Geron Corporation — Q3 2011 Form 10-Q
Reporting period: Three and nine months ended September 30, 2011. Financial statement amounts are in U.S. dollars; dollar figures below are in millions unless otherwise noted.
Business context
Geron is a clinical-stage biotechnology company developing cancer therapies and human embryonic stem-cell therapies. Its programs included four Phase 2 imetelstat trials, planned Phase 2 trials of GRN1005, and a Phase 1 GRNOPC1 spinal-cord-injury trial. Geron stated it did not expect therapeutic-product revenue for years, if at all.
Financial results and liquidity
| Metric | Q3 2011 | Q3 2010 | Nine months 2011 | Nine months 2010 |
|---|---|---|---|---|
| Revenue | $0.220 | $0.546 | $2.187 | $2.465 |
| Research and development expense | $16.345 | $13.728 | $49.644 | $40.662 |
| General and administrative expense | $3.811 | $5.021 | $18.251 | $13.359 |
| Operating loss | $(19.936) | $(18.203) | $(65.708) | $(51.556) |
| Net loss | $(19.522) | $(18.344) | $(64.999) | $(52.015) |
| Net loss per share | $(0.16) | $(0.19) | $(0.52) | $(0.54) |
Gross margin was not separately reported; a conventional margin is not meaningful given the company’s development-stage operations and minimal revenue. Nine-month operating cash use was $41.025 million, versus $28.137 million in 2010. Cash and cash equivalents ended the period at $33.975 million; cash, restricted cash, cash equivalents and marketable securities totaled $180.8 million, including approximately $24.8 million subject to CIRM loan covenants. Management estimated existing resources, interest income, scheduled CIRM loan disbursements and equipment financing would fund current operations through at least December 2012, subject to risks and assumptions.
At September 30, total assets were $188.404 million, current assets $147.304 million, current liabilities $10.003 million, stockholders’ equity $175.207 million, and reported long-term debt $3.194 million. Geron had received approximately $4.282 million under its CIRM loan; the loan is recorded net of warrant-related discount. No cash-flow statement margin was provided.
Material changes versus the prior comparable period
- Nine-month revenue declined $0.278 million, while the net loss widened $12.984 million year over year.
- Nine-month R&D expense increased $8.982 million, primarily reflecting clinical-trial startup and enrollment and higher clinical drug-product and manufacturing costs. Q3 R&D increased $2.617 million.
- Nine-month G&A expense rose $4.892 million, including approximately $3.472 million of noncash stock compensation related to the former CEO’s separation agreement and higher legal and consulting costs. Q3 G&A decreased year over year, principally due to lower stock compensation.
- Cash and cash equivalents fell $11.997 million from year-end 2010; total cash, restricted cash, cash equivalents and marketable securities fell from $221.3 million to $180.8 million, primarily from operating cash use.
Outlook, risks and unusual items
- Management expected R&D spending to rise with planned GRN1005 Phase 2 trial starts in Q4 2011 and ongoing imetelstat and GRNOPC1 trials. It said future development costs and timelines could not be reliably estimated.
- The CIRM agreement provides up to approximately $24.8 million over three years for GRNOPC1, subject to milestones. It carries interest at one-year LIBOR plus 2%, has repayment scheduled at the end of an initial five-year term, and includes covenants requiring sufficient assets and restricting certain actions. CIRM may adjust future disbursements or accelerate repayment in specified circumstances. Geron reported covenant compliance at quarter-end.
- Key disclosed risks include clinical safety or efficacy failures, slower-than-expected enrollment, manufacturing scale and cost challenges, reliance on third parties, need for additional capital, and regulatory and intellectual-property uncertainty. Geron disclosed imetelstat dose-limiting toxicities in Phase 1 and preliminary GRN1005 evidence; it also noted microscopic cysts in a low frequency of animals treated with GRNOPC1.
- Geron reported the October 2011 European Court of Justice decision could impair enforceability of hESC-related patents in EU member states. It also disclosed ongoing patent disputes and an interference proceeding, with outcomes uncertain.
- Unusual items included $3.472 million of noncash stock compensation tied to the former CEO’s separation and the CIRM loan’s associated warrant issuance. No legal proceedings were reported in the filing’s legal-proceedings item.
Important facts for investors to verify
- Whether clinical-trial enrollment, safety and efficacy support the planned development of imetelstat, GRN1005 and GRNOPC1.
- Whether CIRM milestones are met and scheduled loan funding is received, and how the asset-maintenance covenant affects usable liquidity.
- Whether the stated funding runway remains achievable as operating cash use and planned R&D spending evolve.
- Manufacturing capacity, product quality, supply concentration and prospects for reducing candidate production costs.
- Developments in hESC patent protection and the disclosed patent proceedings, including any impact on development or licensing rights.