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Billionaire Investor Quietly Joins CYDY Board along with World Renown Cancer Researcher

 

CytoDyn Inc (CYDY) announced that Michael A. Klump joined the Board of Directors at CytoDyn.  Mr. Klump has an extensive background in financing that traces back to Argonne Capital Group LLC.  The timing of his appointment seems to be calculated as the company plans on courting suitors for licensing or acquisition deals with the company.  He is the founder and CEO of Argonne Capital Group which generates $1.6 billion in sales and employs 32,000 people.  The company is the largest franchisee of IHOP with 300 restaurants and 4 partnerships.  They are the 4th largest Applebee’s franchisee with approximately 120 locations.  Argonne is the franchisee of Planet fitness with over 1,100 clubs nationwide.  They are also the largest John Deere turf and agricultural dealership in update New York.  This billionaire investor normally deals with real estate and is not on the board of any other public companies which speaks volumes in regard to his belief in the company.  CYDY was quick to disclose that he was a “significant investor” and brought “extensive financing and mergers and acquisitions experience to the CytoDyn Board.”

Key points:

  • Expansion of cancer pipeline.
  • Many licensing opportunities with big pharma.
  • Platform technology.
  • Case study with Seattle Genetics highlights valuation gap.

New Acquisition Leads to Pipeline Expansion

The current acquisition of ProstaGene was a milestone for CytoDyn as it brought a very powerful Potential use for PRO 140 in any cancer that uses CCR5 to already potential indications which are the existing 2 indications in HIV and Graft versus Host Disease (GvHD) along with multiple sclerosis and colon cancer.  The new and improved pipeline means the company is almost 30 times as large but the stock has not recognized the potential of the cancer indications. For CYDY to promote a significant investor to the board and mention the mergers and acquisitions experience projects the notion that buyout or licensing discussions are indeed happening.  The company had made overtures that they would be interested in being purchased but having a billionaire investor of this caliber on the team is extremely useful (as the old saying goes it is not what you know but who you know). PRO 140 has successfully completed one pivotal phase 3 trial for combination therapy and another Phase 3 investigative trial in Monotherapy has completed enrollment and is in the process of completing their rolling Biologics License Application (BLA) for their first approval for combination therapy in HIV.  CYDY is about 4-7 months from filing their complete BLA application for PRO 140.

Likely Suitors + Growing Friction in Market = Speculation on Entry Inhibitor

The top candidate for a license/buyout deal is Gilead (GILD) with 55% of its $14 billion in annual sales dependent upon HIV.  In February this year it rolled out a new 3 drug combination called Biktarvy. The next potential suitor is Glaxo SmithKline (GSK) which has 2nd and 4th highest selling HIV drugs (Triumeq & Tivicay) and a new two drug combination of dolutegravir and lamivudine in the works.  In a recent article Deborah Waterhouse, head of GSK’s ViiV Healthcare indicated they “aim to overtake Gilead as market leader in the $26 Billion-a-year HIV market by the mid 2020’s, assuming the gamble on two-drug combinations pans out.”  The gamble lies in the fact that the virus might have an easier chance of developing a drug resistance to two drugs versus three but there was no evidence of that in the 48 week trial. Physicians reluctant to change might be slow to uptake the new combination pill for the fear of resistance justified or not.  Behind them is Johnson and Johnson (JNJ) which just made news last month when it announce FDA approval of Symtuza.  Merck (MRK) has a small presence but there is a long history of MRK in HIV and if there is a bidding war they are sure to join in.  Each one of these companies has a vested stake and billions of dollars invested in the current standard of care called Highly Active Antiretroviral Treatment (HAART).  The whole industry is only one drug approval away from billions in research going down the drain. All the current therapies in the pipeline become obsolete if this new entry inhibitor class of drugs can take root.  

CCR5 Represents Platform Technology

PRO 140 is an entry inhibitor for the HIV virus but the applications extend far beyond HIV.  The first example are the preclinical results of Graft versus Host Disease (GvHD) where humanized DNA was able to survive and thrive in a foreign host.  The implications for stem cell implants are just scratching the surface. It could extend much further in the eco system as they test this mechanism on organ transplants.  Many organ transplants leave the recipient on anti-rejection medication for the rest of their life. A once a week injectable for 3 months in hope of eliminating GvHD would be an absolute game changer for this group of people as PRO140 doesn’t have the side effects of suppressing the immune system.

