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

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.)

The bigger opportunity in BioDelivery today is the company's pipeline, which is essentially valued at zero.

Onsolis is a thin film containing a dose of the powerful painkiller fentanyl that patients place on the inner lining of their cheek. The drug is approved only for patients with cancer-related pain that persists despite the continued use of oral opioids.

BioDelivery owns the polymer film drug delivery technology upon which Onsolis is based and which the company is using to develop other products.

Onsolis will compete against generic and branded versions of Actiq, which is fentanyl delivered via a lozenge (think a fentanyl lollipop) and Fentora, an Alka-Seltzer-like tablet that dissolves in the mouth when mixed with saliva. Cephalon ( CEPH), Barr Labs ( BRL) and Watson Pharmaceuticals ( WPI) sell Actiq, while Cephalon markets Fentora.

BioDelivery CEO Mark Sirgo says Onsolis delivers a steadier and more predictable dose of Fentanyl than Actiq or Fentora with more convenience and fewer side effects. The current market for so-called breakthrough cancer pain drugs is about $700 million annually, he says, although most of that comes from the sale of the drugs to pain specialists and not oncologists.

Meda, which will sell Onsolis, will target pain specialists but will focus equally on oncologists because cancer patients are relatively underserved. Of the 500,000 cancer patients eligible for breakthrough pain therapy, only about 30,000 are currently treated, said Sirgo.

New rules intended to increase the monitoring of how powerful painkillers are used will make future sales more challenging.

The FDA, concerned about the misuse and abuse of pain-killing medicines, recently instituted new rules requiring companies that sell these drugs to have stringent risk-management plans. These plans require doctors to register and be licensed to ensure that the painkillers are prescribed and used correctly.

"Risk-management plans are an impediment," says Dr. Jennifer Obel, an oncologist with North Shore University Health Systems in Chicago. "Any time you require doctors to proactively fill out paperwork or subject them to a risk-management plan, they are going to be less inclined to use the drug."

Obel doesn't use fentanyl-based painkillers with her patients mainly because she finds most are able to manage cancer-related pains using long- and short-acting morphine alone. She's familiar with Onsolis, however, and does believe that the product has some dosing and convenience advantages over Actiq and Fentora.

Matt Kaplan, an analyst at Ladenburg Thalman, believes the Onsolis risk-management plan will slow the drug's launch, but doctors only need to register once, so the impact should be short-lived.

BioDelivery will also be the first company with a risk-management plan for a fentanyl-based breakthrough cancer pain drug in place at launch, which should be an advantage since competitors with drugs already on the market have to essentially rework and restart their marketing programs. Kaplan has a buy rating on BioDelivery with a $9 price target.

Looking ahead, BioDelivery's Sirgo says the company wants to start new clinical trials to expand Onsolis into the non-cancer pain treatment market, which could potentially double sales of the drug.

The company is also working on its second pain product, a form of buprenorphine also delivered on a thin film placed in a patient's cheek. BioDelivery recently started a phase II study of its buprenorphine product in patients with post-operative dental pain; other studies in acute and chronic pain will also be considered. Sirgo says the drug addresses a $500 million to $1 billion commercial market.

Data from the dental pain study should be released at the end of the year and Sirgo hopes to have a partnership for the drug in place during the second half of 2010.

-- Reported by Adam Feuerstein in Boston

Adam Feuerstein writes regularly for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. Feuerstein appreciates your feedback; click here to send him an email.

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