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Why Shares in BioDelivery Sciences International, Inc. Are Tumbling

By Todd Campbell - Jun 1, 2015 at 1:02PM

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BioDelivery Sciences International, Inc. shares are dropping after the company reported that it's borrowed $20.7 million.

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares in BioDelivery Sciences International (BDSI) fell by 10% earlier today after the company announced that it has secured $20.7 million in senior debt financing to help advance its drug program.

So What: It shouldn't be too surprising to learn that a clinical stage company like BioDelivery Sciences International has had to raise money to help usher along drugs in its research program. According to the Tufts Center for the Study of Drug Development, the direct costs of developing and commercializing a therapy tops $1.3 billion.

What may instead be weighing on investors' minds is the fact that BioDelivery Sciences International raised the $20.7 million via debt, rather than a stock offering. Although stock offerings dilute current investors, they don't saddle the company with long-term debt that can strain the balance sheet.

Now What: The company borrowed the money from MidCap Financial, a specialty finance firm that offers senior debt funding that is managed by a unit of the alternative investment firm Apollo Global Management, LLC. This debt deal brings the total amount of financing provided by MidCap Financial to BioDelivery Sciences International to $30 million, on which BioDelivery Sciences International must pay interest of 8.45% plus a LIBOR floor of 0.5%.

The money will help pay for the ongoing commercialization of BioDelivery Sciences International's Bunavail, a film formulation of the opioid dependence treatment Suboxone. Bunavail is administered by having the film dissolve in a patient's cheek, rather than under their tongue, like Suboxone film.

BioDelivery Sciences International believes that it can carve away some of Suboxone's $1.3 billion in annual sales because of advantages tied to its delivery and the fact that Bunavail can be prescribed at lower doses; however, investors need to remain cautious on this one.

BioDelivery Sciences International's revenue totaled just $13 million its net loss was $8.1 million in the first quarter, andsince analysts don't expect BioDelivery Sciences International will turn profitable anytime soon (and this additional debt could further extend out that profit timeline), I'm content to sit on the sidelines on this one. 

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