CytoDyn: Uncovering An Opportunity

Summary

• CytoDyn is moving their PRO 140 product candidate closer towards an FDA approval in HIV. I recall how I discovered CYDY and my plans for starting a speculative position.
• PRO 140 has displayed remarkable results in HIV but the company continues to put the CCR5 antagonist on display in oncology and inflammatory indications.
• I discuss some some of the potential downsides of investing CYDY, including the hazards of investing in OTC stocks.

I discovered CytoDyn (OTCQB:CYDY) when performing research for an article on Progenics Pharmaceuticals (PGNX). As I was reading through PGNX SEC filings, I saw a few references to Leronlimab (PRO 140), a fully humanized monoclonal antibody treatment for HIV that CytoDyn acquired from Progenics back in 2012. On the word of the deal, Progenics is to collect $5.0M upon FDA approval, along with a 5% royalty of net sales from CytoDyn. When performing research about the treatment, I uncovered a copious amount of positive analysis about PRO 140 from corresponding Seeking Alpha biotech writers. Indeed, CytoDyn has estimated a $3B market in combination with HAART and an $11B market as a monotherapy for HIV. Moreover, CytoDyn is looking to start or progress 8 pre-clinical studies for PRO 140 for the management of breast, colon, melanoma, pancreatic, prostate, lung, liver and stomach cancer.

Ultimately, I ended up investing in PGNX but I was captivated about the prospects of PRO 140 and CYDY market valuation. With the recent market sell-off, I am looking for a few more speculative biotechs that are on the brink of transformational growth. I believe CytoDyn fits these criteria and the recent company developments have moved CYDY to the top of my buy list. My goal is to lay out a case for a speculative buy ahead of the anticipated 2^nd and 3^rd portions of the BLA before the share price experiences a strong run-up towards an approval. In addition, I reveal my plans to manage that position moving into 2020. On the other hand, I will discuss my reasons for keeping my position size small and on a short leash for the remainder of 2019.

PRO 140 Overview

CytoDyn is a biopharmaceutical company that is focused on the clinical development and commercialization of their flagship product candidate PRO 140 (leronlimab). PRO-140’s mechanism of action is to block the entry of the predominant HIV subtype into T-cells by cloaking CCR5 receptor. It is important to note, that PRO 140 has shown efficacy towards inhibiting HIV entry without interfering with the role of CCR5 in normal immune responses. CytoDyn has hit the primary endpoint in PRO 140’s pivotal trial, a combination therapy for treatment-experienced HIV infected patients, and is steering a Phase III as a monotherapy, which it appears to be the first single agent HIV therapy ever. In addition to HIV, CytoDyn is also leading a Phase II trial to assess PRO 140 for the prevention of graft vs host disease “GvHD.” Back in September, CytoDyn publicized plans to expand PRO 140’s label into oncology as a treatment for metastatic triple-negative breast cancer. The company already had preclinical data that presented the capability of PRO 140 to inhibit breast cancer cellular metastasis. At the moment, CytoDyn has started a phase Ib/II clinical trial in metastatic triple-negative breast cancer. Into the bargain, the company just started pre-clinical trials for PRO 140 in NASH.

PRO-140 HIV Potential

PRO 140 is a viral-entry inhibitor that is able to conceal CCR5, therefore shielding healthy T-cells from the R5 subtype of HIV from invading those T- cells. So far, PRO 140 has gone through nine clinical trials, each of which established that PRO 140 can decrease or control the HIV viral load in infected patients. If approved, PRO 140 would be a major step forward in HIV treatment and could be a great addition to the HAART therapy paradigm. Furthermore, the company is looking to expand beyond HAART and combination therapies and see if PRO 140 can be an effective monotherapy. Is this possible? When comparing PRO 140 to a contemporary HAART therapy (Figure 1), we see PRO 140's itemized side effects, toxicity and resistance features that look as if it is superior to HAART to treatments.

