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Here's What Matters Right Now For Generex Biotechnology Corporation (OTCMKTS:GNBT)

Here's What Matters Right Now For Generex Biotechnology Corporation (OTCMKTS:GNBT)
Written by
Chris Sandburg
Published on
February 24, 2017
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Generex Biotechnology Corporation (OTCMKTS:GNBT) rocketed from $0.004 a share to $0.015 between January 20 and January 25, as the company announced it had signed an LOI to acquire a controlling interest in an entity called Emmaus Life Sciences, Inc. Having topped out at the just mentioned highs, however, the company corrected, and traded pretty much flat throughout the remainder of the month and during early February. Last week, the upside momentum came back in to play, as Generex announced it had eliminated its outstanding derivative securities. This improvement in capital structure is good for shareholders, especially given the structure issues they've had to endure from this company in the past, but for us, it's not the focal point of a near term bias.We're watching the above mentioned Emmaus stock purchase as dictating Generex's near to medium term value.Why? Because Emmaus is sitting on an asset that could be just about to hit markets, and in turn, could provide a considerable revenue stream for it, and by proxy, a value boost for its (will be) majority shareholder, Generex.Unfortunately, the deal hasn’t gotten off to a great start, and therein lies the risk side of the story. So, here's a look at the reward and the risk, and an attempt to come down on one side or the other.The asset Emmaus is sitting on is called L-Glutamine, and the the company has put it through its paces as part of a clinical development program aimed at proving its worth in a sickle cell disease indication. The program went well, and Emmaus submitted a registration application to the FDA for the drug mid to late last year. On November 29, 2016, Emmaus announced hat the FDA had accepted the application for review, and set a PDUFA date for the drug of July 7, 2017.The drug is an oral administration formulation of the above mentioned L-Glutamine, and it has received Orphan Drug designation in the U.S., Orphan Medicinal Product designation in the EU and Fast Track designation from the FDA. An application to the EMA should come shortly. Here's the kicker – if approved, it would be the first FDA-approved treatment for pediatric patients with sickle cell disease, and the first new treatment in nearly 20 years for adult patients.Generex has a majority exposure to this PDUFA (an immediate near term catalyst) and the drug's revenue potential (a longer term value driver) and that's what makes it an attractive exposure right now.As mentioned, however, there's another side to the story.To put it simply, Generex needs to get in gear and close out the deal. To do so, however, it needs to meet two payment deadlines associated with the acquisition. The first, a $1.5 million cash payment, it already missed. As per the two companies' latest release, Emmaus extended the deadline for this payment to February 16, but we've had no confirmation that the payment has been made. We don't think the deal will fall through if it hasn’t (Emmaus will probably just extend the deadline again) but it needs resolving, and fast. The company then has to meet a $2 million payment date at the signing, which was initially slated to happen 45 days from January 16, but will likely be delayed based on the missed payment. Beyond that, there's a $6 million payment due on closing.So here's the deal.If Generex can get these payments made (and don't be surprised if we see some degree of dilutive equity raise in order to fund them) then it could be on to a real winner. If it can't, the deal falls through, and we revert back to pipeline and a secondary acquisition (which we've not addressed here as it's not as pressing, but it's still worth a look) as value drivers.We think management will pull through and get things closed off, and as such, we've got a near term bullish bias on the stock. Let's see how things play out.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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