2 Under-the-Radar Pharma M&A Targets for 2018

Many analysts are looking for a good year for biopharma stocks in 2018. Some of it’s just general optimism at the beginning of the year, but others are pointing to the changes to the tax code that will eventually free up a lot of corporations’ cash. Another area that is taking an odd hop is cannabis-related stocks. U.S. Attorney General Jeff Sessions recently announced the U.S. Justice Department will more strongly enforce federal laws regarding marijuana. This has cannabis growers, dispensaries and medical marijuana users up in arms, although it may have unintended consequences, pushing more attention on states’ rights and a possible federal movement toward legalization.

TheStreet recently looked at two biopharma companies that are working in the cannabis-based drug research arena.

1. GW Pharmaceuticals

Based in Cambridge, UK, GW’s lead product candidate is Epidiolex (cannabidiol), being developed to treat rare and catastrophic forms of childhood-onset epilepsy. On Dec. 29, 2017, the company submitted a Marketing Authorization Application (MAA) to the European Medicines Agency (EMA) for Epidiolex as adjunctive treatment for seizures associated with Lennox-Gastaut syndrome (LGS) and Dravet syndrome. Both are forms of childhood-onset epilepsy.

The drug received Orphan Designations from the EMA for LGS, Dravet syndrome, West syndrome and Tuberous Sclerosis Complex. In Oct. 2017, it completed a rolling NDA submission to the U.S. Food and Drug Administration (FDA) for seizures linked to LGS and Dravet syndrome. The FDA granted it priority review.

Jason Spatafora, co-founder of marijuanastocks.com, told TheStreet that GW Pharmaceuticals stock was volatile last year and should be seen as "more of a trade than an investment. They could get bought out unless the company develops more efficient drugs. At this price, I would be taking a profit."

In December, Goldman Sachs upgraded the company stocks to "buy" with a price target of $174.

Michael Berger, founder of Technical420, which researches cannabis stocks, told TheStreet, "The company has several catalysts for growth and we continue to view GW as an acquisition target. GW has an attractive valuation, a deep pipeline of products that are in advance stages of FDA testing and a significantly stronger balance sheet after a $225 million raise. We are bullish on the company’s execution strategy and are favorable on its growth prospects."

2. Insys Therapeutics

Headquartered in Phoenix, Arizona, Insys utilizes proprietary spray technology to develop pharmaceutical cannabinoids. On Dec. 26, 2017, the FDA granted Fast Track designation to its cannabidiol (CBD) oral solution to treat Prader-Willi syndrome. Prader-Willi syndrome (PWS) is a rare genetic disorder marked by insatiable appetite in children that leads to obesity and type 2 diabetes. There are also issues of cognitive and developmental delay. The company expects to begin its clinical development program late in the first quarter of 2018.

2017 was not a good year for the company however, as shares dropped below $5, and the company’s founder, John Kapoor, resigned from the company and its board after an arrest for allegedly bribing doctors to prescribe a fentanyl-based cancer pain drug.

TheStreet notes, "The company’s intellectual property is more valuable than the company itself…. Insys could emerge as a takeout candidate and would be a good fit with AbbVie since it makes some similar drugs, he [Spatafora] said."