BioDelivery Doesn't Stop With Onsolis Approval

RALEIGH, N.C. (TheStreet) -- The post-drug-approval glow has gone missing from BioDelivery Sciences(BDSI Quote).

The U.S. Food and Drug Administration approved BioDelivery's cancer pain drug Onsolis on July 16. It's the company's first drug approval and an important validation for its drug delivery technology.

Yet, the stock has moved largely downhill since, with shares off as much as 25% from the intraday high of $7.25 on the day Onsolis' approval was announced. BioDelivery closed Friday at $5.38 a share.

A number of investors bought BioDelivery only for the Onsolis approval trade, never intending to own the stock for the drug's commercial launch. Thus, the sell-on-the-news reaction isn't a big surprise. Biotech catalyst trading -- whether it be clinical trial data or FDA approvals -- is increasing in popularity, especially for small biotech and drug company stocks that list under $10. BioDelivery was a $3 stock in March.

The vacuum left by the traders' exit from BioDeivery coupled with what should be a slow launch for Onsolis (more on that below) means longer-term investors have a chance to slowly build a position in the company.

Roughly speaking, BioDelivery looks fairly valued to me at its current price, which assumes $150 million in annual Onsolis sales at peak, of which the company receives 15% because its partner, the Swedish drug firm Meda AB, is selling the drug in the U.S. and Europe.

(BioDelivery management thinks Onsolis can achieve $200 million in annual peak sales, of which it gets a royalty of between 10% and 20% plus some sales-related milestone payments from Meda.)