Taking Advantage of the BioDelivery Dip

Sep.27.09 | About: BioDelivery Sciences (BDSI)

Shares of BioDelivery Sciences (NASDAQ:BDSI) ended the trading week last week at $4.24, a nearly 50% price cut from the stock's 52-week high of over $8. I know that many investors start feeling the panic set in when a stock that they thought was a winner, such as BDSI, starts to drop for no apparent reason. Many of those investors will then sell their shares as a result of that feeling of panic which, in my opinion, would be an example of selling on emotion - a trading practice of which I'm not a big fan.

I believe that BDSI is a stock that is being manipulated right now - I would call it 'the big boys playing their games' - and now is when the small investor can take advantage of that manipulation and start picking the crumbs left behind by the big boys by buying a few shares on the cheap.

The most notable number to look at right now is the BDSI market cap, which is currently at less than 100 million. To get an idea of just how ridiculous that market cap is for a company with an approved product in a thirty billion dollar sector (pain) and a technology that should continue to support new products, take a look at this statement copied from a recent PR issued jointly by Meda AB and BioDelivery Sciences:

Under the terms of its commercialization agreement with Meda, BioDelivery Sciences will receive an aggregate of approximately $27 million in milestone payments. The first is based upon FDA approval of ONSOLIS which is in the amount of approximately $12 million. Meda had already advanced the company $3 million in January 2009 against the $15 million milestone payment. A second payment of $15 million will be received following the manufacture of launch stocks of ONSOLIS, a target the company has also achieved. In addition, BDSI will receive a double-digit royalty on net sales as well as the potential for up to another $30 million in milestone payments upon the achievement of certain sales thresholds

Those milestone payments alone equal nearly a third of the current market cap without taking into consideration either the potential of the pipeline nor the possibility of Onsolis reaching the sales thresholds that would garner the additional thirty million dollar payment.

BioDelivery will also rake in double digit royalties on peak sales of the procut that are estimated to be in the neighborhood of $200 million annually. Granted, it shouldn't be expected that Onsolis would reach that number during the first year of sales, but it is worth noting that the US Patent Office has granted exclusivity for Onsolis until 2020 giving plenty of time for the company to enjoy the double digit royalty rate before the patent exipres.

Aside from Onsolis, which is expected to be commercially launched in the United States during the fourth quarter of this year, BioDelivery also has the potential to launch multiple products using the company's BEMA and Bioral drug delivery technologies.

Many BDSI investors are understandably nervous right now as they've watched the stock price drop and are unsure of whether or not a recovery is likely, but this is one of those situations that calls for disciplined buying - not panicked selling. As I've mentioned before, BDSI is no longer just a speculative biotech play. With the pending commercial launch of Onsolis and additional potential in the pipeline, it could be considered a long term growth stock.

When this stock starts trading to its potential a double in price could come in quick time before the gradual move up takes effect - in my opinion. The point being, don't be afraid of the recent dip in price - take advantage of it. They can't keep this thing down forever.

Disclosure: VFC is long BDSI