BioDelivery Sciences (NASDAQ: BDSI): Restarting the Catalyst Cycle

By Mike Havrilla

BioDelivery Sciences (NASDAQ: BDSI) is a specialty pharmaceutical company that develops new indications for approved drug compounds by applying its proprietary drug delivery technology platform, BEMA (BioErodible MucoAdhesive) Film Technology, while seeking FDA approval through the 505(b)(2) pathway, which represents a lower risk / cost and quicker route to commercialization as compared to the process of developing new chemical entities or biological agents. BDSI focuses on the niche market of pain management and supportive cancer care.

On 7/22/09, BDSI announced receipt of $26.7 million in milestone payments from its commercial partner Meda AB in connection with the FDA approval of the Company’s breakthrough cancer pain product Onsolis (fentanyl buccal soluble film) and manufacture of commercial launch supplies. BDSI is also set to receive a double-digit royalty on net sales of Onsolis, in addition to potential milestone payments (up to another $30 million) based on the achievement of sales targets. On 10/8/09, BDSI announced that Meda AB plans to launch Onsolis during the following week.

Together with approximately $5 million received from the previous exercise of warrants, BDSI maintains a strong balance sheet with about $30 million in cash (compared to a current market cap around $110 million) and no long-term debt along with future cash flow based on double-digit royalties on the net sale of Onsolis from Meda AB. The Company will focus on developing its pipeline, including BEMA Buprenorphine, Bioral Amphotericin B, and bring a third BEMA product into clinical testing next year and estimates adequate liquidity through 2010 based on current plans / status.

Expected milestones for BDSI through next year include:

1.) Will begin receiving double-digit royalties from Meda AB on net sales of Onsolis following U.S. commercial launch on 10/12/09

2.) Preliminary Phase 2 dental pain BEMA Buprenorphine study results are expected in December 2009

3.) A study evaluating Onsolis for non-cancer breakthrough pain is expected to start during 1Q10 and will be funded by Meda AB

4.) A Phase 3 acute pain study for BEMA Buprenorphine is expected to start during 2Q10

5.) The E.U. approval of Onsolis is expected during 1H10 and a New Drug Submission for BEMA Fentanyl was made to Health Canada in early October 2009 by partner Meda Valeant Pharma Canada Inc. (BDSI has retained the rights to BEMA Fentanyl in South Korea and Taiwan)

6.) A BEMA Buprenorphine partnership is expected during 2H10 with a goal of submitting a NDA for FDA approval during 1H11

7.) Expected completion of Phase 1 Bioral Amphotericin B trial by year-end with start of Phase 2 trial expected during 1H10 and Phase 3 development expected in 2011

BDSI anticipates that peak sales have the potential to exceed $200 million for Onsolis with additional indications possible for non-cancer breakthrough pain, which will be evaluated in a clinical trial slated to begin early next year. BDSI is also developing BEMA Buprenorphine, BEMA 5HT-3 Antagonist (nausea / vomiting), BEMA Triptan (migraine headaches), and Bioral Amphotericin B (fungal infections).

Buprenorphine is a DEA Schedule 3 Controlled Substance that is currently marketed as a pain drug in injectable (IV) form in the U.S., in addition to sublingual (SL) and transdermal (skin patch) formulations outside of the U.S. Buprenorphine also offers the potential for less opiate side effects (e.g. constipation, respiratory depression) and has less potential for abuse (resulting in a DEA Schedule 3 controlled drug classification rather than the Class 2 designation that is reserved for drugs such as fentanyl / Onsolis, morphine, Oxycontin, and others). BDSI projects peak sales exceeding $500 million and is targeting an initial indication for the treatment of acute pain through the 505(b)(2) FDA approval pathway.

Bioral Ampho B is being developed as a fungicidal agent (a treatment for fungal infections which kills the cause rather than existing fungistatic oral treatments which merely inhibit fungal growth and reproduction) and offers the potential for better treatment outcomes, including less hospitalizations or earlier discharge of inpatients compared to the existing intravenous (IV) formulation of Ampho B. BDSI estimates peak sales exceeding $400 million and Bioral Ampho B could potentially become the first oral fungicidal agent with Phase 3 clinical development (esophageal candidiasis) expected to occur in 2011.

The research downloads section has been updated to include the Company’s late September corporate presentation at the Maxim Group Growth Conference and click here for the corporate profile for BDSI. Since I first highlighted BDSI around the $2.50 per share level late last year, the stock price surged to over 8 bucks in anticipation of Onsolis FDA approval and subsequently sold off on the actual news before settling in the $4.50–$5 range with a most recent closing price of $5.25 on 14-October, which has been a common theme (sell into the momentum / strength going into the binary event – FDA decision or clinical trial result) among many of the FDA Calendar Extreme Trades that I have written about over the past year.

On 10/15/09, I conducted a phone interview with the Company’s CEO, Dr. Mark Sirgo, who stated that the Company will be focused on increasing the institutional ownership profile now that BDSI has a marketed product and robust pipeline with upcoming clinical data catalysts. Dr. Sirgo expects that increasing the percentage of institutional holders of the common stock will lead to less volatile trading patterns for BDSI now that it has evolved from being a development-stage company with the U.S. launch of Onsolis earlier this week by Meda AB.

Furthermore, Dr. Sirgo stated that Onsolis sales will be reported by Meda AB on a quarterly basis with BDSI receiving double-digit royalties on net sales (with most analysts projecting 10-15% royalties). Dr. Sirgo believes that the Class 2 controlled drug status / associated REMS for Onsolis may slow the sales ramp for the product, but will not affect the ability of Meda to achieve the peak sales estimate of at least $200 million over the long-term. In addition, Dr. Sirgo expects more favorable deal terms as compared to the Onsolis agreement for a possible BEMA Buprenorphine licensing deal during 2H10 based on the higher peak sales potential for the product and less restrictive controlled drug status for the compound.

Tracking Meda AB(MEDAA: SS on
52-Week Stock Price Range ($39.00–$66.75)
52-Week Change +27.5%, Last Price $66.00
Market Cap = Approx. US$2.9 billion

I will also be uploading some video / product animations from BDSI to my YouTube channel / mikehav77 shortly upon receiving the files.

However, BDSI is in a unique position due to its strong balance sheet, pending cash flow from Onsolis royalties, funding by Meda AB to expand indications of Onsolis, and restarting the catalyst cycle with BEMA Buprenorphine, Bioral Ampho B, and other BEMA products in the pipeline that will be soon be generating clinical data and potential partnerships. In addition, BEMA Buprenorphine offers the potential for greater peak sales and a more lucrative licensing agreement since the drug would not be regulated as strictly as Onsolis (i.e. it is a Class 3 controlled substance compared to the more stringent regulations for Onsolis / BEMA Fentanyl as a Class 2 controlled drug).

Disclosure: No positions.

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