🔒 Biotech companies are an irresistible gamble for some – Wall Street Journal

Why do investors fall in love with biotech companies? In the time of the Covid-19 pandemic, at least one aspect must be the sense of being part of the process of finding ways to live with (or perhaps even cure) the virus. But for others, it is the volatility of the stocks: it’s like a casino, says one investor. One United States company that is attracting a lot of attention is CytoDyn, which has been has been seeking official approval for a drug called leronlimab (which it says will combat HIV and about two dozen types of cancers) over the better half of a decade. Now the company says the drug can also combat the novel coronavirus. CytoDyn’s valuation ballooned to more than $4.5 billion in May from just over $100 million last year, after the Food and Drug Administration approved the use of leronlimab for Covid-19 patients in emergency situations and clinical trials. But there is skepticism – the company hasn’t made any money other than what it pulls in from stock sales. That isn’t stopping investors though. – Renee Moodie

With biotech stocks, investors love the thrill of the chase

By Gregory Zuckerman and Michael Wursthorn

Eric Distenfeld is rolling the dice on CytoDyn Inc.
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Last month, the real-estate executive bought 1,000 shares of the unheralded biotech company, which hopes to discover a Covid-19 drug.

Now, he spends the day tracking shares, checking news and debating friends whether CytoDyn can overcome the odds. Mr Distenfeld leaves most of his stocks alone. When it comes to CytoDyn, he is obsessive.

“It’s like being in Vegas without the hangover,” says Mr Distenfeld, 40 years old, a former portfolio manager who lives in Teaneck, N.J.

Few stocks have captured investors’ affections lately like biotech companies chasing coronavirus advances. Stocks such as Moderna Inc. and Novavax Inc. have soared, but so too have tiny ones a long way from an approved U.S. vaccine or treatment, including CytoDyn, Equillium Inc. and Humanigen Inc., all of which are up between 207% and 944% this year, thanks in large part to the fervour of individual investors.

Their passion stems from the promise of medical advances that can send shares surging. Small biotechs constantly need financing, so executives tend to be more comfortable promoting themselves, efforts that also can hook investors.

“People tend to fall in love with biotech companies,” says health-care investor Brad Loncar at Loncar Investments. “There’s an emotional aspect given that it is medical-related and then, because the stocks are so volatile, like a casino, it adds fuel to the fire on both sides.”

Read also: Biotech firm Moderna enters global Covid-19 vaccine race – Wall Street Journal

For every investor playing biotech stocks for fun and profit, another, like Tom Yarborough, has an unshakable conviction these companies are nearing historic breakthroughs.

“They have so many potential cures,” says Mr Yarborough, a 74-year-old retired stockbroker in Cape Canaveral, Fla., referring to the range of diseases CytoDyn’s key drug, leronlimab, might address. “There are 59 different possibilities that it could cure, including Covid.”

The love for risky biotech shares isn’t unrequited. Mr Yarborough has made over $100,000 from his CytoDyn shares. He had 110,000 shares at one point, but sold some over the years. He still holds 27,000 — worth about $136,890 — spread across investment accounts held by him and his family. The Vancouver, Wash.-based company, which closed at $5.07 on Tuesday, has climbed more than 1,000% since Mr Yarborough bought shares four years ago.

“It’s my only position,” says Mr Yarborough. “I’ll always own shares; my commitment, my loyalty is there.”

CytoDyn’s valuation ballooned to more than $4.5 billion in May from just over $100 million last year, after the Food and Drug Administration greenlighted the use of leronlimab for Covid-19 patients in emergency situations and clinical trials.

Montefiore Health System in the Bronx, N.Y., is evaluating the drug for Covid-19 in two separate trials; results are expected soon, says Dr Harish Seethamraju, Montefiore’s medical director of lung transplantation.

Leronlimab’s mechanism of action, or how it is supposed to work, makes sense to CytoDyn fans. Leronlimab aims to block a receptor that causes cytokine storms, severe immune-system reactions that inflame and fatally damage lungs and other organs of some Covid-19 patients.

