BULL POINTS:
■ Third approval for Sativex - in Canada
■ Late-stage trials for cancer pain in the US
■ Sativex to be added to NHS prescribing guidelines
■ Plenty of cash
BEAR POINTS:
■ Unknown risks of cannabinoids
■ New indications unproven
The picture has become considerably brighter for GW Pharmaceuticals (GW) over the past six months as the cannabis-based medicines developer has gone a long way to entrenching its Sativex product in the global healthcare system, with a series of regulatory approvals. The accompanying milestone payments and eventual royaties, as Sativex is rolled out across various European markets, means that GW has moved on from being a hand-to-mouth early-stage development firm into something resembling a permanent fixture on the UK biotech scene.
| IC TIP RATING | |
|---|---|
| Tip style | Speculative |
| Risk rating | High |
| Timescale | Long term |
| What do these mean? Find out in our | |
The latest approval for Sativex - in Canada - triggered a £1m milestone payment from German company Bayer. This allows Sativex to be prescribed to patients suffering from muscle stiffness associated with multiple sclerosis (MS). The approval came faster than either company expected and so Bayer has yet to finalise how it will market the product, but broker KBC Peel Hunt reckons the Canadian market will eventually generate annual sales of $20m (£13m), with GW picking up £4m in royalties.
The UK's NHS is likely to include Sativex in its prescription guidelines, which will allow it to be funded locally for MS patients. The drug will now be rolled out across Europe without the need for more clinical trials under the EU's mutual recognition procedure for approved medicines. In addition, the US drugs regulator should give the go-ahead for late-stage clinical trials later this year for treating cancer pain, which Japanese company Otsuka is developing for GW.
Cash is not seem a problem for GW, either, as it has around £20m sitting in the bank plus future revenues from Sativex. That should enable GW to fund development for other uses for the drug. GW has been looking at urology indications, and Sativex has generated some pleasantly positive data for the treatment of glioma (brain cancer).
| ORD PRICE: | 103p | MARKET VALUE: | £134m | |
| TOUCH: | 100-103p | 12-MONTH HIGH: | 156p | LOW: 80p |
| DIVIDEND YIELD: | nil | PE RATIO: | na | |
| NET ASSET VALUE: | 4p | NET CASH: | £20.3m | |
| Year to 30 Sep | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2007 | 5.7 | -12.6 | -8.8 | nil |
| 2008 | 11.8 | -10.2 | -6.8 | nil |
| 2009 | 24.1 | 1.2 | 1.2 | nil |
| 2010* | 28.9 | 2.5 | 1.9 | nil |
| 2011* | 27.1 | -0.7 | -0.5 | nil |
| % change | -6 | - | - | - |
Normal market size: 2,500 Matched bargain trading Beta: 1.1 *KBC Peel Hunt forecasts | ||||
On the minus side, new drugs also mean unknown risks. The use of cannabinoids, the family of compounds connected to cannabis, for treating neurological disorders is a new area of science which GW is researching in collaboration with Otsuka. The long-term side effects, if any, of cannabis-based medicines won't be known for some time and there still might be some reticence about prescribing Sativex. However, among GW's drugs, the most psycho-active ingredient, tetrahydrocannabinol or THC, is counteracted by another cannabinoid CBD, which seems to inhibit intoxication without reducing the pain relieving effect.
But GW's main aim in the coming years must be to expand the number of indications for Sativex, all of which will need additional investment. If additional indications are added, then sales in Europe alone could be worth around £100m annually, reckon analysts at broker Edison.
