Picking a Bottom in CytoDyn - Right Now

CytoDyn Inc (OTCMKT: CYDY) has been under considerable selling pressure since April and nothing seems to be able to stop it. In general, the forces of nature seem to be against them. They can’t even get the pandemic to cooperate as Brazil’s new infections are at record lows. The stock price just keeps dripping down lower and lower. The longs are exhausted and refuse to even try to mount a defense against the constant manipulation of facts on social media. The capitulation is evident on almost all of the social media boards as the ratio of negative to positive posts is over 10 to 1.The price is under constant pressure and the assault from the short mafia has now expanded their base of influence beyond Stat News, to Fierce Biotech and the Wall Street Journal. As the company pursued its EUA it seems the world was against them; the FDA not only cut off their lifesaving compassionate use program but also admonished them with a precedent-setting FDA statement that inaccurately characterized their drug leronlimab. Conventional wisdom not only says run from this name, but run fast. The problem with this approach is that the low price is a result of a massive disinformation campaign that has distorted the price. The 18th century saying from Baron Rothschild is to “buy when there is blood in the streets, even when it's your own.” If you have a contrarian investment philosophy and prefer to buy stocks at rock bottom, CYDY is the ideal candidate and now is the bottom.

Failure to Launch

Investor exhaustion and capitulation is evident in the failure of great news to move the stock upwards. Positive reports like CytoDyn’s cancer update, NASH update, or the Breakthrough Therapy Designation (BTD) application filing have gotten seemingly no traction, but things may be turning around. The 13-D Proxy group, known as “Advancing Leronlimab,” who seem to have run the disinformation campaign so they could sow doubt among investors and win a proxy contest, was handily defeated in court. They did, however, have a pyrrhic victory that postponed the shareholder meeting to November 24th for the lack of a quorum. This delay fueled fears that the company would be unable to raise money for operations because they were out of shares. These fears were unfounded because there are 800 million authorized and only 669 million outstanding leaving more than enough shares on hand for $100 million plus at a modest discount to the current market price. The company has still been able to attract investment and raise sufficient money to meet its burn rate with some recent fixed price offerings.

BLA Delays

There are other reasons for the waning share price. One of the most long standing criticisms of CytoDyn’s management is their inability to correctly file their Biologic License Application (BLA) for HIV in a timely manner. The reasons for delaying the BLA filing are coming into greater focus, and as the truth is coming out, it is becoming evident that the delay has less to do with management’s incompetence as it does with Amarex. Recent legal documents from the lawsuit with CytoDyn’s ex- CRO, Amarex, have unveiled that Amarex was not only inefficient, but bordering on incompetent in their filings and correspondence with the FDA. CytoDyn has taken measures to correct these problems and has put competent people in a position of oversight. The company now has 3 CRO’s that they are managing under the supervision of Dr. Recknor. The company recently announced that despite Amerax’s bad faith in illegally withholding data (that CytoDyn owns per their contract) CytoDyn was able to file the first of three parts of their BLA under the rolling review process. The final clinical portion is expected to be filed in Q1 of 2022.Investor frustration is most evident in the BLA filing. Investors realize that a completed BLA filing under rolling review is almost as good as an approval when safety is not a factor, as is the case with leronlimab. They also realize that leronlimab could reach blockbuster status within months of its approval which could send valuations soaring above $10 billion. Investor preference for the certainty of a BLA filing is clouding their outlook of so many other disease indications in late stage clinical trials.In late stage clinical trials, CYDY has ongoing clinical indications in nonalcoholic steatohepatitis (NASH), metastatic triple negative breast cancer (mTNBC), severe COVID-19, critical COVID-19, Long Haulers (post-acute sequelae of COVID-19—PASC), combination therapy for HIV, and monotherapy for HIV. Pfizer (NYSE: PFE) has 29 phase 3 programs, Merck (NYSE: MRK) has 25 phase 3 programs, Gilead Sciences (NASDAQ: GILD) has 17 phase 2 and phase 3 programs, compared to CytoDyn’s 8. PFE is worth $280 billion, MRK is worth $213 billion, GILD is worth $84 billion while CYDY hovers around $830 million valuation. In this current scenario CYDY has 1/3rd the pipeline of Big Pharma (all massive clinical indications/markets) yet has less than 1/100th the valuation. This market disconnect has to resolve itself in very short order because the company’s announcement on breakthrough designation (BTD) is close to 60 days away and represents a huge value inflection point as the market highly values companies with one or more BTDs.

