CytoDyn Inc. (CYDY) Earnings Call Transcript & Summary

Hello, and welcome to the CytoDyn Investment Community webcast. [Operator Instructions]. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Cristina De Leon. Please go ahead.

Hello, everyone, and thank you for joining us today. This is Cristina De Leon with CytoDyn. Joining us on today's webcast is our President, Cyrus Arman; our CFO, Antonio Migliarese; and our newly appointed Head of Research and Basic Science Scott Hansen. Before we begin, it is essential that we provide you with important cautionary language related to certain federal securities laws. Our remarks during today's webcast will include forward-looking statements. Forward-looking statements are not guarantees of future performance and involve known and unknown risks, uncertainties and other factors that are difficult to predict. Actual results may be materially different from any future results expressed or implied by such forward-looking statements. These risks and uncertainties include, among other matters, statements regarding leronlimab's potential efficacy in certain immunology and oncology indications, the status and potential consequences of regulatory actions and government investigations and inquiries, the company's ongoing ability to raise additional new capital, that clinical trials may not commence or proceed as planned, products that appear promising in early trials may not subsequently prove to be viable on safety or efficacy grounds; products may not receive regulatory approval or market acceptance, competition may reduce the commercial potential of our products; we may experience product recalls, manufacturing issues or product liability; and our patent may be challenged or unenforceable. Although forward-looking statements help to provide complete information about the company, forward-looking statements may be less reliable than historical information. The company undertakes no obligation to update publicly these forward-looking statements, except as required by law. Please refer to our recent quarterly and annual reports filed with the Securities and Exchange Commission for more information about the risks and uncertainties that could cause actual results to differ materially versus our current expectations. I will now turn the webcast over to Cyrus Arman.

