Generex and Its Insulin Spray: Just Hype?

Apr. 7.10 | About: Generex Biotechnology (GNBT)

I haven't written anything about Generex (OTCQB:GNBT), a company developing an oral insulin spray for Type I diabetes, although they have come up in the comments here once or twice. I'm now regretting my lack of coverage, since if I'd said something uncomplimentary about them (an even bet), I might have had my chance to get sued by them as well. That's what's happening to Adam Feuerstein of TheStreet.com.

Feuerstein wrote two recent columns about the company. The first one was quite skeptical of the company's prospects, saying that he thought the company's Oral-lyn was "a total bust". Said Feuerstein:

"Common sense should tell you that an insulin spray like Oral-lyn is more fiction than science. If Oral-lyn was real, Big Pharma would have snatched up the technology a long time ago. Instead, Pfizer (NYSE:PFE) lost millions with an insulin bong, and Al Mann, billionaire healthcare entrepreneur and MannKind's (NASDAQ:MNKD) founder, is spending hundreds of millions of dollars of his own money to build another inhalable insulin device. For that kind of money, Mann could have bought Generex several times over. He didn't."

There were also some unkind comments about the way the company touts its regulatory approvals in Ecuador, India, Lebanon and Algeria. (You'll notice that India is by far the most serious regulatory and financial market in that list - read on!) He also had things to say about the size of the company's potential market, given the effectiveness of insulin injections for Type I patients. But his second column (written in response to a flood of e-mail and a hostile legal letter from the company about the first one) was even more blunt:

"The more I dig into Generex Biotechnology and its insulin spray for diabetics, the more preposterous the story becomes. . .it becomes apparent almost immediately that the company is using science and the quest to develop an alternative insulin delivery method not to actually help diabetics but as a ruse to perpetuate a 15 year-long stock promotion scheme. In the process, investors are getting fleeced while Generex management earns millions of dollars in compensation."

Read the rest of his article to get the story on the clinical data, which includes things like a ten-day trial in two dozen patients in Ecuador. Actually, that's the centerpiece of the clinical story, come to think of it. The company recently press-released "Successful Phase III Data", although they only had data on 60 patients out of the targeted 750. And so on. No, something seems odd about all this.

If you ask me, Feuerstein's likely in the right here. I, too, have trouble believing that an oral insulin spray can reliably treat the type I diabetes population, for whom careful insulin dosing is crucial. And I think that if there were a realistic chance of that happening, that the likes of Novo Nordisk (NYSE:NVO) and Eli Lilly (NYSE:LLY) would probably have at least looked into the possibility. And even if they'd missed out, if Generex were the company to discover a real opportunity here, I don't see how they wouldn't be able to raise more money (or do a co-development deal) with more convincing clinical data, if they had any. Why treat a handful of people in Ecuador and let your stock value sit at 60 cents a share, if you have the chance to raise the serious money needed to get a real diabetes therapy through some convincing Phase III trials instead? That's not how this business tends to work.

Generex, though, decided after the second Feuerstein column that they'd had enough, and has sued. For two hundred and fifty million dollars, yet. The company has some very vocal defenders, and I believe that they're completely sincere, but this lawsuit makes me think even less of Generex than I did after reading about their product. Why are they wasting time and money on this sort of thing? These kinds of lawsuits have virtually no chance of going anywhere - the only reason I can see for filing one (if indeed they have) is to get more publicity (and look noble and beleaguered).

The same day the lawsuit was announced, Feuerstein dropped another article into the mix, returning to that regulatory-approval-in-India issue. As it happens, the Indian government revoked the approval a year ago, only three months after the product was offered for sale. You can search (and Feuerstein does, gleefully) through all of Generex's press releases, conference call transcripts, and regulatory filings for any mention at all of this material event. There's nothing. Now, the original approval in India was covered extensively by the company, as you'd imagine, but the withdrawal seems to have passed in total silence - with even a denial last fall that there were any delays or problems in India at all. According to Feuerstein, Generex has completed several financing deals without apparently getting around to mentioning this little detail.

Wagering may now commence as to whether either the lawsuit or the oral insulin spray are going anywhere. If the company really has failed to disclose a material event, though, they may be going somewhere themselves.