TWST: Would you give us a quick overview of your technology as well as an overview of BioDelivery Sciences International's products?

Dr. Mannino: Fundamentally, BioDelivery Sciences is working on a broad technology platform based on a lipid formulation called a cochleate. The cochleate is a solid crystal made up of a simple natural phospholipid made from soybeans and calcium. Therefore, cochleates are very natural, safe products. With this cochleate delivery vehicle, BDSI has been able to demonstrate over the years our ability to take very difficult-to- work-with compounds, for example, water insoluble molecules many of which can only be administered by injection, and turn them into user- friendly formulations that can be taken as oral medications. The BDSI cochleates can be either dry powders or can be mixed into water based solutions. The cochleate delivery vehicles absorb the hydrophobic compound and yet retain a hydrophilic compatible external layer. Another benefit of cochleate delivery is increased stability. The phospholipid structure of cochleates stabilizes the encochleated compound against such harsh external environments as processing and long-term storage. BDSI started out solely as a pharmaceutical company, but we recently established a subsidiary, Bioral Nutrient Delivery, that's working in the processed food and personal care industry. This is possible because unlike many other delivery systems, the material used to prepare cochleates is all-natural and very inexpensive. Therefore in addition to providing good formulation and stability, we have a natural product which is both effective and inexpensive.

TWST: What are some of your target products? What is your lead product? Give us an idea of your pipeline development where you are applying this technology.

Dr. Mannino: Our lead pharmaceutical product is an anti-fungal agent called Amphotericin B. We are now working on the GMP manufacturing, and we're on track to having our GMP material and our IND filed in the early part of next year. In animal model studies we have shown that Amphotericin B cochleates greatly improve Amphotericin B, which has been around for about 50 years and is currently only available by IV injection. Using cochleates, we've been able to formulate an orally bio- available drug, with increased efficacy when compared to the injectable option. We've turned this difficult, yet very important anti-fungal treatment into a more stable and effective medication with much lower toxicity. BDSI has a number of other anti-fungal and anti-bacterial formulations in our pipeline. Along with the anti-microbial formulations, we've also been able to demonstrate the benefit of cochleates with anti-inflammatories. For example, BDSI recently reported that we can put aspirin into our cochleate delivery vehicles, deliver these formulations in a rat model of acute inflammation, and not only do we make a very nice user-friendly formulation, but we protect the stomach from the toxic effects of the aspirin. Currently one of the major drawbacks of aspirin use is the potentially severe gastrointestinal side effects. Aspirin cochleates, show substantially reduced bleeding and ulceration in the rat models compared to regular aspirin at equal dosing. In addition, we have increased the efficacy by using cochleate delivery vehicles, so now better anti-inflammatory action occurs at much lower dosages than with regular aspirin. This demonstrates a common characteristic of cochleate delivery vehicles: the ability to take compounds and along with stabilizing them, provide manufacturers with an opportunity to have enhanced efficacy, lower side- effects and lower toxicity and oral bioavailability. Part of our business model for developing the cochleate delivery vehicles, is to generate revenue early on by out-licensing. To that end BDSI already has two signed pharmaceutical outlicenses, two evaluation projects with major pharmaceutical companies underway, one evaluation project underway for micronutrients in processed food with a major, multi-national company to develop a micro-nutrient formulation that would stabilize antioxidants, retain their viability in the food product during processing and on the shelf, and make them more bio-available once ingested. In addition we have reduced the cost of our raw materials by a factor of over 100 times, developed a simple non-solvent method of manufacturing and commercially scaled manufacturing to meet the very large quantity needs of non-pharmaceutical applications

TWST: What is the current market for Amphotericin B at this point? How much, in your estimate, of the market can you garner?

