Summary List Placement
Jazz Pharmaceuticals is making a $7.2 billion bet on the future of medical cannabis.
The drugmaker said on Wednesday it will acquire GW Pharma, the maker of CBD-based epilepsy treatment Epidiolex, in a cash-and-stock deal. It’s the largest cannabis-industry deal so far.
The deal, in which Jazz Pharmaceuticals will pay $200 in cash and $20 in Jazz shares for each GW share, represents a 50% premium on GW’s Tuesday closing price — a strong signal that the pharmaceutical giant is bullish on the future of cannabis-based medicines.
The news sent stocks in the cannabis sector soaring on Wednesday morning, with GW shares surging over 46%. The deal is expected to close in the second quarter of this year.
Analysts from the investment bank Stifel called the deal an “outstanding outcome” for GW Pharma in a Wednesday morning note.
In 2018, GW was the first company to receive FDA approval for a cannabis-based drug, Epidiolex. The drug, which is essentially an ultra-high dose of cannabidiol, or CBD, is designed to treat seizures linked with two rare forms of childhood epilepsy, Lennox-Gastaut syndrome and Dravet syndrome.
Cannabis is considered a Schedule I drug by the US federal government, a class of drugs reserved for those with no accepted medical use and a high potential for abuse. Regulators moved Epidiolex to Schedule 5, similar to codeine-containing cough syrup.
While CBD has since become a widely used consumer product, appearing in everything from lattes to skincare products, Epidiolex is so far the only FDA-approved cannabis-derived drug.
A ‘new era’ for cannabis-based drugs
Jazz CEO Bruce Cozadd said Epidiolex has “near-term blockbuster potential” on a Wednesday morning call with investors, adding that neuroscience is a key focus area for the company.
“We think this is just the beginning for Epidiolex,” GW Pharma CEO Justin Gover said on the call. He added that what GW Pharma has been able to demonstrate over its 20-year history is that cannabinoids — the active compounds in the cannabis plant — are “real and compelling science.”
“We have potential first-in-class candidates across disease states such as autism, schizophrenia, and other neuropsychiatry targets,” Gover said.
Getting a cannabis-based drug approved in the US was an uphill battle, GW Pharma CEO Justin Gover told Insider in an interview in 2019. He called Epidiolex’s approval the start of a “new era” for medical marijuana.
“If one applies the same rigorous standards to cannabis as they do to other drugs, they should be able to get a drug approved,” Gover said.
GW is also conducting Phase III trials for Nabiximols, a potential multiple sclerosis drug containing both THC, the main psychoactive component in cannabis, as well as CBD. The company said in the Wednesday investor call that it expects to submit a new drug application (NDA) to the FDA in the next one or two years. Nabiximols is already approved as Sativex in countries outside the US.
The FDA has approved another THC-containing drug, AbbVie’s Marinol, which treats nausea, vomiting, and lack of appetite associated with chemotherapy and AIDs treatment. That drug contains a synthetic version of THC.
Analysts from the investment bank SVB Leerink said the deal is an “interesting strategic fit” with Jazz’s neurosciences focus, and “adds a platform of innovative cannabinoid product candidates.”
Goldman Sachsand Centerview Partners served as financial advisors to GW, and Cravath, Swaine & Moore LLP and Slaughter and May provided legal advice. Evercore and Guggenheim served as lead financial advisors to Jazz Pharmaceuticals, which also received advice from BofA Securities and J.P. Morgan Securities LLC.
Wachtell, Lipton, Rosen & Katz, Macfarlanes LLP and Arthur Cox LLP served as Jazz’s legal advisors.
The cannabis industry is on a dealmaking tear, a stark reversal from last year
The GW Pharma deal is the latest blockbuster tie-up for the rejuvenated cannabis industry, which has been buoyed by hopes that a Democratically-controlled Senate and White House will lead to relaxed regulations, and perhaps in the most optimistic scenarios, full-scale federal decriminalization or legalization.
To be sure, much of the US cannabis industry exists in a legal gray area, because many of its products are federally illegal. That isn’t the case for GW Pharma.
Many cannabis investors, analysts and other experts told Insider they predicted rapid consolidation in 2021, in a bid for scale as investors return to the industry after a horrid 2020.
In December, Canadian cannabis heavyweights Tilray and Aphria agreed to merge in a deal that would give the combined companies a near $4 billion valuation. And the biggest US cannabis companies, like Curaleaf, TerrAscend, and Cresco Labs, among others, raised nearly $1 billion in January to fuel dealmaking.
Nawan Butt, the portfolio manager of the European Medical Cannabis and Wellness UCITS ETF said he expects dealmaking on the medical side of the cannabis industry to ramp up.
“Today’s events should draw attention to other companies doing work in this sector and the opportunities they are exploring,” he added in an email.