Some investors, like Judah Kraut, 41, are doing more than rooting for CytoDyn. He is searching out doctors with experience with leronlimab and sharing the results with friends, though he recognizes what he is finding are just anecdotal reactions.

Warning signs

“I know of 19 people who have invested because of me, so I’m a little nervous about that,” says Mr Kraut, who lives in New York City and is finishing a Ph.D. in ancient Near Eastern literature at the University of Pennsylvania. “But the theory it’s a scam would require doctors with impeccable credentials to be in on it; that would be mind-boggling.”

There are warning signs, though. Most experts don’t give CytoDyn much chance of success. The company hasn’t made any money other than what it pulls in from stock sales. It has been seeking FDA approval for leronlimab to combat HIV and about two dozen types of cancers over the better half of a decade.

Its chief executive, Nader Pourhassan, promotes his company in news releases, articles and videos paid for by the company. In late April, he appeared in a sponsored video claiming that almost 95% or 100% of patients who had Covid-19 and were treated with leronlimab survived testing. Within the same video, he clarified that his figures included 28 patients across the country — not the 11 others who also received the drug in New York, some of whom died.

Read also: Covid-19 vaccine race high stakes as stock market valuations soar – Wall Street Journal

A CytoDyn presentation shared with The Wall Street Journal showed seven of the patients in New York had died as of mid-May. In a broader study across the country of 34 patients, five patients had died and 15 were said to have improved.

“I’m giving information as honestly as possible. When it changes, I give that,” Mr. Pourhassan said of his interactions with investors.

Anything is possible

On April 27, CytoDyn said it had submitted a drug marketing application to the FDA, sending shares up another 17%. But the company said in subsequent news releases that the submission included mock data sets and wouldn’t be considered complete until it provided clinical data on May 11. The FDA ultimately refused to grant the licence in July, sparking criticism from some investors toward the company during a conference call several days later.

Mr Pourhassan said the FDA requested CytoDyn make those additional statements after determining the application was incomplete.

Last week, a YouTube video titled “A Drug You Can Invest In and Simultaneously Save the World” featured testimonials, including one by actor Charlie Sheen, who said that he has enrolled in a trial for leronlimab, which also is being studied to treat HIV infection, and that he “felt great.”

A representative for Mr Sheen said he wasn’t compensated for his appearance.

In April, Mr Pourhassan sold 4.8 million shares of his company for $15.7 million, according to securities filings. Mr Pourhassan, who has a doctorate in mechanical engineering, once faced federal charges over allegedly selling fake Native American goods. The charges were dropped. He said the charges had no merit.

As for the stock sale, he said, “I’ve been waiting all these years, I might as well have some security for myself.”

Richard Trauger, who worked at CytoDyn between 2011 and mid-2013 and served as its chief science officer, says he witnessed Mr Pourhassan exaggerate claims during interactions with investors.

Once, when Mr Pourhassan was chief operating officer, he told an investor group CytoDyn would have a license from the FDA in two years. Mr Trauger said he objected to the timeline, drawing the ire of Mr Pourhassen.

“He went off on me,” Mr Trauger said, adding that Mr Pourhassan had asked him “if it’s possible. ‘Of course, anything is possible,’ I’d say, but it’s not likely. That’s all he needed to hear.”

“I hope it works,” said Mr Trauger of CytodDyn’s drug. “But I haven’t seen any data, and that’s the problem.”

New Jersey investor Mr Distenfeld is uncomfortable with Mr. Pourhassan’s sale of personal stock and his relentless promotion.

But the possibility that CytoDyn might achieve a breakthrough is worth the risk, he says.

“I can make five times my investment and my downside is 80%,” Mr Distenfeld says. “I go to Vegas and play poker against pros which is a losing proposition—this is more fun and has better odds.”

Write to Gregory Zuckerman at [email protected] and Michael Wursthorn at [email protected]