A Promising Step for Medical Marijuana

This week, GW Pharmaceuticals (GWPH) had an advisory committee meeting regarding its epilepsy drug Epidiolex, and the results were exciting for both the drug itself and the U.S. medical marijuana industry at large.

In this week's episode of Industry Focus: Healthcare, analyst Kristine Harjes and Motley Fool contributor Shannon Jones explain why the results were so promising, what this could mean for the future of medical marijuana, and a few important things investors need to know about GW before diving in.

Also, they take a look at Biogen's (BIIB 0.29%) recent deal with Ionis (IONS 0.81%). Find out what both companies are getting out of it and why it doesn't speak so well for Biogen's prospects.

A full transcript follows the video.

This video was recorded on April 25, 2018.

Kristine Harjes: Welcome to Industry Focus, the podcast that dives into a different sector of the stock market every day. We're talking Healthcare today, April 25th. I'm your host, Kristine Harjes. My usual guest, Todd Campbell, is taking a well-deserved vacation, so, instead, joining me in studio today is Motley Fool healthcare analyst Shannon Jones. Shannon. It's the first time we've ever done a show together, and I'm thrilled to have you here!

Shannon Jones: Not nearly as thrilled as I am, Kristine. So excited to be here on the show with you today!

Harjes: Awesome! We're going to be digging into Biogen and its most recent deal with Ionis. But first, let's kick off with some discussion of a topic we heard some demand for on our Twitter account @MFIndustryFocus -- some developments for the largest cannabinoid-based drug maker, GW Pharmaceuticals. Shannon, what's the latest?

Jones: Last Thursday, April 19th -- 4/19, not 4/20 [laughs] -- GW Pharmaceuticals had an advisory committee meeting, and that meeting actually turned out pretty well, pretty in favor of the company. It was a unanimous positive vote for their drug Epidiolex that has been under review for severe forms of childhood epilepsy.

Harjes: Which is great news for GW Pharmaceuticals. Typically, the advisory committee meeting will happen before a PDUFA, particularly if the FDA is looking at something that's a novel type of drug or if there are any other sorts of questions surrounding its approval, where they want a little bit more guidance from a full panel of people who are experts on the topic. Typically, they will follow what the advisory committee decides. A study of these decisions that were made between 2007 and 2010 noted that the FDA followed its advisory committee's advice 74% of the time, and only three out of 120 times overruled a no committee vote to approve a drug. So, a little bit of context about the fact that this is a very good sign for this drug, which would be the first time that a cannabis-based drug could potentially be approved in the U.S.

Jones: Exactly. One thing to underscore for our listeners is, FDA advisory committee meetings are tremendously educational. For anyone who's never watched one on TV, they broadcast them live on the webcast. Not only do you gain insight into the merits of a drug's application, but really, and what I think is even more valuable, is that you get a sense of how the FDA reviews an application, and where are the deficiencies. You can learn so much from those committee meetings. Just like you said, Kristine, it's an expert panel of key opinion leaders. It's the FDA and their top reviewers. Then, you also get to hear really touching patient stories, as well. So, I highly recommend that. And in the case of GW Pharmaceuticals, pretty rare when you get a unanimous positive vote from an FDA advisory committee, as well.

Harjes: And I do think that people who were watching were expecting this because of some documentation that was released prior to the committee meeting. On Tuesday of last week, a background document to be used in the meeting was released, and it appeared to support the drug. It talked a little bit about the risk profile of the drug, particularly as it compares to the drug's efficacy. Ultimately, it came to the conclusion that the risk-benefit profile that was established by the data appears to support the approval for this drug, which treats a couple of rare forms of childhood-onset epilepsy known as Dravet syndrome and Lennox-Gastaut syndrome.

Jones: Exactly. And really, for the children that were involved in the study, it's important to note, these were very sick children. There was one patient in particular whose mom referenced that she was having up to 40-50 seizures per week before taking the drug. And during the trial, it actually dropped down to a few and even none for some weeks during the trial. So, huge benefit.

In particular, the advisory committee panel looked at the merits of their efficacy trials, which, they saw that it met the primary endpoint of reducing seizure frequency from baseline, showed a 40% reduction there. And even more importantly, when you talk about efficacy, you also have to balance that with the risk. And in this study, there were some adverse events. Specifically, the biggest one was some liver toxicity concerns. But really, the good thing there -- and of course, with any drug, there are going to be some side effects -- but, the side effects that were seen A, could be monitored, and B, can be managed. So, I think what you saw from this panel was that overall, the risk-to-benefit profile was favorable for the drug.

