GW Pharmaceuticals Plc won a significant endorsement for its cannabis-based medicines on Thursday as U.S. investor Great Point Partners bought a multi-million pound stake in the company, sending GW shares sharply higher.

The British company, which grows cannabis plants in secret locations in the English countryside for producing its Sativex treatment for multiple sclerosis, said on Thursday other institutional investors were likely to follow Great Point in taking a stake in the company.

GW shares rose as much as 12 percent before paring gains to be up 5.3 percent at 80 pence by 1014 GMT, with analysts noting the profile of Great Point -- a specialist investor in healthcare companies -- was an endorsement for the company.

Apparently Great Point are ... often seen as a fundraising leader so people look at what these guys are doing and end up following, analyst Paul Cuddon at KBC Peel Hunt told Reuters.

Earlier GW said it had raised $11.2 million by selling new shares to M&G Investment Management, already its largest institutional shareholder, as well as Great Point.

Chief Executive Justin Gover said he thought it likely other U.S. institutional investors would follow because of the high profile of Great Point.

STRONG SIGNAL

I think it's quite likely (the purchase will) ... send a strong signal to other U.S. investors, Gover told Reuters.

Gover added that the company's strategy was to increase the number of institutional investors, although he is not planning to issue more shares.

We think that there is an evolution of this business that we can see over the next few years and we want our shareholder base to reflect that, he said.

Great Point, which made an unsolicited request to take a significant stake in GW, is to subscribe for 7.6 million new shares at 78 pence per share.

In addition, GW signed an agreement with M&G to buy another 0.9 million shares at the same price to maintain its shareholding percentage.

David Kroin, a founder of Great Point, said in a statement: Great Point has been following GW for some time and has identified it as a compelling investment opportunity, particularly following the recent strong clinical data on Sativex.

Clinical trials have shown GW's Sativex, which is sprayed under the tongue, reduces spasticity in multiple sclerosis patients who do not respond adequately to existing therapies. The medicine is also being developed for cancer pain.

If it is approved, Sativex will be marketed in Britain by Germany's Bayer AG and in the rest of Europe by Spain's Laboratorios Almirall SA.

Further clinical trials need to be completed before the medicine is ready for submission for approval in the United States, where GW's partner is Otsuka.

Sativex became the world's first cannabis medicine to win regulatory approval when it was approved in Canada in 2005.

(Editing by Simon Jessop and David Holmes)