20 March 2017

Motley Fool argue that patient numbers may not be high enough if approval is granted by regulatory authorities in US & Europe

Here’s what they are saying..

GW Pharmaceuticals (NASDAQ:GWPH) is one of the top marijuana stocks on the market right now. Its share price more than tripled over the last 12 months. Wall Street thinks shares of GW Pharmaceuticals could surge another 25% or more over the next 12 months.

But all of the biotech’s past success and future hopes could evaporate if one specific thing happens, even if GW wins regulatory approval for cannabinoid drug Epidiolex — as many expect it to. Here’s what that one thing is, and how likely it might be.

Before we end the suspense, let’s first examine why GW Pharmaceuticals currently claims a market cap of over $3 billion. It’s certainly not because of the company’s one drug on the market, Sativex. The cannabinoid drug approved in several countries outside the U.S. for spasticity due to multiple sclerosis generated revenue of less than $7 million.

The intense interest in GW and the corresponding increase in its stock price stems instead from Epiodiolex. Three late-stage studies showed tremendous promise for the cannabinoid drug in treating two forms of epilepsy — Dravet syndrome and Lennox-Gastaut syndrome (LGS).

Both of these indications have relatively low patient populations. Somewhere between 14,000 and 18,500 children in the U.S. have LGS. Another 5,000 or so suffer from Dravet syndrome. These numbers reflect a U.S. market of up to 23,500 patients.

Analysts think that GW Pharmaceuticals will price Epidiolex (assuming it wins regulatory approval) between $30,000 and $60,000 per year. At the low end of that range, the biotech would be looking at annual revenue of more than $700 million in the U.S. If Epidiolex gains approval in Europe, the figure would be significantly higher.

One decision away from meltdown

So, GW Pharmaceuticals’ current valuation depends on two things: winning regulatory approval for Epidiolex and convincing payers to cover the drug. The first objective seems very likely in my view. I suspect the second one will be achieved also. But maybe not.

Pharmacy benefits managers (PBMs) have been fighting back against high-cost drugs. Express Scripts (NASDAQ:ESRX) threw down the gauntlet in late 2014 by refusing to include Gilead Sciences‘ hepatitis C virus (HCV) drugs in its formulary and instead negotiating a lower cost with AbbVie for its HCV drug Viekira.

Now, imagine you’re the head of Express Scripts and along comes a new epilepsy drug that’s going to potentially cost you and other payers $700 million each year. At the same time, multiple companies sell cannabidiol (the active ingredient in Epidiolex) for a significantly lower cost than GW Pharmaceuticals plans to charge. What would you do if you wanted to generate more savings for your customers?

One option would be to refuse to cover Epidiolex at the sky-high prices and instead reimburse members who use “generic” cannabidiol from approved suppliers. Medical Marijuana, Inc. (NASDAQOTH:MJNA), for example, markets Real Scientific Hemp Oil through its HempMeds PX subsidiary. The product isn’t cheap, but it’s not too difficult to envision a scenario where a PBM like Express Scripts used a competing product like Medical Marijuana’s to either exclude Epidiolex or force GW Pharmaceuticals to drastically lower its price.

Such a move would shatter GW Pharmaceuticals’ market cap, which hinges on a premium price tag for Epidiolex. And this kind of decision could potentially come from a PBM or from any major payer.