Although the biotech sector will be one of the greatest beneficiaries of the legal cannabis movement, the sector has recently been under pressure and this weakness has created significant opportunities for investors.
The iShares Nasdaq Biotechnology ETF (IBB), which is often used to measure the strength of the biotech sector has fallen more than 15% since late September. We expect to see further weakness in the near term as investors continue to take money off the table on account of the presidential election, weakening oil prices and a slowing global growth environment.
Although the market continues to hear how growth around the world has slowed as companies report weaker-than-expected earnings, the cannabis industry has grown at a remarkable rate and this is a trend that should accelerate over the next decade.
Cannabis Biotech Beneficiaries
Although the biotech sector will be one of the greatest beneficiaries of the legal cannabis movement only a few publicly traded biotech companies are focused on developing treatments from the cannabis plant.
Unlike other sectors, biotech trades on FDA results, not earnings; and favorable results can serve as a major catalyst and send the price of the company’s stock considerably higher.
We are favorable on the biotech sector of the cannabis industry because these companies will benefit from event-driven catalysts as they report the results of FDA clinical and pre-clinical trials. We want to highlight some biotech focused cannabis stocks that investors should have on their radar.
GW Pharmaceuticals (GWPH: Nasdaq): During the last month, GWPH has fallen more than 14% and we have kept a close eye on the shares as we continue to view GW Pharma as the top long-term cannabis investment opportunity.
Yesterday, GWPH traded as low as $110.65 before the shares bounced higher and ended the day at $113.29. Over the last month, momentum has moved significantly lower as GWPH has fallen more than 21% from its all-time high on October 7th.
GW Pharmaceuticals continues to make advancements in its pipeline of cannabinoid products. The company has a deep pipeline of products that are in various stages of FDA testing. We expect this pipeline to create catalysts for GWPH for years to come. We remain buyers of GWPH and see significant upside to current levels. We will continue to monitor price movements for an opportunity to add to Technical420’s position in its Mock Portfolio.
Insys Therapeutics (INSY: Nasdaq) is a stock that we have been cautious with and we are on the sidelines for the following reasons: 1) Its continues to miss earnings and revenue estimates due to a significant drop in demand for its opioid products, 2) The company guided lower for future sales of its Subsys product and we expect to see management further lower its expectations in future quarters, 3) The company’s search for a new CEO has not been fruitful, and 4) Its $500,000 contribution against legal cannabis in Arizona has negatively impacted market sentiment.
INSY has fallen 12.5% in the last month and the shares are down 64% so far this year. The shares are trading near oversold territory and it is trading below its 20, 50, and 150-day moving average. The main difference between INSY and GWPH is that INSY is developing treatments from synthetic cannabis while GWPH develops treatments from the actual plant.
Zynerba Pharmaceuticals, Inc. (ZYNE: Nasdaq) focuses on developing and commercializing proprietary synthetic cannabinoid therapeutics formulated for transdermal delivery. Zynerba’s product candidates include ZYN002, which is in Phase I clinical trial for the treatment of refractory epilepsy, Fragile X syndrome, and osteoarthritis; and ZYN001 which is in the preclinical stage for the treatment of fibromyalgia and peripheral neuropathic pain.
In mid-October, ZYNE provided a development update for its two product candidates, ZYN001 and ZYN002.
- ZYN001: Expects to be in Phase 1 clinical trials in the first half of 2017, with Phase 2 trials expected to start in the second half of the year.
- ZYN002: Three Phase 2 trials are on track to report results in the first half of 2017 with its Phase 2 trial for Fragile X Syndrome expected to start before the end of 2016.
Although we continue to view GWPH as the top investment opportunity in cannabis biotech sector, we are favorable on ZYNE and see upside to current levels.
Important Investor Disclosures
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