Shares in marijuana medicine-maker GW Pharmaceuticals plc (NASDAQ:GWPH) have been on a tear. From the end of May 2013, when the company's shares first began trading on the Nasdaq, through Friday, its shares have skyrocketed 1,187%. For perspective, a $10,000 investment in GW Pharmaceuticals made back then would be worth an eye-popping $128,730 today.

Is this medical marijuana company just getting started, or is the party about to come to an end?


Some background

Marijuana advocates have been cheering empirical evidence of marijuana's benefits as medicine for a while, but the medical marijuana movement has really heated up over the past 10 years.

Pro-pot policymakers have passed laws in 29 states allowing marijuana possession -- in some form -- for medical use, and thanks to the trend, the medical marijuana market is worth billions of dollars annually.

The lion's share of that market is currently controlled by state-licensed dispensaries selling strains of marijuana that have been cultivated to better help patients with specific maladies, such as epilepsy.

However, that could change with GW Pharmaceuticals' efforts to develop and study purified formulations of cannabinoids (the active chemical compounds in marijuana) in placebo-controlled studies.

The company has already launched one marijuana medicine, Sativex, a THC drug available in Europe for multiple-sclerosis spasticity. The company could launch a second drug as soon as late next year.

Earlier this year, GW Pharmaceuticals reported data from three separate trials showing that Epidiolex, a purified version of cannabidiol, reduces seizures in patients with hard-to-treat forms of childhood-onset epilepsy. Specifically, patients with Dravet syndrome and Lennox-Gastaut syndrome (LGS) who received Epidiolex saw their monthly seizure rates fall by about 40%.

Those results are impressive, and if results from a fourth trial are similar, then an FDA filing could follow shortly thereafter. Assuming an expedited review, Epidiolex could become available in the U.S. by the end of 2017.


What's next

Assuming Epidiolex aces its final study, then this company could end up with a nine-figure seller on its hands. There are about 30,000 patients with Dravet and LGS in the U.S., and existing antiepileptic medications can cost thousands of dollars per year. For instance, pregabalin (Lyrica), which is often used as an add-on epilepsy therapy, and Supernus Pharmaceuticals' (NASDAQ:SUPN) Trokendi XR, which is used in some LGS patients, cost hundreds of dollars per month.

Management estimates about 36% of childhood epilepsy cases are resistant to current therapy, so assuming a $2,500 annual price point, and rapid adoption by treatment-resistant Dravet and LGS patients, Epidiolex could generate $25 million in annual sales out of the gate. If Epidiolex captures 100% of Dravet and LGS patients, then that opportunity climbs to $75 million.

Epidiolex's addressable market, however, could be much bigger than that. The company is conducting expansion studies in other seizure indications, and management estimates it could eventually fight for market share in a patient population totaling 140,000 treatment-resistant children in the U.S. If it can treat that many patients, then this drug could do $350 million, or more, depending on pricing.

That's exciting, but investors may already be pricing a lot of that into GW Pharmaceuticals' shares. Currently, the company's market cap is $2.87 billion, and that's arguably rich when you consider that Supernus' market cap is only $1.2 billion, and Supernus' Trokendi XR is already selling at a $184 million annualized clip.

Overall, GW Pharmaceuticals could be about to reshape epilepsy treatment. But ultimately, whether this stock continues to run higher will depend a lot on the company's pricing strategy and its ability to convince insurers to pay.