Knobias ClipReport (8-1-2007)

Submitted from Knobias ClipReport

On July 21, 2004, President Bush signed into law Project BioShield, which provided funding to improve medical countermeasures to protect Americans against a chemical, biological, radiological, or nuclear attack. But the $5.6 billion program has had problems and has conceded that fact. The plan lacked a clear direction and left many in the industry guessing as the to the government’s priorities.

Corporate executives warned that they needed clearer direction from the program to help them decide what sort of research to launch. Executives also complained of delays, bureaucratic inertia, and other problems with the program.

The plan landed only a handful of procurement contracts and even canceled its flagship contract for 75 million doses of anthrax related countermeasures. The act left many invested in VaxGen (VXGN) and Human Genome Sciences (HGSI) holding the bag. Hollis Eden Pharma (HEPH) who was developing a radiation sickness drug, also had their contract scrapped leaving investors to pick up the $85 million tab already spent on developing the drug.

“Bioshield is a new program. That said, new doesn’t necessarily equate with a license to make mistakes,” said House Homeland Security Chairman Bennie Thompson (D-Miss.) in an interview. “Yet, mistakes have been made with regard to the development and implementation of the program.”

The U.S. Health and Human Services Department recently released its new strategy for Project BioShield and the development of medical countermeasures against weapons of mass destruction.

It was noted that the priority would be to produce drugs that would be used following exposure to biological agents. At the top of the list were antibiotics for the rodent-carried diseases plague and tularemia.

Vaccines and other preventive measures were noted to only be sought after when there was a direct threat of catastrophic consequence, yet they were expecting to pay more than $100 million for the acquisition of anthrax and smallpox vaccines and noted that it is likely to cost even more to for medicines to treat acute radiation poisoning.

One company that is positioning itself to become the main provider of therapies for Acute Radiation Syndrome (ARS) is Cleveland BioLabs, Inc. (CBLI). The Company is a drug discovery and development company leveraging its proprietary discoveries about programmed cell death to treat cancer and protect normal tissues from exposure to radiation and other stresses.

The Company recently announced that it had submitted responses to two Requests for Information (RFI) from the Department of Health and Human Services (HHS) and National Institute of Allergy and Infectious Diseases (NIAID) addressing medical countermeasures for Neutropenia (low white blood cells) and Thrombocytopenia (low platelets) arising from Acute Radiation Syndrome.

The RFI from HHS noted the agency's intention to pursue initial acquisitions of 100,000 treatment courses and further stated that there would be options for up to an additional 100,000 treatment courses to meet the US Government's requirement of at least 200,000 treatment courses. The HHS RFI stated that an RFP would be announced in August 2007, with proposals due in November 2007.

Earlier this year, Cleveland BioLabs also submitted Protectan CBLB502 to the Department of Defense (DoD) in response to an RFP for medical radiation countermeasures to treat gastrointestinal effects of ARS. The DOD RFP award would provide funding for development of the countermeasure through FDA approval, as well as a commitment to purchase up to 500,000 doses.

Knobias spoke with Dr. Andrei Gudkov, Chief Scientific Officer, who noted, “Radiation sickness will become lethal from toxicity of the immune system and toxicity of the GI tract. Both are major causes of the overall survivorship chances diminishing. With no treatment, complications such as infections, bleeding, hemorrhaging and others arise causing death.”

Currently, there is nothing available for ARS. Hollis Eden was in the area and according to Dr. Gudkov, was the strongest player, but the company lost their contract in the revamping of the BioShield program and has noted that they would not re-enter the government defense contract business.

“There was nothing available. That’s why an RFP was sent,” noted Gudkov, “It’s an unmet need. Hollis Eden’s radioprotection didn’t have GI Tract protection.”

HHS also expressed concern that Hollis Eden’s drug had been shown to improve the survival of irradiated monkeys only when administered within 4 hours of radiation exposure, saying it might be of little use by the time rescue teams reach victims. Cleveland submitted its Protectan CBLB502 for the HHS RFI and the DoD RFP. Protectan CBLB502 which was proven effective in animal models when administered up to 24 hours prior to exposure or up to 8 hours after. CBLB502 is also the first compound to provide protection from both GI and hematopoietic radiation-induced damage.

While the Company expects a response and eventual contract in the very near future, Gudkov noted that the costs associated with the human trials later this year would be paid by the contract money from the government. It’s one of the new initiatives enacted following the fallout of the past contracts with the shareholders of Hollis Eden and VaxGen bearing the burdens of past development expenses.

“The imminent event is the establishment of the DoD contract which will provide the financial ability to conduct human trials. Even without the contract, we will still conduct the trials, though it may take a bit longer. We also expect to have Phase II prostate cancer results on the Curaxin line in early 2008. These are some of the goals in place for the coming months.”

With the new plan established for Project BioShield along with the new initiative of funding portions of trials to determine safety and efficacy, the risk associated with future contract withdrawals is limited. Add to the fact that little money has been spent in the program, and one can easily see that that Cleveland BioLabs is positioning itself to become a revenue producing biopharmaceutical. Investors would be wise to watch.

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