Connecting the Dots on CytoDyn’s Valuation

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by chessmaster
Thursday, Jul 08, 2021 - 0:16

It’s clear that investors in Cytodyn Inc. have the company in timeout for not setting expectations properly.  Once expectations are set investors typically want the company to meet or beat them, and if they don’t then investors will show them the timeout corner.  Most of CytoDyn’s investors are retail investors (vs. institutional holdings) that are glued to social media and myopically focused on the short term perspective and lack the patience to see the amazing endgame that is unfolding.  This short term thinking is clearing impacting the stock.  As a result, investors are oblivious to some of the recent positive announcements like complying with the dose justification which got them a Refuse to File letter last year and delayed $3-$5 billion of revenue potential.  The company also has an excellent possibility of receiving 2 Breakthrough Therapy Designation’s (BTD) in cancer and in COVID-19 Long-Haulers well before the end of the year.  

For the patient investor capable of holding 3- 6 months, and who can connect the dots that each BTD is worth about $8.3 billion this has created an excellent buying opportunity with minimal downside risk at a $1.0 billion market capitalization.  

One upcoming catalyst is the results of the Long-Hauler trial.  CytoDyn provided a preliminary view of the results with improvements in 18 out of 24 symptoms.  In a recent video, the Cytodyn CEO stated, 

“We hope the final report to be better than what has been reported … more than 18 out of 24."  

The Long-Hauler study had daily blood draws for all of its patients.  This empowers CytoDyn to understand at a detailed level the key biomarkers related to Long-Haulers and their corresponding mechanism of action (MOA).  This data will not only reinforce the excellent clinical results, but also serve to instruct the foundational design of the upcoming phase 3 study.  Beyond the obvious COVID-19 trials, understanding this MOA will help inform the cancer and NASH trials and play a contributing role achieving a BTD.

CytoDyn is ahead of all other therapeutics in Long-Haulers and the first to complete a phase 2 study.  There are only a handful of companies even doing a Long-Hauler trial.  Given the positive results, CytoDyn has a strong chance of getting a BTD for Long-Haulers as they put together their phase 3 trial.  Leronlimab’s MOA as an immune modulator is key here.  The existing Covid players including the vaccines, antivirals and targeted monoclonal antibodies are not showing any promise toward Long-Haulers.  Recent estimates show that 10% of Covid cases may get Long-Haulers.  Given 185M reported Covid cases world wide, there is no doubt that there is a large market for Long-Hauler therapeutics.  34M Covid cases have been reported in the US.  Assuming 10% of these Long-Haulers need treatment and the cost is $20K per patient that represents a potential market size of $68B in the US alone.

The opportunity in post viral syndromes goes beyond Long-Haulers.  Somewhat hidden in one of CytoDyn’s Long-Hauler press release is the statement:

“ If this trial is successful, CytoDyn plans to pursue clinical trials to evaluate leronlimab’s effect on immunological dysregulation in other post-viral syndromes, including myalgic encephalomyelitis/chronic fatigue syndrome (ME/CFS).”

There are no approved drugs specifically for Chronic Fatigue Syndrome (CFS).  Physicians treat the symptoms vs. the disease itself.  CFS is often referred to as immune dysfunction syndrome as it frequently appears when people are sick.  It’s symptoms are like Long-Haulers: fatigue, breathlessness, headaches,brain fog, etc.  This plays into the sweet spot of leronlimab as an immune modulator.  Some estimates of the CFS market size as upwards of $70 billion market by 2027.  Over 1,000,000 people are currently estimated to suffer from CFS in the US alone.

A second catalyst will be the upcoming launch of the planned trials in Brazil for severe and critical Covid patients.  The recent FDA statement that

it has become clear that the data currently available do not support the clinical benefit of leronlimab for the treatment of COVID-19

has adversely impacted the stock price and helped to create the recent buying opportunity.  The actual statement is accurate,but misleading.  Dr. Janet Woodcock, acting head of the FDA, has commented that the trial results are “hypothesis generating”.  The fact that there was an 82% improvement in mortality at day 14 for critical patients with a rapid drop off when the drug is no longer in the system forms a strong hypothesis that leronlimab works if given long enough.  The planned Brazil trials have incorporated a number of key learnings from the previous trials.  The delta variants are also showing that Covid will not go away quietly and the need for therapeutics will continue.  Even the FDA acknowledged in their statement that the

“FDA recognizes the critical unmet medical need for new, effective treatments for COVID-19, especially for severe forms of the disease.”

