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Sadly, terrorism is a real threat to the United States homeland as we just saw last week. However, we can take a little solace in the fact that the recent terrorist attack involved crude homemade non-radiological bombs. The fact remains that the world we live in is under constant threat from much larger terrorist attacks, namely the kind that could involve "dirty bombs."

A dirty bomb is a radiological weapon that combines radioactive material with conventional explosives. Obviously, the purpose of such a disgusting weapon is to inflict as much radioactive poisoning upon human beings as possible. In an effort to be prepared for the damage a radiological weapon might inflict on the American people, the United States Government began providing funding to certain developmental companies.

One company that the U.S. Government has provided money to for developing radiological countermeasures is Cleveland BioLabs (CBLI).

Cleveland BioLabs, is a developmental stage biopharmaceutical company aiming to treat cancer, prevent and treat acute radiation syndrome (ARS), and counteract the toxic effects of radio and chemotherapies for oncology patients. Let's delve a little deeper into this interesting biotech company, along with others involved in preventative measures against potential attacks.

The "Project BioShield Act" was enacted on July 21, 2004, as part of a broad strategy to help defend America against weapons of mass destruction. Congress appropriated $5.6 billion to the Project BioShield Special Reserve Fund to support the research, development, and acquisition of priority medical countermeasures against chemical, biological, nuclear, and radiological (CBRN) threats. The Biomedical Advanced Research and Development Authority (BARDA) is the arm of the U.S. Department of Health and Human Services charged with allocating the funds. In an underreported development, Congress recently earmarked additional funds for BARDA. The Pandemic and All-Hazards preparedness Reauthorization Act of 2013 was just signed into law on March 13th, designating an additional $2.8B for disaster related drug research and development.

In September of last year, BARDA awarded up to $106 million to Cytori Therapeutics (CYTX) to develop cell therapies for thermal burns and radiation injury. The aim of this deal was to evaluate and create new countermeasures for widespread thermal burns after a mass casualty event like we saw in Fukushima in 2011. For a company with a market cap of only $166 million and limited sources of revenue, a contract this large is critical in furthering development of existing and possible future therapies that could potentially grow the company.

Another company that has recently signed contracts with BARDA is SIGA Technologies (SIGA). SIGA specializes in the development of therapeutic solutions for some of the most lethal pathogens such as Smallpox, Ebola, Dengue and Lassa Fever. Since these pathogens are highly contagious, they are all potential vehicles for biological terrorism and warfare. Fortunately, these types of threats rarely happen. However, the federal government has to be poised to contain these pathogens if a large-scale biological attack were ever to take place. Having stockpiles of these therapeutic agents on hand is critical in being able to not only treat patients, but also to prevent the spread of the pathogens between hosts. In March, SIGA made its first confirmed delivery of ARESTVYR to US Strategic National Stock Piles for the treatment of Smallpox. The contract with BARDA entitles SIGA to up to $400 million for the delivery of two million courses of ARESTVYR. SIGA is a small biotech company with a market cap of $166 million and revenues under $10 million. A contract this size is a major milestone to a small cap biotech company only trading at $3.22 per share.

Other companies have been able to aid their growth with the help of the BARDA as well. Chimerix (CMRX) recently announced that the U.S. Food and Drug Administration (FDA) granted Fast Track designation for CMX001 for the prevention of cytomegalovirus (CMV) infection. In addition to the company's development for this indication, CMX001 is also being developed as a medical countermeasure in the event of a smallpox release, which is similar to what SIGA is doing. An acute, highly contagious disease caused by variola virus, smallpox is a disease of interest to government agencies because of concerns that the virus could be used for bioterrorism.

In rabbits and mice, a dose of CMX001 was shown to provide protection against a lethal viral inoculum. Chimerix is actively pursuing development of CMX001 for the prevention and treatment of smallpox under the "Animal Efficacy Rule," which allows the U.S. Food and Drug Administration to rely on efficacy data from animal models of human disease in the development and approval of a compound.

Emergent BioSolutions (EBS) signed a contract in 2012 that will provide a solid base of revenue for years to come. This contract includes an eight-year base period of performance, valued at approximately $220 million along with up to seventeen additional one-year option periods. The costs involved are being shared between the government and Emergent, which involves establishing a Center for Innovation in Advanced Development and Manufacturing. This will facilitate advanced development of chemical, biological, radiological, and nuclear medical countermeasures. It also ensures domestic pandemic influenza vaccine manufacturing surge capacity and provides workforce development training programs to address the U.S. government's preparedness priorities and needs.

