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Generex Biotechnology, and their wholly owned subsidiary Antigen Express, are developing promising new drugs to treat diabetes, as well as synthetic peptide vaccines targeting HER2/neu cancer and pandemic flu. The flagship product for Generex is Oral-lyn buccal insulin. Antigen Express' leading vaccine is the AE37 HER2/neu synthetic peptide vaccine to prevent breast cancer recurrence. I am not qualified to offer investment or medical advice, and make no claims that I am an expert in these areas. I am a layman and a shareholder in this company. The left side of Pipeline Review holds blogs regarding Generex and Antigen Express, while the right side offers items of due diligence mixed with my analysis which may be of interest to others seeking to learn about Generex's pipeline. If the left side only shows the latest blog, click on the word home to view them all.

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Friday, July 30, 2010

My Visit With Generex Biotechnology at the Annual Meeting of Shareholders

Generex Biotechnology held their Annual Meeting on Wednesday July 28th in Toronto. I'll keep this blog a bit more informal than I usually write, since I am expressing more about personal experiences rather than any detailed pipeline analysis. I flew in from New Jersey Tuesday afternoon and was pretty excited to meet the people at Generex and share in my opinions on company developments. As the taxi driver slowed down to approach my hotel, I looked over to my right and was quite surprised. On the ground floor next to my hotel was a sign that read "Generex Biotechnology". I had no idea I was staying so close to their corporate headquarters.

The time was a little before 8 pm, and instead of checking into my hotel room, I grabbed my bags from the trunk of the taxi and walked straight over to this building to see if I could find anyone from Generex. Their offices were closed, but it sure felt strange to be looking right at the site of the company I have followed so closely over the last five years. In a way, it felt surreal. I felt a little like a tourist looking at a landmark site. I don't mean to sound so much like a fan of the company, although I admit I do fall into that category. I admire and respect how difficult it must for the founders to start a microcap biotech company from one or two patents to a burgeoning specialty biopharmacuetical company with a surprisingly active pipeline. If anyone reads my blog or my articles at Seeking Alpha, I have already detailed my assessment of this promising pipeline of diabetes and oncology technologies, so I'll skip a repeat overview.

Generex's offices were closed, but my camera was open for business. I took a few photos that I will share for others that also have an interest in this company that I believe is on the verge of significant medical advancement. Here are some photos I took while walking around the building on Harbour Square that houses their modest offices.

A shareholder friend, TC, that I communicate with on DigitalTradz.com, met me at the hotel the night before the meeting. We both share in optimism surrounding prospects for the company, but also were concerned with certain aspects of how the company portrays itself to the investment community. We feel that the company can do a much better job in this regard and wanted to address this issue at the ASM. I want to thank him for his time and friendship as we accompanied one another throughout the remainder of the trip. I may like to blog, but I don't necessarily like to speak in public forums. I also wanted to make sure I expressed myself with the level of respect that I believe the Generex team deserves. TC, and the open armed reception we received from Generex's management team, made the transaction from web blogger to in person communicator much easier than I could have imagined.

The main proposal of interest before shareholders at the meeting was a vote to approve a change the company's Certificate of Incorporation allowing for the implementation of a Reverse Stock Split while maintaining the number of Authorized Shares of Common Stock at 750,000,000. The company did achieve quorum for the meeting and proceedings began by opening any questions or comments to shareholders in attendance regarding any of the proposals. Over 180 million shares were represented, but only mine accompanied me to the microphone to question the strategy of not reducing the number of shares in their corporate treasury.

Ms. Anna Gluskin, Generex's CEO, explained that the company responsibly considers dilution concerns of shareholders. In the last two years, the amount of shares outstanding have doubled as the company struggled to repay a $20 million debt and subsequently raised capital in a handful of direct offerings. However, Generex has illustrated a level restraint in stopping dilutive transactions on three occasions during that same time frame. The first occurred in December 2008, which is when Generex repayed one of their final monthly debt payments in cash rather than in shares. That decision was quite noticeable since during that time the company's cash position was low. In October 2009, the company announced they will not exercise its right to issue and sell shares of its common stock under the At Market Issuance Sales Agreement with Wm Smith & Co. until further notice. And more recently, during June of this year, the company exercised its right to terminate the Common Stock Purchase Agreement entered into by Generex and Seaside 88 on April 7, 2010. Shareholders may disagree with Ms. Gluskin that the company responsibly considers dilution when planning their capital strategies, but I understand dilution is expected and I agree with Ms. Gluskin that the company does show restraint and care in how they proceed during the capital raising activities. As a shareholder, I simply wanted the company to hear my voice to remind them that small retail shareholders actively watch their plans and have concern about how this effects their holdings. To be honest, after my experiences chatting with them personally, I am confident they have always had our interests in mind. I think they face difficult decisions that we may not always understand.

