Geron Corporation — Q2 2014 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2014. Unaudited interim results. Geron was a clinical-stage biopharmaceutical company whose sole product candidate was imetelstat; it had no product revenue and reported operating losses.
Financial results
| Metric | Q2 2014 | Q2 2013 | Six months 2014 | Six months 2013 |
|---|---|---|---|---|
| Revenue | $341,000 | $112,000 | $815,000 | $877,000 |
| Research and development | $5.151 million | $4.807 million | $10.362 million | $12.728 million |
| General and administrative | $3.853 million | $3.432 million | $7.847 million | $8.183 million |
| Operating loss | $8.663 million | $8.965 million | $17.394 million | $20.950 million |
| Net loss | $8.734 million | $8.947 million | $17.174 million | $20.844 million |
| Basic and diluted loss per share | $0.06 | $0.07 | $0.11 | $0.16 |
| Net cash used in operating activities | — | $14.655 million | $24.154 million |
At June 30, cash, cash equivalents, restricted cash and marketable securities totaled $147.6 million, versus $66.0 million at December 31, 2013. Cash and cash equivalents alone were $9.520 million; marketable securities were $137.312 million and restricted cash was $795,000. Current assets were $142.592 million and current liabilities $4.756 million. Total stockholders’ equity was $144.583 million. The filing reports no debt balance; approximately $500,000 remained available under the equipment financing facility. No operating margin is presented; the company had a substantial operating loss against very limited revenue.
Changes and drivers
- Q2 net loss narrowed modestly year over year; first-half net loss improved by $3.670 million, primarily reflecting lower operating costs after program wind-downs and restructuring, partly offset by increased imetelstat manufacturing costs.
- First-half R&D fell 19% year over year, while Q2 R&D rose 7%, principally due to higher imetelstat manufacturing costs.
- First-half operating cash use declined by $9.499 million year over year. Geron raised approximately $96.8 million net in a February 2014 public offering of 25.875 million shares at $4.00 per share, materially increasing liquidity but diluting shareholders.
- Revenue remained small and license/royalty receipts are variable. Six-month revenue decreased slightly; Q2 revenue increased, including a licensee sales milestone.
Outlook, clinical developments and risks
- Geron estimated that capital resources, available equipment financing and future interest income would fund its then-current operating level for at least 12 months. It cautioned that future capital needs were substantial and actual cash use could be higher.
- Management expected 2014 R&D spending to remain near then-current levels unless the FDA permitted new imetelstat trials. A U.S. Geron-sponsored MF trial was described as potentially possible in early 2015 only if the company submitted its response and the FDA lifted or modified the hold in 2014; delay could be indefinite.
- The FDA placed Geron’s imetelstat IND on full clinical hold in March 2014, citing hepatotoxicity concerns, including unresolved questions about reversibility and chronic liver injury. Geron-sponsored Phase 2 treatment in ET and multiple myeloma was stopped. Geron said it needed additional patient follow-up and animal data before responding; the timing and FDA outcome were uncertain.
- A partial hold on the investigator-sponsored myelofibrosis trial was lifted June 11, 2014. The trial remained closed to new enrollment. As of July 15, 33 of 80 enrolled patients were still receiving treatment. The filing describes serious safety events, including a patient death after prolonged myelosuppression in the trial and a death from bleeding esophageal varices in the ET trial, assessed by investigators as possibly related to imetelstat.
- On July 31, 2014, Geron and Mayo Clinic agreed to transfer the myelofibrosis trial IND and sponsorship to Geron, targeted by September 30, subject to completion of specified obligations. Geron planned to continue the existing study without enrolling additional patients and had committed not to start new trials under that IND before further FDA communication.
- Three securities lawsuits and a shareholder derivative lawsuit were pending, alleging, among other matters, misleading disclosures concerning liver-test abnormalities. The company intended to defend itself but could not estimate potential costs or damages and had recorded no reserve. It expected legal expenses to rise.
- Geron had no restructuring obligations remaining. The Asterias share distribution following the stem-cell asset divestiture had an ex-dividend date of July 22, 2014; completion was not expected to affect Geron’s financial statements. The distribution could have tax, market-liquidity and litigation implications for shareholders.
- Geron cited additional risks including reliance on a single development candidate, uncertain trial data and regulatory approval, manufacturing cost and supply constraints, need for future financing and potential dilution. The company reported effective disclosure controls at the reasonable-assurance level.
Key facts for investors to verify
- Whether Geron can provide the requested clinical and preclinical information and whether the FDA lifts or modifies the full clinical hold.
- Updated, independently reviewed safety and efficacy results from the myelofibrosis trial, including liver toxicity, myelosuppression and patient follow-up.
- Actual cash burn and runway versus management’s estimate, particularly if clinical development resumes or litigation costs increase.
- Progress and terms of the Mayo Clinic IND transfer and completion of the Asterias distribution, including any shareholder tax or liquidity consequences.
- Potential exposure, defense costs and developments in the pending securities and derivative litigation.