Here's the dilemma. You have a chief executive officer on your show who tells a great story about a possible approval of a blockbuster drug. But the stock is already up 81% in 2016 alone and the good news was obviously anticipated. Can you still buy it?
That's what I was faced with last night when I interviewed Justin Gover, the entirely non-promotional CEO of GW Pharmaceuticals (GWPH) , with a stock that was up 17% alone on a positive trial to treat pediatric epilepsy.
This disease is a terrible scourge. The CEO said that the children who suffer from epilepsy typically have three seizures a day. Their lives are horrendous. With the drug, their incidence of seizures drops by 42% vs. 17% for the placebo that the drug was up against.
The study only encompassed a little more than 200 children. A bigger trial, ongoing now, will probably show similar results. The drug could have a billion dollars in sales.
What we have learned is that when you have one drug that should be approved that has a remarkable impact on one disease, we have to ask ourselves if it can have impacts on other diseases.
In this case, the drug, which is a variation of pure cannabis, a substance found in pure marijuana, has a variant that has been approved to help MS victims.
There is also an early trial in pain for cancer sufferers. Sativex, another variant, is approved for the pain of cancer sufferers in Canada.
Now here's where it gets interesting for the company: It has patents for the versions of cannabis that it employs. Currently, there are marijuana pharmacies all over the country where you can get marijuana for chronic pain. Legitimate doctors, however, are mostly unwilling to write prescriptions for marijuana, because it isn't pure and the dosing can't be determined.
So it is a total non-starter.
The purity of GW Pharma's pill and its dosing makes it ideal for doctors to prescribe for all sorts of pain. Currently there is a nationwide epidemic of opiate abuse. I urge you to read the book Dreamland, if you don't know it or understand it.
Dreamland is about people who die either from opiate addiction or from readily available black tar heroin, something that can be supplied to you, like a Domino's Pizza through drug dealers that operate pretty much without interdiction.
I do not think there is anything to stop the addiction other than a drug from Alkermes that can stop the craving. But to stop the pain you need legitimate, pure marijuana.
However, growing marijuana is a federal felony. The DEA can stop and arrest anyone for growing it in commercial quantities in this country. Only the University of Mississippi can grow it and so far the school hasn't done much with its license to grow.
GW Pharma could be the answer to an opiate addiction that isn't written enough about and isn't understood, hence why I am recommending Dreamland, so you know.
What's that worth? What's it worth to be the company that the DEA blesses to experiment with cannabis? What's it worth to have a sanctioned product? Is it worth the sales of the epilepsy blockbuster?
No, I would think because of the opiate epidemic that no one is talking about, it is worth far more, so much so that it would be ridiculous for a major pharma not to buy them. But then you go back and say, why didn't a major pharma buy it 81% ago? Perhaps because they feared that the epilepsy endpoint wouldn't be met?
That fear is now gone.
There were tons of media reports that GW Pharma has hired Morgan Stanley to deal with takeover inquiries. I can't imagine that they would be worth pursuing if we didn't get yesterday's positive results.
Now, they have to be eyeing the multi-billion opiate addiction market and the patents that would make it so it would be the pain drug of choice. So I think it could be bought because the barriers to being the next GW Pharma are so high, given that it is the only sanctioned private company to be able to work with the authorities, including the DEA, and be blessed by them.
But my discipline says you can't buy it after being up 17% in one day and up 81% for the year. If you get a bid, I think you get near a double. If you don't get one, this stock will slink back, as there will be nothing new about it for several months.
So you go in and just buy it knowing that one day it could get a bid and it is worth more than it is selling for? Or do you wait?
I have liked the stock forever because of the opiate issue, not because of the epilepsy issue. But the results for epilepsy were so positive, I think the risk-reward switched.
You now have a story that can be bought on the merits or takeover. So I say, buy some and let it drift. Because of the opiate rage, it is too big to say no to. But because of the market's lack of memory, I don't want to buy it all because it will be lower five days from now without a bid.
I split the difference. I compromise. Can't go all in. But can't miss it. Too big to do that.