Thank you, Cristina, and thank you to our shareholders, analysts and various members of the media who have joined us today. By way of an agenda, the primary topics that we want to cover will include an update on the partial clinical hold status with the FDA, an update on clinical development plans for our next NASH trial, a couple of new key additions to our leadership team, additional life cycle management efforts that are underway to both preserve and enhance the value of leronlimab and its derivatives along with the financial update that will be presented by Antonio. And we'll conclude with a Q&A session that will address questions that were submitted prior to the webcast. And as a reminder, we generally accept questions ahead of our scheduled quarterly updates, and we do our best to address them through the prepared statements and then provide further clarification at the end of the webcast. So as usual, before we begin, I want to remind everyone of CytoDyn's mission. And I do this reminder because for many of us, this is why we choose to be here at CytoDyn and frankly, not somewhere else, right? We believe that we have a moral obligation to generate therapies that improve people's lives. And we firmly believe that leronlimab and the various derivatives that we're off to generating from it fall into that category of therapies that can improve people's lives. We achieve this through a focused and disciplined development strategy. And in doing so, we will create a value-generating path that results in economic returns for our investors. And this is why we're here. This is why we show up every day. And this is why we try to do the work that we do for patients and for our shareholders. So turning now to the primary topic, which is the status of the partial clinical hold from the FDA. As a reminder for everyone on the call, in March of 2022, just over a year ago, the FDA's division of antivirals within the office of infectious diseases, placed a partial clinical hold on the company's IND for our HIV program and a full clinical hold on a separate IND for our COVID-19 program. So at the time CytoDyn was not actively enrolling new patients under either of those INDs that was placed on hold. And we chose to voluntarily withdraw the IND for the COVID-19 program. We subsequently then made the business decision to no longer develop leronlimab in COVID-19 patients. And since March of 2022, we've been working diligently to resolve the partial clinical hold on the HIV program as quickly as possible, but also taking time to ensure that we were putting in the appropriate care and attention required to address the FDA's concerns. And part of this entailed successfully working through data access and data formatting issues related to the CRO that was responsible for collecting and managing the clinical data that we actually needed to address the FDA's concerns. So from the original partial hold letter that we received last -- in March of '22, the FDA had identified various items that needed to be addressed as part of a complete response to that clinical hold. So I'll go through those items now and provide you an update on the status and where we're at as it relates to those. So the FDA requested an updated investigator brochure. There was a request to come into compliance with annual [indiscernible] requirements for all of the active INDs with adequate quality annual reports, which we agreed with the FDA to address through annual development safety update reports or DSURs. There was a request for a safety management and pharmacovigilance program to be put into place; a request for an aggregate safety data analysis, which included an analysis of all cardiovascular events across all the clinical trials that involved leronlimab. This was further expanded to include all system organ classes that we had data on. And also a benefit risk assessment for the HIV population that was being studied as part of that IND. It's important to note that with the exception of that benefit risk analysis for the HIV indication, each of these items that had been requested by the FDA really needed to be addressed regardless of the indication or the disease being studied. And during the third fiscal quarter, which ended in -- at the end of February of 2023, we submitted the documents that were requested by the FDA in the original March of 22 partial hold letter. Subsequently, the FDA responded to us through written communication requesting some additional information and clarification regarding the benefit risk assessment for the HIV population and made an additional supplemental request that we -- the company also provide a general investigational plan for the HIV program IND going forward. So in March of 2023, just this last month, we responded and submitted that additional information and the clarification -- and clarifications requested for those 2 items. The FDA then responded back with further written communications to us, again relating to the benefit risk assessment as well as requesting the [definition] of a new protocol for HIV indication to be studied once the partial hold is lifted or some clarification that CytoDyn may not continue to develop leronlimab in that indication. So at the end of March, again, just this last month, we held an informal meeting with FDA where the agency clarified some of our more specific questions with respect to the information that they would have liked to see addressed in the risk-benefit portion of the clinical hold. And we're currently working on finalizing the supplemental submission to address those items that we discussed with the agency during that informal meeting. And we remain fully committed to the submission of the complete response to lift the partial clinical hold for that indication. So this brings us to our next topic, which is development plans for a subsequent NASH trial. So in parallel to the work that I just described above, we are also developing clinical synopsis for our next NASH program. While the IND for the NASH program is issued by the Division of Hepatology and Nutrition from a different office within the FDA, in this case, the office of immunology and inflammation. And it's technically not directly impacted by the existing clinical hold on the IND side, as a company and as a sponsored clinical trials, we intend to ensure that we're going to meet all potential sponsor responsibilities related to safety reporting that could be requested by the division of hepatology. And so as such, we plan to request a Type B meeting with the division to concur on the design of a proposed clinical trial for the next NASH study. And we would then subsequently plan to submit a protocol amendment to the existing NASH IND and include any and all supporting documents that would pertain to patient safety that would allow us to begin new investigations within the NASH clinical population. So then, we're committed to working with the regulators to develop leronlimab in NASH and in other indications, specifically in oncology, as we've previously discussed. And we're -- while we're preparing these materials for the regulators, we're also taking the appropriate steps to ensure that we have the proper personnel in-house to execute on our clinical plans. And so this includes the recent addition of [indiscernible] as our new Executive Director of Quality. I think we're incredibly fortunate to have been able to recruit Jane to join us here at CytoDyn. She has extensive experience in clinical as well as CMC quality and compliant functional areas, both large biopharmaceutical companies and smaller biotech companies like CytoDyn. And I really think that Jane's experience in these areas is going to be critical to future clinical success that we're planning for. And it really demonstrates our commitment to ensuring quality and compliance across the organization. Additionally, we have also formally established Dr. Scott Hansen as our Head of Research and Basic Science Dr. Hansen is currently an associate professor at the Oregon Health & Sciences University. And within this newly formalized role, Dr. Hansen will support our clinical development activities related to biomarker and assay development for future clinical trials as well as supporting and leading some of our earlier-stage efforts geared towards the development of longer-acting molecule targeted against CCR5. And as a part of those efforts, we've also recently entered into a joint development agreement with a third-party research and development biotech company to develop one or more longer-acting molecules against CCR5. So in addition to potentially leading to an improved or modified therapeutic that we believe would have greater acceptance by both patients and physicians. This could also yield extended intellectual property protection that would increase the underlying value of our patent portfolio. So we're fortunate to have Dr. Hansen join the team. He's actually here with us on this call. And I'll turn it over to him now so that he can elaborate further on his background and his direct experience in -- with leronlimab in his own lab. Scott?

