Geron Corporation — 2016 Form 10-K
Reporting period: Fiscal year ended December 31, 2016; filed March 1, 2017. The filing also reports fourth-quarter 2016 results. Geron is a clinical-stage biopharmaceutical company whose sole product candidate, imetelstat, is exclusively licensed to Janssen for development and commercialization. Geron has no product sales.
Financial performance and position
| Metric | 2016 | 2015 |
|---|---|---|
| Revenue | $6.162 million | $36.371 million |
| Operating expenses | $36.808 million | $36.930 million |
| Operating loss | $30.646 million | $0.559 million |
| Net income (loss) | $(29.537) million | $0.046 million |
| Net cash used in operating activities | $18.369 million | $24.196 million |
| Cash, restricted cash, cash equivalents and marketable securities at year-end | $129.067 million | $146.700 million |
| Working capital at year-end | $108.243 million | $109.258 million |
- 2016 revenue included a $5 million upfront license payment from Janssen Pharmaceuticals and $537,000 of royalties; no collaboration revenue was recognized from the imetelstat agreement. The 2015 result included recognition of the $35 million Janssen upfront payment, making that year’s small profit non-recurring.
- R&D expense was $18.047 million, up from $17.831 million; direct imetelstat development costs rose to $14.695 million from $9.574 million, reflecting Geron’s cost-sharing obligation. General and administrative expense increased to $18.761 million from $17.793 million.
- Fourth-quarter 2016 revenue was $94,000, operating expenses were $8.875 million, and net loss was $8.482 million, or $0.05 per share. Fourth-quarter 2015 revenue was $220,000 and net loss was $8.468 million.
- Year-end total assets were $130.249 million, current liabilities $7.869 million, and stockholders’ equity $122.380 million. The balance sheet reports no debt. Accumulated deficit was $957.924 million.
- Cash used in operations was partly offset by $8.762 million of net cash from investing activities and $1.169 million of financing cash. The filing states available capital and expected interest income should fund the current level of operations for at least 12 months; spending or acquisitions could shorten that period.
- Operating margins are not a useful indicator for this development-stage company; the filing reports operating losses and no product revenue. Geron reported no cash dividends and no off-balance-sheet arrangements.
Material changes and business developments
- In September 2016, Janssen completed initial internal reviews of both imetelstat trials and elected to continue gathering more mature data. The subsequent reviews were initiated in Q1 2017; new enrollment in both trials was suspended pending review, while patients already in treatment continued dosing.
- In IMbark, a Phase 2 trial in relapsed or refractory myelofibrosis, the 4.7 mg/kg arm was closed to new enrollment. Enrollment in the 9.4 mg/kg arm was suspended because too few patients met protocol-defined interim efficacy criteria at 12 weeks, although Janssen saw encouraging efficacy trends warranting further investigation.
- In IMerge, a Phase 2/3 trial in lower-risk, transfusion-dependent MDS, Part 1 enrolled approximately 30 patients. Janssen’s initial review found emerging safety and efficacy consistent with the earlier pilot study and continued the trial unmodified. Progression to the planned Phase 3 portion remained undecided.
- Janssen’s second reviews and other program considerations were expected to inform a decision in Q2 2017 to resume, modify or terminate trials or the broader program. Under the collaboration, Janssen controls operational execution and may terminate the agreement; Geron’s future imetelstat milestone and royalty revenues depend on continued development and eventual commercial success.
- Geron signed a separate September 2016 license with Janssen Pharmaceuticals for certain oligonucleotide RNAi technologies, excluding blood or bone-marrow cancers and telomerase-inhibiting products. Geron recognized a $5 million upfront payment and may receive up to $75 million in development and regulatory milestones plus low-single-digit royalties.
Outlook, risks and unusual items
- Management expects continuing operating losses and negative cash flow as development proceeds, and does not expect imetelstat to be commercially available for many years, if at all. General and administrative expense was expected to remain consistent in 2017; no specific revenue or earnings guidance was provided.
- Geron is highly dependent on Janssen: the 2016 upfront license payment accounted for approximately 81% of revenue, and 2015’s Janssen collaboration payment accounted for approximately 96%. Revenues from older hTERT-related licenses are expected to decline and be eliminated by the end of 2019 as patents expire.
- Important clinical risks include uncertain efficacy and safety, cytopenias, liver-function abnormalities and possible hepatotoxicity, bleeding events, and prior patient deaths reported in earlier studies. The FDA had placed imetelstat on a full clinical hold in March 2014; it was lifted in October 2014 after a response. The filing warns that new safety concerns could trigger another hold or end development.
- Geron shares 50% of current IMbark and IMerge development costs. Exercising future U.S. opt-in rights could require substantial additional spending; acquisitions or in-licensing to diversify could also materially affect liquidity and may require debt or equity financing.
- Unresolved risks include manufacturing capacity and cost, regulatory approval, competition, reimbursement and pricing, patent protection, and the possibility of Janssen terminating the collaboration. Securities class actions remained stayed pending settlement approval, which was not expected before the end of 2017; related derivative suits had been settled and dismissed, with the insurer paying $950,000.
- Ernst & Young issued unqualified opinions on the financial statements and internal control over financial reporting. Management and the auditor concluded internal controls were effective as of year-end.
Investor verification priorities
- Check Janssen’s second-review outcomes, enrollment status, and subsequent decisions for IMbark, IMerge, and the overall imetelstat collaboration.
- Review updated efficacy and safety data, particularly the 9.4 mg/kg IMbark arm and cytopenia, hepatic, and bleeding risks.
- Track quarterly cash burn, available liquidity, and any changes to the stated 12-month operating runway, especially if Geron pursues acquisitions or U.S. opt-in rights.
- Separate recurring licensing and royalty revenue from one-time upfront payments; verify the pace of decline in legacy license revenue and whether any collaboration milestones are achieved.
- Monitor final court approval and financial consequences of the securities class-action settlement, as well as any new litigation.