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Evolution X

S EC U R I T IES

www.evosecurities.com 20 June 2005

GW Pharmaceuticals (GWP.L) Buy (remains as)

Mkt Cap £72m Net Cash £18m Price/Target: 64p/160p

170 Interim results
148
126
104
82 The recent disappointment (UK regulator requiring more data), should not
60
J J A S O N D J F M A M J
overshadow GW's achievement in getting a product approved in a major
Source: JCF market (Canada) - a rare occurrence for the UK biopharmaceutical industry.

Credit where credit’s due While recognising that GW Pharma is unlikely to be viewed favourably in the
short-term, the company’s achievement in getting a product approved (and now
launched) in a major market should not be ignored. Placed in historical context,
an approval of an entirely novel new drug (that is, not a reformulated version) has
been achieved no more than a handful of times in the last ten years by the UK
biopharmaceutical industry. Moreover, if products ultimately developed and filed
by out-licensing partners are excluded, the number drops even further.

As we stated in our upgrade earlier this year, we believe there is a 90% chance
that Sativex will be approved in the UK when the further data is submitted.
Therefore, while running the risk of being ‘unfashionable’ in the near-term, we
maintain our Buy recommendation.

More data filed next year The interim results provided little in the way of news with regards to the approval
process for Sativex for spasticity associated with multiple sclerosis (MS) in the UK.
Data from the on-going 280 patient clinical trial will be used to try and help gain
approval for the drug next year (submission expected next Spring). 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).

Sativex; other indications In terms of the rest of the pipeline, the various trials designed to expand the
indications of Sativex remain most important for the company. As stated above,
the drug has now been approved and launched (by Bayer) for general
neuropathic pain associated with MS in Canada. A post-marketing study is due to
start at the end of the year, which will provide additional data for a filing in
Europe. Two studies designed to provide data to support a filing for peripheral
neuropathic pain are due to start soon or are underway. Data from the studies
should be available in the second half of 2006.

Two phase III studies of Sativex are due to report in the near future: for bladder
dysfunction and spinal cord injury.

Evolution Securities 100 Wood Street, London, EC2V 7AN 020 7071 4300
20 June 2005
GW has undertaken one positive study in cancer pain, but is to discuss potential
designs with US and EU authorities (during 2H 2005) before embarking on a
second. Cancer pain was chosen as the first indication to discuss with the FDA
because of the potential sensitivity of the US to cannabis-based medicine.

Product Indication Stage Comments
Sativex Multiple sclerosis
MS spasticity Filed in EU More data required
Trial underway, data Q2 06
MS neuropathic pain Approved in Canada
Post-marketing study Q4 05
MS Bladder dysfunction Phase III Fully recruited, results 1H 2005
Cancer pain Phase III Discussions to start in US and EU
Peripheral neuropathic
pain
Diabetic neuropathy Phase III 280-patient trial started, data 2H 06
Allodynia Phase III 218-patient trial to start, data 2H 06
Central neuropathic pain
Spinal cord injury Phase III Fully recruited, results 1H 2005
Brachial plexus injury Phase II Trial completed
High THC Post-operative pain Phase II No work on-going at present
High CBD Rheumatoid arthritis Phase II
ratios
IBD Phase II Results of IBD study awaited
Neurogenic symptoms Phase II

Methadone Drug dependency Trial in 1H 2005

ADS trial In terms of other projects, the only other one mentioned in the results statement
is the Advanced Dispensing System (ADS), which is initially being developed for
use in methadone rehabilitation programmes (for heroin addiction). The device is
currently undergoing regulatory review ahead of trial of a clinical trial.

Cash call not necessarily round the One of the sequelae of the UK’s decision has been a concern about GW’s cash
corner position. The company reported that at the end of May it had cash of £16.2m,
enough to fund the company until the end of 2006. Clearly, a ‘standard’ equity
fund-raising is always a possibility, but we believe there are other options
available to management. Out-licensing Sativex for the rest of Europe and the
US is a possibility the company is already exploring. However, other possibilities
such convertible debt or even a loan from Bayer (secured against future royalties)
also exist.

No major changes to model The operating loss for 1H 2005 (to March 31) was £6.3m (1H 2004, £8.5m). At this
point in time, we are only making minor adjustments to our figures for the full
year.

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

Year Sales EBITDA PBT adj Tax EPS CFPS Net Cash Net Cash Cash Burn R&D R&D Chg EV/Sales DCF Sensitivity
End £m £M £m % p p £m p p £m % x WACC % Fair Value p
09/04A 0.0 -15.8 -15.7 CR -12.4 -12.3 17.8 16.1 -14.3 -13.9 -9.9 - 16.0 120
09/05E 2.9 -10.6 -10.8 CR -8.4 -7.6 8.6 7.8 -9.2 -11.0 21.1 21.8 15.0 127
09/06E 6.8 -8.3 -8.8 - -8.0 -7.2 9.8 8.9 -8.8 -11.3 -3.0 9.1 14.0 134

Evolution Securities 100 Wood Street, London, EC2V 7AN 020 7071 4300
20 June 2005

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