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Edited Transcript of BDSI earnings conference call or presentation 17-Mar-17 12:00pm GMT

Thomson Reuters StreetEvents

Q4 2016 BioDelivery Sciences International Inc Earnings Call

RALEIGH Mar 17, 2017 (Thomson StreetEvents) -- Edited Transcript of BioDelivery Sciences International Inc earnings conference call or presentation Friday, March 17, 2017 at 12:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Al Medwar

BioDelivery Sciences International, Inc. - SVP of Corporate and Business Development

* Mark Sirgo

BioDelivery Sciences International, Inc. - President and CEO

* Ernie De Paolantonio

BioDelivery Sciences International, Inc. - CFO

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Conference Call Participants

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* Scott Henry

ROTH Capital Partners - Analyst

* Ed White

FBR Capital Markets - Analyst

* Jim Molloy

Laidlaw & Company - Analyst

* Matt Kaplan

Ladenburg Thalmann & Company Inc. - Analyst

* Raj Prasad

William Blair & Company - Analyst

* Chiara Russo

Cantor Fitzgerald - Analyst

* Ken Trbovich

Janney Montgomery Scott LLC - Analyst

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Presentation

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Operator [1]

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Good day, everyone, and welcome to the BioDelivery Sciences fourth quarter and full-year 2016 earnings call. Just a reminder, today's call is being recorded. At this time, it's my pleasure to turn the conference over to Al Medwar, Senior Vice President of Corporate and Business Development. Please go ahead, sir.

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Al Medwar, BioDelivery Sciences International, Inc. - SVP of Corporate and Business Development [2]

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Good morning. This is Al Medwar, Senior Vice President of Corporate and Business Development for BioDelivery Sciences, and welcome to the BioDelivery Sciences fourth quarter and full-year 2016 earnings conference call. Leading us through the call today are Dr. Mark Sirgo, President and Chief Executive Officer, and Ernie De Paolantonio, Chief Financial Officer.

I will now read the Company's Safe Harbor Statement. Certain statements of BDSI's management made during today's call, or in responding to questions, and any other public documents that BDSI or statements of its Management, may contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are based on Management's current beliefs and assumptions about the future but are not statements of fact, and therefore involve and are subject to significant risks and uncertainties.

Forward-looking statements may include, without limitation, statements with respect to BDSI's plans, objectives, projections, expectations and intentions, and other similar statements about the future. Forward-looking statements are typically identified by words such as projects, may, will, could, would, should, believes, expects, anticipates, estimates, intends, plans, potential, or similar expressions.

These statements are based upon the current beliefs and expectations of BDSI's Management, and are subject to significant risks and uncertainties, including those detailed in today's conference call, as well as BDSI's filings with the Securities and Exchange Commission. Please note that actual results, including without limitation, results of the commercial launch of Bunavail and Belbuca, may differ significantly from those set forth in the forward-looking statements.

The risks and uncertainties relating to forward-looking statements are also subject to change based on various factors, many of which are beyond BDSI's control. BDSI undertakes no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law.

You are advised to review BDSI's SEC filings for risk factors that could impact BDSI's ability to achieve these goals described in the forward-looking statements. And with that I'll turn the call over to Mark Sirgo. Mark?

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Mark Sirgo, BioDelivery Sciences International, Inc. - President and CEO [3]

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Thank you, Al. Good morning, everyone, and thank you for joining BDSI's fourth quarter and full-year 2016 financial results conference call. Since our last call, as most of you know, our business was significantly strengthened when we reacquired worldwide rights to Belbuca from Endo, under very attractive financial terms.

The transaction was announced late last year, and closed in January. As previously stated, the financial terms of this transaction did not materially impact our cash balance, while positively impacting our cash flow. Furthermore, BDSI will not be responsible for any future royalties or milestone payments to Endo.

I'm very pleased to report that excellent progress was made early this year, in effectively and efficiently transferring day-to-day Belbuca activities and operations to BDSI. The final agreement was signed with Endo on Friday, January 6, and on Monday, January 9, BDSI had ownership of Belbuca inventory, and was shipping to wholesalers. Two weeks later, our salesforce was expanded, realigned, trained, and in the field with customers, and by early this month, we had implemented a number of our key promotional initiatives.

This covers only a small number of the actual activities involved in this transition. Accomplishing this required exceptional dedication, focus, and hard work from all of our employees, and I'm very pleased with the outcome. This should provide reassurance to our shareholders that BDSI is well-prepared and has fully assumed responsibility for moving Belbuca forward. I'd also like to thank Endo once again for their complete cooperation.

Simply put, we believe Belbuca has game-changing potential for BDSI and our shareholders. Last month, we hosted an Analyst and Investor Day in New York City, to further discuss the compelling Belbuca opportunity. I'd like to begin my remarks this morning by reiterating some of those key points we shared at that event.

First, we expect Belbuca to have an immediate and favorable financial impact on our business. Belbuca ended 2016 with a net revenue run rate of over $20 million, after nine months in the marketplace.

Importantly, we believe Belbuca creates the potential to bring our commercial business to profitability as early as the end of the first quarter of this year. You'll recall that we were previously focused on bringing our commercial business, which at the time consisted only of Bunavail, to profitability by the end of 2017. This is clearly a very important and positive change for our business.

We also inherited a solid managed care platform with Belbuca, that will allow us to drive growth in 2017 and beyond. Importantly, it's more than just having another product. Belbuca brings to BDSI a clearly differentiated product from other opioids, that could be part of a real solution to the current opioid crisis facing our country.

Finally and most importantly, Belbuca brings significant optionality to our business. Since announcing the transaction, we've received numerous calls and interest regarding Belbuca from both US and ex-US companies.

