First of a two-part series
“I Want to Take You Higher.”
Pharmaceutical companies developing cannabis-based drugs just might be serenading investors with this 1969 hit single by the group Sly and the Family Stone.
But a word of caution to those banking on marijuana drugs to be the blockbusters that send share prices zooming. You could see your investment “go to pot.”
That’s because a lot of heavy lifting still needs to be done before marijuana proves its medical mettle. Look no further than in an editorial titled “Medical Marijuana: Is the Cart Before the Horse?”, which appeared in the Journal of the American Medical Association last year. The two authors, researchers at the department of psychiatry at the Yale School of Medicine, said the evidence favoring the use of marijuana for medical conditions is insufficient, of poor quality and fails to meet FDA standards.
Among the host of pharmaceutical companies striving to provide the high-quality data to support their products are INSYS Therapeutics Inc. (INSY), GW Pharmaceuticals plc (GWPH) and Zynerba Pharmaceuticals Inc. (ZYNE). Each are developing cannabis-based drugs with a focus on epilepsy.
U.K.-based GW Pharmaceuticals is aiming to be the world leader in prescription cannabinoid medicines. The company’s main product, Sativex, is approved in 27 countries, although not in the U.S. It’s used to treat symptoms in patients with moderate to severe spasticity due to multiple sclerosis who have not responded to other medications. In the U.S., the drug is in Phase III clinical development for the treatment of cancer pain and has secured coveted “fast track” status from the FDA.
The GW CBD Epidiolex is being tested for use in epilepsy and has been granted FDA “orphan” status for each of the three forms of the illness it’s studying. That designation could prove valuable. If Epidiolex is the first approved treatment for any of the epilepsies under study, it will enjoy seven years of marketing exclusivity.
These promising developments must be tempered by the fact that the company still isn’t making money, and some speculate that positive earnings may be as much as a decade away. Nevertheless, those prescient enough to buy in at GW’s 52-week low of just under $36 have watched their investment climb 60%.
Unlike GW, INSYS is profitable, although that’s not attributable to any of its cannabinoid-related offerings. The company has only one marketed product, Subsys, a sublingual spray version of the powerful synthetic opiate analgesic fentanyl, which is used to treat pain in cancer patients.
Subsys sales and INSYS have been under intense pressure because of heightened publicity surrounding the national opioid epidemic. Also, management has been fighting off questions about internal practices that are allegedly geared toward making sure some insurance companies authorize use of the product, perhaps in cases where its use isn't warranted.
The issues affecting the company and Subsys were reflected in INSYS’s disappointing results. Revenue for the first quarter dropped 12% from the same period a year earlier and net income plunged to $2.8 billion from $8 billion.
Investors were none too pleased. In the two weeks following first-quarter results, they trimmed the company’s share price more than 13% to $12.57. It has since regained lost ground—and more—climbing to just under $16, but still well below its 52-week high of $46.17.
Perhaps help is on the way. Like GW, INSYS is developing a cannabis-based drug to treat epilepsy and it, too, has been granted orphan status. Last week the company announced that it had completed its Phase I/Phase II study of the drug and expects to meet with the FDA soon to plan out future steps.
Zynerba, which is located in Pennsylvania, also is studying a CBD drug for epilepsy. The company’s ZYN002 is a synthetic that mimics the effects of natural cannabinoids and is administered through the skin via gel.
Zynerba’s transdermal system might provide better drug exposure than GWP’s Epidiolex, according to Biren Amin, an equity analyst at Jefferies, who set a price target for Zynerba of $32 in a mid-March note, according to Forbes. This lead to an onslaught of buyers, who bid the shares up $13 to more than $21 in a single day. It has since eased to just under $10.
Who will emerge as the Kings of Cannabis? In the second of this two-part series, we’ll take a look at several of the other companies involved in the field and address concerns that Big Pharma has taken steps to stymy growth—for its own benefit.
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