It is very rare for a stock to command a 100% premium in what amounts to a secondary offering unless there is something very special about the company.  CytoDyn Inc. (OTCMKTS:CYDY) is poised to move higher today on the heels of an above market financing announced last night that net the company $25.0 million.  The company sold a 2 year note to an institutional investor that pays 10% per annum.  There is an original issue discount (OID) of approximately 12% which means the company has to pay interest on the higher amount and return a higher amount on maturity.  The note is convertible at the option of the noteholder at a price of $10.00 per share.  The financing is considered non-dilutive.  This is the 4th financing done with this institutional investor. On the market close today, Thursday July 30th,  the company has organized an investor call directed toward investors and analysts. 

NASDAQ Uplisting Imminent Estimates based on quarterly burn and the number of warrants exercised put their current cash position at $25 – $35 million.  With another $25 million in the bank they should have a total of $50 – $60 million.  NASDAQ requires $55 million in shareholder equity.  Given the fact that Dr. Pourhassan has gone on record many time saying he wanted to minimize the shareholder dilution, it doesn’t seem likely that he would raise more than what they needed.  On Dr. Been’s show Pourhassan said

“The shareholders, the dilution means everything to me, and I’m going to ask the board to allow me to go forward with raising money after the uplist. Ten million — twenty million shares at, let’s say, 7-8 dollars, hopefully, at that time. And we will have plenty of money.” 

The pricing of this convertible note is very favorable compared to CytoDyn’s expectation of 7 – 8 dollars.  It also seems clear that they are ahead of schedule because the raise was supposed to be after the uplisting.  The company did make it clear that NASDAQ would want to see their latest filings.  That is expected in the coming days so by next week CytoDyn could be uplisted as a NASDAQ stock.  

Structural Short Squeeze

There are the stubborn shorts like Adam Feuerstein’s followers who continued to pound on the company last week tweeting about an Otto Yang publication that had nothing to do with the leronlimab study and a STAT article that stating that there was no efficacy data from the recently completed study that normally takes weeks to months to tabulate.   Then we must not forget the BuyersStrike crowd that followed STAT with two more jabs at a Seeking Alphaposting and the insignificance of the safety data.  The published short interest off of OTC Markets as of 7/15/20 is 9,577,878.  This above market financing represents an issue because it was done at a price that represents a huge loss on their short position.  

Update Call CatalystsThe call after the bell today could be a major momentum driver if they pin down the release date of the efficacy data in the CD10 (mild to moderate) trial or reveal when the Data Safety Monitoring Committee will have a peek at the CD12 study (severe to critical).  CytoDyn also revealed another indication was taking shape.  In this latest press release they stated

“This injection of capital will help us deliver leronlimab to patients as soon as the regulatory pathway is clear for potentially COVID-19 (for three different populations), Cancer (23 different indications), and HIV (combination, monotherapy, HIV cure and PrEP). I am very excited to share with all of our stakeholders the excitement we have around our COVID-19 therapies during tomorrow’s conference call, as well as our expected timelines.” 

There is a third indication that could be what Dr. Patterson in his Dr. Been Video called “long haulers.”  This release also gives a hint that they might talk about the BLA timeline because with the latest FDA request there appears to be very little difference between the combination therapy and the monotherapy.  Then there is the wild card of the HIV and PrEP trials that could announce more about the trial of the 2 patients slated to begin in the coming weeks.  Dr. Scott Kelly might also unveil some more key opinion leaders joining his advisory board.  It appears this call will map out major catalysts in the coming month.    

Mexico Update

The situation is so dire in Mexico there is a shift I thinking that they may now approve the drug based on the anecdotal compassionate use data instead of run a 25 patient safety trial. This is the speculation from social media, but the conference call should set the record straight on what their timeline looks like. 

Significance of Safety Data

The market has really been disconnected from reality with respect to its comprehension of the safety data.  For the most part the message was hijacked by STAT new reporter Adam Feuerstein who has an infantile assessment of the announcement that efficacy data was missing.  Let’s be clear that the safety data from the CD10 trial was jaw dropping.  Why?  The control arm had SAE’s the leronlimab arm didn’t.  It’s that simple that leronlimab was about as safe as drinking water.  This is factoring in that the SAE’s experienced in the leronlimab arm were unrelated to the drug.  Investors need to stop and think and not drink the Kool Aide that STAT is selling.  The lack of SAE’s is an absolute indication of efficacy and likelihood that they met their primary endpoint.  In ANY randomized double blind placebo controlled study a reduction in SAE’s (side effects that could kill you) could be a consideration for approval. Investors need to wake up and realize that CYDY won the game but we just don’t know what the final score was.  Combing through efficacy data normally takes weeks or months and should not be expected so quickly.  During a recent Proactive video the CEO Nader Pourhassan explained the significance of the safety data and how a 64% reduction in SAE’s from the placebo arm was a very big deal.  The permagrin on Dr. Pourhassan’s face during this interview is very real, and he was truly excited.

“When you come out and you’re 64% better, that means if a patient doesn’t take leronlimab, they have 64% more chance of getting serious adverse events. Doctor Jay Lalezari said, this by itself could be “efficacy” for us, because that’s a fantastic result to have a one-third, almost, of the serious adverse events — one-third of what they had in placebo happened in leronlimab, and it wasn’t related to leronlimab.”

Investment Summary

There’s a lot of data swirling around and it’s settling down to whether or not leronlimab is going to meet its primary endpoint.  If the 64% reduction in SAE’s doesn’t sway investors, then perhaps the anecdotal survival data on over 60 compassionate use patients who should have died.  What about the UCLA study that showed the average time of hospitalization was 5 days on compassionate use patients.  Compare that to Gilead Sciences (NADSAQ: GILD) mild to moderate results detailed in the NEJM remdesivir study that shortened hospital stays from 15 to 11.  Investors should be able to figure out that 5 days is much better than 11 but sadly they haven’t which is why the stock isn’t trading significantly higher.  One institutional investor that did the offering yesterday gets it, and he made a $25 million bet on it.  Investors can continue to drink the Adam Feuerstein Kool Aide that this is a smoke and mirror show, but the reality is that leronlimab is saving lives and the genie is out of the bottle.  There are fears that the government is going to squash this drug, that the FDA is going to treat them unfairly, or that big pharma is going squeeze them out.  These fears are all unfounded.The path toward leronlimab meeting its endpoint is clear, and investors have two choices.  They can  completely discount all this anecdotal evidence that the drug works, and wait for efficacy results or realize how likely approval is and buy before the announcement and make an extraordinary return versus a good return.  It basically boils down to an investors risk management.  Does the investor want a good return or a phenomenal return?  Now one last anecdote from Dr. Patterson no pun intended

“Anecdotes don’t come off of life support!” 

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