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It is not surprising that analysts rushed to cut their ratings on drug discovery company GW Pharmaceuticals after it revealed disappointing Phase III results for its lead product Sativex in multiple sclerosis pain. The company has been developing the cannabis-based drug for a number of years and was hoping to achieve a real breakthrough in 2008 with three Phase III trials.
KBC Hunt’s Paul Cuddon swapped his ‘hold’ rating to a ‘sell’ and was proven right, with GW shares losing a quarter of their value overnight. ‘Since we still doubt the commercial rationale for Sativex we see little reason to hold,’ he says.
GW managing director Justin Gover argues that Cuddon hasn’t fully understood the implications of the trials. The trials were a disappointment because they did not show a marked statistical difference to those taking placebo, even though some 50% of those taking Sativex experienced a significant reduction in pain. The problem, Gover says, lay in the lack of a prescribed dose for the drug.
Investec Securities’ Ibraheem Mahmood backs up his claims saying, ‘It is a bizarre truth of clinical trials, that the more placebo a patient is given the more effect they get from the product.’ The other Phase III trials it is carrying out this year for multiple sclerosis and cancer pain both have a fixed dose which should lead to more favourable results.
Cuddon’s comments that he has ‘doubts as to whether the product will even prove a commercial success in any of the indications,’ are unfounded according to Gover. ‘The study has been an unfortunate event but it doesn’t affect what we are trying to do and it doesn’t affect the commercial story which is that patients desperately want this drug,’ he says.
Mahmood shares his optimism and says that without the dosing issues in the other trials the drug could still be submitted for approval in Europe for cancer pain by 2009. ‘Our view that Sativex is an effective product remains fundamentally unchanged,’ he says, although lowering his recommendation from a ‘buy’ to ‘hold’.
Interestingly he says he would encourage investors to pick up the stock if it falls below his target trading range of 60p to 100p, which was breached the day the trial data and the research note were both issued. At 49.5p, GW is still trading well below his 82p target price.