Similar to these previously mentioned companies, Cleveland BioLabs is also well positioned to capitalize on legislation injecting an additional $2.8B for disaster related scenarios. The company's lead compound, Entolimod, is being developed as both a cancer treatment and as a radiation countermeasure. The company refers to the latter as Entolimod Biodefense, and the compound has proven to be quite remarkable in clinical studies. Cleveland's research and development of these compounds is of utmost importance, as we need to be prepared for the event of the use of a dirty bomb.

Entolimod is clearly the U.S. government's best hope at having an effective biologic countermeasure if such an event were to occur. In June of last year, Cleveland released the results of a study that tracked the efficacy of Entolimod in combating radiation exposure in 179 rhesus monkeys. In the randomized, placebo-controlled study, the monkeys were exposed to a 70% lethal dose of total body irradiation. The results from the largest study of its kind ever conducted were impressive, as the survival was nearly three times that of the control group. Only 27.5% of the control group survived the exposure, but over 70% of the monkeys treated with Entolimod survived after only a single dose.

The company has also completed two successful clinical studies that involved testing the safety of Entolimod in 150 healthy human volunteers, with a flu-like syndrome being the most frequent adverse side effect. Similar to Chimerix, Cleveland is utilizing the Animal Rule of 2002 to meet the FDA requirements to file a Biologic License Application (BLA) as a radiation countermeasure. The FDA established the Animal Rule to provide an approval process for drugs and biologics in specialized cases when clinical effectiveness studies on humans are not feasible. The company is working closely with the FDA to determine the projected human efficacious dose based on comparison of biomarker responses in humans and in animals.

Funding is, of course, always a battle for developmental pharmaceuticals, but Cleveland has a strong ally in the U.S. Government. The Defense Threat Reduction Agency and Chemical Biological Medical Systems divisions of the Department of Defense (DOD) provide funding to support the development of drugs and vaccines as medical countermeasures against potential terrorist attacks. A quick look at a chart from the most recent 10-K shows that the company has been successful in securing funding contracts from DOD:

As of December 31, 2012

Funding Source

Program

Total

Award

Value

Funded

Award

Value

Cumulative

Revenue

Recognized

Funded

Backlog

DoD

CBMS-MITS Contract (1)

$

48,322,695

$

6,933,761

$

5,421,948

$

1,511,813

Russian Federation Ministry of Industry & Trade

CBLB612 Pre-clinical (2)

4,556,553

3,101,199

888,686

2,212,513

DoD

DTRA Contract

2,359,548

2,035,452

1,592,565

442,887

55,238,796

12,070,412

7,903,199

4,167,213

Russian Federation Ministry of Industry & Trade

Xenomycins Pre-clinical (2)

4,817,870

3,550,284

949,264

2,601,020

Skolkovo Foundation

Curaxin research (2)

4,892,382

4,892,382

1,577,464

3,314,918

$

64,949,048

$

20,513,078

$

10,429,927

$

10,083,151

The BARDA Catalyst

In addition to the DOD funding and Russian support of Cleveland's oncology pipeline, the company filed a development proposal with BARDA on October 18th, 2012, for Entolimod's remaining studies. For investors, BARDA's decision on the proposal is a potential immediate catalyst as Cleveland requested $50 million to fund all remaining activities needed to file for the BLA. By delving a little deeper into the company's comments on the pending BARDA contract, we can better predict the decision on their request for funding. On the most recent conference call, in response to a question regarding the timing of the BARDA decision, CFO Neil Lyons stated:

Our policy on discussing further about the BARDA contract is pretty much not to comment. The rules out there BARDA publishes are fairly clear, 180 days to review our proposals submitted and we are in that process. And we will comment if we get an unfavorable review as soon as we get an unfavorable review, but if the discussions continue in contract negotiations we will not comment until we have a signed contract to announce.

