High Time for European Pharmaceuticals: Changing Medical-Cannabis Regulation by Estia Ryan

Six new countries have announced medical legalization in 2018 alone. This now means 22 countries in the region allow cannabis-derived medicines. The boundaries between legal and illegal drugs are usually quite blurred – and any changes in the regulatory landscape should excite investors. Earlier this summer, Sajid Javid relaxed UK rules concerning cannabis-derived medicines after the mass mobilization of campaigns headed by the parents of Billy Caldwell and Alfie Dingley, aged 12 and 6 respectively, who suffer from a type of epilepsy which can be treated using cannabis oil. In just six weeks, the Home Office changed the law and reclassified cannabis from schedule 1 to schedule 2 – controlled for medical use.

Which European pharmaceutical companies are well placed for a changing regulatory landscape? One clear winner is UK-based biotech company GW pharmaceuticals (GWPH). GWPH’s flagship product Sativex was approved in 2010 by the FDA. Sativex helps patients with multiple sclerosis by alleviating neuropathic pain, spasticity, and overactive bladders. GWPH also has an epilepsy treatment, Epidiolex. The company is looking at developing a cannabidiol oral solution for children’s epilepsy types – namely Dravet syndrome and Lennox-Gausaut syndromes. Other treatments in the pipeline include schizophrenia and autism treatments, though these are in early stages (phase 1 and 2 respectively). The change in regulation will allow GWPH to develop a wider variety of treatments using different extraction and consumption processes.

GWPH’s NASDAQ listing has been turbulent in the past few months as investors fear that the Epidiolex treatment is fully priced into GWPH’s valuation. And the NASDAQ GWPH stock isn’t cheap, sitting at just under $146. However, taking a five-year view, GWPH has seen gentle and steady upside. Considering both the changing regulation in the EU and GWPH’s strong development pipeline, the pricey valuation seems justified and leaves space for further upside.

For more price sensitive investors, small cap Zynerba Pharmaceuticals (ZYNE) has a strong foothold in the US market and has a similar cannabidiol compound addressing epileptic conditions. Other companies focus on Nabilone, used to help cancer patients relieve nausea during chemotherapy.

Of course, the European medical-cannabis market is nowhere near the scale of the US’s. Where medical cannabis is allowed, European consumers can only obtain it through a prescription. Additionally, doctors must specify which strain of cannabis they prescribe, to minimize the chance of patients concocting ‘home made’ strain assortments, as is commonly done in the US.

Germany’s case foreshadows what is to come for the medical-cannabis industry. Germany legalized cannabis for medicinal use in 2017, and is getting ready to award cannabis cultivation licenses in 2019. Canopy Growth (heavyweight Canadian Giant) is acquiring Germany-based companies like MedCann GmbH to access German pharmacies. Other M&As in the space include Aurora’s merger with CanniMed Therapeutics which joins up Italian, Danish, and German assets.

The European market is the next frontier for medicinal cannabis. If the EU legalizes medicinal cannabis, the total addressable market (TAM) could be equate EUR116bn. What’s more, European countries tend to have a centralized state-owned healthcare system. Should the French sécurité sociale or British NHS adopt cannabis-derived products or cannabidiol solutions, market access would be greatly facilitated for already-dominating companies. Consolidation of current market heavyweights such as Canopy Growth and GWPH is expected, as well as a general upside in the European medical-cannabis industry.

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