We intend to leverage these opportunities as appropriate, for the benefit of our business and shareholders. In fact, based on the current level of discussions and prior work by Endo, with the caveat that certain financial terms can be reached, we expect to be in position to advance up to two ex-US licensing agreements in 2017.

With that, let's take a closer look at the positive financial impact Belbuca is expected to have on BDSI. This is most effectively done by comparing a few key metrics between Belbuca and Bunavail.

First, Belbuca is 2.5 times more profitable per prescription than Bunavail. This greater profitability is driven by a number of factors, starting with the greater number of films per prescription, that is 55 films versus 21 films respectively.

Second, the gross-to-net discount is approximately 15 percentage points lower. And third, the cost of goods is one-third that of Bunavail. All this should, as mentioned earlier, help bring our commercial units to profitability as early as the end of this quarter.

While Belbuca is more profitable than Bunavail, we are most excited about Belbuca's future prospects because of its real potential to address the key risks facing physicians today, in treating pain with opioids. These are the risks of addiction and overdose. As it relates to addiction, Belbuca is classified as a Schedule III drug, which by DEA definition, means that it's less abusable and less addicting versus Schedule II drugs, such as morphine, hydrocodone and oxycodone, and buprenorphine is the only opioid that can make this claim with the indication for chronic pain.

In regards to overdose, respiratory depression is what typically kills someone from on opioid overdose. In other words, they stop breathing. Buprenorphine has been shown to have a ceiling effect on respiratory depression, which means at some point, you saturate the ability to lower the respiratory rate any further.

This is another significant differentiating feature from the Category II opioids. The key to Belbuca's success going forward is to better educate healthcare providers on the benefits of buprenorphine, and particularly on these two key attributes. So hopefully, you could see why we're excited here about the prospects of Belbuca.

Moreover, as you heard at our Analyst and Investor Day, we have a solid and highly focused commercial plan in place for Belbuca. In order to begin this discussion on our commercial effort behind Belbuca, it's important to understand the prescribing trends in this market.

There's been a shift in the past year in the use of extended-released opioids, including oxycodone, morphine and hydrocodone, as total prescriptions in this category have dropped by 10% among primary care physicians. However, they've increased 6% among pain specialists. This shift was largely driven by the new CDC guidelines issued in March of last year, that focused on alternative therapies for treating pain prior to opioids, and then using immediate-release opioids prior to extended-release opioids.

Regardless, the treatment shift in chronic pain towards pain specialists increases the importance of this specialty. Therefore, we've increased the sales and marketing focus for Belbuca on pain specialists, along with the most prolific long-acting opioid primary care prescribers. So it's important -- simply it does not make sense for us to spend our sales and marketing resources on a wide audience of primary care specialists at this point in time.

Now, digging into prescriber data a bit further, while the overall long-acting opioid market has declined in the last couple of years, the buprenorphine market tells a different story. Total prescriptions for long-acting opioids actually declined by 5% between 2015 and 2016, while total buprenorphine prescriptions, meaning Butrans, which is Purdue's seven-day transdermal patch, and Belbuca combined increased by 8%.

So while many healthcare practitioners are decreasing their use of long-acting C-II opioids, buprenorphine continues to be an appealing and growing option for the treatment of patients with chronic pain. The trend bodes well for the future of Belbuca.

Now within the buprenorphine market itself, Belbuca is performing very well. Of the new-to-brand scripts, meaning the first time a patient is placed on buprenorphine, Belbuca secured 21% of these buprenorphine prescriptions as of September of 2016.

Looking closer at the buprenorphine market, it's also important to understand product-switching data, in other words, where are these buprenorphine patients coming from? While not surprising, since they represent nearly 70% of market prescriptions, hydrocodone and oxycodone represented approximately 50% of the buprenorphine switches. However, 17% of the prescriptions switched to Belbuca came from Butrans, keeping in mind Butrans revenue in 2016 exceeded $250 million.

This is particularly meaningful, since this indicates that healthcare practitioners with Butrans experience are much more likely to be early adopters of Belbuca. And as such, this is an important contributor to our overall targeting strategy.

Now with all this data in hand, we set out to put a commercial plan in place. Our initial focus is on two groups, starting with the current Belbuca prescribers, defined as those that have written for Belbuca within the last six months. This number totals approximately 4,400.

The second group of physicians are currently non-Belbuca writers, who are also high volume, meaning decile eight through 10 prescribers of both short- and long-acting opioids for chronic pain, as well as Butrans. There are 2,400 of these high-potential physicians.

Importantly, our current salesforce of 65 sales representatives and five managers cover approximately 95% of the Belbuca prescription volume that was written in the second half of 2016. This total includes 20 sales representatives that we have recently added in high-volume Belbuca geographies, of which 14 were previous high-performing Endo Belbuca sales representatives.

With that, let me move on to some of our key marketing initiatives for Belbuca. As I speak, we are actually making our pain conference debut as a Company with Belbuca in one of the premier pain association meetings, the American Academy of Pain Medicine's Annual Meeting in Orlando, Florida.

Belbuca will be featured at our exhibit booth, and our team will participate in other meeting-related activities. In addition, we have three scientific presentations on Belbuca that were accepted and will be presented at the meeting.

From a marketing and educational standpoint, we will be focused on buprenorphine, the molecule, and how this differentiates it from the other opioids. We've identified the lack of full understanding of the benefits of buprenorphine as a key to the sustained long-term growth of Belbuca.

As part of this we have partnered with the organizers of the Annual Pain Week conference, which is the leading national conference on pain for front-line practitioners, where we were participating in their Pain Weekend Regional Conference series. These are two-day meetings with CME credit provided to physicians, nurse practitioners, physician assistants, and other healthcare practitioners, treating patients with pain.

