Bottom Line

Cannabinoid prescription medicine company GW Pharmaceuticals (NASDAQ: GWPH) pre-announced revenues for its fourth quarter and full-year last night. Preliminary fourth-quarter sales were $108 million with revenue now coming in at $309 million for 2019.

These results exceeded consensus estimates by 7%, likely contributing to the stock’s strong performance as of midday today.

GW is now trading at a forward price to sales of 4x, down from 7x one year ago.

GW has held up better than the rest of the cannabis industry due to both improving profitability and sales, results not many other cannabis growers or pharmaceutical companies have been able to match.

Price to Sales Trends over the Last 12 Months

Source: YCharts

Looking at GW’s estimated revenue growth vs the stock price, it looks like the stock is cheap when compared to other pharmaceutical stocks.

GW has much better growth prospects and is expected to have similar margins by 2021, yet trades at the same multiple as all the big pharmaceutical names growing revenue at less than 10% a year.

If GW management can meet revenue growth estimates through new drugs and an increase in prescription rates the stock is likely to perform well.

Valuation vs Pharmaceutical Peers

Source: YCharts

What Drove the Sales Beat

The sales beat was driven by the company’s main Epidiolex product which comprised 96% of sales in both the quarter and year.

The fourth-quarter sales tally represents 19% growth over the third quarter.

GW recorded 26% and 84% sequential sales growth in the third and second quarters, respectively.

Although the $108 million fourth-quarter figure marks a deceleration in growth from prior quarters, it is a vast improvement over the $6.7 million in sales posted in the fourth quarter of 2018.

On an annual basis the $309 million of 2019 revenue is a far cry from GW’s $13 million of total 2018 sales.

The market expects sales growth to be 78% in 2020 and 63% in 2021 so falling sales growth is not coming as a surprise to anyone.

Key to maintaining sales growth will be a strong new product pipeline and international expansion, which is currently ongoing.


Growth Plans Include Expansion of Epidiolex

The company also plans to enter the long-term care segment which has the potential to be a lucrative market going forward.

As part of the announcement, GW also shared its strategic priorities for the current year. Of course, part of the growth plan is to grow the Epidiolex brand by expanding patient access and physician distribution. Obtaining approval of the tuberous sclerosis complex indication in the U.S. and Europe would significantly broaden the target prescriber base. The company also plans to enter the long-term care segment which has the potential to be a lucrative market going forward.

With nine Orange Book listed patents scheduled to expire in 2035, GW is planning to submit additional use patents in addition to seeking approval of the Epidiolex “composition” patent. Expanding the awareness of Epidiolex by publishing in top-tier medical journals and presenting at medical meetings such as those held by the American Epilepsy Society will also be part of the strategy to further commercialize Epidiolex.


Nabiximols is an Important Growth Driver

GW is also seeking to enrich its product pipeline beyond Epidiolex and sees a particular market opportunity for Nabiximols.

The drug, known as Sativex outside the U.S., is being targeted to treat several indications and will be involved in late-stage clinical trials throughout the year.

Clinical programs for spasticity associated with multiple sclerosis and spinal cord injury as well as PTSD will be pivotal developments in 2020.

GW estimates that it had approximately $536 million of cash on its books as of year-end which it can deploy to bolster its pipeline.

The company plans to launch a study of cannabidiol formulation for the treatment of schizophrenia. It also plans to explore the use of cannabidivarin (CBDV) to treat autism patients and develop an intravenous formulation of cannabidiol through a National Institute for Healthcare Education (NIHE) program.

Gover will be offering additional insight into the company’s recent performance at tomorrow’s J.P. Morgan Healthcare Conference in San Francisco.

The company will formally report fourth-quarter results on Feb. 25.

GW Pharmaceuticals stock is up 8% in mid-day trading.

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