Figure 1: PRO 140 vs HAART (Source CYDY)

The fact that PRO 140 has negligible toxicity and no drug resistance across patients is simply astonishing considering its efficacy numbers. I suspect this is why PRO 140 has been given the FDA Fast Track designation as a combination therapy with HAART for HIV-infected patients. Despite PRO 140’s powerful antiviral abilities, it has shown fewer side effects and less frequent dosing associated with contemporary drugs that often require daily dosing. If approved, it would be hard to believe PRO 140 won’t become a mainstay in HIV therapies.

So where is CytoDyn in the approval process? On March 18th, the company announced that it had filed the non-clinical portion of BLA using the FDA’s Rolling Review process. This was the first of three sections of the BLA for PRO 140, which is in a rolling review of the BLA. This allows the company to submit separate sections of the BLA when they are ready. Looking ahead, the company still has to submit the clinical and CMC portions of the BLA at some point this year.

Figure 2: PRO 140 HIV Market (Source CYDY)

PRO 140 doesn’t stop there … Back on May 6th, CytoDyn delivered an update on PRO 140’s development as a monotherapy. The latest monotherapy trial provided adequate data to design the monotherapy pivotal trial. The company expects the longer half-life of PRO 140 to reduce the number of non-responders in the initial ten weeks as a monotherapy if the usage overlays with an existing regimen of PRO 140 with HAART for four weeks prior to starting it as a monotherapy. In addition, the data shows that the 525 mg dose is just as effective as the 700 mg, which should reduce the chances of AEs and reduce the cost of the treatment.

On June 7th, the company reported that the FDA requested an in-person meeting to deliberate and possibly firm up the phase III protocol for CytoDyn’s PRO 140 monotherapy trial. In that same press release, the company revealed that they are working on a collaboration agreement to start an HIV prevention study that will be “conducted by and fully funded by a public health agency in Southeast Asia.” CytoDyn’s CEO, Dr. Nader Pourhassan, stated,

We believe there are over 130,000 individuals using a currently approved drug for the prevention of HIV. The side effects and long-term morbidities are well known, which include, among others, kidney and liver complications, bone density issues, headaches, abdominal pain, and weight loss. Based upon leronlimab’s mechanism of action, our collaborating partners are very excited to initiate a prevention study, and we share their enthusiasm about the possibilities.

So, it looks as if PRO 140 could be implemented in combination, as a monotherapy, and might have prospects to be a prophylactic for HIV infection. I don’t know about you, but that sounds like a blockbuster drug that can be utilized around the globe … immediately.

PRO 140 in Oncology

Typically, I get suspicious when a company claims one of their product candidates has some clinical potential in oncology. It always seems to be a potential opportunity to expand the label of their non-oncology product. However, I don’t get that suspicion when looking at PRO 140; that has shown a substantial decrease in the volume of human breast cancer tumor metastasis in animal models. In these preclinical studies, metastatic tumor volume was reduced in excess of 98% after 7 weeks. These results prompted CytoDyn to file for a Fast Track designation for PRO 140 in metastatic triple negative breast cancer. The FDA recently accepted PRO 140’s IND and CytoDyn is allowed to initiate a Phase Ib/II study for metastatic triple-negative breast cancer. Cutting down 98% is … beyond remarkable. If PRO 140 continues to show efficacy in oncology indications, we can see increased attention from the street that is typically bullish on oncology endeavors.

How will it be used? It looks as if the PRO 140 could be used in combination with chemotherapies. The company expects PRO 140 to increase the rate of cell death and help with tumor shrinkage. Not only could PRO 140 help chemo be more effective, but could allow oncologists to reduce the dose of the chemo that often comes with harmful side effects.

The company also has plans to investigate PRO 140 in colon cancer and expects to file an IND and move into a phase II study. I suspect the company will continue to file INDs for melanoma, pancreatic, prostate, lung, liver and stomach cancer once the HIV BLA moves closer to approval.Although PRO 140 might start off as an HIV therapy, it could have greater prospects as in the oncology arena.

