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Better Buy: Insys Therapeutics, Inc. vs. GW Pharmaceuticals PLC

There really aren't very many biotechs that are primarily focused on developing cannabinoid drugs -- at least not many that trade publicly. GW Pharmaceuticals (NASDAQ: GWPH) and Insys Therapeutics (NASDAQ: INSY) rank at the top of the list in terms of market cap.

GW Pharmaceuticals has definitely enjoyed a better year, with its share price jumping close to 30% so far in 2018. Insys was down over 40% earlier in the year, but the stock has clawed its way back in recent weeks. Which of these two cannabinoid-focused biotech stocks is the better pick now?

Image source: Getty Images.

The case for Insys Therapeutics

Quite honestly, Insys Therapeutics has pretty much been a "bad news biotech" for much of the last couple of years. The company faced plunging sales for its main product, opioid drug Subsys. It was under investigation by the U.S. Department of Justice (DOJ) for alleged sales and marketing practices for Subsys. And Insys' hopes for winning Food and Drug Administration (FDA) approval this year for its buprenorphine sublingual spray in treating acute pain went up in smoke.

However, the company just might be seeing the light at the end of the tunnel now. Insys announced in early August that it had reached an agreement in principle to settle with the DOJ over the Subsys investigation. Even better, the amount for the settlement was in line with what the biotech had already put aside.

While sales for Subsys continue to flounder, Insys reported that the decline slowed in Q2. The company also said that its prescription share among TIRF (transmucosal immediate-release fentanyl) drugs increased sequentially for the first time in seven quarters.

Insys could have another product on the market to join Subsys and cannabinoid drug Syndros not too far down the road. The FDA granted Fast Track designation to the biotech's epinephrine nasal spray, which could compete well against Mylan's EpiPen if approved since it doesn't require a needle.

It's true that Insys isn't completely out of the woods yet. However, there's a reasonable argument to be made that the company's market cap should increase well above the current level of around $700 million if sales stabilize for Subsys and newer products gain traction.

The case for GW Pharmaceuticals

In comparison to Insys, any problems that GW Pharmaceuticals might have look insignificant. The biotech won FDA approval earlier this year for cannabidiol (CBD) drug Epidiolex as a treatment for Dravet syndrome and Lennox-Gastaut syndrome (LGS), two rare forms of epilepsy.

To add icing to the cake, a Morgan Stanley analyst recently reported that the U.S. Drug Enforcement Administration (DEA) will classify Epidiolex as a Schedule IV drug. That means that GW won't have as many restrictions on distributing the drug as it would have in a lower schedule classification.

Probably the best argument for buying GW Pharmaceuticals stock is that Epidiolex could be a massive winner in the marketplace. Although peak annual sales estimates vary by a wide margin, several analysts expect that the drug will generate revenue of $1 billion or more within a few years.

One big key to success will be to secure reimbursement from payers. GW priced Epidiolex close to the same level as currently approved LGS drug Banzel. It seems likely that the company will win over payers.

In addition to Epidiolex, GW Pharmaceuticals markets cannabinoid drug Sativex in multiple countries outside of the U.S. as a treatment for multiple sclerosis (MS) spasticity. The company is evaluating Sativex in a phase 3 clinical study for the indication in hopes of being approved by the FDA. GW also has other cannabinoid pipeline candidates in phase 1 and phase 2 testing targeting indications including epilepsy, glioblastoma, and schizophrenia.

Better buy

In my view, GW Pharmaceuticals gets the nod as the better pick right now. Insys still has too many questions about Subsys and the potential for Syndros. Meanwhile, GW claims an approved drug with significant commercial potential that that should be launched very soon.

My chief concern about GW Pharmaceuticals is that its stock already reflects expectations of a solid success for Epidiolex. I still like the stock, but its upward potential is lower now as a result of the nice gains so far this year.

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Keith Speights has no position in any of the stocks mentioned. The Motley Fool recommends Mylan. The Motley Fool has a disclosure policy.

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