Evaluating a GW Pharma Merger, Maybe

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GW Pharmaceuticals PLC (NASDAQ: GWPH) has been on a tear in recent trading. The culprit was not exactly that the U.S. Food and Drug Administration (FDA) would be lenient on its cannabinoid drugs. It was a Reuters report that GW Pharma was approached by more than just a single party interested in a merger. The real kicker of the story was that Reuters also pointed out that Morgan Stanley was hired by GW Pharma.

24/7 Wall St. has been more concerned about the longer-term implications of GW Pharma over other emerging drug and biotech outfits. After all, there are yet to be any major cannabinoid drug products marketed by pharmaceutical companies here in the United States.

One important issue to consider is that GW Pharma raised some $252 million back in July via a secondary offering (at $90.00 per share). The various uses of proceeds included the “general corporate purposes,” a catch-all category, but details were shown as follows in a GW Pharma SEC filing:

  • to fund pre-launch commercialization activities for Epidiolex;
  • to fund further expansion of Epidiolex manufacturing capability to meet anticipated medium and long-term demand;
  • to fund manufacture of Epidiolex inventory in preparation for launch;
  • to fund the expansion of the market opportunity for Epidiolex through clinical development of other orphan indications;
  • and to fund the advancement of other pipeline opportunities.

Another issue here that has been of interest is that GW Pharma is based in the United Kingdom. It is one thing to create a tax inversion by acquiring a smaller company overseas and then relocating the official corporate headquarters there. But what if this happened when a company decided to skirt U.S. marijuana laws and regulations?

As a reminder, GW Pharma’s drug candidate Epidiolex is expected to be submitted in the first half of 2017 to the FDA for approval in Dravet and Lennox-Gastaut syndromes. These are both forms of epilepsy. Epidiolex also has a key FDA orphan drug designation and fast track status from the FDA.

As far as why this might help in being a legal and regulatory research inversion, we need to recall that marijuana was not removed from the Schedule I drug level at the Drug Enforcement Agency.

Much of the gains in the American depositary shares (ADSs) were seen on Wednesday. The big gain is more evident in shares trading in London. That gain was shown to be 26.6% at 666.50 in local trading of just 2.1 million shares.

The U.S. trading in Nasdaq-listed ADSs was up 4.6% at $108.79 on over 2.55 million shares at 12:15 p.m. Eastern Time on Thursday. Just keep in mind that trading had been halted on Wednesday, with shares ultimately rising 23.5% to $104.03 (versus a prior closing price of $84.20) after having been halted for volatility.

If you want to know where the ex-merger valuations might lie for a would-be merger price, take a look at the extreme polarity here. Less than one month ago, Merrill Lynch was calling for about 70% upside and Janney was calling for GW Pharma’s ADSs to fall by more than half.

It is hard to know if there are real buyout efforts underway. The only official announcement from GW Pharma itself was that it plans on presenting data at the Morgan Stanley Global Healthcare Conference on September 14. GW Pharma’s market cap after the rumors was almost $2.4 billion.

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