GW Pharmaceuticals (GWPH - Free Report) is the $4 billion biotechnology company with the first FDA-approved cannabis-derived drug. Epidiolex was created and tested starting four years ago for the treatment of two rare forms of childhood epilepsy and launched commercially in November.

On August 6, GW Pharma delivered a bigger sales beat for Epidiolex than even the most optimistic analysts were projecting.

GWPH crushed the sales number for the treatment of two rare forms of pediatric epilepsy with $68 million vs. consensus of $45M. 

Analysts have been busy raising estimates and price targets (PT) after this big sales beat. Here's a sample...

Morgan Stanley: Analyst David Lebowitz raised his 2019 Epidiolex sales estimate to $291M from $165M after GW Pharmaceuticals report sales that "easily exceeded consensus" in the drug's second full quarter on the U.S. market. The analyst, who noted that significant adoption from adult patients continues and management continues to anticipate dose to increase as physicians become more comfortable administering, raised his price target on GW Pharmaceuticals shares to $238 and keeps an Overweight rating on the stock.

Oppenheimer: Analyst Esther Rajavelu raised her price target for GW Pharmaceuticals to $239 from $234 after the company reported Epidiolex revenues higher than estimates, representing 104% sequential growth, driven by new patients, favorable reimbursement, and increasing use among adult epilepsy patient in the quarter. The analyst reiterates an Outperform rating on the shares.

Stifel Nicolaus analysts raised their price target in a nominal gesture to $228 from $227. The team led by Paul Matteis was not that surprised by the sales beat given their extensive physician survey work that I shared with you last week. Here is a summary of their call...

They reiterate their Buy rating on impressive 2Q19 Epidiolex sales of $68MM, which were ~50% better than consensus of $44MM. Looking ahead they raise their 3Q/4Q Epidiolex estimates, and remain optimistic that the launch can continue to beat expectations into the latter half of the year as they believe management's guidance is conservative. 

And here's the BofA/ML note, reiterating their $218 PT...

GW Pharma also relayed data on rapid and encouraging payer coverage decisions, including over 90 percent of all U.S. lives now covered – 65 percent of which have either Prior Authorization (PA) to indication or less restrictive.

The insurance reimbursement factor is extremely important as doctors may choose Epidiolex for their patients but payers may not have fit cannabinoid medicines into their approved protocols yet. We'll come back to this issue in a moment.

A Cannabis Drug Success 20 Years in the Making

GW Pharma was founded in the UK in 1998 by two physicians, Geoffrey Guy and Brian Whittle. Their mission right from the start was to research and develop cannabinoid medicines, with particular emphasis on ailments of the central nervous system (CNS).

In 2010 they achieved approval in the UK for the first cannabinoid treatment for Multiple Sclerosis. This long track record of success gave US regulators confidence in the science and R&D of GW.

When the FDA approved Epidiolex in June of 2018 for Dravet syndrome, they called it an "important scientific advance." And this paved the way for the US Drug Enforcement Agency (DEA) to move the drug to the safest level in the controlled substance classification system.

This is important because marijuana itself remains a Schedule I drug which means it is classified as having little medicinal value and could be dangerous and/or addictive.

With 3.4 million U.S. patients with epilepsy, including approximately 470,000 children, Dravet syndrome and Lennox-Gastaut syndrome represent two of the most difficult-to-treat epilepsy syndromes.

And Epidiolex, after making a believer out of the FDA and patients in 4 years of clinical trials, is on a mission to educate doctors and families world-wide. Consequently, the first approved cannabinoid medicine is seeing sales estimates rise rapidly as other CNS health indications could be served by the GW pipeline. Some investment bank analysts see sales as high as $750 million for the company in 2020.

That would represent a 5000% revenue ramp in just 2 years from 2018's $15 million and means the GW pipeline could be poised for "blockbuster" status, or potentially worth at least $1 billion in annual sales.

While Epidiolex will be the main sail in this ascent to blockbuster status, the GW pipeline is still very important in terms of innovation. In May, the company also announced positive Phase 3 data in tuberous sclerosis complex (TSC) and GW plans to submit an New Drug Application this year. 

The CBD Free-for-All

There are over 100 cannabinoid compounds in the marijuana plant that could be used for medicinal research. In a sense, GW Pharma could be seen as an important trail blazer with its successful approval and launch of Epidiolex. 

In two investor presentations I did for Zacks followers before the GW earnings report, I emphasized this "trail blazer" role and also the significance of insurance companies as key partners in the patient-physician-payer alliance.

While there are over 20 FDA-approved epilepsy drugs on the market, even the ones for orphan conditions like Dravet and Lennox-Gastaut syndromes, the two that Epidiolex can treat, don't work for every family.

So for patients and physicians to have the flexibility from payers to try the new cannabinoid treatments is a tremendous opportunity for all, including GW.

The other larger issue I've raised is that these stakeholders don't want to look for medical solutions in the wild west of CBD products now available on the internet without a prescription. For young children with specific diseases, there is "no supplement" for the tested and regulated efficacy, safety, and quality of a doctor-prescribed dosage.

To wit, when Justin Gover, the CEO of GW Pharmaceuticals, was on CNBC's Mad Money after the company's February report he explained to host Jim Cramer that "Epidiolex is different from other CBD options."

"We do real science and produce medicines with safety and efficacy... Epidiolex is not marijuana, it is CBD approved by the FDA. We're only reporting two months of sales, so some caution is warranted... we're at the beginning of the journey with Epidiolex and looking at other uses for it."

I have been telling long-term healthcare investors for months that this is a stock to buy on every dip toward $140. This will be one to accumulate on pullbacks as the science and the sales have proven worthy of a blockbuster trajectory.