pharma's reps avoid retracing their steps.
GW Pharmaceuticals has global commercial rights to Epidiolex as a liquid formulation of purified plant-derived cannabidiol, but there are significant concerns that cannabis in its natural form might offer similar benefits. A definitive study proving that a natural strain of cannabis could offer benefits comparable to Epidiolex would blast a hole through GW Pharma's pricing power. Luckily for the company, the Drug Enforcement Agency (DEA) recently alleviated those worries by deciding to continue labeling marijuana a Schedule 1 drug.
The highly restrictive label makes it nearly impossible to conduct clinical research with natural cannabis, creating a regulatory Catch-22 that could remain in effect indefinitely. You see, the DEA based its decision on a recommendation from the Department of Health and Human Services, which based its recommendation on an FDA review that cited a lack of available evidence to determine that marijuana in its natural state has an accepted medical use. But that lack of available evidence cited by the FDA is, of course, a direct result of marijuana's Schedule 1 status, which is enforced by the DEA.
In the numbers
An approval for treating Dravet and Lennox-Gastaut would give Epidiolex an addressable market of roughly 20,000 U.S. patients, which might be just enough to bring GW Pharmaceuticals to the edge of profitability. GW Pharmaceuticals' operations lost $24.5 million in its fiscal third quarter, ended in June, and it's on pace to report operating losses in excess of $100 million this fiscal year.
The company has a lot of moving pieces, but with a bit of luck it could generate positive, sustainable cash flows within the next few years. It's unusual for drugmakers to announce pricing details ahead of a product's commercial launch, but the advantage Epidiolex has shown over existing existing options should allow much higher pricing than most antiepileptics. If we assume an annual price of $10,000 per year, an optimistic 50% share of available patients would lead to roughly $100 million in annual U.S. sales alone.
GW Pharmaceuticals has the makings of a long-term winner, but investors should tread carefully. Considering the company's market cap of about $1.8 billion at recent prices, it appears some success for Epidiolex is already baked into the stock price. Its first drug, Sativex, for treatment of multiple sclerosis spasticity, hasn't been terribly successful, although its limited availability is partially to blame (the FDA hasn't approved it). The slightest hint that Epidiolex is another flop, if approved, could lead to swift losses.