As with many biotechnology companies, the secret of success of GW Pharmaceuticals (GWP) is hard to understand. But its development of treatments derived from the medicinal benefits of cannabis - plus a well-timed share listing on the biotech-friendly Nasdaq index - has garnered it plenty of attention. Although the share price has already made '10-bagger' status in the past 12 months, there may be a further run before the end of the year when the company is due to report results from final-stage trials of its key drug, Sativex.
- Result of key drug trials by year-end
- Support from US drugs regulator
- Plenty of cash
- Developing controversial products
- Risk that drugs fail in trials
Sativex is already approved in Europe for treating spasms in multiple sclerosis patients. That gives GW a stream of income and makes its shares less risky than many drugs developers. Its sales in Europe grew 40 per cent in the first half of the year to the end of September, with the strongest demand in Germany and Italy.
GW's bosses had hoped that Sativex would be approved for the same treatment in the US, but it may get better than that thanks to the Food and Drug Administration (FDA), the US drugs regulator. The FDA has already granted the drug 'fast track' status to treat pain in cancer patients. That indicates there are no viable alternatives to Sativex treatments. In turn, this implies that when Phase III data proves such treatment is safe and effective, GW's share price will get a boost. Analysts at broker Edison estimate that the formal approval of a new-drug application for Sativex could push the drug's value clear of £1.1bn, which is currently more than the market value of the equity. In other words, GW's remaining research and development pipeline would be in the share price for nothing.
And Sativex is not GW's only pursuit. Its treatment for childhood epilepsy - Epidiolex - has grabbed many pharma headlines. True, there is something controversial about developing a drug for children that is sourced from cannabinoids. But a number of US politicians support the idea of medical marijuana, with the drug already legal in Colorado and Washington. However, GW investors should heed caution. Yes, senators from Colorado, Washington and other states back efforts to help transition marijuana into a well-regulated and legitimate industry, but none has come out in support of legalisation itself. Governor Jay Inslee told The New York Times that, while he understands the motivation for ending marijuana prohibition, he has concerns about the law's possible effects on children. That said, some politicians are noticing the financial incentive. Rhode Island governor Lincoln Chafee told The Huffington Post that the potential revenue stream was "enticing" and he wouldn't rule out legalisation.
Regardless of the political risk, GW is establishing its clinical programme for Epidiolex. The FDA has already granted the treatment 'orphan drug' status - another indication that there are few alternatives - for treating two childhood epilepsy syndromes: Dravet syndrome and Lennox Gastaut syndrome. The FDA authorisation of a commercial 'investigational new drug' status for Epidiolex in Dravet Syndrome means GW can begin a two-part mid- and late-stage clinical trial this year. The aim has not been disclosed, but a reduction in the frequency of seizures among 80 patients would signal progress. Results aren't expected until 2015 at the earliest and a trial for Lennox Gastaut syndrome is planned for next year.
In the meantime, a concern for all investors in drug discovery companies is cash. Thankfully, GW has more than most. It found support from US investors via the Nasdaq listing, raising £57m in January 2014, and followed this up with an offer of American depository shares in June, which generated a further £70m. By the end of the 2014 financial year, Edison analysts estimate GW could still have about £75m in the bank.
GW PHARMACEUTICALS (GWP) | ||||
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ORD PRICE: | 447p | MARKET VALUE: | £1.06bn | |
TOUCH: | 445-447p | 12-MONTHHIGH: | 541p | LOW: 53p |
DIVIDEND YIELD: | nil | PE RATIO: | na | |
NET ASSET VALUE: | 39p | NET CASH: | £93.6m |
Year to 30 Sep | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
---|---|---|---|---|
2011 | 29.6 | 2.5 | 2.0 | nil |
2012 | 33.1 | 1.2 | 1.9 | nil |
2013 | 27.3 | -10.6 | -2.9 | nil |
2014* | 32.4 | -22.9 | -9.6 | nil |
2015* | 38.6 | -34.4 | -12.6 | nil |
% change | +19 | – | – | – |
Normal market size: 3,000 Matched bargain trading Beta: 0.1 *Peel Hunt forecasts |