DEA Eases Cannabis Research Restrictions: GWPH Poised to Capitalize

12/28/2015 10:03 am EST

Focus: CANNABIS INVESTMENTS

Michael Berger

President & Founder, Technical420.com

Given the DEA eased some of the restrictions related to researching cannabidiol (CBD), Michael Berger, of Technical420.com, points out how this—coupled with upcoming clinical trials—should serve as catalysts for this company that he views as the bellwether stock of the cannabis industry.

Last week, the Drug Enforcement Agency (DEA) eased some of the restrictions related to researching cannabidiol (CBD). The agency noted the modifications will ease some of the requirements imposed by the Controlled Substance Act on possession of CBD for a specific Food and Drug Administration (FDA) approved research protocol. Currently, researchers who require more CBD than expected due to the expanded scope of their research had to submit a written request for a modification to their DEA research registrations. The modification had to be sanctioned by both the FDA and DEA and this process held up some important research studies.

As part of the changes announced Sunday, a registered CBD clinical researcher can readily modify the protocol and continue to conduct research without having to be re-approved. These changes take effect immediately.

Shortly after this announcement, GW Pharmaceuticals plc (GWPH) announced favorable Epidiolex data from the physician-led expanded access program focused on treatment-resistant epilepsy and published in The Lancet Neurology1.

Highlights from the Report

The report stated that Epidiolex reduced seizure frequency across multiple drug-resistant epilepsy syndromes and seizure types and was generally well tolerated. The administration of Epidiolex as an add-on treatment resulted in a meaningful reduction in seizure frequency in many patients and had an adequate safety profile in the patient population with highly treatment-resistant epilepsies. Only 3% of patients ended therapy due to an adverse event.

The authors of the report said that without a control group, the efficacy and safety results should be interpreted cautiously. Orrin Devinsky, MD, of New York University Langone Medical Center’s Comprehensive Epilepsy Center said the data reinforces and supports the safety and efficacy data his team has shared in previous studies. Dr. Devinsky said that they need to study Epidiolex more before being able to confirm the results. He added that randomized controlled studies are underway and should provide a better understanding of the effectiveness of Epidiolex.  

The study’s safety and tolerability analysis included 162 patients (137 were included in the efficacy analysis) who had at least 12 weeks of follow-up after the first dose of CBD.  Of these patients, 33 suffered from Dravet’s syndrome and 31 suffered from Lennox-Gastaut syndrome (LGS). On average, more than 90% of people who suffer from Dravet’s Syndrome or LGS are considered to be treatment resistant.

The median reduction in seizures in patients with Dravet’s syndrome was 50% and around half of them saw a greater than 50% reduction in monthly motor seizures. During the last four weeks of therapy, 13% of patients were seizure free. Patients with LGS saw a 68.8% reduction in average monthly atonic seizures. During the last four weeks of therapy, 21% were free of atonic seizures and 3% were totally seizure free.

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Upcoming Clinical Trials Create Catalysts

CEO Justin Gover said that GW’s Phase 3 pivotal safety and efficacy studies in Dravet syndrome and LGS are nearing completion. The company expects to announce the results of the placebo-controlled efficacy and safety profile in early 2016.

GWPH is conducting two Phase 3 trials in Dravet’s Syndrome and two Phase 3 trials in LGS. The company also expects to commence Phase 3 clinical development of Epidiolex in Tuberous Sclerosis Complex (TSC) in early 2016.

Timeline and Measurability of Testing Results

GWPH expects to report top-line results from the Phase 2/3 pivotal safety and efficacy study in Dravet’s Syndrome during the first quarter of 2016. The results from the second Phase 3 trial will be released in mid-2016. The primary measure of efficacy in both trials will be the comparison between Epidiolex and a placebo in the percentage change in number of monthly convulsive seizures during the 14-week treatment period when compared with the 4-week baseline observation period.

For GWPH’s LGS trials, the company expects to report top-line results from both Phase 3 trials in the second quarter of 2016. The primary measure of efficacy in both trials will be the comparison between Epidiolex and a placebo in the percentage change in number of monthly drop seizures during the 14-week treatment period compared with the 4-week baseline observation period.

Insider Moves Making Investors Nervous

On December 22, GWPH filed a 6-K which disclosed sales of stock by company insiders. GWPH traded down following this announcement and we believe that the market overreacted to this because they did not understand the transaction. Typically, when insiders sell shares it is a bad sign. What made us not concerned was the language used in a paragraph about Dr. Guy.

Many GWPH employees were gifted shares prior to the GWPH initial public offering (IPO) and they continued to earn shares as they stayed with the company. The insiders received shares of GWPH for less than $10 per share and were able to avoid significant tax liabilities by selling some of their holdings before the end of the year.

On December 18, Dr. Geoffrey Guy, Director and Chairman, exercised options to acquire 114,154 shares of GWPH and sold 88,828 ADSs at an average price of $67.50. On December 21, Dr. Guy sold 10,309 ADSs at an average price of $67.32. On the same day, Chris Tovey, Director and COO, sold 2,000 shares at an average price of $67.62.

Outlook

We remain favorable on GWPH and view the company as the bellwether stock of the cannabis industry. On December 23, GWPH traded as low as $64.78 and shares have rallied 7.6% off of these lows. If GWPH’s Epidiolex product is approved by the FDA in 2016, this will serve as a major catalyst and should send shares above the $100 level.

Michael Berger, Founder and President, Technical420.com

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