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We are hearing some very loud and credible chatter that long-awaited good news may be coming for Cleveland BioLabs (NASDAQ:CBLI), the company that engages in the discovery, development, and commercialization of products for human protection from radiation.

In the first quarter of this year, the company submitted additional paperwork about Protectan CBLB502 (a radioprotectant molecule with multiple medical and defense applications for reducing injury from acute stresses, such as radiation and chemotherapy) to a potential customer - the U.S. Government's Department of Defense. Many on Wall Street believe that the company has the best chance of not only getting significant funding from the DoD, but also a potentially bigger order from the Biomedical Advanced Research and Development Authority (BARDA) who would acquire doses of the drug for the Strategic National Stockpile.

Share prices began to see some appreciation Thursday afternoon after we broke this news, but could rise significantly higher in anticipation of news and subsequent developments involving these government contracts.

We reached out to the CEO & President of Cleveland BioLabs, Michael Fonstein, for his thoughts on these and other issues. The following is an unedited transcript of our Q&A:

BioMedReports: Have there been any important business developments for CBLI since we last spoke to you? If so, what are they?

CBLI's CEO & President, Michael Fonstein: There have been a few notable advances at CBLI over the past 9 months or so, since we last spoke.

First, is a highly significant and more recent development – the FDA granted fast track status to CBLB502 for Reducing the Risk of Death Following Total Body Irradiation During or After a Radiation Disaster. This achievement is important from a development and potential licensure standpoint, as it provides the opportunity for expedited review of a BLA for CBLB502 and allows for a rolling submission of data (which we have planned). In addition, the label attached to this application is incredibly broad and outlines a clear path to move forward with final development steps.

While we are on the topic of development, we have made significant progress in moving CBLB502 forward for the Acute Radiation Syndrome indication over the past few months. In May, we completed dosing of our second healthy volunteer safety trail for CBLB502 in 100 people. We are still finalizing biomarker data analysis, etc., but on an observational level, we were pleased to see consistency in overall side effect profile, as in our first, 50 person trial. The primary objectives of this study were to gather additional data on safety, pharmacokinetics, and cytokine biomarkers in a larger and broader subject population in order to finalize an appropriate dose to take forward for the large, definitive human volunteer safety study.

The other major development I’d like to highlight is probably the most significant in terms of business. In February, we submitted a response to the Department of Defense’s Request For Proposal (RFP) for development and acquisition of a radiation countermeasure. We and the rest of the world are currently awaiting the final contract award to be made public, and we believe CBLB502 is well positioned as a potential award candidate. A potential contract to come from this award is likely to have two primary components: a budget for advanced development of a radiation countermeasure through FDA licensure, and conditional commitments to purchase up to 37,500 doses, upon licensure. While we wouldn’t expect the total dollar value of such a contract to exceed a few tens of millions, it would be highly significant in terms of validation, as the DoD is globally recognized as a leader in radiation research. It also potentially sets up a successful program for potential purchases from the even bigger potential customer in the United States, the Biomedical Advanced Research and Development Authority (BARDA) of the Department of Health and Human Services (HHS), whose mandate is to develop and acquire countermeasures for the Strategic National Stockpile. According to publicly released reports from January, such acquisitions of radiation countermeasures are slated for 2011. Based on similar types of acquisitions for other countermeasures that have taken place over the last 2 years, one would expect this type of contract to be valued somewhere in the range of $100-300 million. Then there are other potential foreign buyers, such as Israel, or other countries with a seemingly imminent nuclear threat. We’ll see what happens, but the next year or so should prove very exciting for CBLI.

BioMedReports: What are the next important milestones for the company? How soon do you expect to reach them?

Michael Fonstein:
Our primary focus for the next 12 months or so is execution of the remaining development steps for CBLB502 and submission of a BLA to the FDA, as well as securing any potential contracts for both development funds and potential purchases from the US and/or other friendly foreign governments.

