Will GW’s multibillion-dollar sale ‘open floodgates’ to pharma-cannabis deal-making?

GW Pharmaceuticals cannabis

A look inside GW Pharmaceuticals' production process. The company recently agreed to a $7.2 billion acquisition. (Photo courtesy of GW Pharma)

Jazz Pharmaceuticals’ planned $7.2 billion takeover of United Kingdom-based GW Pharmaceuticals could kick off a wave of deal-making between pharma and medical cannabis companies, analysts and industry sources say.

But rather than all cannabis producers benefiting, only businesses that have marketable intellectual property and an established foothold in the medical cannabinoid arena will draw serious interest.

In the case of GW, for example, Ireland-based Jazz was attracted to the British company’s cannabis-based epilepsy medicine, Epidiolex.

“In the short term, you’re likely going to see many LPs taking advantage of GW’s news, when in reality it will have little, if any, impact on most of them, unless they have deep expertise in R&D, plant genetics and clinical trials,” David Kideckel, an analyst for Alberta-based ATB Capital Markets, told Marijuana Business Daily.

“There will be much upside, however, for specific companies playing in GW’s wheelhouse.”

Kideckel highlighted New Brunswick-based Organigram and its partnership with biosynthetic player Hyasynth Biologicals, Ontario-based Cardiol Therapeutics and Alberta-headquartered Willow Biosciences as three examples of the kind of companies that might draw some interest.

Kideckel, who covers GW for ATB, sees the Jazz deal as a validation of sorts for the U.K.-based drugmaker.

“This is a clear testament to what GW has done, and we think it will transform the industry over time,” he said.

“We know pharma companies are already engaged, but very few of them will say so publicly.”

While its well-capitalized Canadian peers paid significant premiums for greenhouses, GW was pouring money into research and development for its pipeline of cannabinoid-based medicines.

GW spent approximately $560 million on R&D between 2017 and 2020, financial statements show.

R&D accounts for the biggest portion of its employees; 278 of the company’s 901 employees are engaged in R&D. The next-biggest category is commercial, or sales.

GW has leased, not purchased, three cultivation facilities in the U.K. measuring 1.9 million square feet, 900,000 square feet and 330,000 square feet.

“What this does is it validates the cannabinoid-based science within mid- to large-cap pharma, so I think this could open the floodgates to other unique deals,” Kideckel said.

He warned that only certain cannabis companies stand to gain.

“GW is in a world by itself. Although there aren’t other companies that play like GW, what it does is it lends credibility to the field of cannabis for pharma,” Kideckel said.

“It took GW 20 years to become GW. Rightfully or wrongfully, a lot of cannabis names will play off of GW’s positive news and think it benefits them positively.

“But from a fundamental perspective, I don’t see the synergies that GW will lend to the overall industry with the exceptions of a few specific names.”

Standardization

For Ken Weisbrod, formerly the head of cannabis strategy at Canada’s largest drug store, Toronto-based Shoppers Drug Mart, standardization in the medical cannabis field is a prerequisite.

He sees potential for collaborations or joint ventures between pharma companies and cannabis businesses with the right mix of assets.

“I think a lot more pharma companies will move into the space. We’ve got an opioid crisis raging, but it really hasn’t moved because it requires medical oversight,” Weisbrod told MJBizDaily.

“There are companies in Canada that have remarkable capabilities to do that, and they have gotten stronger as the space has evolved. Those companies will stand out and be able to move internationally as API (active pharmaceutical ingredient) manufacturers, potentially (joint venturing) with pharma companies.”

The GW-Jazz deal is “a validation of cannabinoid therapy,” Weisbrod said, “but it also sends a message that if you want to get doctors to prescribe it, you have to go down that road (proving clinical efficacy) – that’s the right way to do it.

“Jazz obviously sees that and GW has demonstrated how to do it.”

Paul Pedersen, CEO of British Columbia extractor Nextleaf Solutions, said pharma is kicking the tires, but there is a huge gap between intense curiosity and active investment.

“Pharmaceutical firms engaging in due diligence with Nextleaf are mature in their approach and are taking a measured approach to the cannabinoid market,” he said.

Pedersen believes the GW acquisition will spur more interest from pharma, though he added that “pharma doesn’t care about growing plants.”

“What pharma cares about specifically is standardized molecules and products that can be taken to market; what GW has done is a perfect example,” he said.

Intellectual property

Zyus Life Sciences, a company based in Saskatchewan, is investing in medical research, clinical trials and advanced process manufacturing.

“We’re building the company around intellectual property that, once secured, affords the company to make investments in the next step, which is the data you have to generate from preclinical and clinical trials,” CEO Brent Zettl told Marijuana Business Daily.

Zettl said pharma is after three main things, including:

  1. U.S. or European Union-Good Manufacturing Practice.
  2. An IP portfolio.
  3. Preclinical and clinical data.

“You look at GW, one of the things they did successfully is they spent north of $100 million a year on trials. That’s what generated the data,” he said.

“There was an investment that has to be done.”

Other businesses are accumulating intellectual property in biosynthesis, and those with active pharmaceutical ingredient expertise might see further interest from pharma, industry sources say.

“Several of the Canadian LPs, even though they’ve misspent cash over the years, I would argue that their plant genetics go much deeper,” analyst Kideckel said.

Organigram is involved in biosynthesis via its investment in Hyasynth Biologicals, a private biotechnology company in the field of cannabinoid science and biosynthesis.

Cronos Group, a Toronto company, has a partnership with Ginkgo Bioworks in Boston to produce cultured cannabinoids.

The big question

The medical markets in Canada, the United States and Europe are developing in different ways, and that is challenging executives to create adaptable business models.

In Europe, and in most markets outside North America, medical cannabis is distributed in pharmacies. In Canada, however, pharmacy sales remain out of bounds, and most products have to be shipped directly from the producer to the patient.

Beyond distribution, efficacy and standardization play a much bigger role outside North America than they currently do in Canada.

British Columbia-based Tilray was perhaps the first cannabis producer to strike an alliance with a pharma company, Quebec-based Sandoz Canada, in 2018.

“The big question I’m asking myself is, two or three years from now, will the medical cannabis model in the U.S. look more like Europe or more like Canada?” Tilray CEO Brendan Kennedy told MJBizDaily.

“I don’t have the answer, but I’m getting the inkling it may look a little bit less like Canada than everyone is assuming.”

Matt Lamers is Marijuana Business Daily’s international editor, based near Toronto. He can be reached at mattl@mjbizdaily.com.