Evolution

S EC U R I T IES www.evosecurities.com 10 June 2005

GW Pharmaceuticals
Mkt Cap £108m Net Cash
170 154 138 122 106 90
J J A S O N D J F M A M Source: JCF

(GWP.L)

Buy

(remains as)

£18m

Price/Target: 96p/160p

Rumours confirmed
The rumours that additional data would be required by the MHRA to approve Sativex have proved correct. This means that Sativex is unlikely to be approved in the UK before mid-2006.

Data from current trial required

Corroborating the report circulating earlier in the week, GW Pharma has been informed that its appeal to the Medicines Commission (MC) to review the Committee on Safety of Medicines (CSM) decision not to approve Sativex has effectively been turned down. Data from the on-going clinical trial will be used to try and help gain approval for the drug next year. The MHRA has yet to confirm that the additional data currently being collected will address all its issues and GW is to have a meeting with the regulators to clarify its requirements. However, the company believes that the many measures it is assessing in the current trial should be sufficient. Moreover, importantly, the regulator has accepted that patient measures of spasticity are valid (remembering that the objectivity of such end-points had previously been questioned). In our update published in February we estimated that there was only a 25% chance of Sativex being approved after the MC meeting, but a 90% chance of the product being approved within the next 12 months (after submission of further data). However, GW has indicated that the new data will not available until ‘Spring’ next year, which means a review by the MHRA is unlikely to be completed until mid-2006. Therefore, the timeline we envisaged has been extended. However, we maintain a Buy recommendation based on the long-term value within the company. Investors will remember that the CSM advised the MHRA (Medicines and Healthcare products Regulatory Agency) that an issue relating to efficacy needed addressing before approval of Sativex could be recommended. Following the initial batch of 46 questions raised by the MHRA in June 2005, in the eyes of the CSM, GW answered all of them except one. The CSM questioned the ‘clinical relevance’ of the data submitted in June 2004. By this, the CSM meant that it was unclear how relevant the measured improvement in spasticity associated with MS (the initial indication for which Sativex has been submitted) actually is to patients (that is, did they actually ‘feel’ better). While some of the secondary endpoints of the spasticity phase III study were not positive, this does not seem to be have been the primary concern of the MHRA. To address the issue, GW undertook a two-pronged approach to try and get Sativex approved; namely, starting a further phase III study (to address the efficacy issue) and appealing to the MC. The MC was tasked with looking
100 Wood Street, London, EC2V 7AN 020 7071 4300

Submission next year

Relevance of efficacy questioned

Two-pronged approach

Evolution Securities

10 June 2005
specifically at the spasticity issue and could not start looking at the issues that had effectively been cleared by the MHRA/CSM already. No immediate cash requirement GW had net cash at the end of May of £16.2m, which we believe is enough to fund the company for almost two years. Therefore, in our opinion, while a fund raising can never be ruled out, there is no immediate need to raise more cash.

Dr Jonathan Senior +44 (0) 20 7071 4355 jonathan.senior@evosecurities.com

Year End 09/04A 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 N e t C a s h Net Cash Cash Burn p -12.3 -7.6 -7.2 £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 34.3 14.5

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