With The FDA Reviewing Bunavail, BioDelivery Might Be A Buy

Oct.29.13 | About: BioDelivery Sciences (BDSI)

The FDA is reportedly prepared to adjust the Schedule on hydrocodone painkillers from III to II in an attempt to better reflect the risk of abuse that exists. In recent years, deaths related to narcotic pain medications have increased significantly. The FDA has also increased efforts to address the issue by educating both physicians and patients, as well as approving substances to fight addiction to these painkillers. With hydrocodone being the most prescribed drug in America and addiction not slowing down, the market potential that exists with these anti-addiction drugs is enormous… and also important. With that said, BioDelivery Sciences (NASDAQ:BDSI) might be a good investment opportunity, a company on the frontlines of the addiction battle.

A Closely Watched FDA Decision

BioDelivery Sciences International has rallied 500% since the end of 2011 and much of those gains stem from the development of its late-stage product, Bunavail, which treats opioid dependence.

Earlier this month, Bunavail was accepted for review by the FDA, meaning a decision should be expected sometime early next year. If approved, Bunavail would compete directly with the blockbuster drug Suboxone-- a drug growing 30% year-over-year with revenue of $1.5 billion last year-- and also with generic drug companies, such as Actavis (ACT), who have recently begun to manufacture Suboxone.

While all data for Bunavail has been positive-- the drug uses the exact same key ingredient as Suboxone (although with a different delivery) -- many are worried by how the FDA might respond. These concerns come after the FDA surprisingly rejected a very efficient drug, Probuphine, from Titan Pharmaceuticals (NASDAQ:TTNP).

Still, given the sense of urgency surrounding the treatment of opioid abuse, BioDelivery Sciences with its effective delivery system stands a good chance at seeing its product available on the market. Also, due to the level of emphasis placed on addictive painkillers, the FDA might face backlash if it denies Bunavail for marketing approval. Combined, this gives BioDelivery a good shot, but investors can't help but to worry about the FDA's rejection of Titan's Probuphine.

The Fundamental Difference Between Bunavail & Probuphine

Investors must realize that what kept Probuphine from gaining an FDA approval was never its effectiveness, but rather its delivery. Probuphine was injected underneath the skin of a patient's arm--it then supplied a long-term (three to six month) dosage of buprenorphine. With this delivery, there were questions of the technology's durability and how Probuphine may disrupt the laws surrounding the use of buprenorphine (the main ingredient).

The FDA has been very hands-on when approaching buprenorphine products: Physicians must complete special training to prescribe these drugs and can never have more than 100 patients on the drug at a time. With Probuphine, it would be difficult to monitor patients appropriately if seen just once every three months. This procedure contradicts the rules set in place for prescribing the drug. Hence, the FDA denied an effective drug as these questions and issues arose.

Bunavail does not run into these issues. It uses a film technology that is layered with the drug and is then placed on the inside of the patient's cheek until it dissolves. This differs from Suboxone films and sublingual tablets, which are all dissolved under the tongue.

Furthermore, Bunavail requires 50% less buprenorphine to achieve the same result. Also, it doesn't cause constipation (a symptom linked to narcotics), because Bunavail does not enter the GI tract. With a new technology, the same great ingredient, but a lower dose of buprenorphine, it could be inferred that Bunavail has a good chance of approval. The drug will not conflict with current laws and will be easy to integrate with those physicians who already prescribe Suboxone and others alike.

If It's An Approval, Should I Buy?

Bunavail will likely be FDA approved-- as would Probuphine if it had been one-month doses. However, what's unknown is if Bunavail will be a commercial success. Clearly, it has to compete with the likes of Reckitt Benckiser's (OTCPK:RBGPF) Suboxone and now the generic form of Suboxone from Actavis, which are companies that have much larger networks and money to spend.

Actavis and Reckitt Benckiser have large marketing teams and are aggressively able to advertise. Bunavail has the same active ingredient, just a different delivery; hence there aren't too many reasons that a physician would elect to prescribe it over Suboxone or even Subutex.

With that said, if you own shares of BioDelivery, there are a few things that you want to see from the company if Bunavail is FDA approved. You do not want BioDelivery to raise an obscene amount of cash to try and compete dollar-for-dollar with Reckitt-Benckiser or Actavis. Reckitt spends millions annually in training and preparing physicians to prescribe buprenorphine products.

Additionally, Reckitt lists those trained physicians who can prescribe on its website. In consequence, BioDelivery's most effective marketing efforts would be to allow Reckitt to continue educating physicians, but then try to convert those physicians already listed to prescribe Bunavail.

Lastly, BioDelivery must be competitive in pricing. If BioDelivery allows Reckitt and Actavis to market Suboxone, then BioDelivery's operational costs won't be as high. Suboxone currently sells for $7.00-$10.00 per film. Thusly, BioDelivery needs to price Bunavail significantly lower… around $3.00-$4.00 per dose. If you're a shareholder in BioDelivery, these are the key strategic moves that you want to see from BioDelivery if Bunavail is FDA approved.

Conclusion

The buprenorphine market is estimated at $2.5 billion annually and continues to grow 30% year-over-year. However, the cost of treatment is often too expensive for those who need help. BioDelivery can serve this patient population, those who cannot afford Suboxone. While margins may be lower, the number of patients addicted to opioids who are not on Suboxone treatment could still lead to Bunavail being a tremendously lucrative product.

Analysts project peak sales of Bunavail at $350 million. If BioDelivery offers its film for half the price of Suboxone it could attract new patients who can't afford Suboxone-- plus steal some who pay cash for Suboxone. Ergo, Bunavail could exceed expectations, and with a market cap of $210 million, BioDelivery could trade considerably higher.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in BDSI over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.