CytoDyn Inc. (OTCQB:CYDY) is a Vancouver, WA-based small cap analysis and growth biotechnology enterprise with a concentrate on the scientific growth of therapeutic remedies for a number of indications. In response to Inventory Market MBA, it’s listed as a penny inventory and trades on the OTCQB below the ticker image (OTCQB:CYDY).
As of October 14, 2022, its share worth was .44 cents, common traded quantity was 1.13M shares and it has a market cap of $357.6M. The 52W excessive is $1.85 and the 52W low is $.2311.
Present Enterprise Worth (EV) of CYDY is $401M. EV is calculated by including the present market cap with the debt and backing out the money and rapid money investments. MC+Debt-Money=EV
CYDY is amongst a number of shares I’ve designated in my “Excessive Danger, Excessive Reward” Biotech Portfolio. Different shares on this portfolio embody Inovio Prescribed drugs (INO), Agenus, Inc. (AGEN), Alpine Immune Sciences (ALPN), Crinetics Prescribed drugs (CRNX), Relay Therapeutics (RLAY), Xenon Prescribed drugs (XENE) and X4 Prescribed drugs (XFOR).
I am lengthy in every of those based mostly on a mixture of their tales, their potential/likelihood of success, administration execution, close to time period catalysts within the pipeline, a molecule’s scientific advantages and my very own private diploma of danger tolerance.
As we speak, I am going to discover the measures CytoDyn has taken to conduct an evaluation of their enterprise and description the explanation why these steps are essential to ensure that me to keep up my place in (OTCQB:CYDY).
CytoDyn stays inside my non-revenue producing, high-risk high-reward biotech funding portfolio. Along with CYDY being a non-revenue producing biotech funding, the corporate has been mired down with extra than simply your ‘backyard selection’ biotech threats that almost all biotech administration groups can normally resolve. My definition of backyard selection biotech threats has developed after a decade-plus years of investing within the biotechnology business. These considerations, taken alone do not normally spell catastrophe for many equities, however a number of in succession or together, might finish in losses for traders.
Non-revenue biotechnology firms are significantly extra weak as they’re extra delicate to various broad threats that affect their monetary stability. These menace vulnerabilities embody strict regulatory oversight and scrutiny, authorized entanglements, patent infringement claims, fluctuations in money burn charges, competing scientific pursuits by quite a few firms, altering multiples based mostly on pipeline candidate success/failure, the dearth of leverage or affect with potential suitors, the buildup of losses that result in elevated debt, potential mismanagement and at last, chapter.
The current case with CYDY; Administration distrust by traders, intense scrutiny by the SEC and DOJ, purposes and filings rejected by the FDA, scientific holds, hostile takeover occasions initiated, continued arbitration, lack of capital, elevated debt, insolvency a looming concern and beneficial analysis time misplaced, by no means to be recovered place CYDY in a precarious state of affairs.
So, why do I keep invested in CytoDyn? New management brings new strategic initiatives, the dedication to resolve points, rebuild relationships, reshape the group, in addition to the current shareholder approval of 350M shares to the float and at last the #1 motive why I keep invested in CYDY…the scientific security and effectiveness of Leronlimab.
Future Improvement Technique
Adjustments in Management
“What received us right here immediately shouldn’t be what’s going to lead us into the longer term.” – Cyrus Arman, Board President – CYDY
Earlier than I give my ideas on Cyrus Arman, Ph.D., MBA and as different traders have requested in social media platforms, why did Dr. Arman select to serve at CytoDyn with so many considerations, mentioned above? Nicely, that query was not too long ago answered in a webcast throughout a quarterly investor replace.
The choice to come back to CYDY was based mostly on what he describes as his “prior experiences within the biotech business” which have allowed him to look below the hood at tons of and tons of of various molecules, both from the attitude as a developer, competitor, investor or acquirer. These numerous business views, coupled along with his administration background, schooling and business information has helped him determine what he described because the “hallmarks” to getting a scientific stage therapeutic to market.
Subsequently, after his shut examination of the info on the therapeutic advantages of Leronlimab, he has concluded that Leronlimab is a “distinctive” therapeutic which has a scientific profit to sufferers and the potential for a return to traders.
A clue as to how Dr. Arman and his efforts have been welcomed thus far. This from Dr. Scott Kelly (OTCQB:CYDY) in the identical webcast,
Once we first started our seek for a brand new CEO, the Board of Administrators of CYDY was targeted on discovering a novel particular person with expertise in company technique and growth, capital markets, licensing agreements, company governance with a agency scientific background and the power to be a strategic thinker. We would have liked somebody who wouldn’t solely perceive the potential alternative of Leronlimab however, would execute on this chance. We consider we’ve discovered that particular person in Dr. Arman…He has chosen Leronlimab after a lot due diligence. We consider Leronlimab is now in the most effective of palms.
