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GW Pharmaceuticals: Changing History but Perhaps Not Investors' Fortunes


Big things are happening in the cannabis industry, and euphoria among investors is, appropriately, "high." Two weeks from today, Canada will wave the proverbial green flag on recreational marijuana , making it legal for licensed dispensaries to sell dried cannabis or cannabis oils come Oct. 17 to adults aged 18 or 19 and older (depending on the province).

As you might rightly expect, with Canada becoming the first industrialized country in the world to legalize recreational pot, sales are expected to go through the roof. Estimates vary wildly on Wall Street, but there's little doubting that billions in added annual revenue could easily begin flowing into the industry.

But what you might not realize is that there's a revolution of sorts ongoing in the United States as well. And no, I'm not talking about the 30 states that have thus far legalized medical cannabis, or the nine that have OK'd the use of recreational marijuana. Instead, I'm referring to the cannabinoid-based drug revolution being spearheaded by GW Pharmaceuticals (NASDAQ: GWPH) .

A biotech lab researcher holding up a flask of cannabinoid-rich liquid.

Image source: GW Pharmaceuticals.

In case you missed it, GW Pharmaceuticals is over here making history

On June 25, U.K.-based GW Pharmaceuticals made history by becoming the first drug developer to have its cannabis-derived therapy, known as Epidiolex, approved by the U.S. Food and Drug Administration (FDA). Mind you, synthetic versions of cannabinoids, such as oral dronabinol solutions (a synthetic form of tetrahydrocannabinol (THC), the cannabinoid that gets you "high"), have been previously approved by the FDA. But never before had a medicine using genuine cannabinoids from the cannabis plant -- in this case cannabidiol (CBD), the nonpsychoactive component known for its perceived medical benefits -- been given the thumbs-up.

Pore over clinical data for Epidiolex, a treatment for two rare forms of childhood-onset epilepsy (Dravet syndrome and Lennox-Gastaut syndrome (LGS)), and it's not hard to see why the FDA's advisory panel voted unanimously in favor of recommending the drug for approval and why the FDA followed suit by approving it in June. In a pivotal-stage Dravet syndrome study, Epidiolex tripled the reduction in seizure frequency relative to baseline when compared to the placebo (39% vs. 13%).

Meanwhile, a phase 3 study in LGS patients that was published in the New England Journal of Medicine showed a decline in drop-seizure frequency from baseline of 41.9% in the high-dose Epidiolex arm, 37.2% in the low-dose arm, and only 17.2% for the placebo group. In other words, Epidiolex consistently ran circles around the placebo , and with its approval gives Dravet syndrome patients their first FDA-approved therapy.

A researcher in a white lab coat taking notes in the middle of a hemp field.

Image source: Getty Images.

More importantly, GW Pharmaceuticals announced last week that the FDA, after reviewing Epidiolex post-approval, had granted the drug its lowest scheduling possible: Schedule V. According to the Controlled Substances Act, a Schedule V drug has a low potential for abuse relative to drugs that are Schedule IV or lower. Comparatively, marijuana is a Schedule I drug that is entirely illegal, is prone to abuse, and has no recognized medical benefits.

With the FDA choosing to place Epidiolex on the lowest rung possible, it would appear to open the door to a possible rescheduling or de-scheduling (i.e., removal from the controlled substances list) of cannabidiol in the not-too-distant future at the federal level. Considering that 46 out of 50 states already allow CBD use in some capacity, GW Pharmaceuticals may be the catalyst responsible for changing the legality and access of cannabidiol.

Making history isn't the same as making profits

Interestingly, though, GW Pharmaceuticals may not make its shareholders a lot of money over the long run, despite being a maverick in the cannabinoid-drug space.

The company is set to launch Epidiolex within the next five weeks, and when it does, it'll be the lone FDA-approved therapy for Dravet syndrome and one of the newest medicines for LGS. However, it's unlikely to be the only game in town when it comes to Dravet syndrome, thanks to Zogenix (NASDAQ: ZGNX) .

A female doctor giving a high-five to a child sitting on her mother's lap.

Image source: Getty Images.

Back in July, Zogenix announced late-stage data for lead Dravet syndrome drug ZX008. In the study, ZX008 reduced convulsive seizures by almost 63% from baseline, with slightly more than a third of ZX008 patients (36%) demonstrating a convulsive seizure decline of 75% or greater. In other words, Zogenix's lead compound also ran circles around the placebo, and while no apples-to-apples comparisons can be made between Epidiolex and ZX008, physicians and patients may wind up being more attracted to Zogenix's trial results and higher percentage reductions from baseline, which would be a concern for GW Pharmaceuticals.

And just to make matters a bit worse for GW Pharmaceuticals and its shareholders, Zogenix is coming for LGS patients, too. Results from a midstage, long-term extension study involving LGS patients showed that the group taking ZX008 had a 58% reduction in convulsive seizures from baseline, including exactly a third who saw a 75% or greater reduction.

As my colleague Todd Campbell noted last week , there's a lot to be hashed out between these two drug when it comes to safety. Neither offers what Todd called a "pristine" safety profile, with Epidiolex causing concern over elevated liver enzymes, and ZX008 containing fenfluramine, which was the "fen" component of the obesity drug "fen-phen" that was removed from pharmacy shelves in the 1990s after being linked to cardiac problems.

The deck is clearly stacked against GW Pharmaceuticals, even though the company is a trendsetter -- and that's something investors will want to keep in mind as its market cap bloats to nearly $5 billion.

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Sean Williams has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.



This article appears in: Personal Finance , Stocks
Referenced Symbols: THC , CBD , GWPH , ZGNX



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