3 Reasons GW Pharmaceuticals Stock Could Rise

By Cory Renauer Markets Fool.com

Repeated clinical success drove shares of GW Pharmaceuticals (NASDAQ: GWPH) about 60% higher in 2016, and an impressive 190% higher than low points in March. If you missed the boat last year, you'll be happy to know there are at least three reasons this top marijuana stock could continue rising in the new year and beyond.

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1. Four in a row?

In 2016, GW Pharmaceuticals notched three late-stage clinical trial successes with its cannabidiol candidate Epidiolex for treatment of different forms of epilepsy.

Two particularly interesting phase 3 Epidiolex trials were for treatment of Lennox-Gastaut syndrome (LGS), a childhood-onset form of epilepsy marked by resistance to the range of poorly tolerated antiepileptic drugs currently available.

Dravet syndrome is another severe form of epilepsy that affects an estimated 6,450 infants worldwide each year and lacks specific treatment options. Epidiolex was shown to significantly reduce seizure frequency in a group of these patients who were taking an average of three antiepileptic drugs.

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A slightly larger study currently under way is testing the same dosage used in the previously successful Dravet trial, along with a lower dosage, with data expected in 2017. Another success for the previously successful dosage would confirm efficacy and could help the stock climb further, and a significant seizure reduction in the lower dosage group would provide even more lift.

2. Regular or expedited

In the first half of 2017, GW Pharmaceuticals intends to submit an application to the FDA for Epidiolex. A priority review would shorten the time the company needs to wait for a decision from 10 months to just six.

A speedy review would also drive home the idea Epidiolex represents a vast improvement over available treatments, as the Agency generally reserves the expedited process for this reason. Earning one would almost certainly drive the stock higher.

3. Beyond LGS and Dravet

The Dravet syndrome indication is downright tiny, but an approval for the LGS population of about 30,000 U.S. patients could keep the company from bleeding money. GW Pharmaceuticals lost about $82.2 million during the year ended September 2016. It hasn't mentioned Epidiolex pricing yet, but at a cost comparable to existing antiepileptics this indication could be large enough to carry the company to profitability.

While a fourth clinical trial success and an expedited review could lift GW Pharmaceuticals stock, signs of uptake beyond the limited Dravet and LGS populations might be the largest potential catalysts for GW Pharmaceuticals stock. There are between 1.3 million and 2.8 million Americans living with epilepsy. While Epidiolex is widely expected to earn an approval to treat some, the size of its addressable patient population is up in the air at the moment. This is why peak annual sales estimates for the candidate range from just $300 million all the way up to $3 billion.

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The cannabinoid has shown an ability to reduce seizure frequency in patients who no longer benefit from traditional antiepileptic drugs, with an arguably cleaner safety profile. That's a recipe for success, but in these uncharted waters it's difficult to predict the effects of anti-marijuana stigma on its uptake. At the opposite end of the spectrum, there's no telling how strongly CBD-heavy marijuana strains might compete with Epidiolex in the commercial setting.

There are plenty of good reasons to expect GW Pharmaceuticals stock to continue rising over the long run. That said, investors might want to tread lightly until the future of Epidiolex is less clouded.

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Cory Renauer has no position in any stocks mentioned. You can follow Cory on Twitter @coryrenauer or LinkedIn for more biopharma investing insight.

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