Monday, October 11, 2010
Generex: Flair for the Dramatic
After a weekend of speculating as to what Generex's Monday Morning Surprise would bring, the much anticipated news finally hit the wires during early trading on Monday, although not before the stock was halted after a 30% gain in price.
Talk about a flair for the dramatic.
It was a curious morning, as speculation only increased when the 9:30 AM opening bell came and went on Wall Street and nothing had been heard from the newswires regarding Generex, after the company had promised a "key material announcement" before Monday's market open.
Then when the trading halt came, investors knew that news was imminent.
However, quite a few off guard regarding the content of the news announcement, which was received with mixed emotions. Early stock gains were tossed right back into the ring when trading resumed pretty much right where it closed the last trading week.
The big news, worthy of a Friday evening 'heads up' and a Monday morning trading halt, turned out to be what could be considered a strategic coup; Generex had reached an agreement to acquire 51% of Global Medical Direct (GMD), a nationwide Durable Medical Equipment and Pharmaceutical provider specializing in direct-to-consumer diabetes supplies and medications.
With this move, Generex has effectively eliminated the need for a middle man in regards to marketing and commercializing its products. In this case, the middle man would have been a large pharma looking to take advantage of the still-developing underling in any potential licensing and/or distribution agreement. Generex is now in a position to negotiate any future deals from higher ground, because - with GMD - the company is not so desperate to land a distribution outlet for Oral-lyn (if approved) and its other over-the-counter products.
Even better, GMD also offers Generex an already profitable revenue stream to sure up the bottom line, and that revenue stream is still in the midst of huge growth. I think it was a shrewd move for Generex to pull out this trump card, in light of recent developments. The push for a reverse split does not seem so desperate anymore - although management is still desperately trying to entice shareholders to approve it - and the need for a quick deal with a major player has all but diminished.
Would Generex be better off with the pharmaceutical might of a big pharma such as Pfizer? Probably, but it looks like going it alone might work out just fine also - and any deal with large pharma would significantly cut into Generex's profit margin.
The key is the product; if Oral-lyn is a success, then it will be in huge demand, marketing partner or not.
The same can be said for the Antigen Express pipeline of cancer immunotherapies, which may very well still be up for sale - or maybe that is where the big pharma partnership will come from.
So the deal that looks so good on the outside, may come with a condition. In order to consumate this marriage, the reverse split needs to go through. According to a follow-up press release on Monday, the money raised by the reverse split - which will be accompanied by a rights offering of common stock and warrants for existing shareholders (estimated to net $25 million) - will be used "to fund its on-going research & development and product commercialization initiatives;"
AND to fund "the proposed acquisition of Global Medical Direct, LLC."
So, shareholder that likes the GMD deal, do ya feel the pressure to vote yes now?
Monday's Generex surprise came out of left field, it wasn't what anyone expected, for the most part, but it was a good move, in my opinion, and puts the company in a much stronger position than it was in yesterday; if the deal, in fact, goes through.
Oral-lyn will most certainly become a blockbuster, if approved, and Generex now has its own marketing and distribution channel - and this channel is still growing at a rapid rate.
The pressure is on for a "YES" vot on the reverse split scheduled for October 15th, and the attention is all on Generex right now thanks to some early-week shenanigans and stock halts that screamed for attention louder than Lindsay Lohan in a nightclub.
This is one case, though, where the attention is justified, and the story is just heating up.
What possibly could be next?
Disclosure: Long GNBT.