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Jumping On The BDSI Bandwagon? Be Ready To Get Out Before The Wheels Are Stuck In The Mud.

|Includes: BioDelivery Sciences International, Inc. (BDSI), ORXOF

This is my first post here on SA, I've found alot of insightful commentary here and decided to try my hand at adding my own (hopefully) useful thoughts.

BDSI has a supposedly bright future ahead with the recent FDA approval of Bunavail. Bunavail is basically THE drug meant to launch BDSI into the big leagues. Like many other small-cap pharma stocks, they have almost everything riding on one drug slogging its way through the FDA approval process. Sure BDSI has a few other approved products and a deal with Endo that has made last year's income statement a little less grim, and their debt to assets is manageable so long as they have some success with Bunavail. But what is it about Bunavail that is going to launch BDSI to the stars.

First let me say I have followed BDSI for years, you can see my picks on Motley Fool's CAPS stock simulator and see that I picked BDSI as a buy 1 1/2 years ago at ~$4 (caps.fool.com/player/tunafizzle.aspx) and have had it in my own portfolio. But I've taken my profits on BDSI already. Why would anyone sell a small-cap pharma stock after making a nearly 3x return and soon as their "blockbuster" gets the FDA greenlight? Somebody that realizes Bunavail is entering a market not meant to connect end-users with the product. Imagine an Apple store ready to launch the latest iPhone but nobody can unlock and open the doors to the store, this is what BDSI's Bunavail faces.

Bunavail is for the treatment of opiate addiction and is composed of the same ingredients as RB's Suboxone, which brought in billions for RB and was their entire pharmaceutical line until the patent expired about a year ago. RB came out with a sublingual film version and even launched a PR offensive to convince the public and especially prescribers that the tablet version, which they just lost the patent on, was dangerous and the film was safer. They raised the prices on their tablet version while offering steep discounts to distributors and patients on the film version. RB has had some success with this but not nearly the same level as they had when they had exclusivity over Buprenorphine/Naloxone. (Checkout the remarkable slide in sales of Suboxone: www.drugs.com/stats/suboxone)

As generics from Actavis began finding their way to CVS and Rite-Aid, the film's initial success has been slumping as more prescribers, insurers, and out-of-pocket patients realize that the generic tablets are equally effective and are now cheaper than the film. "But wait" you say, "Bunavail has a different formulation that allows for better bioavailability, it really could be a better drug." Well this is true, you've certainly done your homework. But remember last year when a small pharma co. by the name of Orexo (ORX) got approval for Zubsolv (another buprenorphine/naloxone combo with higher bioavailability) almost a year ago? No? Vaguely familiar? That's because Zubsolv's sales never materialized and after investors saw Orexo was still deep in the red and the share price went from $170 in Jan '14 to $90 in May.

So why couldn't Zubsolv get sales rolling and is BDSI really doomed to the same fate? Here's the real painful part that all investors of BDSI and ORX need to know.... these drugs: Zubsolv and Bunavail will never be big sellers unless Congress does something. Yes, that branch of government that does nothing and is about as dependable as a cinderblock is about the only thing that can help. Confused? Some history will help. Around 2000 Congress passed an act allowing doctors to finally and legally treat drug addiction in their own practice, however doctors had to complete a 6-hour course and get a special certificate often referred to as a DATA2000 (after the act of congress) waiver. This waiver let's the DEA know that this doctor is allowed to prescribe buprenorphine/naloxone for addiction and is allowed to treat up to 100 patients (formerly only 30 patients) as long as they met vague record-keeping and prescribing requirements enforced by the DEA. This means that most doctors cannot prescribe Zubsolv or Bunavail, and those that can are typically at their 100 patient limit (there are stories of patients calling 20, 30, 40 DATA2000 approved doctors without finding one accepting patients). The real tragedy here is not the shareholders bottom line but that addicts seeking help face waitlists 6 months long at best.

Remember that most doctors don't look at this as a money-making opportunity, most have no shortage of patients as is and having to deal with addicts that might try to pull one over on them and to get hassled by the DEA is simply not worth it. But what about drug treatment facilities, the "methadone clinic" they arent subject to this stuff? This is true that such locations are able to meet the demand better, however almost no insurance companies will cover treatment or prescriptions from such places, so a brand name drug like Zubsolv or Bunavail doesn't stand a chance.

Bottom Line: Unless BDSI (with their 22 employees) can convince doctors to get DATA2000 certified, or Congress acts (hahahaha, I'm hilarious I know) Bunavail will never be one Suboxone was for RB.
As of 6/11, I plan on buying back in on BDSI but it will be short-term and maybe in the form of options. BDSI may be able to grow to $20 and do well this summer but be ready to get out in a hurry by fall or winter. If your reading this by July and thinking of buying its likely too late.

Note: I'll update this later with links, charts, and better editing.

EDIT 6/13: In the end I decided to buy some calls on BDSI for this summer (think $10, $12.50, $15 strikes). As BDSI rises I expect to make a nice profit on those options then use some of those profits to buy put options for early next year, once BDSI 's share price is up and the premium on a put with a $15 strike is low.

Disclosure: The author has no positions in any stocks mentioned, but may initiate a long position in BDSI over the next 72 hours.