GW Pharmaceuticals Plc ADS (GWPH)

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GW Pharma, Insys Face Off In Cannabis Drug Space

By AMY REEVES, INVESTOR'S BUSINESS DAILY
Posted 08/08/2014 04:45 PM ET



Over the past 18 years, 23 U.S. states have legalized marijuana for medical uses, leading in the past few years to a rush of startups popping up like, well, weeds to cater to this new market.

In June, New York became the latest state to OK medical marijuana.

While many observers mention GW Pharmaceuticals (NASDAQ:GWPH) as one of the "pot stocks," company CEO Justin Gover disagrees with that characterization.
GW's drug development focuses on cannabinoids, or substances derived from cannabis, such as THC and CBD.

GW's drug development focuses on cannabinoids, or substances derived from cannabis, such as THC and CBD. View Enlarged Image

"We started out 16 years ago with a very clear objective in mind," Gover told IBD. "It was really about what we felt was an overlooked source of medicines in the form of the cannabis plant. But not with a view of looking at it as anything other than as a source of bona fide prescription medicines that would go through an FDA process."

The difference is apparent in the stock itself. While there are scores of medical-marijuana stocks trading over the counter — often for pennies — GW debuted on the Nasdaq in June 2013. From its IPO price of 8.90, GW stock has soared to near 82. Shares peaked at 111 on July 1.

GW is still unique on the stock market in being focused on cannabinoids — that is, substances derived from cannabis. But the very day that it first traded on the Nasdaq also brought the debut of Insys Therapeutics (NASDAQ:INSY). Insys focuses on pain medicines but is also working on a cannabinoid, which likely will bring it into direct competition with GW.

(The only other marijuana drug-related stock traded on major U.S. markets is AbbVie (NYSE:ABBV), which sells Marinol, a drug based on the THC chemical compound in a cannabis plant and designed to give AIDS sufferers their appetites back.)

No Psychoactive Effects

The GW and Insys substance in question is cannabidiol, a cannabinoid that appears in high concentrations in the cannabis plant but has no psychoactive effects. GW is testing it under the brand name Epidiolex to treat two forms of severe childhood epilepsy, Dravet syndrome and Lennox-Gastault syndrome.

Both types constitute only a fraction of epilepsy cases. Morgan Stanley analyst David Friedman estimates there are only about 5,000 Dravet cases in the U.S., and 15,000 Lennox-Gastault cases. But these patients respond poorly to current epilepsy treatments.

That combination of small patient size, severity of the condition and lack of existing treatments led the FDA in February to designate Epidiolex an "orphan drug." That means that, if approved, the product will be granted seven years of market exclusivity, which will potentially allow GW to set the price lucratively high. Such a strategy has paid off for Alexion Pharmaceuticals (NASDAQ:ALXN) and Vertex Pharmaceuticals (NASDAQ:VRTX), and many other firms hope for the same such success.

Will Market Drug Itself

Friedman estimates peak annual sales of Epidiolex could hit 800 million British pounds, or about $1.4 billion at current exchange rates. And if all goes according to plan, GW will get all of it. Gover says the company is using the money raised by its U.S. IPO partly to build the capacity to market the drug itself, rather than license it out.

Insys, however, hopes to spoil those ambitions. The company has developed its own cannabidiol which, unlike GW's plant-based product, is wholly synthetic. Last month, the FDA also granted orphan-drug status to Insys' product for Dravet and Lennox-Gastault, potentially setting up a head-on collision.
GW's Sativex, an oral spray that's in part a formulated extract of the cannabis sativa plant, is sold in Europe to treat spasticity related to MS.

GW's Sativex, an oral spray that's in part a formulated extract of the cannabis sativa plant, is sold in Europe to treat spasticity related to MS. View Enlarged Image

"You can get orphan status applied to different investigational drugs that are targeting the same indication," said Lala Gregorek, an analyst with Edison Investment Research who covers GW but not Insys. "But it's quite often the case that the one that gets to market first is the one that blocks the entry of the second. ... Insys is behind GW with respect to (clinical trials)."

When asked about this, Insys CEO Michael Babich emphasized that his company has options.

"With Lennox-Gastault and Dravet, I believe it's a race," he acknowledged. "Insys, in particular, works toward other indications in cannabidiol as well. That wouldn't prohibit us from getting approval in a different indication."

Babich says Insys is investigating uses for adult epilepsy, cancer-related pain, glioblastoma (a type of brain tumor) and addiction to heroin and other opiates.

GW, too, is investigating the cancer-pain indication for its older product, Sativex, a different kind of cannabinoid that is sold in Europe as a treatment for spasticity related to multiple sclerosis. It also has other cannabinoids in testing for brain tumors, diabetes, ulcerative colitis, schizophrenia and an orphan indication called neonatal hypoxic-ischemic encephalopathy.

All these treatments, however, are still far in the future. Friedman expects Epidiolex to launch in the U.S. in 2017, with blockbuster sales not arriving until the 2020s. Despite the revenue from Sativex, GW expects to keep operating at a loss for the rest of the decade.

With so much testing to do, unknown risks could still develop. But Friedman draws assurance of cannabidiol's safety from, of all things, its long history as a recreational drug.

"One other aspect to GW's cannabis platform is the large, albeit quite 'informal' safety database for cannabis," he wrote in his April 22 coverage-initiation report. "Given the wide consumption globally of cannabis, we believe that a major medical issue with its use would be well known."

Read More At Investor's Business Daily: http://news.investors.com/technology/080814-712488-gwph-insy-race-with-competing-epilepsy-drugs.htm#ixzz3AfQpwZEw