Medical Device Daily
and Staff Reports

Completing what may be the smallest initial public offering of a biotech to date, Cleveland BioLabs (Cleveland) pulled in $10.2 million through the sale of 1.7 million shares at $6 each.

The company, founded in June 2003 as a spin-out of the Cleveland Clinic, focuses on discovering drugs that protect normal tissues from exposure to radiation and toxic chemicals.

The IPO proceeds fell short of the $13.8 million that the company was hoping for when it filed with the SEC in February.

Underwriters, which include Sunrise Securities (New York) and Roth Capital Partners (Newport Beach, California), have a 45-day option to buy up to another 255,000 shares to cover over-allotments.

Cleveland BioLabs offered the shares at the low end of the $6-to-$8 price range, and the company's president/CEO and chairman Michael Fonstein said the market wasn't doing quite what he had hoped, although $10.2 million ($8.5 million net) will still carry Cleveland BioLabs forward for two years.

“It's not sizeable,” Fonstein told Medical Device Daily's sister publication BioWorld Today, “but that's what we need to accomplish two of our goals.”

Within the next few years, the company intends to take its lead candidate, CBLB502, through Phase I safety trials and into approval; and it plans to advance the clinical development of its second product, CBLC102, a radioprotectant molecule that represents a derivative of flagellin, a microbial protein that acts as a natural activator of NF-kB. Preclinical studies have shown that mice injected with the compound were protected from lethal doses of total body gamma radiation, and the drug also has demonstrated protection of the hematopoietic system and the gastrointestinal tract.

Due to the nature of the condition that a product like CBLB502 is meant to prevent, it is impossible for a company to do Phase II or Phase III studies. Therefore, Cleveland BioLabs said it expects a streamlined development and approval process under the Project BioShield Act that will accept for approval preclinical efficacy testing in primates and Phase I safety testing in humans. Fonstein hopes to get approval of CBLB502 within 24 months.

“We, in our development, are not that far from an endpoint,” he said.

Cleveland BioLabs has operated on a $1 million angel-round financing, a $5.9 million Series A round conducted in March 2005, plus government grants from the National Institutes of Health, the Defense Advanced Research Projects Agency and NASA. While it could have sought out venture capital in a Series B round to continue development, it decided it was the right time for an IPO, Fonstein said.

“[W]e plan to seek out government as our first customer, and we believe it's important to become compliant,” he said. The company plans to sell its product to the Departments of Defense and Health and Human Services, so compliance “is not a problem,” Fonstein said. “We have to do it anyway.”

He believes the company's radioprotectant products could bring it millions of dollars in revenues. Other companies, such as Hollis-Eden Pharmaceuticals (San Diego), also are working in the space.

The Department of Energy estimates about 20 million people in the U.S. live in those areas that could be affected, he added.

In other financing news:

• Cambridge Heart (Bedford, Massachusetts) reported filing a shelf registration statement with the SEC, for the company to offer up to $20 million of equity or debt securities.

The company said it has no specific plans to offer the securities, but when the offering is made proceeds will be used for sales and marketing, capital expenditures, continuing R&D, acquisitions and investments.

Cambridge Heart develops products for the noninvasive diagnosis of cardiac disease using its Microvolt T-Wave Alternans technology, which measures microvolt levels of T-wave alternans.

• Amphion Innovations (New York) reported that one of its partner companies, Supertron Technologies (Newark, New Jersey), a developer of solutions for preclinical and clinical MRI coils, probes and accessories, has raised $3.5 million in a Series C financing.

The round was originally intended to close at $3 million, but the financing increased due to demand, it said. With the financing, the value of Amphion's investment in Supertron will increase from $1.1 million, at Dec. 31, 2005, to $3.6 million.

Supertron said that the new round of funding will support product development, intellectual property management, staffing, marketing, financing and potential acquisitions.

Supertron's products are designed to enhance the MRI image quality and reduce scan time in existing scanners for earlier disease detection, faster drug development and integrated and/or guided therapeutics. The company also designs cryogenic coils that increase speed and improve resolution in both high- and low-field clinical, preclinical and research scanning.

Supertron reports collaborations with Harvard Medical School, Columbia University, Stanford University, University of Medicine and Dentistry of New Jersey, New Jersey Institute of Technology and University of Queensland, Australia.

• Ortec International (New York), a company developing cellular technology and biomaterials, said it will affect a 1-for-15 reverse split of its common stock as a result of an investor-mandated condition under the terms of the $6.2 million private placement completed in April 2006. With the split, the total number of issued and outstanding shares of common stock will be reduced to around 6.1 million shares at market open today. Factoring in the conversion of its existing preferred shares into common shares, another group of about 3.75 million common shares would be outstanding.

The holders of Ortec's outstanding options and warrants will be entitled to purchase about another 6.2 million shares, exercisable as follows: about 814,000 shares at $0.015, about 1.5 million shares at $3-$6, about 3.4 million shares at $6.75 and $7.50, and about 532,000 shares at $11.25 and above.

Ron Lipstein, CEO and vice chairman of Ortec, said, “We believe the reverse stock split . . . favorably impacts our current capital structure by making it more palatable and attractive to the investment community.”

Ortec's lead product is OrCel (Bilayered Cellular Matrix), with a focus on the application of OrCel to heal chronic and acute wounds.

• Douglas Burkett, PhD, president/CEO and chairman of Zila (Phoenix), has purchased 6,527 shares of the company's common stock, reflecting shares with a purchase price equal to 10% of Burkett's salary for the first half of calendar 2006.

Zila is an innovator in preventive healthcare technologies; Zila Biotechnology is an R&D and licensing business specializing in pre-cancer/cancer detection through its patented Zila Tolonium Chloride and OraTest technologies.