As such, we have a dedicated Belbuca Symposium, each of which we expect to be attended by 100 to 150 pain-prescribing physicians. These programs will run from March through June of this year, and are an extremely cost-effective way to reach potential prescribers. The first program was held the first weekend in March in Indianapolis, where we had over 100 healthcare practitioners attend, and we have upcoming programs scheduled in April in Atlanta, Detroit, St. Louis, Oklahoma City and Raleigh/Durham.

In addition, we will host sales representative sponsored speaker programs in territories to further educate on buprenorphine the molecule throughout the year. Combined, we are confident in the ability of these programs to educate a significant number of healthcare practitioners on buprenorphine, and the use of Belbuca to help drive prescribing.

As we look at prescription levels so far this quarter, I should note that we have now come through what is one of the more challenging times for any pharmaceutical product. That is the transition or hand-off from one company's commercial team to another. I'm pleased to report that during the first quarter, we've stabilized the business during this transition, particularly around the all-important prescription volume. Which is nearly the same as when Endo vacated the selling effort in mid-December, and we anticipate early growth as we head through the second quarter with our salesforce fully deployed as we continue to implement new marketing initiatives, including a new and enhanced co-pay support program, our new speaker program, and our new promotional campaign. So we are going to have a very busy second quarter putting our brand on Belbuca, that we believe will provide for the accelerated growth, as we head into the second half of this year.

Let me now spend a few moments on the managed care situation. Extremely encouraging. Currently, Belbuca is heavily weighted in the commercial payer space, where we see approximately 66% of our prescriptions, with Medicare representing 20%. In comparison to the overall long-acting opioid market, commercial and Medicare represent 51% and 34% respectively.

Increasing Medicare percentage will be a focus for us going forward. This is really a timing issue. Medicare contract bids approximately a year prior to execution.

As you'll recall, Belbuca was launched in February of last year, so it did not line up with the previous bid cycle. Subsequently Endo submitted bids last Fall. Therefore, while we can expect some adds in 2017, our anticipation is that most of the improvement in Medicare will be seen in 2018. We're also in discussions with the VA system, where like Medicare, we could see advancement in contract discussions in the second half of this year.

From a formulary access standpoint, we have access to greater than 70% of commercial prescriptions available in a favorable formulary position, meaning Belbuca's covered, with no restrictions beyond the label, or better. This represents over 1.8 million commercial prescriptions.

With the recent formulary win for Belbuca that went into effect in January with United HealthCare, we have now preferred status over Butrans under this plan. In addition, on the pharmacy benefit management side, we have agreements in place with five of the largest PBMs, so we'll continue to look to add to this list moving forward. Even with our current coverage, we have significant opportunities to expand the business.

Now before I move on to Bunavail, I'd like to mention two important performance indicators for Belbuca that we'll be monitoring closely, as we get into the second quarter, along with total prescriptions, which will help us determine how our commercial plan is working. First, among current Belbuca prescribers, increasing the average number of prescriptions per physician will be critical.

In addition, we need to start converting those high-value non-prescribers I discussed earlier into Belbuca prescribers. While we don't have sufficient prescriber data yet, since our Sales Team has only been in the field with Belbuca a short time, we are encouraged by the early signs and feedback we are getting from the field.

In addition, while prescription volume declined by approximately 10% during the nearly six weeks when there was no promotional activity from early December until late January, we have seen weekly prescription volumes stabilize since that time. Adding to the stability we are now seeing in the prescription volume, we are also encouraged by the fact that we have added 345 first-time Belbuca prescribers in the last six weeks, which should help to generate increased prescription volume as we move into the second quarter.

Okay, let me now turn to Bunavail. We believe that Bunavail is a terrific companion product for Belbuca. This is truly a powerful combination for BDSI.

We are the only pharmaceutical Company that is promoting products for treating both opioid addiction and chronic pain, and we're doing it with the same molecule. At a time when there's so much attention on the opioid crisis in this country, we believe we can take a leadership position in promoting responsible prescribing. We continue to support Bunavail high prescribers, which totals approximately 1,200 physicians.

This covers approximately 95% of the Bunavail prescriptions written over the last six months. Ultimately, outside of key managed care contracts, our salesforce will spend approximately 80% of their time on Belbuca, and 20% on Bunavail. Based on the profitability comparison between Belbuca and Bunavail I laid out earlier, we think this is the appropriate mix moving forward.

With all that said, we did continue to see improvement in Bunavail sales in 2016. We ended 2016 with nearly 115,000 Bunavail total prescriptions, which is a 64% increase over 2015. In the fourth quarter of last year, prescriptions totaled nearly 30,000, an increase of 4% over the prior quarter.

So I want to reiterate that we strongly believe that the regulatory trends continue to support increased usage of buprenorphine naloxone products for the treatment of opioid dependence. This includes the increase of a patient cap to allow eligible physicians to treat up to 275 patients with buprenorphine products for opioid dependence, from the previously allowed 100 patient limit. Also supporting further prescription growth in this category is the Comprehensive Addiction and Recovery Act, better known as CARA. This further expands access to care, including allowing nurse practitioners and physician assistants to prescribe buprenorphine for opioid dependence.

The bottom line is that there continues to be great momentum behind the use of buprenorphine naloxone products to treat opioid addiction, which is reflected in the sales data, which showed an increase in 7% in total prescriptions for the category in 2016 over 2015, and a total dollar sales increase of 11% to $2.2 billion.

As for the new managed care contracts that began for Bunavail on January 1, we continue to closely monitor the implementation of these contracts. The conversion or change in these contracts have had a more attenuated impact so far this quarter, secondary to downstream insurance plans not yet accessing the formulary changes. However, we continue to have confidence in the ability of these contracts to improve access to Bunavail, and drive prescription volume over time. We will continue to support and seek new managed care contracts that place Bunavail in a favorable position.

