Tuesday, March 23, 2010

GNBT: TheStreet.com Vs. Generex

Sorry for being so slow to respond to this story, I've had a few emails and comments sitting in my inbox for days that I'm only now getting around to answering.

The buzz surrounding Generex of late was created by Adam Feuerstein of TheStreet.com who blogged a negative piece on Generex Biotechnologies and the company's Phase III oral insulin product, Oral-Lyn. According to Feuerstein, the company is a scam and the product doesn't work.

In response, Generex issued a press release on Tuesday demanding a retraction and an apology from TheStreet, arguing that the bulk of Feuerstein's main points in his blog post regarding Oral-Lyn were false and misleading.

My first thoughts after learning that Feuerstein went negative on GNBT were thoughts of indifference because I certainly don't value his opinion or information enough to consider it worthwhile DD, and a growing number of investors are starting to lean that way also, judging by the message board chatter.

My interest was peaked enough to read his blog post, however, (I usually don't click on his articles) simply because I considered it out of the norm that he would write about a stock that hasn't had a recent major run-up.

For the most part, when a stock in the biotech sector enjoys a major spike, it's pretty much a given that it will retrace again after the spike. It's on those spikes that Feuerstein seems to like going negative on a company because it's pretty easy to guess that the stock will drop again anyway, especially if he does have the help from his and Cramer's cronies, as is suspected by many.

This time it was only after Mannkind received the bad news about their own insulin inhaler that Feuerstein spoke, and it could be just a coincidence since the MNKD drop created such a stir, but it's becoming harder and harder to believe that the guy does not have an ulterior motive every time he publishes a blog post.

That said, aside from the general feeling of blah, blah, blah that you're treated to when you read his stuff (because it always feels like we've heard it all before), a couple of notes did stand out to me, and this first one is an example of what I mean about it becoming harder and harder to believe that TheStreet.com and Feuerstein (and their cronies) are always being completely up front when they post:

In his article, Feuerstein refers to David Kliff from the Diabetic Investor newsletter:

David Kliff, a diabetic himself who runs the well-respected Diabetic Investor newsletter, has followed Generex for years and is more succinct in his appraisal. "Generex is full of crap -- always."

However, in those "years" during which Kliff has followed Generex (according to Feuerstein) Kliff also had this to say that indicates the word "always" is a subjective term in this case:

David Kliff, editor of Diabetic Investor, thinks that Generex Biotech (nasdaq: GNBT - news - people ) is a big bargain at about $2 a share. Kliff says the company has "the best technology for alternative delivery of insulin," which is by mouth.

I'm all for someone changing their mind, but there's always that 'stink factor' when something or someone is associated to Feuerstein, and most importantly, I'd hate to think that a personal investment is influencing the editor of an established newsletter that is geared toward diabetics.

I also liked his comment that "Common sense should tell you that an insulin spray like Oral-Lyn is more fiction than science."

I'm not here to say that Oral-Lyn works or doesn't work - we'll know soon enough, but it's a scary assumption (or an easy cop-out) to claim that medicine cannot advance because the 'common sense' of a Street.com blogger doesn't think it can. Every single day scientists and doctors are bringing new technology and medicine to the field, most of which would test anyone's faith in common sense - that's why some of the greatest developments of mankind were discovered by accident.

Additionally, Feuerstein writes that if Oral-Lyn worked as advertised, then Generex would surely have been bought out by now. That's another fine assumption, but that's all it is - an assumption.

Let's make on thing clear - Feuerstein makes his living on assumptions. His assumptions are that everything in the biotech world is doomed to failure. It's my opinion, however, (to quote an old-school Segal flick) that "assumption is the mother of all screw ups." I'll let the story play out, and I'll take input from various sources, but TheStreet.com nor that website's 'assumptions' are not one of those sources.

There's pleny of good medicine and treatments coming out of the biotech world, but it's easier to attract clicks and attention to a website by going negative and just assuming that the sector is one doomed to failure. That's what Feuerstein does, and it's just become an accepted fact for those investing in the biotech world.

Investors shouldn't get angry at the guy - everyone's gotta make a living somehow, even if that living involves creating a world of negativity. If he bashes a stock that you've done your DD on and are confident in, then take advantage of any dip in price that he creates and add shares.

That said, the fact that GNBT barely responded to his piece is testament that he has little influence on stocks that haven't already experienced a nice run and are looking to retreat anyway. Either that or people are starting to roll their eyes and say "Here we go again" every time the guy publishes a new blog post.

All just my opinion, each investor should do his or her own DD, invest accordingly and come to their own conclusions.

Disclosure: VFC is long GNBT.

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