BioDelivery Sciences Stock: Collegium Buyout Good, Not Great (NASDAQ: BDSI)

BioDelivery Sciences to Be Acquired

This morning, the news broke that BioDelivery Sciences (BDSI) is getting acquired by Collegium Pharmaceutical (COLL) for an all cash offer of $5.60 per share. This should feel like great news to me. It will certainly be an instant boost to my portfolio, as I was fairly overweight on shares, as well as have various Call options I bought that are expiring this week as well as over the next few months.

Still, I’m left feeling that this buyout closes the door on much bigger opportunities. I have been arguing that BDSI was undervalued starting a couple years ago, having bought in myself the year previous to that. I have continued arguing that they were undervalued each time they fell under $4 and pounded the table for them to be bought in September of 2020.

Why BDSI is Worth More

I tried to keep coming up with new info to write about them over the last year, but it was pretty much a waiting game (until the recent litigation news that I was planning on writing on and just had not gotten to yet). My idea over the last couple years was this- there was some risk there with the litigation they had with Aquestive Therapeutics (AQST), but if things went smoothly there (and it eventually did), I saw them being worth $8-$10. They were still gaining market share in the long acting opioid (LAO) market, had recently acquired ELYXYB to get a foothold in the neurology/migraine market, and I saw their expenses going down after their litigation ended.

I also thought they were starting to reach a critical size where they gain a lot of value from scaling. They already had all the sales teams in place they needed and most of revenue growth was going to make it to the bottom line. Analysts seemed to agree, as 4 analysts had an average earnings estimates of over $1 by 2024:

Without the overhang of litigation, I was just waiting for them to take off, which is why I bought various time frames of call options. I understand why others have gotten frustrating holding them, but I think some patience would still pay off.

The flip side to this is that it is always possible I was just placing too much of a premium on BDSI’s growth, considering the industry. Without them having a true blockbuster drug, they may have always just traded at lower earnings multiples forever. Taking a very cursory glance at Collegium’s earnings, they trade at a very low P/E (~5x Forward P/E) and they should have the same growth that I was arguing BDSI was going to have, albeit off a larger base. I will have to take a deeper look, but perhaps they will be just as good of a value or better than I was arguing BDSI is, especially considering the synergies of these deals they get with scale.

Conclusion

BioDelivery Sciences being bought by Collegium is a good, but not great outcome, in my opinion. With the litigation against Aquestive going in favor of BDSI, the skies were looking very clear for the future. I think BDSI had a long growth runway and would be able to continue growing organically, as well as with acquisitions or buybacks in the future.

I see this situation as one where I waited through the most risky period and finally made it to the time frame thinking big returns were coming, only to have them cut short with mediocre returns. Said another way, if I realized that the payout was only going to be $5.60 per share in the end, I probably would not have held through all the risk of litigation, especially any time it was above $4 or maybe $4.50. I was holding because I always saw them reaching $8 or more eventually.

I quite frankly haven’t decided how I will vote, assuming there is a shareholder vote. I would certainly see some instant gains, as all my shares were bought under $5.60, though that will be the case for majority of shareholders as they have not been over $5 for more than a few months in the last 5 years. I expect most will want the opportunity to be done with the roller-coaster and the offer to be accepted. The good news for me is that the worst case is that the deal goes through, I make some money, and I can decide if I want to take a position in COLL.

I’m curious of everyone else’s take on this deal, so please do comment below. I realize that as much of a roller coaster that BDSI has seemed to me, there are many that have followed them and owned shares a lot longer. Another SA writer, Bret Jensen, has been covering BDSI since 2016 and I hope he writes an article with his thoughts.