This edition of our ongoing Better Buy series pits two marijuana stocks -- GW Pharmaceuticals (GWPH) and Corbus Pharmaceuticals Holdings (CRBP 6.76%) -- against each other. Rather than growing plants to sell, both companies are taking the more regulated path of developing drugs approved by the Food and Drug Administration from active compounds that are in marijuana or related to them.
In fact, GW Pharmaceuticals' CEO Justin Gover would rather his company not be called a cannabis stock. And Corbus' lead compound is synthesized so marijuana plants aren't even involved, although it's based on cannabinoids, the active class of compounds in marijuana.
Drug on the market
GW Pharmaceuticals gained FDA approval last year for its cannabidiol drug Epidiolex to treat a pair of childhood epilepsies called Dravet syndrome and Lennox-Gastaut syndrome (LGS). Third-quarter sales came in at $86.1 million, up almost 26% from second-quarter sales.
Epidiolex was approved in September in Europe, where it'll go by the slightly different spelling Epidyolex. GW Pharmaceuticals has already launched the drug in France and Germany, with plans to launch in Spain and Italy next year. It'll learn whether the U.K.'s healthcare system will cover the drug in the fourth quarter.
Beyond Dravet and LGS, GW Pharmaceuticals is looking to expand the approval into tuberous sclerosis complex (TSC). The disease is caused by benign tumors in the brain, but it has seizures as one of its symptoms; Epidiolex was able to help reduce the frequency of those seizures, based on data released in May. The full data set from the phase 3 study will be presented at the American Epilepsy Society's annual meeting in December; GW Pharmaceuticals then expects to submit marketing applications for TSC to regulators in the U.S. and EU early next year.
GW Pharmaceuticals is also testing Epidiolex in a phase 3 clinical trial for Rett syndrome, a neurological disorder that's also associated with seizures.
Pipeline in a drug
Corbus Pharmaceuticals is further behind in development. But its lead compound lenabasum, a synthetic cannabinoid analog, could see sales surpass Epidiolex, if Corbus can get it approved for the multiple diseases where it's testing lenabasum.
The lead indication is an autoimmune disease called systemic sclerosis that affects about 200,000 patients in the U.S., EU, and Japan. The disease is caused by a patient's immune system attacking itself, leading to inflammation, fibrosis, and damage of small blood vessels. Corbus has already completed enrollment of systemic sclerosis patients in its phase 3 Resolve-1 clinical trial, setting up a data readout next summer.
A phase 3 study in dermatomyositis is further behind, with patients still being enrolled and data not expected until 2021. Dermatomyositis is another rare autoimmune disease affecting approximately 80,000 people in the U.S., EU, and Japan, where an overactive immune system causes skin rashes and/or muscle weakness.
Corbus is also testing lenabasum in a pair of phase 2 clinical trials that could expand sales down the line. Results from a phase 2b study in cystic fibrosis are expected to be released next summer, and data from a phase 2 clinical trial in patients with lupus are due to be released sometime next year. With about 550,000 people in the U.S., EU, and Japan affected by the type of lupus in which Corbus is testing lenabasum, the disease offers the biggest potential opportunity for the company.
Corbus also has an inverse agonist of cannabinoid receptor type 1 called CRB-4001, but as the code name would suggest, it's still in early-stage development for a liver disease called nonalcoholic steatohepatitis. Corbus plans to start a phase 1 study for CRB-4001 by the end of this year, so at this point, investors shouldn't be assigning much, if any, value to the drug.
GW and Corbus are at two different stages of their development, so their market caps -- GW's $3.3 billion and Corbus' $300 million -- are priced accordingly.
Given their sizes, Corbus clearly has more multibagger potential, but it's also more risky. With just one late-stage drug, a phase 3 failure would likely cut its market cap substantially. And with limited phase 2 data, it's hard to handicap the likelihood of phase 3 success. In fact, the relatively low market cap is a sign that investors think Corbus is likely to fail.
With GW having shown that Epidiolex helps multiple diseases already, the company is certainly less risky, and after the post-earnings drop, it's looking a little more attractive from a valuation point of view. Based on third-quarter sales, GW is trading at about 10 times the sales run rate, which seems reasonable given Epidyolex's ramp-up in Europe, and the drug's potential in TSC and possibly Rett syndrome. GW looks like the better buy.