The meeting proceeded and a general corporate presentation ensued. The presentation was very powerful and I was quite impressed. The webcast is available on the corporate website, so rather than offer a full repeat of the company's comments, I will advise all to take the time to listen. The presentations by Dr. Gerald Bernstein (Vice President, Medical Affairs and former President of the ADA) and Dr. Eric von Hofe (President of Generex's wholly owned subsidiary Antigen Express) were particularly inspiring and serve as a strong example of why I believe Generex's pipeline will eventually be valued above both Mannkind and Dendreon. I know that is quite a statement, but in a few years when current studies are completed and approvals are in hand, I strongly believe the market will respond.

When the formal session of the meeting was adjourned, Ms. Gluskin allowed shareholders in attendance to ask questions. I took the time to ask the questions you will hear concerning whether the amount of patients in the Phase III study with Type 1 patients may be powered enough to satisfy the FDA. Mr. Markus explained that with Oral-lyn's safety profile, a study of 500 patients may be suffice, although they are planning a formal meeting with the FDA to get proper guidance. I questioned Dr. von Hofe on the enrollment status of the Phase I AE37 Combo Vaccine for breast and ovarian cancer patients, and he informed that the study is closing in on the final enrollment and that the Mary Crowley Cancer Research Center is mainly in control of the pace of recruitment. This is a study that I find quite exciting, since it was the prestigious cancer center that initiated the collaboration and is providing the funds. That fact alone tells me quite a lot regarding a future valuation of this vaccine candidate and illustrates the scientific community's high opinion of Antigen Express' Ii-Key hybrid technology. I also asked Dr. von Hofe if the planned Phase III study for AE37 with HER2/neu breast cancer patients can proceed before the formal completion of the ongoing Phase II, and he responded quickly an emphatic "yes" since they have shown a display of efficacy and AE37 has a positive safety profile. Dr. von Hofe told us that they have already begun active discussions with the FDA. I queried if I was correct that AE37 has had no patients experience toxicity beyond Grade 2. Dr. von Hofe confirmed this fact, which is very unique for a new cancer treatment candidate. Dr. von Hofe also told the shareholders in attendance that promising signs have been seen in the area of business development.

I took a deep breath and embarked on a topic that has been like a plague on the internet. The discussion of Oral-lyn's (Oral Recosulin) status in India was first mentioned by an author for LiveMint quite some time ago. Additional articles were written by the same author and were later repeated by TheStreet's Adam Feuerstein. The controversy stems around whether the company has been accurate in stating that Oral-lyn is available for sale, or whether the DCGI in India rescinded approval and mandated a local Phase III trial. Ms. Gluskin stated "nothing has been rescinded" and explained that a Phase IV marketing surveillance study was part of the initial approval. During the November 2007 conference call for the India approval, Ms. Gluskin does mention that a Phase IV study was a condition of the approval. The company did later announce a "commercial" purchase order of 210,000 canisters of Oral-lyn, and in March 2009 announced 60 doctors were prescribing Oral-lyn to 100 patients. My friend TC mentioned this last item during his follow up questions.

I moved on and asked whether we can expect a Phase II study with IGT patients, since the proof of concept study conducted by Dr. Paolo Pozzilli revealed outstanding results. Ms. Gluskin informed that the new Phase II study will have partial results presented during the EASD conference in September and the original study has been submitted for peer review. That is great news since I was unaware that a Phase II had begun or that we will see a peer review for the Phase I. I also asked about a possible Phase III study for Type 2 patients, and we learned that a smaller study is being planned and that some secondary markets do not require a separate trial. Discussions will be held with the FDA regarding the US market. Ms. Gluskin talked about earlier use in Type 2 patients, and I remarked that showing a study in such patients will show how earlier intervention would be beneficial. Actually, if Generex can someday appeal to IGT patients or Type 2 patients that normally would not consider insulin treatment, they would revolutionize diabetic care. I believe they are slowly on that track. Future funding will propel their course.

