Took down from Citron but this was what it was. Sorry if honda
CytoDyn (CYDY)
SEC Must Immediately Halt this Stock Promotion Scheme
We cannot remember the last time we’ve seen a bigger joke of a stock. This is a
$5 billion market cap company with 10 employees who claims to have the cure
for COVID with zero data and a CEO who sold >$30 million of stock ~70% lower
than yesterday’s closing stock price.
The CEO has made inappropriate promotional claims like “this looks the solution
to coronavirus” leading into his most recent stock sale.
On Feb 4th, 2020, the SEC issued an Investor Alert warning about COVID-related
stock promotions. CytoDyn, a Vancouver based OTC-listed biotech company,
appears to be one such stock promotion. The brazen stock promotion scheme
should immediately be halted by the SEC.
Culper Research has also done good work here which covers the history of the
company in more detail.
https://img1.wsimg.com/blobby/go/cc91fda7-4669-4d1b-81ce-a0b8d77f25ab/downloads/Culper_CYDY_2-6-
2020.pdf?ver=1591103388830
https://img1.wsimg.com/blobby/go/cc91fda7-4669-4d1b-81ce-a0b8d77f25ab/downloads/Culper_CYDY_2-12-
2020.pdf?ver=1591103388830
https://img1.wsimg.com/blobby/go/cc91fda7-4669-4d1b-81ce-a0b8d77f25ab/downloads/Culper_CYDY_5-8-
2020.pdf?ver=1591103388830
CytoDyn has aggressively touted its investigational drug candidate, Leronlimab, as
a potential treatment for COVID-19. However, there is zero scientific data to
support this view. This has not prevented the company from making several
misleading and disingenuous claims in an effort to generate hype around their
drug candidate and stock price.
So far this year, CytoDyn has issued 51 press releases, conducted 5 conference
calls, participated in no less than 24 interviews, and has utilized several third-
party investor relations and stock newsletter services.
CytoDyn has used the increased attention to raise capital multiple times since
January 2020. The company has regularly employed selective and incomplete
disclosure in order to continue to promote the stock.
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Below are the red flags that should be on the radar of the SEC:
• On April 27, 2020, CytoDyn held its latest investor conference call. Jacob
Lalezari, the company’s interim Chief Medical Officer (CMO) made several
statements implying Leronlimab’s efficacy in treating patients with COVID.
Not only are these claims highly inappropriate given the lack of available
data, Lalezari was presented as an independent medical authority with no
financial interest in CytoDyn
o “It’s clear this drug is working, working better than we ever could
have imagined. The sooner we bring relief to people, the better”
o “I think we’ve shown this could be the one drug that does it all”
o “There’s no doubt in my mind anymore about how important this
drug is going to be for COVID-19”
• On the same conference call, CEO Nader Pourhassan said that he believed
his mother-in-law was alive because of Leronlimab treatment. Though the
Leronlimab trial received clearance in Nov 2018 and expects to enroll 48
patients, enrollment thus far has been just 3, of which 1 is the CEO’s
mother-in-law
o In the absence of real clinical data, the company relies on buzzy
anecdotal reports and makes grandiose claims such as “the patient is
somebody close to me, in San Jose. This patient was … essentially
[on] life support … and is now close to being off ventilator and
they’ve already made plans to ship her to rehab to continue her
care and physical therapy” (2:36, Apr 30th, 2020 Proactive Investors)
• Prior to the April 27 call, the COVID-19 thesis put forth by management was
that Leronlimab would aid in supressing the cytokine storm which has been
leading to complications in many cases. Before this point, Leronlimab was
not framed as anti-viral. On April 24, a letter to the editor was published in
the NEJM that included data from Kidney-transplant recipients that had
been infected with COVID-19. 6 of 36 patients were administered
Leronlimab. Only 1 those patients remained in stable condition without
intubation. CytoDyn management failed to mention this important fact on
their April 27 call despite indicating that the NEJM publication was one of
the subjects of the call. They did briefly mention the reduction in IL-6 levels
in treated patients, but failed to mention the clinical outcomes. Instead,
the company pivoted its thesis and claimed that Leronlimab has been
associated with reduction in viral load observed in blood plasma. This
appears to be a bait and switch whereby management is attempting to
avoid disclosing any negative information to investors. When asked to
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elaborate on their new breakthrough by a participant on the call, the CEO
