Big things are happening in the cannabis industry -- especially with our neighbor to the north . In 34 days, on Oct. 17, recreational marijuana can be legally sold in licensed dispensaries in Canada. And with its legalization, the industry will be angling for somewhere in the neighborhood of $5 billion in annual sales.
But there's more going on with the weed industry than just Canada lifting the curtain on adult-use marijuana in Canada. There are big things happening in the United States, too. Among the numerous marijuana firsts this year was the approval of the very first cannabis-derived drug by the U.S. Food and Drug Administration (FDA) on June 25.
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The very first cannabis-derived drug gets the green light
U.K.-based GW Pharmaceuticals (NASDAQ: GWPH) made history when the FDA gave the green light to its cannabidiol (CBD)-based oral solution known as Epidiolex for two rare forms of childhood-onset epilepsy: Dravet syndrome and Lennox-Gastaut syndrome. CBD is the non-psychoactive component of the cannabis plant best known for its perceived medical benefits. Though synthetic forms of tetrahydrocannabinol (THC), known as dronabinol, had been approved by the FDA before -- THC is the psychoactive cannabinoid that gets a person "high" -- no genuine cannabinoids derived from the cannabis plant had ever been used in clinical trials that led to an approval by the FDA.
During clinical testing, Epidiolex ran circles around the placebo. In one pivotal-stage study involving Dravet syndrome patients, GW Pharmaceuticals' lead drug demonstrated a 39% reduction in seizure frequency relative to baseline, which proved to be three times better than the 13% reduction in seizure frequency that was recorded by the placebo.
A separate late-stage study in patients with Lennox-Gastaut syndrome that was published in The New England Journal of Medicine in May 2018 found, following a 14-week treatment period, a 41.9% decline in drop-seizure frequency for patients in the high-dose arm from baseline, and a 37.2% decline in the low-dose group. Comparatively, this was more than double the 17.2% decline from baseline registered by the placebo arm. In other words, it's not hard to see why this drug was approved.
Image source: GW Pharmaceuticals.
For GW Pharmaceuticals -- and arguably the cannabis community -- it's a big win. Epidiolex gives the company its first U.S.-approved product, and very likely a way to push into the black. Its only other drug is Sativex, which is approved to treat spasticity associated with multiple sclerosis in more than a dozen countries outside the U.S., but is otherwise a blip on the sales radar.
GW Pharmaceuticals is about to face some major hurdles
Unfortunately, GW Pharmaceuticals' lead drug is set to face two very serious challenges in the near term that shareholders of this stock simply can't overlook.
Despite being the only approved therapy for Dravet syndrome, and one of the first Lennox-Gastaut therapies we've seen given the green light in some time, it's no guarantee that patients will gain access to Epidiolex. The treatment will have a wholesale cost of $32,500 per year. I'll go ahead and repeat that again in case you were skimming or perhaps passed out from sticker shock. That's $32,500 per year for the very first cannabinoid-based drug.
Although The Wall Street Journal notes that out-of-pocket Medicaid costs could total just $5 or $10 a month, or perhaps $200 a month for someone on a private insurance plan, a $32,500 cost is going to certainly turn some patients and insurers off. Frankly, it could be difficult for GW Pharmaceuticals to secure the coverage needed to get its product into patients' hands.
Image source: Getty Images.
The other problem here is that GW Pharmaceuticals is unlikely to be the only show in town when it comes to Dravet syndrome. Last year, Zogenix (NASDAQ: ZGNX) announced exceptionally impressive phase 3 data for its low-dose fenfluramine hydrochloride (ZX008) in Dravet syndrome. According to the study, patients taking Zogenix's lead drug saw a 72.4% reduction in seizure frequency from baseline after 14 weeks of treatment. That ran circles around the 17.4% reduction in seizure frequency for the placebo group.
To be clear, this isn't an apples-to-apples comparison of seizure-frequency reduction. Just because Zogenix's lead drug demonstrated a 72.4% reduction from baseline and Epidiolex delivered a 39% reduction doesn't mean Zogenix has the superior drug. However, physicians could certainly be biased by this data and may favor Zogenix's drug as a result. Of course, we'd also need to see how Zogenix prices its drug (assuming approval) before making a call of how competitive it could be against Epidiolex.
In short, GW Pharmaceuticals is far from a slam-dunk investment despite making history. Investors are going to need to pay close attention to insurer coverage data for Epidiolex, as well as ZX008's advancement, if they're going to stick around in this marijuana stock.
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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 .