Following the decision of the US patent and trademark office to extend the patent protection of BioDelivery Sciences International‘s (BDSI) pain candidate BEMA buprenorphine by seven years to 2027, partner Endo Pharmaceuticals (ENDP) will pay $15 million as milestone payment to BioDelivery Sciences.

We remind investors that in January 2012, Endo Pharma had inked a global license and development agreement with BioDelivery Sciences regarding the latter’s pain candidate BEMA buprenorphine. Per the terms of the deal, Endo is responsible for the manufacturing, distribution and commercialization of the candidate on a worldwide basis.

BEMA buprenorphine is currently undergoing late-stage development. While BioDelivery Sciences will be responsible for the development of the candidate leading to the new drug application submission to the FDA, Endo Pharma will submit the marketing application to the US regulatory body.

We note that following the deal, BioDelivery Sciences has received $30 million as upfront payment. The $15 million payable by Endo Pharma, on the extension of BEMA buprenorphine’s patent protection period, will result in Endo Pharma making payments worth $45 million under the deal. BioDelivery Sciences is eligible to receive a further $135 million in milestone payments in addition to royalties from Endo Pharma.

We believe that the deal with BioDelivery Sciences is a part of Endo Pharma’s strategy to sign deals/make acquisitions to counter the generic threat faced by Endo Pharma. We note that in March 2012, Endo Pharma joined hands with Mersana Therapeutics Inc. for the development of next-generation antibody-drug conjugates.

Moreover, in June 2011, Endo Pharma purchased American Medical Systems, a leading pelvic-health devices provider, to expand its product portfolio. We note that the purchase of American Medical was the fourth major acquisition for Endo Pharma since 2010. Endo Pharma completed three major acquisitions in 2010: Qualitest Pharmaceuticals (a generic company), Penwest Pharmaceuticals Co. and HealthTronics Inc.

Our Recommendation

Currently, we have a Neutral stance on the stock in the long run. Endo Pharma carries a Zacks #3 Rank (Hold rating) in the short run.

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