Can GW Pharmaceuticals Stock Bounce Back?

Shares of GW Pharmaceuticals (NASDAQ:GWPH) have been sliding since the company reported quarterly results that were arguably positive. Even though GW Pharmaceuticals reported second-quarter product sales that grew 70% year over year, its stock price has tumbled about 20% since announcing results in early August…

The disconnect between year-over-year sales growth and the stock price has inspired some intrepid investors to buy up shares at what could turn out to be a great bargain. Here’s what needs to happen for this risky bet to pay off.

Epidiolex sales need to reach expectations

GW Pharmaceuticals is enjoying a relatively successful launch of Epidiolex, a cannabidiol (CBD) tincture approved in 2018 to treat patients with severe childhood-onset epilepsy. Pivotal studies leading to the drug’s approval showed impressive reductions in the frequency of convulsive seizures experienced by patients with Dravet syndrome and Lennox-Gastaut syndrome. These results led investors to expect sales of the drug to exceed $1 billion annually at the time of its launch.

Sales are way up compared to the previous year period, but not compared to the first three months of 2020. In the U.S., second-quarter sales of Epidiolex that reached an annualized $444 million were just 4.7% higher than during the first quarter.

Drugmaker stocks generally trade at mid-single-digit multiples of total sales. Despite falling significantly in recent weeks, GW Pharmaceuticals still boasts a $3.3 billion market cap that probably won’t rise much further unless sales of Epidiolex perk up in the second half of 2020.

Why Epidiolex sales should be soaring

At the moment, Epidiolex is the only brand of CBD approved and actively regulated by the Food and Drug Administration. It’s also the first drug in a long time to make a big difference for children with debilitating forms of epilepsy that don’t respond to standard antiepileptic drugs (AEDs).

During trials leading to its approval, adding Epidiolex to standard AEDs helped reduce convulsive seizure frequency by 75% or better for 24% of Dravet syndrome patients, compared to 12% of those that received a placebo.

More recently, the Drug Enforcement Administration completely…

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