The cannabis industry is projected to grow rapidly over the next few years, but companies looking to profit from this trend have several headwinds to deal with. One of these issues is the fact that the regulatory environment surrounding cannabis-based products is still a bit shaky. However, one company has managed to develop a cannabidiol-derived product that was approved by the U.S. Food and Drug Administration (FDA), and that company is cannabis-focused biotech GW Pharmaceuticals (NASDAQ: GWPH).

GW Pharma's Epidiolex was approved in June 2018 for the treatment of seizures associated with Dravet Syndrome or Lennox-Gastaut Syndrome (LGS), two rare forms of epilepsy. Despite this regulatory success -- and Epidiolex's successful launch on the market (more on that below) -- GW Pharma's stock has not performed particularly well of late, even taking into account the recent market downturn related to the COVID-19 pandemic. The company's shares are down by 42.5% since Epidiolex was first approved, whereas the S&P 500 is down by about 10% over the same period (at publication). Are investors underestimating GW Pharma's potential? 

Cannabis oil and leaves.

Epidiolex Still Has Room To Grow 

After its summer 2018 launch, Epidiolex starting racking up strong sales. During the fourth quarter of 2019, GW Pharma recorded a total revenue figure of $109.1 million, which was significantly higher than the $6.6 million in total revenue recorded during the corresponding period of the previous fiscal year. Of course, this performance was spearheaded by Epidiolex, with net sales for the quarter of $104.5 million. For the full year, Epidiolex recorded net sales of $296.4 million, and GW Pharma's total revenue was $311.3 million. GW Pharma's crown jewel still has room to grow, though.

In September 2019, the company received the green light from the European Medicines Agency (EMA) to market Epidiolex in Europe. And after launching the drug in Germany in the fourth quarter of 2019, GW Pharma is currently in the process of introducing Epidiolex across other European countries, including the U.K., Spain, France, and Italy.

Furthermore, GW Pharma argues that there's still a large market for Epidiolex within the United STATES. During the company's fourth-quarter earnings conference call, Chief Commercial Officer Darren Cline said: "Market research conducted during the fourth quarter indicated continued high satisfaction by physicians and patients and an intention to prescribe to more patients in their practice." One market GW Pharma intends to target in 2020 is patients living in long-term care facilities. With those opportunities to increase Epidiolex's sales even more, GW Pharma's top line could continue growing at a nice clip.

Another Approval On The Way?

In addition to Epidiolex's opportunities with its existing indications, the drug could earn a key approval soon. On Feb. 3, GW Pharma submitted a Supplemental New Drug Application (sNDA) for Epidiolex as a potential treatment for seizures associated with a rare genetic condition called Tuberous Sclerosis Complex (TSC). This submission was based on a phase 3 clinical trial that showed Epidiolex "significantly reduced difficult-to-treat seizures associated with TSC and improved overall patient condition."

There's a significant need for a treatment for this condition, too. According to GW Pharma, TSC affects 50,000 patients in the U.S. alone -- with that number approaching a million worldwide -- and about 85% of them experience seizures. Of that 85%, more than 60% experience seizures that aren't dealt with effectively via other treatment options. If Epidiolex is approved for this indication, its sales will likely see even better days ahead.

GW Pharma Is Getting Some Competition

It is worth noting that GW Pharma might soon get some competition in the market for drugs that treat seizures associated with Dravet Syndrome. A biotech company by the name of Zogenix (NASDAQ: ZGNX) submitted a New Drug Application (NDA) for Fintepla, a potential treatment for seizures associated with Dravet Syndrome. The FDA is expected to finish the review process and announce its decision regarding Fintepla in June. Zogenix will likely also look to get the green light from the health industry regulator to market Fintepla as a treatment for seizures associated with LGS.

However, while the results of the company's phase 3 study investigating the efficacy of Fintepla as a treatment for LGS were positive, they were not particularly impressive. For LGS patients treated with Fintepla, there was a 26.5% decrease in the number of monthly seizures, compared with a 7.8% decrease for patients taking a placebo. Still, Fintepla may eventually compete with Epidiolex in the market for patients with seizures associated with Dravet Syndrome or LGS, which is something investors should keep in mind.

A Bright Future?

Epidiolex's sales will likely continue to grow, and GW Pharma is looking to develop other cannabidiol-derived products. The company's pipeline includes Nabiximols, which is being evaluated for the treatment of spasticity (muscle pain and spasm) caused by multiple sclerosis (MS), post-traumatic stress disorder (PTSD), and other things.

But do these factors make GW Pharma a buy? In my view, the company's stock will remain highly volatile moving forward, and while GW Pharma has some upside potential -- mainly thanks to the success of Epidiolex -- it remains a bit on the risky side. Risk-averse investors will probably want to watch this one from the sidelines.

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