Geron Corporation — Q1 2017 Form 10-Q
Reporting period: Three months ended March 31, 2017. Financial statements are unaudited. Geron is a clinical-stage biopharmaceutical company whose sole supported development program, imetelstat, is licensed exclusively to Janssen for worldwide development and commercialization.
Financial results and liquidity
| Metric | Q1 2017 | Q1 2016 / comparison |
|---|---|---|
| License fees and royalties | $537,000 | $749,000; down 28% |
| Research and development | $3.374 million | $5.033 million; down 33% |
| General and administrative | $4.657 million | $4.793 million; down 3% |
| Total operating expenses | $8.031 million | $9.826 million |
| Net loss | $7.183 million, or $0.05 per share | $8.842 million, or $0.06 per share |
| Net cash used in operations | $7.307 million | $5.578 million; cash use increased |
Revenue comprised $409,000 of license fees and $128,000 of royalties. There is no product revenue; gross margin is not meaningful for the disclosed results. Lower license revenue reflected lower hTERT research-license fees, while lower royalties reflected reduced licensee product sales. Lower R&D spending primarily reflected the prior-year IMerge startup costs. Operating cash use increased principally because of higher Janssen clinical-development cost-sharing payments.
At March 31, cash, restricted cash, cash equivalents and marketable securities totaled approximately $121.7 million, versus $129.1 million at December 31, 2016. Cash and cash equivalents were $14.861 million; marketable securities were $106.558 million, including $22.126 million classified as noncurrent; restricted cash was $268,000. Management estimated existing resources and future interest income would fund the current operating level for at least 12 months, while warning that spending or business-development activity could shorten the runway. No debt balance is reported. Accumulated deficit was $965.1 million; stockholders’ equity was $117.3 million.
Interest and other income was $332,000, versus $256,000 a year earlier, mainly from higher yields. Interest and other expense was $21,000 in both periods. The company had no financing cash inflow in Q1 2017; Q1 2016 included $826,000 from stock-option exercises. Marketable-security maturities exceeded purchases in Q1 2017, generating $9.358 million of investing cash flow.
Business developments, outlook and risks
- Imetelstat collaboration: Janssen bears responsibility for development, manufacturing, regulatory approval and commercialization. Geron and Janssen share 50% of costs for IMbark and IMerge. Geron has no current product-sales revenue and does not expect imetelstat to be commercially available for many years, if ever.
- Clinical updates reported after quarter-end: April internal reviews found no new safety signals in IMerge or IMbark. For IMerge, the JSC concluded the Part 1 benefit-risk profile supported continued development in lower-risk MDS; Part 1 continues unmodified. Janssen had not committed to Part 2, which was expected to open for enrollment in Q4 2017 if pursued and subject to FDA feedback.
- IMbark: New enrollment remained suspended after approximately 100 patients were enrolled. The 4.7 mg/kg arm had been closed to new enrollment; the 9.4 mg/kg arm showed activity across several measures, but the observed spleen-volume response rate was below that reported in front-line MF trials. Potential overall-survival benefit was suggested but was not established. Longer-term data and the timing of the primary analysis and Janssen’s continuation decision remained uncertain.
- Collaboration economics: Following an affirmative continuation decision, Geron may opt into further U.S. development and promotion costs in exchange for a $65 million continuation fee, potential milestones and higher-tier royalties; declining the opt-in would result in a separate $70 million full-U.S.-rights fee and lower-tier royalties. These are contingent potential payments, not current revenue or assured proceeds. Janssen may terminate the agreement at any time.
- Funding and spending outlook: Geron expected negative cash flow for the foreseeable future and G&A expenses to remain consistent during the rest of 2017. It plans to explore acquisitions or in-licensing to diversify, which could materially affect liquidity and could require debt or equity financing. A $50 million at-the-market sales agreement had not been used; the company also disclosed an effective $250 million shelf registration statement.
- Revenue outlook: Geron expected hTERT license revenues to decline significantly and be eliminated by the end of 2019 as patents expire. Future milestone or royalty receipts from Janssen are uncertain.
- Litigation: The company recorded a $6.25 million settlement liability and a $6.0 million insurance receivable for securities litigation. The proposed settlement was preliminarily approved in April 2017 but remained subject to final court approval; the company and insurers paid the amounts into escrow in April. Geron’s expected net settlement cost was $250,000. The settlement was not an admission of wrongdoing.
- Principal risks: Dependence on Janssen and imetelstat; uncertain clinical efficacy and safety, including cytopenias, liver-function abnormalities and bleeding; suspended IMbark enrollment and uncertain continuation timing; regulatory, manufacturing and competitive risks; potential need for additional capital and shareholder dilution; and litigation uncertainty. Management stated disclosure controls were effective at a reasonable-assurance level and reported no material change in internal financial-reporting controls.
Most important facts for investors to verify
- Subsequent IMerge and IMbark data, FDA feedback, whether IMerge Part 2 proceeds, and the timing and outcome of Janssen’s continuation decision.
- Whether longer-term IMbark data substantiate clinical benefit, including any survival signal, and how safety findings affect the benefit-risk assessment.
- Cash burn and runway relative to the stated at-least-12-month estimate, including the effect of collaboration costs, acquisitions or in-licensing, and any financing or dilution.
- Final court approval and completion of the securities-litigation settlement and insurance recovery.
- Changes in hTERT license revenue as related patents approach expiration and any actual milestone or royalty receipts from Janssen.