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S EC U R I T IES www.evosecurities.com 22 February 2005

GW Pharmaceuticals
Mkt Cap £138m Net Cash
220 194 168 142 116 90
F M A M J J A S O N D J F Source: JCF



(remains as)



Price/Target: 126p/160p

Choosing the moment
Despite recent setbacks, given that GW Pharmaceuticals has an ‘approvable’ product, we believe the company offers good value. We are therefore upgrading the stock to a Buy recommendation.
The opinion of the UK regulatory body (MHRA, Medicines and Healthcare products Regulatory Agency) that the clinical relevance of the spasticity data from the Sativex trials was questionable was clearly a blow for GW Pharma. However, what appears to be a perverse decision by the UK authority (particularly in light of the Canadian authorities Qualification Notice) should not obscure the potential value of the stock even on a short-term basis. We continue to believe it is a case of ‘when rather than if’ Sativex will be approved (see previous GW Pharma notes), but there are two potential timescales for the ‘when’. Medium risk: Buy between now and May and hope to capture the upside from a potential ‘early’ approval in the summer following the meeting of the Medicines Commission (MC). However, this strategy exposes the investor to the possibility that the MC does not approve Sativex and therefore GW stock will fall and will be effectively ‘dead money’ until the MHRA is presented with new data at the end of 2005 or early in 2006. Low risk: Buy after the Medicines Commission meeting. If the product is approved the revenue from Canada and UK, deals for Europe licensing rights and development in the US provide the upside to the share price. However, the major upside from the UK approval will not be captured. If the product is not approved, and the MC decides it is prudent to wait for the data from the on-going phase III trial, the share price may fall, but it will provide an opportunity to buy stock, with an expectation of an approval in the UK in the following nine months. Upgrading recommendation Using an entirely unscientific methodology, we would estimate that there is a 25% chance of Sativex being approved after the MC meeting (which could be held in May or July this year), but a 90% chance of the product being approved within the next 12 months. On this basis, taking the longer-term view, we are upgrading our recommendation on GW Pharma to a Buy. Continued over…

Still ’when’…

We believe there are two strategies to buying GW

Evolution Securities

100 Wood Street, London, EC2V 7AN

020 7071 4300


22 February 2005

Dr Jonathan Senior +44 (0) 20 7071 4355 jonathan.senior@evosecurities.com Year End 09/04 09/05E 09/06E Sales £m 0.0 2.9 6.8 EBITDA £m -15.8 -10.6 -8.3 PBT adj £m -15.7 -10.8 -8.8 Tax % CR CR EPS p -12.4 -8.4 -8.0 CFPS p -12.3 -7.6 -7.2 Net Cash Net Cash Cash Burn £m 17.8 8.6 9.8 p 16.1 7.8 8.9 p -14.3 -9.2 -8.8 R&D £m -13.9 -11.0 -11.3 R&D Chg % -9.9 21.1 -3.0 EV/Sales x 46.3 19.6 DCF Sensitivity WACC % Fair Value p 16.0 15.0 14.0 120 127 134

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Evolution Securities

100 Wood Street, London, EC2V 7AN

020 7071 4300