PRO 140 GvHD

The CCR5 receptor may have an important role in the development of acute GvHD. The company points to other clinical studies that support the blocking of CCR5, which may decrease the effects of acute GvHD without impairing the engraftment. At this time, CytoDyn is leading a Phase II study with PRO 140 to support that blocking CCR5 is a practical method to alleviating GvHD.

The FDA gave PRO 140 the orphan drug designation for the prevention of GvHD, which could fend-off potential competition for several years after approval. This is an important point, due to some stem cell transplant patients needing regular treatments to prevent GvHD, which can be required for the rest of their life. Although GvHD doesn’t carry the same recognition as HIV, an individual GvHD patient will most likely provide an equivalent market opportunity as an HIV patient. Again, GvHD might not have the same awe as HIV but it could be a great opportunity for the company to expand PRO 140’s label.

PRO 140 NASH

I guess HIV, breast cancer, and GvHD isn’t enough for PRO 140. On May 13^th, the company publicized an arrangement with The Cleveland Clinic’s to investigate PRO 140’s ability to prevent Non-Alcoholic Steatohepatitis “NASH”. It is assessed that 3-12% of adults in the U.S. have NASH, which could lead to hepatocellular carcinoma and potentially require a liver transplant. What is next for PRO 140-NASH? According to CEO Dr. Nader Pourhassan,

A successful proof-of-concept study of leronlimab in NASH will allow the company to immediately file with the FDA an IND and protocol for a Phase 2 trial, as we have done with other indications. We are encouraged with Pfizer’s (Maraviroc) results in this field and we look forward to sharing the results of our study, as soon as it is available.

Even though the FDA and pharmaceutical industry are aware of the risks of NASH, the sector is just starting to show multiple players attempting to get a therapy approved. This open field could be a massive opportunity for CytoDyn and will be the talk of the biotech sector if it outpaces the competition. If PRO 140 is approved for NASH, it would open the door to other inflammatory and fibrotic diseases.

Samsung Deal and Manufacturing

Back on April 02^nd, CytoDyn announced an arrangement with Samsung Biologics for the clinical and commercial manufacturing of PRO 140. Samsung Biologics is contracted to manufacture about $1B of PRO 140 that will run from April 1st, 2019 to December 31st, 2027. Samsung will start to scale-up commercial production in anticipation for approval, as well as increased regulatory needs.

This is agreement is a big deal for CytoDyn due to the capacity and abilities of Samsung Biologics, who is a world-leader manufacturing drugs and biologics. Samsung has a good track record with compliance with FDA, EMA, PMDA, and MFDS. Thus, Samsung Biologics will be able to manufacture PRO 140 for the U.S., EU, Japan, and South Korea. Having secured a legitimate manufacturer takes a substantial amount of risk off the table for me. Having a second-rate manufacturer for biologics is risky due to the potential for the FDA come in and shut the facility down in a heartbeat.

Looking For a Partner?

Image Source

The company has announced it is working on potential licensing agreement deal for PRO 140, which I have mixed opinions about. On one hand, the company should get a hefty upfront payment and strong royalty stream that could prevent further dilution. On the other hand, if PRO 140 is really a $1B+ drug…why would you give up any rights? Typically, I like to see small-cap biotechs to find a commercial partner for their first product launch, especially if the product is attempting to enter a crowded market occupied by big pharma. When thinking about PRO 140, I am on the fence due to the company’s biggest competitors being some of the best options for a partner. These include:

• Gilead (GILD)
• GlaxoSmithKline (GSK)
• Merck (MRK)
• Mylan (MYL)

I know there are plenty of capable partners out there, but giving up some of the rights to a lesser name could be a deal breaker to me. Of course, the potential partner could be one of those named companies, in that case, I would be very pleased and would have confidence PRO 140 will be properly commercialized. On the other hand, if it is not one of those partners, I am going to be apprehensive about adding to a position until I see substantial revenue being recorded by the partner.

