By Omar Sacirbey
A British company that develops cannabis-based medicine is on the verge of a major breakthrough that could ripple across the U.S. marijuana industry.
GW Pharmaceuticals will likely seek FDA approval in the fourth quarter of this year to sell an epilepsy drug derived from marijuana, according to an analyst who follows the company.
If it wins that approval, GW Pharmaceuticals could start sales in the U.S. by the end of 2017, giving it access to a potentially billion-dollar market.
The move would not only boost the company’s market and business prospects, it would also help bring credibility to the marijuana industry in Wall Street and investment circles.
“The data shows that (the company’s medicine) works,” said Maxim Jacobs, a biopharmaceutical stock analyst at Edison Investment Research in New York City. “I think Wall Street has definitely come around to cannabinoids as therapy.”
Indeed, several major financial institutions have assigned stock analysts to follow GW Pharmaceuticals, which trades on the Nasdaq.
The list includes Bank of America Merrill Lynch, Morgan Stanley, Cowen and Company, Roth Capital Partners, Leerink Partners, and Piper Jaffray & Co.
Several other major financial institutions have increased their shares in the company as of late, including Bank of America, Deutsche Bank and Janus Capital Management, according to Financial-Market-News.com.
GW Pharma made waves earlier this month when it announced that its Epidiolex syrup reduced episodes of a rare and severe form of epilepsy, Dravet Syndrome, by 39% in a study group of children.
That means it also successfully passed Phase III Clinical Trials, the last hurdle a company needs to clear before it can request approval from the FDA to start selling the drug on the U.S. market.
The study results sent GW ‘s stock price soaring after several months of lackluster performance.
As recently as March 10, GW’s stock hit a 52-week low of $35.83.
After the results were announced on March 14, however, the stock jumped to $91.65, though it has retreated a bit since then to around $75 a share.
The news prompted Numis Securities to initiate coverage of the company. Although it opened with a sell rating, that his since been revised to “under review.”
Stephen Schultz, vice president of investor relations at GW Pharmaceuticals, said the company is highly optimistic that it will get the green light from the FDA.
“We’re confident in our results and that they show what needs to be shown for approval,” he said.
Jacobs also believes the FDA is likely to approve Epidiolex.
“Looking at epilepsy trials that have been done previously and what’s been needed for approval, they definitely have the right amount of information for approval,” Jacobs said.
He added that the sample size of the most recent clinical trial and the quality of the research were both good, strengthening the company’s case.
“This is an unmet medical need,” Jacobs said. “Because you have a lot of kids who are suffering (from Dravet Syndrome), I would expect the FDA to approve them”.
Because Epidiolex is derived from marijuana, it is classified as a federally prohibited Schedule 1 controlled substance.
So it would need to be descheduled before sales in the U.S. could begin, which would take up to three month, Jacobs said.
The U.S. Drug Enforcement Agency could oppose the move, but that is unlikely, Schultz and Jacobs said.
“I wouldn’t expect them to put up a fight against something that’s going to go to kids with epilepsy,” Jacobs said.
GW Pharma is conducting a second Dravet trial, the results of which should be announced in the second half of this year.
The company is also conducting two studies to see how Epidiolex works against another form of epilepsy, Lennox-Gastaut Syndrome (LGS), which affects substantially more kids than Dravet Syndrome.
The results of one trial involving LGS will be announced in the second quarter of this year, and results for the second study should come out around mid-year, Jacobs said.
“We still need to get more information about what percentage of these patients were seizure-free, because that’s really your ultimate goal,” Jacobs said.
Showing that Epidiolex is effective against multiple types of epilepsy could mean a difference of hundreds of millions of dollars in revenue for GW Pharma.
“Once it’s shown to be effective on different types of epilepsy, it’ll be sold for a wider range of epilepsies,” Jacobs said.
For Dravet Syndrome, the patient population is relatively small, and sales are expected to top out at about $200 million annually, Jacobs said. But if Epidiolex is also approved for LGS, which affects many more people, sales could be as much as $1 billion annually.
Matthew Willis, chief operating officer of Med-X, a publicly traded company that is involved in scientific research and publishing, said what’s good for GW Pharmaceuticals is likely good for marijuana businesses.
“The whole industry is seeing an upswing from this,” Willis said. “What’s happened to GW is a game-changer for everyone in the industry.”
Omar Sacirbey can be reached at [email protected]