Generex Biotechnology: Hope Or Hype?

05/08/06 07:50:43 AM

by Koos van der Merwe

Investment in a company of hope or pure Las Vegas speculation?

Security: GNBT
Position: Accumulate

Generex Biotechnology Corp. (GNBT) is developing new methods for the delivery of small- and large-molecule drugs. Generex's proprietary platform drug delivery technology, RapidMist, administers medications directly into the mouth as a metered-dose spray for rapid absorption by the buccal mucosa. In August 2003, Generex acquired Antigen Express, which is a platform and product-based company developing proprietary vaccine formulations for large, unmet medical needs. Its focus is on stimulating critical members of the immune response, known as T helper cells.

The Globe And Mail issued the following news items about the company that triggered the price increases, as seen in Figure 1:

Tuesday, August 16, 2005 Pandemic Influenza Vaccine Development Accelerated at Generex Biotechnology with Hire of Accomplished Senior Scientist November 2, 2005 Generex Pandemic Influenza Vaccine Program To Be Presented At Novel Vaccine Concepts Conference In Washington, DC Tuesday, March 14, 2006 Generex Biotechnology To Present Its Avian Influenza Vaccine Program At DNA Forum In London

FIGURE 1: GENEREX, DAILY. Here's the present wave count of GNBT, with the completion of wave V in March.

Graphic provided by: AdvancedGET.

Figure 1 is a daily chart of Generex, showing the present wave count, with the completion of wave V in March 2006. From the news report of August 16, 2005, we must ask, "Has the development of the influenza vaccine failed?" The chart suggests that this is indeed the case. The collapse in what could be an ABC correction and the absence of any further news reports regarding the development of the vaccine does justify the drop. Now, is the ABC correction complete, with the start of wave 1 of a new upward impulse wave, or is the chart tracing a B-wave correction upward, which could collapse at any time into a C-wave?

On May 2, 2006, the company released the following news report:

In summary, successful replacement of regular subcutaneous insulin with Generex Oral-lyn during the initial 10 weeks of this six-month trial was achieved as demonstrated by patient-collected glucose levels, fructosamine, and HbA1c measurements.

This news report had very little effect on the share price, which does seem to be consolidating at the $3.00 to $3.14 level. Both the stochastic and relative strength index (RSI) indicators are suggesting a further rise in the price. The present resistance is the high of May 3 at $3.26.

Looking at Figure 2 on the shorter term, I analyzed the MetaStock chart:

FIGURE 2: GENEREX. This indicator suggested a short-term buy of this stock.

Graphic provided by: MetaStock.

Figure 2 is showing a buy signal. This signal is triggered by the change in the Fisher transform indicator of a moving average of the close, as shown. The green dot below the price is an on-balance volume (OBV) buy. The stochastic RSI is suggesting an overbought level but has not given a sell signal, although one could be imminent. Finally, the top indicator is a divergence RSI signal, and this is flat. Volume is low on a rising price, which is negative. And finally, the price is testing the upper Donchian channel line, a further negative.

To conclude, I would say that this is a company that should be watched, but I would not be a buyer at present levels. I would however be a buyer when the stochastic RSI drops below the 30 level. With the possibility of an influenza epidemic occurring in North America as bird flu migrates, although Europe so far seems to have escaped the pandemic, any company successful in their research for an effective vaccine, no matter how remote the possibility, should be watched. Finally, we should not forget that Generex does have a successful drug delivery system especially for diabetics, and is registering patents throughout the world.

Koos van der Merwe

Has been a technical analyst since 1969, and has worked as a futures and options trader with First Financial Futures in Johannesburg, South Africa.