For YEARS people have said Marijuana will never be legal… it’s too disruptive to Big Tobacco, Pharma, and more.
Well, it’s 2016 and the multi-billion dollar Marijuana industry is slowly (quickly) being legalized across the planet. So I got to thinking… I write about commodities and the Fourth Industrial Revolution on a daily basis, why can’t I find THE cannabis innovation company for my portfolio?
I have written extensively about Marijuana Stocks as an Alternative Investment and recently identified Aphria [OTC: APHQF] as my top pick and cannabis producer: Marijuana Stocks: Puff, Puff, Pass? (Part 8) Profiling Aphria. However…
I can no longer recommend Aphria!
I was very excited to invest, and attempted to communicate with Aphria on several occasions. I sent them messages via social media… no response. I sent them emails… no response. I sent communications through their website to both investor services and their general email… no response. I shouldn’t have to try hard to GIVE THEM MONEY!
As an investor, I find service to be a VITAL part in determining where my money goes.
Case in point: I recently identified AeroVironment [AVAV] as my Fourth Industrial Revolution pick for the following themes: Drones, Asymmetrical Warfare, and Agtech. But did I invest right away? Nope! I called human resources with an inquiry regarding a recent job they posted for their Energy Storage division. I left a message at 1pm on a Thursday. Guess what? The lady I left a message for called me back before the end of the day. We determined that I wasn’t a good fit for the position based on my skill set, lol, and she was VERY pleasant the entire conversation.
Next day: I invested.
And so I continue my search for a way to capture the Disruption that Cannabis Innovation is sure to bring. Yes, my pick of Monsanto for top Agtech stock will ultimately fulfill my desire for a Cannabis innovation company on the agricultural side, via seed biotech as Marijuana becomes legalized, but it’s DISRUPTION that creates the most opportunity.
In addition to writing Aphria off my list, I recently wrote: #4IR: A Case for Cannabis. Here I identified the following…
Opportunities for Cannabis Disruption during the Fourth Industrial Revolution:
Medical marijuana reduces use of prescription drugs
Pain & Movement Management
With that in mind, I go back to my original basket of Cannabis Stock picks:
Cara Therapeutics ($CARA)
GW Pharmaceuticals ($GWPH)
I eliminated Aphria earlier in the conversation. Canopy Growth Corp and Mettrum are grey market stocks… that’s like the penny stocks of penny stocks… no thanks, eliminated! That leaves Cara Therapeutics and GW Pharmaceuticals.
With the goal of finding…
THE #4IR Cannabis Company to Disrupt traditional medicine.
Quick recap from my past research: is this still true?
Cara Therapeutics ($CARA)
- Cara Therapeutics ($CARA) is an emerging biotechnology company focused on developing novel drugs to treat diseases associated with pain, inflammation, and pruritus
- Unlike $GWPH and $INSY, $CARA is a clinical-stage biopharmaceutical company
- Because of the developmental nature of the business, the company is quite a bit smaller than its peers
- $CARA is developing drugs that help reduce pain
- However, the company’s drugs are focused on the body’s peripheral nervous system, alleviating pain by selectively targeting kappa opioid receptors, a human protein… and it has a first mover advantage in this space
- Pain medication CR845 is the company’s lead candidate
- But its other pain drug, CR701, which studies the effect of marijuana (cannabis), has shown considerable promise in pre-clinical testing
- The company is looking to move the drug into a phase I clinical study (Source:caratherapeutics.com, last accessed October 2, 2015)
- The company has a market cap of $390 million, $43.2 million in cash, and no long-term debt
- The company has a more diverse and bigger portfolio of compounds focused on targeting immune cells (CB2) and unique opioid analgesics than any of its peers
- With the development of marijuana-based analgesics expected to shift toward CB2 receptors, Cara Therapeutics, with its first-mover advantage, is set to benefit
- Being bullish is an understatement for what analysts think about shares of Cara Therapeutics
GW Pharmaceuticals ($GWPH)
- For now, let’s take a quick look at the granddaddy of medical marijuana companies, GW Pharmaceuticals ($GWPH)
- Often referred to as the “best in breed,” GW Pharma was one of the first companies to enter the pharmaceutical cannabinoid space
- The company focuses on developing and commercializing cannabinoid prescription medicines