Breakthrough Therapy Designation Likelihood

CytoDyn CEO Pourhassan had mentioned the possibility of BTD for the past year in multiple indications, but nothing had solidified. This talk leading to inaction has really calloused investors to even the idea of a BTD. Investors need to be reminded that Amarex, the CRO they are suing now, falsely led CYDY management to believe a BTD was easy to obtain. Seasoned biotech investors were not so easy to come around and clamored early on that CYDY needed buy-in from Academia and Key Opinion Leaders in order to get the BTD. Dr. Kelly, CytoDyn’s COB, CMO, and Head of BD, started his campaign in April 2021 when he gave his TNBC Presentation to oncology KOL’s. The company recently announced they had 10 patients in the TNBC trial and 2 from the basket study trial. The remaining 16 patients came from compassionate use. Only 5 patients are needed for a BTD yet there are 10 in the indication they were asking for (mTNBC) and 28 total which far exceeds the FDA’s minimum requirements. The company also had to describe leronlimab’s mechanism of action (MOA), but CYDY has published journal articles that filled those subjective requirements. They also need to show efficacy and they clearly demonstrated that in the recent cancer update where they showed an increase in patients’ progression-free survival (PFS) of 600% compared to what is expected for these patients. All the requirements of BTD have been complied with:

• Life threatening condition (mTNBC)
• Demonstrated safety (completed phase 1)
• Evidence of Efficacy (> 5 patients in a given indication)
• Companion diagnostic (Circulating Tumor Cells - showed 3600% survival benefit)

Many investors believe politics is to blame for the slow roll approval of Leronlimab. The thinking of this cohort of investors is that the news of the first compassionate use case in Canada for TNBC will make its way to a politician that has an America-first mentality, and will then exert pressure on the FDA to act. The FDA is an independent organization and controversial decisions like 1) Biogen’s (NASDAQ: BIIB) approval of its Alzheimer's drug, Adhulem, or 2) the decision to confine the oral antivirals to the unvaccinated population in opposition to Fauci’s statements that MRK’s molnupiravir and Pfizer’s (NYSE: PFE) Paxlovid could be for the vaccinated population, demonstrate the FDA’s independence. So while this news might resonate with politically charged investors, there is a much bigger play underlying this news.This thread off of the Yahoo message board got a lot of traction and seems to fit the facts of a very plausible scenario. The key take away for investors, besides the obvious fact that an end stage patient is still alive with no evidence of the disease well over a year later, is that the company is trying to bring in revenue. There is enough demand out there as well as practitioners that know that leronlimab works that some patients will be willing to pay the price. The proverbial genie is out of the bottle and there is no reason to believe the FDA is going to take some politically charged negative look at leronlimab. If the facts are presented properly, and there is no reason to believe otherwise, the BTD being awarded is very likely.When a company applies for BTD they have to demonstrate they have a plan to distribute the drug. This would likely fall under the expanded access plan they had in place last year. The reason this is so important to the company is because it would bring in revenue and given their current phase of development it wouldn’t be unreasonable to charge a premium price. This is exactly what they are doing in Canada, but there’s no reason to think they aren’t also moving forward with this plan in the United States, Brazil, and the Philippines based on this recent quote.

“We are encouraged by Health Canada’s emergency use approval of leronlimab, which we believe could have potential benefit as a therapeutic option for treating mTNBC. We now plan to ask Health Canada to allow expanded access use for all mTNBC patients who might have no other treatment options. We are also seeking similar approvals in other countries and look forward to providing leronlimab for mTNBC patients, as well as for treatment of other solid tumor cancers, in the future. In addition, we will be filing for expanded access use for mTNBC patients in the U.S. shortly.”

Many investors have not forgotten the FDA statement on leronlimab. This statement clearly took the wind out of the sails of the Philippines approval process and required a lot of backtracking to get it back on track. Every week there is a meeting of Philippine doctors and the group is called CDC Ph (Concerned Doctors & Citizens of the Philippines) and they do a weekly huddle sharing information and stories on leronlimab and other treatments. There is a groundswell movement and this Health Canada News may finally break the log jam and cause them to act on a large order. The news plays on their fears that Health Canada may act and snatch up the remaining supply of leronlimab. This bodes well for CytoDyn to finally close a sizable deal. Investors should also remember Pourhassan’s statement that they are also working on providing leronlimab for other cancer indications.

Brazil Studies

It's becoming increasingly clear that investors just want this CD-17 study completed. As the caseload in Brazil came down due to a massive vaccination effort in May, it will surely rise after about 5 months which is right about now after antibodies wear off. People’s antibody protection will wear off and the virus will continue to spread as not everyone is vaccinated and even if they were, animals like deer can carry the virus and act as a reservoir for future outbreaks, potentially even of new variants.The Brazil enrollment and the ability to quickly recruit patients seems inexorably tied to the rate of new COVID-19 cases in Brazil. Investors seem to be that intune with clinical trial recruitment. This stock chart, if overlaid over the period of the peak Brazil COVID-19 cases to now, shows tremendous correlation to stock price. Although it's very sad to say that the price of CYDY is likely to move higher as the next wave hits Brazil, it appears to be a stark reality. The closer the trial nears completion the more investors seem to be willing to pay up for the stock. Tonight, Reuters announced a huge increase in the number of new cases in Brazil. There were 11,977 new COVID-19 cases and 373 deaths in Brazil over the past 24 hours. This disturbing turn is possibly good news for CYDY shareholders who may experience a gap in the AM if the correlation to Brazilian caseload continues. The European surge is also getting the attention of investors as we go into the holiday season.