We also received some good news around Onsolis. We received a notice of issuance of a new Orange Book listable patent, extending exclusivity for Onsolis from 2020 to 2027.

The patent is expected to be issued next week, and as part of our licensing agreement with Collegium Pharmaceuticals, publication of this patent in the Orange Book results in a milestone payment of $3 million. We anticipate that the ongoing work that will support the regulatory submission to qualify the new manufacturer for Onsolis will be submitted later this year, and will allow Onsolis to return to marketplace in 2018.

Now turning to our R&D efforts, we will be focused on two important and exciting programs involving our sustained release buprenorphine 30-day injectable products in development for both opioid dependence and chronic pain. The first trial will assess single ascending doses of sustained release buprenorphine injection in treatment-seeking opioid use disorder subjects. The study will assess the pharmacokinetics and pharmacodynamics of each ascending dose, but will also include efficacy benchmarks, and assessment of tolerability.

We expect to have the results from the first dosing cohort in the third quarter of this year, followed by the higher strength cohorts. This single-dose PK study will be an important value-driving event, and we will confirm whether we have met our 30-day desired formulation. Once we show we have a 30-day profile, the rest of the clinical development program is execution, given that we already know the doses we are testing are therapeutic, both for opioid addiction and chronic pain.

We believe this dosage form could potentially overcome the biggest challenges of the current buprenorphine dosage forms, which are compliant with treatment and diversion. As such, there is significant interest in this approach in the pain and addiction communities.

With that, let me now focus on our cash position. As you know, we recently entered into a senior credit facility with affiliates of CRG LP, a healthcare-focused investment firm to retire our existing credit facility and provide additional working capital for the Company, as we execute our commercial plans supporting Belbuca, and continue to assess additional commercial options.

The new credit facility consists of $45 million upon its closing, and the ability to access additional funding of up to an aggregate of $30 million in two tranches, based on achievement of certain financial-related milestones through September 2018. The term of the loan is six years, with the first three years being interest only.

Ernie will provide further details on this new facility, but the upfront proceeds, together with funds on hand, and the revenue inflows from Belbuca and Bunavail, provides us with sufficient capital to support our current operating plans into the second half of 2018. We believe we have taken the appropriate steps in a non-dilutive fashion to strengthen our balance sheet that allows us to now put our full attention on running the business.

So in closing, let me review our expected key value drivers for the next few quarters. First, as just mentioned, we anticipated the results from the first cohort of our single dose PK Study of 30-day sustained release buprenorphine injectable product in the third quarter of this year.

Second, we expect that our business development activity around Belbuca should result in up to two ex-US licensing agreements this year. We are also considering our options for facilitating Belbuca sales growth in the US. Third, we anticipate the approval of Belbuca in Canada in the first half of this year, and continue to work to secure a partner to commercialize the product in that territory.

Fourth, we anticipate that the regulatory submission that will qualify the new manufacturer for Onsolis would be submitted later this year. Finally, and most importantly, and to reiterate what I said earlier, the reacquisition of Belbuca has given us the potential to bring BDSI's commercial business to profitability as early as the end of this first quarter. In addition, the benefits of Belbuca to clinicians, managed care, and patients are significant, and we believe will provide part of the solution for the most critical issues facing the prescribing of opioids for chronic pain today, the risk of addiction and overdose.

Collectively, these benefits and others define why Belbuca should become a standard of care in this space and drive long-term value for BDSI and its shareholders. So with that, let me turn things over to Ernie, and then we'll come back and open things up for questions. Thank you.

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Ernie De Paolantonio, BioDelivery Sciences International, Inc. - CFO [4]

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Thank you, Mark, and good morning, everyone. I will now review our key financials for both the fourth quarter and year ended December 31, 2016. For a more thorough review of our financial results, please see our most recently-filed 10-K.

Before we get into the numbers, I want to remind everyone that Bunavail revenue was based on third-party pull-through data that we receive on a one-month lag basis. For the fourth quarter of 2016, Bunavail revenue includes the months of September, October, and November, but not December. However, beginning in the first quarter of 2017, we will begin recording revenue based on the sell-through method, which is recording revenue when we sell product from our distribution center, as we now have enough historical information on returns, for both Bunavail and Belbuca.

In addition we will true-up all deferred sales and costs currently on our balance sheet. Finally, in the first quarter we will recognize $20 million of deferred revenue from the $50 million milestone payment for the NDA approval of Belbuca in 2015, as the license with Endo was terminated as part of the Belbuca acquisition.

Turning to the financials. Net revenue for the fourth quarter of 2016 totaled $3.9 million, and consisted of $2 million of Bunavail revenue, $1.3 million of royalty revenue for Belbuca and Breakyl, and $0.6 million of R&D reimbursement revenue for Onsolis in the US; compared to the fourth quarter of 2015, where net revenue was $32.2 million, consisting primarily of the $30 million for the Belbuca NDA approval milestone payment, and $1.5 million of Bunavail revenue.

Total operating expenses for the fourth quarter were $16.8 million or $1.8 million less than prior year's expenses of $18.6 million. Sales and marketing operating expenses in the fourth quarter were $5.1 million or flat to the third quarter, and $2.9 million, or 36% less versus 2015, reflecting the changes made in our commercial expenses in the second quarter of 2016.

General and administrative expenses for the fourth quarter were $6.4 million, $0.5 million less than the third quarter, and $1.2 million higher year over year, reflecting higher legal expenses. R&D expenses for the fourth quarter were $5.1 million, the same as prior-year expenses, and $0.7 million higher than the third quarter of 2016, with the increase due to the Depot program.