- A Nasdaq-listed company, $GWPH is probably the safest way to invest in medical marijuana right now
- “GW Pharmaceuticals has the strongest Wall Street coverage and its shares are covered by Bank of America and Morgan Stanley”
- The biopharmaceutical company sports a nearly $2.2 billion market cap and trades over 700,000 shares a day on average
- Has discovered more than five dozen cannabinoids from the cannabis plant
- There are also plenty of reasons to be optimistic about the company’s future with the upcoming potential treatments in its pipeline
- As a result of robust R&D, the company has other promising cannabinoid products in various early and mid-stage clinical trials for the treatment of several diseases and mental disorders, including diabetes and schizophrenia
- The company expects to release results from those trials within the coming year; Any successes should cause the stock to soar
- GW Pharmaceutical’s primary product is Sativex, a spray used for the treatment of spasticity due to multiple sclerosis
- The company is also in Phase III clinical development of Sativex for treating cancer pain
- Sativex is already approved for use in Europe and New Zealand
- What’s more, it has another product in its pipeline called Epidiolex for treatment of various conditions from epilepsy and diabetes to Dravet syndrome and schizophrenia
- Not yet approved anywhere, but the FDA has granted it an orphan drug designation, loosely pointing to the need
- This unique status, given to drugs that treat rare diseases, gives GW Pharmaceuticals benefits such as seven-year marketing exclusivity in the United States
- The company is already generating revenues (about $30 million of the last year), while maintaining a solid balance sheet
- With a cash balance of $277.72 million, nearly negligible debt of $15.43 million and no dividend payments to make, GW Pharmaceuticals is in position to make significant investments in research and development to ensure the success of its cannabis-based drugs
- This company should not only survive but also deliver outsized capital appreciation
- If you’re looking for a place to start investing in marijuana, you would be hard-pressed to find a better first investment than $GWPH
- Hilary Bricken, an attorney with Seattle-based law firm Harris Moure, and contributor to its Canna Law Blog, agrees that GW Pharmaceuticals stands out in the crowded field of penny pot stocks
- And several well-known investing firms, such as Fidelity, Federated ( ), Janus ( ) and BlackRock ( ) are among the top holders of the stock
- Of course, the company is still very risky: Like many small biotechs, it’s losing money, but it’s a beacon of safety compared to the rest of the pot sector
There’s a significant need for new painkilling medicines and cancer treatments that mainstream pharmaceutical giants such as Johnson & Johnson and Merck & Co. aren’t meeting
Digging in… Cara Therapeutics ($CARA)
Novel Peripheral Kappa Opioid Product Candidates: “Efficacy Without Opioid Side Effects”
Our most advanced product candidate, intravenous, or I.V., CR845, has demonstrated significant pain relief and a favorable safety and tolerability profile in three Phase 2 clinical trials in patients with acute postoperative pain. We are also developing I.V. CR845 in uremic pruritus, and as well as an oral version of CR845, or Oral CR845, for acute and chronic pain.
CARA POSSESSES PERIPHERALLY-SELECTIVE MOLECULES THAT INTERACT WITH KAPPA OPIOID RECEPTORS PRESENT ON PERIPHERAL, PAIN-SENSING NERVES.
These compounds exhibit potent analgesic and anti-inflammatory properties in animals. Unlike currently marketed opioids, these new compounds do not produce inhibition of intestinal transit (ileus), do not induce life-threatening respiratory depression, nor do they elicit signs of addiction or euphoria in animal models.
The degree of kappa receptor selectivity displayed by CR845 ranks as best-in-class compared to all other previously developed compounds for this therapeutic target. Moreover, CR845 displayed no significant affinity for any other non-opioid known receptors.
As of June 30th, 2016
- Cash and Marketable Securities: $84.8M
- Net Loss: Q1: 2016: $13.1M
- IPO completed 2/5/2014 – $56M: Follow-On Offering 7/29/15 – $75M
OK… now compare that to the numbers from a presentation in March, 2016:
- Cash and Marketable Securities: $96.2M
- Net Loss: Q1: 2016: $10.7M
So in three months Cara spent $12M AND net loss increased by $3M. When will they finally become profitable? … Once their therapies go to market.