Upside/Downside Risk

One of the potential upside for CytoDyn is also one of the biggest down risks ... PRO 140 is the company's only clinical candidate that is attempting multiple indications. If PRO 140 gets through the FDA for HIV, GvHD, triple negative breast cancer, and NASH, it should be a multi-billion drug that could have potential in even more indications. This would allow the company to focus on optimizing one product to the fullest extent and not have to worry about finding other candidates and go through another regulatory and commercialization process.

On the other hand, if PRO 140 fails to get approved for HIV, we can expect a significant investor fallout until the company can attempt another filing. This would require more funding and the company would have to start paying off Samsung Biologics for their commercial batches of PRO 140. Obviously, this would most likely lead to shareholder dilution and take the wind out of the sails for a bit. Although I am optimistic about the product's chances with the FDA, investors need to consider this scenario while managing their position.

Charts Command the Position

It is difficult to perform a technical analysis on CYDY due to the stock trading OTC and under $1.00 per share. These issues create some apprehension about starting a large position in CYDY. Trading on the OTC and being a penny-stock can keep large institutions and long-term investors out of the stock. If I am going to buy some CYDY now…who am I going to sell to in a few years? Am I going to have to rely on retail investors to drive the price up and take my shares at the end? Considering these issues, I will have to be deliberate in creating my speculative position.

Looking at the weekly chart (Figure 3) we can see CYDY has been trading in a range for the past year or so. I will look to buy along the grey support line over the coming weeks to months. I will only buy small lots due to the low trading volumes, big spreads, and erratic price action. This will allow me to accumulate shares at a specific price and not have to buy up the book.

Figure 3: CYDY Weekly (Source Trendspider)

I won’t commit to larger sized blocks until I start to see a change in the daily chart (Figure 4), which has been in a downward channel since September.

Figure 4: CYDY Daily (Source Trendspider)

Once I see the share price break above $0.50, I will consider increasing the lot size. However, I will most likely stop buying if it breaks above $0.60 before a potential FDA approval.

Conclusion

I am starting to see CYDY as once in a lifetime investment opportunity. CYDY has a meager market cap of $129 million, yet, PRO 140 could be taking a piece of an $11 billion market. This sort of opportunity often seems too good to be true. PRO 140 could be a functional cure for HIV, which makes this investment a bit of a “story stock.” It is hard to conceive that a weekly dosed, subcutaneous injection, has all the features of possibly becoming a foremost therapeutic agent in HIV and conceivably in oncology and auto-immune ailments. I can’t find any other product out there that has that level of clinical implications. Perhaps Humira from AbbVie (ABBV) would be a good comparison? I struggle to comprehend the possibilities for PRO 140 … it seems too good to be true. Which is why I need to stay disciplined and see how the story develops.

I am going to be a shareholder of CYDY, so I have to learn from their story. The shareholders have done their part and have paid to advance PRO 140 in the direction of an expected FDA approval, as well as discovering other clinical prospects in numerous cancer indications. Now, as the company moves closer and closer to approval, I need to be prepared for just about every scenario. Despite the amazing clinical results for PRO 140, I have to be cognizant of the potential downside associated with the lack of funds and the need for a commercial partner to get PRO 140 on the market. Indeed, a partnership deal could alleviate these risks but the timing of this potential deal might not align with the company’s financial requirements. Therefore, I will keep my position size extremely small and will only add to the position using technicals and if the company hits their expected milestones over the remainder of 2019 (Figure 5). Once we get into 2020, I will look forward to that estimated $480M in potential revenue. If the company hits $300M next year, I will hold my shares indefinitely for at least five years in anticipation of an acquisition.

Figure 5: CYDY 2019 Milestones (Source CYDY)

However, if the company fails to acquire FDA approval in HIV in combination, I will liquidate my position upon press release. I will still have my PGNX position to have some exposure to PRO 140.

Editor's Note: This article covers one or more microcap stocks. Please be aware of the risks associated with these stocks.

Analyst’s Disclosure: I am/we are long PGNX. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

I have no position in CYDY, however, I may enter a long position over the next 72 hours.