- By Barry Cohen
Second of two articles
Medical marijuana generated more than $4.2 billion in revenue in the U.S. in 2015, according to ArcView Market Research. And they forecast it will surpass $22 billion by 2020, as regulations continue to loosen and patient access increases.
So why is GW Pharmaceuticals Plc (GWPH), the largest pharma companyA with a relatively modest market capitalization of $2 billion, developing marijuana-based drugs? Where are Pfizer (PFE), Novartis (NVS), Merck (MRK), Sanofi (SNY) and the rest of their Big Pharma brethren? If thereas a apota of gold at the end of the rainbow, you can be certain theyall be in the mix at some point, most likely via the acquisition route.
The intrinsic value of GWPH
In fact, ArcView predicts that aOnce the behemoth multinational corporations enter the market, they will likely go on an acquisition spree versus directly competing against companies that have years of experience in navigating the complex market.a
But for right now, Big Pharma appears to be throwing up roadblocks to stymie or delay development of prescription cannabinoid (CBD) medicines. Itas not difficult to figure out why: to protect product franchises that could be cannibalized by marijuana-based medicines that might work better -- and with fewer side effects -- and not be addicting.
According to NaturalSociety, which promotes natural health, some day marijuana could replace painkillers like Vicodin, sleep aids like Ambien and antidepressants like Zoloft, among others.
Some contend that Big Pharma is hedging its bets, wagering that the U.S. will not legalize medical cannabis soon -- therefore protecting their product franchises -- but at the same time cultivating cannabis for potential use in medications.
Okay, letas not be naAve. If thereas money to be made, you can be certain the industry giants are going to get into the game. If itas by acquisition, finding the companies likely to have bullseyes on them at some point could pay off big for the patient investor.
The targets are included in the MJIC Marijuana Global Index, the industry's principal composite, which includes 167 public companies. However, of that total, only 12 firms are actually developing CBD drugs; the rest are service providers and the like.
One of drug developers is OXIS International Inc. (OTCPK:OXIS), a Tampa-based company focused on developing drugs for psoriasis, cancer and fibromyalgia, through its subsidiary Oxis Biotech Inc. Shortly after it started trading last December, OXIS hit a high of $3.70 per share but has been on a steep decline since and is now just north of 30 cents.
Cara Therapeutics Inc. (CARA) dwarfs many CBD companies with a market capitalization of more than $148 million. In the first quarter 2016, the company reported a loss of $10.6 million on revenue of $7,000. Itas developing drugs to alleviate pain and severe itching. Investors who bought the companyas shares at their 52-week high canat be pleased, having lost 75 percent of their investment in the past year, with the stock now down to $5.44.
GrowBlox Sciences Inc. (GBLX) appropriately is located in the crap-shooting capital of America, Las Vegas. But compared with the companies mentioned, GrowBlox has been, well, less disappointing to investors, with its shares declining only a third in the past year to just more than 37 cents. Itas working to develop drugs to treat neurological diseases and other conditions.
Given the discouraging performance of the shares of these three companies, itas no surprise that the MJIC has slid from its 52-week high of $616.54 to $237.42. Investors' interested in putting their money into this market are going to have to dig deep to find the companies they think have the potential to succeed or attract acquisition-minded members of Big Pharma.
Proceed with caution.
This article first appeared on GuruFocus.
The intrinsic value of GWPH