Investors Fleeing CytoDyn Missing the Golden Nugget from the BLA Delay

Sell first analyze later mentality of investors oblivious to the increased likelihood of a BLA approval may cost them handsome upside

CytoDyn Inc (OTC MKTS: CYDY) had a jam-packed agenda for its latest investor update on Thursday, February 6th. Leading up to its call a frivolous unsubstantiated short research report was widely distributed by Culper Research along with huge downside volume. This precipitously dropped the stock from $1.65 in the open to a $1.31 close on close to 10 million shares. Many investors panic sold in response to absurd accusations and completely overlooked one of the most important nuggets in the update. Many on the surface saw the delay in the filing of the BLA as a setback instead of a greater probability of reaching a Breakthrough Therapy Designation (BTD). CYDY Daily ChartInvestors also overlooked a strong buy reiteration from HC Wainwright. The unexpected positives were a licensing deal with a top Chinese biotech for the 2019 Novel Coronavirus (2019-nCoV) and cancer. They said they signed a non-binding deal but were waiting for the approval. They mentioned injecting in coronavirus patients very soon; with an infected count close to 40,000, how can this be taken as a negative?

Negative Focus in a Sea of Positive Developments

The Culper Report sensationalizes that Pourhassan was a 2-time felon and about to run away with all the investors money. If investors were to take a deeper dive into the 8-K disclosure they would see the was no stealing but simply an over draft by $100. The second had no conviction and was 20 - 30 years ago. In one instance he sent an innocuous email to his son via his ex-wife. These were for the utterly ridiculous charges. Putting this into perspective, in some states a 2 time DUI offender doesn’t even warrant a felony. The report faults Pourhassan for not getting an approval in 7 years but fails to mention that Pourshassan changed the course of a 20 year approval that Progenics gave up on and now they are possibly just 7 short months away from an approval in combination HIV. In fact the report rewrites history and suggests CytoDyn only has priority review when, in fact, they have fast track. They call Pourhassan a promoter and a con man. They talk about “bloated balance sheet” when the company just retired its senior debt. Culper completely and utterly misstates that the company has “5 days of cash” after CytoDyn just completed a $7.0 million preferred stock offering. The report even goes to lengths of citing an unknown oncologist at a leading cancer research organization who is essentially saying that Circulating Tumor Cells (CTC’s) which is an FDA approved test from CELLSEARCH® is not an approvable endpoint.The report says from this unknown oncologist that

"no detectable circulating tumor cells doesn’t mean anything” and “there’s nothing here at all to convince anybody that the drug has efficacy in breast cancer.” Per a second oncologist, “[regarding] the diminishment [in CTCs], I haven’t seen any data to suggest that diminishing CTC’s improves function” and in response to Pourhassan’s claim that, “CTC, that’s what kills people”, he stated that, “I would be a little skeptical of that statement … It’s the complete metastatic process that is typically fatal to the patient."

This is the most egregious of their claims that is completely unsupported.The rest of the report talks about the drama between Pourhassan and the exiting CMO. They poke fun at how CytoDyn characterized the upcoming FDA meeting regarding their BTD. They even bring up their partner Vyera that paid them over $4.0 million already. They top off their arguments poking holes in the revenue estimates and the assumptions. The one comment that wins the prize for most outlandish is that management was “putting human lives at risk – in the name of Pourhassan’s promotional self-enrichment campaign.” Disgusting commentary and if any long term followers sold because of this article they should be ashamed of their due diligence skills and for not using their common sense. The only honest reporting was the growth in share count graph.

Coming Catalysts

Coronavirus Update: The CEO stated that they have finalized a deal with a Chinese partner and are awaiting approval to release the news. If this is a big name pharma, as the company alluded to, this could be a major catalyst for stock appreciation. Pourhassan mentioned that the Chinese were very impressed by the safety profile and could scale this very rapidly. If the company starts dosing in days or weeks this could be a very big catalyst for stock appreciation.Partnering with the Chinese is not a bad thing because it ultimately brings in non-dilutive financing and quite frankly none of the big pharma care about China so it doesn’t hurt licensing prospects either. In fact it may intensify things and big pharma wakes up out of their slumber and realized that CYDY has a pipeline of 32 indications all with one drug. The CEO said that leronlimab could be the next Humira.Cancer Updates - The basket trial is under way and the next catalyst should be the dosing of people under this trial. What is interesting is the CEO indicated that they might be able to file for a BTD under the basket trial. If that should happen valuations could quickly climb in the billions as investors discount the likelihood of approval.Fundraising: CYDY has hired a premier investment banker to negotiate $40 - 50 million in debt using the IP as collateral. The company also indicated they had some warrant exercises and did an offering of preferred stock and should have about $10 million in the bank factoring in recent offerings and cash burn.PrEP Licensing: There are 2 major abstracts being presented at the CROI conference and one at the Keystone Symposium in early March. Given that over a decade has passed since the last late breaker presentation it’s expected that the presentation should be excellent. The company is clearly setting itself up to receive another potential BTD in pre-exposure prophylaxis (PrEP).Uplisting: On the call they skimmed over the NASDAQ listing requirements, and focused on the NYSE which requires $5.0 million cash, and 18 months of operational money as well as a $2.00 stock price. They indicated on the Q&A section that when they meet the requirements they are ready to go. The reason an uplisting is so crucial for the company is because should they get a BTD approval NYSE listing will ensure a much better price discovery with institutional investors versus OTC Markets.Analyst Upgrades: HC Wainwright came out with a buy reiteration,but given this is one of the most liquid OTC stocks some of the other houses are surely to come out with an upgrade or initial coverage. Biotechs always need money and they wouldn't want to squander having research coverage.