Yes. Thank you, Cyrus. By way of my background, I thought I would start there. I have about 25 years of experience in the fields of urology, oncology and immunology. At OHSU, I currently lead one of the largest and most prominent nonhuman primate research labs in the country. My laboratory covers a remarkable breadth of work, including research projects on malaria, numerous viral and bacterial diseases, immunology and cancer. And as you all know, many of these research areas that I'm studying are relevant to CytoDyn's own development plans. However, what I'm most known for is developing cyclameglovirus or CMV as a next-generation vaccine platform. Based on this technology, I helped co-found a small biotech company to preserve the IP around the new Vector platform and take it through the clinical development process. To facilitate the clinical development process for the CMV Vector platform, I created a quality system to [run] QA/QC oversight of my laboratory. And basically, what that means if you're not in this space, it uses good documentation and following good laboratory -- good clinical laboratory practices so that the results from the assays on performing at the laboratory can be reported to the regulatory agencies such as the FDA. I think this as a system is really important for supporting ongoing research studies and clinical trials for CytoDyn, so I think it's going to be very helpful. So how do I come to work for CytoDyn? Well, it's actually been 2 years ago. I didn't realize that, but in March of 2021, Dr. Jonah Sacha, a colleague of mine at OHSU and long-time collaborator with CytoDyn. I think he spoke on some of these calls before, asked me to help join with -- asked me to help with the receptor occupancy and biomarker analysis for leronlimab on an exploratory basis. And I was instantly blown away by the data we were generating in the lab. I'm kind of embarrassed to say, but at the time, I didn't know much about leronlimab besides it was a monoclonal antibody against the CCR5 receptor, and it was used to prevent HIV infection. But what I was observing in the laboratory, from the experiments I was doing there was numerous immuno modulatory effects, including possible FX on immune cell proliferation, calcium signaling, monocyte proliferation, CCR5 receptor stabilization. I can probably go on and on about this. It's something I kind of geek out about a lot, but I told Cyrus, I would try to keep this brief and short. But one of the things I do want to share related to this is one of the first conversations I had with CytoDyn leadership after running a few assays in the laboratory, I told the leadership team, this isn't just a molecule to prevent HIV. It's much more than that, which I think I got a few people in the room to chuckle because I think, obviously, they already knew that. But basically, when I'm telling you this, I was hooked from that point on. And ever since I've been taking a deeper dive into the mechanism of action for the various disease states, including HIV, NASH and cancer. And for each of these therapeutic areas, I believe there's actually a mechanistic rationale for the use of leronlimab. And actually -- that's actually why I'm here. I mean to reiterate what Cyrus said earlier, I mean this is what -- why I became a scientist. This is why I'm here. As I think this is a phenomenal molecule. So to date, we've generated -- data that we've generated have been used in 3 manuscripts, 2 currently published and 1 currently pending publication. And I'm pleased to say today that Dr. Sacha and I recently began working on a fourth manuscript. And I think it's important to get these manuscripts out there because it really demonstrates the potential therapeutic use of leronlimab in these different disease states. I'm excited to join the company in a more official capacity. And I think one of the big questions people may be wondering, who are listening to this call, is if I will be relieving OHSU. And the answer is no, at least not at this time. CytoDyn currently does not have the necessary laboratory space for me to be effective in this position and provide research support for mechanism of action and upcoming clinical trials. I basically need a laboratory and OHSU and CytoDyn already have a strong relationship. Our work is supported by ongoing sponsored research agreements and at this time, we'll probably continue with that arrangement. Thank you again, Cyrus, for the opportunity, and I look forward to working with everybody in the company in a more formal capacity and basically getting the job done. Thank you.

Thank you, Scott. We're incredibly excited to have you on the team in this more formal capacity, and we're incredibly fortunate that you and Dr. Sacha are -- continue to collaborate along with OHSU in general, on the development of the molecule. And as I mentioned earlier, even potential longer-acting derivatives for the molecule. I'll also take a moment to point out that while we're -- we've brought in Jane and Scott to the team, we're continuing to seek a new Chief Medical Officer. And we fully intend to make that hire once we find the appropriate candidate. And so we're -- that remains an ongoing search for us. I'll now turn the call over to Antonio Migliarese, our CFO, for our financial update.

