Geron Corporation — Q3 2013 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2013. Geron is a clinical-stage biopharmaceutical company focused on imetelstat for hematologic myeloid malignancies. It reported no product revenue and had incurred operating losses every year since 1990.
Financial results and liquidity
| Metric | Q3 2013 | Q3 2012 | Nine months 2013 | Nine months 2012 |
|---|---|---|---|---|
| Revenue | $181,000 | $636,000 | $1.058 million | $2.020 million |
| Research and development | $5.338 million | $11.684 million | $18.066 million | $39.568 million |
| Operating expenses | $8.914 million | $16.513 million | $30.741 million | $55.294 million |
| Net loss | $8.254 million | $15.953 million | $29.098 million | $53.018 million |
| Net loss per share | $0.06 | $0.13 | $0.23 | $0.42 |
| Cash used in operations | Not separately provided for quarter | Not separately provided for quarter | $29.879 million | $44.730 million |
- At September 30, 2013, cash, cash equivalents, restricted cash and marketable securities totaled approximately $67.0 million, down from $96.3 million at December 31, 2012. Cash and cash equivalents alone were $9.6 million; marketable securities were $56.6 million.
- Current assets were $68.4 million and current liabilities $6.8 million. Stockholders’ equity was $61.9 million. The balance sheet shows no long-term debt; approximately $0.5 million remained available under the equipment financing facility.
- Cash and cash equivalents declined $12.5 million during the first nine months. Investing activities provided $16.9 million, principally reflecting net marketable-security maturities and $1.1 million in proceeds from equipment sales; financing activities provided $493,000.
- Margins are not a useful indicator for this pre-commercial company: revenue was minimal relative to research and development and other operating costs.
Changes versus prior comparable periods
- Net loss narrowed by approximately 48% in Q3 and 45% for the nine-month period, primarily because of lower R&D spending, reduced personnel costs and program wind-downs and restructuring.
- R&D expense fell approximately 54% in Q3 and 54% year to date. Management attributed the reductions to winding down imetelstat trials in solid tumors, discontinuing GRN1005 and discovery research, and reducing staffing and related costs.
- Revenue fell year over year, principally because a GE Healthcare license payment was recognized in 2012 and royalty sources declined following licensing changes and an agreement termination.
Outlook, developments and principal risks
- Management estimated existing capital resources, equipment-facility availability and future interest income would fund the then-current operating level for at least 12 months. It cautioned that capital needs could exceed estimates and that additional financing might be needed; the company had not used its up-to-$50 million at-the-market sales agreement.
- Geron’s sole product candidate was imetelstat. An investigator-sponsored myelofibrosis trial had enrolled more than 50 patients; the first 11 patients in each of two dosing cohorts met protocol criteria to permit expanded enrollment. Updated preliminary data were scheduled for presentation at the December 2013 ASH meeting. Geron did not control the trial’s conduct, data or reporting, and cautioned that preliminary findings could change.
- Geron highlighted potential imetelstat safety concerns, including thrombocytopenia, neutropenia and other toxicities. Further development depended on clinical evidence, regulatory acceptance and adequate funding; commercial availability was not expected for many years, if ever.
- On October 1, 2013, after quarter-end, Geron transferred its human embryonic stem-cell assets and autologous cellular immunotherapy program to Asterias. It received 6,537,779 Asterias Series A shares, representing 21.4% of that class, and potential royalties on certain future products. Geron planned to distribute the shares pro rata to its stockholders, subject to applicable requirements and exclusions. Asterias assumed specified post-closing liabilities.
- The April 2013 restructuring discontinued discovery research and the telomere-length companion diagnostics program, closed the Menlo Park research laboratory and eliminated 20 positions. Approximately $940,000 of charges had been recorded for that restructuring by September 30; total projected charges were about $1.5 million, with remaining facility costs expected in Q4. The company had received $1.0 million from equipment sales.
- Other material risks include reliance on a single early-stage candidate, clinical and regulatory uncertainty, manufacturing costs and capacity, dependence on third parties, patent challenges, financing and dilution risk, and uncertainty about the liquidity and value of the Asterias shares to be distributed. The filing reported no legal proceedings and no off-balance-sheet arrangements.
Important facts for investors to verify
- Review the updated, audited and verified myelofibrosis trial data, including safety findings, and distinguish investigator-reported preliminary results from final data.
- Confirm the timing, eligibility, tax treatment and mechanics of the Asterias share distribution, and assess the shares’ marketability and value.
- Track cash burn, restructuring payments and whether the stated 12-month funding estimate remains adequate as imetelstat plans and costs change.
- Assess whether imetelstat can demonstrate an acceptable benefit-risk profile and advance to Geron-sponsored trials, including the regulatory and manufacturing requirements.
- Monitor declining license and royalty revenue and the potential need for additional financing, including possible shareholder dilution.