|Generex: Moving Past The Circus|
|By Vinny Cassano|
|Tuesday, 26 October 2010 00:00|
As all concerned may have heard by now, the reverse split of Generex (GNBT) common stock was denied by shareholders and the company received notice from the Nasdaq Capital Markets.
The best news to come from this development is that the circus that existed around the company for the past couple of weeks finally came to an end. The members of the Board can concentrate solely on bringing the products to market and shareholders can adjust their plans accordingly, which - in my opinion - nothing changes for the shareholders because GNBT has always been an investment in the potential of Oral-lyn. That potential does not change with Tuesday's turn of events.
Shares of Generex opened Thursday trading on the OTCQB exchange under the same symbol - GNBT -, although the company plans to appeal the Nasdaq's decision. GNBT trading on the Nasdaq will remain suspended during the appeals process, and I wouldn't base an investment in this company on the hopes that the appeal will be successful.
Again, this is an investment in the potential of Oral-lyn - and in the cancer vaccine pipeline (for those with a longer term outlook) - which is earlier along in the developmental process.
The move to the OTCQB and the denial of the reverse stock split do bring two big items to light, and both are intertwined based on the reverse split that would have been:
- One, the company still may need to find funding, and
- Two, the deal with GMD may not go through.
Generex would have raised approximately $25 million by the issuing of stock and warrants in conjunction with the reverse split, and it should be assumed that the company is still going to push forward with raising that cash. There is a sense that Generex may be more susceptiple to loanshark lending now, without the split having kept the company listed on the Nasdaq, but that is a consideration that shareholders had in mind long before the vote took place. Now that we know that the reverse split is not going to occur, we need to pay attention to what the company has to say about raising money - and investors will need to pay heed when considering whether to hold for Oral-lyn news, add more shares or sell until the situation looks more stable; although I think the company is now on more stable footing simply because we know which direction the Board needs to take, and we can quit being distracted with the speculation of an RS. The constant clown music surrounding this reverse split vote superceded what is really important - Oral-lyn.
Since the $25 million will not be raised through the stock and warrant offering, at least not at this time, it's possible that the GMD deal might take a back seat. It's my opinion, however, that the company will still attempt to get this deal done. I'm on board with the belief that GMD could be used to boost Generex's indiginous distribution capabilities while also boosting the company's bargaining position at the table with big pharma.
This deal was a large factor in my changing my vote to 'Yes,' and it's a deal that I think the Board feels should get done. That will take a cash raising event, and it's likely that Generex will try and stick to a plan of stock sales and warrant offerings, but we might see terms now less favorable to shareholders with regards to dilution.
At the end of the day, the products will talk and it will not matter where GNBT trades. If Oral-lyn results turned out putrid, then the stock would have fallen just as heavily on the Nasdaq board than it would on the OTCQB. If Oral-lyn results are positive, and if the FDA approves, GNBT will skyrocket on the OTCQB just as easily as it would have on the Nasdaq.
I use Titan Pharmaceuticals as an example of the products talking louder than the board on which the stock trades. TTNP lost an AMEX listing and dropped straight down to a penny. Then, months later, one of its licensed drugs received FDA approval and the stock went to $2.50. Did TTNP need a big board to rise? No, because the products spoke, and events turned out favorably.
GNBT is an event based stock, not a trading-board based stock. If the events (in this case Oral-lyn results) are positive, then the stock will respond.
If after hours trading on Tuesday was an indication, shareholders may expect a dip in share price over the next few trading days. However, it's important to keep in mind that shares of GNBT would have dipped on the back end of the reverse split anyway, so any drop turns out to be a wash - and a good buying opportunity for those who believe that Oral-lyn has any shot at making it past Phase III and possibly to market.
While a drop in price is likely, I don't feel that it will be sustained because nothing has changed regarding the potential of this company's products. Oral-lyn results are still looking to be announced early in 2011, and the Board of Directors does not need the Nasdaq to announce those results.
That's where the attention of shareholders should be.
Disclosure: Long GNBT.
Vinny also authors the popular stock investing blog VFC's Stock House.