Please ensure Javascript is enabled for purposes of website accessibility
Free Article Join Over 1 Million Premium Members And Get More In-Depth Stock Guidance and Research

Here's Why GW Pharmaceuticals Is Falling Today

By Cory Renauer - Nov 6, 2019 at 12:38PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Epidiolex sales during the third quarter were pretty good but still less thrilling than investors have gotten used to.

What happened

Shares of GW Pharmaceuticals ( GWPH ), a biopharmaceutical company focused on cannabinoids, are sinking in response to a relatively good third-quarter earnings report. Despite beating consensus estimates on the top and bottom lines after the bell on Tuesday, the pharma stock has fallen 16.3% as of 12:18 p.m. EST on Wednesday.

So what

Adult epilepsy patients have been using marijuana in one form or another to treat themselves since forever, but they have had to pay for it themselves. GW Pharmaceuticals' lead drug, a cannabidiol (CBD) tincture called Epidiolex, became the first FDA-approved drug derived from marijuana last June, and sales shot up like a rocket following its launch last November.

Frustrated trader looking at his monitor.

Image source: Getty Images.

Epidiolex's approval is limited to a small number of patients with two severe forms of early-onset epilepsy. Doctors can prescribe Epidiolex for unapproved conditions, but these patients generally can't receive reimbursement from private insurers and government payers. Around 15,000 people have received Epidiolex since its commercial launch, which means its limited audience is approaching a saturation point.

Epidiolex sales reached $86 million in the third quarter, which was 25.9% more than the company recorded during the second quarter. While 25.9% sequential sales growth is nothing to sneeze at, it pales in comparison to second-quarter results. During the three months ended in June, Epidiolex sales exploded 104% higher than the previous quarter.

The relative slowdown was a pretty big deal, because yesterday, GW Pharmaceuticals was a $4.2 billion company. If Epidiolex sales plateau over the next several quarters, nobody will be able to justify such a high valuation.

Now what

This December, GW Pharmaceuticals will present phase 3 Epidiolex data from a trial with tuberous sclerosis complex (TSC) patients. This is a rare disease that affects 1 child in 6,000, which makes it more common than Epidiolex's currently approved indications.

Patients born with TSC develop lots of nonmalignant tumors all over, including tumors that hinder brain development. If the ongoing study with TSC patients succeeds, GW Pharmaceuticals could double its addressable patient population before the end of 2020.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

GW Pharmaceuticals plc Stock Quote
GW Pharmaceuticals plc
GWPH

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
624%
 
S&P 500 Returns
140%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 12/06/2021.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Our Most Popular Articles

Premium Investing Services

Invest better with the Motley Fool. Get stock recommendations, portfolio guidance, and more from the Motley Fool's premium services.