One of many issues that Dr. Arman and I agree with wholeheartedly is to focus and encompass ourselves with the those that we consider will make Leronlimab successful with our present focus and initiatives. Beneath the management of Dr. Arman, I can inform you we consider our staff has by no means been stronger and the work we’re at the moment doing is inserting CYDY and Leronlimab on the very best path for achievement.
Additionally mentioned within the webcast was their strategic evaluation of the pipeline to find out which indications are excessive worth alternatives and which indications are being tucked away. To do that, the Internet Current Worth was utilized.
Internet Current Worth Mannequin
The Internet Current Valuation mannequin is a choice assist instrument that enables CYDY to resolve whether or not it is price to take up a sign that may generate a constructive return. It’s a methodology used to find out the Internet Current Worth (NPV), considers the Discounted Money Flows (DCF), by taking the ‘time worth of cash’ under consideration and translating all Future Money Flows (FCF) into immediately’s cash and including up “immediately’s funding” with the current worth of all future money flows. By modeling these flows of cash together with rates of interest, taxes, the weighted value of capital (WACC) and extra over a specified interval of years we are able to calculate if the venture is price pursuing. An NPV higher than zero >0 is price pursuing and an NPV that’s calculated to be lower than <0 shouldn’t be price pursuing.
This evaluation, from what we discovered within the webcast, was the idea for the choice making to let go of the road of COVID therapeutics and to lastly go away little question to CytoDyn’s strategic path going ahead.
Dr. Arman additionally supplied some perception on how the remainder of the bullpen will look with a concentrate on Colorectal Most cancers (CRC), particularly the metastatic multi-satellite secure (MSS) inhabitants as this group accounts for the biggest proportion of CRC sufferers. Whereas achievements utilizing multi-disciplinary approaches to treating CRC have improved the affected person OS charges, there’s nonetheless loads of room for enchancment and CRC stays one of many biggest unmet wants in oncology. Moreover, hormone receptor constructive (HR+) and HER2 constructive breast most cancers are in focus. Clearly, CYDY is concentrating on stable tumor cancers using Leronlimab based mostly on its methodology of motion within the micro-tumor surroundings and security profile.
The strategic evaluation to freeze operations to be able to refocus and retool the pipeline, trim the wasteful spending, acknowledge the exterior threats to former scientific efforts and concentrate on the upper worth alternatives as the principle driver that serves to steer all future efforts, helped me make my determination to stay invested on this small excessive risk-high reward biotech firm.
As outlined, the corporate carried out a strategic evaluate and evaluation of their complete pipeline after the FDA positioned a partial scientific maintain on its rolling submission BLA for the HIV Multi-Drug Resistant inhabitants, in addition to a full scientific maintain on its Covid-19 trials till CYDY might handle FDA considerations that contain a dispute with their earlier Contract Analysis Group (CRO), Amarex.
In dispute are considerations that the info collected by Amarex was improperly coded and never in accordance to present business normal format. In response to CEO Arman at 12:half-hour on this webcast,
“It is necessary to notice that considerably, the entire information requested by the FDA to raise the scientific maintain are objects that Amarex was contracted by CYDY to arrange however, failed to take action.”
Because of this, an exterior audit by a top quality impartial analysis firm has been retained by CYDY to be able to audit the standard of the info collected and monitoring carried out by Amarex. As soon as this audit is full, CYDY can decide the feasibility of submitting the info, however solely after making the dedication that there’s a excessive “likelihood” it might cross an FDA Good Scientific Practices audit, as a part of the BLA submission. The outcomes of the audit will decide the subsequent steps with the BLA.
Whereas certainty concerning the end result of the audit stays in query, the steps taken by administration are related to the general strategic planning course of and the longer term growth technique. The NPV train recognized HIV as a excessive worth alternative and extra particulars can be forthcoming after the audit.
On August 31, 2022, the Firm held a particular assembly of stockholders. The assembly was held to hunt shareholder approval to extend the entire variety of approved shares of frequent inventory of CYDY from 1M to 1.35M shares. The proposal was authorized so, what’s subsequent?
