Bunavail Approval and Projections
On Friday, June 6th, after the regular trading session closed, BioDelivery Sciences International (NASDAQ:BDSI) reported FDA approval of its latest opioid-deterrence product, Bunavail. Investors should be extremely ecstatic about this approval for many reasons. CEO Mark Sirgo is now 2 for 2 with FDA approvals, and Bunavail adds tremendous value to the company going forward. With U.S. peak sales currently estimated at $250 million annually by the company just in the U.S. alone, and the company recently raising $60 million to sell the opioid-dependence product on its own versus taking on a costly partnership, the company will keep all the profits to itself. Those profits could grow significantly year-to-year, based on an ever-increasing opioid-deterrence market each year.
Buprenorphine/naloxone is widely used in the treatment of opioid dependence, and is marketed as Suboxone (buprenorphine/naloxone). Suboxone was approved for the treatment of opioid dependence in 2002, and has shown to be a highly effective treatment. In the U.S. alone, sales of Suboxone exceeded $1.4 billion in 2013 and continue to steadily grow. Bunavail contains the same drug components as Suboxone, and is administered through BioDelivery's buccal film technology, and the company believes Bunavail has distinct advantages over other forms of opioid-dependence treatments.
The company expects to launch Bunavail in the 3rd quarter of this year, with the help of an agreement made with Quintiles earlier this year. However, it is important to note that this agreement is much different than those normally contracted with a Big Pharma company to market and sell new products. Quintiles was paid from the $60 million proceeds raised by the company. This will allow the company to keep all its profits from Bunavail moving forward, and increase shareholder value significantly. Global expansion plans for Bunavail will undoubtedly increase the value even more, but the rollout of the products into the global markets could take some time to develop, so investors should be patient on this front.
Of course, one of the challenges will be developing a sales force, but this will not be as difficult as many might think. The entire opioid-dependence market is 90% prescribed by just roughly 5,000 doctors, according to BioDelivery spokesman Al Medwar, so a large sales force is clearly not going to be a necessity. Keeping the Cost of Goods Sold (COGS) down to a minimum and creating very good margins is another stepping stone for the company. By not using a partnership to commercialize Bunavail, it is likely COGS will be on the high end during ramp-up, and hopefully, the company can bring that percentage down to under the traditional 10% in an acceptable time frame to keep investors interested. Keep in mind, COGS excludes indirect expenses, such as distribution costs and sales force costs, so the company will have some additional expenses to control.
Currently, the shares trade at $10.00, and the company has approximately 48.165 million shares outstanding as of the last 10Q report. It will not take a good investor to realize how undervalued the shares are right now with this latest FDA approval, combined with product growth already on the market and the pipeline that BioDelivery Sciences is currently progressing on. With current revenue targeted by analysts at $77 million for 2015, the addition of a potential $250 million in annual revenues from Bunavail is huge for investors. The company has roughly $88 million in cash on hand as well. Putting this all together, we easily see an extremely underpriced stock, based on current and future projections. It is possible that analysts see a tougher road ahead for the company not choosing a Big Pharma partner to bring Bunavail to market, and that may be the biggest reason why consensus estimates haven't moved much leading up to the FDA decision. However, just today the company received several price target upgrades from Piper Jaffray, William Blair, and Roth Capital at $24.00, $23.00, and $15.50 respectively. So, it may seem that the analysts are starting to recognize the same thing I see with the shares being far undervalued.
Many biotech companies are valued with anywhere between a 4 and 10 times multiple for future growth, depending on different ratios and the particular product they are bringing to the market. Yet, using just the lowest multiple of 4, which represents the current Price per Share and projected Revenue per Share, the shares could be valued at $34.50 per share. As the company's pipeline continues to be commercialized in the future, combined with the CEO's record of success thus far, the shares demand an even higher multiple, in my opinion, but that is for the overall market and investors to decide. As of right now, I would place current value on the stock between $18-$20 per share, or about 80-100 percent higher than where it is now. My current valuation is based on the following:
Cash on Hand: $1.85
Current 2015 Rev Forecast *(2x multiple): $13.60
Pipeline Products: $3.00
*Note that I am using an ultra-conservative multiple in my own valuation
COGS going forward will be interesting to keep an eye on while the company begins to commercialize Bunavail, but even if COGS average at 30% (high end range) of revenue during the first quarter of ramp-up for Bunavail, this still puts valuation well above where the stock currently trades. Long-term investors would be extremely wise to put BioDelivery Sciences International in their portfolio now, as the company's prospects and pipeline look very good, especially with the CEO batting 100% with FDA approvals and the next NDA submission for BEMA Buprenorphine, already in a 2nd stage of Phase III trials, coming up next. The company recently reported initial positive top line Phase III trial results for BEMA Buprenorphine in January 2014. While there are always downside risks, such as Bunavail not being accepted into the market place as quickly as the company expects, delays in adding to its sales force capacity, or the FDA not approving future pipeline products, the current prospects for BioDelivery Sciences International have never been better.
Disclosure: I am long BDSI. 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.