Cleveland BioLabs' Unfounded Fear of Dilution

| About: Cleveland BioLabs, (CBLI)

The last time shares of Cleveland Biolabs (NASDAQ:CBLI) went on a run like they've seen the past few weeks, the company hit shareholders with news that it was raising money, and diluting shares. You can't blame cautious investors for over-reacting to news three days ago that the Company had filed a registration to "sell, from time to time, up to 7,808,859 shares of Common Stock on behalf of Selling Shareholders."

After the news, the stock price declined 4.57%, but if the language used in these legal filings were written in plain english, investors would have realized that this filing is not indicative of future dillution. This is a smart company making sure that anyone holding a Series B Class of Warrants that were issued in a private placement back in 2007 has to pay if they want to sell them now that the stock is trading above $5.99. If the Company hadn't filed this registration, then theoretically, the shares underlying these warrants could be sold at a higher price (hint: much higher prices are expected) without direct proceeds to the Company.

Again, by registering the shares underlying these warrants, those holding the warrants can't take advantage of cashless exercise. These are already existing warrants. We have confirmed that these shares are in CBLI's already dilluted share count.

The momentum-breaking panic wasn't helped by WBB Securities. The little known firm with a questionable reputation downgraded Cleveland Biolabs from "Strong Buy" to "Hold" on the news. Huh?

The company announced last Thursday that Michael Fonstein, Ph.D., Chief Executive Officer and President, is scheduled to present at the 17th Annual NewsMakers in the Biotech Industry Conference, presented by BioCentury and Thomson Reuters, October 22, in New York, NY. That would be a great time for Fonstein to announce what we expect to be the first of two more upcoming U.S. government grants for developing their pipeline of products for multiple defense and medical applications which protect normal tissues from acute stresses, such as radiation and chemotherapy. There is chatter that the first of these two grants could be announced before the end of this month and the second sometime in November.

We would not, however, expect Fonstein to say anything about the pending order from Israel, who has long been said to be interested in protecting a great majority of its citizen population from nuclear attack by stockpiling the Company's CBLB502.

Cleveland BioLabs- under the FDA's Animal Efficacy Rule- has been developing the drug to treat ARS or radiation poisoning from any exposure to radiation such as a nuclear or radiological weapon/dirty bomb, but Israeli government officials had made it clear to the Company that they required demonstration of efficacy in not only representative animal models, but also safety testing in healthy human volunteers.

The results of those human tests were announced recently and the clock has now started ticking on when that first Israeli order will come in. If the order comes in during the next three to four months as expected, it could add hundreds of millions of dollars to CBLI's coffers and once the initial U.S. government orders (also for national defense stockpiling purposes) begin to come in as expected during Q1 of 2011, the Company could easily have a billion dollar valuation.

That would represent an accelerated and quite admirable jump from its current 168.45M market cap. This is about as close to a no brainer as we've seen in the biotech space.

As a matter of fact, those of you who played the lucrative pop on SIGA Technologies' (NASDAQ:SIGA) recent government contract news may want to take some of those gains and put them into CBLI, which has a far greater market potential for it's drug pipeline worldwide. As always, do your own due diligence.

Disclosure: Author is long CBLI