Dr. Mannino: The worldwide market for Amphotericin B is about $1 billion a year. Amphotericin is a very interesting drug. Even though it's been around for 50 years, it's still one of the leading anti-fungals. Currently Amphotericin for acute infections is only available by IV injection. By turning Amphotericin into an oral drug, not only do we believe that within a couple of years we can get a large share of the acute care market, but we also believe that once Amphotericin is available in a capsule form, we'll be able to make it available for prophylaxis against fungal infections as well as maintenance when people leave the hospital. In addition, unlike some other anti-fungals which are currently on the market, Amphotericin is fungicidal, meaning it kills the fungi. Some other anti-fungal treatments are fungistatic: they only prevent the fungus from growing. The drawback of fungistatic treatment is that because the fungi are not eliminated, they have the chance to mutate and become resistant to the treatment. On the other hand, because the Amphotericin is fungicidal, there are very few Amphotericin resistant mutants out there, even though it's been around for 50 years. We believe that with oral Amphotericin, BDSI has the opportunity to get a substantial share of the acute care market. And I'm enthusiastic about the opportunity to move into the anti-fungal market in terms of prophylaxis and maintenance treatment. I believe the worldwide market for anti-fungals is somewhere around $4 billion a year.

TWST: What about the FDA process? Is it a shorter process for drug delivery than filing for a new drug?

Dr. Mannino: We believe it will be. Our goal is to take known drugs that have FDA approval and make them better, more user-friendly, less toxic and more bioavailable. In the case of a drug for which an oral delivery formulation does not already exist, we can change the route of administration from an injectable to an oral These drugs are already accepted and used by clinicians, with which the FDA has experience. All of these factors enable us to point to specific market potential and minimize our internal costs of development. The scientific basis of our Amphotericin B cochleate formulations is very strong. As a result, the majority of the funds currently supporting our Amphotericin program are coming from a grant awarded by the National Institutes of Health. By the middle of next year, we will have received about $3 million from the NIH to develop an oral Amphotericin B formulation using our cochleate delivery vehicles. The NIH has been very supportive and is very enthusiastic about cochleate drug delivery technology.

TWST: When do you intend eventually to license or seek a partner for Amphotericin B?

Dr. Mannino: At this time our intentions are to take the Amphotericin cochleates at least through Phase I clinical trials. Once Phase I is complete, we'll evaluate our current circumstances. If we have what we feel would be a good partner at the end of Phase I, we might partner at that point. But we also have the capabilities to take Amphotericin cochleates into Phase II.

TWST: How much progress have you made in getting a commercial product for the food industry?

Dr. Mannino: BDSI began working with compounds for the food industry about a year and a half ago. In the past 18 months, we've accomplished what I believe is a stable formulation of an antioxidant called beta- carotene. We've demonstrated our ability to process beta-carotene in a commercially feasible way . Most recently, we produced encochleated beta-carotene through the commercial process of spray drying and delivered four kilograms of a stabilized beta-carotene cochleate formulation prepared by a commercial manufacturing process to one of our partners. Therefore BDSI in a relatively short period of time has been able to take a difficult to work with, fragile but important micro- nutrient molecule, and deliver it in a very stable mass-produced, low- cost formulation using cochleate delivery vehicles.

TWST: Give us a realistic picture of where you see BioDelivery Sciences in the next three to four years?

Dr. Mannino: BDSI and cochleate technology have many opportunities in both the pharmaceutical, food and personal care industries. In the pharmaceutical industry, we are looking to move our own internal products forward and work with licensed partners to further their products. We also see a relatively short-term revenue-generating stream in the micro-nutrient area, specifically in foods and personal care products. We provide a very broad-based opportunity to our investors and, in the next two to three years, we believe a number of these opportunities will be reaching major milestones and, therefore, generating a lot of opportunity and potential both for our partners and for our investors.

TWST: What is your current burn rate and do you have the balance sheet in place to accomplish all your goals?