Net loss for the fourth quarter ended December 31 was $15.9 million or $0.29 per diluted share, compared to a gain of $10.2 million or $0.19 per diluted share in 2015. Net loss excluding stock compensation expense of $3.3 million was $12.6 million, or $0.23 per diluted share in the fourth quarter versus net income of $14.2 million, or $0.27 per diluted share excluding $4 million of stock compensation expenses in the fourth quarter of 2015.

Now for fourth-quarter Bunavail financials in more detail. Bunavail net revenue in the fourth quarter was $2 million, similar to prior quarters of 2016, with dollars-per-script maintaining a net value of $70. Also this is the third consecutive quarter the unit cost of sales for Bunavail has continued to decrease.

In the fourth quarter, cost of sales decreased by 17% over the third quarter, with a total of 30% decrease since the beginning of 2016. The reduction is driven by the integration of high speed packaging equipment and waste and yield improvements, that will improve unit cost of sales by an additional 30% by the end of 2017. Gross profit income was approximately flat to the third quarter.

Now turning to our financial results for the year ended December 31, where: total net revenue was $15.5 million, and included $8.3 million of Bunavail revenue; $1.5 million of Belbuca royalty income; $2.1 million of royalty revenue from Breakyl; $2.5 million from the upfront payment from Collegium Pharmaceuticals for the licensing rights to Onsolis in the US; and $1.1 million of R&D reimbursement from Collegium for Onsolis.

Versus 2015 revenue of $48.2 million, consisting primarily of $41.8 million related to Belbuca milestone payments, including the $10 million milestone for the FDA acceptance of the Belbuca NDA and $30 million for Belbuca's NDA approval; $4.2 million was for Bunavail net revenue; $0.9 million of R&D reimbursement revenue; and $1.4 million of Breakyl royalty revenue. Bunavail net revenue for 2016 was $8.3 million, and represents a 99% increase versus 2015 net revenue of $4.2 million.

Operating expenses for 2016 were $68.2 million versus $75.3 million for 2015, with the difference attributed to expense reduction in both sales and marketing and research and development. Sales, marketing and other commercial expenses were $23.3 million versus $29.4 million in the corresponding period of 2015, representing a $6.1 million or 21% decrease attributable to the commercial reduction that took place in the second quarter.

General and administrative expenses were up $0.8 million in 2016 versus $25.1 million in 2015, due to an increase in legal expenses. 2016 R&D expenses were $18.9 million compared to $20.6 million for the prior year, with the difference mostly attributable to the Clonidine program.

Net loss for the 12 months ended December 31, 2016 was $67.1 million, or $1.25 per diluted share, compared to $37.7 million or $0.72 per diluted share for the 12 months ended 2015. 2016 net loss, excluding $14.9 million of non-cash stock compensation expense was $52.2 million or $0.97 per diluted share. This is compared to a net loss of $23.4 million or $0.45 per diluted share, including $14.3 million of non-cash stock compensation expense for 2015.

Finally, our cash balance of $32 million at December 31 represents a $12.7 million net cash reduction to our third-quarter ending balance of $44.7 million. In February, we completed a $45 million loan with CRG. In addition to paying off $29.4 million from our previous loan, we also have access, if we choose, to an additional two tranches of $15 million or $30 million additional.

These milestones are based on financial requirements occurring through September of 2018. The term of the new loan is six years, with interest-only payments for the first three years, through 2019.

The new loans, together with the profitability profile of Belbuca at 2.5 times that of Bunavail, and one-third of the manufacturing cost, and that our average current cash burn is approximately $7 million to $8 million, or half of 2016's average will provide us with runway into the second half of 2018, based on our current operating plan and objectives. Now let me turn it over to Mark for the Q&A session.

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Mark Sirgo, BioDelivery Sciences International, Inc. - President and CEO [5]

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Thank you, Ernie.

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Questions and Answers

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Operator [1]

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(Operator Instructions)

We'll go first to Scott Henry at ROTH Capital.

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Scott Henry, ROTH Capital Partners - Analyst [2]

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I guess for starters, Mark, very encouraging that you expect commercial operations to reach profitability by the end of the first quarter. Could you just give me some greater color on how you define commercial operations, what's in that number, and what's out of that number?

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Ernie De Paolantonio, BioDelivery Sciences International, Inc. - CFO [3]

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Hi, Scott, it's Ernie. I can take that question. In the commercial profitability, we have all these sales, marketing, and direct cost -- distribution costs that have to do with the distribution of our commercial products.

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Scott Henry, ROTH Capital Partners - Analyst [4]

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Okay. So do you allocate any of the G&A to that, and what about stock comp? Do you pull that out of it?

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Ernie De Paolantonio, BioDelivery Sciences International, Inc. - CFO [5]

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Well, there's stock comp in that number, but there's no allocation from G&A, like corporate G&A or other overhead.

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Scott Henry, ROTH Capital Partners - Analyst [6]

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Okay. Thanks for that clarity. And then, could you talk about R&D spend for 2017, at least relative to 2016, and should we expect any patterns in that number?

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Ernie De Paolantonio, BioDelivery Sciences International, Inc. - CFO [7]

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Again, Scott, I can take that, the spends are going to be down from 2016, roughly about a third, and that number can be modulated during the year, depending on cash flow needs.

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Scott Henry, ROTH Capital Partners - Analyst [8]

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Okay. You'll probably take this question too, Ernie. I think you said there's a $3 million ONSOLIS patent payment. How much of that do you get? Do you have to share any of that?

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Ernie De Paolantonio, BioDelivery Sciences International, Inc. - CFO [9]

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Yes. The majority of that is payable under a term agreement that we have with Meda.

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Scott Henry, ROTH Capital Partners - Analyst [10]

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Okay, a majority is payable to Meda?

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Ernie De Paolantonio, BioDelivery Sciences International, Inc. - CFO [11]

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Right. We do get to keep a portion of it.

