What: GW Pharmaceuticals (NASDAQ:GWPH), a predominantly clinical-stage biotech stock that's attempting to use cannabinoids from the cannabis plant to treat various diseases and disorders, showed investors "the green," per se, in April, with shares rising 15% based on data from S&P Capital IQ, after announcing a bevy of positive pipeline data.
So what: Perhaps the most exciting announcement during the month for GW Pharmaceuticals was its data release mid-month for Epidiolex, a drug designed to treat two rare forms of childhood-onset epilepsy. Its latest study, which it presented data on at the American Academy of Neurology's annual meeting, showed that seizures were cut down by 54% for the 137 patients on the medication for three months. In total, 6% of patients discontinued taking Epidiolex because of its side effects.
GW Pharmaceuticals also received a nice boost following the announcement that it had been granted the orphan drug designation for Cannabidiol, or CBD, for the treatment of neonatal hypoxic-ischemic encephalopathy, or NHIE, a condition occurring in 6,500 to 12,000 births per year in the United States. With no current drugs approved by the Food and Drug Administration to treat NHIE, it opens the door for exclusivity for GW Pharmaceuticals.
In response to GW's fantastic data, Merrill Lynch boosted its percentages for a possible Epidiolex approval in both Dravet's syndrome and Lennox-Gastaut syndrome. Merrill Lynch also notes that physicians have demonstrated a willing to use Epidiolex to treat these rare epileptic diseases.
Now what: Though GW Pharmaceuticals continues to rack up early stage success, I continue to remain extremely skeptical of its frothy valuation.
I suspect the primary reason GW Pharmaceuticals has taken off is the improving opinion of marijuana in the U.S., and the potential that it could one day be legalized or decriminalized on a federal level. If marijuana were indeed changed to a schedule 2 drug from schedule 1, it would remove some of the hurdles currently in place that prevent GW from quickly advancing its cannabinoid-based research. But I suspect the chance this will happen within the next five years is slim, meaning GW Pharmaceuticals is riding more on emotions than on tangible clinical evidence.
Even the positive data from Epidiolex doesn't guarantee GW Pharmaceuticals is worth $2.15 billion. There are at least three additional competitors for Dravet syndrome, meaning Epidiolex may be looking at peak annual sales, if approved, of around $300 million. Factor out Sativex, which has sold poorly in overseas markets, and GW is valued at roughly seven times Epidiolex's peak sales estimates. That's pretty darn expensive. The remainder of GW's pipeline is pretty much preclinical or early stage in development.
In other words, if you're a current shareholder in GW Pharmaceuticals, I'd suggest you consider taking your profits sooner rather than later, as I see losses extended for years to come and marijuana policy remaining largely unchanged on a federal level throughout the rest of the decade.
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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