Net Loss: The Company reported a net loss of $13.1 million, or $0.48 per basic and diluted share, for the second quarter of 2016 compared to a net loss of $5.7 million, or $0.25 per basic and diluted share, for the same period of 2015.
Revenues: The Company recognized $79,000 of clinical compound revenue during the second quarter of 2016 from the sale of clinical compound to Maruishi Pharmaceutical Company Ltd. (“Maruishi”). For the second quarter of 2015, collaborative revenue was $874,000, comprising revenue that had been deferred upon entry into the license agreement with Maruishi.
Research and Development (R&D) Expenses: R&D expenses were $10.8 million in the second quarter of 2016 compared to $4.7 million in the same period of 2015. The higher R&D expenses in the second quarter of 2016 were principally due to a net increase in direct pre-clinical studies and clinical trial costs, consultant services in support of pre-clinical studies and clinical trials, an increase in payroll and related costs for R&D personnel, the acceleration of amortization of the leasehold improvements at the Company’s Shelton, Connecticut facility prior to the relocation of the Company’s corporate headquarters to Stamford, Connecticut in May 2016 and increased rent, including rent expense for the Stamford lease for the second quarter of 2016 and the remaining rent payments due for the Shelton lease through its term.
General and Administrative (G&A) Expenses: G&A expenses were $2.6 million in the second quarter of 2016 compared to $1.9 million in the same period of 2015. The increase in the second quarter of 2016 was primarily due to increases in payroll and related costs, in franchise taxes and in rent and the acceleration of amortization of the leasehold improvements, as noted above.
Other Income: Other income was $172,000 of interest income and dividends earned on cash and cash equivalents and marketable securities during the second quarter of 2016 compared to $13,000 of interest income during the same period in 2015. The increase in the second quarter ended June 30, 2016 was primarily due to our investments in marketable securities in the 2016 period but not in the 2015 period, as well as higher interest rates on a higher average balance of cash and cash equivalents and marketable securities in 2016 as a result of the Company’s follow-on offering of common stock, which closed in August 2015.
Cash and Cash Equivalents and Marketable Securities Position: As of June 30, 2016, cash and cash equivalents and marketable securities totaled $84.8 million compared to $106.7 million at December 31, 2015. The decrease in the balance of cash and cash equivalents and marketable securities primarily resulted from $21.3 million of cash used in operating activities.
Based on timing expectations and projected costs for current clinical development plans, Cara expects that its existing cash and cash equivalents and available-for-sale marketable securities as of June 30, 2016 will be sufficient for the Company to fund its operating expenses and capital expenditure requirements through the end of the first quarter of 2018, without giving effect to any potential milestone payments under existing collaborations.
Initial Thoughts: A hidden gem?
February 26, 2016
Cara Therapeutics (CARA) stock is down by 36.02% to $4.42 on heavy trading volume on Friday, after the FDA placed a trial for the company’s postoperative pain treatment on hold. The Shelton, CT-based clinical-stage bio-pharmaceutical company announced on Thursday that the FDA placed the Phase 3 trial on hold in order to conduct a safety review. So far today, 1.23 million shares of Cara have traded, well above the company’s 30-day average of about 391,000 shares.
That was an ugly day for Cara Therapeutics, but they’ve since recovered on strong sentiment for Marijuana stocks…
But Cara Therapeutics is still WAY off their highs… a potential value?
Some people missed this in the earning report August 4th:
- In June 2016, resumed patient enrollment for the adaptive Phase 3 trial of I.V. CR845 in postoperative pain. The trial continues as a three-arm trial testing two doses of CR845 (1.0 ug/kg and 0.5 ug/kg) versus placebo.
So the stock dropped 36% on the news that a hold was put on the trials, and then the trials come back online and we see a pop late July on strong buying, but I would have expected stronger upward momentum… is this an opportunity? The stock has just been floating in the same range for over a month now.
Digging in… GW Pharmaceuticals ($GWPH)
GW now occupies a world leading position in cannabinoid science. The Company has developed a proprietary and validated cannabinoid technology platform and formed constructive collaborations with leading international scientists, universities and institutions in the field.