The corporate has various choices they will train to be able to maximize the good thing about the extra shares. Whereas they might instantly start to promote shares on the market, the present share worth would solely present ~$140M in money. Nonetheless, an announcement of extra constructive particulars surrounding the Amarex information and extra readability on the submission of the rolling BLA and/or communication of constructive response from the FDA might function a brief time period catalyst to maneuver the share worth into increased territory, at which era even touching the current excessive of $1.26 might add as a lot as 3X the amount of money or ~$420M. In actual fact, if the share worth can break by a number of areas of resistance earlier than attending to $1.26, it will not be essential to dilute the complete quantity and CYDY can maintain again shares to promote later at a a lot increased premium.
Moreover, including money to the steadiness sheet can definitely appeal to a companion who could also be prepared to danger a few of their very own R&D capital since CYDY can tackle the upper extra monetary obligation. Different choices embody structuring Mortgage Facility Agreements with the choices so as to add money in tranches and curiosity solely funds over a specified time period at variable charges.
These eventualities, I consider, suits into the general playbook sooner or later growth technique at the moment underway at CYDY.
CytoDyn’s lead product candidate Leronlimab, is a humanized monoclonal antibody that targets the CCR5 receptor. The CCR5 receptor is believed to be concerned in immune-mediated irritation reminiscent of HIV and different indications reminiscent of most cancers, autoimmune illnesses, different inflammatory illnesses, infectious illnesses and extra.
HIV naturally seeks out the CCR 5 receptor for entry and an infection of wholesome cells. Leronlimab acts like a sentry in any respect the entry factors of the cells because it binds to the CCR5 receptor on the CD4 cells, thus interfering with HIV’s capacity to enter the cell. It prevents the virus-cell binding actions at a definite website on the CCR5 co-receptor with out interfering with its different pure actions.
Traders in CYDY are acquainted with the advantages of Leronlimab, a humanized monoclonal antibody that has proven a superb security profile and scientific advantages in a number of human scientific trials. The worldwide monoclonal antibodies business was valued at USD 105.2 Billion in 2020 and is predicted to achieve USD 155.2 Billion in 2028 rising at a CAGR of 6.7%, fueled by the rise in most cancers with North America main the best way as the biggest section on the planet.
Non-Alcoholic Steatohepatitis NASH
An Perception Companions Could 2022 report forecasts the TAMS for NASH to achieve $24.26 billion by 2028 from $1.63 billion in 2021; it’s anticipated to register a CAGR of 47.1% from 2021 to 2028.
Moreover, an article in Science Direct “The Epidemiology of Non-Alcoholic Steatohepatis” provides
Non-Alcoholic Fatty Liver Illness (NAFLD) is characterised histologically into Non-Alcoholic Fatty Liver (NAFL) and Non-Alcoholic Steatohepatitis (NASH). NASH sufferers are at an elevated danger of superior fibrosis and cirrhosis … In 2017, the lifetime prices of NASH sufferers within the US had been estimated at $222.6 billion, and the price of the superior NASH inhabitants is estimated at $95.4 billion . The gold normal for the prognosis of NASH stays a liver biopsy. NASH is outlined because the presence of >4% hepatic steatosis and irritation with hepatocyte harm (ballooning), with or with out fibrosis . Some research have not directly assessed the prevalence of NASH. The prevalence of NASH amongst NAFLD sufferers who underwent a random liver biopsy was 6.67%. The prevalence of NASH amongst NAFLD sufferers with a scientific indication for a liver biopsy was 59.10%. Given these estimates, the typical prevalence of NASH was estimated to be between 1.5% and 6.45%
If profitable remedies for NASH are developed, it would possible come all the way down to the necessity for a number of medicine, both as a mono-therapy to deal with NASH and/or a mixture of therapies that concentrate on the illness or these elements contributing to NASH, such because the inflammatory and metabolic traits. As such, the duty at the moment at hand is to determine which sufferers are prone to reply greatest to which therapies with the potential of a number of medicine being granted approval.
For extra on NASH, readers can discover helpful info on the Nationwide Institute of Well being (NIH) Nationwide Institute of Diabetes, Digestive and Kidney Ailments Central Repository NIDDK and LabCorp.
NASH – Analysis and Improvement Prices
The primary graph under depicts the scientific stage phases II and III, in addition to BLA filings and if mandatory a PHIV trial of NASH. The R&D bills, SG&A, COGS, taxes, royalty funds, and many others. are a hefty worth for NASH till any income is projected to realized in 2028 (see under).
In response to a 2020 research on the price of scientific trials, reported to the US Division of Well being and Human Providers,
The typical value of part I, II, and III scientific trials throughout therapeutic areas is round $4, $13, and $20 million respectively. Pivotal (part 3) research for brand new medicine authorized by the Meals and Drug Administration FDA value a median of $41,117 per affected person. Supply: SOFPROMED
Right here, upwards of over $127M in prices to fund operations whereas conducting scientific trials by CYDY is illustrated. As beforehand famous, the Internet Current Worth evaluation recognized NASH as having a constructive NPV and the next a number of illustrations makes their case clear.
