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Bull of the Day: GW Pharmaceuticals (GWPH)

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GW Pharmaceuticals (GWPH - Free Report) is the $5 billion biotechnology company with the first FDA-approved cannabis-derived drug. Epidiolex was created and tested starting four years ago for the treatment of two rare forms of childhood epilepsy and launched commercially in November.
 
I last wrote of GW Pharma as the Bull of the Day on March 4 after they released initial-launch sales numbers for Epidiolex. The company surprised investors and analysts with the launch which achieved $4.7 million in Epidiolex sales just for November and December, far surpassing the consensus of $2.5 million even with the holidays. 
 
Fast-forward to May 6 and Q1 results, and the first full quarter of Epidiolex sales also crushed expectations with revenues of $33.5 million vs the $20M consensus. Other key metrics in the press release...
 
  • Over 7,600 patients have received Epidiolex prescriptions since launch
  • Over 1,900 physicians have generated dispensed prescriptions since launch
  • Pharmacy distribution network now includes over 145 distribution points
  • Approximately 75 percent of 900 patients in expanded access program and open label extension now transitioned to commercial product. Remaining patients expected to transition by end of Q2.
 
GW Pharma also relayed data on rapid and encouraging payer coverage, including over 90 percent of all U.S. lives now covered – 65 percent of which have either Prior Authorization (PA) to indication or less restrictive.
 
The insurance reimbursement factor is extremely important as doctors may choose Epidiolex for their patients but payers may not have fit cannabinoid medicines into their approved protocols yet. After all, GW's Epidiolex was the first so it's completely new territory for all healthcare players. We'll come back to these issues again.
 
A Cannabis Drug Success 20 Years in the Making
 
GW Pharma was founded in the UK in 1998 by two physicians, Geoffrey Guy and Brian Whittle. Their mission right from the start was to research and develop cannabinoid medicines, with particular emphasis on ailments of the central nervous system (CNS).
 
In 2010 they achieved approval in the UK for the first cannabinoid treatment for Multiple Sclerosis. This long track record of success gave US regulators confidence in the science and R&D of GW.
 
When the FDA approved Epidiolex in June of 2018 for Dravet syndrome, they called it an "important scientific advance." And this paved the way for the US Drug Enforcement Agency (DEA) to move the drug to the safest level in the controlled substance classification system.
 
This is important because marijuana itself remains a Schedule I drug which means it is classified as having little medicinal value and could be dangerous and/or addictive.
 
With 3.4 million U.S. patients with epilepsy, including approximately 470,000 children, Dravet syndrome and Lennox-Gastaut syndrome represent two of the most difficult-to-treat epilepsy syndromes.
 
And Epidiolex, after making a believer out of the FDA and patients in 4 years of clinical trials, is on a mission to educate doctors and families world-wide. Consequently, the first approved cannabinoid medicine is seeing sales estimates rise rapidly as other CNS health indications could be served by the GW pipeline. Some investment bank analysts see sales as high as $750 million for the company in 2020.
 
That would represent a 5000% revenue ramp in just 2 years from 2018's $15 million and means the GW pipeline could be poised for "blockbuster" status, or potentially worth at least $1 billion in annual sales.
 
While Epidiolex will be the main sail in this ascent to blockbuster status, the GW pipeline is still very important in terms of innovation. In May, the company also announced positive Phase 3 data in tuberous sclerosis complex (TSC) and GW plans to submit an NDA (New Drug Application) this year. 
 
Analyst Reaction to the Q1 Sales Surprise
 
Based on the rapid acceleration in Epidiolex sales, investment bank equity analysts were busy revising their forecasts higher in May. Here are some notable examples...
 
SVB Leerink moved 2019 sales estimates from $133M to $205M and 2020 projections went from $369M to $403M. They also raised their price target on the stock from $185 to $198.
 
Oppenheimer analysts moved 2019 revenues from $161M to $233M and 2020 vaulted $200 million to $444M. The bank raised their PT to $234.
 
Piper Jaffray boosted their 2019 sales view from $170M to $304M, but revised down their 2020 outlook from $498M to $476.6M. Their PT went from $185 to $210.
 
And the biggest GW bull on the Street, Stifel Nicolaus, jumped their 2019 sales estimate from $136.5M to $250M and their 2020 forecast from $497M to $761.5M. The analysts moved their PT up from $191 to $227. They see Epidiolex growing into a $1.5 to $2 billion drug.
 
While there remain concerns about prescription and payer trends, such as off-label use, new patient starts, and compliance rates, there is some encouraging intel that can guide investors until we hear from the company again on August 6.
 
Stifel analysts do quarterly surveys of about 30 epileptologists to get data on these trends. Earlier this month, the bank shared that nearly 1/3 of usage is already coming outside of Dravet/LGS, which means that physicians are able to prescribe off-label for their adult patients. Of the 678 Epidiolex-treated patients from the recent survey, 181 are adults. 
 
Of concern was that some physicians conveyed that reimbursement pushback has been significant but the Stifel analysts concluded that "Overall our survey projects substantial growth during the next 6-12 months that we think should drive shares higher; nearer term we think 2Q will be very good, well above consensus."
 
The CBD Free-for-All
 
There are over 100 cannabinoid compounds in the marijuana plant that could be used for medicinal research. In a sense, GW Pharma could be seen as an important trail blazer with its successful approval and launch of Epidiolex. 
 
In two investor presentations I did for Zacks followers before the GW February report, I emphasized this "trail blazer" role and also the significance of insurance companies as key partners in the patient-physician-payer alliance.
 
While there are over 20 FDA-approved epilepsy drugs on the market, even the ones for orphan conditions like Dravet and Lennox-Gastaut syndromes, the two that Epidiolex can treat, don't work for every family.
 
So for patients and physicians to have the flexibility from payers to try the new cannabinoid treatments is a tremendous opportunity for all, including GW.
 
The other larger issue I've raised is that these stakeholders don't want to look for medical solutions in the wild west of CBD products now available on the internet without a prescription. For young children with specific diseases, there is "no supplement" for the tested and regulated efficacy, safety, and quality of a doctor-prescribed dosage.
 
To wit, when Justin Gover, the CEO of GW Pharmaceuticals, was on CNBC's Mad Money after the company's February report he explained to host Jim Cramer that "Epidiolex is different from other CBD options."
 
"We do real science and produce medicines with safety and efficacy... Epidiolex is not marijuana, it is CBD approved by the FDA. We're only reporting two months of sales, so some caution is warranted... we're at the beginning of the journey with Epidiolex and looking at other uses for it."
 
I have been telling long-term healthcare investors for two quarters now that this is a stock to buy on every dip toward $150. This will be an investment to accumulate on pullbacks as the science and the sales have proven worthy of a blockbuster trajectory.
 
Disclosure: I own GWPH shares for the Zacks Healthcare Innovators portfolio.
 
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