Thank you, Cyrus. Good afternoon, all. I'll be providing a brief financial update today. As everyone is aware, yesterday, we filed our 10-Q for the quarter ended February 28, 2023. And today, we'll be touching on some select financial information and data from that filing. As we plan on only touching on some select financial information, we encourage listeners to visit the company's website and access the Form 10-Q in its entirety for a full understanding of the company's latest financial results and position. This is accessible via our website by going to the latest financial results section under the Investor heading on the landing page. Also, another housekeeping item is due to securities laws and regulations, we are precluded from commenting on any future or capital or -- any current or future capital raising activities on today's call. And also, we do not report cash balances during interim months. In our most recent 10-Q filing filed yesterday, we've demonstrated the continued support of investors through financing and fundraising activities and the company's continued focus on aligning the availability of capital with the needs of the business while continuing to judiciously manage and decrease expenses with focused spending. We posted the cash collateral required for the Amarex surety bond, which will remain classified as restricted cash until the Amarex litigation is resolved. Most importantly, this resulted in the release of the liens on the company's patents, which were previously securing the cash collateral posted by an investor, which is now been replaced. Having this restricted cash sitting in our balance sheet strengthens it. The company has retired an additional $3 million of its outstanding convertible debt in exchange for common stock. Further, we recently agreed with the noteholders to extend the maturity date of these notes 2 years until April of 2025. As part of the extension, the company agreed to in a 2.5% extension fee, which increases the outstanding balance. However, this extension provides the company with flexibility and allows us to remain in good standing with the noteholders and the terms of the note. Our reported cash balances as of February 28 consisted of approximately $5.1 million of cash and an additional approximate $6 million of restricted cash. Our cash balance as of our last year-end, which was May 31, 2022, was $4.2 million. The increase in cash has been a result of recent fundraising efforts and our continued commitment to reduce ongoing operating expenses. Cash proceeds provided by financing transactions for the third quarter and year-to-date were $14.7 million and $28.6 million, respectively compared to $4.6 million and $40.1 million for the same period in fiscal year 2022. We continue to be focused on stretching and making funds raised last as long as possible in order to be as opportunistic as possible with our financing efforts. Cash used in operating activities for the third quarter and year-to-date were $6.2 million and $21.7 million, respectively, compared to $11 million and $71.7 million for the same periods in the prior fiscal year. The significant improvement in cash used in operating activities is primarily related to an improvement in the company's operating loss. In particular, G&A and R&D expenses offset by payments to outstanding vendors. I will focus on our operating loss today as most of the other expenses included in our net loss are noncash expenses. Operating expenses for the third quarter and year-to-date and fiscal year 2023 were $3.9 million and $36.8 million, respectively, compared to $19.4 million and $66.6 million for the same period in fiscal year 2022. The decreases were primarily related to significant reductions in G&A, R&D and prelaunch inventory write-offs, except for the year-to-date period, which was offset by an increase in inventory write-offs. The decrease in G&A expenses was primarily related to a reduction in legal fees, personnel costs, absence of the prior fiscal year proxy concept and insurance premiums offset by increased external auditor costs. The decrease in R&D expenses was primarily driven by the completion, pausing or closing of clinical trials and activities, which were ongoing during the previous fiscal year for COVID-19, NASH, HIV, oncology and the HIV BLA, offset by expenses related to the clinical hold-related work. The increase in the inventory write-offs for the 9-month period was primarily due to the withdrawal of the BLA during the second quarter, and the company's inventory no longer qualified for inventory capitalization for accounting purposes. I'd like to note that although the inventory is not being accounted for on our books, we are still physically maintaining the inventory, and it is in clinical "good standing" to be able to use for future clinical trials. Before I finish up today, I wanted to give investors one other heads up that moving forward, starting with our next 10-K filing, our deadlines will be changing. Our 10-K will be due 90 days after year-end, and our 10-Qs will be due 45 days after each quarter end. This is due to the company's [indiscernible] status changing to a non-accelerated filer. As we continue to advance the organization forward, we will continue to be focused on judiciously managing expenses, continuing to identify potential opportunities for value creation and identifying dilutive and nondilutive financing alternatives. Similar to all other pre-revenue biotech companies, we require significant capital to support our future success. The current Board and management are committed to raising capital at the most advantageous times and terms available. And by using the capital raised to support focused execution of well-planned business objectives, which we believe will result in maximum value creation over time. I will now turn it back to Cyrus. Thank you all.

Thank you, Antonio. So I believe now that we have some questions that were submitted through the website that either didn't get directly addressed in our prepared comments or that may require some further clarification. So Cristina, over to you.

Thank you, Cyrus. The first question, has the safety hold been lifted? If not, why? And if the hold has been removed, what are the current trial plans?

