Breaking Down GWPH and INSY Earnings. Which is the Better Investment?

GW Pharmaceuticals (GWPH) and Insys Therapeutics, Inc. (INSY) reported third-quarter financial results this morning and the companies have seen opposite reactions from the market.

Shares of GWPH rallied 4% off of the open, while INSY plummeted 11%. INSY has rallied off of its lows but we see further weakness ahead. Let’s highlight the results from each company.

GW Pharmaceuticals (GWPH)

Financial and Liquidity Highlights

• GWPH missed Wall Street earnings estimates but exceeded its revenue estimates.
• During the quarter, GWPH generated over $13.3 million in revenue (13.2% year-over-year increase). Wall Street was expecting $12.9 million in revenue.
• As of June 30, 2015, GWPH had $389.9 million in cash and cash equivalents
• GWPH’s secondary offering raised $193.3 million in proceeds after expenses.

Product Pipeline Highlights

Epidiolex(R) (CBD) childhood epilepsy program:

• Dravet syndrome: First Phase 3 pivotal trial now fully enrolled with a total of 120 patients (exceed 100 patient expectation). GWPH expects to report top-line data in the beginning of the first quarter of 2016. The top-line data from its second Phase 3 trial is expected to be reported in the first quarter of 2016 as well.
• Lennox-Gastaut syndrome: Two Phase 3 trials are underway and GWPH expects to report top-line data in the first quarter of 2016
• Tuberous Sclerosis Complex: GWPH expects to commence a Phase 3 trial in the fourth quarter of 2015
• During 2016, GWPH expects to commence additional clinical development programs for Epidiolex beyond the initial three indications.

Expanded access program:

• There are approximately 320 children undergoing treatment at 19 clinical sites across the United States. GWPH expects to report additional data in the fourth quarter of 2015.

Orphan/Neurology cannabinoid pipeline product candidates:

• Phase 2a CBD schizophrenia study is complete and data is expected to be released during the second half of 2015
• Phase 2 Cannabidivarin (CBDV) epilepsy study is underway and GWPH expects to report data during the first half of 2016
• Received the Orphan Drug and Fast Track Designations for the treatment of Neonatal Hypoxic-Ischemic Encephalopathy (NHIE) from the FDA and EMA
• GWPH plans to commence clinical trials within field of autism spectrum disorders in 2016.
• Phase 1b/2a study of GWP42002:GWP42003 for the treatment of Recurrent Glioblastoma Multiforme (GBM) is fully recruited with data expected in mid-2016

Other cannabinoid pipeline product candidates

• Second and third Sativex Phase 3 cancer pain trials expected to read out during the second half of 2015. The first trial did not show a statistically significant difference for Sativex compared with placebo.
• Phase 2 study of GWP42004 in type-2 diabetes is underway with data expected to be reported in 2016

GWPH made extensive pre-clinical progress in conjunction with a network of academic collaborators addressing the following new therapeutic targets:

• Autism Spectrum Disorders
• Duchenne Muscular Dystrophy
• A range of oncology programs
• Cachexia
• Mechanisms of action of Epidiolex in epilepsy

Update on United States operations

• Julian Gangolli was recently appointed as President of North America operations and he is the Executive Director of GW’s Board of Directors.
• CEO Justin Gover relocated to California to buildout GW’s United States infrastructure. GWPH now has 25 employees at its California facility.

Statement from the CEO

“GW has unprecedented momentum with four phase 3 trials progressing for Epidiolex in pediatric epilepsy as well as a full pipeline of other early and late stage clinical programs across a range of indications. We expect to carry this momentum through the remainder of 2015 as we approach pivotal Phase 3 data for Epidiolex and GW moves confidently forward with preparations for an expected NDA submission in 2016 as well as continuing to build a high quality U.S. commercial infrastructure ahead of commercial launch.”

Outlook

Technical420 is very excited about GWPH’s future. The company has a number of catalysts that will cause shares to continue to trade higher for years to come. GWPH trades on FDA approvals, not earnings, and commentary from the CEO was very positive. During the last quarter GWPH traded sideways between $105 and $130. It is currently trading towards the lower end of that range and seems to have found short-term support at its 100-day moving average of $112. Momentum recently started trending up and shares are up 3% in pre-market trading. Technical420 plans to add to our GWPH position on weakness (below $110). We will provide updates throughout the day.

Insys Therapeutics, Inc. (INSY)

Operating highlights

Yesterday, INSY received a DEA Quota of 200 kg for the bulk manufacture of pharmaceutical CBD for its new facility in Round Rock, Texas, for the remainder of 2015. The new quota is in addition to the 90 kg Quota for 2015 at INSY’s Paloma facility. This brings its aggregate Quota for 2015 to 290 kilos.

Submitted a New Drug Application (NDA) to the FDA for its Dronabinol Oral Solution. The NDA was for anorexia associated with weight loss in patients with AIDS, and nausea and vomiting associated with cancer chemotherapy.

Financial Highlights

• INSY reported earnings that were in-line with Wall Street estimates and revenue exceeded estimates.
• INSY generated $77.6 million in revenue ($55.7 million during the same period last year). INSY’s Subsys product accounted for $76.7 million of revenue (accounted for $54.6 million of revenue during the same period last year).
• Gross margins were 89% (88% during the same period last year). The increase was due to lower sales of its Dronabinol SG Capsule, a lower margin product.
• INSY incurred $22 million in sales and marketing expense ($14.1 million during the same period last year). The increase due to the company expanding its sales force and higher marketing expenses.
• INSY incurred $17.8 million in research and development expenses ($9.2 million during the same period last year). The increase due to investments in its product pipeline during the last two years, as well as the ongoing Phase 1/2 safety and pharmacokinetic study.
• INSY incurred $15.2 million in general and administrative expenses ($10.7 million during the same period last year). The increase is due to costs incurred in connection with various legal matters, which includes a charge of $1.1 million associated with the Oregon Department of Justice (ODOJ) settlement. The company also incurred $2.3 million in charges related to a court ruling in connection with litigation between INSY and a former employee.
• INSY generated $7.3 million in net income ($0.10 per basic and diluted share) which is less than the same period last year ($9.5 million, or $0.14 per basic and $0.13 per diluted share).

Liquidity Highlights

• As of June 30, 2015, INSY had $145.1 million in cash, cash equivalents and investments, no debt, and $204 million in stockholders’ equity.
• After the 2-for-1 stock split became effective, total shares outstanding increased from approximately 35.7 million to 71.4 million.

ODOJ Settlement

INSY entered into a settlement agreement with the ODOJ, referred to as an Assurance of Voluntary Compliance (AVC). The AVC requires INSY to maintain certain controls and processes around its promotional and sales activity related to Subsys in Oregon, and creates affirmative obligations to comply with applicable laws.

This AVC expressly provides that the Company does not admit any violation of law or regulation. This settlement was reached as result of INSY’s cooperation with the ODOJ’s investigation and after producing documents in response to requests for information from the ODOJ. INSY implemented a comprehensive compliance program based on the elements of an effective compliance program and industry practices.

Outlook

Technical420 remains cautious with INSY at current levels due to: 1) Shares are trading at a rich valuation, and 2) INSY still faces potential legal headwinds pertaining to its Subsys products (in regard to sales practices). Although the company was not named in the recent indictment, it does not mean that the worst is over. INSY is trading in overbought territory and at $89.48 on a non-split adjusted basis. During the last 12 months, INSY is up 239%. 

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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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