Generex Issues Letter to Shareholders Print E-mail
By Vinny Cassano   
Friday, 08 October 2010 03:54

Earlier this week Generex Biotechnology Corporation's (NASDAQ:GNBT) Interim President and Chief Executive Officer, Mark Fletcher, issued a letter to shareholders offering a pipeline update and laying out the company's strategice goals following the recent upheaval in the management team.

The letter offered no new or groundbreaking information, but it is worth noting that even with Anna Gluskin no longer at the helm, management at Generex still supports a reverse split of the GNBT common stock.  However, while Gluskin's strategy of pushing it through 'just because' didn't win any endearance with sharholders, Fletcher's pitch for the plan might win a few more votes:

"We believe that by maintaining the NASDAQ listing we will be better able to attract top caliber talent to our Company as well as maintain a stronger standing in the business and financial community," stated Mr. Fletcher.

There may be some truth to this statement, and it should be taken for what it's worth - especially if partnership, licensing or additional distribution deals are in the works.  The mention of "attracting top caliber talent" and maintaining "a stronger standard" are definitely valid arguments for effecting the RS, but I'm a believer that if Oral-lyn is for real, then that factor alone would be enough to attract top talent and maintian a strong standard.  A blockbuster product is a blockbuster product, period.

Fletcher added, "We intend to communicate further on this subject prior to October 15th as we work to position Generex for the future."

I'm not completely opposed to an RS, I think we'd get a pretty good buying opportunity on the back end of the split, but I'm also not opposed to a trip to the bulletin boards if need be.  Like I said, if Oral-lyn is a success, then shareholders are going to happy - no matter where the stock trades.  More importantly, diabetics will be happy to have a needle-free alternative for receiving their insulin.

It's still possible that the RS will be a non-factor anyway, as I believe that Generex has enough pending in the immediate future that the Nasdaq will be convinced to throw GNBT another lifeline.  The management change and not-so-far-away Oral-lyn results are both enticing arguments to maintain the listing, in my opinion, but the decision isn't mine to make.  The Nasdaq has been fairly lenient regarding listing standards during these times of global economic meltdown, but Generex may very well be given the boot. 

The prospects for the future wouldn't change one bit as a result, as the near term success of this company is still glued to Oral-lyn.  A couple of other companies, namely Titan Pharmaceuticals (TTNP) and Biovest International (BVTI), did very well after being punted from the major exchanges (as did shareholders who bought the lows), both examples of how significant news and products effect the share price, not necessarily where the trading takes place.  

So, the reverse split is still a go - if management gets their way, but it looks like Mr. Fletcher and the rest of the Board is cognizant of the fact that the shareholders questioned the motives and intentions of Anna Gluskin.  Proof be told in the following statement:

In closing, I would once again like to emphasize that each and every employee and all those associated with Generex are dedicated to achieving success.

This should be assumed; not something that has to be emphasized in a letter to shareholders, unless it's obvious that the perception is different.

Now, on to the pipeline. 

There's nothing necessarily new that cropped up in the letter, although there seems to be a reinvigorated focus on the buccal drug delivery technology.  The possibilies for partnerships and targeted application in the sector are endless, and management seems intent on capitalizing on that potential in the near term.

"We continue to be in discussions with a number of companies with regard to potential strategic relationships in this regard, for Generex Oral-lyn™ as well as other diabetic and energy related pipeline products using the buccal delivery platform technologies," said Fletcher, adding later on in the letter, "We intend to seek out unique opportunities to generate meaningful near-term revenue streams."

Granted, this could all be a case of the interim CEO simply saying all the right things, but I can't help but get the feeling that the ouster of Gluskin also removed a sense of stagnancy from the Boardroom. 

Fletcher also gave a lot of print to the cancer vaccine pipeline, which is still a relatively long way away from market, but in the right stage of development to attract partnerships or an acquisition of that pipeline.  Generex could thrive on the buccal delivery system alone, the vaccine program is icing on the cake, but also a potential long term goldmine.  The pipeline could be sold or partnered over the short term to keep the funds in store that will be needed to bring Oral-lyn and other delivery system products to market. 

That is, of course, assuming that Oral-lyn will be a success.  Mr. Fletcher took great strides to emphasize the potential of his flagship product:

"I would also like to emphasize that while it is easy to look at some of the high profile pharmaceutical failures related to other non-injectable forms of insulin and just write off Generex Oral-lyn™ as more-of-the-same, the fact is that Generex Oral-lyn™, as opposed to inhaled insulin, does not and cannot go into the lungs.  In addition, Generex Oral-lyn™ does not enter (a) the gastrointestinal tract where limited absorption and removal by the liver compromises clinical efficacy, or (b) the nasal cavity where the fragile membrane limits usefulness, or (c) through the skin where extraordinary devices are required.  As the route of absorption of Generex Oral-lyn™ is through the epithelial lining of the buccal cavity, the safety and efficacy hurdles facing other forms of non-injectable insulin do not confront our product."

Very convincing words, Mr. Fletcher, but it's the actuality of the Phase III results that will have the last word.  For that announcement, we'll all be waiting.

What we won't be waiting for any longer, is an update from the company regarding the commercialization of Oral-lyn in India.  In short, the process is moving along as planned.  Not much to that story, although this molehill has been made out to be a mountain in other suspect biotech blogs. 

Shareholders got the right words from the new leadership at Generex, now let's see some action.  I think that we could see some very proactive partnerships and/or distribution agreements announced over the next couple of quarters, similar to the Merck deal in Mexico.

The share price may not have recognized a new sense of confidence in Generex just yet, but I think that the management has given shareholders a renewed sense of promise.

Generex is still high on my list of stocks that need to be followed, and bought on the dips.  If a reverse split does go through, I'll be looking at buying on the back end.

 

Disclosure:  Long GNBT.

Vinny also authors the popular stock investing blog VFC's Stock House.




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