Jazz Pharmaceuticals woos GW with high-premium US$7.2b offer amid maturing medicinal cannabis sector

Jazz GW Pharmaceuticals medicinal cannabis sector US FDA NASDAQ
GW Pharmaceuticals is the first company worldwide to secure US FDA approval for a plant-based cannabinoid medicine.

ASX-listed cannabinoid stocks are poised for a resurgence after global biopharmaceutical company Jazz Pharmaceuticals lobbed a US$7.2 billion (A$9.4 billion) offer for UK-based medicinal cannabis drug developer GW Pharmaceuticals amid a softening regulatory environment.

Ireland-based and NASDAQ-listed Jazz’s US$7.2 billion offer represents a 50% premium to fellow NASDAQ-listed UK-based GW’s stock, which closed at US$146.25 per share on 2 February prior to the offer.

The companies have executed a definitive agreement for Jazz to acquire GW at US$220 (A$288) per American Depository Share.

This equates to US$200 in cash and US$20 in Jazz ordinary shares.

Once the transaction has been completed, it is believed the joint entity will be a leader in the global neuroscience space with strong financials.

GW chief executive officer Justin Gover said the companies held a shared vision of producing “innovative” medicines to address the “significant unmet need” in neuroscience.

“Together, we will have an opportunity to reach and impact more patients through a broader portfolio of neuroscience-focused therapies than ever before,” Mr Gover added.

GW’s cannabinoid appeal

GW is the first company to secure US Food and Drug Administration approval for its cannabidiol drug Epidiolex.

Epidiolex is an oral based CBD formulation designed to be used in treating people suffering from seizures associated with Lennox-Gastaut Syndrome (LGS), Dravet Syndrome and Tuberous Sclerosis Complex (TSC).

In addition to Epidiolex, GW describes its pipeline of other CBD product candidates in the neuroscience space as a “deep” and “innovative”.

Mr Gover said the company has built an “unparalleled” global leadership position in cannabinoid science including launching “breakthrough” treatment Epidiolex.

“We believe that Jazz is an ideal growth partner that is committed to supporting our commercial efforts, as well as ongoing clinical and research programs,” he added.

Meanwhile, Jazz chairman and chief executive officer Bruce Cozadd said acquiring GW will strengthen and broaden the company’s neuroscience portfolio, while diversifying revenue and creating more longer-term opportunities.

“Given the strength of our balance sheet and the meaningful financial drivers of the transaction, we are confident in the value we can deliver to both companies’ shareholders and patients.”

Validation of CBD pharmaceuticals

In Australia, Cannvalate is the country’s largest medicinal cannabis distributor and clinical research organisation – accounting for about 50% of the nation’s cannabis prescriptions.

Speaking with Small Caps, Cannvalate chief executive officer Dr Sud Agarwal said Jazz’s move to acquire GW was the first time big pharma has realised the value in an agile cannabis biotech.

He said the takeover publicly endorses the scientific value of research into novel CBD pharmaceuticals.

“This not only validates the legitimacy of novel cannabinoid research, but also confirms the magnitude of disruption value that lies within the novel cannabinoid space.”

Dr Agarwal added he was “confident” there will be more merger and acquisition activity in the CBD pharmaceutical space.

“There could be quite a rush of calculated speculative investments into companies which hold patents around novel cannabinoid drug technologies.”

Medlab poised to benefit

Commenting on the Jazz and GW transaction, Medlab Clinical (ASX: MDC) chief executive officer Dr Sean Hall said the high premium paid for GW validates Medlab’s own strategy to invest in developing CBD-based pharmaceuticals.

“It also shows there possibly a lot more for ASX investors to gain in the wake of this news as the medicinal cannabis sector matures – considering the differential on the high-premium paid for GW versus the valuations in the local market.”

Medlab is advancing its NanaBis CBD:THC formulation to treat cancer-induced bone pain.

The company collared investigational new drug status for NanaBis from the US FDA last month, which paved the way for NanaBis to be used in a phase III trial in the region – joining the UK and Australia as approved jurisdictions for the study.

“In 2020, Medlab reported successful phase II trial outcomes [with NanaBis], showing 40% reduction in pain, reduced reliance on opioids and improvement in a range of quality-of-life scores,” Dr Hall added.

Medlab is also seeking expanded access approval from the FDA, which, if granted, will enable NanaBis to be sold in the country under compassionate use guidelines.

The phase III trials are expected to start later this year, with Medlab planning to recruit about 360 patients.

Medlab’s aspiration is for NanaBis to be the world’s first registered CBD:THC-based medicine that provides a viable alternative to opioid use for cancer-related pain management.

Takeover follows UN reclassification

Jazz’s high-premium offer for GW follows the UN Commission on Narcotic Drugs’ decision to remove cannabis from its Schedule IV drug classification that includes opioids such as heroin and cocaine and is the world’s most restrictive control category.

The UN’s decision to ease restrictions reflects mounting global recognition of the various therapeutic benefits cannabis can offer.

Positive sign

The high-premium takeover and softened regulatory environment offer advantages to many ASX-listed stocks focused on developing CBD-based pharmaceuticals for treating a range of conditions.

Incannex Healthcare (ASX: IHL) has several promising CBD-based treatments in its pipeline and is already selling cannabis oils through Australia’s special access scheme – achieving record sales during the December 2020 quarter.

The company’s pipeline includes CBD-based treatments for sepsis associated acute respiratory distress disorder which can be a fatal side effect of COVID-19. Other CBD therapeutics have been developed for treating sleep apnoea and traumatic brain injury and have shown promising results in their respective studies.

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