NHS Approves Cannabis Medicines: Market Impact

On November 11, the NHS (National Health Service) approved two cannabis-based medicines, Epidyolex and Sativex, for use in the United Kingdom. The approval was based on NICE’s (National Institute for Health and Care Excellence) guidance for cannabis-based medicinal products. The NHS has also approved Epidyolex in two rare and severe forms of childhood-onset epilepsies, Lennox-Gastaut syndrome, and Dravet syndrome. The agency approved Sativex for treating spasticity associated with MS (multiple sclerosis).

After this news, shares of GW Pharmaceuticals (GWPH) surged 3.5% and closed at $113.23 on November 11. GWPH manufactures of Epidiolex and Sativex. Today, the stock was trading at $103.40, 21.38% lower than its previous close.

According to Marijuana Business Daily, nabilone, Sativex, and Epidiolex are the only licensed cannabis-based medicines in the UK. The NHS has reimbursed only 18 prescriptions for unlicensed cannabis-based products from November 2018 to August 2019.

Analysts’ response to the NHS cannabis approval

As MarketWatch reported, Leerink highlighted the NHS approval as a positive for the company, especially since NICE’s draft guidances weren’t favorable for Epidiolex. Marc Goodman analysts suggested that NICE’s opposition was part of the price negotiation process. They also suggested that it doesn’t reflect any serious concern about the drug. The company plans to price the drug at 50%–70% of its US price in the UK and France.

GW Pharmaceuticals’ performance in the third quarter of fiscal 2019

In the third quarter, GW Pharmaceuticals reported revenues of $91.08 million, a year-over-year rise of 2,537.49% and a sequential rise of 25%. Revenues also beat consensus estimates by $2.47 million. The company’s non-GAAP EPS of -$0.04 were also higher than the consensus estimate by $0.02. And the company’s lead cannabis-based drug, Epidiolex, saw revenues of $86 million, higher than FactSet consensus estimate of $85.2 million.

However, the stock crashed 17.06% and closed at $111.76 on November 6, the day after GW Pharmaceuticals announced its third-quarter earnings performance. As MarketWatch reported, the share price decline was due to concerns about the revenue growth trajectory for Epidiolex. On the third-quarter earnings call, Stifel analyst Paul Matteis even questioned whether the new patient growth rate for the drug was flat, as IMS numbers suggested.

GW Pharmaceuticals has reported a year-to-date decline of 21.38%. And while this loss is significant, it’s still less than the dramatic decline we’re seeing in other cannabis stocks. Major cannabis companies Aurora Cannabis (ACB), Canopy Growth (CGC), Hexo (HEXO), Medmen (MMNFF), and Cronos (CRON) are down 54.03%, 47.08%, 53.64%, 76.97%, and 40.90%, respectively.

Epidiolex in international markets

On its third-quarter call, GW Pharmaceuticals announced its plan to launch Epidiolex, branded as Epidyolex, in the UK after securing reimbursement from NHS. The company already launched the drug in Germany in mid-October. Also, it has deployed a focused sales team in France.

While the drug is currently available under the national ATU early access program, GW Pharmaceuticals expects a formal reimbursement process in France by late 2020. The company also expects to launch the drug in Spain and Italy in 2020. GW Pharmaceuticals is targeting a prescriber base of 1,600 physicians in the EU5 markets.

Epidiolex label expansion

And then on its third-quarter earnings call, GW Pharmaceuticals highlighted its progress with an application seeking FDA approval for Epidiolex for tuberous sclerosis complex by mid-January. TSC is a type of childhood-onset epilepsy.

The company expects FDA approval for the drug in this indication by mid-2020. And it will also submit TSC data to the European Commission in the first quarter of fiscal 2020. Besides epilepsy, the company is also evaluating the potential of Epidiolex in treating Rett syndrome.

Tracking the trend

Currently, 15 analysts are covering GW Pharmaceuticals, with a consensus recommendation of “buy.” Also, they’ve given the stock a target price of $206.93. This target implies upside potential of 101.94% compared to the last closing price. In October, 13 analysts were covering GWPH stock, and they had a consensus target price of $226.46.

After the third-quarter earnings results, Morgan Stanley analyst David Lebowitz reiterated his “overweight” rating for the stock but reduced the target price from $233 to $231. Oppenheimer analyst Esther Rajavelu also maintained the “overweight” rating but reduced the target price to $222. Piper Jaffray analyst Danielle Brill also reiterated the “overweight” rating for the stock but reduced the target price from $210 to $160.

A few days before the earnings results, H.C. Wainwright analyst Douglas Tsao rated GW Pharmaceuticals as a “buy” with a target price of $170. Needham analyst Serge Belanger also rated the stock as a “buy” with a target price of $200.