Is GW Pharmaceuticals Still A Buy After A Big Run-Up?

| About: GW Pharmaceuticals (GWPH)


Even after the recent share price increase, investors still have the opportunity to capitalize on future catalysts.

GW Pharmaceuticals sets itself apart from competitors with its new cannibinoid platform technology that is difficult to reproduce.

Phase 2 results validate the technology platform further, and also validate future revenue to be made in the seizure market.

Cannabis plants provides 70 or more molecules that can be used to target many different diseases.

The company already has an approved drug on the market known as Sativex, which is already generating a substantial amount of revenue.

Recently, GW Pharmaceuticals (NASDAQ:GWPH) stock rose up as much as 14% in one day, after the company had announced that its investigational drug Epidiolex was able to reduce the amount of seizures in children and adults in a Phase 2 study. These patients deal with a type of treatment-resistant epilepsy which lacks significant treatment options.

We believe that GW Pharmaceuticals has the platform to create an array of pipeline candidates that can be used to treat many unmet medical needs. The company utilizes its cannabinoid program to create drugs to treat a variety of diseases. One cannabis plant is able to produce greater than 70 or more cannabinoid molecules, which can be used to potentially treat these various diseases. The company has 46 patents under this technology platform, and has its own in-house manufacturing facility. The company has $276.9 million of cash to advance its pipeline of clinical candidates. These projected milestones can create additional shareholder value and get the company that much closer to generating additional revenue in the market upon regulatory approval.

Phase 2 Results For Epilepsy Drug

The positive data shown had tested 24 children and young adults who were treated with GW Pharmaceuticals' cannabinoid product, known as Epidiolex, for a 12-week period. As mentioned above, these patients have received other forms of anti-epileptic drugs which have been unable to control these seizures. The data showed that the majority of the patients taking Epidiolex showed a reduction in seizure frequency by as much as 50%. Now it is amazing in itself that Epidiolex was able to reduce seizure frequency by a huge margin, but that's not all. Around 15% of the patients that took Epidiolex were seizure-free after taking the whole 12-week treatment. The other patients in the study were not seizure-free after following the entire treatment, but they saw a huge reduction in seizure frequency. Such reduction percentages include 50%, 70%, and 90% reduction in seizure frequency. With these results on hand, GW Pharmaceuticals has decided to run a Phase 2/3 trial for patients with different types of treatment-resistant epilepsy by the 2nd half of 2014. In addition, the company plans to initiate a Phase 3 trial in patients with Dravet syndrome by the first quarter of 2015. Since the company has seen excellent results in its proof-of-concept trial, it will also meet with the FDA to initiate a 3rd Phase 3 trial for patients with Lennox-Gastaut Syndrome -- LGS. This meeting with the FDA will take place by late 2014. Below, we will go over the two types of epilepsy diseases with an unmet medical need.

Dravet syndrome

Dravet syndrome is a rare type of epilepsy that begins in infancy that continues throughout the patient's life. Dravet syndrome is also known as another name, which is Severe Myoclonic Epilepsy of Infancy -- SMEI. Living through the first year with Dravet syndrome is bad, but the second year is where it progresses to a state where the patients develop new types of seizures. So as we can see, there is a huge need for a treatment for Dravet syndrome, and this is probably one of the main reasons why GW Pharmaceuticals' share priced popped up big on the positive Phase 2 epilepsy drug data. Current epilepsy treatments don't do much to prevent the amount of seizures the patients incur. For example, the drugs used as anti-epileptic drugs are known as anticonvulsants. These types of drugs treat the associated symptoms of epilepsy, but don't actually inhibit the seizures of the epilepsy itself. There are many symptoms associated with Dravet syndrome, but here are a few as examples:

  1. Chronic Infections
  2. Disruption of the nervous system
  3. Movement and balance issues

Some of these symptoms are disastrous, but the main reason a treatment is needed for these children is because the disease itself is deadly. This is because patients with Dravet syndrome are highly susceptible to SUDEP -- sudden unexplained death in epilepsy. Therefore, a treatment that targets the epilepsy itself should be developed, and GW Pharmaceuticals' drug, Epidiolex, just might be the answer these patients need. Current anticonvulsants, like a drug known as Keppra oral, was formulated by UCB, which is a Belgiun pharmaceutical company. Keppra oral has many side effects, and yet doesn't do anything to stop the epilepsy itself. The side effects for Keppra oral are:

  1. Drowsiness
  2. Dizziness
  3. Weakness
  4. Increase in suicidal behavior

Catalysts For Dravet syndrome

  1. Additional data from patients beyond the initial 27 enrollment expected for IND Access trial 2nd-half 2014 and throughout 2015.
  2. Phase 2/3 initiation of Dravet syndrome in 2nd-half 2014.

Lennox-Gastaut Syndrome

Lennox-Gastaut Syndrome, or LGS, is another severe form of epilepsy that has limited treatment options. Patients that have this form of epilepsy have the ability to develop many types of seizures:

  1. Tonic Seizures - stiffening of the body, dilated pupils, changes in respiratory system
  2. Atonic - loss of muscle tone and consciousness
  3. Atypical Absence - staring off into space
  4. Myoclonic - sudden unexpected muscle jerk movement

What really is bad is that around 30% of the patients with this syndrome don't know what causes their seizures. Even with anti-epileptic treatments, patients eventually either become tolerant to their current drug therapy, or the uncontrollable seizures continue on. The LGS develops in one out of 50,000 to 100,000 children, and is more common in boys than girls. We think that GW Pharmaceuticals' drug, Epidiolex, may have the opportunity to not only treat the symptoms of epilepsy but the underlying cause of preventing the seizures from coming back.

