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Expert Financial Analysis and Reporting

Initial Report (BDSI, $3.50)

I have just recently begun to follow BioDelivery Sciences International (BDSI) and I am encouraged by the research that I have done. This is a small capitalization stock that has the potential to be an attractive investment. I have no current opinion on the stock, but here are my research findings so far.



BioDelivery Sciences International is a specialty pharmaceutical company whose new products are based on a drug delivery technology called BEMA, a film that adheres to the mucosa in the cheek and allows drugs contained in the film to be absorbed through the mucosal tissue of the cheek into the body. The company focuses on previously approved and commercially proven drugs in which its drug delivery technology substantially improves the product characteristics. It relies on the 505 (b) 2 pathway to regulatory approval which results in short product development time. It will depend primarily on partnering relationships to market its drugs.


The business model of the company has been validated with the approval and launch of its first product Onsolis, which applies the BEMA technology to the opioid narcotic fentanyl to treat breakthrough cancer pain, i.e. pain that is not controlled despite the use of other analgesics. This drug has gotten off to a sluggish start due to a restrictive REMS program that its key competitors, Cephalon’s Acted and Femora, have not yet had to adhere. This will change in 2011 and level the playing field to the benefit of Onsolis. This should help US sales regain momentum and worldwide sales should be boosted by the pending launches of the product in Canada and the EU. This is a reasonable product, but lacks the sales potential of products in the pipeline.


BDSI’s business approach allows for rapid product development with the result that the company may be in position to receive NDAs on three new products in 2012. The first is a BEMA Buprenorphine (low dose) which will be used when patients need a step up from NSAIDs for their pain relief, but are not ready for the usual next step of a schedule II opioid analgesic. The company believes that this product has peak sales potential of $500 million. The next product in the queue is a product that offers a better formulation of the Subutex/ Suboxone combination that has largely replaced methadone as the product of choice for treating opioid addiction and dependence. Management believes this product can produce $200 to $300 million of sales. The third product is a BEMA formulation of granisetron which is the leading product in the 5HT3 antagonist class which has annual sales of $1.7 billion.


Phase III data on the new products, NDA filings and potential partnerships should be coming out in 2H, 2011 and early 2012. These could be the catalysts for investor excitement and a good move in the stock. Before then the news flow should be muted. Hence, this is a 2H, 2011 to early 2012 story.


The company had $22 million in cash at the end of 3Q, 2010 and is burning about $5 million per quarter. It will go into 2H, 2011 with about $7 million of cash if there are no new cash infusions. Management doesn’t want to raise equity at current levels and before the key clinical results catalysts kick in during 2H, 2011. They maintain that they are willing to let their cash dwindle to low levels because of the confidence that they have in their clinical trials. They also think that milestone payments could bring in some money as well as warrant exercise if the stock goes up.


The BEMA Technology Platform

BioDelivery’s primary technology platform is the BEMA film which is applied to the inner lining of the buccal cavity (cheek) and is designed to allow rapid delivery of a drug dosage across the mucous membrane. BEMA is a bi-layered film in which the active drug is in the layer next to the mucosa. A backing agent on the opposing side acts to prevent the flow of the drug backwards into the mouth.


The BEMA system permits control of two critical factors allowing for better dose-to-dose reproducibility: (1) the contact area for mucosal drug delivery, and (2) the time the drug is in contact with that area, known as residence time. In contrast to competing transmucosal delivery systems like lozenges, buccal tablets and matrix-based delivery systems placed under the tongue or sprayed in the oral cavity, BEMA products are designed to:

  1. Adhere to mucosa in less than five seconds and dissolve in 15 to 30 minutes;
  2. Permit absorption without patients being required to move the product around in the mouth for absorption, thus avoiding patient intervariability;
  3. Have a reproducible delivery rate, not susceptible to varying or intermittent contact with oral membranes; and
  4. Dissolve completely, leaving no residual product or waste and avoiding patient removal. It is completely biodegradable.


BDSI is using the BEMA technology to improve upon the delivery of already approved and marketed drugs. It can often afford significant dosing advantages, particularly in conditions where rapid delivery of drug is important, oral dosing is not optimal, or where intravenous lines or injections are unavailable or not practical.


Onsolis, BDSI’s First Approved Product

The company received approval of its first BEMA technology product Onsolis on July 16, 2009. The drug component of this product is the opioid pain reliever fentanyl. Onsolis is indicated only for the management of breakthrough pain in patients with cancer, 18 years of age and older, who are already receiving and who are tolerant to opioid therapy for their underlying persistent cancer pain.