With the recent acquisition of ProstaGene almost complete, world renowned scientist Dr Richard Pestell stepped in as the Chief Medical Officer (CMO) to oversee a massive pipeline of oncology indications that are likely to follow as metastasis is the concern in nearly every cancer indication.  At the closing of the transaction Dr. Pestell is expected to join CYDY’s Board of Directors.  ProstaGene has patented discoveries for cancer metastasis therapies and a high predictive genetic test for prostate cancer.   Dr. Pestell has published over 600 publications and is most commonly cited for his work in prostate cancer. Last year he joined the Blumberg Institute which is in the process of adding 50,000 sf of laboratory space in the Biotechnology Center.  Before starting his own company he was a researcher at the Jefferson College of Life Sciences where he worked on the molecular mechanism and gene therapy of breast and prostate cancer.  While at Jefferson College, he publish many peer-reviewed publication on the CCR5 receptor and its implication to cancer. In a very simple summary his work showed that blocking the CCR5 receptor was key to stopping the metastasis of cancer.   A video titled Cancer Metastasis Promotion by CCR5 Receptor is a must see.  In his work he use two somewhat toxic CCR5 antagonists Mariviroc and Vicriviroc which “dramatically enhanced the cell killing mediated by DNA damaging chemotherapeutic agents.”       

    

Figure 4 above can be very confusing but the common theme is that CCL5 is doing a lot of things to stimulate the growth and metastasis of breast cancer.  Blocking the CCR5 target simply stops the cycle and takes the fangs or invasiveness of cancer out of the picture. This means the Myeloid-derived Suppressor Cells (MDSC) known as regulatory cells that keep the CD8+ killer T-cells away would no longer be attracted to the site.  The Mesenchymal Stromal Cells (MSC) responsible for increasing CCL5 levels would also be taken out of the equation leaving the CD8+ T-cell not depicted in the drawing to be allowed to migrate into the tumor microenvironment and kill the cancer cells.

With all this preclinical work by Dr. Pestell on the CCR5 target, PRO 140 is a very convincing candidate for Phase 2b studies on cancer giving its excellent safety profile.  The market has not priced in a fully functioning phase 2 cancer company with at least 4 potential indications (Breast, Colon, Prostate, MS) to get started.

Seattle Genetics Case Study

The market seems to be really lost on how to value the addition of this platform technology.  Seattle Genetics (SGEN) is actually an ideal case study because they have a platform technology and multiple cancer indications and show what CYDY could look like in just over a year.  SGEN has an antibody-drug conjugate (ADC) that they can attached a cytotoxic agent that is delivered to the target antigen. This is the backbone of the platform technology. Instead of delivering a cytotoxic agent, CYDY’s PRO 140 monoclonal antibody simply blocks the CCR5 interactions preventing metastasis of the cancer indication.  SGEN is partnered with Takeda, ABBV, GSK, and Genmab. SGEN has indications in Hodgkin Lymphoma, Non-Hodgkin Lymphoma (NHL), Breast Cancer, Solid tumors, Lymphoma, Leukemia, and Multiple Myeloma. With 7 indications of cancer they are roughly double the size of CYDY. They are enrolling in about 13 clinical trials and it’s expected that CYDY will enroll in 3 cancer clinical trials plus the 2 HIV trials and the GvHD.  Stacking up to SGEN they are half the size. In terms of revenue SGEN did $482 million in sales versus CYDY projections of $1.2 billion. In this instance CYDY might eclipse SGEN in a 1-2 year time frame.

Summary

The addition of a tycoon investor and a world renown cancer expert to the CYDY board indicates activity as a minimum.  Neither of these gentlemen would be willing to give up their time to deal with a company of this stature unless they saw a much bigger play.  The current market capitalization of CYDY is only $105 million. Once approved as just a combination therapy BioVid Market Research estimates sales of $1.2 billion assuming 49,000 patients. If there is a label expansion to monotherapy that number rises to $3.8 billion.  The company is trading at less than 10% of BioVids projected value 7months from now with a BLA Application filed. With all the potential upheaval in the HIV market coming from the majors trying to knock each other off the timing couldn’t be more perfect for a deal.  Although the merger with ProstaGene hasn’t been finalized it seems clear that they are moving ahead and the market has not come to grips with the true potential of the deal which should more closely resemble a platform technology like Seattle Genetics (SGEN). The disparity shown is massive and as CYDY continues to do road shows and awareness the stock price should correct accordingly.       

     

 

Published by Alan Masterson

Alan has over 25 years of trading experience in the U.S. equity markets. He began his career in finance working on a program trading desk specializing in over-the-counter stocks. His career progressed from that point to his current position as senior trader on an institutional trading desk. In the evenings, Alan teaches economics at a local community college. He has contributed articles to various publications over the last six years, including feature articles for an economics magazine and various financial blogs. You may contact Alan via his email ([email protected]) or his Google+ page (https://plus.google.com/103338576216002376250).

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