CytoDyn Stock: Nearly Impossible To Revive This Company

Since I covered CytoDyn (OTCQB:CYDY) last year, the company published allegedly good data from an mTNBC trial of leronlimab, allegedly good data from a NASH trial, had multiple legal spats with “activist” shareholders, finally let go of CEO Nader Pourhassan, and received partial hold for its HIV program and full clinical hold for its Covid-19 program, including the Brazil trial. The stock also sank 70%.

In my previous article, I discussed how the FDA slammed the company for misleading data that was cherry-picked to show certain subgroups showed improvements in a Covid-19 trial. The statement from the regulatory body perplexed me, I noted at that time. Given what has happened to the company thereafter, it doesn’t, anymore. As the FDA rightly noted, while they do not generally “disclose confidential information about unapproved products,” they made an exception here with leronlimab given the considerable public interest. This public interest is the key to understanding why the FDA went public; their aim, as I had mistakenly thought earlier, wasn’t to help regulatory bodies elsewhere but to make the American public aware of a potential fraud in the making.

This year, as well, the FDA made strong remarks against promotional material from the company. “With the conclusion of both the CD10 and CD12 clinical trials, it has become clear that the data currently available do not support the clinical benefit of leronlimab for the treatment of COVID-19,” the FDA said.

How this has helped us is that we have learned not to take trial data in the spirit in which we normally accept scientific data – blindly. It is not whether the company has good data or bad data; the problem is that given the promotional activities of the company, nothing the company says is believable any longer. So we checked out the registry – here – and we noted that these were single-arm trials. Moreover, the company used a marker, a surrogate for clinical efficacy, in this trial. At TPT, we have decided to give absolutely no importance to such data.

The next matter of importance is shareholder activism. A group of shareholders led by Paul Rosenbaum and Bruce Patterson, Chief of CytoDyn’s diagnostic partner IncellDx, were fighting CytoDyn management last year. The group accused CytoDyn of mismanagement and fraudulent practices.

“We will not stand by while the incumbent Board and management team files meritless lawsuits and issues false press releases, in addition to their corrupt behaviors and efforts to entrench themselves, in order to continue collecting their outsized pay packages,” the shareholder group said in a statement at that time. Among the group’s main contentions was the company’s alleged “mishandling of the candidate leronlimab drug for HIV.”

This group filed a lawsuit in order to persuade the company to elect 5 of its nominated members to the board, which included Dr. Patterson. However, this lawsuit got into some technical difficulties at that time. One of their demands later on was that the CEO should resign. This actually happened a few months later, in January, when Nader Z. Pourhassan left his job, or was ousted. The market reacted positively to this news. Earlier, the activist group had shared a report with shareholders where Bain Capital seemed to be criticizing the CEO. The exact statement was that “Nader’s past makes the company institutionally uninvestible.” No wonder, then, that his ouster helped the stock price for a while.

There’s a definite change between the pre- and post Pourhassan CytoDyn. In his times, CytoDyn made press release wire companies thousands of dollars every month. There was a press release announcing this or that data every other week. After his ouster, the releases have come down in numbers. The company had data announcements from its NASH trial, the mTNBC trial, Covid-19, HIV – leronlimab was all over the place. That activist group tried to limit leronlimab to oncology as part of their strategy. I note three NASH press releases in the last few months of last year. NASH isn’t a disease someone will just come and resolve with single-arm, open-label trials. So it is difficult to put too much importance to all those data readouts the company used to spew out during the ex-CEO’s times.

However, years of playing fast and loose with the company have completely destroyed any goodwill the company may once have had from the market. True, there’s a group of diehard fans of the company – or rather, of the molecule – who cannot let go. I cannot blame them; there was a time when many people thought leronlimab had potential. How much of that was real and how much was a result of extensive promotion is tough to decipher today. So that goodwill is gone, and if a new CEO is hired, one of their critical jobs will be to try and improve that goodwill.

The other job is cash. This company with $365mn in market cap has just $1.3mn in cash at hand, according to data on Seeking Alpha. This is why in their last conference call, the new interim management said many times that they need partners to get leronlimab through trials. However, a company that has lost so much goodwill will find it tough to get partners, especially in this market.

Given all of that, I think CYDY is a very difficult investment right now. I wouldn’t go anywhere near it.

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