BUY  PRICE TARGET US$18.00↑ from US$12.00 Price (23-Jan) Ticker US$8.54
Raising Target Price Major catalyst mid-2015 with EGLT-002; higher confidence based on positive EGLT-001
Head-to-head study vs. Purdue major catalyst, expect data by mid-2015 We expect positive results for EGLT-002 (abuse-deterrent oxycodone) by mid-2015 from a Category 3 likeability study head-to-head versus Purdue’s Oxycontin OP, which should move shares substantially higher.
Validation of Egalet’s Guardian Technology from the Category 3 study with EGLT-001 gives us higher confidence for positive results from EGLT-002. Both drugs use a polymer API-based matrix and utilize the same injection molding manufacturing process. Importantly, EGLT-002 uses a two-part abuse deterrent technology, which may be even more robust vs. EGLT-001’s one-part technology.
Finally, the recent withdrawal of Remoxy by Pfizer significantly reduces competitive risk for EGLT-002, which we believe puts the company in a strong competitive position. EGLT-001 demonstrates significantly lower abuse potential vs. MS Contin, positive for EGLT-002 Top-line results from the Category 3 abuse-deterrent human abuse liability (HAL) study for EGLT-001 showed significantly lower potential for abuse vs. manipulated MS Contin, a positive in giving further validation of the company’s Guardian Technology. EGLT-001 continued to retain its abuse-deterrent characteristic after severe manipulation, where there was no statistical difference between the drug liking scores (as measured by Emax) between the intact and manipulated formulation. We remind investors that FDA recently required the company to modify its Category 3 study design, based on the very high level of abuse deterrence seen with EGLT-001. Phase 3 data for EGLT-001, EGLT-002 due 1H16 EGLT plans to initiate a Phase 3 study for EGLT-001 in 1Q15, and for EGLT-002 in 1H15, with Phase 3 data expected for both studies during early 2016. We expect both studies to be positive, given similar AUC for EGLT-001 and EGLT-002 versus MS Contin and Oxycontin OP. We remind investors that AUC is the critical factor in pain relief for longacting opioids.
Increase price target to $18
BUY rating We increase our price target to $18 and maintain our BUY rating as we have higher confidence in seeing a positive result from the Category 3 EGLT-002 study and phase 3 EGLT-001 clinical study. In our NPV valuation, we increase our probability adjustment of EGLT-001 and EGLT-002 to 65% and 50%, respectively, from 50% and 35%

GW Pharamaceuticals BUY Target Price $ 102

GWPH : NASDAQ : US$69.81
Target: US$102.00

GW Pharmaceuticals is focused on discovering, developing and
commercializing cannabinoid pharmaceutical-grade drugs. Lead
product Sativex is an oromucosal spray to treat MS symptoms,
cancer pain, and neuropathic pain, now approved in the EU and
other ex-US territories, and in Ph3 program for cancer pain. It has
two product candidates in Ph2 trials in diabetes and
inflammation, and earlier stage programs for epilepsy and
psychiatric illness.

All amounts in US$ unless otherwise noted.


Life Sciences — Biotechnology
Investment recommendation
Reiterate BUY, raising target to $102 from $65 on addition of
Epidiolex potential in Dravet’s and Lennox-Gastaux to model. We
now add intractable pediatric epilepsy to our model based on the
new Dravet’s IND and clinical path. Our $102 target is based on a
sum-of-the-parts analysis of a pipeline pNPV and EU Sativex DCF.
Investment highlights
 $(0.56) EP/ADS vs consensus of $(0.34); our $(0.34) estimate. Q2
revenue was $12.6M vs. $12.9M consensus; our $13.0M
 Positive FDA guidance meeting, new IND gives major clarity on
clinical path forward. The pre-IND meeting, held Feb 2014,
confirmed investigational CMC standards, the upcoming Phase
2/3 two-part, placebo controlled trial design, and utility of future
open-label safety data. The IND is now open and we anticipate
trial start in H2/14 (details later in the note). Market potential in
Dravet’s and Lennox-Gastaux comprises $62 of our valuation.
 Upcoming catalysts for Sativex in cancer pain, ulcerative colitis
(UC) and Glioma. We think there is strong POC for activity of
THC/CBD in the gut; and we think Ph2 UC trial (data due H2/14)
has a high chance of success with excellent market potential.
First Ph3 data from the US Sativex cancer pain studies are also
due around the end of 2014. Safety data for a Ph1/2 trial in
Glioma are expected on an initial cohort this year