As far as CBLB502 development goes, we have a few clear milestones to achieve, which are of course supported by dozens of daily tasks. There are three primary aspects to development under the Animal Efficacy Rule, by which CBLB502 is being developed. One is of course manufacturing and controls, another is animal efficacy, and the third is human safety and biomarkers. We have a few critical final steps among each of these areas to complete in order to finish a BLA filing. We intend to run our final consistency batches of cGMP product in the coming months and begin our BLA submission with the manufacturing portion of the package in early 2011. For the animal efficacy portion, we have done studies in more than 800 non-human primates to date, looking at multiple aspects of potential efficacy, but we will still need to perform a pivotal animal efficacy study under GLP conditions, with supportive care measures. We are currently conducting supporting studies and preparing to finalize a protocol for this study with the FDA towards the end of the year. We would expect the pivotal animal study to be run in 2011. Finally, we are finishing analysis on the second human safety study we just completed, and will need to make a public top line summary announcement regarding the outcome in the coming weeks or month. We will still need to nail down a final protocol with the FDA for a definitive human safety study in a larger group of volunteers; which is also slated to happen towards the end of this year, with the study planned for 2011. Overall, our goal is to finalize all data and submission for our BLA filing in 2011.

On the contract side, there are some potentially closer milestones, including the DoD contract I mentioned earlier, as well as some additional development contracts we have applied for with other federal agencies. A final award decision on the DoD contract is literally expected any day or week now, and there may some other nice chunks of development funds from other agencies coming before year end. Any of these would certainly demonstrate levels of commitment to the CBLB502 program.

BioMedReports: Financially, how is the company doing? Are you looking to raise money in the near future?

Michael Fonstein: Based on cash and receivables on our balance sheet at June 30, 2010, we have $7.2 million in CBLI corporate cash, with a burn rate of only $200,000 per month, and another $3.2 million in cash for our joint venture, Incuron, which is developing our Curaxin family of anti-cancer molecules. The burn on the Incuron money is also approximately $200,000 per month at this point. Remember, any government grants or development contracts are not reflected on our balance sheet. These are recognized as revenues as we draw upon them to pay receivables. Also remember that government funded work is 100% cost reimbursed, plus a small allowed overhead. We currently have about $5.2 million in funds remaining under current government contracts to develop CBLB502, and have applied for additional monies.

Given this position, we are feeling pretty good and have no overwhelming need to raise money, unless there are opportunistic circumstances dictated by a nice movement in the share price on the back of some potential contracts or other benchmarks in the coming months.

CBLB502 is funded for acute radiation syndrome, as well as for its first medical trial for supportive care in head and neck cancer patients, which we hope will open enrollment at the end of this year. Our Curaxin program is also funded under the joint venture, which has milestone commitments of up to $18 million over the next 2.5 to 3 years. What is not currently funded are additional medical trials for CBLB502 for supportive care in cancer treatment, or development of CBLB612, our hematopoietic stem cell inducer and mobilizer. So depending on what happens in the coming months, it may be something we look at.

BioMedReports: From a science and technology perspective, have you continued work in the lab on the Protectans and Curaxins? Any new developments there?

Michael Fonstein: We have certainly been active on both these fronts. I’ve already spoken a bit about CBLB502’s development progress towards potential licensure for Acute Radiation Syndrome. While this is more clinical research than lab work, I want to just remind folks that we are in fact also prepping for our first medical trial of CBLB502 as a supportive care agent in head and neck cancer patients undergoing radio and chemotherapy. We have been working closely with Roswell Park Cancer Institute to finalize the protocol, and update our investigational brochure for additional data gained in healthy volunteer trials. The head and neck study is to be a Phase I/II trial, looking to determine safety and tolerability of CBLB502 in cancer patients, as well as looking for trends of efficacy in reduction of severity and occurrence of side effects of therapy, such as mucositis.

As far as mechanistic studies of CBLB502, we continue to find new twists that add additional insights into CBLB502’s mechanism of action, which is always helpful as you progress in development.

On the Curaxin front, we’ve published a few peer review papers on mechanistic discoveries of our first generation compound, CBLC102 or quinacrine. One published study in Cell Cycle form December 2009, examined the ability of our prototype Curaxin to inhibit heat shock response in tumors, making them selectively susceptible to heat shock inhibitors, especially if applied in combination with certain cancer therapies provoking proteotoxic stress. This opens a whole new avenue of potential treatment options that may broaden the spectrum of tumors responding to therapy by cutting off an escape mechanism.