CitiBank Coverage

Citibank is one of the biggest investment banks and they came out with a Buy rating on CYDY on 11/16/21. It's hard to interpret the report because there is no analyst assigned to it or any context to the positive rating. Following OTC stocks is not something Citibank would do without a reason. It's very likely that they want to broker a deal between CYDY and big pharma and if the stock were to dip below $1.00 it could throw a wrinkle in their plans which explains the timing of their rating. There also seems to be some significant speculation in the media that CYDY is a potential joint venture partner in COVID-19 or even a buyout candidate. That chatter is hard to ignore when it's real. Investors know Merck is in trouble with their COVID-19 pipeline and prepping the fields. Those types of deals would likely mean a double digit stock price for CYDY. Adding to the speculation is the fact that CytoDyn isn’t shying away from admitting that they are in talks. They cannot discuss the extent of the discussions due to confidentiality. This Citibank coverage could also be due to the large retail following of the stock. Regardless of the reason, what is certain is that Citibank has a top notch compliance and due diligence team that wouldn’t even dream of touching a company that has a DOJ or SEC investigation waiting in the wings—they only want to work with and cover the cream of the crop. This coverage may finally give the longs something to crow about to debunk the shorts ideas that the DOJ was coming after the company when in reality they may have actually been investigating the 13-D group and their admitted violations. Citigroup (NYSE: C) has incredible access when it comes to these types of situations and it's rare that they would step on a landmine.

Long Haulers - The Crown Jewel

Headlines in the Washington Post are claiming lingering symptoms could affect up to 50% of COVID-19 patients. This is well above the initial estimates between 10 - 30 % which may in part be due to the improving methods of detecting COVID-19. The market for Long COVID is arguably the largest unmet medical need on the planet. CYDY happens to be the first company to get to a meaningful phase 2/3 point with the FDA, which forced them to come up with trial endpoints. Despite what the shorts think, the FDA is not taking their time establishing key endpoints in the study. It’s more likely that they are checking with key opinion leaders to ensure Long Haulers is properly defined and that the endpoints are meaningful because if CYDY hits the endpoints, the FDA is obligated to give them approval given the huge unmet medical need.The leakiness of the vaccines and all the breakthrough cases are creating a fertile market for Long Haulers now and well into the future. This disease lingers and lingers so an intervention like leronlimab is necessary or worldwide productivity may be in jeopardy. Every big pharma wants in on this and CYDY is blazing the trail forward with statistically significant data. When this trial starts in December or January it should fill up at lightning speed, getting to a read out in the first half of the year. This deca-billion dollar market has been overshadowed by investor temper tantrums about Brazil enrollment. Investors are missing the grand prize of Long Haulers and forgot that they are the ONLY credible drug in Long Haulers clinical trials that had demonstrated efficacy. Long Haulers is the crown jewel and all these storm clouds from the shorts have been obscuring the view. If Brazil sickness upticks, investors may actually do their homework and understand just how close to a breakthrough in clinical development CYDY really is.

Investment Summary

CYDY seems to be a very emotional investment for many investors which is obscuring the real value of the company. Many investors have reached their breaking point that was primarily fed by the negative diatribe of the shorts. Their noise was overwhelming but investors have become numb to it. When reputable media like FierceBiotech puts out hit pieces that barely move the price lower it's pretty safe to say everyone that wanted to sell is out. Although it doesn't feel like a capitulation with massive volume and fanfare, it has happened. No amount of negativity is going to get the remaining shareholders to sell. Ask any long term shareholder and they feel like there is blood in the streets. These shareholders want to see the data. The good news for those patient shareholders is that the data might be coming sooner than they think. It could come in the form of a Philippine order, or perhaps a bump in Brazil enrollment, or perhaps the NASH clinical trial results, or even an approved Long Hauler protocol. These all represent catalysts in the very near term that could turn the tide and get investors to really look under the hood and realize they have about 3 possible BTD in cancer, NASH, and Long Haulers as well as ongoing trial results that could reinvent the company and biotech itself. If you are happy with a $10 valuation in the coming months then stop reading. For those that think triple digits aren’t words but rather a destination this part is for you. Every decade in biotech you get to see one incredible sustainable moonshot like the one that GILD pulled off when they cured hepatitis C. CytoDyn is modeled after that type of moonshot. This is Pourhassan’s vision and God seems to be guiding him. If you read about his background you will understand what that means. Investors can blame the CEO all they want for not properly setting investor expectations, he clearly didn’t do a great job keeping timelines, but in fairness was it really his fault or something that he could control? The bottom line is that it won’t matter because CYDY is on its way to becoming a zip code changer for those that see the potential in it today. Multiple shots on BTD and 32+ indications with a drug so safe you can take it for close to 7 years without side effects. Chances of approval 99.9% “God Willing.”

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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.