GW Pharmaceuticals: Early-Stage Pipeline

GW is advancing a broad pipeline of early-stage cannabinoid therapies targeting cancer, metabolic and central nervous system (CNS) diseases. These five programmes (three funded by Otsuka) are based on strong preclinical data and/or promising clinical results. In 2013, we expect substantial pipeline progress with Phase II trial starts, Phase II readouts, initial human trials and potential Otsuka licensing deals. All this offers pure upside to our DCF valuation of £195m or £1.46p/share.

Deep Dive Uncovers Hidden Treasures
Our detailed review of GW’s early-stage pipeline reveals five programs with robust preclinical data and/or promising clinical results. In 2012, GW announced promising Phase II data for GWP42004 in Type II diabetes, demonstrating that the early-stage portfolio is starting to deliver. In 2013, we expect substantial pipeline progress as GWP42004 enters a Phase IIb trial, GWP42003 delivers Phase IIa data, three drugs enter the clinic, and potentially, Otsuka in-licenses CNS and/or cancer candidates.

GWP42004: Encouraging Anti-Diabetic Activity
Phase IIa data for GWP42004 suggest encouraging anti-diabetic effects, good safety and tolerability in patients with Type II diabetes. In particular, GWP42004 delivered consistent improvements in measures of glucose control, insulin production and beta- cell protection. In our view, these results provide a clear rationale for advancing the drug into a Phase IIb dose-ranging trial in Type II diabetes.

Spotlight On Epilepsy And Cancer Programs
GW’s research into cancer and CNS, which is funded under the Otsuka collaboration, has generated three promising candidates – GWP42002/GWP42003 for primary brain cancer (glioma), GWP42006 for epilepsy and GWP42003 for schizophrenia. The preclinical data for glioma and epilepsy are particularly promising and in our view could be sufficient to catalyse an Otsuka partnership for both programmes.

Valuation: R&D Pipeline Offers Pure Upside
We value GW at £195m, or £1.46 per share, based on a DCF analysis. Our base-case valuation comprises Sativex for MS spasticity (53p/share), Sativex in Phase III studies for cancer pain (79p/share) and projected FY13 cash (14p/share). On our valuation, the current share price of 55p appears to discount any new Sativex indications, the early-stage pipeline, or potential licensing deals. GW’s current market valuation, when combined with potential near-term value inflection points (German Sativex pricing/launch, Italian launch) in H113, represents a clear buying opportunity.

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