Thursday, October 14, 2010

Readers Respond: Generex, the Reverse Split and GMD

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Another from Dave regarding Generex developments and pending events:

Dear VFC:

Long term Generex investor since 2008.

The proposed GMD investment-a mail-order house which cannot generate SALES for Generex's diabetic products- is in my opinion a complete waste of money and a bad business decision for their stockholders.

Sales are only generated by a Drug Rep. sales force which detail doctors as to why medications should be prescribed for their diabetic patients.

Generex needs a Business Minded CEO at the helm to commercialize Generex and its products.

As far as the reverse split vote on Friday, I am still voting NO because Generex refuses to reverse split their in-house corporate authorized shares. Because they refuse to do this, current long term shareholders such as myself will again see dilution in their stock's value after an approval.

Mark my words, if the reverse split is approved on Friday. The dreaded short sellers of NASDAQ,after the reverse split, will AGAIN short the new stock's value down to again being under $1.00 and present long term holders of Generex stock will see their value be worthless. Your commentators can't understand why the spikes in stock values then the return to lower stock prices------- SHORT SELLERS are the reason and will be again after the reverse split if approved.

Voting NO on Friday- Generex better hire a BUSINESS CEO to further the progression of the company and be able to increase long term the value for their shareholders.

What are your thoughts VFC concerning my post info.


VFC's Take:   Appreciate the feedback and comments from Dave, as I always try to encourage honest debate and he brings up some valid points. 

In addressing the reverse split first, I completely understand the argument for voting against it, while i also understand why someone would vote for it, especially in light of recent events.  I'm still straddling somewhere in the middle.  A part of me isn't interested in what the company says about needing the Nasdaq listing to attract top talent and/or business investments, because if Oral-lyn is a success, then this company should be able to do that anyway.  If not, then there are more problems at HQ than a Nasdaq listing. 

Since the Oral-lyn results are due in the not so distant future, then we should soon have an answer sooner rather than later about the validity of Mr. Fletcher's concerns.

That said, I can also buy into the fact that the cash raising events behind the reverse split will put the company on better footing than it is now.  That depends on how one feels about the GMD deal.

On that note, I don't necessarily believe that the deal is quite as bad as Dave does.  I believe that - should the agreement become a reality in January - Generex will be able to immediately reap the benefits of the GMD outlet because the company already has products that are ready to be distributed and sold - such as RapidSpray.  How popular these products will be is debatable, but I don't think it's debatable that having the marketing channel and staff of GMD - a growing enterprise in the diabetic sector - could help the sales and exposure of these products immensely. 

Oral-lyn is another story.  There's no saying if GMD - as it stands today - has the infrastructure to support a product like Oral-lyn, but it's my opinion that Generex intends to build it into a major distribution channel to fulfill that potential.  It's maybe not the ideal option - a major partnership might be the preferable choice - but Generex could in short time have this deal pay for itself, if the numbers for GMD that have been reported publicly are accurate. I wouldn't write it off just yet, and in fact I think the acquisition will turn out to look pretty good for the company in the long run; and I do believe that even the potential to use GMD to market and strategize Oral-lyn puts the company in a better bargaining position with big pharma.

Now, back to the reverse split; Dave has an excellent point about the price action on the back side of the split.  If the company does not have some very significant news to follow the announcement of the split, then shares of GNBTD could be right back down to the $1 level in short time.  And I don't believe that the company does have that news at the ready, otherwise they would use it now to raise the price and alleviate the need for an R/S. 

I would be sure to take advantage of the drop in price post-split and buy up some more shares, but those with a weak stomach may find the prospects of another significant drop discomforting.  It would be naive to not expect a drop on the back end of the split.

If the vote is no, then I'm not afraid of the bulletin boards either - again, I emphasize - if Oral-lyn works and makes it to market, it won't matter where GNBT trades, the stock will go higher.

Dilution is always a factor when investing in speculative companies, but it's not my style to stear clear just because of the dilution threat.  That said, dilutive events is one of the reasons why I stress not going all-in on a stock from the get-go.  If you do that, there's none left to buy after dilution occurs.  If there's some money on the side, then one can add shares after the event in order to keep up with the dilution without having exceeded a personal budget for the stock.

Coming out ahead of the game is the goal of investing, and each investor needs to do a self assessment of how he or she wants to reach that goal. If that means shying away from any stock with the prospects of dilution, then so be it.

Over the long run, if Oral-lyn wins, then Generex is a hands-down billion dollar company, and we'll all be celebrating regardless.

Thanks for the input, and tonight is cruch time for the investors to decide.  Weigh both sides of the story before deciding.

Disclosure:  Long GNBT.

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  1. With the split postponement to Monday, do you think GNBT's management really, REALLY wants this to pass? They obviously think this is the right way to go. To the people who don't agree I ask this question: Why invest in GNBT if you don't have faith in management to bring the products to fruition?


  2. Dear Lynda:

    Long term investors support upstart companies based on their progressive products or services which bring value-added products such as Oral-lyn will to people afflicted with Type I or Type II diabetes.

    At this point in Generex's corporate development the Business side of expansion is being weakened if not killed by the present unqualified business management. In order for Generex to evolve, Generex has to bring in a CEO that has a business mind with proven business and commercial expansion success.

    This is one reason shareholders are voting NO and the present quasi-management has to change for Generex to come to fruition.



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