Biodefense drug development has a unique risk-reward profile. On the plus side, there is nondilutive capital from the government to cover research and development so there is no need for marketing since government is the primary client. Safety data from biodefense is paid for by the government can be used for other indications of the drug. Cleveland BioLabs (NASDAQ: CBLI) has been highly successful in garnering federally funded grants with over $80 million having been awarded to date.

Cleveland Biolabs Inc. is a drug discovery and development company. CBLI’s tech platform is based on the ability to suppress or stimulate cell death, a process known as apoptosis. The company’s drugs can turn apoptosis on and off by affecting regulators of cell response to stresses such as radiation. Cleveland Biolabs is actively perusing three key areas of research; Cancer Treatment, Biodefense for Acute Radiation Syndrome, and Tissue Protection. CBLI has formed strategic partnerships with such entities as the Armed Forces Radiobiology Research Institute, Roswell Park Cancer Institute, the Cleveland Clinic and Chembridge Corporation. CBLI currently has nine products in the pipeline being developed by them and their subsidiaries Incuron LLC and Panacela Labs Inc. Their lead drug candidate is Entolimod™ (CBLB502) which is being developed as a radiation countermeasure through the FDA’s Animal Efficacy Rule and as a targeted cancer therapy and supportive care agent through the FDA’s traditional drug approval pathway.

The company, founded in 2003 and headquartered in Buffalo, New York, has a market capitalization of $81.66 million. Shares are currently trading at up at $1.88. In December of 2012 Oppenheimer initiated coverage on Cleveland BioLabs with an Outperform rating and a $3 price target.

Another biodefense stock to watch is PositiveID Corporation (OTCQB: PSID). PSID is an emerging growth company and developer of airborne bio-threat detection systems for the homeland defense industry. The micro-cap company recently entered into a licensing and teaming agreement with The Boeing Company (NYSE: BA). PSID will garner a licensing fee of $2.5 million from the deal. The agreement gives Boeing the sole license to make and sell PositiveID’s M-BAND (Microfluidics-based Bioagent Networked Detector) airborne bio-threat detector for the Department of Homeland Security’s BioWatch Generation 3, as well as other government or commercial opportunities that may arise in the North American market. PositiveID will retain all rights to remain the reagent and assay supplier of the M-BAND systems to Boeing in the U.S. market. The company will also hold on to the right to sell M-BAND units in international markets.  PSID has a market cap of $3.59 million but is well positioned for growth on the heels of the company’s recent strategic partnership with Boeing as well as government contracts the company has acquired. At any rate it is well worth putting on your watch list.