CytoDyn (CYDY) Board Starts Anew with Dramatic Cleaning of the Top Leadership

CytoDyn (OTCMKTS: CYDY) investors waking up to the news of the departure of long term CEO and director Nader Pourhassan are probably very concerned but they would have forgotten the words of Pourhassen himself that everyone was replaceable. Much of the stock drop over 2021 was based on a lack of execution with respect to regulatory approval. To the 13-D group known as Advancing Leronlimab, it was their conjecture that Pourhassan’s leadership was at fault. Instead of finding a way to sooth the divide, a rift formed that polarized both sides while the shorts had a field day with their negative social media campaign. This resulted in a lack of investor confidence despite an impressive expansion of the clinical trials into NASH, Long Haulers, and cancer. Investors wondering how this news will play out need to consider the motives of the 3 factions. There are the long term bulls and Nader Pourhassan fans that love his tireless work and commitment to saving lives. This group is unlikely to sell and would possibly buy more to ensure the timely approval of the drug. Next is the 13-D group that recognized something wasn’t right but didn't end up impressing shareholders that their plan was better, and then of course there is the short mafia. How this termination plays out is anyone's guess, but in the long term this is an absolute positive that has the potential to accelerate commercialization. It is clear from the press release that more details are sure to follow on the transition plan. The naysayers have been saying for a year all the stock needs is for CEO Pourhassan to get out of the way. Time will tell if these pundits were correct and if the stock is ready for liftoff.

Investor Concerns

Many investors posted on message boards constantly that they believed it was time for a change. For a long time investors have called for Pourhassan’s departure. The most critical voices came from the Advancing Leronlimab group which was unsuccessful in their proxy fight to take over the Board. The key issues were the following:

1. Filing the BLA for HIV Combination Therapy
2. Financing the company
3. COVID-19 Clinical Trial Recruitment
4. Investigations & Lawsuits

There is nothing to indicate that the BLA won’t be filed this quarter aside for prior delays. Pourhassan has almost nothing to do with the BLA filing but indicated in his last Proactive video that things were on track. Dr. Chris Recknor is leading the charge and there is no mention of his departure. This timeline puts a drug approval of a multibillion dollar indication in Q4 of 2022.The shorts are trying to set a negative narrative by crying that the company is running out of money. In a Proactive video, Pourhassan mentioned the $8 million in the bank at the end of last quarter and stopped short of the current value to avoid any disclosure issues. The truth is no one really knows what the burn rate is with so many trials up in the air. The company may be short on money, but their focus seems to be crunching data for regulatory filings which doesn’t take as much cash as running clinical trials. They may also have a strategic investor or partner. Nader made a vivid reference in a Proactive video about a potential partnership in NASH. An interesting speculation that might explain a recently canceled conference call that followed an in-depth Proactive video is that a sizable financing partner may have arrived with funding that was contingent upon his departure. In this hypothetical scenario the board would have approached Pourhassan to take one for the team to get the bridge it needs to complete the BLA and keep the development programs going. It also explains the abrupt silence from the company as they work behind the scenes to buy time to come up with CEO candidates. This scenario would play out rather quickly and place the announcement of a new CEO within the coming weeks as the company completes its due diligence. The Company also made it clear that they were looking for a CEO with Pharmaceutical experience.

“A committee of three Board members has been appointed to initiate the search for a new permanent CEO, with a focus on identifying a candidate possessing the requisite pharmaceutical industry experience to enhance the Company’s efforts to achieve regulatory approval and commercialization of leronlimab.”

Clinical trial recruitment for the COVID-19 trials has been frustrating for management and shareholders alike. Only the Long Haulers study went as planned. Brazil infections are skyrocketing and with a number of active sites recruiting it’s feasible that they are working on completed enrollment in the trial well beyond the interim point. Now that investors realize the management shakeup precipitated a prolonged company silence they may see announcements more like the final score of a game versus the play by play. This could mean that they chose to complete enrollment beyond the interim analysis and parse the clinical data before revealing results. The millions of Brazilian COVID-19 infections support this notion, but investors may be slow on the uptake until the next announcement. The shorts were quick to point out that a $6.5 million dollar bond is needed to Access the data from Amarex and that the company doesn’t have the cash to spare. What they fail to mention is that they don’t necessarily need Amarex to get the data and that they could go to the trial sites themselves. The elephant in the room seems to be the large Samsung payments coming due. The ideas floating around that they will lose their inventory and that they have to make a payment are utterly preposterous. They have over 1.0 million in hand and 2.0 million vials contracted for this year and if they don’t make the payment Samsung can choose not to make the inventory or Samsung can extend the terms. Another option is that CYDY could simply put the order on hold and then have to wait to get back into the queue once the timing of the drug approval is more certain. In theory this could delay rollout of the drug, but investors seem to be missing the obvious economic concept of scarcity. Not having enough inventory isn’t a bad thing when the drug has such tremendous efficacy. They could simply raise their prices to compensate. As a last resort they could sell a portion of their 200 million shares in an equity raise

Positive Leadership Change

With Tanya Durkee Urbach stepping into the Chairman’s role, she replaces Dr. Kelly and can oversee the new CEO selection. The board really made a strategic move by naming an independent director as Chairman because it eliminates any idea that the next appointment would be biased to any agenda of Kelly who had a history of supporting Pourhassan. The company went out of their way to say that 3 board members were assigned to the selection committee for a new CEO. With only 4 board members its logical that Kelly was knocked out of the selection process. Tanya’s pedigree and background also sends a strong message to the shorts that their wild ideas of investigations about the company are without merit. Tanya is a seasoned attorney with tremendous experience in securities fraud who had access to see the subject matter of the subpoena requests. Had there been even a slight issue it seems implausible that she would take the risk of tarnishing her reputation by presiding over a company involved in securities fraud. In all likelihood the board got a licensing deal or financing contingent upon the departure of Pourhassan and a rebalancing of the BOD, resulting in better checks and balances and corporate governance. A snippet from the press release deserves a second look

“We are focusing our search on finding an individual with the appropriate experience and skillsets to maximize the potential of leronlimab for patients, partners, and shareholders.”

The interesting thing is that Kelly doesn’t say “future” partners but rather partners. The only real partner was Vyera unless Samsung is considered a partner instead of a vendor. Parsing this sentence reveals that some sort of partnership announcement may be imminent. The shorts can deflect all they want, but this insight indicates they are looking for a closer as a CEO.

Shorts Out of Ammunition

With a market capitalization just under $400 million it's hard to see what negative hasn't already been factored in the price. The company has multibillion dollar indications in COVID-19 critical, HIV combination, HIV monotherapy, mTNBC, cancer, NASH, and Long Haulers which are all coming to fruition this year. If just one of these squeaks through the jig is up for the shorts with valuations down here. In fact the shorts are going to be working overtime this morning with a hatchet piece to tell us how bad this departure of the CEO is after criticizing him for years. The departure of the CEO along with the retention of Dr. Kelly should give investors confidence that a deal is forthcoming or some sort of bridge financing will instill confidence with investors in the new management team. If they find a new CEO with big pharma experience the news should spill over into greater stock performance. The resounding message is that it’s very hard to stay short if the company remains silent and keeps putting out definitive news that consistently shocks the stock price higher. The overall market seems to be at a point of capitulation and so does CYDY.

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