Another study, published in Oncogene in January of 2009, indicated that treatment of cancer cells with CBLC102 resulted in the inhibition of an additional molecular pathway (PI3K/Akt/mTOR) that is considered to be a highly relevant anticancer treatment target. Simultaneous targeting of several molecular pathways is a unique property of Curaxins. This attribute makes them very promising drug candidates that may be effective against a wide spectrum of human malignancies and reduces the risk of development of tumor resistance to this class of compounds.

This spring, our Chief Scientific Officer, Dr. Andrei Gudkov presented some exciting early discoveries about our proprietary next generation Curaxin molecules at the American Association for Cancer Research (AACR) Annual Meeting in Washington, DC.

More recently, we announced that a discovery regarding potential antiviral applications for our Curaxin family of molecules was pre-published online in the Journal of Virology. The published study, conducted by Cleveland BioLabs scientists in cooperation with investigators from Roswell Park Cancer Institute and Cleveland State University, examined the ability of CBLC102 and other similar compounds to inhibit a mechanism used by picornaviruses to synthesize their proteins that is essential for their viability. This group of viruses includes important human pathogens such as poliovirus. In particular, Curaxins’ specific interaction with double-stranded RNA effectively blocks synthesis of viral, but not cellular proteins. This study provides proof of principle for prospective extension of Curaxins’ applications from anticancer to antiviral applications.

All of this is still early research, but quite exciting.

BioMedReports: What are your short and long term plans moving forward?
Michael Fonstein: Well, our most important short term goal is to complete development of CBLB502 for the acute radiation syndrome indication and to secure contracts for additional development funding and more importantly, procurement. Accomplishing these goals would change the entire essence of CBLI, in terms of valuation and credibility. For the longer-term, we are eager to move our medical applications forward and get some real clinical evidence of efficacy for CBLB502 in supportive care, and for our Curaxin anti-cancer molecules. We have a pipeline of other exciting compounds that we’d like to see brought forth, as well, either under our own hand, or through strategic partnership or collaboration.

BioMedReports: What are your biggest challenges as a company at this point?

Michael Fonstein: At this point, the single biggest challenge for us is execution. There are a myriad of tasks involved in prepping for and conducting the remaining development steps for CBLB502 for its first indication in defense. We are focused on keeping things moving forward in a timely fashion, while being ever mindful of the importance of our working relationships with the FDA and the federal agencies partnering with us on the CBLB502 program. We feel that many of the typical drug development risks regarding efficacy or safety have been mitigated at this point, given all of the work done so far, but execution remains paramount. To this end, we have been proactive about augmenting our regulatory affairs and clinical development teams, so we ensure that the right expertise is within our grasp. I think our recent accomplishment of securing fast track designation is evidence that we have the right people in place to guide us through this next critical year.

BioMedReports: Your stock price seems undervalued right now. Would you agree?

Michael Fonstein: Like many CEOs of microcap or smallcap biotech companies, I do believe our stock is undervalued. Based on many conversations with investors, I think there are a few reasons in our case. First is the oddity of CBLI as both a biodefense and medical play. The biodefense space experienced some early, highly publicized failures, which have largely overshadowed the ensuing success stories. Many traditional biotech investors are, as a result of this, leery of the government as a potential customer, and are willing to wait for concrete successes before participating. At the same time, our medical developments are preclinical, and this too carries a discount in the eyes of traditional biotech investors. It is more the retail and smaller healthcare or generalist funds that have been excited by the early prospects for CBLI’s success through biodefense and see the credibility of our science and broad range of applications as long term upside. At the moment, we are certainly only valued for the CBLB502 defense program, and even that is discounted until we are able to deliver concrete purchase commitments. I have to believe that CBLI’s valuation will improve over time, with delivery of milestones and achievement of initial revenues. Only then can we start to gain more credibility regarding our potential to deliver similar achievements on the medical or commercial side of our business.

Disclosure: Long CBLI

Source: Interview: Cleveland BioLabs CEO Discusses Recent Developments, Milestones Ahead