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Why GW Pharmaceuticals Shares Tumbled 25% in January

By Todd Campbell – Feb 2, 2016 at 10:00AM

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Worry over financial controls is weighing down shares in the once-promising marijuana drugmaker.

Image source: GW Pharmaceuticals, plc.

What: Following reports that the company's financials may lack adequate accounting controls, shares in GW Pharmaceuticals, plc (GWPH) fell 25.3% in January, according to S&P Capital IQ.

So what: Early last month, the company disclosed that it has material weaknesses in its accounting practices related to clinical trial costs and milestones.

That's concerning given that there's tremendous trial activity occurring at the company.

GW Pharmaceuticals is one of the most committed drugmakers to the study of marijuana-derived medicine and its trials have included research into marijuana's use in cancer pain, diabetes, schizophrenia, and epilepsy.

In December, the company reported that its R&D costs were $25.5 million in its fiscal fourth quarter, up 107% from last year.

Now what: It's never encouraging to learn that management may not have as good a handle on the financials as thought and until it can put this issue behind it, it's likely that investors will remain cautious on this stock -- something that may not be a bad thing.

After all, GW Pharmaceuticals recent track record for clinical success is a bit more miss than hit. Last year, three separate cancer pain trials evaluating a THC-based medicine failed to beat placebo and a schizophrenia study led to more questions than answers. As a result, there's a lot of pressure on its ongoing epilepsy studies to pan out.

Absent a definitive clinical win in epilepsy and a restoration of confidence in the company's finances, the sidelines may be the best place for investors on this one. 

 

Todd Campbell has no position in any stocks mentioned. Todd owns E.B. Capital Markets, LLC. E.B. Capital's clients may have positions in the companies mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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