Geron Corporation — Q3 2017 Form 10-Q
Reporting period: Three and nine months ended September 30, 2017. Filed November 1, 2017. Geron is a clinical-stage oncology biopharmaceutical company whose sole supported clinical program, imetelstat, is developed by Janssen under an exclusive worldwide collaboration. Geron has no product revenue.
Financial performance and position
| Metric | Q3 2017 | Q3 2016 | Nine months 2017 | Nine months 2016 |
|---|---|---|---|---|
| Revenue | $163,000 | $5.108 million | $874,000 | $6.068 million |
| Research and development expense | $2.637 million | $4.319 million | $8.510 million | $13.927 million |
| General and administrative expense | $4.770 million | $4.666 million | $13.833 million | $14.006 million |
| Operating loss | $7.244 million | $3.877 million | $21.469 million | $21.865 million |
| Net loss | $6.899 million | $3.576 million | $20.487 million | $21.055 million |
| Basic and diluted net loss per share | $0.04 | $0.02 | $0.13 | $0.13 |
Amounts are shown in U.S. dollars; financial statement amounts were reported in thousands, except per-share data. Q3 revenue was primarily license fees and royalties from other agreements, not imetelstat sales. The year-over-year revenue decline mainly reflects the prior-year recognition of a $5 million upfront license payment. Geron reported no product sales, and conventional product gross margins are not applicable.
Cash flow and liquidity: Operating cash use was $16.169 million in the first nine months of 2017, versus $17.767 million in 2016. Investing activities provided $13.226 million, largely as marketable-security maturities exceeded purchases; financing provided $37,000. Cash and cash equivalents were $9.904 million at September 30, with $268,000 restricted cash and $102.551 million of marketable securities, totaling approximately $112.7 million in cash and investments including restricted cash. This compares with approximately $129.1 million at December 31, 2016. Management expected existing resources and interest income to fund the current operating level for at least 12 months, while cautioning that spending or business-development activity could use cash sooner.
Balance sheet: Total assets were $114.244 million and stockholders’ equity was $108.274 million at September 30, 2017. Current liabilities were $5.970 million; the filing reports no debt balance. Accumulated deficit was $978.411 million. The company amended its office lease, extending the term through January 2020, with approximately $1.38 million in minimum payments for the extended term.
Material changes and operating developments
- Q3 net loss increased from the prior-year quarter, principally because 2016 included substantial license revenue. For the first nine months, net loss improved slightly year over year as lower operating expenses largely offset lower revenue.
- R&D expense fell 39% for the first nine months, primarily due to lower Janssen clinical-development cost sharing and reduced personnel-related expense. G&A was broadly flat for the nine-month period; management expected it to remain consistent for the rest of 2017.
- License and royalty revenue declined. Geron expects revenue from licenses to its hTERT technology to decline significantly and be eliminated by the end of 2019 because of patent expirations.
- The 2014 Janssen agreement gives Janssen worldwide development and commercialization responsibility for imetelstat. Geron and Janssen share IMbark and IMerge development costs 50/50. The agreement includes potential milestone payments and royalties, but these are contingent on development, regulatory and commercial outcomes.
Outlook, clinical program, and risks
- IMbark (myelofibrosis): New enrollment remained suspended after approximately 100 patients had enrolled. In April 2017, the joint steering committee found the 9.4 mg/kg dose warranted further investigation and observed activity across several measures, with a possible survival benefit; median overall survival had not been reached. The protocol-specified primary analysis was expected to begin when a prespecified number of deaths occurred or by the end of Q3 2018, whichever came first. Janssen planned an internal review in Q1 2018. Geron stated that an adequate survival benefit in relapsed or refractory myelofibrosis was central to Janssen’s decision to continue the program.
- IMerge (lower-risk MDS): Part 1 was expanded to enroll approximately 20 additional patients in a refined, non-del(5q) group without prior HMA or lenalidomide treatment. In a 13-patient subset reported as of May 2017, transfusion independence lasting more than eight weeks was 53.8%, compared with 34.4% in the overall 32-patient Part 1 group. These were interim, small-sample results. Janssen had not committed to begin Part 2; its decision was expected to depend in part on IMbark results and regulatory feedback.
- In October 2017, the FDA granted imetelstat fast track designation for a defined group of transfusion-dependent, lower-risk MDS patients. The filing emphasizes that this designation does not ensure approval, shorten clinical-trial conduct, or guarantee a faster review.
- Under the collaboration, an affirmative Janssen continuation decision could trigger a $65 million continuation fee. Depending on Geron’s election regarding U.S. rights, the agreement also provides for a potential $70 million full-U.S.-rights fee or higher-tier royalties and additional potential milestones if Geron opts in. These amounts are contingent, not assured guidance. Janssen may terminate the agreement, including at its discretion or for safety concerns.
- Key risks include uncertain clinical efficacy and survival benefit, serious adverse events including cytopenias, bleeding and liver-function abnormalities, possible FDA requests or clinical holds, trial delays, dependence on Janssen and third-party manufacturers, and potential need for additional financing. If Janssen ends development, Geron could lose future collaboration payments and would need substantial capital or a new partner to continue the program.
- Geron said it would continue seeking oncology acquisition or licensing opportunities; such activity could materially affect liquidity and may require debt or equity financing. The company had an unused at-the-market sales agreement permitting up to $50 million of common-stock sales through August 2018 and a separate shelf registration statement. Additional equity financing could dilute shareholders.
- The consolidated securities lawsuits were dismissed with prejudice in July 2017 following settlement. Geron paid $250,000 and insurers paid $6 million into escrow; the company reported no expected additional payments for those settled claims, while noting possible future litigation.
Most important facts for investors to verify
- Progress, safety and survival data from IMbark, the timing and outcome of its primary analysis, and Janssen’s continuation decision.
- Enrollment and updated efficacy and safety results from expanded IMerge Part 1, and whether Janssen proceeds to Part 2.
- Cash burn, remaining liquidity and any financing or business-development commitments relative to management’s stated 12-month runway estimate.
- Any changes in Janssen’s development plans, FDA interactions, trial status, manufacturing supply, or the collaboration agreement’s contingent payments and rights.
- The effect of hTERT patent expirations on licensing revenue and any material additional litigation or other unreserved obligations.