Sounds like #4IR Innovation to me…
Also, and I’ve mentioned this before in my articles on #4IR Innovation and Disruption: a company’s website has to look and feel Fourth Industrial Revolution as well. And I can tell you that the website for GW Pharmaceuticals is WAY more user friendly and content rich than Cara’s website. Not that Cara’s website is bad… I’m just saying that if the final decision between these two companies is close, the website could push me over to investing in one over the other.
GW Pharma’s current research and development pipeline includes treatments for:
- Psychiatric Illness, and
- Inflammation (an area of personal interest)
Several GW cannabinoids have shown anti-inflammatory properties in a number of models of inflammation, notably of the gut and the joints, and have the capacity to inhibit the production in tissues of chemical mediators of inflammation. In addition to the first clinical study in ulcerative colitis, GW is conducting pre-clinical research exploring the effect of cannabinoids on various models of airways inflammation, including chronic cough, and inflammatory skin diseases.
This sounds like a possible treatment for psoriasis and psoriatic arthritis, even thought it’s not billed that way. This could mean MAJOR disruption, since the main pharmaceuticals for these diseases right now are biological injections that work by ruining your immune system, such as Embrel.
In addition, GW Pharma is pioneering research in CBD for mental illness. My understanding through past research is that CBD is the future of medicine for Cannabis… not everyone wants to get high, but everyone DOES want to feel good.
GW’s extensive research into the pharmacology of cannabinoids continues to yield highly promising data and new intellectual property across a range of therapeutic areas. GW continues to invest in research to accelerate further growth and value creation through the development and licensing of several new cannabinoid drug candidates.
Remember when I was looking for a Cannabis producer?
GW’s team includes experts in Cannabis breeding. In the genetic model used, the cannabinoid content of each chemical phenotype (chemotype) is controlled by four independent loci. By manipulating the genes at these four positions, our scientists can precisely control the cannabinoid composition of a plant. This is explained in the diagram below:
Not exactly a producer, but better: innovation in breeding…
Licensed and controlled cultivation:
- GW is licensed by the UK Home Office. Cultivation of GW’s first Cannabis plants began in August 1998. GW’s botanical research team continues to develop new chemotypes. These will produce the raw material bases for future pharmaceutical research.
- Cultivation capability has been increased to cater both for commercial supply of our first product Sativex® and research quantities of novel chemotypes for the production of other medicines. Pharmaceutical production capacity has also been scaled up, both in-house and through external contractors, to supply tens of thousands of patients.
- High levels of chemical consistency are important in applications made to medical regulatory authorities. Routine laboratory analysis demonstrates that GW’s botanical raw materials meet strict specifications of quality.
So right now I’m liking what GW Pharma has going on…
“We have now reported two positive Phase 3 trials for Epidiolex and are on track for an NDA filing that includes both the Dravet syndrome and Lennox-Gastaut Syndrome indications. We believe that these Phase 3 data show that Epidiolex has the potential to provide a robust and clinically meaningful reduction in seizures in these highly treatment-resistant populations together with an acceptable safety and tolerability profile,” stated Justin Gover, GW’s Chief Executive Officer.
“Our recent successful financing has provided GW with the necessary capital to move forward with confidence in preparing to execute a highly successful launch.
Sounds like a potential growth opportunity to me. However, they’re burning through cash pretty quickly:
- Loss for the nine months ended 30 June 2016 of £46.7 million ($62.2 million) compared to £32.3 million for the nine months ended 30 June 2015. This increased loss primarily reflects investment in the Epidiolex Phase 3 pivotal trials program.
- Cash and cash equivalents at 30 June 2016 of £191.2 million ($254.3 million) compared to £234.9 million as at 30 September 2015. Subsequently in July 2016 a follow-on offering raised total net proceeds after expenses of $273.1 million (£206.4 million).
But they’re also burning through their Clinical Trials… and that’s they KEY with biotech companies: getting to market.
AND, Epidiolex has already received a fast-track Orphan drug designation from the FDA for use in treating Dravet syndrome… that’s a big deal.
Initial Thoughts: Why not invest in both?
I still can’t make a final choice based only on the information above. Why? Because they serve two totally different markets.
- When we look at the pipeline for Cara, we see their focus is on post-op pain medicine to replace opiates, an addiction epidemic in America right now. Clearly, an opportunity for disruption.
