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Deconstructing The Generex Biotechnology Corporation (OTCMKTS:GNBT) Pivot

Deconstructing The Generex Biotechnology Corporation (OTCMKTS:GNBT) Pivot
Written by
Chris Sandburg
Published on
February 1, 2017
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Between January 20 and January 25, Generex Biotechnology Corporation (OTCMKTS:GNBT) ran up from around $0.0045 a share, to $0.012 a share – a more than 166% gain. Over the last few days, however, the company has corrected, and currently sits around 20% off highs at $0.0096 a share. To pin this action on one single catalyst would be misleading.In the space of around two weeks, the company has put out a thick and fast stream of catalysts, each of which have played into sentiment surrounding its near-term prospects in a different way. The question is, however, given all these catalysts, is the current correction just a pullback on profit taking (and in turn, an opportunity to get in ahead of a return to the upside momentum) or is it market rebalance?Let's take a look.First, for those not familiar with this one, Generex is a development stage biotechnology company that for all intents and purposes, until about two months ago, was just a shell. Over the last 6 to 8 weeks, however, it has pivoted from shell to active entity, with a spate of activity as outlined in the above-mentioned released updates. To answer our own question, therefore, it is necessary to take a look at each of these catalysts and try to ascertain what impact they have on the company's potential.The updates can be broadly broken down into two categories – one, an equity investment in an entity called Hema Diagnostic Systems and two, the acquisition of a controlling interest in a company called Emmaus Life Sciences.The former, Hema, is a diagnostics company that develops and manufactures in-vitro rapid diagnostics tests for infectious diseases such as HIV, tuberculosis, malaria, hepatitis, syphilis, typhoid, dengue, and others. As per the closing of the deal on January 23, Generex now owns 51% of Hema. Subsequent to the announcing of the closing, and what is the first major catalyst to come about on the back of this acquisition, the two companies announced the release of a testing kit designed to allow for quick and cheap HIV infection testing. It is designed to target developing countries, where HIV is most prevalent, and where current tests are either not quick enough or too expensive to deploy. As per the release announcing the product, Generex highlighted the fact that this test was the primary driver behind the company's desire to acquire a controlling interest in Hema, so to get the product out so quickly after closing is a big plus in our eyes.The second category, the Emmaus acquisition, is structured almost identically to the first. Generix as taken a 51% controlling interest in Emmaus, with the only real difference in this arrangement being that Emmaus will have the opportunity to earn back 36% of its capital stock out of the 51% interest sold to Generex upon achieving certain milestones. Emmaus's CEO has joined Generex as Executive Chairman, and while the specifics of a forward strategy are yet to be reported, we expect the two companies to bring a development stage asset into the clinic, while also collaborating on Emmaus's currently in-development asset; a sickle cell disease therapy.So what is next?Well, there is a lot of uncertainty on this one right now. The only way to really think about Generex is as a brand-new company, and one that now has an HIV diagnostics asset and a sickle cell disease asset on its books. In our opinion, both of these have the potential to serve up catalysts over the coming quarters, and in turn, we believe there is some upside momentum to be taken advantage of as and when these catalysts hit press.The company is going to hold a conference call mid-February, and at this point, we're looking closely at capital structure and – specifically – cash on hand, to gain insight into any near-term dilution risk.We will be updating our subscribers as soon as we know more. For the latest updates on GNBT, sign up below!Disclosure: We have no position in GNBT and have not been compensated for this article.

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