CytoDyn Inc. (OTCMKTS: CYDY) announced today that it received a positive recommendation from the DSMB after it conducted its interim analysis. Initially, the stock moved higher on the news but has moved negative as investors fears started to kick in that enrollment may be difficult and that other therapies could supplant them as the standard of care. The investors driving the stock lower might have missed the two bullet points under the headline.

DSMC recommends CytoDyn continue the study as planned, with the protocol defined sample size and power to achieve the primary endpoint

DSMC also requests another data review when enrollment reaches 293 patients (75%) to analyze all data, including survival rate at 42 days

These bullet points need to be dissected. The first point is that they continue the trial as planned per the protocol because they are going to “achieve the primary endpoint.” This was a glowing recommendation from the DSMB. They are an independent body with a charter to look after the welfare of the patients in the trial. Achieving the primary endpoint typically results in approval of the drug should there be no safety concerns, however when the primary endpoint is mortality approval tends to be more of a certainty because no endpoint is more important than mortality. The DSMB in their own special way said that leronlimab appears to be an approvable drug if they complete their trial and continue to generate the results they have generated up to this interim point. Normally having the first drug in a pandemic with a clear path to approval would be welcome news. Leronlimab is clearly the front runner as the next therapeutic for COVID-19 and their challengers will have a high bar to cross because few if any are using mortality as an endpoint.

The second bullet point discusses the insertion of another interim review along with a new data point of 42-day survival rate. The bullet point also seems to suggest that the primary endpoint of 28-day all-cause mortality is still on track. What the DSMB did here was actually expand the number of endpoints in which leronlimab could receive approval. By adding a 42-day survival rate they are giving the company another means by which to seek approval. It appears that in the data the DSMB saw a very favorable trend. The study ended on Sept 23rd and two weeks later (day 42) was October 7th. It’s conceivable that the DSMB looked at that survival rate and saw something they liked. Since the study started in April the standard of care has clearly improved and prolonged life beyond the 28-day point but it's likely that it hasn’t reached the 42-day point. This additional endpoint could be the DSMB’s plan B for approval because they realized that as the study draws on techniques to prolong life get better and better. What the DSMB might not have considered is that a surge that stresses the healthcare system might push survivability back down in the coming months. Either way, it appears the DSMB set the endpoints up for a beat at the next interim point.

Patient Recruitment

The softness in the stock price seems to emanate from the softness in the patient recruitment numbers. The company has remained at a stagnant 230 people. The CEO Nader Pourhassan admitted in the last conference call that they had been focused on the interim report. This approach might have turned some investors off, but with the conference call approaching in hours investors have to consider that they may have a plan to add additional sites. They currently have 15 clinical trial sites recruiting and added one within the past month. The United Kingdom's clinical sites have not come online and if the company announces any positive developments on that front it might quell some of the investor uneasiness with respect to patient recruitment.

The company indicated that there could be a new interim readout at 293 patients which represent 75% of the total expected enrollment. The company guided that this could take an additional 4 - 6 weeks to accomplish. This would mean an interim readout would come in about 90 days, but it is highly likely that they would have met an approvable endpoint of mortality. The company would then be positioned to accept and approval and begin marketing the drug as soon as January of 2021. Considering the number of doses they have on hand that could represent billions in revenue in just the 1st quarter.

Increased Endpoint - 42 Day Survival

Adding an additional endpoint is very favorable for the overall success of the study but it will lengthen the trial by 2 weeks. Investors have waited a very long time for an approval. It's conceivable that an extra two weeks might turn some off but is a drop in the bucket in terms of the overall trial which started in April.

FDA Regulatory Pathway

Now that the DSMB has rendered its recommendations, the company will take these recommendations to the FDA and figure out a path forward. Obviously most investors are crying for Emergency Use Authorization (EUA), but those investors are probably overlooking that the MHRA from the United Kingdom was waiting for this interim data point and it is clearly positive in a sea of therapeutic failures. The big thing investors may be missing is the absence of any comments on the safety of the drug. It's clear that the FDA should now be focused on the efficacy and not just a time to clinical recovery benefit that all the other drug candidates seem to be pursuing. Just recently vaccines and therapeutics have been placed on hold or paused for safety. Gilead Sciences (GILD) remdesivir also got denounced by the World Health Organization when a study showed that there was no mortality benefit or a reduction in stay.

The company could make a very strong case for an EUA and it's reasonable to suspect that they will, but what investors have learned is that CytoDyn will ask the FDA for their opinion on whether or not they should file the EUA. So if they do announce a filing of an EUA this go around it is likely that they received positive input from the FDA.

Summary

The market doesn’t seem to be reacting rationally to this exciting news. CytoDyn is pursuing approval of this drug in many countries. Just last week they announced a distribution deal in the Philippines, which is a precursor to approval. In September the company indicated that the MHRA was waiting for the interim readout to make a decision on how to proceed with their version of emergency use approval. The jury is still out on what the FDA may or may not do. The best news of all is that the DSMB pretty much assured the company that their trial was on target and likely to reach their endpoint of mortality benefit. CytoDyn has a clear pathway to approval unlike any other drug. They may not have an Emergency Use Authorization from the FDA but the agency has come under intense fire for jumping the gun too early on the convalescent plasma. This time they seem to be taking a methodical approach. Investors that focus on the fundamentals will see that billions of dollars of market capitalization will be created in the next 3 months as they wind down toward their approval.

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