- Short attack timed to capitalize on consolidation and thin trading
- The Oregonian misquotes and twists statements taken out of context
- SEC case appears to be closed. There is no ongoing investigation
- August looks to be packed with positive news catalysts
CytoDyn Inc. (OTCMKTS: CYDY) has been going through a massive consolidation since March 30, 2021 after they announced a statistically significant 82% reduction in mortality at day 14. The great news fell on deaf ears at the FDA who instead of issuing an EUA lashed back at shareholders who were badgering them for approval with an FDA statement that sent the stock careening south.
On May 24, 2021, just as the stock was recovering, the 13-D group known as Advancing Leronlimab, took a very peculiar tactic of bashing management and in doing so aligned themselves with the shorts. After the top-line data announcement at the end of March, the shorts and the 13-D group have been controlling the narrative.
Shorts have made impressive returns using the tactics of spreading Fear, Uncertainty, and Doubt (FUD) amongst the longs and 13-D group. Their latest tactic is to paint a picture that there is a new SEC investigation mentioned in the latest 10-K filing. Unfortunately for the shorts this is a complete fabrication.
What is so sad is that there appear to be investors posting on the message boards that are actually falling for this FUD and wanting to vote the Advancing Leronlimab (13-D) proxy.
On July 29th, 2021 the stock traded only 604,000 shares which was the lowest volume day since COVID-19 was first discovered. Inflection points come at the end of consolidation periods and the shorts know this and started an attack this weekend. They started with invading the message boards and then an article in The Oregonian. Notably absent from their attacks is the shorts leader from Stat News, Adam Feuerstein, who decided to take a sabbatical for the month of August.
Dissecting The Oregonian Hatchet Piece
This article takes everything the company said in its 10-K filing about the SEC investigation out of context to create the illusion that there is a massive investigation starting right now over its claims of efficacy. In retrospect, the SEC looks like it has moved on and completed their probe. So while this snippet of news is “newly filed” it’s really about the company reporting old news at best. In this new article The Oregonian recycled part of their old article from May 18th, 2021 when it claimed the FDA found “no clinical benefit” from the drug. So along with the announcement of an investigation that is likely already closed it is attempting to paint a picture that the drug didn’t work according to the FDA statement about leronlimab. The Oregonian alleged the FDA said
“data the company had published that purported to show a small benefit from leronlimab as a COVID-19 treatment were statistically insignificant, and that trials had found “no clinical benefit.”
The source for this was a conclusion drawn by another author at The Oregonian not the FDA. The FDA never said any of these things and quite frankly readers should demand a retraction. Here is what the FDA actually said.
“the data currently available do not support the clinical benefit of leronlimab for the treatment of COVID-19.”
Readers need to parse the qualifying statement in the first part of the sentence which says “the data currently available.” The facts show at the time of this statement the FDA had not reviewed the 14 day mortality data which showed an 82% reduction in 14 day mortality. Notice the FDA is never quoted as saying “no clinical benefit.” It is a fabricated quote and a conclusion taken out of context.
Regarding The Oregonian claims that the FDA said leronlimab was statistically insignificant. Here is what the FDA actually said in context, not the fabrication presented by The Oregonian.
“None of these analyses met statistical significance when using established and reliable analytical methods that correct for multiple comparisons. However, as noted above, such analyses may inform the design of future clinical trials investigating leronlimab for the treatment of COVID-19.”
The FDA again qualifies their statement sticking to “none of these analyses” which means nothing that they looked at yet. Their reference to “reliable analytical methods that correct for multiple comparisons” refers to subgroup analysis that should have been specified in the protocol before it was started. The FDA takes serious issue with trial results that were not pre specified. They will not rely on subgroup analysis but they do say at the end that “such analyses may inform the design of future clinical trials.” This is the equivalent of the FDA asking for more data.
A confidential source that has been in contact with Dr. Janet Woodcock stated that she interprets the sub-population as hypotheses generating and the FDA Statement was in response to the large number of emails – with some being vulgar and partially threatening – from advocates for leronlimab. The letter was not meant to adversely impact future clinical trials or be used as a tool for the shorts to print money.
For many that believe the relationship with FDA is broken, they are ignoring obvious signs. The FDA has actually been showing its support through the ongoing open label extension for the severe/critical trial patients at recruitment centers and continued issuance of eIND’s.
Case Closed – Recycled News
The SEC and DoJ reviews are centered on statements made in regard to Covid-19 and were undoubtedly triggered by the FDA statement. CytoDyn had a chance to clear up any misconception and responded appropriately to the SEC. During this investigation investors learned that the BLA Refuse to File letter seemed to be a direct result of an unprofessional submission by its ex CRO Amerax. The bottom line for all intents and purposes is that the case is closed.
The most interesting language in the 10-K filing is the next to last sentence which should have the supporters of the 13-D group and the shorts on edge.
“In addition, the Company and certain of its executives have received subpoenas in connection with an investigation being conducted by the United States Department of Justice. The subpoenas seek testimony and/or records concerning, among other matters, leronlimab, the Company’s public statements regarding the use of leronlimab as a potential treatment for COVID-19 and related communications with the FDA, investors, and others, and trading in the securities of CytoDyn.”