Dr. Mannino: BioDelivery Sciences International went public in June 2002 and in our first year we were pretty close to cash neutral because of our licensing agreements and our revenue from the NIH. In terms of our in-house development, we keep our burn rate low by generating funds for the development of new products from organizations like the NIH. Our business model is based on a system of partnering and licensing. BDSI does the formulation development for our partners which they then test in-house. Once we've achieved the initial milestones, our business model is to transfer the technology to our partners and help them move forward. Our partners underwrite the cost for the continued clinical development. In this model BDSI will earn a licensing fee after each milestone is achieved, for example, filing of an IND or completion of a clinical trial, and then a royalty on sales of the final product. BDSI has made a very conscious effort to keep the burn rate low, which allows us the opportunity to continue developing in a number of areas.

TWST: Besides the obvious risk of failure in the testing of a new drug, what are some of your major challenges? What concerns you the most?

Dr. Mannino: The milestones we see for ourselves in the next six months to a year are focused on generating a GMP pharmaceutical, filing our IND, getting it approved, and getting our first clinical trials done. These are all very important milestones and they are a primary focus for us at this point. Another focus for BDSI, which we see as more of an opportunity than an obstacle, is to help the drug delivery and pharmaceutical industry understand that our technology is a truly unique, viable and highly effective approach to the issue of drug delivery. If one goes to the Internet and searches for 'drug delivery,' you will find, for example, companies that work with capsules, companies that work with little devices that pump drugs and can be implanted, and companies that coat drugs. I believe our opportunity is to try to help other people in the industry to understand the fundamental difference between the opportunity that cochleate technology offers and the many other drug delivery systems that are out there that are very useful, but don't have the broad-based applications that cochleates do. Cochleate technology is truly a unique technology. It provides the opportunity for taking drugs at the molecular level and actually wrapping them up as if with a shrink-wrap, inside a solid crystal. And this crystal then protects the drug, delivers the drug to its target site, and then releases the drug. So we provide formulation capability, stability capability, reduced toxicity and better delivery. Not only are cochleates so broad-based, they are also all natural from soy lipids and calcium, and very inexpensive. The fact that cochleates are made of soybean-derived material is another benefit of this technology. As it turns out, the FDA and the USDA have already allowed nutraceutical claims to be made for soy lipids, specifically for phosphatidylserine. There have been more than 30 clinical trials back, starting in the mid-19980s, and phosphatidylserine has been shown to improve mentation, improve the functioning of the brain and increase the healing of muscles. So between the soy lipids and the calcium, cochleates are made from very inexpensive, natural and healthy materials.

TWST: Do you have the management team in place to accomplish all your goals?

Dr. Mannino: Yes. BDSI has a very strong business and scientific management team.

Dr. Frank E. O'Donnell Jr., MD, is the Chairman and CEO of BDSI.

Dr. O'Donnell is also founder and managing director of The Hopkins Capital Group.

Dr. O'Donnell has extensive experience and demonstrated achievement developing early stage companies with disruptive technology ' technology that can fundamentally change a field ' into successful and profitable businesses . Our CFO, Mr. James McNulty, is the CFO for the Hopkins Capital Group, and also very experienced and skilled in the development of startup companies.. In addition, our Board of Directors has tremendous experience in the industry and in successful companies, Thus, I am very excited about the business infrastructure that

Dr. O'Donnell and Hopkins Capital has put in place to move BDSI forward. Scientifically, Dr. Susan Gould-Fogerite and I are inventors on the critical and fundamental patents covering cochleate technology. Together we represent almost 50 years of experience working with cochleates, and we both hold upper level management positions at BDSI.

TWST: What are your thoughts about the reaction of the financial markets as to where you have come and where you are going?

