GW Pharmaceuticals (NASDAQ:GWPH) is developing marijuana-based medicine for epilepsy, and following positive results in multiple epilepsy trials last year, the company's shares have surged higher. With share prices near 52-week highs and a market cap of more than $3 billion, investors are right to wonder if there's more room left to climb.

Delivering hope

There are 3 million Americans and 65 million globally struggling with epilepsy, and while anti-epileptics help reduce seizures for many patients, a significant proportion of patients fail to respond adequately to them.

A large indoor marijuana growing facility operated by GW Pharmaceuticals.

A GW Pharmaceuticals' marijuana growing facility. Image source: GW Pharmaceuticals, Plc.

Currently, GW Pharmaceuticals hopes to provide a new treatment option to patients diagnosed with rare forms of childhood onset epilepsy. Specifically, the company has been evaluating Epidiolex in patients with Dravet syndrome and Lennox-Gastaut syndrome.

Epidiolex is purified cannabidiol, or CBD, a non-psychoactive chemical cannabinoid found in marijuana. Last year, GW Pharmaceuticals management released data from three separate trials demonstrating that using Epidiolex in Dravet syndrome and Lennox-Gastaut syndrome can reduce monthly seizure rates by 40% from baseline. Epidiolex was also found to be well-tolerated.

The findings are especially intriguing because patients participating in GW Pharmaceutical's Epidiolex trials had previously tried and failed many other medicines. For example, patients in one of the Lennox-Gastaut trials had previously been treated with a median six prior therapies before trying Epidiolex.

Clearly, treating patients diagnosed with these two forms of epilepsy is tough, but these patients may not be the only ones who might benefit from Epidiolex.

According to GW Pharmaceuticals, roughly one-third of the 470,000 patients with childhood epilepsy are inadequately treated by existing medications. Given the 200,000 new cases of epilepsy diagnosed and the tens of thousands of patient deaths annually because of seizure related conditions, there's a big unmet need for new, more effective therapies.

Building a moat

Using CBD to reduce the number of seizures in epilepsy isn't new, but until now, patients have based their use of high CBD marijuana strains, such as Charlotte's Web, on anecdotal evidence.

Now that GW Pharmaceuticals appears to have scientific proof backing up the use of CBD in epilepsy, the company plans to file for FDA approval of Epidiolex this year. Assuming that the FDA reviews that application within its normal timeline, that could mean Epidiolex becomes commercially available in 2018.

So far, GW Pharmaceuticals has been mum on what it expects to charge for Epidiolex, but existing anti-epileptic medicines can cost patients thousands of dollars per year, and since there are 30,000 Lennox-Gastaut syndrome patients in the U.S. alone, similar pricing would suggest Epidiolex has nine figure sales potential.

Patients substituting heavy CBD strains purchased at medical marijuana dispensaries for Epidiolex, however, could crimp Epidiolex's sales potential. That competitive threat may not be lost on GW Pharmaceuticals' management, because according to Leafly, GW Pharmaceuticals supports bills in at least two states that could limit the availability of CBD that's not "FDA approved." Leafly reports GW Pharmaceuticals has retained lobbyists in nine state capitals, a move that could indicate the company wants to establish a legislative moat around Epidiolex to maximize its prescription volume and sales.

Looking forward

GW Pharmaceuticals is getting its pre-commercialization ducks-in-a-row, and part of that process includes making sure that Epidiolex has a clear pathway from prescription to patients.

Understandably, the company wants to ensure that its trial results only lead to Epidiolex's use, not the use of other CBD alternatives. If GW Pharmaceuticals can limit competition from other CBD options, then Epidiolex has a better shot at justifying the company's significant spending on its development.

There's a big unmet need in this indication, and while there's no guarantee that the FDA will approve Epidiolex, I think there's a good shot at it happening. If so, then a nationwide roll-out of it could lead to hundreds of millions of dollars in sales, and trials to expand its use in other types of epilepsy could propel it to billion dollar blockbuster status. In that scenario, then it would seem that GW Pharmaceuticals' shares could still head higher, especially if lobbying successfully limits competition from CBD heavy strains that don't have the FDA seal of approval.

 

Todd Campbell has no position in any stocks mentioned. His clients may have positions in the companies mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.