Geron Corporation — Q3 2014 Form 10-Q
Reporting period: Three and nine months ended September 30, 2014. Financial statements are unaudited. Geron is a clinical-stage biopharmaceutical company whose sole product candidate is imetelstat; it had no product sales. Unless noted otherwise, financial figures below are in millions of dollars.
Financial performance and liquidity
| Metric | Q3 2014 | Q3 2013 | Nine months 2014 | Nine months 2013 |
|---|---|---|---|---|
| Revenue | $0.160 | $0.181 | $0.975 | $1.058 |
| Research and development | $5.994 | $5.338 | $16.356 | $18.066 |
| General and administrative | $4.073 | $3.460 | $11.920 | $11.643 |
| Operating loss | $(9.907) | $(8.733) | $(27.301) | $(29.683) |
| Net loss | $(9.549) | $(8.254) | $(26.723) | $(29.098) |
| Net loss per share | $(0.06) | $(0.06) | $(0.18) | $(0.23) |
- Revenue consisted of license fees and royalties. Nine-month license revenue was $0.635 million, down from $0.782 million; royalties were $0.340 million, up from $0.276 million, partly reflecting a licensee sales milestone.
- Margins are not a meaningful operating measure because Geron had no product revenue and reported only modest licensing and royalty revenue.
- At September 30, cash and cash equivalents were $7.6 million, restricted cash $0.265 million, and marketable securities $134.602 million, totaling approximately $142.5 million. Current assets were $128.2 million; current liabilities were $7.1 million; stockholders’ equity was $137.2 million. No debt balance is reported in the balance sheet.
- Net cash used in operations for the first nine months was $19.1 million, versus $29.9 million in 2013. Cash and cash equivalents decreased by $5.4 million to $7.6 million; the much larger securities balance reflects investment of financing proceeds. Financing activities provided $97.8 million, principally from the February 2014 equity offering.
- Geron raised approximately $96.8 million net by selling 25.875 million shares at $4.00 per share. Shares outstanding were 157.2 million at October 31, 2014.
Changes versus the prior comparable period
- Q3 net loss widened to $9.5 million from $8.3 million, as higher R&D spending—particularly imetelstat manufacturing—and increased stock-based compensation outweighed other income differences. Nine-month net loss narrowed to $26.7 million from $29.1 million, mainly due to lower costs following discontinued programs, prior restructurings, and the stem-cell asset divestiture.
- Q3 R&D expense increased 12%; nine-month R&D expense decreased 9%. Management attributed the nine-month reduction to winding down other trials, reduced personnel and research overhead, partly offset by imetelstat manufacturing costs.
- Q3 G&A expense rose to $4.1 million from $3.5 million; nine-month G&A increased modestly. Higher non-cash compensation and legal costs contributed.
- Interest and other income was lower year over year in Q3 because 2013 included a $0.652 million gain on laboratory equipment sales. The 2014 public offering increased the investment portfolio and interest income.
- Geron completed the distribution of its Asterias Series A shares to eligible stockholders on August 15, 2014 and reported no remaining distribution obligations.
Outlook, developments and risks
- Management estimated existing capital resources and future interest income would fund the current level of operations for at least 12 months from the filing. It also expected negative cash flow to continue and R&D expense to increase as imetelstat development advances. Future capital needs depend on development progress, trial scope, manufacturing costs, regulatory requirements and litigation expenses; additional financing may be needed.
- On October 31, 2014, after quarter-end, the FDA removed the full clinical hold on Geron’s imetelstat IND and accepted the proposed development focus on high-risk myeloid malignancies. Geron projected starting a company-sponsored Phase 2 myelofibrosis trial in the first half of 2015. This is a subsequent event, not a development completed during Q3.
- Geron assumed sponsorship of the Mayo Clinic MF Pilot Study in September. As of October 15, 23 of 80 enrolled patients remained on treatment; no further enrollment was planned. Study findings were investigator-reported and had not been independently reviewed or analyzed by Geron.
- Safety remains a major risk. Earlier FDA holds followed concerns about liver toxicity and reversibility. The filing also describes myelosuppression, including a fatal intracranial hemorrhage following prolonged myelosuppression in the MF Pilot Study, assessed by the investigator as possibly related to imetelstat. The FDA could impose another hold if safety concerns arise.
- Three securities-related lawsuits and a stockholder derivative lawsuit were pending over alleged disclosures concerning liver-function abnormalities and imetelstat. Geron intended to defend them, could not estimate potential costs or damages, and had recorded no reserve. Legal expenses were expected to increase.
- Geron disclosed substantial development, financing, manufacturing, regulatory, intellectual-property, competition and commercialization risks. Imetelstat is its sole candidate, remains investigational, and may not be approved or generate revenue. No formal earnings guidance was provided.
Important facts for investors to verify
- Whether the FDA’s clinical-hold removal leads to timely authorization and launch of the planned MF trial, and whether any new safety restrictions arise.
- Updated, independently reviewed MF Pilot Study efficacy and safety data, including the status of ongoing patients and interpretation of serious adverse events.
- Actual cash burn and runway as trial and manufacturing spending increases; management’s runway estimate assumes the current level of operations.
- Potential dilution and financing needs following the 2014 share offering, alongside the company’s lack of product revenue.
- Progress and potential exposure in the securities and derivative lawsuits; the filing provides no estimable loss range or reserve.
- Whether imetelstat manufacturing can meet clinical supply, quality and cost requirements for expanded trials.