Approved Drug Sativex

One of the many things that GW Pharmaceuticals has going for itself is that it already has an approved drug known as Sativex, which has been launched in 11 different countries and has seen approval in another 13 countries, with impending launches coming down the line. Sativex is a cannabinoid medicine used for the treatment of spasticity -- involuntary muscle spasms -- due to Multiple Sclerosis. Multiple Sclerosis is an autoimmune disease where the patient's own T-cells in the body attack the myelin sheath of the brain cells and the myelin sheath of the nerve cells in the spinal cord.

Sativex has been established as an alternative therapy for Multiple Sclerosis patients when first-line therapy anti-spasticity drugs such as baclofen, clonazepam and tizanidine no longer provide relief or have too many intolerable side effects. Efficacy was seen when GW Pharmaceuticals ran a large Phase 3 trial investigating the effects of Sativex against Multiple Sclerosis spasticity. The trial found that 48% of patients had 20% or more improvement in their spasticity. The company has been doing well to increase revenue for Sativex with MS spasticity. This is because the company ended the period of March 31, 2014 with Sativex sales of $1.74 million, which compares to the same period last year when sales were only at $537,196. The company expects double-digit revenue growth in 2014 for Sativex in MS spasticity, and the company can advance Sativex towards other programs.

For instance, Sativex is also in clinical trials being tested on patients with advanced cancer pain. Matter in fact, the company announced that its current Phase 3 trial program for Sativex treating advanced cancer pain has been given the FDA's fast track designation. This fast track status gives the company the ability for a quicker review and approval process for Sativex in cancer pain. That is because cancer pain is a huge unmet medical need, where the only treatment options to alleviate these pains comes from opioids. Side effects for opioids can include: nausea, vomiting, constipation and drowsiness. Even then, some opioids are ineffective for treating the pain at all. Access to GW Pharmaceuticals' Sativex offers patients a safer alternative, since Sativex is a non-opioid drug. Matter in fact, Sativex is the only non-opioid drug in a Phase 3 clinical trial for the treatment of cancer pain.

Catalysts For Sativex

  1. Sativex Cancer pain data initial results for Phase 3 due out by end of 2014.
  2. Phase 3 trial for Sativex targeting MS spasticity in the U.S. initiating early 2015.


As with many biotechnology companies in the development phase, there are many associated risks:

  1. Even though Epidiolex has seen great results to-date, it will have to eventually run a Phase 3 trial, which is not guaranteed to succeed.
  2. GW Pharmaceuticals is expanding the trials into two different seizure types and running separate trials. Even if great efficacy is seen in Dravet syndrome, there is no guarantee that the Lennox-Gaustat syndrome will produce similar efficacy and vice versa.
  3. Even if the company does make it past the Phase 3 trial, there is no guarantee that the FDA will approve the drug to market.
  4. Federal law prohibits medical marijuana use, but each individual state has started to allow the use of medical marijuana for people within the state. There may be a limit in the amount of states that would be able to sell GW's drug upon FDA approval.
  5. There is no guarantee that the FDA or EMA will approve these new pipeline drug candidates, therefore investors should be aware they may lose some or all of their current investment in the company.
  6. The market has been choppy due to political and other risks, so the share price may fluctuate greatly in the short term.
  7. Long-term investors will have to wait till the catalyst results play out before determining the future course of the company.


We believe that GW Pharmaceuticals still has a lot of room to the upside, pending many upcoming catalysts. Obtaining positive Phase 2 results with Epidiolex only proves that the company's platform of utilizing cannabinoid products yields fantastic results. It can only get better from here, now that the company has expanded its technology to other clinical candidates that can target many big markets. The company can expect to do well in the seizure market if Epidiolex is approved. That is because as of 2011, the seizure market was estimated to be at $2.9 billion, but is expected to grow by another $800 million by 2016 to $3.7 billion. According to the third quarter 2014 financial report, the company had cash and cash equivalents of $287.8 million for the three months ending June 30, 2014. The net loss for the 3 months ending the June 30, 2014 period was $11.9 million. GW Pharmaceuticals burn rate is $4 million per month for the current ongoing clinical trials, and may increase as further clinical trials are initiated throughout the year.

Should GW Pharmaceuticals receive FDA approval for Epidiolex, the company should continue to rise in share price. The chance for FDA approval is high, because the FDA has recently granted Epidiolex as an orphan drug designation to treat patients with rare types of seizures. Another reason why chances are high for FDA approval is that the Epidiolex drug doesn't have severe side effects like other anti-epileptic drugs. Of the 62 patients in the initial study, 80% stated mild-to-moderate side effects like sleepiness and fatigue. Which is not as bad as anti-epileptic drugs which have suicidal behavior and weakness of the body. We believe that GW Pharmaceuticals offers investors a great long-opportunity.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.