By any measure, the drug Epidiolex is a massive hit.

To start, it's been a financial success. In fact, it has the potential to become the next "blockbuster drug" – those with annual sales of at least $1 billion.

But it's also been a godsend for those suffering from epilepsy. You see, nearly half a million Americans under 18 are afflicted with epilepsy. And Epidiolex helps control refractory seizures, those which doctors have historically had trouble controlling with medication.

Epidiolex, a cannabis-derived compound, was created by GW Pharmaceuticals, a company acquired in 2021 by one of the world's biggest biotech firms.

As it happens, the acquiring company is one I know well (and have even recommended in the past).

Let me explain why its acquisition of GW has it back on my investment radar...

And why an investment today could double your money in only about three years.

A Savvy Strategy

I can't emphasize enough how buying an established drug with massive upside is such a smart thing to do.

You see, on average, it takes about a decade and costs as much as $2 billion to get a new drug approved by the Food and Drug Administration ("FDA") and put on the market. That's because new drugs have a notoriously high failure rate, which one industry analyst puts at around 90%.

By acquiring firms that have already gone through the time and trouble creating and testing a drug, companies can spare these expenses. They can also add multiple products to their portfolios and significantly grow their business.

The company that recently grabbed my attention certainly uses this strategy. It spent roughly $1 billion to acquire Gentium SpA, an Italian biotech firm. This helped it round out its portfolio of highly specialized drugs and served as a catalyst that added significant value to its shareholders.

By scooping up GW, this company now has a new growth engine which it can use to increase sales and profits. And to size up its investment potential, let me put this company through my five-part screening system.

If you recall, this system takes emotion out of the equation and helps us identify promising investment opportunities...

Rule No. 1: Hire Great Operators

It's important to remember that, in the end, management works for shareholders. So we're looking for well-run firms with top-notch leaders. And we clearly have that here.

This company's co-founder and CEO has a double major in molecular biophysics and biochemistry from Yale and an MBA from Stanford. He's guided his firm through buyouts of individual drugs and entire companies, just one reason why Yahoo! Finance data shows that since 2007, his company's stock has risen nearly 800%.

Rule No. 2: Ignore the Hype

Wall Street often resorts to hype to get investors interested in a company's stock. But to create real wealth, you have to ignore the "PR machine" and focus on companies with excellent fundamentals.

With a market cap of around $10 billion, this firm has gross operating margins of 90% and brings in more than $1.5 billion in free cash flow annually.

Rule No. 3: Swim With the Trend

The best opportunities to achieve life-changing gains come from sectors that remain hot over the long term.

Biotech faces decades of steady expansions in sales and profits. And it's here we find a combination of population growth and longer lifespans contributing to increased demand for drugs.

It's no wonder Grand View Research forecasts that through 2030, biotech will see annual sales growth of nearly 14% a year. By the end of the decade, the global biotech industry could be worth $2 trillion.

Rule No. 4: Focus on Growth

Companies with the strongest growth rates almost always offer the highest stock returns. And this is where the company I've identified truly shines.

By scooping up Epidiolex, this firm added a potential blockbuster to its already impressive list of FDA-approved drugs. Epidiolex has annual sales of $625 million, and sales of this drug grew more than 200% during the first six months of 2022.

Rule No. 5: Look for Doubles

Lastly, let's look at this company's earnings growth and see how long it will take for its profits to double. By doing that, we can figure out how long it should take for its stock price to double.

In the most recent quarter, the company improved its per-share profits to 23%, a figure that seems likely to remain steady as biotech stocks stage a comeback.

With that in mind, let's use the Rule of 72. Remember, this is a way to estimate how long it might take for an investment to double, based on a given rate of return.

Simply put, by dividing 72 by the given annual rate of return, we can get a rough estimate of how many years it will take for our investment to double.

In this case, let's divide this company's per-share profit rate of 23% into the number 72. When we do that, we see it should take about three years for the firm to double its earnings (72/23 = 3.1). And since stocks trade at a multiple of earnings, our investment could double then, too!

Finally, it's worth noting that this stock is slightly out of favor at the moment. That means we can scoop up shares at a discount and magnify our profit potential.

With an opportunity to double our money in three years, we don't want to miss out on this investment opportunity. But here's the thing...

I'm only revealing the name of this company to my "Pro" subscribers, so make sure you join them!

Cheers and Good Investing,

Chief Investment Officer
Trend Trader Daily

Tags: bio-tech pharmaceuticals