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CYDY CytoDyn, Inc. - Initiation Note

CytoDyn, Inc.

BUY (CYDY, $0.58)

PRO 140 - Differentiated HIV Drug With Favorable Safety vs HAART, Phase 3 Data In 2Q17: Initiating BUY/$3 TP

May 25, 2017

Jonathan Aschoff, Ph.D.

212.417.8277

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We are initiating coverage of CytoDyn, Inc. with a Buy rating and 12 month target price of $3. CytoDyn’s lead candidate, PRO 140, is a fully humanized antibody in Phase 3 development as a new class of therapy against CCR5-tropic HIV. Our valuation is based entirely upon projected revenue from PRO 140 for CCR5-tropic HIV infection in the US, where CytoDyn intends to market PRO 140 itself upon potential FDA approval. We project US approval and launch in calendar 1H19, and at an annual cost of about $10,000, we project over $400M in PRO 140 net sales in FY2022.

The next most important investment catalyst for CytoDyn is the 2Q17 release of topline data from the 30-patient Phase 2b/3 PRO 140 combination therapy trial for HIV. The Phase 2b portion of the trial will evaluate the efficacy, safety and tolerability of PRO 140 in conjunction with a highly active antiretroviral therapy (HAART) regimen that treatment-experienced patients are currently failing, and the Phase 3 portion will subsequently evaluate the same patients in conjunction with optimized background therapy. The primary endpoint is the proportion of patients with ≥0.5 log10 reduction in HIV-1 RNA viral load from baseline at the end of the 1-week double-blind Phase 2b portion, a low hurdle in our view. If positive, the data will likely increase the chance of receiving Breakthrough Therapy Designation in 2H17, and support a 2018 BLA filing. The success of this trial will serve as the first path for PRO 140 approval for HIV in patients with multi-drug resistance.

PRO 140 is also being evaluated in a Phase 2b/3 long-acting monotherapy trial with enrollment expected to complete in 2H17. The trial will assess the maintenance of viral suppression in 300 clinically stable CCR5-tropic HIV patients following substitution of HAART with 350 mg PRO 140 SC weekly for 48 weeks, and therefore evaluate PRO 140’s potential use as a single-agent maintenance therapy as well as in patients who choose to take holidays from HAART therapy. CytoDyn then plans to target the substitution benefits of PRO 140 as a label extension for maintenance monotherapy, serving the large general CCR5-tropic HIV population. The trial is actively enrolling at about 30 sites.

PRO 140 offers competitive advantages over standard of care HAART in its once-weekly flexible dosing, as well as its far more favorable safety and tolerability profile. Compared to HAART’s strict once-daily oral regimen, PRO 140’s more flexible once-weekly SC dosing regimen provides a differentiated convenience, especially for those with difficulty adhering to a daily HAART regimen, or for patients who would like to take a break from HAART due to safety or tolerability. Most importantly, PRO 140 appears to demonstrate a safer profile with no serious side effects observed in trials and no negative impact on immune function. Also, no drug resistance has been seen in patients on monotherapy for up to 24 months, as compared to 76% of patients who experienced resistance to 1 or more of the drugs that comprise HAART.

CytoDyn had about $7.8M in cash as of February 28, 2017 and is therefore clearly in need of additional financing to proceed with its BLA preparation after the imminent Phase 2b/3 data.

CYDY


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