Stock Chart
This post is an addition to the my previous post on Generex Biotechnology on January 28th, 2008.
In the news today it was reported that major drug maker Pfizer “reported an increase of lung cancer among patients who used its discontinued inhaled insulin Exubera.” This news lowered the outlook of having an insulin treatment that could be administered via an inhaler. Other companies such as MannKind Corp and Nektar Therapeutics Inc were punished on the market today. MannKind dropped by about 60%, while Nektar fell by approximately 25%.
Generex is another such company who seeks to create an inhaled insulin product. Today their stock skyrocketed 12.15% on two and a half times the average volume. It added an additional 1.67% in after hours trading. The rise is partially due to the news that they released today in regards to the company commencing their screening process for potential testing candidates. Generex is currently in Phase III trials in North America. According to the press release, “the Phase III protocol includes a six-month trial, which is expected to enroll 750 patients with Type 1 diabetes mellitus.” The purpose of the testing is to “is to compare the efficacy of Generex Oral-lyn and the RapidMist diabetes management system with standard injectable insulin therapy.”
A second reason that GNBT rose so much today could be in response to the Pfizer news. Pfizer and Generex are in the process of creating somewhat similar products. One of the major differences between the two is that Generex’s product is designed to never enter the lungs. This feature should eliminate the possibility that a user would develop lung cancer. For Generex, this news means that they have a couple of competitors that are forced to pull their products from development. Fewer competitors means more market share when Generex can finally get through its’ trials.
Currently, “Generex Oral-lyn is approved in India and Ecuador. The company also is studying the product in the Ukraine.” Revenues of only $19,000 in Q2 ended January 31st, 2008 suggests that their product hasn’t exactly been flying off the shelves abroad. One positive is that the company has been steadily decreasing their losses over the past three quarters. In Q2 2008 they reported a net loss of $6.507M on their income statement.
In the short term I think that that stock price should increase a bit more over the next few days to a week in a half while investors have time to digest this information. In the more near future (1-2 months) I see the stock falling to its current resistance of $1.00/share in anticipation of more losses on the quarterly statement. Since Generex (GNBT) finances their operations through the sale of their own stock this will mean a dilution of shares for the shareholders, thus translating into a lower price per share.
In Q1 08 and Q2 08 net income rose by 6.4% and 9.9% respectively. While these gains seem promising, Q2 shows a different story over the past few years. Net losses increased 25.2% when comparing Q2 2007 to Q2 2008. If losses increase like that for Q3, which had the highest losses over the past four quarters, we should be expecting a net loss of about $9.662M. Given a projected stock price of $1/share, the company will need to issue 9.662M shares to pay off its debt. Currently, the company has 111.48M shares outstanding. At the $1/share mark, that would give Generex a $111.48M market capitalization. After the issuance of the new shares the company should have roughly 121.14M shares outstanding. If market capitalization is to be maintained, the price of the stock should fall to roughly $.92/share.
$.92/share is my price target for mid-July. FY 2008 ends July 31st, 2008. At this point, the stock price will be very dependent on what is released in the annual report. I think that these targets will hold barring any sort of groundbreaking news. If this company can someday make it through the Phase III trials it will be a major winner.
Update 8/27/2008:
I decided to check back to see how my prediction turned out. In my opinion I think I was just about spot on. I had predicted a price target of $.92/share by mid-July. On July 22nd and 23rd it closed at $.91/share. All the other days it was lower than that, but two of them were almost exactly what I had predicted. On April 9th when I made this prediction, the stock was trading at $1.20/share. That is a prediction of a 24% decrease in price over a 3-month period. Looks like my bold prediction turned out right!
