Geron Corporation (NASDAQ: GERN) — Q3 2020 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2020. Geron is a clinical-stage biopharmaceutical company focused on imetelstat for hematologic malignancies. It has no product revenue; reported revenue is from licensing and royalties.
Financial performance and liquidity
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Revenue | $0.108m | $0.131m | $0.203m | $0.289m |
| R&D expense | $13.613m | $11.109m | $35.260m | $27.149m |
| G&A expense | $6.510m | $4.994m | $18.590m | $15.637m |
| Net loss | $19.651m | $15.180m | $51.830m | $39.478m |
| Basic and diluted loss per share | $0.06 | $0.08 | $0.20 | $0.21 |
Revenue is immaterial relative to operating costs; a meaningful operating margin is not applicable. Interest and other income was $0.504m in Q3, down from $1.021m, mainly reflecting lower yields on investments. Q3 expenses increased primarily to support IMerge, prepare IMpactMF, expand development staffing, and validate manufacturing processes. Share count growth helped reduce reported loss per share despite the higher net loss.
For the first nine months, operating cash use was $54.0m versus $33.5m in 2019. Investing activities used $83.5m, mainly reflecting purchases of marketable securities; financing provided $168.9m, primarily from the May equity offering and September debt draw. Cash, cash equivalents and restricted cash were $45.3m at September 30.
Cash, cash equivalents, restricted cash and current and noncurrent marketable securities totaled $273.8m at September 30, versus $159.2m at December 31, 2019. Total liabilities were $53.0m and stockholders’ equity was $232.8m. The company had $25.0m of term-loan principal outstanding; its balance-sheet carrying amount, net of discounts and issuance costs, was $23.9m.
Material changes and financing
- May 2020 public offering generated approximately $140.2m net proceeds and issued 107.0m common shares, a pre-funded warrant for 8.3m shares, and warrants for 57.7m shares. Most of the stock purchase warrants remained outstanding at quarter-end.
- In September, Geron drew $25.0m under a secured term-loan facility, receiving about $23.9m net. The facility permits additional tranches subject to availability, milestones and approvals. The drawn tranche bears 9% interest, has interest-only payments through November 2022, and matures October 2024. Substantially all assets other than intellectual property secure the loan.
- The loan includes a minimum-cash covenant beginning June 2022, subject to specified milestone provisions, as well as other restrictive covenants. Geron reported compliance at quarter-end.
- Geron replaced its prior at-the-market sales agreement with a new agreement for up to $100m of common-stock sales. Sales could not begin until the related registration statement became effective.
- Accumulated deficit was approximately $1.1bn. Geron expects operating losses and R&D costs to increase as it funds two Phase 3 programs.
Outlook, risks and contingencies
- IMerge: Phase 3 enrollment was most likely to finish in Q2 2021, later than the prior Q1 target, due to COVID-19-related site and enrollment disruption. If enrollment finished by the end of H1 2021, management continued to expect top-line results in H2 2022.
- IMpactMF: Geron planned to open the Phase 3 trial for screening and enrollment in Q1 2021, subject to pandemic conditions. Management’s then-current assumptions projected enrollment completion in H2 2022, an interim analysis in H1 2023 and final analysis in H1 2024. The trial’s primary endpoint is overall survival. The FDA suggested considering an additional dose arm; Geron chose not to add one, and reported that the FDA did not object to its proposed dose and schedule.
- COVID-19 had delayed clinical-site activation and patient enrollment and could further disrupt trial conduct, drug supply, regulatory interactions and timelines. Remote work also raised productivity and cybersecurity concerns.
- Management estimated existing capital resources and future interest income would fund the current operating level for at least 12 months, but stated that substantial additional capital would be required to complete IMpactMF and advance imetelstat. Future financing may be unavailable or dilutive; further development could be delayed, changed or abandoned if funding is insufficient.
- Two consolidated securities class actions and three shareholder derivative suits relate to alleged disclosures about the earlier IMbark trial. The company disputed the allegations and intended to defend itself; it could not estimate potential costs and had recorded no reserve.
- Imetelstat is Geron’s sole product candidate. Key risks include clinical efficacy and safety, including cytopenias, bleeding and liver toxicity; trial execution and enrollment; manufacturing and regulatory requirements; competition; and the need for additional financing. No regulatory approval or product sales were assured.
Investor verification priorities
- Track actual IMerge enrollment, COVID-19-related site disruptions and whether the stated enrollment and results timelines remain achievable.
- Verify IMpactMF start-up, regulatory status, funding plan and progress toward enrollment; assess the trial design and survival endpoint against the FDA’s dose-arm feedback.
- Monitor cash and marketable securities, operating cash burn, any ATM issuance, potential dilution from outstanding warrants, and access to additional debt tranches.
- Review loan interest, repayment terms, collateral, milestone conditions and future minimum-cash covenant requirements.
- Follow developments and potential costs in the securities and derivative lawsuits, for which no liability reserve was established.