Observe: Readers ought to perceive these projections are extra of an artwork than a precise science, particularly when evaluating the Weighted Common Value of Capital (WACC) of a small cap biotechnology firm, their beta (volatility) and the time wanted to execute on aims.
The graph is an illustration of fundamental assumptions derived from sources such because the US Census Bureau, ClinicalTrials.gov, science literature, associated NASH PHII and PHIII trials with Madrigal Prescribed drugs, and a 2018 PubMed article, “Estimation of scientific trials success charges and associated parameters.”
CYDY – NASH Income Situation
The next graphs signifies modeling of NASH income from 2028-2034 and with peak market penetration at 25% in 2031 realizing there may very well be, as mentioned on this article, a number of therapies both standalone mono-therapies or mixture therapies obtainable.
Observe: As described, these figures are in tens of millions, except in any other case famous.
Free Money Circulate Situation – Publish Approval
Imputing the info discovered all through the obtainable literature, in addition to utilizing Madrigal Pharmaceutical (MDGL) as a comparable for NASH associated bills signifies the potential future enterprise worth price $65.7B with solely 25% peak market penetration beginning in 2032 and worth to the share worth of $48.74.
Moreover, the market worth of $150K for the remedy shouldn’t be solely a good estimate, it stays inside my thesis that there’ll possible be numerous types of competitors within the house and apart from efficacy as a deciding issue for prescribers, insurers prepared to pay for remedy should be thought-about when choices turn into obtainable.
Dangers & Headwinds
The dialogue of dangers has been examined all through this evaluation. Nonetheless, with penny inventory investments, it is prudent to cowl extra potential dangers. Two dangers particularly, the competitors within the Non-Alcoholic Steatohepatitis NASH house and the potential danger of reverse inventory splits.
My first evaluation of CYDY on August 24, 2022, in Looking for Alpha showcased the outcomes of a really small research (N=72) that mentioned the highest line outcomes of a small scientific trial and which was first offered on the Worldwide Liver Congress 2022. I additionally reported the Complete Addressable Market TAM for NASH. Whereas this was a small multi-center Section IIa trial, CYDY introduced within the August webcast that they are shifting forward after figuring out NASH as excessive worth alternative. Whereas NASH, little question is a excessive worth alternative, it is usually very enticing to different biotechnology business gamers.
Take as an example Madrigal Prescribed drugs. With out elaborating on the medicine Technique of Motion MOA in an excessive amount of element, their drug works by growing the operate of thyroid hormone beta receptors with out interfering with the thyroid axis hormones. That is vital to to be able to ship the complete therapeutic potential of their as soon as day by day administered drug.
This from their web site,
- Topline Section 3 information introduced in January 2022, demonstrated resmetirom was protected, well-tolerated and supplied statistically important enhancements in key measures of liver and cardiovascular well being.
- Knowledge from the Section 2 research revealed in The Lancet, demonstrated that liver fats discount of ≥30% with resmetirom was related to NASH decision and liver fibrosis discount as measured by liver biopsy. Liver fats was measured by MRI-derived Proton Density Fats Fraction (MRI‐PDFF).
- Section 2 outcomes additionally demonstrated remedy with resmetirom lowered a number of atherogenic lipids and lipoproteins, together with LDL-cholesterol, apolipoprotein B, triglycerides and lipoprotein (A) ― a key potential profit as NASH sufferers have elevated cardiovascular danger.
- So far, resmetirom has demonstrated a usually favorable security and tolerability profile together with in Section 3 research during which over 2,000 sufferers have enrolled, with many handled for multiple 12 months.
In response to info obtained from the clinicaltrials.org database this pharmaceutical has already initiated two (2) extra PHIII scientific trials with their investigational drug often called MGL3196 or Resmetirom.
One trial has 2000 contributors, break up into three arms, with a major endpoint to measure and assess the effectiveness of both their 80mg or 100 mg dose of MGL3196 vs placebo. Moreover, different endpoints embody composite long-term consequence measured by the variety of sufferers with the onset of any of the adjudicated occasions, composed of cirrhosis, all-cause mortality and liver-related scientific outcomes.
Resmetirom is administrated orally and an announcement on the scientific information is predicted within the close to future as the first endpoint completion date was in December 2021. MDGL has an earnings name slotted for November and traders on social media platforms consider this may very well be the month the findings are revealed, based mostly on a previous historical past of MDGLs management staff making these type of catalyst like bulletins throughout previous earnings calls. Ought to constructive findings be introduced, the share worth is undoubtedly set to go parabolic as it will likely be the primary to cross the end line for this unmet want.