Overview of Opioid Drugs Used in the US; A Key Market Addressed by BioDelivery Sciences

A significant part of the BioDelivery drug portfolio is based on the use of the BEMA technology with opioid drugs. Hence, it is important to understand the current role of opioid drugs in pain management.


Opioids are powerful pain relievers that physicians widely prescribe for moderate to severe pain. By the end of 2008, the US market for pharmaceutical products to relieve pain exceeded $30 billion, with the opioids being the leading class of products. Pharmacologically, they primarily act on the μ receptor on neuronal cells in the brain. Stimulating this receptor leads to excellent pain relieving effects but also causes euphoria that can lead to craving for more and more of the drug and result in abuse and addiction.


Opioid compounds are classified into three broad categories.

  1. Full agonists activate the μ receptor and have a dose effect until the receptor is fully activated. Full agonist drugs provide the most effective pain relief, but at the price of more potential for abuse, addiction and side effects. Drugs in this group include morphine, heroin, methadone, oxycodone, fentanyl and hydromorphone.
  2. Antagonists have the opposite effect of the full agonists; they block the μ receptor and prevent it from being activated. This can block or interfere with the effects of the full agonists. Two of the most common antagonists are naloxone and naltrexone. These drugs are used to treat opioid addiction and abuse.
  3. Partial agonists bind to the μ receptor similar to the full agonists. At low doses, they act like full agonists, but at higher doses their effect rapidly plateaus. This property makes them effective pain relievers that are less likely to be taken at high dosages. Euphoria doesn’t increase in line with increased dosage beyond a certain point. This makes them less subject to abuse than the full agonists. Buprenorphine is a partial agonist.


Opioid drugs have been classified by the Drug Enforcement Agency (DEA) into five classes which are the foundation for narcotics enforcement in the US and establish the respective regulation, manufacturing, possession, movement and distribution of drugs in the US. These five classes are:

  1. Schedule I drugs have a high potential for abuse and have no accepted medical use and are not available by prescription. Drugs in this class include heroin, ecstasy, LSD and GHB.
  2. Schedule II drugs have a high potential for abuse but also have medical use. These drugs include cocaine, opium, morphine, fentanyl, oxycodone, methylphenidate, methadone, hydromorphone, tapentadol, amphetamines and methamphetamines. These drugs may be prescribed but only with strict record keeping and storage procedures.
  3. Schedule III drugs have less potential for abuse or addiction than schedule I and II drugs. While prescribing and dispensing is restricted, it is to a lesser extent than the schedule II drugs. Drugs in this category include buprenorphine, sodium oxybate (Xyrem), synthetic marijuana (Marinol), anabolic steroids, codeine, ketamine and hydrocordone with aspirin or acetaminophen.
  4. Schedule IV drugs have low potential for abuse. These include benzodiazepines (Valium, Librium, et al), sleep drugs like zolpidem (Ambien) and eszopiclone (Lunesta), the date rape drug flunitrazepam (Rohypnol) and phenobarbitol.
  5. Schedule V drugs have less potential for abuse and dependence than schedule IV drugs. Drugs in this category include cough suppressants such as dextromethorphan, pregabalin and the anti-diarrheal drugs containing diphenoxylate (Lomotil)


Buprenorphine is a partial μ receptor agonist that is a potent analgesic with a relatively long duration of action and poor oral bioavailability. Buprenorphine is a unique molecule and meaningfully differentiated from most other opioid analgesics, it provides excellent pain relief but has a lower propensity for addiction and abuse than the class II opioids and causes fewer typical opioid side effects such as respiratory depression, constipation and cognitive dysfunction. In a post operative pain setting, intravenous buprenorphine given at 0.3 mg. /hour has the same pain relief as morphine given at 10 mg. / hour. It has a long duration of effect that will probably allow for twice a day dosing in the BEMA formulation as opposed to more frequent dosing for schedule II opioids.


Currently Marketed Products in the US Which Use Buprenorphine

In the US, buprenorphine is approved for use in two indications. BDSI is developing BEMA products to compete against established drugs in each of these indications. An injectable formulation of buprenorphine, Buprenex Injectable, is currently used for the treatment of moderate to severe pain. It has very poor absorption characteristics and isn’t marketed in an oral dosage form.