refuses to provide any additional detail and ends the Q&A shortly
thereafter
o On April 27, Sanofi / Regeneron announced disappointing results
from their phase 2 trial testing Kevzara (an IL-6 inhibitor) on COVID-
19 patients. This has potential read-through to CytoDyn’s original
hopes for Leronlimab, which is likely another reason the company
decided to pivot away from their original thesis
o CytoDyn’s March 16 press release indicates Leronlimab is being
explored as “therapy for patients who experience respiratory
complications” from COVID-19. There is no mention of anti-viral
properties at any point before the April 27 call
• While CytoDyn continues to avoid disseminating any negative news to
investors, the company never wastes an opportunity to tout anecdotal
COVID-19 success stories. This selective disclosure is alarming because it
fails to portray an accurate picture to investors. To-date the company has
not disclosed full data from the patients they have treated
o “patients with mild-moderate disease were given a dose of
leronlimab, they very quickly come off oxygen. We have many
patients now who were intubated, they were given a dose of
leronlimab, they come off intubation” (6:29, Apr 13th, 2020 Proactive
Investors)
o In response to why the HIV BLA hasn’t yet been submitted: “saving
these peoples lives today is the most urgent thing we could be doing
… we said “ok lets try it” and so we had to put all of our team to save
peoples lives. Thank you, the shareholders, for allowing the company
to be at this point to be able to do that. So we saved some lives, its
been on the news, it’s no fluke or hoax, it happened” (4:11). “For the
good of the humanity we’re going to try it and now it looks like, to
me, that this is the solution to coronavirus” (5:30, Apr 15th,
2020 Proactive Investors)
o “at the end of the day that [offering some ray of hope to help save
the lives of loved ones] is what keeps CytoDyn working, it’s always
been a company with huge heart and a major focus on patients and
it’s also something that keeps us working long hours in the lab to
figure this disease out, and I think we have … the results explain
themselves” (8:05, Apr 30th, 2020 Proactive Investors)
• The company has stated several times that it recently raised capital in the
form of debt convertible into stock at $4.50 per share with no warrants.
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© Copyright 2020 | Citron Research | www.citronresearch.com | All Inquiries – info@citronresearch.com
The company has attempted to frame this as validation of their success –
the supposed ability to raise external capital at favorable terms. However,
what CytoDyn fails to mention is that the convertible note has a reset
feature – its conversion price gets adjusted down to wherever the
company’s next equity deal gets priced. As a result, the sticker price of the
convertible financing is largely irrelevant. Furthermore, the financing
included an original issuer discount (OID) of $2.1 million, representing ~12%
of the total principal amount of the financing. Iliad Research and Trading
has a history of financing questionable public microcap entities with similar
structured financings
• On April 28, 2020, CytoDyn disclosed that shareholders, including three
former Board Members, had filed a lawsuit against CytoDyn for unjust
enrichment. The three former Board Members include Anthony Caracciolo
(2012-2019), Greg Gould (2007-2019), and Carl Dockery (2014-2019),
where all three resigned in 2019. Part of the complaint is related to a
contingent share award disclosed on January 28, 2020 whereby
management was to be granted 11.65m shares (currently worth >US$30m)
if CytoDyn achieves breakthrough designation within 6 months. The value
of this award is egregious relative to the milestone involved and the pre-
revenue nature of the company. This award supports the view that
CytoDyn is a stock promotion scheme intended to enrich insiders
• Days later, on Apr 30th, 2020, CytoDyn filed an S-3/A which includes 2
million $0.63 warrants issued to CEO Nader Pourhassan in connection
with the above-mentioned share grant S-3/A. The S-3 also listed Michael
McCarthy from the Dream Team Group, a former stock promotion scheme
exposed by Adam Feuerstein and Richard Pearson Buysstrike
• CEO Nader Pourhassan ultimately sold ~10 million shares (>$30 million)
between Apr 30th and May 4th
• There is an alarming level of management and board turnover as well as
troubling allegations that the CEO has ignored concerns around patient
safety from the company’s former CMO. This struggle resulted in three
additional board member resignations and was well-highlighted in a lawsuit
filed by the same CMO (lawsuit number: 1:19-cv-01563-RGA). Several of
these resigned board members are involved in the above-referenced unjust
enrichment lawsuit