What: Shares of GW Pharmaceuticals (NASDAQ:GWPH), a biopharmaceutical company focused on developing cannabinoid-based therapies, roared higher by 11% in February, based on data from S&P Capital IQ, after the company reported its first-quarter results and updated shareholders on its product pipeline progress.
So what: According to the Feb. 4 early morning earnings release, GW Pharmaceuticals reported approximately $12.4 million in revenue, a bit below the $13 million the Street had been looking for, but its loss of just $0.27 per share absolutely crushed Wall Street's significantly wider forecasted loss of $1.25 per share.
More important than the narrower-than-expected loss was GW Pharmaceuticals' pipeline update. Based on the company's latest timeline, it expects to report part B of its phase 2/3 study of Epidiolex for Dravet syndrome before the end of 2015 as well as commence a phase 3 study on Epidiolex for Dravet syndrome and two phase 3 studies with Lennox-Gastaut syndrome in Q1. Additionally, two additional phase 3 studies for Sativex as a treatment for cancer pain are expected to be out in the second-half of 2015, along with phase 2a data for GWP42003 as a treatment for schizophrenia.
In other words, catalysts, catalysts, and more catalysts are on the way.
Now what: With consumers' perception of marijuana rapidly changing toward the positive, and U.S. Surgeon General Dr. Vivek Murthy admitting that marijuana could have medically beneficial properties, the momentum behind marijuana stocks seems unstoppable. Unfortunately, the valuations behind these companies are akin to "trading under the influence."
Keep in mind that GW Pharmaceuticals' lone approved product, Sativex, indicated for spasticity associated with epilepsy, has been a huge disappointment in overseas markets, and it's not approved in the U.S. Not to mention, Sativex failed miserably in the first of its three late-stage U.S. clinical studies for cancer pain. Even if Epidiolex hits the mark in Dravet syndrome and Lennox-Gastaut syndrome, physicians might be gun-shy about prescribing it due to the unknown effects of long-term cannabinoid use for children. There's also a veritable sea of negative study data compiled over the past three decades on the health effects of using marijuana that could make it difficult for GW's products to catch on with physicians.
Of course, there's also a positive side here, too. Marijuana has been shown to have positive effects on the body in some studies, and that's certainly worth exploring. The question, though, is whether or not there's a good or smart way for investors to take advantage of that potential surge in medical marijuana use -- and as of now I just don't see that "smart investment" anywhere. In the meantime I'd suggest keeping your distance from the pricey GW Pharmaceuticals and instead monitor it from the sidelines.
Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.
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