Endo Pharma Deal Validates BioDelivery Sciences Pipeline Potential

| About: BioDelivery Sciences (BDSI)

BioDelivery Sciences (NASDAQ:BDSI) is a specialty pharmaceutical company that is focused on the development of opiate dependence and pain drugs which represent novel formulations of marketed drugs utilizing the Company's BioErodible MucoAdhesive or BEMA Film Technology that allows for the rapid absorption and delivery of drugs into the bloodstream from the inside of the mouth.

BDSI leverages the established clinical and safety track records of proven drugs while capitalizing on the less expensive, lower risk, and shorter development timelines through the 505(b)(2) New Drug Application (NDA) route at the FDA. Below is a summary of the Company's late-stage clinical development pipeline.

BEMA Buprenorphine (BEMA-BUP)--Pending Pivotal Phase 3 Clinical Trials

In January 2012, BDSI announced a $180 million deal w/ Endo Pharma (NASDAQ:ENDP) for the global rights to BEMA-BUP, including $30M upfront and mid-upper teen royalties on US net sales. The companies plan to conduct a pair of pivotal Phase 3 efficacy trials (one in opiate experienced and one in opiate naïve patient groups) for chronic lower back pain that are anticipated to begin during 3Q12.

Last fall, shares of BDSI plunged following results of a Phase 3 clinical trial for BEMA-BUP that failed to meet the primary endpoint for the treatment of moderate to severe chronic low back pain in a mixed population of opioid naive and experienced patients. However, the Company reported a nearly statistically significant result among the opioid experienced group of patients and hen eliminating the group of patients that did not titrate beyond the starting dose a statistically significant difference was observed.

While after the fact analyses are not useful for obtaining FDA approval, in this case BDSI was able to achieve a substantial licensing agreement with a mid-cap pain drug specialist company ENDP, resulting in validation of the Company's pipeline and the commercial potential for the pain drug candidate while providing much needed financial support for the two planned pivotal Phase 3 trials later this year.

BEMA Buprenorphine & Naloxone Combo (BEMA-BNX)--Pending Pivotal Bioequivalence (BNX-103) and Safety Clinical Trials

In February 2012, BDSI reached agreement w/ FDA to support a planned 505(b)(2) NDA filing during 1H13 and the Company expects to report data from a pivotal pharmacokinetic (NYSE:PK) (absorption, distribution, metabolism and excretion parameters) trial vs. SUBOXONE ($1+ billion in global annual sales for maintenance treatment of opiate dependence) in late 3Q12 w/ safety trial results expected by early 2013.

Below is a summary of the financial and operating highlights for BDSI as of end of 1Q12.

- As of 3/31/12, BDSI reported $32.1M in cash / equivalents and subsequently earned $17.5M in milestone payments (including $15M received from Endo Pharma in May based upon recently granted US patent extending BEMA product exclusivity from 2020 to 2027 and $2.5M due from Meda for pricing approval of BREAKYL in Europe w/ an additional $2.5M due upon commercial launch expected during 2H12)

- As of 5/4/12, BDSI reported 29.6M shares of common stock outstanding w/ no debt

- Pending re-launch activities for ONSOLIS (BEMA Fentanyl) (planned brand name of BREAKYL in EU) in US by partner Meda are ongoing w/ expected completion of reformulation work during 2Q12 to support planned FDA meeting to discuss results and next steps to resolve appearance / formulation issues that resulted in removal of drug from the market

- In February 2012 MonoSol patent infringement litigation ruling was issued by USPTO in favor of $BDSI w/ final judgment in re-examination proceedings including amended / narrowed claims by MonoSol pending and likely to be issued in favor of BDSI based on previously rejected MonoSol patent claims

With a significantly strengthened balance sheet and pivotal PK study results for BEMA-BNX expected during late 3Q12, shares of BDSI are poised for an eventful 2H12 with multiple pending catalysts and the relatively lower risk pivotal PK study results for BEMA-BNX. In addition, a pair of pivotal Phase 3 trials are expected to begin during 3Q12 for BEMA-BUP in partnership w/ ENDP along with the planned commercial launch of BREAKYL in Europe and the likely re-launch of the drug as ONSOLIS in the US market, providing plenty of catalysts throughout 2H12 ahead of a planned 505(b)(2) NDA filing for BEMA-BNX during 1H13.

Surprisingly, BDSI was able to secure a partnership for BEMA-BUP which previously failed a Phase 3 trial last fall and represents a higher degree of clinical development risk (i.e. must prove both effectiveness and safety in large Phase 3 pain trials) compared to BEMA-BNX which need only prove adequate safety and bio-equivalence to SUBOXONE as a novel formulation of that approved opioid dependence drug.

Since BEMA-BNX results will be out ahead of BEMA-BUP, the recent pullback in shares of BDSI to low-to-mid $3s from around 52-week high levels in mid-$4s represents an excellent entry point going into pivotal BEMA-BNX results expected late next quarter for investors that are willing to hold shares over the next few months.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.