TORONTO ( TheStreet) -- Generex Biotechnology (GNBT) is planning a reverse stock split to raise the price of its common stock and stave off delisting from the Nasdaq.
In a proxy filing last week, Generex, developers of an experimental oral insulin spray known as Oral-lyn, said it plans to seek shareholder approval to implement a reverse stock split aimed at lifting its stock price above $1 a share. Generex holds its annual shareholder meeting on July 28.
Generex faces delisting from the Nasdaq later this year because the stock doesn't meet the exchange's listing requirements, according to a non-compliance notice reported to the SEC by the company. Generex shares closed Tuesday at about 38 cents and have traded below the $1-a-share threshold since June 2008.
"We wish to thank our long term stockholders for their continuing support," said Generex CEO Anna Gluskin in a company press release that announced the receipt of a non-compliance notice from Nasdaq. Gluskin added, "Management is devoted to securing the best interests of Generex, thereby creating value for its stockholders."
In a reverse stock split, a company reduces the number of common shares outstanding, thereby increasing the price of each share of common stock proportionally.
The bump in the stock price is frequently only a temporary reprieve.
"Most reverse stock splits don't work because all the bad things that caused the company's stock price to fall are still there after the split," said Jon Johnson, chief market strategist at StockSplits.net, an investment newsletter that tracks stock splits.
Generex is contemplating an exchange ratio of not less than 1-for-3 and not more than 1-for-10, according to the company's proxy statement. This implies a per-share stock price of at least $1.08 and as much as $3.70 after the reverse stock split, based on Generex's current stock price.
In a typical reverse stock split, companies also reduce the number of shares in their corporate treasury. However, Generex says it intends to maintain the number of shares in its corporate treasury at 750 million, equal to the amount of treasury shares before the planned reverse stock split, according to plans detailed in its proxy statement.