The First Cannabis-Derived Drug Is Now on Pharmacy Shelves

Rather than simply moving forward, the cannabis industry has leapt ahead in 2018. Arguably the biggest achievement for the industry is the legalization of recreation marijuana in Canada. Long discussed as an option, lawmakers and Prime Minister Justin Trudeau turned the idea into reality on Oct. 17, 2018. Once initial supply shortages are dealt with, and pending the capacity ramp-up of dozens of growers, we could be looking at a multibillion-dollar industry.

In case you missed it: The FDA made history

However, flying under the radar of this major event is the fact that the U.S. Food and Drug Administration (FDA) made history as well. On June 25, the regulatory agency approved the very first cannabis-derived drug . Mind you, synthetic versions of tetrahydrocannabinol (THC) have previously been approved by the FDA, but never a drug that was entirely derived from natural cannabinoids.

A tipped over bottle containing dried cannabis flower lying atop a doctor's prescription pad.

Image source: Getty Images.

The drug in question that received the historic green light was GW Pharmaceuticals ' (NASDAQ: GWPH) Epidiolex, a treatment for two rare types of childhood-onset epilepsy -- Dravet syndrome and Lennox-Gastaut syndrome (LGS). This oral, cannabidiol (CBD)-based drug shined in multiple late-stage studies. CBD is the nonpsychoactive cannabinoid best known for its perceived medical benefits.

In one of the company's pivotal studies involving Dravet syndrome patients, those receiving Epidiolex were three times likelier to see a statistically significant reduction in seizure frequency from baseline relative to the placebo (39% vs. 13%).

Meanwhile, study results published in the New England Journal of Medicine for LGS patients showed a 37.2% reduction in drop-seizure frequency from baseline in the low-dose Epidiolex arm and a 41.9% decline in in the high-dose arm . Comparatively, only a 17.2% drop-seizure frequency decline was noted in the placebo group. It's these trial results that allowed GW Pharmaceuticals' to receive a unanimous recommendation of approval from the FDA's advisory panel (note, the FDA isn't required to follow the recommendation of its panel but often does), and to subsequently get the thumbs-up from the FDA.

GW Pharmaceuticals did, however, have some waiting to do following its approval. That's because cannabidiol is a controlled substance at the federal level and, therefore, Epidiolex would need to be scheduled by the U.S. Drug Enforcement Agency (DEA). In September, the DEA made its ruling, judging Epidiolex to be a Schedule V substance , the least restrictive of all controlled classifications.

A bottle of Epidiolex oral solution, next to its packaging box and two droppers.

Image source: GW Pharmaceuticals.

GW Pharmaceuticals' cannabis-derived drug is now available, but investors should be wary

The only thing left for GW Pharmaceuticals was to actually launch Epidiolex in the U.S., which is exactly what it did on Thursday, Nov. 1. Although GW Pharmaceuticals fully expects insurers to cover the tab on Epidiolex, it'll come with a list price of $32,500 a year. According to the company, that's in line with the cost of other anti-epileptic drugs within the space.

While Epidiolex's prescription availability sounds like great news -- GW Pharmaceuticals' stock rose more than $7 per share following the announcement -- there's more to this story than meets the eye.

For starters, we've seen similar stories like GW's Epidiolex play out before. Practically all drug developers are confident that insurers will pay a premium list price for a unique drug, but that doesn't always prove true. In recent years, GlaxoSmithKline  faced pressure from insurers for the pricing of its new line of long-lasting COPD and asthma products. Even though Glaxo eventually saw sales of Breo Ellipta and Anoro Ellipta soar, it took much longer than anyone anticipated for insurer coverage to be sufficient.

Biotech blue-chip Amgen has faced similar issues with next-generation cholesterol medicine Repatha, which it recently had to lower in price by almost 60% a year. The point being, there's no guarantee that insurers will be on board with GW Pharmaceuticals' $32,500 list price, even if they're getting substantial discounts. And if Epidiolex doesn't have adequate insurance coverage, you can expect it to negatively impact GW Pharmaceuticals' share price.

Two lab researchers examining red fluid in test tubes and making notes on a clipboard.

Image source: Getty Images.

The other concern here is that even though Epidiolex is the only approved medicine for Dravet syndrome, and a new choice for LGS patients, it's unlikely to hold this distinction for long. Rival Zogenix (NASDAQ: ZGNX) has delivered surprisingly strong results from experimental drug ZX008. In mid-July, Zogenix announced a second pivotal-stage study involving ZX008 as a treatment for Dravet syndrome and, like the first late-stage study, it easily met its primary endpoint. Patients taking ZX008 achieved a nearly 55% greater reduction in mean monthly convulsive seizures relative to the placebo group.

At the moment, all signs would appear to point to Zogenix's lead drug gaining approval in the not-so-distant future. That would certainly reduce the sales outlook for GW Pharmaceuticals' Epidiolex.

As I've opined previously, GW Pharmaceuticals could very well be responsible for making history , but there's no guarantee it'll translate into big profits for the company or gains for its shareholders.

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Sean Williams has no position in any of the stocks mentioned. The Motley Fool recommends Amgen. 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 , DEA , GWPH , ZGNX

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