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Scott Henry, ROTH Capital Partners - Analyst [12]

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Okay. And then, I guess just quickly for Mark. When we think about BELBUCA, would you expect 2Q 2017 to be the first steady-state run rate for that product? Sounds like Q1 will have considerable noise with the re-ramp up.

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Mark Sirgo, BioDelivery Sciences International, Inc. - President and CEO [13]

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Scott, good question, and, yes, that is the expectation. As I mentioned in my formal remarks, I think we stabilized the business in the first quarter, which I think was quite a feat, but very pleased with that. I think as we head into second quarter, I think we should begin to see some growth, but continue with the stability behind some growth in second quarter. In the second half, things should really pick up.

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Scott Henry, ROTH Capital Partners - Analyst [14]

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Okay, great. And final question. On BUNAVAIL, I think we were expecting the category to perhaps get a balance from these expanded subscribers. When would you expect that to occur, or do you have any comments on whether you think I should expect a category expansion?

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Mark Sirgo, BioDelivery Sciences International, Inc. - President and CEO [15]

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Yes, I mean, we're expecting the expansion. It was -- it picked up towards the end of last year. I think overall as I mentioned, it was about 11% increase in the prescription volume. But it's expected to continue to increase this year, I think at about the same rate as what we factored in. It is having an effect, but it's a bit slower than anticipated, but it is -- we are seeing it.

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Scott Henry, ROTH Capital Partners - Analyst [16]

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Okay, great. Thank you for taking the questions.

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Operator [17]

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Our next question is from Ed White at FBR.

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Ed White, FBR Capital Markets - Analyst [18]

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Thanks for taking my question. Scott asked most of them, but I just want to have a follow-up on one of the questions he asked. With the $3 million ONSOLIS patent payment, you said most of that goes to Meda. Where is that recorded in the income statement, the payment outflow? I understand where the inflow comes.

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Ernie De Paolantonio, BioDelivery Sciences International, Inc. - CFO [19]

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Okay, so I'll just do both ends of it for you, Ed. The inflow will be in revenue, and the outflow will be in royalty expense.

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Ed White, FBR Capital Markets - Analyst [20]

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Okay, thanks. And the other question, I just want to go back to one thing that was in the 10-K, just regarding R&D. It had mentioned that the BUNAVAIL R&D expenses were $5.2 million in [2006], due to the investigation of additional indications. I'm just curious as to what indications you're looking at with BUNAVAIL, and does that $5.2 million that you'd spent in 2016, does that go away? Should we assume that R&D for BUNAVAIL is $0 in 2017?

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Mark Sirgo, BioDelivery Sciences International, Inc. - President and CEO [21]

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Yes, this is Mark. So we've got post-approval commitments is what's reflected in most of that number, and those things will continue for the next couple of years. One is the QTC study that we've got to perform, one is a pediatric study that we have got to perform. We've made some headway in both of those programs.

And then, of course, any time we submit any new labeling changes, those types of things that includes any clinical information, we've got to file a new PDUFA fee, which is a little over $1 million. So we'll continue to see a small number of our R&D going towards BUNAVAIL for the next several years.

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Ed White, FBR Capital Markets - Analyst [22]

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Okay. Thanks, Mark. And then lastly, just a bigger picture question, for the CARA. With the nurse practitioners and the physicians assistants now being allowed to prescribe, when do you think we're going to see that impact? Is that going to be early 2017, or is that more looking out to the fourth quarter of 2017 or even into 2018?

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Mark Sirgo, BioDelivery Sciences International, Inc. - President and CEO [23]

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Al, you want to take that?

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Al Medwar, BioDelivery Sciences International, Inc. - SVP of Corporate and Business Development [24]

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Hi, Ed, it's Al. So the training is now available for PAs and nurse practitioners, so they've now reached the point that they can go ahead and get the training. So you probably -- I would expect that you would start to see some effect over the course of the year.

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Ed White, FBR Capital Markets - Analyst [25]

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Okay, thanks a lot.

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Operator [26]

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We'll go next to Jim Molloy at Laidlaw.

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Jim Molloy, Laidlaw & Company - Analyst [27]

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Thanks for taking my questions. Could you talk to what sales number on BELBUCA gets you to breakeven for the commercial enterprise? And is there any -- beyond that, is there any thoughts when the entire enterprise might hit breakeven?

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Mark Sirgo, BioDelivery Sciences International, Inc. - President and CEO [28]

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Sure, so as we said, if we're close to it, without giving out exact numbers, Jim, we mentioned we would be close to it by the end of this quarter. So the run rate that we mentioned at the end of 2016 is close to that number. So we aren't that far removed from it to begin with, as we closed out the year with that run rate.

We are not going to give any numbers in terms of when we're going to get to corporate profitability at this point, but probably as we get later into the year we'll be able to address that. Obviously, it will be largely driven off the sales of these two products, particularly BELBUCA.

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Jim Molloy, Laidlaw & Company - Analyst [29]

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Got it. Thanks for taking the question. I know that the BUNAVAIL product has been a challenge, and you recognize that, and moving the focus to BELBUCA makes a ton of sense. Is there a thought of moving BUNAVAIL off and just finding a strategic partner for that, and be done with it?

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Mark Sirgo, BioDelivery Sciences International, Inc. - President and CEO [30]

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As I've said before, strategically, we've always been open minded. If an opportunity like that presents itself and makes sense to us, we'll certainly seriously consider it. In the meantime, I think we have properly positioned it. We haven't given up on it by any means. We think some of the market dynamics will help to drive it. We've got some good managed-care contracts that have yet to really see the full benefit behind those, so we'll be open minded to strategic opportunities around it, should they present themselves.

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Jim Molloy, Laidlaw & Company - Analyst [31]

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Okay. Thanks. The last question maybe on SG&A, down from 2015 to 2016. Any thought on the trend of that for 2017?

