Generex Biotech: A Breath of Fresh Insulin

As a diabetic and as a former co-manager for an offshore private wealth fund, I have long-followed the diabetic drug market, the large pharmas, and the small-cap biotech companies in that space. The global diabetes market affects approximately 246 million people worldwide and this number is increasing. The World Health Organization projects that diabetics will increase to 300 million by 2011. And, the International Diabetes Federation predicts 380 million diabetics by 2025.

The Global Diabetes drug treatment market was valued at over $21 billion in 2006 and the market is still expanding rapidly due to the high prevalence of diabetes and lifestyle changes. There are many companies hoping to capture a portion of that rapidly expanding market.

But along with the hopes have come many failures which have left diabetics with few options that are both safe and effective. GlaxoSmithKline (GSK) saw a significant drop in sales of its pill-formulation, Avandia (Rosiglitazone), because of concerns about heart failure.

At the same time, those targeting a new segment of the market, inhaled insulin, have failed miserably. In the past few months, inhaled insulin has come under scrutiny, and large pharmas (i.e. Eli Lilly (LLY), Novo-Nordisk (NVO), Pfizer (PFE)) have withdrawn late-stage candidates. And, then there is the other side of the spectrum - MannKind (MNKD), which is persisting despite it all. Unfortunately, Wall Street has bet on the large pharmas to develop the new “holy grails” for diabetics, but they have fallen extremely short of the mark.

While the recent events have been a disaster for many, they have also been the golden gate that a relatively ignored biotech, Generex Biotechnology (GNBT), has been awaiting.

Generex’s Flagship product, Oral-lyn, is the only inhaled insulin product remaining that is seen as both safe and effective. Oral-lyn is administered via a buccal delivery method of insulin. This means that it is absorbed through the cheek and lips. And thus patients avoid the potential risks of chronic lung tissue exposure which have been linked to other forms of inhaled insulin. Previous studies have shown that a pre- and post-meal split-dose of Oral-lyn provided effects comparable to those induced by injected insulin (Humulin-R). And, Generex Oral-lyn reaches peak circulation levels in 30 minutes versus 60 minutes for injected insulin.

The irony is that Eli Lilly, the developer of Humulin-R, was former partner of Generex and backed out in 2003. That made the road much more difficult for Generex as they had to control expenditures and perform clinical trials overseas to reduce their cash-burn. The merits of Oral-Lyn were demonstrated and approval was granted in India, Ecuador and the United Arab Emirates. And, Generex has recently commenced patient selection for phase III trials in the United States and Canada.

The above developments, coupled with the failure of large pharmas, make Generex an attractive partner. I suspect that companies that have had recent failures are taking a look at Generex as a partner and, may even look to absorb entirely. Even a 30% premium over its current market cap of $128 million would be less than the projected losses of some the above-mentioned failures. Per my recent discussions with Generex’s investor relations, they would not deny rumors of talks with Pfizer. While nothing may materialize, I see the downside risk as relatively low compared to the upside potential.

Disclosure: Author has a long position in GNBT

Comments

[paul collins:]

If the street had listened to Dr. Bernstein, the former head of the American Diabetes Association, they would have predicted the sudden drop in Mankind's (MNKD) stock last week. Back in December, 2007, Dr. Bernstein predicted that MNKD would fail.

www.ft.com/cms/s/2/94f...

Dr. Bernstein now serves for Generex and has committed his life to developing and obtaining approval for its flagship product, Oral-Lyn. He strongly believes in the safety and efficacy of the product. And, thus I highly doubt that the product will fail. GNBT should see $5/share within the coming year (remember it was $22 just because they had a partnership with Eli Lilly). Now they are in Phase 3 in the USA, and they have regulatory approval in India, one of the largest Diabetes markets in the world. For reference, Dr. Bernstein's bio is below.

Dr. Bernstein, M.D., F.A.C.P. graduated from Dartmouth College and Tufts University School of Medicine. He is board certified in internal medicine (1966) and endocrinology and metabolism (1973). Dr. Bernstein is an associate clinical professor at the Albert Einstein College of Medicine in New York. He is an attending physician at Beth Israel Medical Center, and physician emeritus at Lenox Hill Hospital and Montefiore Medical Center, all in New York. He was formerly Director of the Beth Israel Health Care Systems Diabetes Management Program. Dr. Bernstein was president of the American Diabetes Association in 1998-99 and was for many years a member of the ADA's Board of Directors and its Executive Committee. He received the ADA's Banting Medal for Service in 1999. Dr. Bernstein presently serves on several ADA committees and on the Board of Directors of the American Diabetes Association Research Foundation.

