Source:By ,  December 03, 2014, 08:07:02 AM

Excitement surrounding medical marijuana led to a significant run-up in GW Pharmaceuticals ‘ share price earlier this year, but based on the company’s recently announced quarterly and fiscal full-year earnings results, the promise of marijuana profit remains far off in the distance.
That’s because GW Pharma has only one marketed marijuana derived therapy, Sativex, on the market, and Sativex, which is used to treat multiple sclerosis spasticity, has yet to win the FDA go-ahead for use in United States. As a result, sales of Sativex, which come primarily from European markets, total just $2 million in the quarter ending June and were small enough for the full fiscal year ending September that the company didn’t bother breaking them out in its quarterly earnings press release.

Instead, the company focused the bulk of its earnings report on the promising opportunity for its marijuana-based medicine across various indications and a slate of trials spanning cancer pain, epilepsy, schizophrenia, and even diabetes.

Those trials are all ongoing, so investors will need to rely on past trial data to make judgments on whether or not the market demand for GW Pharma’s medicine will justify the company’s $1.27 billion market cap.

Source: Flickr user Mark .

The closest of the trials to completion are the phase 3 studies that are being paid for by GW Pharma’s U.S. commercialization partner, Otsuka. Otsuka, a large Japanese drugmaker, is evaluating the use of Sativex, which is a formulated marijuana extract containing the cannibinoids THC and CBD, in patients whose cancer pain isn’t adequately treated by existing opiates, which are the current standard of care.

According to GW Pharma, roughly 20% of advanced cancer patients fail to have their pain adequately controlled by opiates. That suggests there could be a big market for Sativex, assuming it delivers positive phase 3 results and that Otsuka can effectively market it. However, investors should also note that it is Otsuka, not GW Pharma, that may benefit most from a potential approval in cancer pain. That’s because Otsuka owns the rights to commercialize Sativex for cancer pain in the U.S. Instead, GW Pharma will collect a 20% royalty on any eventual sales for the indication.

Regardless, investors should gain additional insight into Sativex’s efficacy in cancer pain soon. The first of three phase 3 trials for the indication is wrapping up this month, and that has GW Pharma telling investors that it will report data from the trial early next year. A second trial should offer up results before the end of the second quarter of 2015. If both trials demonstrate that Sativex can effectively control pain in these patients, then GW Pharma and Otsuka plan on filing an application for approval with the FDA before the end of 2015.

While the market opportunity for Sativex in cancer pain is intriguing, much of investors’ enthusiasm this past year has centered on Epidiolex, a formulation of the cannibinoid CBD, that GW Pharma is studying in patients with two rare forms of epilepsy: Dravet syndrome and Lennox-Gastaut syndrome, or LGS. The company began a phase 2/3 study of Epidiolex as an adjunct therapy in Dravet patients in October and plans to kick off additional phase 3 trials versus placebo in Dravet and LGS patients in the first quarter of 2015. That suggests investors will have some insight into a potential path to the FDA later next year. In October, the company reported preliminary 12-week study data for epidiolex in Dravet patients showing that convulsive seizure frequency dropped 51%. However, that data included just 12 patients, so investors will want to see results from more patients before drawing any conclusions.

Cash to burn
GW Pharma’s extensive trial activity means the company is burning through cash. Luckily for the company (and less so for investors who have been diluted), GW Pharma did two stock offerings this year that allowed it to raise $212 million for its balance sheet. That money will come in handy given that GW Pharma’s $48.7 million in revenue during this past fiscal year — most of which came from Otsuka — was dwarfed by an R&D budget that ate up $70.5 million.

Spending doesn’t show any sign of slowing either. Last quarter, the company spent nearly $20 million on R&D. Since GW Pharma’s Sativex sales for MS Spasticity aren’t likely to move the needle anytime soon, and the company’s development program isn’t likely to put a drug in front of U.S. regulators until the second half of 2015 at the earliest, investors are right to approach this one with a wait-and-see mentality. After all, the promise of medical marijuana is endlessly enticing, but there’s little proof that promise will translate into profit anytime soon.