An Interview With Cleveland BioLabs CEO Michael Fonstein

Jun.23.08 | About: Cleveland BioLabs, (CBLI)

On June 23, The Wall Street Transcript interviewed Michael Fonstein, Chief Executive Officer and President of Cleveland BioLabs, Inc. (NASDAQ:CBLI). Key excerpts follow:

TWST: May we start with a short history and an overview of your company?

Dr. Fonstein: Cleveland BioLabs is exactly five years old. The company started as a spinoff of the Cleveland Clinic and it is almost two years since we went public on NASDAQ. The company develops two types of drugs. One type is tissue protectors that protect healthy tissues in our body from a variety of stresses, including radiation and chemotherapy. Obviously, this can be further divided into additional indications. One is when we experience radiation as a result of nuclear accident or deliberate attack, which could be called a defense application. Another is where our body experiences radiation or chemotherapy as part of anti-cancer treatment, where such a drug could increase tolerance to treatment and therefore improve regimens. It is also worth noting that these tissue-protecting drugs are selective in protecting healthy tissues and not tumor cells.

The other type of drugs we are developing are pure anti-cancer drugs. The foundation that connects both types of drugs is our proprietary understanding of how to control the regulated cell death process, called apoptosis, which allows us to treat cancer cells and healthy cells differently. Our lead anti-cancer compound is completing a Phase II trial in hormone refractory prostate cancer and our anti-radiation drug is about to enter human safety trials. At the end of this year we expect to get results of the first arm of our extended safety trial for radiation protection, which may sound early; but this is the only human trial required for a defense application. This means that we would expect to have a sellable drug in less than two years.

TWST: Would you comment on the pathway for the radiation drug as far as the non-medical application is concerned?

Dr. Fonstein: This application follows the FDA's two-animal rule that was established in 2000 as a pathway to develop drugs whose efficacy would be unethical to test in humans. Really, it's hard to imagine that the FDA would condone irradiating humans using whole-body radiation just to show that you can save even the vast majority of them. This approval pathway consists of three critical elements. The first is demonstrated efficacy in two animal species, with the most advanced species in this case being monkeys. In this area we have extensive proof of principle.

The next major component is safety in humans. Obviously to get there, you need to show safety in animals first, which we have done, and we are about to start human trials. In animal studies our drug showed a tremendous therapeutic window between active dose and toxic dose, which was almost 1,000 times in rodents. The third component is the study of biomarkers in human volunteers, because we need to show that what is happening in humans is relevant to what protects the animals tested in efficacy trials. The fact that we well understand the mechanism of action behind the high efficacy of our drug plays a critical role here. In fact, I should mention that our extensive knowledge about our drug's mechanisms of action led to the recent publication of a feature article in Science magazine, which is an amazing achievement.

TWST: After a sharp drop in your share price in the early part of the year, it has stabilized to $5 and $6 per share. What are your views on where your company's stock is trading compared to the peers?

Dr. Fonstein: Let me explain what happened with the share price. The stock was trading between $8 and $11 in the previous year. At the beginning of 2008, we didn't receive a contract that we had expected to receive and the stock fell. In April, we received essentially the same contract, and we rebounded to about half of what we were trading at last year. Obviously, today's market is a bit different from last year. At the end of the day, however, we are much further along in development now than we were then, and once we achieve some key milestones, the stock should rebound in a fashion comparable to where we were last year. Don't forget that there are two very tangible technical milestones coming this year: the results of the Phase II trial in cancer and hopefully the conclusion of the first safety trial in radioprotection. These two results should further validate what we do and it would be logical to expect the stock to appreciate.

TWST: What would be the most compelling points for investors looking at your company?

Dr. Fonstein: There are several facts that make CBLI stand out among other small biotechs. First, is, of course, the quality and credibility of our science. Our affiliations with the Cleveland Clinic and Roswell Park speak volumes about the revolutionary approach we have taken to our drug development. This has recently been further supported by the international recognition of our work in radioprotection, as published in Science magazine, the most prestigious scientific journal. Second is the opportunity for recurring returns. How many biotechs offer an investor near-term revenues in the hundreds of millions through potential defense sales within two years, alongside a portfolio of products directed at a $50 billion global cancer market? I haven't even addressed the fact that defense sales would be recurring every few years due to the shelf life of the drug. The third point is mitigation of risk. CBLI is rather unique in that we have multiple strategies to deliver returns for our investors. One is our generation of revenues from defense sales. Another is potential for licensing agreements among at least two of our earlier stage products on the back of Phase I trials in the next one to two years. And, of course, we have the long-term medical applications in development over the next three to five years. Last, we have a wide range of applications for just our lead tissue protection compound, as well as several follow-on compounds in both tissue protection and anti-cancer. Most companies have one or two products, while we have more than four compounds in active development and more behind them.