2008 Apr 14 08:45 AM

[davrober:]

Please , can we just make one thing clear. . Oral Lynn is not an inhaled insulin product. . You have stated quite correctly how it works but it is not inhaled. The association being made to inhaled products is causing confusion on it's efficacy and use. The confusion may be partly from the shape of the spray canister since it resembles an inhaler but it is not inhaled or absorbed by the lungs. This is most important because it is what separates Oral Lynn from the failed inhaled methods

2008 Apr 14 09:44 AM

[paul collins:]

Navdeep S. Jaikaria, Ph.D., a Senior Biotechnology Analyst at Rodman & Renshaw, he reiterated his Market Outperform Rating on Generex and $6 price target. Some of the highlights of the report, titled, "NO IMPACT ON ORAL-LYN FROM LILLY TERMINATION OF ALKERMES INHALED INSULIN" were:

Alternative Insulin Competitors Continue to Fall and Enhance the Oral-ly Opportunity Last Friday, Alkermes Inc. (ALKS, Not Rated) announced that it received a letter from Eli Lilly (LLY, Not Rated) terminating their license agreement for the development of AIR Inhaled Insulin. This news, as well as the announcement in October 2007 by Pfizer Inc. (PFE, Not Rated) of the termination of its development of Exubera, an in-market inhalable insulin by Nektar Therapeutics Inc. (NKTR, Not Rated), have continued to place unwarranted pressure on the shares of Generex, which is in the final stages of preparation for a Phase III trial with Oral-lyn, the company's proprietary oral insulin product candidate. We believe disappointing sales with Exubera inhaled insulin made uncertain the prospects for further commercialization of Alkermes' AIR and AERx, an inhaled insulin system by Novo Nordisk A-S (NVO, Not Rated) whose Phase III development was discontinued in January 2008. We believe this news is positive for Generex as they enhance Oral-lyn's opportunity as a safe, more tolerable, non-injectable insulin for the treatment of patients with diabetes.

We Reiterate that the High Hurdles with the Inhaled Route of Insulin Delivery are Not Likely to be Observed with Buccal Cavity (Oral) Delivery of Insulin Concerns continue to grow that inhaled insulins, such as Exubera, may all be plagued by the observation of an early, non-progressive decline in lung function that does not improve over long-term use of Exubera, as well as problems associated with formulation of insulin into inhalable powder form. Further, the advancement of more convenient injectable devices, such as pens filled with pre-mixed insulin analogs, obviated the value of convenient mealtime titratable insulin delivery. We believe the significant hurdles seen with the inhalation route of delivery bode negative for inhaled insulin products, and open the door for Oral-lyn as the insulin potentially with the best non-injectable alternative route of mealtime insulin delivery.

2008 Apr 15 12:40 AM

[razormd:]

Oh, look!!!...yet another NEW contributor pumping GNBT!!...oh, and guess what -- he's anonymous too!!...gosh, the boiler rooms are busy on this one, huh?...well, in case you missed my responses to that other anonymous contributor "RJ Steffens" and want to discern the TRUTH, here's what I had to say:

"Anyone wanting the FACTS about GNBT should check my posts on Yahoo's GNBT message board...some of the things I've posted:

Apr-08: "GEN084-OL???...HAW!!.... cracks me up that the specific locations of all these clinical sites evidently is top secret!...goodness knows, they're scattered among cities from one end of the world to the other...but apparently no one is allowed to know the names of the hospitals, clinicians, etc that are actually involved!!!...goodness... a poor diabetic interested in participating to do?!!!...GNBT doesn't even list a phone number to call on their website!!...and isn't it interesting that "GEN084-OL" doesn't show up on any clinical trials databases?...gee, I sure hope Anna isn't committing fraud...I'd sure hate to see her have to go to prison!..."

1-Apr-08: HAW!!...one week GNBT announcesan "order" from India and a week it announces a "death spiral" convertible managed by that lone GNBT cheerleader: Rodman & Renshaw!!!...ain't it sweet!...Anna makes money...R&R make money...shareholders get -- uhhhh...well, you know...HAW, HAW, HAW!!! "


15-Mar-08: "Re: 25,000,000 yard sale.. who needs your approval?" ...this was in regards to notification of a future stock offering: "the best part is: "...for a price of not less than 70% of the market price at the time of such issuance..."...damn!..... I'd buy some if I could get it for 30% off!!...HAW, HAW, HAW!!!"

15-Mar-08 "HAW!...I see Bernstein grabbed... 15-Mar-08 05:16 pm ...a quick 50,000 share at 94 cents a share before bolting for the door:

yahoo.brand.edgar-onli...

biz.yahoo.com/e/080314...

...Amanatides left too?...HAW!...rats starting to abandon a sinking ship!...HAW, HAW, HAW!!

12-Mar-08: "HAW!!!...sweet 10Q!...wait a minute..aren't revenues supposed to be going UP????...I mean, after all, oralyn is selling like hotcakes in Ecuador and the Middle East, right??...and that koolaid spray they make is just flying off the shelves, right???...and old "Kaboom" is pumping people up everywhere, right???...but revenues DROPPED from 46,000 a year ago to 19,000??...well, at least those expenses keep going up!...wait a minute -- that's BAD, isn't it?...but, hey, I found one bright spot!!...the near exponential rate at which the number of shares outstanding keeps increasing means the loss per share doesn't look nearly as bad as it would have a few years ago!!!...HAW, HAW, HAW!!!"