Harjes: Yeah, absolutely, particularly when you consider epilepsy drugs, many patients become resistant to them over time. They come with a huge side effect burden. And when you look at the patients that were in this study, many of them had failed multiple, multiple different epilepsy medications. So, when you compare what these patients had faced as their prospects to what they experienced when they were actually in this trial, it looked extremely favorable. 

So, if you consider what this drug could potentially do on the market, right now, its addressable market is roughly 20,000 children. But, if you want to get really optimistic about this drug's potential, there are 2.4 million Americans that are affected by epilepsy. That means that it actually kills more people than breast cancer does. So, this is a huge market that doesn't really get a lot of coverage, but it's really enormous. Some peak sales estimates that I've heard can reach up to $0.5 billion for Epidiolex if it does actually hit the market.

Which, I think, brings us to our next point, which is, if it's approved -- let's assume that it gets approved, and right now that's looking extremely likely. The PDUFA is on June 27th, so that's the latest that we'll hear a decision. Commercialization is still a question.

Jones: Yeah, absolutely. Pricing models right now are suggesting that the drug could go upwards of $20,000 a year, really in line with some of the other epilepsy treatments that are out there. And before I go further, it's important to note, with Epidiolex, it's really based on what's called CBD, a cannabinoid. CBD is one of hundreds of ingredients that are found in marijuana. It's not the psychoactive component that tends to bring to mind the effects of being high on marijuana, so to speak. For these drugs, there are already some synthetic forms of CBD that are out that patients have been using. Of course, this could be the first approved. But also, too, there's competition that's looming. Zogenix has a non-cannabis-based drug that cleared Phase III in Dravet syndrome as well, and that'll be a key competitor to watch.

Harjes: When you look at what this means, ultimately, for GW Pharmaceuticals, this is a company that's seen almost a 20% boost to its share price in the last month alone. A lot of that jump happened last Tuesday when that advisory committee document was released. And there was actually surprisingly very little movement to the stock when the decision was made, even on the news that it was a unanimous decision, which is an interesting detail.

But, when I think about this company, you look at its drug portfolio, it has Sativex, which is approved in the E.U. for multiple sclerosis, and then it has Epidiolex, which, we've already addressed some of the concerns about it. This company seems like, right now, everything is going well for it, but I think there are still some question marks. It's a $3.8 billion market cap company. Shannon, let me know if you disagree with me here, but it sounds to me like this company still might be a bit overpriced, just based on the hype around marijuana stocks generally.

Jones: Yeah, totally agree there. I think, with a $3.8 billion market cap, I believe it brought in about $12 million in revenues from Sativex, since it is already approved in the E.U. Granted, with GW Pharmaceuticals, they are pursuing a third indication for Epidiolex right now as well for a rare genetic disease that also has a symptom of epilepsy, as well. So, it certainly could have some growth potential long-term. I think right now, though, there's still a little bit too many question marks for me to consider this being a good point to jump in.

Harjes: Yeah. And I think when you look at what GW Pharma is doing, it begs the question of what's going on in the broader marijuana space, particularly in the medical marijuana space, since this is the Healthcare show. This would be a very important milestone for medical marijuana if this drug was approved. Marijuana has been used off-label, meaning not officially sanctioned by the FDA, for years to help patients with epilepsy. This could even potentially lead to a reclassification of that drug in the United States.

Jones: Yeah, absolutely. I think, even more importantly, this really sets the tone for medical marijuana going mainstream. If this drug gets approved, it'll be the first of what I think will probably be many. But, I think getting the validation of the FDA really puts these medical marijuana companies on par with other biotech companies. It's no longer just a marijuana company, it now becomes a formidable biotech competitor.

Harjes: As promised, we wanted to dig into news announced on April 20th that Biogen is striking a new deal with fellow biotech Ionis Pharmaceuticals, expanding their partnership with a $375 million upfront payment to Ionis, as well as the purchase of a $625 million equity stake that's worth roughly 9% of Ionis' outstanding shares. Shannon, the deal is worth a total of $1 billion. What does Biogen get in return?

Jones: Good question. Biogen will be getting two candidates in clinical-stage right now from Ionis from this large deal, plus up to seven more, really with the focus being on Ionis and their antisense drugs for a broad range of neurological diseases. As we've talked about on the show before, Biogen is really refocusing itself on neurology, and really focusing and restrategizing itself to that. This deal really cements their strategy moving forward.

