Cutting to the chase, Cleveland Biolabs (NASDAQ:CBLI) put forth a proposal on October 18, 2012 that if approved will provide $50 million in government funding for Cleveland Biolabs' anti-radiation drug Entolimod. To put this in perspective, Cleveland's market cap is only 65 million. But first...
Cleveland Biolabs, a clinical-stage biotechnology company based out of Buffalo, NY (with subsidiaries in Russia), has developed an anti-radiation drug Entolimod (also known as CBLB502) which can be taken 24 hours before (or even up to 48 hours after) being exposed to a 70% lethal dose of radiation. A single dose of Entolimod increases survivability 300% - Link
We covered Cleveland Biolabs in extreme detail last September (link) and since then the company has been very busy seeking additional funding for its anti-radiation drug Entolimod.
The Government, BARDA, And $50 Million Greenbacks
Buffalo Business First reporter Tracey Drury wrote on October 18th:
Cleveland BioLabs Inc. is asking federal agencies for $50 million to help fund the final development of its radiation countermeasure drug.
Cleveland's CFO Neil Lyons stated in Buffalo's article:
"We have been in discussions with BARDA for a little over a year now, and also with the FDA, in confirming what needs to be done to move our project forward," he said. "We made great progress with them. Now we've come to a point where we have an agreement on the specificity of the details, procedures and studies."
We emailed Cleveland's Investor relations and they returned the following quote via Mr. Lyons:
"BARDA gives general public guidance of approximately 180 days to evaluate proposals submitted under a Broad Agency Announcement, as this one was. This is their timeframe and subject to change at their discretion. We hope it might be faster, but there can be no assurances of this. As for an estimate of potential value of the proposal, we would say it was around $50M including proposed contract options."
Recently, Cleveland announced:
[Cleveland Biolabs] has submitted a proposal to the Biomedical Advanced Research and Development Authority of the Department of Health and Human Services (BARDA) for funding of the remaining development steps needed for U.S. Food and Drug Administration (FDA) licensure of Entolimod (TM) as a medical radiation countermeasure. CBLI's proposal is in response to BARDA's Broad Agency Announcement (BAA) CBRN BAA-12-SOL-00011.
Extremely positive news for Cleveland Biolabs. BARDA providing funding will allow Cleveland to expedite the development of Entolimod, get it to market, and begin reinvesting Entolimod profits into other drugs currently in the pipeline.
It should be noted that BARDA funding may only be used for Entolimod/CBLB502 and that it is specifically dedicated to fund activities towards licensure as a radiation countermeasure.
Defense Threat Reduction Agency Funds Entolimod
Adding weight to the odds of Entolimod getting additional funding through BARDA, the Department of Defense, through the Defense Threat Reduction Agency (DTRA), already made the decision to increase funding for Entolimod.
Cleveland Bioloabs announced that it received a $770,442 increase under the Company's existing contract with the U.S. Department of Defense (DOD) Defense Threat Reduction Agency (DTRA) that was initially awarded on January 10, 2011. It is anticipated that the additional funds will be used for development activities for Entolimod as a medical radiation countermeasure.
Michelle Ross, DVM, M.S, Ph.D., Senior Vice President of Public Health and Government Services for Cleveland BioLabs, commented, "We are very pleased to have additional funding support from the DoD to conduct critical path mechanistic studies to advance Entolimod towards licensure. There is currently no U.S. Food and Drug Administration (FDA) approved countermeasure for high levels of radiation exposure.
Cleveland announced a secondary offering on October 19, 2012.
[Cleveland's] Public Offering of 7,500,000 units at a price to the public of $2.00 per unit, resulting in gross proceeds of $15.0 million. Each unit consists of one share of common stock and one warrant to purchase 0.5 shares of common stock at an exercise price of $3.00 per whole share. Net proceeds are expected to be approximately $13.8 million.
Cleveland offered a financial update per form 4245B.
As of September 30, 2012, our total cash and cash equivalents and short-term investments were approximately $12.2 million and
$7.0 million, respectively, for a combined total of $19.2 million, of which $15.1 million is reserved for use by our majority-owned
With only $19.2 million in total cash (of which Cleveland has access to 4.1 million, see page S-1 in the above link) and a mere $200k in debt this is not entirely surprising.
Currently, the company is primarily focused on developing drugs and has few revenue streams other than government funding. The shares outstanding stand at 35.86M million shares. If the full 7.5 million shares are sold, dilution will come in at 20.9% but this has been factored into the stock price by the recent downturn in the stock price.
While dilution is not fun, Cleveland needs the funding in order to keep working on its anti-radiation drug and continue developing its drug pipeline. None of raised capital will go to the subsidiaries as they are funded through outside sources.
While the stock has gone down due to the secondary offering announcement, we think it is a good long-term speculative buy given the drug potential of Entolimod. Cleveland Biolabs reminds us of Questcor Pharmaceuticals (NASDAQ:QCOR). Questcor was a speculative small company that simply exploded once its drug Acthar took off. Cleveland has the same potential given a tincture of time and some government funding.
An excellent video interview with the CFO here.
It is also highly recommended that you read our prior in-depth article on Cleveland Biolabs.