After the question and answer period, TC and I were greeted by many in attendance. A member of the Board of Directors approached me and he said he was impressed by our questions. TC did a very thorough job which resulted in interesting and informative discussion. I began my appeal to have the company consider implementing quarterly conference calls. The Board of Director members I engaged in discussion said they will advance the request, and Ms. Gluskin also expressed consideration to adopt such an approach. I believe that at first the calls may be difficult, but would eventually result in a greater level of transparency and help Generex earn a higher level of confidence amongst the investment community. As I told Ms. Gluskin, we also would appreciate hearing of setbacks, and as long as we always have an accurate flow of information, our support would grow even stronger. I was pleased with how much time she gave us after the formal session.

Judging by the extraordinary amount of time the company gave to shareholders during the question period and after the meeting, I think the path towards new found openess is one in which they have already embarked. I was quite impressed throughout the entire day. The COO, Rose Perri, could not have been kinder or more accommodating, and allowed us to visit their headquarters and arranged a tour of their Oral-lyn filling facility. I greatly appreciate the warmth they showed to us, and I doubt any other biotech company would be as open armed. Before leaving for the tour, TC and I continued talking with others in attendance, and we were both struck by the amount of face time we had with the management team and Board of Directors. They were willing to discuss any of the topics we brought up during the meeting. Dr. Bernstein in particular was making a great effort at making us comfortable, as he also did before the meeting began.

Before the meeting, while Dr. Bernstein was talking with us, I asked a question that was on my mind for some time. I knew he was a Type 2 diabetic, and I asked if he ever used Oral-lyn in replacement of his regular meal time insulin. He said he did, and even used Oral-lyn before it was in the current formulation we hear about in the Phase III study. I asked if it worked in lowering his blood glucose levels as intended and he told us that it did. He went on to explain in detail all the reasons he feels Oral-lyn will better diabetic's lives and lead to greater health. He told of the significance of the FDA approved Treatment IND and then I first read the Phase III update while he told us the meaning of the findings. Now that was a fun way to read a Generex news release!

The company has shown positive Phase III reports regarding no insulin antibodies and an actual weight loss amongst Oral-lyn subjects. As I said to Ms. Gluskin during the question period, that is remarkable when we realize that this is never seen in injectable insulin patients and that Mannkind has been touting a small weight gain amongst Afrezza inhalable insulin users as a great statistic. Get Oral-lyn, Mr. Mann.

If you know me, you would understand that reading an Oral-lyn update with Dr. Bernstein had me on cloud nine. Dr. Eric von Hofe was on my right side, and Ms. Perri, whom I particularly like, was watching along. That was the exact moment Ms. Gluskin approached me with a big smile, and I just kept thinking how unfair this company has been treated by the snarly journalist from TheStreet. I didn't want the meeting to end. During the next fiscal year, I believe the uncertainty surrounding the stock will be long gone and the concentration of investors watching Generex will turn to what I see; a promising pipeline that will outweigh similar biotech's that currently have much higher valuations, led by a team of people that do care about the retail investor. I already know I'll be at the Annual Meeting next year.

The proposal for a reverse stock split was not approved at the meeting. The company stated in a press release today that "In an effort to prevent the Company's common stock from being delisted, the Company has requested that the Nasdaq Hearings Panel grant the Company additional time to hold a special meeting of the stockholders at which the requisite stockholder votes to approve the Amendment will be sought. To achieve the requisite votes, the Company will work with its proxy solicitation agent, Morrow & Co., LLC, to design and implement an aggressive, targeted solicitation strategy. The Company cannot be certain that the Panel will grant the Company's request." The feeling I have from the meeting is that the company does not actually want to implement such a split, and is trying to buy time to remain listed on NASDAQ as they continue with their business plan. From what I witnessed, a lot of positive activity is taking place that is not reflected in the market cap. Some day, I believe the problems surrounding Generex's stock will hardly be remembered.