Dr. Mannino: I think that we have succeeded in making the market receptive in a very difficult time. Remember, we went public in June 2002, in a very difficult market. But even in that environment we were able to help the investing community understand that we do have a unique technology. To the best of our knowledge, we are the only drug delivery company whose technology is 'disruptive' for the marketplace in the sense that it is a platform technology readily applicable to fragile pharmaceuticals and micronutrients. Our technology stabilizes, protects and delivers an extraordinary range of cargo molecules with little or no customization required. In contrast, most drug delivery companies have one or more 'incremental' technologies, that is, they enhance some limited aspect of delivery. An example of this is sustained release of injected drugs. Another important aspect of our stability as a company is that we have a large intellectual property portfolio and a very deep portfolio. And the investment community can understand that. At this point, I think it is our job to demonstrate that we've been able to reach some of the milestones we've been striving toward, in terms of getting more licensing partners and performing our first clinical trial. It's our job to continue educating the market and the industry to our uniqueness and to our earnings potential.

TWST: What sort of investor relations program do you have to get your message out to shareholders?

Mr. Zangani (PR): At this point, we are not pushing too heavy because there are a lot of things that are happening. We don't want anybody to buy the stock now if they don't fully understand the potential of the company and the times. Here you have a situation where the company can be making money by year-end or possibly waiting six months or one year. So, from an investor relations point of view, we are keeping everybody posted on what is going on with the company, but we are not actually very aggressive because we are waiting for something to happen. And we are confident that it will happen. That is the point when we will come out and tell you that we did what we said we were going to do. You see, I am not in a situation where I need to overexpose the stock because the company needs to raise money. The company is very comfortable with the existing financial position and rate of growth.

Dr. Mannino: We're actually not trying to raise money over the next 12 months. We really believe that we'll be able to bring in revenue through licensing opportunities both in the pharmaceutical and the processed food industries. And because we have a relatively low burn rate, we're comfortable that we can continue to move forward. We're very, very pleased with the progress that we've been making in all of these areas, and we believe that reaching more of these milestones will speak for itself in terms of our potential.

Mr. Zangani: We are extremely comfortable because two major entities participated in a substantial way to our IPO. PPDI underwrote 35% of the IPO. And, the third largest Italian pharmaceutical company, Sigma-Tau, underwrote 9.9%. They understood the potential of the company, and that is when they took their position. This is the kind of shareholders that we have and are able to attract. That is why I don't want to overexpose the stock and get the Street excited only to come down because the quarter is not exactly as they wanted. We are not going quarter-to- quarter. We know what we have and what we are building. That is why we are attractive to these kinds of investors.

TWST: What are some of the key investment messages that you would like to give to your shareholders or potential shareholders?

Dr. Mannino: BDSI is aggressively developing an extraordinary delivery technology which represents a long list of advantages that can be summarized as product enabling-stability of fragile compounds, oral delivery of parenterals, targeted delivery to specific cell types in the body. Cochleates are a low-cost, all natural delivery vehicle with proven ability to commercially scale manufacturing. Using cochleate technology, BDSI has balanced and diversified business opportunities: out licensing for applications to pharmaceuticals and micronutrients; applications to generic injectables. BDSI is adhering to its financial model by keeping our burn rate low, generating income through grants and licensing. BDSI has already achieved two licenses in the pharmaceutical industry and we are working with two other major pharmaceutical companies. We continually apply for and receive NIH funds to support new research and development. In addition, BDSI opened a new area of potential revenue in the processed food, beverage and personal care industries, which could be generating revenues in the near term. During the last year we've streamlined our manufacturing program, and reduced our cost of raw materials. By converting from synthetic phospholipids to soybean derived lipids we've reduced our cost of raw materials by about 100-fold. Over the last couple of months, we've been able to demonstrate scaled-up manufacturing protocols for our products in the processed food, beverage and personal care industries, which make the cochleate delivery vehicles a very viable technology in this area. BDSI is moving very aggressively in the pharmaceutical area to do the same.

TWST: Thank you. (WT)

RAPHAEL J. MANNINO Executive VP & CSO LEONARDO ZANGANI Public Relations BioDelivery Sciences International, Inc. 185 South Orange Avenue Newark, NJ 07103 (973) 972-0015 (973) 972-0323 - FAX www.biodeliverysciences.com

Copyright 2003 The Wall Street Transcript Corporation All Rights Reserved