Cash-strapped Cleveland BioLabs has agreed to sell a controlling stake in the Buffalo drug development company to a Russian venture capitalist in a deal valued at $25 million.
Under the deal, announced Thursday, David Davidovich will acquire a 61 percent stake in Cleveland BioLabs and gain the right to appoint a majority of the company’s directors.
In exchange for the controlling stake in the company, Davidovich agreed to pay $3.87 for each of the 6.46 million shares of newly issued Cleveland BioLabs stock that he is receiving – a price equal to a 35 percent premium to the stock’s closing price of $2.86 on Monday, and a 21 percent premium to its average over the past 60 days.
The news sent Cleveland BioLabs’ battered stock soaring, with its shares rising by 90 percent, or from $2.55 to $5.38 in trading that was 89 times heavier than usual.
The deal provides a much-needed infusion of cash into Cleveland BioLabs, which was on the verge of running out of money after years of investing in the development of a drug that has shown promise as a treatment for radiation sickness, along with other drugs that could be used as cancer treatments. Company executives said they believe the funding would be enough to finance a crucial step in its development of the radiation sickness drug as an emergency treatment – a path that they believe is the fastest way for its Entolimod drug to begin generating revenue.
“I believe in the strong potential of CBLI’s products and its team and hope that my investment will provide the company with the necessary support to fully realize its goals,” said Davidovich, a former oil trader who as recently as 2011 was ranked No. 787 on Forbes magazine’s listing of the world’s wealthiest billionaires.
But the development of those drugs has taken years longer than expected and cost the company millions of dollars more than they anticipated, leaving Cleveland BioLabs in a constant race to raise new capital to keep funding its operations.
Cleveland BioLabs this month took a key step forward when it filed a formal application with the Food and Drug Administration so that its Entolimod can be stockpiled for use in an emergency, such as a terrorist attack or nuclear power plant accident.
But even if Entolimod gains approval under the FDA’s pre-Emergency Use Authorization process, it likely will take six months to nine months for regulators to complete their evaluation, which would push the launch date for the drug’s first potential sales as a radiation countermeasure into early 2016.
Its stock, which traded for as much as $240 a share in October 2007, had dropped to less than $2 a share in mid-May, before rallying to trade at prices just under $3 for most of June as the company finished preparation on its application and then filed it on June 15.
The agreement expands the size of Cleveland BioLabs’ six-member board of directors to 13 people, and gives Davidovich the right to appoint the seven new members, giving him effective control over the board. It also bars Davidovich from selling his shares for two years.
Another condition of the deal is that new employment agreements be reached with Cleveland BioLabs’ three top executives, including Yakov Kogan, the company’s CEO.
“We are pleased to partner with a long-term investor who shares our confidence in Cleveland Bio- Labs’ future prospects and recognizes the value of our team and pipeline,” Kogan said. “We believe this investment provides us with sufficient capital to pursue commercialization of Entolimod’s biodefense indication, assuming a positive outcome to the ongoing review of our pre-Emergency Use Authorization dossier by the U.S. Food and Drug Administration, and advance development of our oncology and vaccine adjuvant programs.”