As BioDelivery Sciences International (NASDAQ:BDSI) looks ahead to the rest of 2013, the Raleigh company expects to reach clinical and regulatory milestones with a trio of drug candidates.

Bunavail, developed to treat drug addicts, is being readied for a new drug application submission with the Food and Drug Administration. Phase III clinical trials are nearing completion for BEMA Buprenorphine, a treatment for chronic pain. The company is also ramping up for phase IIb studies of Clonidine, a topical gel being tested as a treatment for diabetic neuropathy.

BDSI bolstered its financial position announcing this week $20 million in new debt financing that gives the company the financial flexibility to support what is becoming a very productive drug pipeline. Given this pipeline progress, it’s easy to forget the harsh circumstances confronting BDSI not so long ago.

BDSI already has a commercialized product. The FDA approved Onsolis for treating cancer pain in 2009. A series of unexpected circumstances has stymied its commercialization. BDSI hasn’t given up on Onsolis, says Vice President of Marketing and Commercialization Al Medwar. But BDSI’s current pipeline reflects a shift in direction and a effort to stretch beyond the drug-delivery technology that was the initial focus and foundation for the company.

Breakthrough for breakthrough cancer pain

Onsolis, developed for patients with breakthrough cancer pain, was supposed to be BDSI’s breakthrough drug. The product administers the drug fentanyl, a standby pain-killer. While fentanyl is an old drug, BDSI’s delivery mechanism was new – a small piece of film that dissolves when placed on the inside of the cheek. Dubbed “BEMA,” short for “BioErodible MucoAdhesive,” the technology was to be a platform technology upon which the company would offer quicker, more efficient ways of delivering existing drugs. That platform is the basis for both Bunavail and BEMA Buprenorphine, BDSI’s two product candidates delivering the drug buprenorphine.

Under different circumstances, BDSI could expect to us some of the money it made selling Onsolis into its drug pipeline. Instead, Onsolis has faced a series of obstacles; none related to Onsolis’ safety or efficacy but all of them barriers to revenue. After Onsolis’ 2009 approval, it fell under a “Risk Evaluation and Mitigation Strategy,” or REMS, stricter level of drug oversight intended for drugs that come with some safety risks. BDSI lamented that competitors who entered the market before the REMS did not fall under the same scrutiny.

The FDA last year leveled the field by requiring BDSI’s competitors in the same drug class to also comply with REMS requirements. But another development kept Onsolis off the market entirely. The FDA expressed concern about a color change in the appearance of Onsolis over time. There was no safety issue but the FDA worried the color change would confuse patients. BDSI addressed that concern by changing a non-active ingredient responsible for the color change. In March, BDSI and Swedish drug partner Meda proposed to the FDA a plan to reintroduce Onsolis in the United States. They await the FDA’s response.

A deal with investors

BDSI’s Onsolis revenue comes from royalties; Meda is responsible for selling the product worldwide. Onsolis’ absence from the market was glaringly apparent in BDSI’s first quarter financial report. Revenue in the quarter was $1.6 million, down from $16.5 million in the first quarter of 2012. The company also swung to a $12.7 million first quarter loss compared to $6.7 million profit in the first quarter of 2012.

The cost goes beyond lost revenue. BDSI must pay royalties on Onsolis to certain investors who took major stakes in the company while Onsolis was still in development, Medwar explained. The royalty is in the single digits based on Onsolis sales. Regardless of how much or how little Onsolis is sold, BDSI must make a pay the investors a minimum of $375,000 each quarter. Struck when BDSI was scrambling for financing to support Onsolis’ development and move from clinical-stage to commercialization, the deal requires BDSI to pay these investors until Onsolis’ patent expires or a generic enters the market, whichever comes later.

“It puts us in a tough situation where we can’t sell the product and we still have to pay,” Medwar said.

While BDSI would welcome Onsolis revenue, the company is not hurting for cash now. Through the end of the first quarter, the company reported nearly $50 million in cash and cash equivalents.

Less than two years ago, BDSI’s finances were bleak. BDSI’s stock plummeted in the fall of 2011 following missed phase III results of its chronic pain candidate. The failure left BDSI with dwindling cash reserves, the prospect of another set of expensive phase III studies, and the pressing need to support the rest of its drug pipeline. With Onsolis challenged to generate revenue, BDSI was in danger of running out of cash.

A partnership

Endo Health Solutions’ (NASDAQ:ENDP) January 2012 deal to license BEMA Buprenorphine for chronic pain came just in time. The deal gave BDSI the potential for up to $180 million in milestone payments, some of which have already been awarded as BEMA Buprenorphine makes clinical progress. When Endo and BDSI complete the two phase III studies on BEMA Buprenorphine this year, BDSI stands to gain its latest milestone payment of $30 million.

The Endo partnership allowed BDSI to turn its attention to other therapies. In March, BDSI licensed diabetic neuropathy treatment Clonidine Topical Gel in a $40 million deal. It will be BDSI’s first product that does not employ BEMA and Medwar said the company is making a concerted effort to diversify beyond that technology.

But the pipeline product closest to reaching the market is Bunavail, which uses BEMA to deliver buprenorphine to treat opioid addiction. BDSI aims to enter a market leader virtually owned by Reckitt Benckiser, whose Suboxone administers buprenorphine via a small piece of dissolvable film under the tongue. Suboxone generated $1.5 billion in 2012 revenue for RB.

BDSI has said Bunavail would have advantages over Suboxone, among them avoiding an unpleasant taste that is a chief patient complaint. Medwar said BDSI expects to make a splash in addiction treatment because it is served by few players. But it won’t be that easy for BDSI. Bunavail may yet challenge Suboxone but it won’t be the first new product to do so. This month, Swiss company Orexo (STO:ORX) received FDA approval on Zubsolv, its opioid addiction treatment that delivers buprenorphine via a tablet placed under the tongue. Orexo plans a September market launch.