Should Big Pharma Buy Into the Medical Marijuana Industry?

Source: Flickr user Mark

Few stories were as captivating to investors as medical marijuana in 2014. The promise of using marijuana to treat common conditions like cancer pain and uncommon indications like epilepsy created a flurry of investor interest that sent shares in marijuana stocks soaring.

However, just because medical marijuana's use is intriguing doesn't mean that these companies will deliver on investor's optimism. Most marijuana drugmakers are small companies that may struggle to come up with the financing necessary to usher treatments through expensive clinical trials. That could suggest that they need to ink licensing deals or be acquired by big pharmaceutical or biotechnology companies. Whether or not big drugmakers would be interested in pursuing such opportunities is an important question, so we asked two Motley Fool analysts for their opinion. Read on to learn whether they think big cap companies should buy into the medical marijuana industry.

Brian Orelli: Should big pharma get into the medical Pacific yew tree industry? How about medical poppy business?

Trick question. They already are.

Bristol-Myers Squibb's (NYSE: BMY  ) cancer drug Taxol was discovered in the Pacific yew tree. Opiate pain killers such as morphine and codeine are found in opium poppy. There are plenty of other examples of useful drugs that were derived from plants as well.

It's pretty clear there are useful chemicals -- cannabinoids called CBD and THC -- in marijuana. GW Pharmaceuticals' (NASDAQ: GWPH  )  Sativex, which is a mixture of CBD and THC, is approved in a few countries to treat spasticity in patients with multiple sclerosis and cancer and its CBD-based drug candidate Epdiolex appears to be helping pediatric epilepsy patients without any other options.

There are certainly risks associated with cannabinoids, but for indications where there's a high risk of death and no other options, the risks become secondary to the benefits.

I don't see any inherent reason why big pharma shouldn't be trying to study the same pathways except for the stigma of marijuana. Companies could get around the issue by synthesizing the active compound directly rather than deriving it from the plant. AbbVie's (NYSE: ABBV  ) Marinol, for instance, is synthetic THC, which is FDA approved to increase appetites of patients with AIDS and is also used off-label for cancer patients.

Leo Sun: Investing in medical marijuana doesn't make sense for the biggest pharma companies because it's simply not that profitable.

For example, GW Pharmaceuticals' (NASDAQ: GWPH  ) flagship cannabinoid medicine, Sativex, has been approved or recommended for approval in 24 countries as a treatment for severe spasticity caused by multiple sclerosis. Despite that impressive geographic reach, Sativex only generated £3.4 million ($5.3 million) in revenues in the first nine months of fiscal 2014.

GW's pipeline of treatments includes drugs targeting potential type 2 diabetes and schizophrenia indications. While there are a number of interesting opportunities in its pipeline, it's still too early and unproven for me to feel confident in its pricey valuation -- over 20x trailing-12 month revenue.

And with cannabinoid drugs like Sativex not selling well, combined with pricey valuations for current so-called 'marijuana stocks', I don't see a compelling reason for big pharma to throw money into acquiring these drugs or their developers. Big pharma needs, well, big revenue streams to move the needle -- and these cannabinoid drugs just haven't provided that, at least not yet.

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Brian and Leo do not have positions in the companies mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Marijuana firm's arrival stirs fear of clinics-for-hire

A New York company is putting down roots in Minnesota by building up a network of doctors and clinics to put patients in line for medical marijuana — a business model that state officials had hoped to avoid.

MarijuanaDoctors.com is coordinating with doctors in Minnesota to set up clinics designed to give patients the sign-off required to register with the state to buy the new medicine. The first clinic, in Bloomington, filed its business registration forms this week. The company's chief operating officer, John Nicolazzo, said three others will get started on Monday, with a dozen total planned.

Nicolazzo told The Associated Press on Thursday the company is merely trying to fill a void in Minnesota, where many doctors, clinics and hospitals are wary of taking part in registering patients for an expected July launch. His company has already done much the same in other states preparing medical marijuana programs.

But the state is on the lookout for quick-approval operations that may skirt the state law meant to ensure patients are certified to get medical marijuana only from doctors with whom they have a medical history. One doctor helping Minnesota write regulations for its program said he thought the clinics spearheaded by MarijuanaDoctors may be "preying upon anxious people who want an answer today."

Nicolazzo rejected the suggestion that the clinics working with his company would violate any state law.

"Without us, there would be literally thousands of patients who would not be able to locate doctors that are willing to write a medical cannabis rec," he said in an interview. "Without a company out there that is educating doctors ... this program wouldn't see the light of day."

MarijuanaDoctors itself is not applying with the state to certify patients, but working in the background. The Minnesota facilities coordinated by Nicolazzo's company would operate much like the 486 doctors and clinics MarijuanaDoctors has partnered with nationwide.

The company provides initial startup help, access to a backend patient scheduling system and, in some cases, some marketing assistance. In turn, the clinics pay between about $300 and $900 in monthly fees, Nicolazzo said.

Nicollazo said MarijuanaDoctors worked hard to follow Minnesota law. He said each of the 12 groups his company is working with has a specialist in one of the nine conditions that qualify for the program.

The first to pop up was the Minnesota Certification Clinic in Bloomington. Its website — promising "convenient" approval for the program — provided a glimmer of hope for Shelly Rapp. After her 18-year-old son Scott's neurologist declined to fill out the necessary forms to buy medical marijuana to treat intractable seizures, it seemed promising.

But a high charge -- $250 for the first appointment -- and questions about whether the state has approved the clinic has her on edge about the appointment she scheduled later this month.

"If I can get a certification, I absolutely will," she said. "If it's not legitimate, there's no way."

A person who identified himself as one of two state-licensed physicians behind the Minnesota Certification Clinic, but would not give his name, declined an interview with the AP on Thursday.

Manny Munson-Regala, an assistant commissioner at the Minnesota Department of Health, said the state is still reviewing applications from health care providers but couldn't confirm whether the Minnesota Certification Clinic — or any specific group — was still pending.

The state wants to ensure that doctors giving patients the go-ahead are taking care of them in the long term, and not providing "certifications for hire," Munson-Regala said. He urged patients seeking a doctor's approval to ask any provider whether they have been OK'd by the state before paying money at an appointment.

Dr. Charles Reznikoff, a physician who helped Minnesota write its rules for the program, said Marijuana Doctors' model clearly violates the spirit of Minnesota's law. He cautioned patients anxious to try medical marijuana not to leave their doctor in order to get another's approval.

"It shouldn't be just a one-stop visit to be certified for cannabis, and then 'See ya later,'" he said. "Don't leave a doctor you otherwise like because of this. It won't be worth it."

Online research of MarijuanaDoctors and top executives found that four company employees, including Nicolazzo, were arrested in Nassau County, New York, last year after police found marijuana and cocaine in their company van during a traffic stop.

One employee was later fired for carrying the cocaine, which Nicolazzo said the company's executives didn't know about. Nicolazzo said he and another co-founder each served community service for having marijuana.