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Drugmaker not deterred by setback

Baseball season is under way, and if Cleveland BioLabs executives were at bat, they'd have two strikes against them.

Strike two came last week, when the Buffalo drug development company learned that a key federal agency it hoped would provide millions in funding for essential clinical trials declined to do so -- for the second time in less than a year.

The company's top executives said they are undeterred by the latest rejection and will continue to push on with their efforts to gain regulatory approval for its promising anti-radiation sickness drug and find alternate funding sources, if needed. And they still believe the third time might turn out to be the charm in their continuing quest for federal funding.

Even so, last week's news stung like a Justin Verlander fastball in the ribs.

The company's stock already was badly battered last spring when a Department of Health and Human Services agency known as the Biomedical Advanced Research and Development Authority, or BARDA, first rejected Cleveland BioLabs' bid for funding.

When BARDA said no, once again, last week, it was equally bloody. Cleveland BioLabs' stock lost more than a third of its already reduced value, pushing the stock down to $1.56 -- its lowest value in more than three years. The stock has plunged by 80 percent since March 2011, when the shares topped $8 and optimism ran high about the prospects for further federal funding.

As you might imagine, investors think the company has some explaining to do. They peppered Cleveland BioLabs executives with questions during a conference call Thursday, trying to understand why the company isn't getting anywhere with BARDA.

Cleveland BioLabs executives said the crux of the problem is the structure of the human safety and animal trials that the company needs to carry out as part of the process for its anti-radiation sickness drug to -- hopefully -- win approval from the U.S. Food and Drug Administration.

That's Cleveland BioLabs' long-term goal. But, in the more immediate future, the company thinks it can generate millions of dollars in sales to the military and Homeland Security agencies, even before it gets FDA approval, by touting its Protectan 502 drug as an emergency treatment for soldiers and others suffering from the harmful effects of radiation exposure, be it on the battlefield or through a terrorist attack.

No drug has won FDA approval for use as a radiation countermeasure. Cleveland BioLabs executives hope Protectan 502 will be the first.

So far, the drug's early tests on animals have shown promising results at limiting the damage caused by radiation exposure. But before BARDA commits to more funding, it wants to know that Cleveland BioLabs is heading down the right road with the FDA in their approval process.

BARDA said it wasn't clear last spring that Cleveland BioLabs was preparing the type of studies and trials that the FDA wants. And the agency said it again last week, when it once again turned down Cleveland BioLabs' proposal for additional funding.

That's not the answer Cleveland BioLabs executives were expecting. Neil Lyons, Cleveland BioLabs' chief financial officer, told investors during a conference call in mid-March that the company was "optimistic" its bid for BARDA funding would be approved, although there were no guarantees it would be.

"We anticipated that the studies that we proposed would be acceptable," said Dr. Edward D. Martin, a senior business adviser to the company. "We were getting ahead of ourselves."

The company will find out from the FDA exactly what type of studies and trials it needs to do, following a crucial two-day meeting with FDA officials later this month.

"The FDA will say what has to happen to move toward a licensure," Martin said.

Then why did Cleveland BioLabs submit its white paper to BARDA late last year, when those FDA questions still lingered, especially when the deadline for that round of BARDA funding was March 1, investors asked.

Martin said it's now apparent BARDA wants to wait until it's absolutely clear Cleveland BioLabs is on the right track with the FDA. Before, the company thought it could try to move forward on the quest for BARDA funding at the same time it was working out the kinks with the FDA.

"They could have been clearer and said we want to wait until your FDA meetings, and they did not," Martin said. "If they had been clearer to us that they wanted to wait, we would not have submitted a white paper and we would have waited until April."

It's perfectly understandable why Cleveland BioLabs was in such a rush. After all, the company's drugs are all under development, so the faster one gets to market, the faster its first revenues will start rolling in. For now, the company is burning through $1.2 million to $1.4 million a month in cash, forcing it to constantly raise money from investors and research agencies, like BARDA, to conduct its research and keep the lights on.

"We had a very aggressive and somewhat -- now as you look at it in retrospect -- a too optimistic set of expectations," Martin said. "The bottom line is that, certainly when we submitted the white paper we had every expectation that it would be received positively."

Yakov Kogan, Cleveland BioLab's interim chief executive officer, said the company will keep pressing on. "We are focused and committed on advancing the development" of Protectan as an FDA-approved radiation countermeasure, he said.

While the company has two strikes against it with BARDA, and investors are getting restless, there's still time for Cleveland BioLabs to turn Protectan into a hit. But the pressure is mounting, and the process now is likely to drag on into the latter part of this year or even 2013.