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Ernie De Paolantonio, BioDelivery Sciences International, Inc. - CFO [32]

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2017 should be in line with those two years as well. In line with 2016.

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Jim Molloy, Laidlaw & Company - Analyst [33]

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Great, thank you. Thanks for taking the questions.

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Operator [34]

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Moving next to Matt Kaplan at Ladenburg Thalmann.

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Matt Kaplan, Ladenburg Thalmann & Company Inc. - Analyst [35]

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Just digging into BUNAVAIL a little bit. Help us to understand in terms of the -- and qualify the impact of the new contracts on potential BUNAVAIL sales going into 2017.

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Mark Sirgo, BioDelivery Sciences International, Inc. - President and CEO [36]

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Yes, so as I mentioned in my formal remarks, the ones that kicked off in -- January 1, they have been a bit more attenuated than anticipated, but it's because the downstream insurance plans haven't activated as quickly as anticipated. So as they do, which we expect they will, we'll see an improvement.

Having said that, we are not putting a lot of the commercial effort behind it, Matt, so it's really going to be driven -- the growth behind BUNAVAIL is going to be driven off of the managed-care plans that we've got in place, and we are putting commercial effort behind those specific plans. But I think that's probably about as much as I can do to comment on your question.

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Matt Kaplan, Ladenburg Thalmann & Company Inc. - Analyst [37]

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I guess what's going to impact, how is the uptake going to be by the downstream plans in those contracts? What drives that?

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Mark Sirgo, BioDelivery Sciences International, Inc. - President and CEO [38]

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Well, we are in constant communication with the PBM and working with some of the higher-volume downstream plans, to helping them educate them if need be, around the product. Additionally, we're making sure that they are aware of the dynamics that have changed in the formulary. I think we continue to be amazed by the people that are unaware of the changes that take place, and when in fact, they aren't accessing the best product in terms of discounting for their members. So it's a bit more education, but I think as we move into second quarter we should see improvement in the plans that we had outlined that kicked off January 1.

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Matt Kaplan, Ladenburg Thalmann & Company Inc. - Analyst [39]

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Yes. Okay, that's helpful. And then, for BELBUCA, can you talk about potential for a label change there with respect to the need for a down titrating, and then back up titrating when patients transition from other opioids?

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Mark Sirgo, BioDelivery Sciences International, Inc. - President and CEO [40]

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Sure, that's really not been a major problem that we've encountered, but it is a methodology that's a bit different from some of the other opioids. But there's been information that's been submitted to the agency recently, that would allow for not only the way that we're suggesting that they titrate people now in the product, but it will be a little bit more streamlined opportunity that we hope will get in the label within the next six months.

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Matt Kaplan, Ladenburg Thalmann & Company Inc. - Analyst [41]

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Okay, that's helpful. Thanks for taking the questions.

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Operator [42]

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Our next question today is from Raj Prasad at William Blair.

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Raj Prasad, William Blair & Company - Analyst [43]

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Thanks for taking the question. Can you just give a little bit of color on script growth in Q1 2017, and how that is related to the UNH formulary for BELBUCA? Is it much, or can we expect a little more of a ramp-up from that formulary status later in 2017?

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Mark Sirgo, BioDelivery Sciences International, Inc. - President and CEO [44]

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Yes, I think that one is just getting under way. We're definitely seeing some benefit from it, some growth from it, but as I said, it takes a little bit longer for some of these downstream plans to actually activate. But we do expect, because we're in a preferred position over Butrans, that, that one will have a sustained benefit for us throughout this year. But things should start to pick up to a greater degree in second quarter around that particular opportunity.

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Raj Prasad, William Blair & Company - Analyst [45]

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Okay. And regarding the recent Opana ER panel, is abuse-deterrent formulation status something that you'd think about doing for BELBUCA down the line? And if Opana would be taken off the market, or the oxymorphone products, is that a category do you think BELBUCA could penetrate the market?

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Mark Sirgo, BioDelivery Sciences International, Inc. - President and CEO [46]

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Well, first and foremost, we're a Category III opioid so we've already got the designation being less abusable, less addicting without having to add or change the formulation in any way, shape or form. It's not that we wouldn't consider it, but we don't think that's a priority at the moment. Having said that, we -- part of our messaging around the opportunity with BELBUCA is indeed to either prevent people from getting the CIIs, it's unnecessary since we have the same effectiveness, and certainly a better safety profile to start with BELBUCA, or those patients that are already on a CII opioid, whether it be Opana or one of the others, that they convert them over to BELBUCA.

So I think we're not prioritizing any kind of change in the formulation right now that we've got. We think that it's more than adequate, and secondarily, I think we're trying to secure market share from all of the Category II extended-release formulations of the opioids.

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Raj Prasad, William Blair & Company - Analyst [47]

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Okay, great. And maybe one last one. (inaudible) 2017 milestones of up to two commercial transactions with BELBUCA, can we assume that BUNAVAIL would be in a similar execution strategy? Are you looking for any partnering opportunities for BUNAVAIL?

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Mark Sirgo, BioDelivery Sciences International, Inc. - President and CEO [48]

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We've looked for partnering opportunities with BUNAVAIL, and I think it's more limited just because of the margins on the product and particularly in other parts of the world. Having said that, BELBUCA for the things that we've indicated, is a very different opportunity for us. There's a great deal of interest, the margins allow us to get into partnering discussions much more easily than we did with BUNAVAIL. So I think we're focused right now just on BELBUCA. If the opportunities present themselves, if BUNAVAIL is part of those discussions, we're certainly considering that.

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Raj Prasad, William Blair & Company - Analyst [49]

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Thanks for the questions and congrats on the progress.

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Operator [50]

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We'll go next to Chiara Russo at Cantor.

