Why This Marijuana Stock Soared 60.9% in 2016

By Todd Campbell Markets Fool.com

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What happened

Following a string of successful trials of its anti-epileptic Epidiolex, shares in marijuana medicine maker GW Pharmaceuticals plc (NASDAQ: GWPH)surged 60.9% higher in 2016, according to S&P Global Market Intelligence.

So what

Marijuana advocates have been cheering the surging adoption of medical marijuana laws; however, despite growing demand for medical marijuana at dispensaries, there has been limited scientific proof of marijuana's benefit, and that's crimped its adoption.

That could be changing now that GW Pharma has proved that its Epidiolex reduces monthly seizure rates in patients diagnosed with rare, and historically tough-to-treat, forms of epilepsy.

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In 2016, the company rolled out results from three separate studies that show that Epidiolex can lower the number of monthly seizures in Dravet syndrome and Lennox-Gastaut syndrome patients by about 40%.

Epidiolex, a purified formulation of the marijuana chemical cannabinoid cannabidiol, or CBD, could be on its way to the FDA for a go/no-go decision as soon as the second quarter of this year.

If Epidiolex secures a green light, then it could help reshape epilepsy treatment, especially in patients who don't adequately respond to conventional antiepileptic therapies.

Now what

GW Pharma's management believes that Epidiolex could treat a significant number of the 30,000 or so patients with Dravet syndrome and Lennox-Gastaut syndrome in the United States. It also believes that it could eventually win use in the 36% of all childhood epilepsy patients who currently don't respond to, or are resistant to, existing medication.

If they're right, then this could be a nine-figure top-selling drug. Antiepileptics can cost thousands of dollars per year, and if Epidiolex commands that kind of pricing, then it could eventually help GW Pharma turn a profit. Or at least that's what investors seem to be expecting. After its big run last year, the company now boasts a market cap of nearly $3 billion.

Epidiolex's success, however, isn't a given.The FDA could balk at approving it, or CBD-heavy marijuana strains could limit its sales. Nevertheless, Epidiolex's success last year goes a long way toward proving marijuana's use in epilepsy can be helpful, and that's good news for these patients.

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Todd Campbell has no position in any stocks mentioned.Todd owns E.B. Capital Markets, LLC. E.B. Capital's clients may have positions in the companies mentioned.Like this article? Follow him onTwitter where he goes by the handle@ebcapitalto see more articles like this.

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