So, 180 days from October 18th would have been April 15th. According to Mr. Lyons's quote on the March 14th call, the company would have immediately announced an unfavorable review. As the calendar has now moved past the 180-day time frame, it seems smart to infer that BARDA has not declined the proposal and that contract negotiations are ongoing. It is my opinion that a press release stating that a BARDA contract has been signed will be announced at any moment, and the contract should serve as a significant catalyst to Cleveland's share price. In anticipation of the BARDA proposal being accepted, the company has been working closely with the FDA to design the remaining studies needed to file the BLA.

Investors should be aware that it is possible BARDA denies the proposal for funding. However, this is an unlikely outcome for a number of reasons. Mainly, the Department of Defense already has an option to purchase 37,500 doses of Entolimod upon approval. Additionally, Entolimod is exactly the type of drug that the additional funding to BARDA was meant to support. If a tragic event were to lead to Acute Radiation Syndrome (ARS) from radiation exposure, the government would want to be prepared, rather than being blamed for derailing the development of an effective countermeasure.

Other pipelined drugs:

The focus of this article has been on Cleveland's lead candidate, Entolimod Biodefense, but the company and its majority-owned Russian based subsidiaries, Incuron, LLC and Panacela Labs, has a significant pipeline focused mainly on oncology and orphan applications. According to Cleveland's website, Entolimod Oncology (CBLB502) is a targeted oncology biologic. This recombinant protein is an agonist of toll-like receptor 5 (TLR5), an innate immunity receptor that acts by mobilizing antitumor immune response and reducing treatment side effects on normal tissues.

Unlike other TLRs, TLR5 does not induce a septic shock-like syndrome or a "cytokine storm." A Phase I advanced solid tumor study is currently ongoing at Roswell Park Cancer Institute. The other Cleveland drug candidate is a preclinical synthetic lipopeptide. CBLB612 is progressing towards an Investigational New Drug application (IND)) for a clinical trial to evaluate safety and potential efficacy as a stimulator of hematopoietic stem cell proliferation and mobilization.

Incuron LLC, a Russian Federation based joint venture with Cleveland BioLabs, recently received the go ahead to begin a Phase I dose escalation study of the oral administration of Curaxin CBL0137 in patients with advanced solid tumors that are resistant or refractory to standard of care treatment. The same study is already underway in Russia. The company believes that CBLO137 is a primary target of interest for potential partners and has already received 4.6 million in a grant from the Ministry of Industry and Trade of Russian Federation. The other product candidate from Incuron, Curaxin CBLO102, has been granted orphan status by the FDA for hepatocellular carcinoma, and is currently in a Phase I trial for patients with advanced non-small cell lung cancer. Cleveland's other subsidiary, Panacela Labs, is still in pre-clinical stages with its five candidates, but it's worth noting that its Xenomycins, a family of compounds in development as anti-infective agents, was awarded a three-year $4.8 million development contract from the Ministry of Industry and Trade Russia.

Conclusion

I have researched countless biopharmaceutical companies and listened to hundreds of conference calls, and I believe my experience has allowed me to effectively evaluate management teams. Navigating the trials and tribulations of a developmental biotech is always a hazardous job, and even a great executive team can fail. It certainly makes a shareholder feel more confident in their investment knowing they have a competent team at the helm.

Cleveland BioLabs has a first rate management team. Look back at transcripts of all of the conference calls, and you will notice countless references to driving shareholder value. Thus far, management has been brilliant at securing grants and government funding, and every move is calculated to support the longer-term goals of the company. They have worked closely with the FDA and will be in position to quickly commence the remaining studies needed to file for the BLA as soon as the BARDA money is secured. After approval, the path to monetization will be much clearer than most newly approved drugs, as government agencies and defense departments will be the selling targets.

Furthermore, it would be smart for every nuclear plant in the world to keep Entolimod on hand, in case of a catastrophic accident. With the current state of the world and the BARDA catalyst looming, Cleveland BioLabs is, in my opinion, considerably undervalued with a market capitalization of only $83 million.

Source: Cleveland BioLabs Offers Medical Countermeasures Against Potential Terrorist Attacks

Additional disclosure: Disclaimer: This article is intended for informational and entertainment use only, and should not be construed as professional investment advice. They are my opinions only. Trading stocks is risky -- always be sure to know and understand your risk tolerance. You can incur substantial financial losses in any trade or investment. Always do your own due diligence before buying and selling any stock, and/or consult with a licensed financial adviser.