It's no secret that drug discovery is an arduous process; it often takes pharmaceutical companies more than a decade and over $1 billion to bring a new compound to the market. Because of the complexities in discovering new drug candidates from scratch, many biopharmaceutical companies get a head start by drawing inspiration from nature.
Examples of blockbuster drugs that were discovered from obscure natural sources abound, so it should also come as no surprise that scientists are unlocking the therapeutic benefits of what may be today's most controversial plant: marijuana.
The best-known marijuana extract is the psychoactive compound tetrahydrocannabinol, or THC, but the plant also contains more than 60 lesser-known compounds that belong to the same chemical family as THC. Fledgling biotech GW Pharmaceuticals (GWPH) is exploring the medicinal potential of some of these chemicals, and some of the world's largest pharma companies, including AbbVie (ABBV -0.30%) and Valeant Pharmaceuticals (BHC 3.04%), market products in this drug class. Let's look at three of the most prominent products, and what investors should watch in the field of marijuana research going forward.
GW Pharmaceuticals' Sativex is currently used to treat spasticity (muscle spasms and stiffness) caused by multiple sclerosis. It is composed of two compounds found in marijuana: THC and cannabidiol, or CBD, which isn't psychoactive. The drug, delivered through a vaporizer, is approved in 25 countries but isn't available in the U.S. just yet.
GW Pharmaceuticals is collaborating with Otsuka Pharmaceutical on clinical trials that could lead to FDA approval, and the duo is also working on clinical studies that could result in expanded approval for the treatment of cancer pain. Phase 3 trial data from some of these studies will be available toward the end of the year, and these results will be important catalysts for GW Pharma's stock.
Marinol and Cesamet
Unlike Sativex, AbbVie's Marinol is FDA-approved for the treatment of nausea in patients undergoing chemotherapy and is also prescribed to AIDS patients suffering from loss of appetite. The drug is made of a synthetic form of THC and is delivered as an oral capsule. Valeant Pharmaceuticals has a similar compound on the market called Cesamet, which also treats nausea in chemotherapy patients.
Interestingly, marijuana is classified as a Schedule I drug by the DEA because it doesn't have a proven medical application and users may abuse the drug. Marinol and Cesamet, however, are listed as Schedule III and Schedule II drugs, respectively, meaning the FDA recognizes their clinical benefits and their abuse potentials are believed to be lower.
The science behind these compounds is fascinating, but there are a few things investors need to consider when looking at pharmaceutical products derived from cannabis.
First, while these drugs serve critical medical needs, they have been far from blockbusters. AbbVie and Valeant, which both bring in billions of dollars each year in revenue, don't provide sales for their cannabinoid products, suggesting that they only add incrementally to the companies' top lines. GW Pharmaceuticals, which currently markets only Sativex, also hasn't had great results so far. It reported only $12.4 million in sales last quarter, and the drug will need both an expanded label and FDA approval to meaningfully ramp up sales.
Second, while some scientists continue to explore the potential of cannabinoids to treat a wide variety of diseases, few companies are active in this space today. GW Pharma is an exception, and its drug development platform is focused on compounds derived from marijuana. In addition to Sativex, the company is developing Epidiolex for the treatment of rare diseases, and it has other compounds in early-stage clinical trials for autoimmune diseases, diabetes, and schizophrenia.
While GW boasts a large pipeline for a relatively small drugmaker, its shares have soared over the past 12 months, and the company's market cap tops $1 billion. This climb is largely due to swelling valuations across the biotech sector and high expectations for its pipeline. At this valuation, however, it looks like sales of its late-stage experimental drugs are already priced into the stock. Any stumbles in clinical trials, or, if its drugs gain FDA approval, poor commercial drug launches will certainly cool investor enthusiasm.