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Monday, April 29, 2013

Generex Biotechnology: Why Investors Should Get Out Now!

In the biotech industry, just like with anything else. There are some companies who thrive, and others who fall into the wastebin. Generex is one of the latter. Not all of us end up with a winner like Vertex Pharmaceuticals (VRTX) or Jazz Pharmaceuticals (JAZZ). For some stocks, it is simply time to sell out and accept the losses that they have incurred since inception.
The first stock is a stock that I used to own when I first got into investing, and I sold it a year after that point in time, Generex Biotechnology (GNBT.OB). Generex has been leaking cash for years. Which is truly a shame because their Antigen Express pipeline seems to have quite a bit of quality. I would invest in Antigen, if I ever got the chance to, but not with Generex's management. Antigen as a matter of fact should be its own company by now, according to a statementmade by the company on March 30th, 2011. Generex intended to spin out Antigen Express and issue dividends of Antigen Express shares to current shareholders, that was of course contingent upon shareholders approving a reverse stock split. This split was approved on June 8th, 2011; yet Antigen is still controlled by Generex to this day. Generex for some reason also scrapped the plan for the reverse stock split. Antigen was valued at over $300 million according to Generex. If this asset is worth so much money, why would Generex's market cap be sitting at a mere $17.97 million? Well, first of all what is mentioned in the press release is simply a "leading national valuation firm" estimated the value of Antigen Express to be at over $300 million. Well, this does not truly help to solve the value of Antigen Express, as I could tomorrow open a valuation firm, but that would not make me credible in terms of my valuation. They should have mentioned the name of the company that did this valuation. Now, moving away from the unrealized talk of the spinoff of Antigen Express, let's dive into Generex's financials and see why I believe that Generex could be on the verge of collapse. Generex, according to their recently filed financials lost $5 million last quarter. If you notice, Generex had a negative operating cash flow of $1.045  million. The only reason that they finished cash flow positive for that quarter is the fact that they ended up having $1.45 million in the sale of stock and another $708k in net borrowings. Now, before people say it, I know that many 'development' stage biotech companies are net negative for years while progressing their pipeline (although Oral-lyn is still undergoing Phase III testing, for what is now its fifth year of testing, given that it started North American testing on April 7th, 2008). In that time for Oral-lyn, Generex has announced two phase III trial results, only to discover that they will need more testing. With a dwindling cash supply, it looks as though Antigen's products might not reach the market before bankruptcy. The unrealized potential of Antigen Express is just some more empty talk from Generex.

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