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Chiara Russo, Cantor Fitzgerald - Analyst [51]

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Thank you for taking my questions. Just curious, you said that you're looking to get approval in Canada, and you're looking for a partner there. I was wondering if you could give us a little bit more color around the Canadian market potential?

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Al Medwar, BioDelivery Sciences International, Inc. - SVP of Corporate and Business Development [52]

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Chiara, it's Al. So the market in Canada, as you know in general, will be considerably smaller. But I mean, it's still a reasonable market for us to pursue. You've got some of the same dynamics that are going on here in the US going on in Canada. They have had access to Butrans, so they do have some familiarity with buprenorphine. So I think it's a reasonably decent opportunity. You often hear people say that the size of the Canadian market is roughly about 10% of the US. I don't know anything to say that the pain market here would be any different.

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Chiara Russo, Cantor Fitzgerald - Analyst [53]

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Okay, that's helpful. Sorry, I think that was the only question that I had right now. Thank you.

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Operator [54]

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We'll go next to Ken Trbovich at Janney.

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Ken Trbovich, Janney Montgomery Scott LLC - Analyst [55]

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Mark, I was wondering if you could do us a favor and draw a word picture around the 65 sales reps that you're going to have on BELBUCA, and how that picture would compare to what existed when Endo had 375 and whether because of that there's a natural way for us to think about even the possibility of a US co-promote around geographies or physician specialties?

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Mark Sirgo, BioDelivery Sciences International, Inc. - President and CEO [56]

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Yes, very good question. Endo took a shotgun approach, they took the old-fashioned approach, and I'm not criticizing it at all. But they went very, very broad, they were down to the decile 1s and 2s in the primary care space. And unfortunately when the new CDC guidelines came out last March, it really took away any benefit with that type of an approach, because as we said, the prescribing tightened up tremendously around primary care. A lot of that business moves over to pain specialists. So it's just a focus situation more than anything else in the pain space right now. It doesn't benefit you to have a lot of people out there calling on doctors that aren't going to write enough to justify having that rep calling on them.

So we have obviously narrowed the footprint tremendously. We've got a very focused approach, as I mentioned in my formal comments. We're looking at these decile 8 to 10 prescribers that have yet to write up for BELBUCA, and we're focused on the writers that have already begun to write BELBUCA. And as I mentioned, a lot of these are people that are knowledgeable about buprenorphine because they have been writing for products like Butrans.

So it's certainly a much different approach than what Endo was doing. Having said that, Endo, as I mentioned I think at the Analyst Day, they shared a lot of information with us. If they would have kept the product, they would have had a much different approach as well, which is very similar to where we are right now. So we can build off this platform. Once we start to see the growth we're expecting this year, we can certainly add people. We would do that, particularly in key geographies. But I think for now, we've got the right plan, and we're just anxious to now execute.

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Ken Trbovich, Janney Montgomery Scott LLC - Analyst [57]

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So does that mean that we shouldn't think of this as a situation where, geographically speaking, you might have opportunities to look at a co-promote? I guess the reason I'm asking, you talked about ex-US opportunities, but it wasn't clear whether or not there's a US opportunity on a co-promote side or not.

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Mark Sirgo, BioDelivery Sciences International, Inc. - President and CEO [58]

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Yes, I'm sorry. Didn't really answer that part of your question, I apologize. There certainly are, in two ways. One, as I mentioned, we're covering deciles 8 through 10. There's the other seven that aren't covered right now. So someone who's got a broader reach that, where BELBUCA may be of benefit to them, and that opportunity might be of benefit to us, we would seriously consider it.

Separately, there are areas, such as long-term care, where this product we believe would be ideal, but that's another area that we aren't in right now, but other companies are. So we would certainly entertain conversations around an opportunity like that. So in specialty areas, where we are not, we would consider them. And in broader areas, where we can't be, such as these lower deciles, we would consider something around that, too. So, absolutely.

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Ken Trbovich, Janney Montgomery Scott LLC - Analyst [59]

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Okay. And then, just specific to the Depot buprenorphine program, if I heard you correctly, you said data from the single ascending dose third quarter, would you start the multiple ascending dose, or was that really an 2018 timeline?

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Mark Sirgo, BioDelivery Sciences International, Inc. - President and CEO [60]

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Yes, the multi is probably an 2018 timeline. We'll wrap up this current study by the end of this year, and it's more than likely that the multiple dose will be really part of 2019 -- or 2018, sorry.

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Ken Trbovich, Janney Montgomery Scott LLC - Analyst [61]

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Okay. And then, specifically within indication, I know you talked about the idea here that there's a potential both within addiction and pain. Is the focus as we think about this program, should we think of this program primarily as being -- so, for example, when you get to the part at which you've got to decide on a pivotal program, is it too early to think about which one would be prioritized?

Certainly I understand that the market or the awareness of buprenorphine for addiction is much higher; although obviously Purdue has had success with Butrans and the pain market, it's still a small fraction of what we see as the overall size of the addiction market.

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Mark Sirgo, BioDelivery Sciences International, Inc. - President and CEO [62]

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Yes, for competitive reasons, we aren't going to share that information, but having said that, we'll keep an eye on the competition to see how they are performing and where we are, timing wise, in conjunction with that with our Depot. Secondly, we'll obviously take a close look at how we are doing with BELBUCA.

So I think there's a number of factors that we're going to be considering to decide on which product goes in front of the other. So at this point in time, we've not done that. Obviously this first study will be done in people that are opioid dependent.

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Ken Trbovich, Janney Montgomery Scott LLC - Analyst [63]

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Okay, thank you.

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Operator [64]

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Ladies and gentlemen, with no additional questions at this time, that will conclude today's conference. Once again, I'd like to thank everyone for joining us today. Have a good day, and you may now disconnect.