I have a few hundred shares of stock in Genta Inc., which has tumbled considerably over the past couple of months on news of a delisting warning from the Nasdaq Stock Exchange.
I've got lots of questions: What does it specifically mean to be "delisted?" Will the stock still be traded on some over-the-counter market, or will it be worthless? How long does a company have to turn itself around after receiving one of these warnings? Realistically, does it have a chance to do so?
– Waheed S., Sacramento
A: Shareholders never want to hear that their stock got the boot. Occasionally, though, companies fail to meet certain financial requirements and are no longer allowed to be traded on an exchange. They are then "delisted" and relegated to the less-prestigious "over-the-counter" trading platform.
This process doesn't happen overnight, though. Getting delisted is typically a lengthy, time-consuming process involving hearings and appeals.
Every stock exchange, from Nasdaq to the New York Stock Exchange, sets its own requirements that a company must meet to remain in good standing. Stocks can be delisted for lots of reasons, such as failing to trade at a minimum share price or when shareholder equity (assets minus liabilities) slips below a certain minimum level.
In the case of Genta, a biopharmaceutical company that develops cancer treatments, Nasdaq dinged it on two counts: Its stock price dropped below $1 a share and shareholder equity dropped below minimum levels.
Based in Berkeley Heights, N.J., Genta has at least one product in clinical trials and has been pushing to get approval from the U.S. Food and Drug Administration for another.
As of Monday, shares trading under the ticker symbol GNTA dropped to 52 cents a share. Ouch. That's a steep slide of 85 percent from its 52-week high of $3.48.
The company's shareholder equity dropped to $14.6 million at the end of 2007 from $15.7 million the year before.
That doesn't mean it's time to panic.
"It's not uncommon for drug-development companies to have negative equities," said Debbie Wang, an equity analyst with Morningstar Inc., the investment research firm based in Chicago. "They spend years burning through money to do their R&D (research and development), and it often takes longer than they thought to get a product to market. It could be a temporary setback."
Genta is struggling with getting its cancer treatments to market. In December 2006, it was turned down by the U.S. Food and Drug Administration for approval of its blood cancer drug, Genasense. Genta appealed that decision and the FDA is expected to respond sometime in the next month.
The company is currently recruiting patients with advanced melanoma for Phase 3 clinical trials of Genasense. Clinical trials recently got started for another of its drugs, Ganite, a potential treatment for diseases involving accelerated bone loss. Both drugs are getting limited distribution in countries outside the United States, and those sales could generate some revenue.
In an interview last week, Wang said Genta's delisting notice doesn't necessarily mean the end: "There are many ways they can resurrect themselves: Find an angel investor. Find an alliance with a more established health-care player. Re-issue more stock to raise money."
Sure enough, the company announced Monday that it would issue more than 6 million shares, priced at 50 cents a share, in a bid to generate about $3.1 million in revenue.
In an e-mail to The Bee, Genta spokeswoman Nichol Harber would say only that the company would use proceeds from the stock sale to meet business needs. Last week, she also told The Bee that Genta is looking for R&D partners.
What should you do?
If you don't need the money and still have faith in Genta's products and management, you could leave your shares alone, in hopes of an eventual payoff.
"Most of the time we say accept your losses and move on," said Carol Crosta, president of the Sacramento chapter of BetterInvesting investment club.
