An Enigmatic Tale of Two Companies

Numbers don’t lie.
Or do they?

As an analyst I know they don’t lie, but they don’t always tell the whole story.

Today’s tale is a perfect example.

GW Pharmaceuticals (GWPH) and Insys Therapeutics, Inc. (INSY) recently reported financial results and the companies have seen opposite reactions from the market.

Yesterday, INSY fell almost 3% after the company reported better than expected earnings. GWPH on the other hand, saw shares rally more than 15% after results came in below expectations on February 11^th.

Earnings Tell a Different Story

When comparing the results of the two companies, you would think that INSY was the better investment. During the quarter, INSY generated $91.1 million in revenue and $17 million in net income. If you compare these results to the same period last year, INSY generated 36% more revenue and 82% more income.

GWPH on the other hand, generated $5.4 million in revenue and reported a $26.2 million net loss. These numbers are much worse than what was reported during the same period last year, however, GWPH has incurred much higher costs due to the number of clinical trials underway.

Coming Down from its Highs

GWPH has come down from its post-earnings highs and we continue to see value in shares at current levels. GWPH is the only cannabis company to have extensive Wall Street coverage one of the companies covering them, Bank of America, has a $150 price target on shares. A majority of Bank of America’s price target is associated with GWPH’s Epidiolex product.

After the company reported earnings, CEO Justin Gover said the company is on track to report topline data from its four Epidiolex Phase 3 trials in the months ahead. We expect to see favorable results to act as a major catalyst for shares.

Trades on FDA Results not Financials

Although INSY announced much better results that GWPH, we continue to favor GWPH due to the company’s extensive pipeline of products that are in various stages of FDA testing.

Biotech stocks do not trade on financials; they trade on FDA results. GWPH has an extensive pipeline of products that are in various stages of FDA testing and it provides the company with several event-driven catalysts for years to come.

What do you think?

Are you with me on this one?

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Michael Berger is Managing Partner of StoneBridge Partners, LLC and Founder of Technical420.com. Prior to entering the cannabis industry, Michael was an Equity Research Analyst at Raymond James Financial covering the Energy Sector. Michael has been featured in publications such as The Street, Bloomberg, US Money News, and hosts various cannabis events across North America.

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