GW Pharmaceuticals, the developer of cannabis-based medicinal products, moved into the black at the interim stage on the back of strong revenue growth, and now expects to be profitable over the full year.

The company made a profit before tax of £3.07m in the six months to the end of March, compared to a loss of £2.67m the year before.

A milestone payment of £2.6m was received in the reporting period from Otsuka for the first recruited patient into the Phase III cancer pain programme, and a £2.5m milestone was received from Almirall upon receipt of pricing approval for Sativex in Spain.

The company has also received an upfront payment of $5m from Novartis, relating to the licensing agreement announced in April covering sales of Sativex in Australia and New Zealand, Asia (excluding Japan, China and Hong Kong), Middle East (excluding Israel and Palestine) and Africa.

Revenue surged by 45% to £16.58m from £11.41m at the interim stage in 2010. Sales of Savitex more than doubled to £1.9m from £0.9m at the halfway stage last year.

Research and development (R&D) fees decreased marginally to £8.7m from £9.5m the year before, reflecting a lower run rate of Otsuka funded cancer pain development expenditure than in the prior period.

Cash and short term deposits at 31 March 2011 increased to £28.3m from £20.4m at the end of March 2010.

"With Sativex now launched in the UK and Spain, an increasing number of additional European approvals and launches for Sativex now expected and the recent agreement with Novartis to commercialise Sativex across a broad region of the world, Sativex should provide GW with a platform for significant growth in the coming years," predicted Dr. Geoffrey Guy, chairman of GW.

The group had previously expected to make a small loss over the full year, but with Sativex now expected to launch in Germany earlier than previously anticipated, and with Novartis's upfront payment of $5m safely in the kitty, the company is now forecasting a small profit for the year.

"With regular Sativex launches now taking place, GW has entered a new phase in the evolution of the company and we believe that our prospects for commercial success with Sativex together with a highly promising and maturing pipeline provide confidence for the remainder of 2011 and beyond," Dr. Guy added.

"The company also highlighted positive news subsequent to the period in the form of a licensing agreement with Novartis for distribution of Sativex in additional markets," notes Singer Capital Markets, which has a "buy" recommendation on the stock, though it is considering revising this as the stock has hit the broker's target price of 116p.

Singer described the results as a "pleasing set of interims" with sales coming in ahead of consensus forecasts of £15.1m, while net income of £3.3m was well ahead of a consensus figure of £0.6m.

The broker stroke a note of caution, however, saying the roll-out of Sativex across Europe is likely to remain "a somewhat lengthy process," and the compounds Phase-III programme in cancer is still being initiated.

While Singer is contemplating revising its rating for the shares, the stock is nowhere near Peel Hunt's target price of 178p, and the broker was notably more upbeat about the results than Singer.

"Commercial sales of Sativex to Bayer in the UK and Almirall in Spain grew from £0.2m to £1.6m, reflecting the continued adoption of the drug by key opinion leaders, and support from patient advocacy groups," Peel Hunt analyst Dr. Paul Cuddon said.

"Reassuringly, prescriptions for Sativex have now been written in 90% of English primary care trusts, with the possible inclusion into treatment guidelines improving rates of adoption over the medium term," Dr. Cuddon added.

"The $5m milestone revenue from Novartis was unexpected, and the company has maintained tighter control of R&D than we had modelled. We now expect the company to deliver its second consecutive year of profitability, with pre-tax profits of £0.2m up from a £2.7m loss," Peel Hunt said.

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