Many investors that look at this quickly see subpoenas have been given to CytoDyn Executives and then stop reading. Just continue reading a little bit more and then it comes into focus, the last snippet says “the communication with . . . . others, and trading in the securities of CytoDyn.” CytoDyn executives have not traded the securities unless they were exercises or part of a 10b5 plan. The DoJ would know this so the question is who does this statement really apply to. Why did CytoDyn lawyers put this language that doesn’t apply to them in their filing? Why did CytoDyn at the same time of the 10-K set the shareholder meeting for October 28th, 2021 and not push it out and use it to their tactical advantage against the 13-D group?
The message boards are awash with evidence that the 13-D group is out to help themselves not investors. Some investors in the 13-D group still appear to be trading the stock. How can investors trust completely reckless behavior like that? The optics are pretty bad and some more public figures are making comments that would influence the proxy which is not allowed. Many investors see that the 13-D group is self-serving and has the potential of turning a drug development company into a testing lab and are not happy with current management but see the 13-D as a worse option. If the DoJ probe extends out to the 13-D group which is indirectly foreshadowed in the filing and the boldness to set a shareholder meeting, then the 13-D group will be forced to fold its hand.
CytoDyn has stringent controls throughout the clinical trial process starting with biometric controls in hospitals to ensure data is accurate and the source of entry is known to several compliance reviews of press releases prior to final approval. There has not been any intentional misstatement of fact that would result in a material action against CytoDyn. The DoJ investigation is more likely to shed more light on the short manipulation as a result of Citron’s and Adam Feuerstein’s actions. In contrast, Gilead’s DoJ’s investigation was related to kick-backs to FDA employees and resulted in a $97 million fine. Then there was the $2.8 billion settlement with Purdue Pharma over misleading marketing of Suboxone opioid addiction therapy. The DoJ is also going after Teva Pharmaceuticals for their conspiracy to subsidize Medicare co-pays for Copaxone which is a multiple sclerosis therapy. The DoJ targets bad actors with Revenues not developmental stage pharma companies. The DoJ follows the money.
Super News Cycle Coming
August is shaping up to be a very busy news cycle for CytoDyn shareholders. Those that panic out of the stock are doing nothing but lining the pockets of the shorts. Many positive news catalysts are in the queue.
Brazil Trial Initiation – Investors are still in a wait and see mode to see when the Brazilian trial can start. They have regulatory PTSD when it comes to regulatory approvals and are sitting on the sidelines waiting to pile in. The reason to pile on is based on a quick enrollment because Brazil is still showing high levels of available patients that will lead to a quick readout. Investors are not fearful or place any risk on the trial results because they know that the clinical trial protocol is optimized this time and the endpoints have already reached statistical significance in the CD12 trial and of course there are so many anecdotal reports because patients don’t just come off of ECMO. This will be the most important catalyst driving stock price because investors basically already know the outcome; they are just fearful that the regulatory bodies are on a witch hunt to stop CytoDyn. Brazil hasn’t shown any indication that politics is a factor.
The Brazil trial has taken a number of months to get going so investors may have forgotten that representations were made that other agencies like the MHRA would look at interim data and possibly move forward with an EUA. So the initiation and completion of the trial are very large catalysts for the stock price going forward. Then the most obvious catalyst would be an approval in Brazil and revenues that would follow. All this is possible in the coming months and would seem more realistic if the trial was initiated. The last report indicated some final approvals were needed.
Final Report on TNBC – The final report on TNBC should answer some questions regarding the biomarker analysis and hopefully include response data. According to the CEO the data is only expected to improve and right now the data is showing superiority to Gilead Sciences (NASDAQ: GILD) Trodelvy. The TNBC data was released after the shareholder call in an 8-K filing. The data was excellent and to seem to highlight that the drug was performing exceptionally well. An interesting anecdote is that there also seemed to be room for a companion diagnostic that seemed to predict a positive or negative response to the drug.
Basket Trial Results – The testimony from the patients was a foreshadowing of an excellent report. In the latest shareholder call it was indicated that the data would be out soon and that it was looking good. Good data supports commencement of the next clinical trial and also opens up the possibility of a BTD.
Interim NASH Analysis – It is widely expected that CytoDyn will release its interim analysis for the NASH trial now that it completed enrollment of its 60 patients. This could be days to weeks away but it too is expected to have a big effect on valuation. Before the pandemic NASH was one of the largest growing disease indications and was at epidemic proportions. It was likely surpassed by Long-Haulers during this pandemic but the fact remains it is a big disease indication and a disease indication that hasn’t shown any efficacy without toxicity. Intercept Pharmaceuticals (NASDAQ: ICPT) got a Complete Response Letter (CRL) for their NASH drug Ocalvia. Allergan (NYSE: AGN) which bought Cenicriviroc had a CCR2/CCR5 inhibitor that showed a modicum of improvement, but it wasn’t effective enough to develop a drug to take early in the disease because so many could recover on their own at that point with diet and exercise. The only effective NASH Cirrhosis drug seems to be Galectin Therapeutics (NASDAQ: GALT) Belapectin which showed a statistically significant reduction in esophageal varices, but the company is taking a very long approval pathway and wont complete their clinical trial until 2023. So there could be a change in leadership in NASH if CytoDyn’s results are good enough to advance them to a phase 3. In preclinical studies Daniel Linder of the Cleveland Clinic said “our results showed that leronlimab effectively inhibited fatty liver development, the hallmark of early stages of NASH.” The probability of a positive outcome in NASH is likely.
