GERN

Business Context and Reporting Period

Company: Geron Corporation
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: March 31, 2009
Business Overview: Geron is a biopharmaceutical company developing therapeutic products for cancer and chronic degenerative diseases. Key programs include telomerase-targeted oncology drugs (GRN163L, GRNVAC1) and human embryonic stem cell (hESC)-based therapies (GRNOPC1 for spinal cord injury). The company received FDA clearance in January 2009 to begin the first human clinical trial of GRNOPC1.

Key Financial Metrics

Cash Flow Summary (Q1 2009):
- Net cash used in operating activities: $(9,290)
- Net cash used in investing activities: $(21,111)
- Net cash provided by financing activities: $46,654 (primarily from public offering)

Material Changes vs. Prior Period

• Revenue Decline: Total revenues dropped 74% to $444,000 from $1.69 million in Q1 2008. This was driven by the absence of a $1.5 million milestone payment recognized in 2008 related to an FDA risk assessment on cloned animals and a decrease in collaborative agreement revenue.
• Increased Net Loss: Net loss widened by 23% to $16.8 million. Contributing factors included lower interest income due to decreased rates, reduced revenues, and a $656,000 loss recognized under the equity method of accounting for the ViaGen, Inc. investment.
• Capital Raise: In February 2009, the company completed a public offering of 7.25 million shares at $6.60 per share, generating net proceeds of approximately $45.9 million. This significantly bolstered liquidity compared to the prior year.
• Expense Management: General and administrative expenses decreased by $652,000 (16%) due to reduced patent legal and consulting costs. Research and development expenses remained relatively flat, increasing slightly by $158,000 due to higher clinical trial costs offset by reduced sponsored research.

Guidance, Outlook, and Risks

Outlook and Liquidity: Management estimates that existing capital resources, interest income, and an equipment financing facility will fund operations through at least December 2010. The company anticipates R&D expenses will increase in the coming year as clinical trials for GRN163L, GRNVAC1, and GRNOPC1 progress.

Key Risks and Contingencies:

• Regulatory and Clinical Uncertainty: Success depends on obtaining FDA approvals and positive clinical trial results. The company has no products on the market and faces significant risks regarding the safety and efficacy of its candidates.
• Stem Cell Restrictions: Political and ethical opposition to human embryonic stem cell research could hinder development. While President Obama issued an executive order in March 2009 to remove barriers, new NIH guidelines were pending as of the filing date.
• Intellectual Property: The company faces ongoing patent oppositions and reexaminations, particularly in Europe regarding hESC technologies and in the U.S. regarding telomerase patents.
• Subsequent Events: In April 2009, the company modified terms of certain warrants, expecting to recognize a deemed dividend of approximately $190,000 in the second quarter of 2009.

Investor Verification Checklist

• Cash Runway: Verify the sufficiency of the $200.5 million liquidity position to fund the projected increase in clinical trial costs through 2010 without further dilution.
• Clinical Progress: Monitor enrollment and safety data for the GRNOPC1 spinal cord injury trial and the GRN163L oncology trials, as these are critical value drivers.
• Regulatory Environment: Track the issuance of new NIH guidelines regarding federal funding for stem cell research following the March 2009 Executive Order.
• Patent Status: Review the outcome of pending European patent oppositions regarding hESC technologies and U.S. reexaminations of WARF patents.
• Revenue Sustainability: Assess the likelihood of future milestone payments or licensing revenues given the significant drop in Q1 2009 revenue.