Generex Biotechnology Corp. (OTC:GNBT) Regains on Expected Business Status Update

If your investment was coming down a slope, a sudden day of growth may mean a reversal of the trend, or it may mean your chosen ticker will only fall harder. This is the case of Generex Biotechnology Corp. (OTC:GNBT), which jumped on the announcement that it will reach out to investors in a conference call to talk about the company’s future and almost completed products. On January 11th the stock rose significantly, by 52% for a move that we predicted was a dead cat bounce. After that, the ticker has been up and down, adding more than 19% on Friday.

This stock shows the typical pattern of a development-stage biotechnology company, which burns through cash and is caught in the labyrinth of pre-market trials and research. Marketing success is still uncertain, and may not add a boost to the stock price in a long time.

Generex aims to develop and market alternative drug delivery systems, and for this works with the following financial strengths and weaknesses:

• $367,031 cash

• $3.68 million total assets

• $12.5 million total liabilities

• Zero revenues

• $758,496 net loss for latest quarter

This is the typical graph and balance sheet of a pre-market stage company from the drug and pharmaceutics industry. The long years of development posit a considerable risk for the company, and sometimes lead to a falling stock price. And the great debt incurred through the years, convertible to stock, may mean the ticker will be further depressed and there will be the risk of insiders trying to sell their holdings.

At a price of three cents, rapid and large moves are to be expected, especially if GNBT attracts the attention of day traders. The only promotions that came for this ticker happened in 2010 and then the company was promoted as NASDAQ-quality. Since then, the ticker threatens to turn into a double-zero penny stock. Generex has a 17-year history and only recently announced its market efforts depend on FDA approval, which is itself a long process. So far, the ticker has managed only to turn itself into a single-day bid instead of a long-term development.

But even the development is questionable, since a large part of the debt financing went into insider payrolls, and less money went to actual development of therapies and drug delivery systems. Cash stock and other expenses are secured by new issues of stock or other stock-convertible financial instruments, the last one being for $750,000. Again, the sum is allocated to “general corporate purposes”, helping Generex survive until some market success materializes.

Biotech companies are hot among the microcaps, with Vitamin Blue, Inc. (OTC:VTMB) being pumped now with a total mailing budget of $39,000. The ticker is being hyped as a low-float, cheap stock at under 10 cents, and a prime candidate for day trading. In such cases of pharmaceutical companies promising future success, it is best to do your own risk estimate and not invest unless you can afford unexpected rapid losses.