GW Pharmaceuticals (GWPH - Get Rating) reported third-quarter earnings after the close of trade on Tuesday. The company posted a net loss of $13.8 million for the quarter, which is a significant improvement from last tear in the same quarter last year when they lost $79.9 million.
They also posted better than expected sales numbers for their flagship product Epidiolex, coming in at $86.1 million for the quarter, which beat analysts estimates of $85.2.
Yet, even with these positive numbers, shares of GWPH have dropped dramatically, from about $135 to $110. This reason given was because of fears that Epidiolex sales could plateau over the next several quarters.
However, some analysts on Wall Street don’t agree with this theory.
After their earnings release, Bank of America analyst Tazeen Ahmad reiterated a Buy rating for the stock and $218 price target. GW Pharmaceutical’s U.S. Epidiolex sales climbed 26% from the previous quarter and came in ahead of estimates, Ahmad said in a note. Continued patient adds and new doctor prescriptions were behind the strength.
After having penetrated the high patient concentration centers of demand during early launch, Ahmad said the company is likely to turn its focus on an additional tier of 1,000 prescribers, which present a meaningful growth opportunity going forward.
Cantor Fitzgerald analyst Charles Duncan reiterated an Overweight rating on the stock but lowered the price target from $229 to $174. Duncan said GW Pharmaceutical’s decision to deploy resources in 2020 to target long-term care segment could be a capital-efficient growth driver for Epidiolex adoption.
We also heard positive sentiment from the GW Pharmaceuticals CEO Justin Grover regarding the progress Epidiolex has accomplished so far “In this first year of launch, we are pleased to report continued Epidiolex revenue growth in the U.S. Receptivity to the introduction of this breakthrough treatment continues to be highly encouraging as a result of positive physician and patient experiences as well as strong payer coverage.”
In addition, GW Pharmaceuticals has been working on releasing Epidiolex in Europe and in September the company said that it received European Commission approval and that “commercialization is underway in France and Germany.”
As GW Pharmaceuticals continues to expand the reach of Epidiolex and break into new markets their revenues should increase. They have spent considerable capital on developing the drug and the barrier for entry remains extremely high, so competition should be almost non-existent.
With valuations taking a haircut after this recent earnings report, it’s going to be hard for investors to continue to sell this stock if they keep delivering better than expected numbers. We feel that once GW Pharmaceuticals shows increased profitability, investors will have a more favorable viewpoint of the company.
GW Pharmaceuticals remains a top stock for us to watch and now that share price has fallen, it could be a strong buying opportunity.
GWPH shares were trading at $110.68 per share on Friday afternoon, up $1.64 (+1.50%). Year-to-date, GWPH has gained 13.65%, versus a 25.03% rise in the benchmark S&P 500 index during the same period.
About the Author: Aaron Missere
Aaron is an experienced investor who is also the CEO of Departures Capital. His primary focus is on the cannabis industry. He also hosts a weekly show on YouTube about marijuana stocks. Learn more about Aaron’s background, along with links to his most recent articles. More...