BioDelivery Sciences (Nasdaq: BDSI) has struck a deal to license a potential treatment for diabetic neuropathy with privately held Arcion Therapeutics.

The mix of stock and cash could total nearly $40 million if the drug wins approval.

BDSI will pay $2 million up front in stock for development and commercializing rights to the gel known as ARC4558. Arcion also would receive royalties on sales.

Some 26 million people suffer from diabetes in the U.S. 

Other stock and cash payments will be made as the drug advances toward FDA approval. The gel is in Phase 2 clinical trial and has received “fast track” status from the FDA.

BDSI envisions the market for the treatment as being up to $300 million a year.  

As a topical gel, the treatment is expected to avoid systemic side effects, BDSI said.

“We are excited about this late stage product where efficacy has already been demonstrated in a very painful condition with a significant unmet need,” said Dr. Mark A. Sirgo , BDSI’s chief executive officer.

BDSI also is preparing a new drug application for another pain reliever and has one in Phase 3 clinical trial.

“[T]his product acquisition allows us to build our pipeline, while applying our expertise in pain product development,” Sirgo added.