- And then we have GW Pharma: their pipeline focuses on painful movement related diseases such as epilepsy and Dravet Syndrome. I’ve witnessed first hand what Cannabis can do for people suffering with epilepsy… amazing results.
- In terms of pipeline progress, GW Pharma is clearly ahead. They should be: they’re massive compared to Cara. So GW Pharma stands to benefit more in the near futures, but also has more analysts covering it. They already know this, and the share price should reflect this thought. If not, this could a possible value opportunity.
- Cara is a much smaller company with less analyst coverage… a greater potential for asymmetrical returns.
I need to look at the charts:
3-year chart: Here we see GW Pharma with monster gains over the last three years: +721%. That’s some serious heat. Compare that to Cara Therapeutics, with a return of -52% over the same period. Obviously $CARA hasn’t heated up yet, while everyone LOVES GW Pharma. I’m neutral here… GW Pharma deserves the attention: they’re “best in class,” but are they overheated? And $CARA… are they just off the grid? Possible value?
1-year chart: GW Pharma and Cara Therapeutics tracked each other with a high level of correlation for the first half of the year. Then in March things changed with GW Pharma making up much of its earlier losses, while $CARA continued its downward spiral. $GWPH is down almost 20% for the year while $CARA has gotten SMASHED… down 72% over the same period.
YTD chart: Clearly, sentiment has changed for $GWPH, showing a gain of +23% since January vs. the -63% DECLINE for $CARA over the same period. Sentiment for Marijuana stocks is up, but faith in $CARA is not.
3-month chart: Finally a shift in sentiment for $CARA! +9.6% over the last three months! GW Pharma shows a gain of +10.3% over the same period. When did the shift occur for $CARA? When their Phase III trials started back up around July.
1-month chart: $CARA is rippin! Up +21% in the last month, while $GWPH shows a loss of -11%. Why the loss for $GWPH? I think it’s just some profit taking from all the gains over the last six months. If $CARA follows a similar track to $GWPH, and considering that $CARA just started its run, we could hope for another four to five months of hot gains on $CARA.
I see the potential to disrupt the pain medicine industry, to replace opiates, as a bigger chance for larger returns than innovation in medications for movement disorders such as epilepsy. Why? Because EVERYONE is in pain, that’s why. I can see LOTS of people choosing to use a cannabinoid-based pain killer over drinking alcohol or taking medicines that destroy the stomach and lead to addiction.
And considering that the run for Cara Therapeutics has just started, I see the greatest potential for gains in $CARA.
Therefore, my choice for THE Fourth Industrial Revolution Cannabis Company to Disrupt Traditional Medicine is…
- Cantor Fitzgerald Healthcare
- GW Pharmaceuticals Research Papers
- Cannabidiol enhances anandamide signaling and alleviates psychotic symptoms of schizophrenia
- Canaccord Healthcare
- GW Pharmaceuticals reported second quarter financial results
- Here’s Why Cara Therapeutics (CARA) Stock is Plummeting Today
- #4IR: A Case for Cannabis?
- Marijuana Stocks: Puff, Puff, Pass? (Part 5) The Stocks…
- Marijuana Stocks: Puff, Puff, Pass? (Part 7) Creating a Marijuana Stock Index
Check out past issues!
- Marijuana Stocks: Puff, Puff, Pass? (Part 1) What Happened?
- Marijuana Stocks: Puff, Puff, Pass? (Part 2) Risk Factors
- Marijuana Stocks: Puff, Puff, Pass? (Part 3) Politics & Presidential Election 2016
- Marijuana Stocks: Puff, Puff, Pass? (Part 4) Why Invest?
- Marijuana Stocks: Puff, Puff, Pass? (Part 5) The Stocks
- Marijuana Stocks: Puff, Puff, Pass? (Part 6) Oh! Canada
- Marijuana Stocks: Puff, Puff, Pass? (Part 7) Conclusion
- Marijuana Stocks: Puff, Puff, Pass? (Part 8) Profiling Aphria
- Aphria and Medical Marijuana News July (wk3) 2016
- #4IR: A Case for Cannabis?
- THE #4IR Cannabis Company To Disrupt Traditional Medicine
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