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GW Pharmaceuticals: Featured Cannabis Stock

GWPH (Nasdaq), GWPH (London)

Should you invest in GW Pharmaceuticals? Recommendation: Keep Reading

GW Pharmaceuticals is a biopharmaceutical company, which engages in the discovery, development, and commercialization of novel therapeutics. It offers its cannabinoid product, Epidiolex oral solution CV, a pharmaceutical formulation of cannabidiol (CBD) focusing on the treatment of seizures associated with tuberous sclerosis complex.

See our Technical Analysis of GWPH Here

Fundamentals

Profile

HQ: Cambridge, UK
Founders: Dr. Geoffrey Guy & Dr. Brian Whittle
Incorporated: 1998
Symbol: GWPH (Nasdaq) & GWPH (London)

Focus: Strong

GW is the leading biopharma company focused on discovering, developing and commercializing new therapeutics from its proprietary CBD formulations for a broad range of diseases.

GW commercialized the world’s first plant-derived CBD prescription drug, Sativex (nabiximols), approved for the treatment of spasticity from multiple sclerosis in over 25 countries outside the United States.

On June 25, 2018, the US FDA approved Epidiolex oral solution for the treatment of seizures from Lennox-Gastaut syndrome (LGS) and Dravet syndrome (both epilepsies) in patients two years or older. Epidiolex is made from crystallized CBD, where they remove all other cannabinoids, terpenes, and tetrahydrocannabinol (THC).

The approval process included testimony from the public about how life-changing the oral CBD product had been during clinical trials. In the study, 44% of patients using Epidiolex to treat highly treatment-resistant LGS had a significant reduction in the frequency of drop seizures, a type of seizure where a person suddenly falls down.

Epidiolex is the first prescription pharmaceutical derived from cannabidiol (CBD), and the first anti-epileptic drug (AED). Drug awareness is deemed high among the target market and demand is growing.

 

Size: Strong

Market Cap: US $2.68 bil
Enterprise Value: US $2.17 bil
Number of employees: 901

Markets: Strong

Primary: UK and Europe. USA with new Epidiolex drug
In 2015, 1.2% of the total US population had active epilepsy. This is about 3.4 million people with epilepsy nationwide: 3 million adults and 470,000 children. One-third of these are resistant to current drugs, presenting an opportunity for new treatments.
Lennox-Gastaut syndrome (LGS) is rare. According to our estimates, of the roughly 470,000 kids in the US who could have epilepsy, one to four percent could have LGS. The means 5,000-19,000 kids may have LGS and about 5,000 US kids may have Dravat’s Syndrome. GW reports that there are (globally) 30-50k with LGS, and 15-20k with Dravet’s.
Secondary: Sativex

Operations: Strong

Epidiolex: Used for LGS, Dravat’s, Tuberous Sclerosis, and Rett Syndrome. GW is currently producing enough Epidiolex to meet, ship and fulfill growing commercial demand. It grows and buys ingredients. They are investing in facilities to increase production for higher future demand. Approved by FDA in USA and approved for use in Europe. Costs are $1,235 per 100 mL bottle. This is about $32,500 per year per patient.
Sativex: Contains THC and CBD in 1:1 ratio. Used for MS spasticity and neuropathic pain. Approved in over 25 nations. Sold through partners (revenue under $12 mil/year). Phase 3 trial Q4 2019 in the USA. GW owns 100% development rights.
CBDV: Treats epilepsy, autism, Retts Syndrome. Is currently in trials to treat autism. This 100 patient study began Q4 2018.
Best Hemp and Cannabis Stock Investment
Should you invest in GW Pharmaceuticals? Recommendation: Keep Reading
Distribution: Neutral
They will commercialize Epidiolex in the US under the company name Greenwich Biosciences. Four of the top five US insurance payors have begun coverage of Epiodiolex to at least 60% coverage. 80-90% of eligible Medicaid recipients have initiated coverage of Epiodiolex. GW has 66 account managers targeting 5000 physicians, and have contacted 70% of those already. GW has launched a large education program for doctors. In Europe, it will be called Epidyolex. Approval expected in Q1 2019. GW plans to launch in France, Germany, Italy, Spain and, UK in 2019. GW expects 7 years of patent protection in US, 10 years in Europe.
Integration/Diversification:
Vertically integrated: No.
Horizontally diversified: Yes. GW has several drugs in its pipeline.
Financials: Strong
From 2013-15, GW had revenue of nearly $30 mil per year. In 2016-18, revenue fell to about $10 million per year, even as production and sales costs continued to climb quickly, leading to large losses ballooning to over $175 million in 2017. In 2017, with 300 million shares outstanding, it lost $0.58 per share. Revenues from Epidiolex sales in 2019 were $296 million.
Revenue rank in the industry: 1
Revenue Growth (QoQ): 19.7%
Shares Outstanding (diluted): 30.54 mil
EPS (diluted): (0.29)
Management: Neutral
Founder and Exec Chairman:  Dr. Geoffrey W. Guy
Branding: Weak
Branding is less important with pharmaceutical products like Epidiolex and Sativex, which will be totally unique and without competitors, and will receive plenty of free press. These are only available with prescriptions so the branding is less important than direct contact with doctors. GW has contact with at least 4,000 doctors now.
Valuation: Strong
Current share price: US $96.33
Price to Sales: 9.12 (Biopharma industry average = 7.5)
EV / Revenue: 6.98
52 week low/high: US $67.98-$196.00
Price/Book: 3.91
Financing: Strong
GW ended 2019 with $526.9 million in cash. This should be plenty to continue R&D development and support their expensive clinical trials.
Risks: Neutral
All cannabis stocks are risky, due to the unknown future of the market. GW is less so given substantial revenues realized in 2019. They enjoy high investor enthusiasm as a result. But there is still no guarantee that GW will be able to successfully make money from other drugs. High enthusiasm from investors brings additional big risk— that the current share price is too high compared to its future earnings potential, which would mean that even with large future earnings growth, the share price would likely fall.

 

 

RecommendationStrong

GW is a biopharmaceutical company focused on discovering, developing and commercializing novel therapeutics from its proprietary cannabinoid product platform in a broad range of disease areas.

Epidiolex sales have begun in the US, and they are booming. GW reported $296 million from Epidiolex in 2019. With European sales and Sativex coming along the company has no problems with cash flow and reports almost $540 million in cash on hand.

The Epidiolex market is two specific forms of childhood epilepsy, LGS and Dravat’s Syndrome. There are 4,000-19,000 kids in the USA with LGS, and roughly 5,000 children with Dravat’s Syndrome in the USA.

On February 11th, 2020, prior to any coronavirus outbreaks in the USA, GW was trading at $129.96. Just 1.5 months later, share prices have dropped over 40%. If there was any time to get a discounted stock, this may be it. The price to sales is 9.12, slightly higher than the pharma industry average of 7.5. Price to book is 3.91 and EV/Revenue is at 6.98. What does all this fundamental analysis mean? The stock is not currently overpriced (which it was just a few months ago). We think this is an excellent buy opportunity and are excited to watch their revenue increase in 2020 with Sativex and eventually their CBDV drug in the coming years.

GW Pharmaceuticals: Featured Cannabis Stock


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