Few areas have been as intriguing to investors this year as medical marijuana. The approval of legislation allowing its use in states such as Colorado has kicked off a flurry of commentary regarding the good and bad of marijuana use. That increased interest has flowed over to drugmakers that are developing medicine based on the cannibinoids found inside marijuana, including GW Pharmaceuticals (GWPH +0.00%).
I previously discussed three hurdles that GW Pharma may need to overcome, but today let's study what its management is saying for clues that might help investors value this emerging biotech company.
Source: GW Pharmaceuticals.
1. Advancing Epidiolex
"We anticipate a launch date for the initial Dravet syndrome trial in late September, early October with the second Dravet and the two Lennox-Gastaut trials to follow in early 2015," said CEO Justin Glover during the company's latest quarterly earnings call.
There's little question that a lot of the excitement surrounding GW Pharma is tied to its potential marijuana-based therapy for epilepsy. The company led the conference call with an update on its epilepsy program, rather than an overview of Sativex sales for multiple sclerosis spasticity.
GW Pharma hopes to update investors on how Epidiolex is performing in Dravet syndrome and Lennox-Gastaut syndrome patients later this year. That update will be important given that enrollment has climbed to nearly 100 patients. Since data released this summer by GW Pharma for Dravet syndrome was based on just 13 patients, investors should gain a greater understanding of the commercial opportunity for Epidiolex once results from the larger patient pool are digested.
2. Cancer pain results coming
"GW's Sativex program also continues to progress in the last quarter with Sativex receiving fast track designation from FDA's treatment of chronic cancer pain, and we are on course to release initial top-line phase 3 cancer pain data around the end of the year," Glover said.
Treating breakthrough cancer pain remains a significant challenge for many doctors. Currently, patients are treated with opiates to control pain, but in cases in which opiates fail, Sativex could prove a valuable option. Once phase 3 data is released, investors will be able to better determine a pathway to approval and the potential market; but even if results are positive, investors are probably wise to keep expectations in check. That's because an approval would be for Sativex's use as a second-line therapy behind opiates, rather than as a first-line alternative. Since opiate medicine drugmakers such as Mallinckrodt are developing less abuse-tolerant and longer-lasting formulations, demand for Sativex as a second-line treatment could be more limited than some may hope.
3. Programs, programs, programs
"The third quarter continues to be an active one, with GW advancing clinical programs for pipeline product candidates in ulcerative colitis, type 2 diabetes, schizophrenia, and glioma," said Glover.
The ability to extend GW Pharma's marijuana research across multiple indications is important to increasing the overall value of the company, and there are plenty of poorly treated indications with a significant need for new therapies that the company can target. One of those indications is ulcerative colitis, a disease that affects an estimated 700,000 people in the U.S. alone. GW Pharma has completed recruitment into a 60-patient phase 2 trial for the indication and expects to provide investors with top-line data before year's end.
Diabetes treatment also offers a significant opportunity. GW Pharma has already done early stage research showing that its marijuana-based drug may help type 2 diabetics improve fasting glucose levels, lower blood pressure, and improve pancreatic cell function. The company plans to kick off a phase 2b stage study soon, but there's still a long way to go before the drug could reach regulators.
4. Cash is king
From CFO Adam George:
Total net proceeds from equity issued in the nine months including receipts from our January and June 2014 offerings plus warrants and option exercises totaled £136.4 million, or $233.3 million. As a result we've recorded a net cash inflow for the nine months to 30 June 2014 of £130.2 million, or $222.7 million. This resulted in the closing cash position at June 30, of £168.3 million, or $297.8 million.
The ability to tap a willing equity market allowed GW Pharma to build up a sizable cash stake, which is critical given the amount of ongoing development activity. Expanding the Epidiolex trials increased GW Pharma's cash burn as research and development spending climbed 21.4% last quarter. Coupled with higher administrative costs, GW Pharma reported a quarterly loss of $12.5 million, up from $3 million last year.
Overall, the company expects that its core operating cash outflow will be about $41 million for the fiscal year ending in September, leaving the company with between $257 million and $265 million in cash. Even with an accelerated clinical trial timeline, that should still leave the company with plenty of firepower.
5. Revenue remains flat
"For the nine months ended 30th of June, we have total revenues of £22.6 million or $38.7 million," said George. "Total revenues for the quarter were £7.6 million, or $13 million, compared to £7.3 million in Q3 2013, a revenue increase of £0.3 million."
Lower research revenue from Otsuka, a major Japanese drugmaker that has partnered with GW Pharma on Sativex for cancer pain, offset sales growth for Sativex for MS spasicity, GW Pharma's only currently approved indication. Sativex, which is sold in 14 European countries, is winning scripts, but total sales remain tepid at just $1.7 million last quarter.
Fool-worthy final thoughts
Despite Sativex sales rising significantly in percentage terms in the past year, sales must head far higher to justify the company's $1.2 billion market cap. As a result, focus remains on GW Pharma's development pipeline, which should give investors plenty of data to consider later this year in both epilepsy and cancer pain. Given the lofty valuation, I'm content to sit on the sidelines here until that data comes out.
