Weeding Out the Best Pot Stock: GW Pharmaceuticals

Headquartered in Salsbury, United Kingdom, GW Pharmaceuticals (NASDAQ:GWPH) uses its proprietary cannabinoid product platform to create and develop new therapeutics that can be used for a variety of treatments. The company's therapeutics, along with current and proposed treatments, include:

·      Sativex® for treating chronic cancer pain and multiple sclerosis spasticity

·      Epidiolix® for the treatment of childhood epilepsy, Dravet syndrome, and Lennox-Gastaut syndrome

·      Cannabidivarion for treating epilepsy

·      GWP42003 for treating ulcerative colitis and schizophrenia

·      GWP42004 for treating type-2 diabetes

·      GWP42002: GWP42003 for treating glioma, a tumor that starts in the brain or spine

One important development is that Sativex® was given Fast Track designation by the FDA for the treatment of chronic cancer pain in patients with advanced cancer who are not responding to opioid therapy. It is currently in a Phase 3 program for cancer pain with the FDA. Sativex® is already approved in 26 countries for spasticity caused by multiple sclerosis.

Strong Cash Position and Growing Revenues

In an industry where most companies don't even report revenues, GW has been generating revenues for years. For the latest reported quarter, revenues were up by 4.9%. Although the company has been generating losses, it has a huge cash cushion from its secondary offering in June of this year, netting the company $118 million, an increase of 342% in cash position over fiscal year end last year.

GW  in GBP 000's	6/30/2014	6/30/2013*	% Change
Revenue	7,611	7,258	4.9%
Cash	168,268	38,069	342.0%
Total Equity	157,774	35,402	345.7%

Balance sheet data as of 9/30/2013, fiscal year end

Revenue Growth

Revenue growth was primarily due to an increase in Sativex product sales generated by a rise in shipments to the company's commercial partners. In addition, total net revenues were helped by an increase in income from license, collaboration, and technical access fees.

Net loss went from GBP 2.028 million to GBP 6.928 million, due to a higher cost of sales from the higher volume of inventory shipped, an increase in research and development expenditures, and a rise in administrative expenditures caused by increased staffing expenditures and an unrealized loss on foreign exchange.

Inventories have remained constant over last year, at roughly GBP 4.7 million. In regards to guidance, the company expects strong double digit revenue growth for 2014.

Business Developments

Epidiolex®

FDA Authorized Physician-Led Access Program with about 100 children now receiving treatment in the United States at six hospital locations.

Orphan Drug Designation, Fast Track Designation were granted. An Investigational New Drug Application  has been opened with the FDA for the treatment of Dravet Syndrome. An additional Phase 3 trial is on track to begin in 2015.

Orphan Drug Designation was granted by the FDA for treating Lennox-Gastaut Syndrome. Phase 3 trials are on track to begin in 2015.

The company is collaborating with New York State and Georgia for Epidiolex clinical trials for epilepsy.

Sativex®

Phase 3 cancer pain data is expected to be released at the end of 2014, which would lead to an FDA New Drug Application.

Cannabidivarin

A Phase 2 trial for epilepsy should begin at the end of 2014 or the beginning of 2015.

Competitiion

Competition for this company could be looked at several ways. It could be examined as a biotech company, such as Biogen (NASDAQ:BIIB) and Questcor (NASDAQ:QCOR).

Or it could be looked at as a medical marijuana company, of which there are dozens. However, most of the other companies in this field are microcap stocks and penny stocks. The nearest competitors, based on large market cap, are Solvay SA (OTC:SVYZY), at a $13 billion market cap, which produces Marinol, a form of the primary marijuana ingredient tetrahydrocannabinol, commonly known as THC, and Valeant Pharmaceuticals Intl.            (NYSE:VRX), at a $42 billion market cap, which  distributes nabilone/Cesamet, a form of synthetic THC. Yet, in both of these cases, the THC drug is only a small part of their business.

If you are looking for other competitors, you can find a list of over 100 marijuana stocks at WallStreetNewsNetwork.com, along with information on the Stockerblog.com Marijuana Stock Index.

Timeliness

In the recent November election, Alaska, Oregon, and the District of Columbia have legalized the recreational use of marijuana. However, what is more important, and not many realize, is that 23 states have already legalized the use of medical marijuana.

Summary

GW Pharmaceuticals is a worldwide leader in the development of plant derived cannabinoid therapeutics.

GW is one of the few medical marijuana stocks with a market cap of over a billion dollars.

The company has been in business for 15 years and has produced the first marijuana related prescription drug, Sativex.®

It recently raised $118 million in a secondary offering.

Revenues for the latest reported quarter were up 4.9%.

Conclusion

GW has had a heck of a run this year, doubling in share price, so an investor obviously has market risk, and considering the speculative nature of the stock, if the stock market tanks, this stock could suffer much more than the average stock.

As is typical for many biotech companies, GW is not generating earnings yet. On the plus side, the company is increasing quarterly revenues on a year over year basis and has several therapeutic products in the pipeline. In addition, it is flush with cash.

So for investors that are willing to take the risk, and want to participate in the medical marijuana industry, you can't find a more solid pure play than GW Pharmaceuticals.

Disclosure: Author did not have any positions in any of the above at the time the article was written and has no plans to do so in the next 72 hours. 

By Stockerblog.com