The Golden Nugget

It’s important for shareholders to realize why the BLA was delayed: initially, the FDA only wanted the safety data from 50 patients, when the FDA asked for data from all 595 patients in the ongoing CD03 trial in BLA format this created much more work (this is a manual procedure) -- The FDA was essentially sitting quietly on the sidelines, happy with the data but wanted 595 instead of 50 patients.Investors should keep in mind that the company was supposed to have filed the completed BLA originally by the end of December, with the safety data already on file for months. The timing of the clinical part was for all practical purposes done, with only the CMC (Chemistry, Manufacturing, & Controls) stability studies remaining.Indirectly the FDA is helping CytoDyn by not making them do another trial.

Cancer Breakthrough Therapy

When considering a BTD application, safety plays a big part in it. There is clearly enough safety data in HIV for a BTD in Metastatic Breast Cancer (MBC). BTD is given to products that meet two conditions, products that meet an unmet medical need and products that demonstrate efficacy. However, safety is the top of the pyramid when considering BTD. Another golden nugget is that there are great results to share with the FDA, the efficacy shows zero CTC’s and tumors that are stable or shrinking. With ample safety data the company wont want to get knocked out of contention for not having it in the file. It seems like the company wants to get it right the first time, and that might translate into exponential price appreciation with a BTD.

CTC Based Approval

Creative BioarrayCirculating Tumor Cells (CTC’s) are a secondary endpoint in CytoDyn’s clinical trial and very relevant to approval contrary to what Culper Research would have you believe. According to CELLSEARCH(r) the only FDA approved test for CTC’s, only 3% of healthy people had >1 CTC detected. CELLSEARCH(r) has much data that suggests CTC’s under 5 have a survival benefit. In MBC the median survival was 10.9 months vs 21.9 month for patients under 5 CTCs. So investors should not dismiss CTC’s as a viable endpoint when the survival benefit doubles by knocking down the CTC’s. The gold standard is survivability but when a patient can stay under 5 CTC’s at all times during their treatment their overall survival (OS) in MBC was 22.6 months versus 4.1 months for those that maintained CTC’s above 5.CELLSEARCH Results

Coronavirus MOA

The 2019 Novel Coronavirus presents itself with flu-like symptoms that seem to target the respiratory tract. When the virus creates lesions in the lungs it creates an inflammatory response that gives way to suppression. The issue is that CD4 suppressor cells are designed to keep balance after an initial inflammation and suppress the immune system. Our body’s own immune system is its worst enemy just like in cancer. This suppression is the last thing the coronavirus patient wants, the patient wants to eradicate the virus not slow it down. In theory leronlimab should work by stopping the trafficking of these CD4 suppressor cells to the lungs by blocking the CCR5 receptor. If the immune response is left unchecked the body will clear the virus quicker.

Investment Summary

The 20 mill shares which traded over the last 2 trading days dropped the stock 31%. This was a bear raid plain and simple. There was no substance to the allegations, and investors learned from the company that the situation is much better than expected. The company should announce more news this week, and this hack job will be a distant memory except to the shareholders that got spooked. It’s clear that Culper Research is a proxy for the shorts and their whole article is extremely flawed and a departure from reality. CYDY is making significant headway in its drug development and will be way ahead of expectations should they get a BTD approval. Right now in my opinion the odds are almost certain of a BTD approval. One BTD is worth billions and the company seems resolute on getting 2 BTD's which would put valuation well over $10 billion. Investors should ponder the risk reward. If they get a BTD and have to do more trials the recruitment is going well and could put them at an approval in cancer by then end of 2020. If they get their approval in the next 30 days double digit stock price would be a very modest target because there’s a growing chance that they might actually be able to stop metastatic cancer. Investor’s would be well served to ask a terminal cancer patient what that is worth.We will be updating our subscribers as soon as we know more. For the latest updates on CYDY, sign up below!Disclosure: Insider Financial and its owners do not have a position in CYDY and have posted this article for free without editorial input. This article was written by a guest contributor and solely reflects his opinions.