Heating up
GW Pharmaceuticals has enjoyed a banner year thanks to great news related to its experimental cannabinoid drug Epidiolex. In March, the company announced positive results from a phase 3 study of Epidiolex in treating Dravet syndrome, a rare type of epilepsy. Results from the study showed that patients taking Epidiolex experienced significantly fewer seizures than patients on placebo.
More positive news came in June. GW reported results from a phase 3 study of Epidiolex in treating Lennox-Gastaut syndrome (LGS), another rare form of epilepsy that first appears during childhood. The results from this study also showed that Epidiolex helped to dramatically reduce the number of seizures experienced by patients.
For GW Pharmaceuticals, it seems that good news comes in threes. On Sept. 26, the company announced positive results from yet another phase 3 study of Epidiolex in treating LGS. As with the other two late-stage studies, patients taking GW's cannabinoid drug had significantly fewer seizures than those taking a placebo.
Three consecutive phase 3 studies demonstrating solid efficacy for Epidiolex stirred up plenty of investor enthusiasm for GW Pharmaceuticals. The stock is on its biggest roll since the second half of 2013, when the company's lead cannabinoid drug Sativex was racking up its own string of good news.
Doing the math
Despite already having a product on the market with Sativex, GW Pharmaceuticals continues to lose money. During the nine months ending June 30, 2016, the company lost $62 million. However, the positive clinical results for Epidiolex have catapulted GW to a market cap of $3.4 billion.
There are an estimated 5,440 patients in the U.S. with Dravet's syndrome and another 6,710 patients in Europe. LGS is also rare but more prevalent than Dravet's. The U.S. has an estimated 14,000 to 18,500 patients with LGS. There are between 23,000 and 31,000 LGS patients in Europe. If we use the upper end of these ranges, that puts the total target patient population for Epidiolex just under 62,000 in the U.S. and Europe combined.
How does this target population translate into potential revenue for GW Pharmaceuticals? Roth Capital Partners analyst Elemer Piros thinks that Epidiolex will be priced at $36,000 per year in the U.S. and $24,000 per year in Europe. If we use the estimated numbers of patients with Dravet's syndrome and LGS, that amounts to just under $1.8 billion in annual sales for Epidiolex.
Piros, though, suggests heavy off-label usage of Epidiolex. He projects that around 10% of all children with epilepsy, roughly 73,000 patients, will use the drug by 2024. That would give Epidiolex peak annual sales of around $3 billion.
Here's the catch: These estimates assume really high market penetration combined with premium pricing. Edison Research thinks that Epidiolex will be successful but achieve market penetration of 50% in the U.S. and 25% in Europe. If Edison Research is right, peak annual sales for the drug will be closer to $800 million.
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