Right. So this was discussed at the top of the call. And at the current time, the partial clinical hold for HIV remains in place. Based on our most recent interactions with the FDA, we believe that we do have a clear understanding of the information request regarding the benefit risk assessment for the HIV MDR population in question as well as the additional forward-looking general investigational plan, along with a full clinical protocol that's been requested by the agency. And as I mentioned earlier, we're working on finishing that supplemental submission to address those items. And -- yes. Go ahead.

If the hold is not listed, is at a vital part for proceeding with any of the indications, including HIV and NASH?

Yes. So again, the IND for the NASH clinical program is issued from a different division of the FDA. And again, as I mentioned earlier, it's technically not directly impacted by the existing partial clinical hold. For HIV, there are certain sponsor reporting requirements that need to be met for any clinical trial to proceed. And some of those requirements included the type of documentation that we were asked to prepare as part of the complete response to the clinical hold. So with that in mind, we're concurrently preparing materials for the reinitiation of clinical trials in NASH as well as the complete response on the HIV side as well. So it's -- these things are happening in tandem simultaneously.

Next question. Has there been actual client enrollment and data gathered from any clinical trials? And if so, which ones?

So I'm not 100% clear on the actual question that's being asked, but I can confirm that CytoDyn, as a clinical trial sponsor, has conducted over 20 clinical trials across several major therapeutic areas, including infectious diseases, immunological conditions, various cancers. And through all of these trials, which have been conducted under INDs with various divisions of the FDA, we've collected data on over 1,500 patients who have been exposed to leronlimab. And that is the data that forms the basis for much of the data submissions that we're now providing to the FDA.

Next question. Does the company have any data as to the long-term consequences of CCR5 blockage? What are the clinical ramifications of this?

Yes. So I have to be clear that despite the large number of patients that have received leronlimab through the clinical programs that I just mentioned, leronlimab has not received any full regulatory approval for use by the FDA or any other agency. And so as such, we can't make any definitive conclusions or statements about long-term efficacy or long-term safety of the drug. What I can say anecdotally is that there were a fair number of patients who are enrolled in CytoDyn-sponsored extension trials for the CD01, CD02 and CD03 programs who had been receiving leronlimab as alter viral suppression therapy for many years. And all of these patient safety data are included in the aggregate safety summary, which has been submitted to the FDA for their review. So we're -- we haven't seen anything in our analysis, but it's with the FDA currently.

Any update on arbitration with Amarex and the damage claim against Amarex?

Yes. So we anticipated that this would be a question that would come out. And so before providing a more detailed update, I'll take a moment to provide an overview of who Amarex is and what happened over the course of our company's relationship with Amarex? So Amarex previously served as a CRO, or clinical research organization for CytoDyn starting in or around 2014, providing management and selling services for nearly all of CytoDyn's clinical trials involving leronlimab. And during that time, Amarex managed, again, about 20 different CytoDyn-sponsored studies. Among other issues, following the discovery of certain specific oversights associated with a prior submission to the FDA, it became increasingly apparent to CytoDyn that Amarex is not performing at services on par with industry standards or in some cases, not at all. And over the past 12 months, we were able to obtain a third-party audit, as we discussed previously, which confirmed these suspicions and uncovered evidence of significant nonperformance and underperformance by Amarex. We believe that this conduct and underperformance results in a clear breach of contractual agreements between the 2 parties, and we're in the process of seeking damages related to that breach of contract. So in terms of where we're at from a proceeding standpoint, we have already filed the claim against Amarex. In this proceeding among other claims for damages, we would be seeking reimbursement for services that were invoiced by Amarex and simply never performed and services that were negligent or performed well below industry standards. So we continue to pursue this case, and we look forward eventually to the opportunity to present more fully. But due to the fact that this is still a pending legal matter, there's not much more that we can say at this time.

Thank you, Cyrus. There are no additional questions.

Thank you, Cristina. So I'll conclude by saying that as a company, we continue to expect 2023 to be a catalyst-driven year. This includes the resolution of the partial clinical hold for HIV, the addition of a Chief Medical Officer to the team, the initiation of a new NASH trial and the continued development of longer-acting CCR5 molecules, again, with the potential to increase the value of our patent portfolio. And at the proper time, do a corporate rebranding as well. So thank you all for your time today. I look forward to speaking with you again either at our next quarterly update call or potentially sooner as needed. Thank you.

Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.