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Cannabis is a medicine and the plant has the ability to treat countless illnesses and improve daily life for millions of people across the globe.
Although we know that cannabis has medical benefits, it remains classified as a Schedule I substance under the Controlled Substances Act (CSA). A Schedule I substance is considered to have the highest potential for abuse, has no known medical benefits, and is not safe for use even under medical supervision.
A cannabis legalization movement has been sweeping the nation over the last few years and some form of medical cannabis is legal or decriminalized in 46 states and the District of Columbia. Congress seems to be waiting for every state to legalize or decriminalize some form of cannabis until acting.
GW is Changing the Landscape of the Cannabis Industry
One company changing the landscape of the cannabis industry is GW Pharmaceuticals (GWPH), a Nasdaq-traded biotech firm focused on developing cannabis-based products.
GW is different from the companies it is typically compared to (i.e. Zynerba Pharmaceuticals and Insys Therapeutics). The company’s products are derived from the actual cannabis plant while its peers are focused on developing products from synthetic cannabis.
GW already sells a cannabis-derived treatment for multiple sclerosis in 27 countries and has by far, the most diverse array of cannabis-derived products in its pipeline. The company is covered by numerous Wall Street firms such as Goldman Sachs, Morgan Stanley, and Bank of America/Merrill Lynch who all have buy ratings on the stock.
Clinical Trial Results are More Important than Earnings
Since March 2016, GW has reported positive results for three separate Stage 3 Clinical trials for its Epidiolex product (one for Dravet syndrome and two for Lennox-Gastaut syndrome or LGS). Phase 3 trials are currently taking place for Tuberous Sclerosis Complex (TSC) and infantile spasms (IS).
Earlier this month, GW reported second-quarter financial and operating results and provided an update on its product pipeline. When it comes to biotech stocks, earnings do not mean much for the company in its early stages. During this time, what matters are the results of FDA trials and the receipt of designations such as the Orphan Drug Designation and Fast Track Designation.
An Event-Driven Story
During the last year, we continued to refer to GW as a second half of the year story due to the large number of catalysts set to occur during this time. These catalysts are significant from a company fundamental standpoint and may result in significant share price appreciation.
Some of the upcoming catalysts investors should expect to occur include:
- The submission of a new drug application (NDA) for Dravet and LGS in mid-2017. GW expects to submit an NDA to the European Union in the second half of the year.
- GW is currently conducting Phase 3 Clinical trials for Epidiolex for TSC
- The company is in the middle of part one of a two-part Phase 3 trial for IS
- In the fourth quarter, GW expects to report data from its fully enrolled CBDV Phase 2 partial-onset epilepsy study.
- The company expects to start an open label study in Rett syndrome in the fourth quarter and a Phase 2 placebo-controlled trial in the first quarter of 2018. GW received the Orphan Drug Designation from FDA for CBDV for the treatment of Rett syndrome
- GW completed its Phase 1 trial for its Neonatal Hypoxic-Ischemic Encephalopathy (NHIE) intravenous CBD program. The company is having Phase 2 protocol discussions with FDA in the second half of the year. Received the Orphan Drug Designation and Fast Track Designations from the FDA and EMA
- GW is on track to have its FDA GMP inspection in the second half of the year. The company’s facility in the UK was successfully inspected in December and is GMP compliant.
A Bright Outlook
On Friday, GWPH broke out of oversold territory and momentum is trending higher after the shares rallied less than 2%. GWPH is down more than 20% from its March highs and we are favorable on this move higher.
We continue to believe that GW represents one of the best cannabis investment opportunities and see significant upside from current levels. We are favorable on GW due the following reasons:
- Owns an extensive pipeline of products that are advanced stages of FDA testing
- Its balance sheet is strong enough to support the cost of clinical trials
- The company has impressive Wall Street coverage (average price target of $154)
- GW is an attractive acquisition target and Goldman Sachs issued the company a $390 acquisition price
- The company’s management team continues to execute and has the firm positioned for success
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