In this week's episode of Industry Focus: Healthcare, analysts 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 Pharmaceuticals (NASDAQ:GWPH) before diving in.

A full transcript follows the video.

This video was recorded on April 25, 2018.

Kristine Harjes: 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?

Shannon 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.