Is Marijuana Stock GW Pharmaceuticals a Buy Following Its Quarterly Results?

The company reported a solid launch of its marijuana drug for epilepsy, but sales are going to have to go much higher for it to turn a profit.

Todd Campbell
Todd Campbell
Feb 27, 2019 at 9:29AM
Health Care

GW Pharmaceuticals (NASDAQ:GWPH) has the distinction of being the only company to secure Food and Drug Administration (FDA) approval for a cannabidiol (CBD) marijuana therapy. The company's Epidiolex won the FDA green light last summer after demonstrating it reduces seizures in epilepsy patients. GW Pharmaceuticals launched Epidiolex in November after it received the most favorable Drug Enforcement Agency scheduling possible. On Tuesday, management unveiled results, including Epidiolex's initial commercial performance. Is this pot stock a buy?

What it does

Epidiolex is a purified CBD that's secured regulatory approval for use in patients with Dravet syndrome and Lennox-Gastaut syndrome (LGS), two tough-to-treat forms of epilepsy. Patients with Dravet syndrome or LGS often don't respond to existing antiepileptic therapies, making new treatment options like Epidiolex particularly important.

Marijuana growing at a GW Pharmaceuticals greenhouse.

IMAGE SOURCE: GW Pharmaceuticals.

In trials involving patients who had tried and failed on existing antiepileptic medications, using Epidiolex reduced seizure frequency from between 40% and 50%.

The commercial opportunity is big

The addressable market of Dravet and LGS patients is relatively small at about 35,000. However, Epidiolex costs $32,500, and many more patients suffering from resistant forms of epilepsy could someday benefit from its use.

There are about 3.4 million Americans with epilepsy, 470,000 of whom are children, and approximately one-third of those patients are inadequately treated by traditional antiepileptic medications.

The need for new treatment alternatives for patients has helped GW Pharmaceuticals overcome payer objections. In January, the company said 22 million people covered by Express Scripts drug formulary could access Epidiolex without prior authorization and that four of the five biggest commercial insurers have initiated coverage of Epidiolex after prior authorization.

How'd it do?

On Feb. 26, GW Pharmaceuticals unveiled results for the quarter ending Dec. 31. In the period, the focus was on educating doctors about Epidiolex's risks and benefits, yet sales still clocked in at $4.7 million.

That's not a lot, but sales could grow meaningfully in 2019. About 4,500 patient enrollment forms were filled out in the drug's first two months, and over 500 doctors have already written a prescription. In January, filled prescriptions grew 150% from December 2018.

Check out the latest GW Pharmaceuticals earnings call transcript.

A man looks through binoculars.


What to watch next

Prescription renewal rates and new prescription trends will be key to track in 2019. If patients are refilling and doctors demonstrate their confidence by writing increasingly more scripts, then it would add credence to the thinking that Epidiolex can generate sales in the nine figures or higher someday.

Investors will also want to watch for phase 3 data from a trial evaluating Epidiolex in tuberous sclerosis complex (TSC). Epilepsy is the most common symptom of TSC, and there are about 25,000 TSC patients who could benefit from Epidiolex if its trial pans out. Results from this study are anticipated in the second quarter. If successful, a filing for approval in TSC is planned before the end of 2019.

Epidiolex's commercial opportunity could expand sooner than that, though. The European Union is expected to weigh in with a go/no-go decision on Epidiolex in the coming months. If approved, management hopes to launch it in France, Germany, Italy, Spain, and the U.K. this year.

Overall, Epidiolex is off to a solid start, but a lot still needs to happen for GW Pharmaceuticals to transition into a profitable drugmaker. At $80 million, the company's operating expenses far outstripped its revenue, resulting in a net loss of $72 million last quarter. Therefore, only aggressive investors who can withstand the risk of ongoing losses ought to consider adding this company to their portfolio following these results.