The second current indication is for use in treating opioid dependence. Over1.7 million patients currently depend on prescription opioids in the US. This substantial use has led to substantial numbers of patients who are addicted to these drugs. Seven years ago, Subutex and Suboxone were introduced into the US market as sublingual formulations. Subutex is buprenorphine alone while Suboxone contains buprenorphine and the opioid antagonist naloxone. Subutex is initially given and then the patient is switched to Suboxone to replace the opioid to which a patient is addicted. They occupy or block the μ receptor and provides pain relief, but do not produce the degree of euphoria that leads to craving and addiction. Suboxone is used as an abuse deterrent and has basically replaced methadone in the treatment of opioid dependence. Combined sales of Subutex and Suboxone have grown from $100 million in 2005 to $975 million in 2009 and will easily exceed $1 billion in 2010.


BDSI’s BEMA Buprenorphine (low dose) for Chronic Pain

BDSI has developed a low dose formulation of buprenorphine using the BEMA technology. This has a major advantage in ease of administration over the currently marketed injectable and intravenous products. The BEMA formulation makes it possible for BEMA Buprenorphine (low dose) to be used in an ambulatory care setting.


This new dosage form allows the product to be positioned between the Schedule II opioids like oxycodone, morphine, fentanyl, hydromorphone etc and acetaminophen and the non-steroidal anti-inflammatories like aspirin, naproxen and ibuprofen for the treatment of ambulatory patients. BDSI performed a phase II trial of BEMA Buprenorphine (low dose) in a phase II efficacy/ safety study with third molar extraction (dental pain model). The primary endpoint was sum of pain intensity at 8 hours (SPID-8). Three different doses achieved a good dose response and statistical significance against placebo. This is a strong indication of efficacy in moderate to severe pain.


Unlike the schedule III drugs for which the patient can only receive one prescription, BEMA Buprenorphine can be refilled. The ease of prescribing along with the superior product characteristics could create new prescribing habits. Instead of going from acetaminophen or a non-steroidal to a Schedule II opioid when more pain relief is needed, the physician might first choose to go to BEMA buprenorphine.


Management compares BEMA Buprenorphine (low dose) to Tramadol. Both are effective for patients with moderate to severe pain who need to step up from non-steroidal anti-inflammatories for more pain relief. This offers an intermediate step between NSAIDS and schedule II opioids. Both have little propensity for abuse and addiction. Even though Tramadol has been genericized for about 8 years, its US sales (including generics) in 2009 still exceeded $2 billion and were up 10% over the prior year.


The company has met with the FDA in regard to the phase III clinical trial program and has validated their 505 (b) 2 approach. They will be using a well established pharmacokinetic trial approach that has been used with other opioid drugs. No opioid has ever failed in this trial design. Data will be available in 3Q, 2011. The NDA could be filed in 1Q, 2012.


This could be a big opportunity. Management has estimated that BEMA Buprenorphine (low dose) could be a $500 million product at peak sales.


Use of BEMA Buprenorphine (High Dose) to Compete Against Subutex and Suboxone

BDSI is developing a BEMA Buprenorphine (high dose) counterpart to Subutex that will use a different, but not yet disclosed dosage of buprenorphine. It is also developing a counterpart to Suboxone.


The main selling features of the BEMA formulations relative to Subutex and Suboxone are: (1) the convenience and ease of use, (2) higher bioavailability leading to less drug exposure for comparable efficacy, (3) shorter administration time and (4) no after taste. Suboxone is a large sublingual product and patients have to take up to four or five tablets at a time which are placed under the tongue. The doctor, nurse or administrator has to sit with the patient for up to an hour to make sure that the pills are not swallowed or spit out. If swallowed, the bioavailability is so poor that the product is ineffective. With the BEMA products, the drug is absorbed in 15 to 30 minutes. A lot of Suboxone dissolves into the mouth rather than though the mucosa so that only about 20% of the drug is absorbed systemically as compared to 70% of the drug in the BEMA formulation. Buprenorphine also has a bad taste so that Suboxone leaves a bad taste in the mouth; this has not been seen with the BEMA formulations so far.


Suboxone and Subutex are estimated to have US sales of $1,000 million in 2010 and the unit growth of the market is in excess of 10% per annum. These products were protected by Orphan Drug exclusivity, but this has now expired. Teva has introduced a transdermal patch formulation of Subutex called Norspan. Boehringer Ingleheim entered the market with their first to file generic to Subutex. There are likely many companies developing counterparts to Subutex and Suboxone under the 505 (b) 2 or ANDA processes. However, the BEMA technology may allow for meaningful product differentiation. The BDSI products may be able to achieve a meaningful share of the current Subutex/ Suboxone market, but it is difficult to estimate peak sales. Management has suggested that peak sales could reach $200 to $300 million of sales.


BioDelivery intends to pursue a 505 (B) 2 pathway to approval. If the FDA agrees, the NDA could be filed in 4Q, 2011. Because it is intended for deterrence of abuse, this would be an accelerated review.



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