Tuesday, March 22, 2011
Readers Respond: Generex, How Low (or High) Can It Go?
"Readers Respond" is a forum where VFC interacts with the readers of VFC's Stock House. Readers can leave comments on posted material at either of the blog sites, through Seeking Alpha or via email, firstname.lastname@example.org. All stock opinions, tips and questions are welcomed, whether agreeable with VFC's opinions or not. Thanks for the comments, because without interaction - this wouldn't be fun.
A comment from Kim posted at VFC's NEW Stock House regarding Generex Corp and the near term possibilities for price action:
Hi, that you so much for responding to my previous note on Generex. It's great that you follow up and I sincerely appreciate your insights. I bought a little more to lower my cost basis while it is still under the radar. If the company announces substantial news on either the Oral-lyn or vaccine fronts I too expect this to dramatically rise. Rather than look at the share price I focus on the capitalization (price x number of shares). Mankind (MNKD) was over a billion dollars and GNBT is currently at about 57 million. The market wants a new insulin product that works and is well received. Even if it gets to half of MNKD's valuation that would be 10 times higher than now, so I added some risk capital. (1) Do you think the annual cancer meeting in June will influence the price? (2) What would be the impact of a collaboration for either division? I assume either would be a market cap of at least $500k - $1b. Without news I see this drifting to 15 cents over the next couple of months. I also factor in the IND designation which in my view adds credibility. Thoughts? Thanks, Kim
VFC's Take: I believe that your assessment is correct, that without news GNBT has the potential to drift lower a penny at a time until something gives. I also agree that the risk when compared to the potential rewards is worth a dabble in GNBT because of the reasons that you mentioned.
As you said, the market is looking for a "new insulin product that works well and is well received," and I'll add that I believe that diabetics are also looking for an alternative to the needle that works. Pfizer's Exubera could be looked at as a reason to call this platform 'tried and failed,' but the safety concerns that accompanied that product to market should be noted.
It might be a different story for a product such as Oral-lyn, which uses the inner lining of the cheek to deliver insulin, should that product reach market.
As Kim noted, the market cap for Mannkind during the runup to an Afrezza FDA decision is an indicator that the market accepts the platform, and that means any positive news on the Oral-lyn Phase III trial could push this stock significantly higher.
Generex also has AE37 on the backburner as well. We'll see how that develops, it's my opinion that Generex is looking to sell the rights to that product or land a partner willing to front some big cash to bring it through late stage trials and to market, if successful in trials.
I'm also aware that Generex might be using the approach of 'follow the bright, shiny object' with AE37 to keep investors distracted since there's nothing going on with Oral-lyn right now.
But again, back to the risk/reward; if Oral-lyn is for real, then GNBT is going to end up realizing significant gains.
Whether you buy in or not is up to each investor's individual strategy and tolerance for risk. You could follow the wavelegnth of TheStreet.com's biotech blogger and not buy anything because the percentages say that too many drugs fail and its safer to just stay away, or you could play the risk/reward and see what happens.
All you need is one TTNP, VNDA, DNDN, HGSI, etc. to become an overall big winner, even if most of the risk/rewards plays don't pan out.
That's the beauty of the biotech sector.
Regarding a chance for a pop in conjunction with the upcoming cancer conference: it's possible GNBT will see a spike. Generally all cancer-related companies presenting data at the conference experience a pop, some modest, some pretty significant.
Thanks for the comments.
Disclosure: Long GNBT, TTNP.