11-Mar-08: "Re: GNBT Announces Phase III Started - When?...HAW!!!...don't get your hopes up!!...GNBT originally said they were starting phase III EIGHT YEARS AGO!...last year they said they would actually recuiting patients beginning in November, 2007...yet there is NO evidence they have recruited even one patient...they haven't even announced anywhere that prospective patients could go to sign up!...face it -- the company is a SCAM!...just another biotech playing smoke and mirrors in order to keep money flowing into management's pockets."

...make NO mistake -- this company is basically nothing but a hoax designed and managed toward ONE end -- selling worthless stock to naieve investors...AVOID!!!"

2008 Apr 15 12:59 PM

[razormdthe2nd:]

...my most recent post from Yahoo's GNBT board:

"first, I posted this about 9 months ago:

messages.finance.yahoo...

...well, danged if old "Ismael" didn't provoke a response:

www.thediabetesblog.co...

...it's too LONG to post here but apparently the blogster turned around and contacted GNBT's manager of "regulatory affairs" and asked if "Ismael" had a point...and the manager wrote back:

"The product, Glucose RapidSpray™, is to be taken at the first sign of needing additional glucose in the diet, either between meals, during exercise, and/or before bedtime. It is not intended to take people out of full hypoglycemic states that normally a full tube of glucose gel or a full dose of Glucose tablets would be needed for. Glucose RapidSpray™ product is meant to be a complement to meals in order to help with glucose levels. As such, a direct correlation of carbs associated with Glucose RapidSpray™ and typical glucose tablets or gel is not warranted based on the intended use of the product. If usage of the product is maintained by taking Glucose RapidSpray™ at the first sign of needing additional glucose, then the Nutritional Facts stated on the package labeling is adequate for determining caloric intake (be it 5 sprays, 10 sprays, 15 sprays or whatever is taken to address the situation)."

...how stupid could the author possibly be?...the "first sign of needing additional glucose" is also the first sign of hypoglycemia!!...but then he admits that it's not intended to treat hypoglycemia...BUT he DOESN'T address the issue that the label misleads the prospective customer by NOT clearly stating that it's not intended to treat hypoglycemia and by calling itself "rapidspray" which implies something to be used when a rapid response is necessary -- as in hypoglycemia!...to my utter amazement the blogster actually complements GNBT's idiotic response:

"I consider the proactive response of Generex a good sign of how a company is run. Without needing to do so, Generex went above and beyond the call to address an open forum about the efficacy and accuracy of the product. This is the kind of interaction that convinces me a company cares!"

...fortunately, "Ismael" responded also -- part of his response:

"It sounds like they are marketing it as working faster and having a lower calorie count than glucose tablets. Why would they suggest that glucose tablets are large and gels are messy if not to offer their product as a replacement?

The low calorie claim comes from recommending an absurdly low serving size (less than 1/5 of 1 gram of carbohydrate), which is unlikely to have any noticeable effect on a user's glucose level. If you increase the serving size to a quantity that could reasonably aid you in combating the "symptoms of low blood sugar", the calorie count does not differ significantly from that of glucose tablet.
I have yet to see this in a pharmacy, but especially if Glucose RapidSpray is being displayed alongside glucose tablets and gels, I think the labeling and marketing of the product is dangerous. If Generex doesn't intend RapidSpray to be used to treat hypoglycemia, there should be an easily identifiable warning on the packaging indicating as much."

...go "Ismael"!...I just keeping hoping to one day turn on the TV and see Anna in an orange jumpsuit with handcuffs and leg irons doing the "inmate shuffle" as she's led before a judge...that'll be a GREAT day!...HAW, HAW, HAW!!!

2008 Apr 16 09:27 PM

[jimmy Turano:]

Sometimes I think certain sites play favoritism with certain stocks. If the top drug Companies including Lilly let GNBT go, I'm sure it was for a good reason.
Everything in this world is about MONEY. Does anyone think that if GNBT had a product that could rake in money, that a Big Drug Company would pass it by? Investors look for all the excuses they want to hear. This is what makes the world go round and as long as there are investors who believe in the company, the company continues to move along. Even if you bought GNBT 5 years ago at $1.07 and today it is worth $1.13, it doesn't matter to investors. Why, because they believe.
This is what helps put money into managements pockets for decades, even if there is no significant product generating revenue. To confirm the stupidity of investors, look at all the wonderful news announcements in a 5 year period but then look at todays stock price.

2008 Apr 22 09:16 AM

[User 192660:]

this generex company has been putting long distance charges on my bill and phoning me (harassing) me under diff alias trying to get me to return calls.My phone carrier charges back the long distance,but refuses to resolve the issue itself.

2008 May 13 02:31 PM

[aracer:]

Author's comments, regarding Mannkind "persisting despite it all," belie an ignorance of the differences between Mannkind's approach and the failed approach employed by Pfizer for Exubera, or a willing obtuseness rooted in a long position in Generex.

2008 Jun 15 07:18 PM