If you are looking to invest in cannabis stocks, you may want to take a closer look at cannabis biotechs in particular. Several cannabis biotech firms are generating significant Street support- and for good reason as you will see below. To pinpoint the most compelling cannabis biotech stocks out there, we used TipRanks' data to pull up relevant biotechs with a 'Strong Buy' Street consensus. That's based on all the ratings received from analysts over the last three months. In fact, all these three stocks actually score 100% Street support- so no hold or sell ratings here. Let's take a closer look now at which 3 stocks make the grade, and why:
British-based biopharma GWPH is one of the more well-known cannabis biotech stocks. Shares have put on a remarkable sprint for the beginning of 2019. Year-to-date we are now looking at gains of 88%. And the company’s recent earnings report indicates that plenty of growth lies ahead.
In June 2018, the company’s lead cannabinoid drug Epidiolex received FDA approval for the treatment of seizures associated with Lennox-Gastaut syndrome or Dravet syndrome. Following DEA re-scheduling, Epidiolex was launched on November 1.
So far the launch has proved a remarkable success. For the first quarter, GW reported $33.5MM in Epidiolex revenue during its first full quarter on the market, well ahead of consensus ($15.9MM). But even more importantly, the company also revealed positive trial data for tuberous sclerosis complex (TSC). Specifically, GW announced that Epidiolex's Phase III trial in patients with seizures associated with tuberous sclerosis complex (TSC) met its primary endpoint with a high degree of statistical significance.
The primary endpoint was the percent change from baseline in seizure frequency during the treatment period. At baseline, enrolled patients (average age of 14 years old) experienced a median of 57 seizures per month. After 16 weeks of treatment, patients in the 25 mg/kg/day cohort experienced an impressive 48.6% reduction in seizures relative to baseline.
“1Q Snapshot - A Strong Launch and Positive TSC Data Rolled Into a Joint Announcement for a Double Dose of Good News” cheered JP Morgan’s Cory Kasimov following the report. The analyst continued: “We’re not sure how GWPH’s 1Q19 report could have gone much better with Epidiolex doubling consensus in its first full quarter of sales… only to be one-upped by concurrent positive Phase 3 data in TSC.”
As a result he believes Epidiolex is on track to come in north of $150M in its first full year, easily exceeding Street expectations. “The bottom line is that estimates need to come up, perhaps meaningfully. Furthermore, with another positive – and clean – phase 3 dataset in hand, there could be upward bias to longer term off label epilepsy sales, which offers a major upside lever in our model” concludes Kasimov. He reiterated his buy rating while ramping up his price target from $180 to $215.
Unsurprisingly, he wasn’t the only analyst singing GWPH’s praises. “Based on Epidiolex's trajectory and the positive TSC data today we are increasing our DCF-based price target from $175 to $200. We continue to think that GW is undervalued” commented Cowen & Co’s Phil Nadeau.
At the same time Oppenheimer’s Esther Rajavelu took a step further by upgrading GWPH from Hold to Buy. She also upped her price target from $164 to a Street-high $234 (27% upside). “While we await detailed data that may be shared at a medical conference, we update our probability of approval of the sNDA [supplemental new drug application] for TSC to 87% from 41% (filing expected in 4Q)” she explained.
Overall GWPH has a very bullish outlook from the Street, with ten analysts publishing recent buy ratings on the stock. Their average analyst price target stands at $220- indicating upside potential of 20%.
Zynerba is developing next-generation cannabinoid gels to help treat patients affected by rare neuropsychiatric conditions. The company is generating a significant buzz, with shares exploding over 340% year-to-date! So what’s behind the stock’s meteoric rise?
Its lead drug candidate Zygel is a unique permeation-enhanced CBD transdermal gel. By delivering drugs through the skin and directly into the circulatory system, Zygel offers several advantages over oral medication. Most notably, transdermal delivery results in fewer gastrointestinal side effects, and avoidance of first-pass liver metabolism. This potentially enables lower dosage levels of active pharmaceutical ingredients and rapid, reliable absorption.
Encouragingly, Zynerba announced earlier this month that the FDA has granted a Fast Track designation on Zygel for the treatment of behavioral problems associated with Fragile X syndrome (FXS). “With this designation, the company gains easier access to the FDA throughout the development process and most importantly, in our view, eligibility for Priority Review, which shortens the review time to six months” explains Ladenburg’s Michael Higgins. He anticipates Zygel’s NDA (new drug application filing) will take place in 1H20, leading to approval in 2H20.
And with an eye on the future, Higgins reiterates his buy rating on ZYNE with a $26 price target (97% upside potential). While data since the summer of 2018 has been light, multiple major data readouts are comping up near-term- generating the recent rally in prices. “We continue to believe the stock could still double from its current level, driven by a data-rich 2H’19” the analyst tells investors.
Upcoming data readouts include Phase 2 data from BELIEVE 1, evaluating Zygel’s anti-epileptic activity, and data from the FXS pivotal CONNECT-FX trail. “Given the unprecedented, profound and sustained benefits across multiple behavioral problems in the open-label Phase 2 (FAB-C), plus Zygel’s good tolerability, we again expect this trial to be successful” writes Higgins.
Plus the catalysts should continue into 1H20 when data is expected for two new indications (autism spectrum disorder (ASD) and 22q11.2 deletion syndrome). Analysts are clearly feeling the heat- this is a stock with five recent back-to-back buy ratings and an average analyst price target of $23 (79% upside potential).
Cara Therapeutics is a biotech focusing on developing products for better pruritus (i.e. severe itching- one of the most common dermatological complaints) and pain management. Right now, all eyes are squarely set on the imminent US Phase 3 data for IV Korsuva. This is Cara’s novel kappa opioid receptor agonist to treat chronic kidney disease-associated pruritus (CKD-aP) in hemodialysis patients- where there is currently no effective treatment and minimal competitive development.
Indeed top-rated Cantor Fitzgerald analyst Charles Duncan has just hosted a call with a key opinion leader (KOL) to discuss the outlook for Korsuva. In this case the KOL is a physician with expertise in chronic kidney disease associated pruritus (CKD-aP), making his insights particularly valuable. Overall, the KOL stated that, in his 25 years as a practicing nephrologist, he has seen little in drug development move the needle in CKD-aP (except the P2 data from KORSUVA), underscoring the need for new medications.
“As a result of this recent due diligence, we have enhanced conviction about the P3 study readouts and potential for KORSUVA to usher-in a paradigm shift and a new SoC [standard of care] for this high-burden symptom of disease” Duncan concluded. He expects the data readout to come early June, and is upbeat about the drug's prospects. “We remain confident in positive results based on statistically significant Phase 2b results with much lower powering and shorter treatment duration” the analyst tells investors.
Meanwhile, the second global Phase 3, KALM-2, is enrolling and management expects data in “2H19” (i.e. around 4Q). "Assuming KALM-1 is positive, we’ll also be optimistic for KALM-2", says the analyst. He reiterated his buy rating with a $27 price target, writing ‘Now is the time to scratch the itch.’ Given the stock is currently only trading at $18, the price target translates into sizable upside potential of over 50%. Bear in mind shares are already soaring 39% year-to-date. As we can see here, that's on top of six recent buy ratings from the Street:
