Last week, one of the most promising companies in the biotech sector was suddenly thrust into the spotlight cast by the on-going Fukushima Daiichi nuclear power plant crisis in Japan. Shares of Cleveland Biolabs (Nasdaq:CBLI) had hit an intraday low of $6.81 on Friday March 12, after a massive earthquake and tsunami struck Japan . By Tuesday of last week, after explosions and fires at the nuclear power plant threatened to escalate the situation into a complete meltdown, CBLI shares had jumped to $9.60 and even higher during pre-market trading.
By the end of the same week, shares of the company, in late-stage development of an agent for reducing the risk of or preventing death following total body irradiation during or after radiation disaster, began trading down. Not only did it appear that the situation at the plant had improved, but investors were confused as to whether the company was even in direct contact with officials in Japan, as some radio and television outlets had reported, or even had enough doses on hand to actually help .
Following their offer to provide doses of their radiation antidote, known as CBLB502, company officials became concerned that “there were too many rumors and inaccuracies being reported." Very early in the story, CEO Michael Fonstein first told BioMedReports that his company had been following clear protocols to make officials in Japan aware that they had doses which could be made available for potential emergency use. Confusion followed as various analysts and writers covering the disaster for Wall Street began misreporting data about everything from the number of doses Cleveland has on hand, to just how far CBLB502 has actually traveled down the clinical regulatory path. Also clouding the story were reports hyping other anti-radiation treatment candidates which are years behind the development curve.
Buttoned-down government and military officials at various agencies who have been funding Cleveland Biolabs’ efforts to develop the radiation countermeasure for various defense and medical applications to the tune of nearly $80 million since 2007 watched closely. Officials at the company have since tried to clarify their position regarding their communications with foreign government officials and have tried to temper investor expectations.
“We have done what we can at CBLI to reach out to appropriate US authorities that may be involved in any international cooperation or aid in this situation to make them aware of CBLB502's properties and to offer a certain quantity of doses in final formulation, that could be 'ready to go' if needed and requested,” said Rachel Levine, Director, Corporate Development & Communications at Cleveland Biolabs to BioMedReports.
“We have the equivalent of hundreds of thousands of doses available in bulk drug substance, but it would take some time to get that into final formulation form following GMP standards. As an unlicensed drug, any determination or decision to approve CBLB502 for emergency use in such a situation would reside with the appropriate US authorities in cooperation with the FDA. We have no direct interaction with Japan.”
The fact is, speculators who bought shares of Cleveland Biolabs were hoping share prices would spike even higher on news that government officials had approved use of the drug in Japan. Biotech investors who have been paying attention to recent investor presentations– on the other hand- know for a fact that “any day now” Cleveland’s shares are headed higher whether or not the drug is ever used to help those exposed to the high doses of radiation during either emergency or clean-up efforts at Japan's damaged Fukushima Daiichi nuclear plant.
Thats because Cleveland Biolabs is set to land a substantial grant from the Biomedical Advanced Research and Development Authority (BARDA) that should total more than all previous grants and contracts that the company has been awarded during the last few years combined.
Officially, the company can only confirm that they are expecting grants and/or contracts worth approximately $50 million (see slide 16 and slide 36 from the company’s most recent investors presentation) but analysts covering the company have begun to hint more loudly that shares are headed back over $9 shortly due to a massive influx of government funds that may actually be closer to double the publicly stated number.
As reported in an article filed by Karvy Global Services yesterday afternoon, analysts polled by Bloomberg expect the stock to gain an average 22% to $9 in value from current levels- even as the stock has more than doubled during the past 52 weeks. According to that report, of the three analysts covering the stock, 67% recommend a buy while the remaining recommend a hold. There are no sell ratings on the stock.
“They’re anticipating a very large grant from Barda,” explains Joe Salvani, a previous consultant to the company who began his career on Wall Street as Senior Vice President and Chemical Industry Analyst at Goldman Sachs. “It is estimated that to get the compound (CBLB502) to market the company needs to spend another $30 million and that will all be covered by the government money. The shareholders get the benefit of developing this compound in an anti-dilutive manner, instead of CBLI having to spend the money to develop the compound, the government does.”
During an interview on Monday, Salvani said he anticipates that the stock should go up by the same market cap as soon as the pending news is released in the days ahead. “That’s very important to understand because the company only has about 30 million shares outstanding so if they get the grant, it could add $2 to $3 per share to the value of the company. It also continues to anoint the company as the leader in this area and it means that the government has a tremendous vested interest in the development of this compound.”
More nuclear safety and foreign government officials have become aware that Cleveland’s ground-breaking treatment exists now that the company has been thrust into the spotlight during Japan’s catastrophe and that will also pay off for investors when those entities begin to place orders for their own stockpiles.
In the meantime, it’s important for investors to realize that the expected timing of these pending grant monies was in play long before the sad drama in Japan began to unfold. Shares bounced from intra-day lows and closed at a key level of support along the 50-day moving average on Monday.
“CBLI will continue to closely monitor the situation and make ourselves available to assist if needed,” says Levine. “Our thoughts and wishes are with the people of Japan for a rapid recovery from this unfortunate natural disaster.”
Disclosure: Long CBLI