Harjes: Yeah. In addition to this upfront payment and the equity stake, they will also be paying for the development and commercialization of these drugs. So, Ionis really just has the royalty payments and the milestone payments. When you look at the grand sum of this deal, it looks to me like Ionis is getting a great deal here.

Jones: Absolutely. I'd say this is a huge win for Ionis. They'll be responsible for identifying the antisense drug candidates based on selected targets, while Biogen is really doing the heavy lifting. They're going to be taking it from development to commercialization on. But, really, Biogen is going to be using them as the contract drug discovery platform. So, Ionis gets to focus, they get to up their milestone and royalty payments. I think Ionis wins here.

Harjes: Absolutely. And I think it's fairly indicative that Biogen is not in a position of strength here. Biogen needs growth desperately. Their core business is aging. Its multiple sclerosis franchise, which has historically been the bulk of its revenue and still comprises two-thirds of its sales, is on the decline. They recently reported earnings, and that core franchise is down 7% year over year. At this point, they're more or less relying on a single Alzheimer's drug to pan out -- which, if you look at the history of Alzheimer's drug development, is not really a safe bet.

Jones: Exactly. Over 90% of drugs fail in Alzheimer's. So, the stakes are quite high. It's a huge binary event heading into 2019, which is when we'll get the earliest readout in Alzheimer's for Biogen. So, not only is the MS franchise declining, you have this huge, very high-risk event coming up. Then, two, Spinraza, which has really been carrying the weight for Biogen, took a big earnings hit this past quarter as well. And not only that, there's competition looming. As we talked about, Michael and I, a couple weeks ago, Novartis picked up AveXis. AveXis is planning, as early as 2019, to come out with the first gene therapy for SMA, the same space that Spinraza is in. So, not only do you have this threat from the MS franchise declining, you also have huge high risk, and now, you have a huge competitor coming on the scene, and Biogen really doesn't have anything in the short-term to make up for it.

Harjes: Spinraza, our listeners will recall, is another drug that Biogen partnered with Ionis on, and that was really the star of the earnings report. That was what analysts were looking most closely at. And it disappointed a good bit. If you look at Biogen's overall earnings, the miss was largely due to Spinraza, which was roughly flat quarter over quarter. Which, that's not what people were expecting. 

You look at the dosing schedule for this drug, and it's extremely front-loaded. In your first year of treatment, the drug will cost you $750,000. It's $375,000 after that. Which, yes, $375,000 is a very large number, but it's not nearly as large as $750,000. So, structurally, this drug is set up to make a lot more money when patients first start treatment.

That's exactly the crux of the issue here -- fewer patients are starting treatment. Only 280 patients in the United States started treatment in the first quarter. That was down 33% from the fourth quarter, meaning the previous one, and down 50% from Q3 before that. Biogen highlighted some overseas growth in patient starts, but truly, sales growth is dependent on these high-paying U.S. patients. So, going forward, they're going to need to expand their reach a good bit more beyond the very sickest infants and children to reach folks with less severe forms of the disease and to reach adults. And whether or not they're able to do that, to start more patients at that same high price point, is a humongous question mark, and that's without even considering the similar therapy that you mentioned from AveXis that inspired Novartis' $8.7 billion buyout earlier this month.

Overall, the stock is down about 30% from highs reached earlier this year. Where do you think that leaves Biogen?

Jones: I think it leaves a lot of question marks for Biogen. They just paid $1 billion for access to preclinical candidates, not guaranteed revenue. Still, investors are going to be wanting some sort of deal that brings mid to at least late-stage candidates into the pipeline. Without that, I don't see many opportunities for the stock to go up from here.

Harjes: And I think that's why it's one of the cheapest large biotechs out there. On a forward P/E basis, it's trading for just under 11X, which puts them neck-and-neck with Celgene when it comes to low valuations. And anybody following the industry knows that there's been a heavy amount of pessimism surrounding Celgene right now. Truly, I like Celgene's prospects a lot better, if we wanted to head-to-head them like that. But that's probably a discussion for another day.

Shannon, this was a blast. Thank you so much for coming on today!

Jones: Thanks for having me! Always fun!

Harjes: As always, people on the program may have interests in the stocks they talk about, and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. This show is produced by Dan Boyd today. For Shannon Jones, I'm Kristine Harjes, thanks for listening and Fool on!