Cleveland BioLabs, Inc. (NASDAQ:CBLI) is a small company focused on radiation research. This area of bio research does not get much investor attention due to its limited market. However, the large BARDA funding bill that was signed into law in March could bring attention to CBLI in the coming weeks. In this article I will go over the potential for, and risks against, investing in CBLI.
Let me go over some quick background on CLBI. CBLI, a clinical-stage biotechnology company, engages in the discovery, development, and commercialization of products for cancer treatment, and protection of normal tissues from radiation and other acute stresses. CBLI's main drug is Entolimod (CBLB502). It is in development as a countermeasure against death following total body irradiation. Acute radiation syndrome results from radiation exposure, for which there are currently no FDA-approved treatments. Entolimod (CBLB502) is a recombinant protein that induces a spectrum of protective effects upon direct interaction and signaling via toll-like receptor 5 (TLR5), an innate immune system receptor. It has multiple advantages compared to agonists of other TLRs, including those that are currently under development for oncology applications, stemming from its unique mechanism of action. The application of this to radiation sickness has also opened up other areas of research, namely in cancer. The company has already completed some human trials. A few additional animal and human studies need to be completed prior to submitting a Biological License Application for licensure with the FDA. The protocols for these remaining studies are being discussed with the FDA. The FDA granted Entolimod (CBLB502) both Fast Track and Orphan Drug status for reducing the risk of death following a potentially lethal dose of total body irradiation during or after a radiation disaster.
In March, President Obama signed into law H.R 307, the Pandemic and All-Hazards preparedness Reauthorization Act of 2013. BARDA (Biomedical Advanced Research and Development Authority) will receive $2.8 billion over the course of fiscal 2014-2018 to fund numerous projects. Among the beneficiaries of this money is CBLI. How sure am I that CBLI will see funding from this bill? Well, In January BARDA INVITED the company to present at their symposium. The primary aim of the two day meeting held on January 24 and 25, was to share data and serve as a forum regarding the challenges of medical countermeasure product development to mitigate the effects of acute radiation syndrome, and/or the delayed effects of acute radiation exposure. This is exactly what CBLI does. CBLI has also received funding from BARDA in the past and is very likely going to see additional funding this month.
CBLI reported earnings on May 9th. This early stage company has $21.3m in cash, $7.7m which is allocated for subsidiaries. The cash burn for the last quarter was $6.8m. Over the last year the average has been approximately $2m. At this cash burn rate CBLI should be adequately funded for the next year. This does not account for the possible large award of cash from BARDA expected soon. If CBLI is to win another cash award from BARDA it would be a boon to investors in the stock. Further dilution would be unnecessary, plus its research on radiation would be paid for by the government. A win-win scenario.
There is of course risk with CBLI, as there is with every early stage biotech. If CBLI does not obtain BARDA funding there could be downside pressure on the stock from investors that expected the news. This would also require the company to raise additional financing that would be dilutive to current shareholders. Also, even if the company is successful in its development of its anti-radiation treatment, there are no assurances that the U.S. government would purchase supplies of the drug, especially with the current sequestration in effect. Given the large potential upside from a BARDA award, coupled with its limited competition, the rewards here warrant a strong look for investors.
CBLI is a radiation drug bio that could see tremendous upside in the coming months for investors. A potential contract award from BARDA could fund the stock for the coming year and bring much needed investor attention. Tensions in Korea, which have again escalated over the past weekend could also place a focus on its radiation drug. Both investors and traders could profit nicely from an investment in this stock.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.