Picture: 123RF/EL ROI
Picture: 123RF/EL ROI

New York — Jazz Pharmaceuticals has agreed to acquire GW Pharmaceuticals, a maker of the first drug derived from the cannabis plant to win approval in the US, for $7.2bn  in cash and stock.

The price amounts to a premium of about 50% over Cambridge, Britain-based GW’s closing price on Tuesday. GW’s US-traded shares gained as much as 49% in Wednesday trading, and Jazz shares declined 3.7%.

Under the terms of the proposed transaction, Jazz will pay $220 per GW American depositary receipt, in the form of $200 in cash and $20 in Jazz common stock, according to a statement from the companies.

GW sells a medication called Epidiolex for children with severe epilepsy that was approved by the US Food and Drug Administration in June 2018. The drug’s active compound, cannabidiol, produces an anticonvulsant effect through its interaction with prominent components of the nervous system. The plants from which the compound is drawn are bred to be low in THC, the chemical associated with getting high.

GW is also in late-stage trials for another cannabis-based product to treat multiple sclerosis, and is working on candidates for autism and schizophrenia.

Jazz has an array of medications for cancer and other conditions and diseases, but is best known for its high-priced narcolepsy treatment Xyrem, which had sales of $1.64bn in 2019. However, with the drug due to lose exclusivity soon, revenue from it was expected to peak at $1.75bn in 2020, according to analyst estimates compiled by Bloomberg.

The deal may lend further legitimacy to a growing segment of cannabis companies that focus on pharmaceutical-grade products. Such approaches are much safer in terms of regulatory risk, and allow the companies access to Europe’s markets. There, cannabis has so far been permitted mostly for medical, rather than recreational use.

Acquiring GW “is an interesting strategic fit with Jazz’s neuroscience focus and adds a platform of innovative cannabinoid product candidates along with a highly specialised manufacturing expertise”, SVB Leerink analysts Ami Fadia and Eason Lee wrote in a note to clients on Wednesday. They have an outperform rating on Jazz shares.

GW’s rigorous approach to developing and producing its products has made the company a much-touted example of the potential for cannabis — which many say is in the early stages of research & development for medical purposes despite its long history of recreational use.

Growing industry

The deal also underlines a growing rift between companies that specialise in naturally vs synthetically derived cannabinoids.

GW competes with a growing list of companies that expect that synthesising derivatives from cannabis plants will be more useful to create predictable, pharmaceutical-grade ingredients, and bears less regulatory risk since there are no marijuana plants involved.

Deal making is also picking up more broadly overall among cannabis companies that focus on medical and recreational use, as the industry anticipates regulatory headway in the US under the new Democratic administration, and is widely expected to consolidate.

Two of the biggest names in cannabis, Tilray and Aphria, agreed in December to combine in a deal valued at about $3.8bn.

Industry experts have predicted that pharmaceutical giants and consumer goods companies might be more interested in making acquisitions in the sector if marijuana becomes legalised nationally in the US.

The cash portion of the GW deal is expected to be funded with a combination of cash on hand and debt. Jazz, which has its corporate headquarters in Dublin, Ireland, had a market value of $8.7bn from the close of trading Tuesday. The proposed deal has been unanimously approved by the boards of both companies and is expected to close in the second quarter.


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