Tuesday, June 2, 2009

Stock Watch: Biodelivery Sciences (BDSI)

BDSI Sets 52-Week HighStock Watch: BDSI
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VFC's 2009 Stock Picks, Part III

Biodelivery Sciences (BDSI) set a new 52-week high of six dollars during trading on Tuesday and closed not too far off that mark at $5.93.

The volatile trading of BDSI over the past few weeks has been accompanied by higher than average volume and can be attributed to the imminent decision of the US Food and Drug Administration (FDA) regarding the approval of Biodelivery's lead drug candidate, Onsolis. The FDA decision is due within weeks and investors are lining up to place their bets.

Onsolis, utilizing Biodelivery's own BEMA technology, treats pain in cancer patients.

The chances of an Onsolis approval look to be pretty good, especially when considering the recent trading action of the stock. However, predicting FDA decisions can be a crapshoot so it's best to protect your investment and realize some profits while the stock is rallying to new heights. That doesn't mean sell it all, but selling enough to realize some gains, especially since the stock has nearly tripled over the past few months, could be a wise move.

I sold enough on Tuesday to ensure that my remaining shares are being played on house money; meaning that if BDSI were to drop to zero, I'd break even on the entire investment. Of course, if BDSI doubles on approval news, I'll have missed out on some serious gains, but as they say, it's better to be safe than sorry.

I did the same thing with Dendreon (DNDN) earlier this year and I ended up missing some serious percentage gains, but I don't regret the move. In order to make sure that I was playing on house money when results of the Provenge IMPACT trials were released, I sold some, not all, of my shares on what turned out to be the day before the results were released- and the results were positive. As the stock soared from seven dollars to the mid twenties, I missed out on some additional gains, but I was also protected had the results gone the other way.

Biodelivery Sciences, according to statements on the company's website, estimates that Onsolis could reach peak annual sales of $250 million dollars. That won't happen all at once, of course, but BDSI could be in for some significant gains if the FDA decides to approve.

The stock could double on approval, but, after the recent gains I'm predicting a more conservative estimate of an initial spike to around ten dollars, followed by a retracement on profit taking to eight before eventually settling at twelve. From that point, Onsolis sales and the progress made in international approvals will dictate the price of the stock.

In order to raise additional cash, it is possible that the company will choose to conduct a stock offering after the approval announcement, should the FDA decide to approve. That will decrease the value of existing shares, but once approval is in the bag, revenue will not be too far off and the stock price will rebound.

Addtionally, Biodelivery has licensed all commercialization rights to Onsolis to MEDA AB for North America and Europe. That partnership will also eat into Biodelivery's profit on sales.

Additional value can be had with Biodelivery's BEMA and Bioral drug delivery systems, but we'll have to wait and see how those products develop before pricing them into the stock price.

Expect continued volatility as decision day approaches, and don't be afraid to realize some gains on the way.

VFC is long BDSI.

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