As the year comes to a close, it looks like my pick for best drug stock of 2007, Endo Pharmaceuticals (NASDAQ:ENDP), hasn't performed to expectations, with shares flat for the year. That's OK because we're long-term buy-and-hold types at the Fool.

A flat-lining price for the year hasn't stopped Endo from making new deals and trying to improve its pipeline. Yesterday Endo and Alexza Pharmaceuticals (NASDAQ:ALXA) announced a collaboration deal for an early-stage Alexza drug.

In exchange for $10 million upfront, about $40 million in milestone payments, and royalties on future sales, Alexza gave Endo the rights to its phase 1 aerosolized fentanyl drug candidate.

Fentanyl is a long-genericized opioid that's often used by anesthesiologists to treat patients suffering acute pain after surgery or for cancer patients. For years, drugmakers have been developing different formulations of this compound and making millions off of these new formulations. Johnson & Johnson's (NYSE:JNJ) fentanyl patch Duragesic and Cephalon's (NASDAQ:CEPH) fentanyl lollipop Actiq are two of the best-known fentanyl reformulations.

Alexza's inhalable fentanyl would be a one-of-a-kind formulation, much like Duragesic was when it was approved years ago. Ironically, Duragesic was developed under the watch of Alexza's founder Alejandro Zaffaroni in his role as leader of ALZA before it was acquired by JNJ.

Despite its similarities to Duragesic, if it gets approved, Alexza's inhalable fentanyl will never become the $2 billion blockbuster drug that Duragesic once was. This is simply because an inhalable version of fentanyl will be appealing only to a much smaller subset of pain sufferers than Duragesic was.  

The good news for Alexza is that developing and bringing to market new formulations of existing drugs is significantly easier than with a new molecular entity, so the approval odds for Alexza's inhalable fentanyl and other compounds are good.

Endo is undeniably one of the best specialty pharmas out there when it comes to marketing its pain medication, so Alexza couldn't have picked a better partner (save perhaps for Cephalon) outside the big pharma sphere. For a niche drug like this, finding a strong marketing partner like Endo definitely trumps extracting a few extra million dollars in upfront cash and regulatory milestone payments. Good deal for Alexza, and minor but good deal for Endo.

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Here's a Foolish interview we did this year with Alexza's president and CEO for those looking for more background on the drugmaker.

Fool contributor Brian Lawler does not own shares of any company mentioned in this article. Johnson and Johnson is an active Income Investor pick. The Fool has an A+ disclosure policy.