GW Pharma Earnings Create Opportunity

05/05/2016 9:17 am EST

Focus: CANNABIS INVESTMENTS

Michael Berger

President & Founder, Technical420.com

Michael Berger is a leading expert on the cannabis sector, a market that is just in its early stages of development. Here, the Associate Editor of MoneyShow.com highlights his favorite cannabis stock and discusses the risks and opportunities in this rapidly developing but controversial sector.

While the cannabis sector is the fastest growing industry in the United States, it is also the most controversial.

After Colorado legalized recreational marijuana in January 2014, the cannabis sector exploded and since then more than 250 companies have gone public.

Although this industry possesses a lot of opportunity, it also carries a lot of risk and investors need to be cautious. Investors should focus on companies that are executing on their business initiatives and creating value for shareholders.

Beware of companies such as Cannabis Sativa (CBDS) and Cannabis Science, Inc. (CBIS), that constantly send out press releases but do not execute on any business initiatives.

Leading the Curve

GW Pharmaceuticals (GWPH) is one of the leaders in the cannabis industry. The British biopharmaceutical company was founded in 1998 and trades on the Nasdaq exchange.

GW commercialized the world's first plant-derived cannabinoid prescription drug, Sativex, which is approved for the treatment of spasticity due to multiple sclerosis in 27 countries outside the United States.

During 2015, the company moved CEO Justin Gover to Southern California and appointed Julian Gangolli, former head of Allergan's North American pharma business, to serve as President of North America operations. Gover and Gangolli laid down the groundwork for a stateside commercial operation and built out the infrastructure for the business.

Positive FDA Results Changed Everything

In mid-March, GW changed the way many people view the cannabis plant after it reported positive results in its pivotal Phase 3 Clinical trial evaluating the safety and effectiveness of Epidiolex in the treatment of patients with Dravet’s syndrome.

After GW reported the positive results, its shares soared from the high $30s to the low $90s. GWPH has fallen more than 14% from its highs following the results and we think this weakness has created an opportunity for investors, as the company’s first and second Phase 3 LGS trials were fully enrolled and GW expects to release top-line data in the second quarter of 2016.

FDA Results Drive Biotech Stocks, Not Earnings

Although GW reported earnings for the second quarter this morning we do not expect the results to impact shares too significantly.

Biotech stocks differ from other sectors in the financial markets because for biotech stocks, there is an event even more important and volatile than the release of quarterly results, which is the Prescription Drug User Fee Act (PDUFA) date.

The PDUFA date most important day for a biotech company because it is the day the FDA votes to approve or reject a drug. The FDA could vote before the PDUFA date, but it is the day by which a decision is expected.  

Investors need to be aware of the high risks involved in biotech, particularly development stage biotechs whose fortunes are largely dependent on the success of one drug.

A Strong Pipeline of Catalysts

GW Pharmaceuticals continues to make advancements in its pipeline of cannabinoid products. The company has a deep pipeline of products that are in various stages of FDA testing.

We expect this pipeline to create catalysts for GWPH for years to come. The products in its pipeline include but are not limited to the following:

  • Two Phase 3 LGS trials: expects to release data for the first trial in June
  • Second Phase 3 Dravet Syndrome trial: data is expected in mid-2016
  • Phase 3 Tuberous Sclerosis Complex trial: Testing is currently underway
  • Phase 2 CBDV epilepsy study: data expected during the first quarter of 2017
  • Phase 1 clinical testing for NHIE: expects to start during the fourth quarter of 2016
  • Phase 1b/2a for Recurrent Glioblastoma Multiforme: data expected in the fourth quarter
  • Phase 2 study in type-2 diabetes: expects to release data in mid-2016
  • Phase 2 study of Sativex: data expected in the fourth quarter

Outlook

GWPH has come down from its highs in March and the shares have been trading range bound over the last month (up 5.5%). GW is trading well below its average Wall Street price target and we expect GWPH to report favorable data on its Epidiolex product during the next month.

We remain buyers of GWPH and see significant upside to current levels. We will continue to monitor price movements for an opportunity to add to Technical420’s position in its Mock Portfolio.

Register for Technical420.com to keep up to date with outlook with shares of GWPH.

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