Madrigal can also be conducting their second PHIII trial for sufferers with well-compensated NASH Cirrhosis however, shouldn’t be anticipated to be accomplished till November 2025, with 700 contributors.
|ClinicalTrials.gov Identifier: NCT05500222|
Scientific Trial Funding
Earlier than they will advance to PHIII the necessity to fund a bigger PHII scientific trial is probably going and it’ll have a major affect on the longer term growth of Leronlimab’s full potential.
As MDGL was used a comparability within the income constructing fashions, their PHII trails for his or her drug candidate included 700 contributors and PHIII trials with 2000. A PHII and PHIII trial, with a a lot bigger inhabitants, will lead to elevated money burns as extra scientific websites can be required, begin up and recruitment prices, extra analysis groups, information administration, cross by prices and the inclusion of a Scientific Analysis Group CRO in addition to the inclusion of acceptable histopathological endpoints will possible turn into a mandatory addition by the FDA.
The price of trials, in keeping with the web site SOFPROMED varies, as proven within the chart under, however has a imply value of roughly $41,000 per participant.
Reverse Splits and Inventory Dilution
Authorization by shareholders in August gave CytoDyn the potential to extend its total quantity of shares to roughly 1.35B shares. Whereas I highlighted on this article the benefit this approval can have to draw funding alternatives for companions, it could not come to fruition. Regardless, the necessity to elevate money and erode shareholder worth by dilution is all however unavoidable to be able to maintain the doorways open. If you happen to’re new to biotech investing, that is an inevitable consequence of biotech firms and sometimes mandatory.
Nonetheless, shareholders ought to by no means stick their head within the sand and ignore the potential of a reverse inventory break up. There are a number of explanation why an organization might resolve to execute a reverse inventory break up and cut back its variety of excellent shares available in the market. As I acknowledged in different articles, this can be accomplished to stop being delisted, enhance the corporate’s picture and to attract extra consideration from analysts and Wall Road funding companies who’ve minimal share worth limits structured into their by-laws which stop them from proudly owning shares below sure limits, reminiscent of $5.00.
The excellent news is as soon as a reverse break up happens and if the share worth can keep above these limits, many biotech exchange-traded funds (“ETFs”) are fascinated about proudly owning them as a part of a broad ETF biotech portfolio. After all, the draw back is the looks that an organization is utilizing some accounting magic to cover their monetary issues.
I consider that CYDY stays enticing at this stage and if you happen to’re prepared to enter the “high-risk excessive reward enviornment”, CYDY might very nicely be worthy of your consideration however, solely as a small portion of your total “high-risk, excessive reward” funding portfolio.
The Internet Current Worth evaluation performed by the manager staff at CYDY has decided that NASH is of utmost significance and is a really excessive worth alternative. The income fashions show this evaluation to be correct and well worth the execution and self-discipline it would take from their new management.
Whereas Madrigal Prescribed drugs seems to be closing in on the end line, there are others additionally within the house. MDGL is probably on the horizon of a close to time period catalyst that would transfer the SP in a parabolic transfer. I’ve no possession in MDGL.
Scientific trials outcomes are a key ingredient to the method of drug growth within the pipeline and the PoS used to estimate biotech valuations. Every approval or failure in a part can drastically transfer the share worth. Traders can see the binary nature of those trial outcomes as a result of many shifting elements attributed to the modeling by Wall Road, to not point out the volatility because the fashions worth within the new info.
Lastly, constructing a strong pipeline, establishing partnerships and making a wholesome steadiness sheet are important with Wall Road analysts who apply fashions that venture multiples on pre-revenue biotech’s.
In conclusion, CytoDyn might earn a spot within the NASH market if they will overcome the headwinds and execute on all points of the enterprise. Their efforts to refocus and reposition the priorities could be the treatment.
One ultimate observe: The one favor I ask is that you just click on the “Comply with” button so I can develop my Looking for Alpha readership. This may assist me, that will help you. Studying and information is a key to investing. It is already troublesome for the informal retail investor to search out little nuggets of data behind the backdrop of excessive speed-high frequency funding homes that collate information and commerce in milliseconds. My promise is that I’ll at all times do my greatest to give you correct and well timed info, when it’s submitted to SA.
Small cap biotechnology investing is just a fraction of my total funding portfolio which, supported by different investments, has elevated my chance I am going to be capable of keep a snug retirement for the years forward. Whereas I do my greatest to current factual analysis, readers ought to perceive the dangers earlier than making any investments choices.