BLA Filing – The last major news update about the BLA filing was the submission of the Dose justification at the start of the month. Since the announcement the Company added a little color to the news and indicated in the shareholder update that they were waiting on a response from the FDA that would indicate that the part they submitted about dose justification would not be a reason for a Refuse to File (RTF) letter. What many investors learned from the SEC review about the RTF letter was that the sketchy professionalism of Amarex, their ex-CRO, was primarily responsible for the rejection. Dr. Recknor appears to be quite competent and should have submitted a compelling dose justification. The BLA was filed over a year ago so with a rolling review status it’s very likely that the FDA reviewed a substantive part of the BLA submission package. Clearing this hurdle is the equivalent of a BLA submission and the market should act accordingly. Most of the work is done on the BLA and has been done for quite some time but there is no point to submission unless the dose justification no longer remains an impediment. A go ahead from the FDA would do wonders to restoring the confidence of shareholders so the October 15th deadline seems like an internal deadline that assumes the worst. It’s very possible that after the FDA gives them the green light on this dose justification section they may just accelerate the entire filing and surprise everyone.
Finalize Long Hauler Phase 2b/3 Protocol – The Long Hauler data showed 18 out of 24 symptoms being relieved. They also had a battery of blood samples that were taken daily that really helped them hone in on the Mechanism of Action (MOA). This was an exploratory trial so the next step is establishing an acceptable primary endpoint with the FDA so that they can initial a Phase 2b/3 trial. The importance of establishing an endpoint is that it will allow them to approach the FDA for a possible BTD. If the endpoint happens to be a compilation of symptom reduction then the statistically significant reduction that was seen in the trial would be extremely supportive of a BTD and provide investors who believe in statistics that they will likely meet their endpoint. Approval of the protocol would be the first step in opening a market much bigger than COVID and allow for partnering with big pharma.
Filing of CCR5 MOA Patents – With all the biomarker data coming in from various clinical trials the company seems to be noticing which patients tend to respond better than others. It also gives them clues about the underlying MOA. To investors it feels like a delicious dish with a missing ingredient that they can’t place but when the answer is revealed everything will make sense on why it tasted so good. There is a lot of competition in these disease indications so a drug or a mechanism that is central to them would be very valuable. Talking to big pharma before that intellectual property is secure is a mistake that could wind up hurting shareholders. This announcement when it is made and revealed might be announced accompanied with great fanfare to herald the discovery.
While no one knows what truly links these diseases together RANTES (CCR5) seems to be an underlying theme. What if it’s more than RANTES and gets to the core of our immune system and the cause behind its dysfunction. Many investors may have forgotten the powerful preclinical results of Graft versus Host Disease (GvHD) or the clinical results of enrollees in the study. All these diseases are linked by the trafficking of immune cells including HIV when considering the CCR5 Delta 32 group. Unveiling this discovery might actually make the world take notice. Nature Magazine published a little blurb on Long-Haulers as it relates to leronlimab and the rationale for using it in Long-Haulers.
Investor sentiment in CytoDyn stock has certainly been negative due to all the bashing. But as investors began to focus on the potential of very significant catalysts like the initiation of the trial in Brazil and the completion of the BLA in HIV, this sentiment will turn. This latest short attack is a complete fabrication and a last-ditch effort to create panic during a period of thin trading volume. Hopefully investors will be prepared for the assault on Monday and use common sense analysis.
The company was under SEC scrutiny regarding their FDA statements because they essentially misread the document. Since they are complete with their investigation it reasons that the statements they did make were accurate.
The price of $1.70 represents about $1.1 billion market cap. Investors need to prepare themselves for what this company is worth in a worst-case scenario assuming that only one of the catalysts happens in the coming days to weeks. The correct answer is billions which means that at this level the company is grossly undervalued by any metric and the recycling of the news of a “closed” SEC investigation is a silly reason to donate money to shorts.
The company is conservatively 6-9 months away from a BLA approval that would bring in billions of dollars in revenues. The interim Brazilian results could be months away along with revenue. A BTD in cancer is a very real possibility. Long-Hauler trial initiation is in the works and NASH data is forthcoming.
Selling the stock at these levels just doesn’t make sense on a risk to reward ratio which is why the volume is hitting its pre-pandemic lows. Everyone that wants to sell has sold. It’s Warren Buffett’s idea that “When there’s blood in the streets, you buy.” Monday could be bloody but it’s more likely to be a turning point as the company begins its super news cycle.
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Disclosure: Insider Financial and its owners do not have a position in the stocks posted and have posted this article for free without editorial input. This article was written by a guest contributor and solely reflects his opinions.