Please ensure Javascript is enabled for purposes of website accessibility

With Losses Mounting, This Marijuana Company Could Use a Win in 2016

By Todd Campbell - Feb 15, 2016 at 11:40AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

GW Pharmaceuticals hopes that its big-time spending on medical marijuana research could finally prove worthwhile.

Image source: GW Pharmaceuticals plc.

Marijuana drug developer GW Pharmaceuticals plc (GWPH) is plowing tens of millions of dollars into marijuana research and development every quarter, but trial failures in cancer pain and schizophrenia last year are increasing worry that its efforts will prove futile.

This year, GW Pharmaceuticals expects to report data from a slate of trials evaluating its marijuana drug Epidiolex in epilepsy patients. Can these trials get the company back on track? Read on to find out what's at stake. 

First, a bit of background
A recent study from the Washington University School of Medicine estimates that the number of people who use marijuana grew 20% between 2002 and 2013 and that 12.5% of Americans use marijuana.

That finding isn't surprising given Americans' improving attitude toward marijuana. According to Gallup, 58% of Americans think marijuana should be made legal, up from 36% a decade ago. Recreational marijuana laws have been passed in four states and medical marijuana laws have been passed in 23 states and D.C., with more states expected to join them this November.

The growing acceptance of marijuana use, especially in patients suffering illness and injury, has fueled a massive push into marijuana research. Companies like Tilray are increasingly focusing on extracts that can be sold by medical marijuana dispensaries and drug developers, including GW Pharmaceuticals, are attempting to synthesize medicine from the chemical components found in marijuana.

GW Pharmaceuticals marijuana research stretches back to the late 1990s and it already markets one marijuana-based drug in Europe: a THC-based medicine, Sativex, that's used to treat muscle spasms in multiple sclerosis patients.

Massive spending
Developing drugs that pass muster with regulators is no easy feat. Chemicals need to be identified and then studied for safety. Then, those compounds must be evaluated in increasingly larger trials under specific guidelines to measure their effectiveness. In short, creating drugs and studying them is an incredibly expensive proposition.

In the last quarter alone, GW Pharmaceuticals spent $35.7 million on medical marijuana research and development, or about 60% more than it spent in the comparable quarter a year ago. Additionally, the company spent $5.3 million on general and administrative costs and that means expenses for R&D and to manage its business are now eclipsing $40 million per quarter.

That's a lot of money, especially when sales are only trickling in.

Although Sativex is available throughout the EU -- home to about half of the world's MS population -- GW Pharmaceuticals revenue was just $5.4 million last quarter and because of that, it lost $31.3 million in the period, causing its cash stockpile to slip from 235 million pounds in September to 219 million pounds exiting December.

Image source: GW Pharmaceuticals.

Potential game changer
While GW Pharmaceuticals massive spending program hasn't delivered a blockbuster drug yet, results from multiple late stage studies in epilepsy are expected this year and if those results are good, then Epidiolex could begin generating meaningful revenue as early as 2017.

The first data to be reported will be from a study evaluating GW Pharmaceuticals' Epidiolex in patients suffering from Dravet syndrome, a rare form of epilepsy that's poorly controlled by existing medications. A second set of data from another Dravet syndrome trial is expected in the second half of this year.

Epidiolex trials in Lennox-Gastaut syndrome patients are also expected to wrap up soon, with data from two separate trials anticipated to be released during the second quarter.

Risky bet
Because losses are mounting, the stakes are high for GW Pharmaceuticals to deliver a win. While it still has plenty of money on the books, a success would go a long way to validate its research, protect its cash stockpile, and shore up confidence among investors, who have endured a 65% drop in the company's share price since last summer.

However, trials often fail and there's no guarantee that results will be strong enough to support a Food and Drug Administration approval even if they succeed. Also, positive results could suggest that trials underway at competitors, including Insys Therapeutics (INSY), will also succeed. If they do, then it could limit GW Pharmaceuticals' commercial opportunity in these indications.

In my opinion, those risks are big enough to recommend that people interested in GW Pharmaceuticals' medical marijuana research watch from the sidelines, rather than invest in the company. Overall, there are probably better investment opportunities out there, including this next one.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

INSYS Therapeutics Stock Quote
INSYS Therapeutics
GW Pharmaceuticals plc Stock Quote
GW Pharmaceuticals plc

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 06/28/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.