GW Pharmaceuticals (NASDAQ:GWPH) is expected to announce its results on August 7. Sales figures for its epidiolex drug for childhood epilepsies will be a key indicator. Off-label indications may start to give an unexpected boost to the numbers. Sales of sativex should also be closely monitored for reports of rapid increases this year in overseas markets. Figures for cash in hand should be closely watched by investors.
In terms of news, at the analyst call the progress of its very promising pipe-line will be one key influence on the stock price.
I have been recommending GW Pharma for several years now. Timing stock purchases with quarterly results is in general a risky game. However, adding to existing stock holdings going into these results might be a sound move in the circumstances. The company tends towards conservative forecasts and there is a history of the stock rising after such forecasts are beaten.
Epidiolex & Results
The first priority from the Q2 results will be to analyse the figures from ongoing sales of epidiolex for Dravet Syndrome and Lennox-Gastaut Syndrome. The Q1 results exceeded the expectations of the market, with revenue over double what analysts had forecast.
The company has emphasised that physicians are cautious by nature. Physicians are starting epidiolex prescription with low dosages. This is to ensure there are no harmful side effects. They are also mindful of its interaction with clobazam which is often used for these conditions. As time goes by, dosages are likely to increase with the resultant effect on revenues. The company has expressed great satisfaction with the large number of physicians who are now actively prescribing the product.
The cash position should also be watched. The company had pro-forma cash of US$626.7 million as of end-March 2019. Expenses are rising sharply due to increased sales and marketing costs, as well as R&D costs for its pipeline. The company has forecast full-year operating expenses of between US$395 million to US$425 million. Future share dilution cannot be ruled out.
In the USA, epidiolex costs about US$32,500 annually for a patient or their insurer. In Europe (where it will be called “epidyolex”), it is expected the cost will be about 70% of this. The difference is due to the very different health regime in Western Europe. This price would still be very profitable. The five launch countries in Western Europe would be France, Germany, Italy, Spain and the U.K. The customer base is expected to comprise about the same number of patients as the USA customer base. So in theory, approval in Europe can in the short term lead to added revenues equivalent to 70% of U.S. revenues. Approval, or otherwise, of the drug in Europe is imminent.
Pipeline
There are further promising monetisation routes for the company in the short to medium term. These centre around epidiolex for tuberous sclerosis complex and Rett syndrome. Developments on “sativex” may also be key this year.
The pipeline is illustrated below:
GW Pharma
At the Q1 earnings call CEO Justin Gover stated:
Clearly epidiolex and Rett in the foreign life cycle is the highest priority followed by the sativex programme, and then CBDV with respect to autism. There are several other programmes, glioblastoma which we’ve been doing some further data analysis and we’ll talk about next steps on that later this year, schizophrenia and others.”
According to GW Pharma’s own figures, there are between 30,000 and 50,000 sufferers of Lennox-Gastaut Syndrome in the USA and 15,000 to 20,000 sufferers of Dravet Syndrome. What should not be overestimated is the potential number of off-label uses in the future. The number of adult sufferers of epilepsy is very substantial. It is estimated to comprise 3.4 million adults in the USA. This compares to about 470,000 children who have varying types of the condition.
The prescription of epidiolex by physicians for adult use could increase exponentially. At present, the company still expects use of epidiolex for the two childhood epilepsies to outnumber its prescription for adults throughout 2019. At the Goldman Sachs Healthcare Conference in June, GW Pharma’s VP of Investor Relations Stephen Schulz gave some further colour to this. He remained cautious on the potential numbers.
There are about 25,000 sufferers of tuberous sclerosis in the USA according to the company’s figures. In May, the company announced a further successful trial for this condtition. Justin Gover said the company was aiming for an sNDA in Q4 and expanding the product label in 2020. Kari Luther Rosbeck, President and CEO of the Tuberous Sclerosis Alliance, stated:
We are truly excited about the potential approval of epidiolex to treat seizures in TSC as it brings much needed hope to those with TSC and their families who live daily with this difficult disorder.”
If all goes well, treatment would probably come onto the market in 2020. This was detailed in an article here. The approval process should be based purely on the clinical data. The always testing Chemistry, Manufacturing & Controls requirement of the FDA would not be needed as the product is already approved under these headings. Epidiolex is likely to be treated with less caution by physicians by that date. Additionally, it is expected that dosages for tuberous sclerosis would be higher than for the two preceding conditions. This would provide greater revenue per patient. So revenues for Tuberous Sclerosis could almost match those for Dravet Syndrome and Lennox-Gastaut.
Sativex is already approved for multiple sclerosis spasticity in over 30 countries. It is not, however, approved in the USA. GW Pharma took back direct marketing for the product from Otsuka (OTCPK:OTSKF) in December 2017. The company seems very hopeful both on revenue prospects and on the possibility that the product could be sold in the USA in 2020. Sativex is also at an early testing stage for Alzheimer’s.
In Q1 results, sativex revenue was up 54%. However, that still only totalled US$4.38 million. Sales of sativex for MS spasticity have been underwhelming. Sales figures for the product at the Q2 results should be closely studied by investors.
In Europe, sativex is marketed by Barcelona-based Admiral. It reported sales in its last quarter increased 30%. If accurate, these reports would indicate that GW Pharma will soon be reporting hugely increased sativex numbers. There have been estimates by outside observers that sativex sales in Europe and Canada alone could reach £121 million (US$151 million) per annum. However, it should be noted that GW Pharma itself has given no such estimates.
