Geron Corporation — Q1 2015 Form 10-Q
Period: Three months ended March 31, 2015; unaudited. Geron is a clinical-stage biopharmaceutical company whose sole product candidate is imetelstat. The quarter’s business was centered on the worldwide development and commercialization collaboration with Janssen.
Financial performance and liquidity
| Metric | Q1 2015 | Q1 2014 or comparator |
|---|---|---|
| Revenue | $0.54 million | $0.47 million |
| Research and development expense | $4.99 million | $5.21 million |
| Restructuring charges | $0.41 million | None reported |
| General and administrative expense | $4.60 million | $3.99 million |
| Operating loss | $9.46 million | $8.73 million |
| Net loss | $9.32 million; $0.06 per share | $8.44 million; $0.06 per share |
| Cash used in operating activities | $7.71 million | $9.51 million |
Revenue comprised $0.38 million in license fees and $0.16 million in royalties; no revenue from the Janssen collaboration was recognized in the quarter. Geron expects to recognize the collaboration’s $35 million upfront payment as license revenue after completing technology transfer, then expected by September 30, 2015.
At March 31, cash, cash equivalents, restricted cash and marketable securities totaled $163.8 million, versus $170.6 million at December 31, 2014. Total assets were $165.8 million, current liabilities $40.6 million, and stockholders’ equity $125.2 million. The balance sheet reports no debt. The current ratio was approximately 3.6x. Accumulated deficit was $937.7 million. Management estimated existing resources and future interest income would fund the current level of operations for at least 12 months; the company expected negative cash flow to continue.
No operating margin is presented as a key performance measure; the company reported an operating loss. Cash and cash equivalents alone fell to $10.2 million from $42.8 million, while marketable securities increased. The quarter’s $26.4 million investing cash outflow largely reflected securities purchases and maturities, rather than operating consumption.
Material changes and business developments
- Net loss increased about 10% year over year. Higher G&A costs, collaboration development costs and restructuring charges were partly offset by lower imetelstat manufacturing costs.
- G&A expense rose, primarily from stock compensation, legal fees related to shareholder litigation and business-development consulting. Management expected G&A expense to increase during the rest of 2015.
- In March, Geron announced a workforce reduction from 39 to 21 positions, about 46%. It estimated total restructuring charges of $1.75 million, cash expenditures of $1.38 million, and annualized personnel-cost savings of approximately $5 million. Most remaining charges were expected in Q2; completion was expected in 2015.
- Under the Janssen agreement, costs for the initial Phase 2 myelofibrosis and myelodysplastic syndrome studies are shared 50/50. Geron reported $0.63 million accrued for its share of Q1 collaboration costs.
- Geron described potential Janssen payments of up to $900 million in aggregate development, regulatory and sales milestones, in addition to royalties, subject to contractual conditions and successful development. If Janssen continues the program, Geron may elect U.S. cost-sharing rights, which would involve additional spending.
Outlook, risks and contingencies
- Management expected Janssen to initiate the Phase 2 myelofibrosis study in mid-2015 and the Phase 2 MDS study near year-end 2015. The myelofibrosis study was not yet open for enrollment at the time described. These were plans, not assured outcomes.
- Geron depends on Janssen to execute development, manufacturing, regulatory and commercialization activities for imetelstat. Janssen may terminate the agreement or decide not to continue; future milestones and royalties are uncertain, and Geron does not expect commercial availability for many years, if at all.
- Safety is a significant development risk. The filing describes liver-function abnormalities and potential hepatotoxicity, blood-cell toxicities, and deaths in prior or ongoing studies, including a death in the MF Pilot Study assessed by the investigator as possibly related to imetelstat. A renewed clinical hold or unacceptable safety findings could delay or stop development.
- Geron may need additional capital if operating needs rise, Janssen ends the collaboration, or Geron elects further development, U.S. cost-sharing or acquisitions. Financing may be unavailable or dilutive. The company’s at-the-market sales agreement, unused to date, was set to expire in October 2015 unless extended.
- Three securities lawsuits and a derivative suit remain a contingency. At an April 10, 2015 hearing, the court granted the motion to dismiss as to some alleged statements and denied it as to others. Geron had not recorded a reserve and could not estimate potential costs or damages; amounts could be material.
- Other uncertainties include manufacturing scale and cost, regulatory approvals, competition, patent protection, and the ability to acquire or license additional oncology programs. Management reported disclosure controls were effective at a reasonable-assurance level and no material change in internal control over financial reporting.
Most important facts for investors to verify
- Whether technology transfer was completed and the $35 million Janssen upfront payment was recognized as revenue as expected.
- Whether the planned Phase 2 MF and MDS studies began on schedule, and what subsequent efficacy and safety data—including liver and blood-cell toxicity findings—show.
- Whether operating cash use, restructuring costs and stated 12-month runway assumptions remain consistent with later filings.
- Janssen’s continuation decision, any milestone achievement, and whether Geron elects U.S. opt-in or co-promotion rights and the associated funding obligations.
- Developments in the securities and derivative lawsuits, including potential costs or liabilities not reserved in this filing.