UK’s GW Pharma closes secondary US offering that hauls in a whopping $317.4 million. Prohibition officially over as markets, investors send loud message of support for marijuana-based clinical push.

cheifyc / Pixabay

The News:

GW Pharmaceuticals PLC (Cambridge UK), which focuses on the development of therapeutics using its cannabinoid product platform for a range of diseases, including autism, epilepsy and brain cancer, announced on Monday (December 11, 2017) the closing of an underwritten public offering on the NASDAQ Global Market of 2.4 million American Depositary Shares (“ADSs”) and the full exercise by the underwriters of their option to purchase 360,000 additional ADSs.

The offering raised gross proceeds of approximately $317.4 million (before deducting underwriting discounts, commissions and offering expenses). Goldman Sachs & Co. LLC, Morgan Stanley, BofA Merrill Lynch and Cowen are acting as joint book-running managers for the offering.

With a number of candidates entering the later stages of clinical development, this boost may help GW Pharma across the line, says Labiotech.eu. GW’s lead candidate, Epidiolex, is a liquid formulation of pure cannabidiol for severe early-onset, drug-resistant epilepsy.

In 2013, GW started to focus on two particularly rare and difficult-to-treat forms of epilepsy: Dravet syndrome and Lennox-Gastaut syndrome–both of which have been granted orphan-drug designation by the FDA. The company’s closest competition in this area seems to come from the US, with a small biotech called Zogenix Inc. (Emeryville CA) achieving positive Phase 3 results for its Dravet Syndrome candidate, ZX008.

GW Pharma’s stock price closed off 0.19% Monday at $122.32 in New York.

Steve’s Take:

I’ve often wondered why Big Pharma for the most part has eschewed the cannabis-derived pharmaceutical arena. Don’t get me wrong, Eli Lilly and Park Davis have dabbled in product development. But that was quite a while ago.

You see, marijuana is what Prohibition supporters called cannabis as they sought to demonize its use and criminalize its consumers. Cannabis, marijuana and hemp are all names for the same plant. The stodgy Pfizers and Bristol-Myers of the Big Pharma breed didn’t want their images besmirched by an association with the province of hippies, libertarians and drug dealers.

Now, there’s a belated recognition by the broader pharma and investment communities of the potential of marijuana going mainstream as top scientists sign up with companies like GW Pharma and Zogenix that are making actual clinical headway with new cannabis-derived medicines.

By market cap, GW Pharma towers over all other marijuana stocks with a $3.11 billion valuation, says the Motley Fool.

The company is currently exploring several indications, including the treatment of epilepsy, tuberous sclerosis, infantile spasms, autism spectrum disorders, glioma, and schizophrenia, to name a few. The vast majority of the company’s pipeline is clinical in nature; however, it does have one approved therapy known as Sativex. Sativex is not approved in the US, but it is approved in more than a dozen EU nations as an oromucosal treatment for spasticity associated with multiple sclerosis.

Without question, the big opportunity for GW Pharma is with Epidiolex, its experimental cannabidiol-based medication that’s shown incredible promise in treating two rare types of childhood-onset epilepsy, Lennox-Gastaut syndrome and Dravet syndrome.

Epidiolex has been through two separate Phase 3 trials for each indication, and it’s passed all its trials with flying colors, the Fool notes. For Lennox-Gastaut, a statistically significant separation between Epidiolex and placebo was demonstrated by seizure reduction of 50%. In Part B of the company’s Dravet syndrome study, Epidiolex led to a 39% reduction in convulsive and total seizure frequency during the primary treatment period, which was 26 percentage points higher than placebo.

I agree with Sean Williams at the Fool that Epidiolex is GW Pharma’s white knight with blockbuster sales potential. It also has label expansion opportunities in tuberous sclerosis and infantile spasms, which are being examined in late- and mid-stage clinical studies, respectively.

Also working in GW Pharma’s favor is the improving opinion of the American public and the softening stance toward medical marijuana/cannabis among states. According to Gallup, 60% of the nation supports the legalization of cannabis, which is an all-time high.

A separate study from the independent Quinnipiac University found 93% support for a nationwide legalization of medical cannabis. And 28 states have legalized the use of medical cannabis for certain ailments. As favorability toward the drug improves, GW’s revenue ceiling could grow as well, Williams notes.

Risks and concerns start with Epidiolex, now set to face competition.

Zogenix will be conducting a pivotal Phase 3 trial of its own on Dravet syndrome patients with ZX008, a low-dose fenfluramine liquid solution. Zogenix has already received the orphan-drug designation for ZX008. Additionally, Insys Therapeutics Inc. (Phoenix AZ) is developing a cannabidiol-based compound to treat Dravet, Lennox-Gastaut, and infantile spasms. Is there enough room for three CBD-based medicines in severe pediatric epilepsy indications?

There are also political concerns. The US is the world’s most profitable prescription drug market, but entry into that market could be denied or severely hindered if Attorney General Jeff Sessions prevails. He’ is a big opponent of marijuana’s expansion, and he’s often questioned the validity of its medical benefits.

What do the analysts think?

GW Pharmaceuticals is one of 286 public companies in the “Bio Therapeutic Drugs” industry, says StockNewsTimes. But how does it contrast to its rivals?

Profitability

This table compares GW Pharma and its rivals’ net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
GW Pharmaceuticals -1,607.85% -40.42% -34.97%
GW Pharmaceuticals Competitors -5,311.45% -218.34% -39.53%

Volatility & Risk

GW Pharma has a beta of 2.65, indicating that its share price is 165% more volatile than the S&P 500. Comparatively, GW’s rivals have a beta of 8.40, indicating that their average share price is 740% more volatile than the S&P 500.

Analyst Recommendations

This is a summary of recent ratings for GW Pharma and its rivals, as reported by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
GW Pharma 0 2 6 0 2.75
GW Pharma Competitors 858 3204 11631 231 2.71

GW Pharma currently has a consensus price target of $146.25, suggesting a potential upside of 19.34%. As a group, “Bio Therapeutic Drugs” companies have a potential upside of 44.69%. Given GW Pharma’s rivals’ higher probable upside, analysts believe GW has less favorable growth aspects than its rivals.

Insider & Institutional Ownership

81.9% of GW Pharma’s shares are held by institutional investors. Comparatively, 50.2% of shares of all “Bio Therapeutic Drugs” companies are held by institutional investors. 16.6% of shares of all “Bio Therapeutic Drugs” companies are held by company insiders. Strong institutional ownership is an indication that large money managers, hedge funds and endowments believe a company is poised for long-term growth.

Bottom Line:

Will 2018 be the breakout year for GW Pharma that CEO Justin Gover predicts?

Steve's Take: #Cannabis #Prohibition is over. GW Pharmaceuticals is risky, but rational bet for your portfolio. Click To Tweet

A couple of caveats.

First, there is always the possibility that the FDA might reject Epidiolex. If this happens, I believe it would be related to manufacturing questions rather than the drug itself.

Second, even if approved, payers could present more hurdles for reimbursement of Epidiolex than expected. That could cause GW’s commercial launch to drag on more than hoped.

Overall, though, I agree generally with analysts who like the prospects for GW Pharma over the next few years. This biotech just might be a treasure-trove for growth investors.

Prohibition is over. GW Pharma is a Buy. Loaded with risks, but a rational bet, not a gamble. Not for the risk-averse portfolio.

Steve Walker has no position in any stocks mentioned. MedContent Inc. has no position in any stocks mentioned. MondayMorning.com has a disclosure policy.

Print Friendly, PDF & Email