What happened

Ahead of quarterly earnings and in anticipation of its planned FDA filing for Epidiolex's approval, shares in GW Pharmaceuticals (NASDAQ:GWPH) jumped 11.5% in July, according to S&P Global Market Intelligence.

So what

GW Pharmaceuticals is at the forefront of research into the use of marijuana-derived cannabinoids as medicine.

A marijuana plant grows out of a pile of coins.

IMAGE SOURCE: GETTY IMAGES.

It already markets a THC-based drug, Sativex, for muscle spasms in multiple sclerosis patients, and soon, it may win FDA approval of a second drug, Epidiolex, for use in epilepsy patients.

Unlike Sativex, Epidiolex is cannabidiol, the non-psychoactive cannabinoid found in cannabis. In trials, Epidiolex reduced monthly seizures by about 40% in patients with rare forms of epilepsy, such as Dravet syndrome and Lennox Gastaut syndrome.

Epidiolex's clinical trial success led GW Pharmaceutical's management to target a filing for FDA approval by mid-year this year. Optimism that that could mean a filing by the end of July contributed to the rally in its shares.

Investors also bid shares up ahead of the company's fiscal Q3 results, which were released on August 7.

In the quarterly report, management said it has begun its FDA filing for Epidiolex's approval; however, it also indicated the filing wouldn't be complete until this fall. Nevertheless, the company says it's on target to begin selling Epidiolex if it wins approval in 2018. 

Now what

GW Pharmaceuticals has spent big money researching marijuana as medicine, but so far, Sativex's sales are a rounding error. The company hopes Epidiolex will be a much different story. There aren't many Dravet syndrome patients, but there are 30,000 Lennox Gastaut patients in the U.S., and depending on pricing, those indications could provide meaningful revenue to support its other research programs, including studies of marijuana in glioblastoma patients.

There's a big need for new epilepsy treatments; however, there is some competitive uncertainty facing GW Pharmaceuticals. Zogenix (NASDAQ:ZGNX), for example, expects to report Dravet syndrome trial results for its ZX008 this quarter. If results are good, then a filing could come sometime next year after data from a second Dravet syndrome trial are available. Insys Therapeutics (NASDAQ:INSY) also has a cannabidiol research program underway that could pose a threat to Epidiolex someday.

Nevertheless, Epidiolex's market opportunity makes this company an intriguing stock to watch. Assuming the filing is complete this fall, an FDA decision could come as soon as mid-2018.

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.