The FDA rebuke becomes a nice setup for when the Brazil critical trial shows statistical significance for the primary endpoint as the data now “currently available” now shows clear clinical benefit instead of being handicapped by an FDA that only allowed use of the active drug for 14 out of 28 evaluable days which meant that for 50% of the trial duration the patients had no therapy.  While the Covid market size for therapeutics is hard to predict, the lack of effective therapeutics in the severe and critical patient segment creates significant opportunity.  CytoDyn’s recent patent on leronlimab as a COVID-19 treatment adds to this potential.

A 3rd catalyst is the outcome of the NASH study.  CytoDyn recently announced they completed enrollment of their sixtieth patient with the results of their phase 2 study to be out by end of year.  To date, no therapeutic has shown benefit on NASH and CytoDyn has the chance to be in a leadership position.  NASH is expected to be a $21B market by 2025 with CAGR of over 58% per year beginning in 2020.  As of 2020, the majority of liver transplants are a result of NASH.  If the study shows a favorable outcome this sets up CytoDyn well for a phase 3 study including some potential big pharma partnership opportunities.

“We have a cancer program and we are on the brink of filing breakthrough designation because we believe we have responders, because we have our data now.” - Nader Pourhassan

A 4th catalyst is their progress on cancer and especially metastatic triple negative breast cancer (mTNBC).  CytoDyn has already been granted fast track status for mTNBC as of May 2019 and is expected to ask for a BTD which means a short phase 3 or in a worst case scenario is a phase 2b/3 trial in 2021. The fact that they announced they had responders (that means at least 2) in their study puts them in a power position in being granted a BTD which few companies could boast. 

The National Cancer Institute (NCI) researchers are studying exceptional responders in cancer and their goal was 100 patients in a pilot study that started in 2012.  In 2017, or 5 years later, they reported on 40 cases nationwide. That’s roughly 8 responders a year in metastatic cancer with hundreds of cancer therapies contributing to these numbers.  So when at least 2 out of an average of 8 per year come from one drug that's not a signal of efficacy it's a lighting bolt.         

The results from the basket trial are very positive with circulating tumor cell (CTC) counts falling to zero with the patients in the trial. Zero CTC’s dramatically increases survival and may actually be an endpoint for approval. According to the FDA the drug needs to show a “substantial improvement over currently available therapies.” Substantial improvement was never defined, but it is accepted that it is 10% better over existing therapies.  When zero CTC’s represent 97% better than existing therapies it is pretty safe to say leronlimab has greatly exceeded the “substantial improvement” requirement and is well on the path toward a BTD. The mTNBC market size alone is over $500M by 2027.  CytoDyn plans to begin a phase 2b/3 cancer trial by the end of 2021.

Last but not least is their BLA submission for HIV.  In a recent investor call they set up internal milestones for their BLA submission starting on June 30, 2021.  Their tenor on the call indicated they wanted to regain lost credibility by demonstrating to the market they are no longer talking about filing the BLA but actually filing the BLA.  Their first internal milestone was hit on July 1st as they filed their does justification with the FDA. CytoDyn announced they completed submission of their dose justification report to include receptor occupancy.  This was the key deficiency in their BLA submission.  Assuming this is accepted and the rest of the BLA is submitted over the next couple of months, CytoDyn may be able to gain approval in early to mid 2022.  Beyond BLA, CytoDyn also announced they are exploring a prep trial in Brazil for HIV prevention.  The HIV market size is expected to be over $36B by 2027.

It’s not hard to connect the dots to the huge market potential of leronlimab when considering the nascent markets of Long-Haulers, chronic fatigue syndrome and NASH as well as the potential of being a disrupter in established markets like HIV.  Each catalyst is a multibillion dollar revenue opportunity within the next year and if approved would clean them out of their drug supply.  With multiple shots on goal, just one good shot will get CytoDyn out of the penalty box and deliverable multiples of the current $1.0 billion valuation.  The FDA is not hostile to CytoDyn.  They just want the data.  In order for CytoDyn to get the BTD meeting they just need to show the FDA the data because the criteria for consideration has been greatly exceeded. The upcoming clinical trials for COVID-19 severe and critical patients, the recent HIV submission, the results of the Long-Hauler and NASH trials will do just that.  This includes placebo controlled, double blind clinical trial data that will be no longer subject to interpretation.  The FDA wants clinical data that show primary endpoints met and CytoDyn leadership is showing the resilience to provide it in the USA and abroad. Investors like the “13-D group”, the Motley Fool, or STAT News that can't connect these obvious dots are likely looking back at all the setbacks instead of the finish line right in front of their face and no amount of vision correction can help them.   

Given the enormous potential of leronlimab in multiple diseases, even the worst case scenario has upside.  One potential catalyst not discussed is an acquisition by big pharma that will yield several multiples of the current stock price based on similar acquisitions of monoclonal antibodies. 

“There are none so blind as those who do not wish to see.”