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Bull of the Day: GW Pharmaceuticals (GWPH)

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GW Pharmaceuticals (GWPH - Free Report) is the $3.5 billion biotechnology company with the first FDA-approved cannabis-derived drug. Epidiolex was created and tested starting four years ago for the treatment of two rare forms of childhood epilepsy and launched commercially one year ago.
 
For more on the 20-year history of GW Pharma research and development in cannabis-based medicines, see my September Bull of the Day.
 
On November 5, GW released third-quarter results and announced Epidiolex U.S. year-to-date net sales of $188.0 million, including Q3 net sales of $86.1 million. Here were other highlights from the quarter...
 
**Over 15,000 patients have received Epidiolex prescriptions since launch
**Over 3,000 physicians have generated dispensed prescriptions since launch
**Strong payor coverage with approximately 93 percent of all Commercial, Medicaid and Medicare lives in the US having a coverage determination, of which 65 percent are PA to indication or less restrictive
 
The insurance reimbursement factor is extremely important as doctors may choose Epidiolex for their patients but payers may still making adjustments to allow cannabinoid medicines into their approved protocols yet. 
 
But the November 5 GW Pharma report didn't "wow the crowd" because the sales growth this quarter wasn't as dramatic as the prior two since the Epidiolex launch. And thus the gap down in GWPH shares of over 15% the following day.
 
And I saw that drop to $110 as a buying opportunity. Here was the buy alert to my TAZR Trader members last week... 
 
GW Pharmaceuticals (GWPH - Free Report) : Buying between $105 and $115 over the next week.
 
Despite the top and bottom beats, there was concern in the GWPH quarter about discontinued prescriptions and a slower growth rate of new patients.
 
But overall, much of the risk has been taken out of the stock -- with projected 2020 sales growth of 93% to $580 million -- and I look for it to bottom near/above the Oct lows of $105.
 
Here were some of the analyst reactions to the quarter...
 
Piper Jaffray: Analyst Danielle Brill lowered her price target for GW Pharmaceuticals to $160 from $210 saying the ceiling for Epidiolex may be lower than originally projected due to patient discontinuations. However, she does "not think we're close to hitting a plateau" following GW's Q3 results. In the midterm, the analyst expects the ongoing European launch, additional off-label usage and label expansion into the tuberous sclerosis complex to serve as primary drivers of growth. Brill, who lowered her peak sales estimate for Epidiolex to $1.5B from $2.0B, believes the 12% post-earnings selloff in shares of GW Pharmaceuticals is overdone. Continued growth over the coming quarters should "restore confidence and drive shares higher," she says. The analyst keeps an Overweight rating on the stock.
 
Stifel Nicolaus: Reiterate their Buy rating on a 3Q19 that may inevitably raise questions surrounding the Epidiolex runway, but ultimately provides a buying opportunity for the stock on weakness. The analysts decreased their numbers for 4Q and 2020, as they acknowledge being overly optimistic heading into 3Q. But they still think current consensus -- specifically, Street estimates published before last night's report -- remain beatable. This view takes GW management commentary at face value, that the Epidiolex patient add rate (~3000) observed from 2Q-to-3Q, while slower than 2Q, is sustainable going forward. Stifel analysts also think the potential for improving access in 2020 could represent an upside lever that isn't accounted for in Street estimates. PT lowered from $228 to $215.
 
Morgan Stanley: Analyst David Lebowitz said GW Pharmaceuticals' U.S. Epidiolex sales of about $86M in Q3 "ultimately is a strong number that supports long-term projections," but it also is likely short of investors' high expectation following "dramatic beats" posted in the first two full quarters of the drug being on the market. Epidiolex has been prescribed by over 3,000 physicians, which is up from 2,500, and the target prescribing base remains 6,000, noted Lebowitz. He would be a buyer on any weakness given his unchanged view on the drug's long-term prospects and keeps an Overweight rating on GW shares with a slightly lowered price target of $231, down from $233.
 
Oppenheimer: Analyst Esther Rajavelu lowered her price target for GW Pharmaceuticals to $222 following the company's quarterly results, saying Q3 revenues were in line with estimates. Though GW Pharmaceuticals met her Q3 topline expectations, Rajavelu tells investors in a research note that she is lowering Epidiolex revenue estimates for future periods as she anticipates moderating new patient numbers and higher attrition rates. She keeps an Outperform rating on the shares, as she continues to believe Epidiolex use in multiple seizure types is not fully reflected in the stock at current levels.
 
Bottom line: the only FDA-approved pipeline for cannabis-derived medicines could have dozens of products at some point, especially with label expansion opportunities.
 
And the new FDA approvals could launch the stock back toward $200 very quickly.
 
This is a revolutionary pharma company growing sales to over $500 million next year and probably $1 billion by 2022. At a sub-$4 billion market cap, that's a buy.
 
(end of TAZR buy alert commentary on Nov 6)
 
European Update
 
If you read my September article, you know that GW Pharma was founded in the UK in 1998 and has been solely focused on medical cannabis R&D for over two decades.
 
And their first UK government approval was for Sativex in the treatment of multiple sclerosis (MS) in 2010. 
 
Here were the bullets that GW Pharma shared in their Nov 5 press release on Epidiolex...
 
**European Commission approval in September 2019
**Commercialization underway in France and Germany
**UK NICE guidance expected in Q4 2019; Spain and Italy launches to follow in 2020
**Early Access Program now includes over 1,100 patients across 5 major EU countries, and over 400 physicians from 250 top epilepsy centers
 
Then on Nov 10, the company revealed that they received a positive NICE recommendation for EPIDYOLEX® (cannabidiol) oral solution for the treatment of seizures in patients with two rare, severe forms of childhood-onset epilepsy. 
 
GW said in a press release that two of its medicines, EPIDYOLEX (cannabidiol) oral solution and Sativex (nabiximols), have been recommended by the UK’s National Institute for Health and Care Excellence (NICE) to receive routine reimbursement from NHS England.
 
As mentioned earlier, medical financial coverage and reimbursement by national health organizations and insurance carriers is key to the growth of drugs in a new category like those derived from cannabis.
 
Analysts at SVB Leerink found this news very positive and noted "We remain confident that Epidiolex can be >$1B product and believe that eventually investors will look through quarterly prints and see this opportunity."
 
The healthcare-focused investment bank reiterated their Outperform rating and $198 price target.
 
Disclosure: I own GWPH shares for the Zacks TAZR Trader portfolio.
 
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