The continuing optimism by company executives for sativex should be taken into account. They are usually quite cautious in their public statements. The optimism though was recently illustrated by Stephen Schulz at the Goldman Sachs conference. He again expressed confidence about the forthcoming single Phase III study with the FDA. He was also bullish about the various Phase II studies for other conditions.
Other drugs such as CBDV, GWP 42002 and GP 42003, as well as epidiolex for Rett Syndrome, should not be factored in for any revenue potential before 2021. The chart illustrated above does emphasise the way the pipeline could kick in with new revenue opportunities. This could spread on a promisingly consistent basis over the next few years.
Rett Syndrome is a very upsetting and life-changing neurological condition caused by mutation of the MECP2 gene. It affects about one in every 10,000 to 15,000 girls early in their life and has no successful treatment.
Average life expectancy for sufferers is about 45 years. It is at the extreme end of autism spectrum disorders. Such disorders have been a focus of cannabinoid treatments in recent years.
U.K. based charity “Reverse Rett” has been working on a variety of approaches to the condition. It reports that gene therapy trials are starting this year. That may or may not be workable and would be a very long-term process. There have been a number of instances of CBD (cannabidiol) being useful in ameliorating some of the extreme symptoms of the condition. This is often achieved through use of cannabis oil. The organization is involved in some clinical trials for the use of CBD for Rett Syndrome.
Trials for Rett Syndrome by GW Pharma started in June this year. They are expected to have a primary completion date in August 2021 and a study completion date in September 2021. As with childhood epilepsies, drugs treating Rett Syndrome would qualify for “orphan” status from the FDA. Such status gives a 7-year protection period for the company in the USA, and 10 years in the EU.
The apparent benefits of cannabinoids in this condition are yet another example of how GW Pharma is able to follow up scientifically on what appear to be the benefits of cannabis for numerous health conditions.
The long-term efficacy for cannabinoids in the treatment of cancer is another area of great interest. So far the evidence has been more anecdotal than scientific. Oncology of course would represent a hugely increased area of treatment for the company. A previous article I wrote covered various possibilities, especially in relation to glioma, which GW Pharma is pursuing in this field.
Competition
Competition is of course always a risk for the stock price. However, competitors have been experiencing multiple problems in bringing cannabinoid drugs to market.
My article in January dealt with much of this. The stock prices of Zogenix (NASDAQ:ZGNX) and Insys Therapeutics (OTCPK:INSYQ) have suffered as a result of these problems. Zogenix’s direct competitor on Lennox-Dravets Syndrome is “fintepla.” This experienced delays due to problems with the company’s application to the FDA. This is still ongoing but vital time has been lost by Zogenix while epidiolex gains momentum in the market.
Zynerba (NASDAQ:ZYNE) certainly has its advocates with its patented transdermal patch for administering CBD products. However, it is a long way from bringing any product to market. It is uncertain whether it will get FDA approval and whether it will secure long-term financing.
A stronger competitor than other pharmaceutical companies is likely to be the use of natural cannabis in preference to a prescribed pharmaceutical product.
However, GW Pharma’s success in getting expanded insurance coverage and Medicaid coverage makes this alternative less attractive for consumers. Additionally, avenues may close in as it is known that the FDA is concerned about the unbridled use of CBD. U.K. health authorities have expressed similar concerns.
In the U.K., recently a government committee has recommended the use of cannabis for treating various conditions. “Intractable childhood epilepsy” was highlighted as the most likely to be beneficial. However, it can only be prescribed by G.P.s under special conditions. A senior executive of Canadian cannabis company Aurora (OTC:ACB) weighed into the controversy last month. He urged U.K. Authorities to give open season for prescribing cannabis for epilepsy and other conditions. These comments are not surprising as Aurora is one of the world’s largest legal producer of the cannabis plant. Physicians by nature are cautious, however. They are much more likely to want to prescribe a product such as epidiolex as long as it is approved for sale in the U.K.
This month it has been confirmed that the FDA is studying the matter further. They have started to issue warning letters to companies who make claims for CBD which are scientifically unverified.
Many companies are using, or wanting to use, CBD for applications in what is termed “wellness” as well as in food and beverages. It is unknown how long it will take for the FDA to set up a revised regulatory framework for CBD. Its use in epidiolex means it is a drug which needs approval.
Conclusion
GW Pharma’s management tends to be quite cautious in forward projections. There is a history of the stock price rising after earnings are released. This happened after both the Q4 2018 results (by 13%) and the Q1 2019 results (by 5.4%).
The company is forecast by analysts to report earnings of -US$0.13 per share. Consensus for revenue is US$63.37 million. That would represent growth of 1731% year on year. That figure is somewhat meaningless as epidiolex was not approved in the year-ago quarter.
I have been recommending the stock for several years now and the 3-year record is illustrated below:
Charles Schwab
The stock has shown good returns for shareholders. It is up 77% this year. Returns have been particularly favourable for those who follow my recommendation to buy on market dips.
Any further clarity on the off-label use of epidiolex should be noted by investors at the Q2 results. This is a very substantial potential source of increased revenue which many have not taken into account. Sales figures for both epidiolex and sativex could move the stock price needle substantially.
The growing evidence, but not certainty, that cannabinoids have numerous potential health application is central to the company’s outlook. A long-term investor should have an opinion on this. GW Pharma looks like it has a clear runway to further success over the next couple of years. Investors can buy into the success story now.
Disclosure: I am/we are long GWPH. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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