Geron Corporation — 2014 Form 10-K
Reporting period: Fiscal year ended December 31, 2014; the filing also provides unaudited fourth-quarter results. Geron is a clinical-stage biopharmaceutical company whose sole product candidate is imetelstat, an investigational telomerase inhibitor for hematologic malignancies. The filing was signed March 11, 2015.
Financial performance and liquidity
| Metric | 2014 | 2013 |
|---|---|---|
| Revenue | $1.153 million | $1.283 million |
| Operating expenses | $37.465 million | $40.241 million |
| Operating loss | $36.312 million | $38.958 million |
| Net loss | $35.670 million | $38.379 million |
| Net loss per share, basic and diluted | $0.23 | $0.30 |
| Net cash from (used in) operating activities | $9.350 million | $(36.680) million |
| Cash, restricted cash, cash equivalents and marketable securities at year-end | $170.639 million | $66.019 million |
| Working capital at year-end | $111.607 million | $59.470 million |
Geron had no product revenue. The $35 million Janssen upfront payment was recorded as deferred revenue at year-end, not as 2014 revenue; the company expected to recognize it after completing technology-transfer activities, anticipated by September 30, 2015. The company reported an accumulated deficit of $928.4 million and estimated existing capital resources and future interest income would fund its then-current operating level for at least 12 months. It warned that spending could use resources sooner than expected.
Operating cash flow turned positive primarily because it included the $35 million upfront payment as deferred revenue. The company also raised approximately $96.8 million net from a February 2014 public offering of 25.875 million shares at $4 per share. Investing activities used $77.9 million, mainly reflecting purchases of marketable securities; financing activities provided $98.4 million, mainly from the offering. No material debt balance is reported; total current liabilities were $41.8 million, including the $35 million deferred-revenue balance. The filing reports no off-balance-sheet arrangements.
For fourth-quarter 2014, revenue was $178,000, operating expenses were $9.189 million, net loss was $8.947 million and basic and diluted loss per share was $0.06. Fourth-quarter 2013 revenue was $225,000 and net loss was $9.281 million.
Material changes and business developments
- Revenue declined about 10% in 2014, while net loss narrowed about 7%. Research and development expense fell to $20.7 million from $23.2 million, primarily reflecting prior program wind-downs and restructurings; higher imetelstat manufacturing costs partly offset the decline. General and administrative expense increased to $16.8 million from $15.6 million, including higher stock compensation, legal fees and Janssen transaction costs.
- The Janssen collaboration became effective December 15, 2014. Geron granted exclusive worldwide rights to develop and commercialize imetelstat; Janssen is responsible for development, manufacturing, regulatory approval and commercialization. The initial plan calls for two Phase 2 studies, in myelofibrosis (MF) and myelodysplastic syndrome (MDS), with costs shared 50/50. Geron expected initiation around mid-2015 for MF and late 2015 for MDS.
- In March 2014, FDA placed Geron’s imetelstat IND on full clinical hold over liver-safety concerns. FDA removed the hold on October 31, 2014 and stated the proposed development plan focused on high-risk myeloid malignancies was acceptable. Geron had stopped treatment in its sponsored ET and multiple-myeloma studies during the hold.
- Geron completed the distribution of its Asterias Series A shares to eligible stockholders in August 2014 following the 2013 divestiture of its stem-cell assets. It reported no remaining distribution obligations.
Outlook, risks and unusual items
- Collaboration economics: Janssen may make up to $900 million in development, regulatory and commercial milestone payments, plus royalties, subject to achievement and contract terms. After the MF Phase 2 primary analysis or a specified later event, Janssen must decide whether to continue. If it continues, Geron may opt in to U.S. development and promotion costs for higher potential milestones and royalties, or decline and receive the specified continuation and full-U.S.-rights payments with lower royalty tiers. These amounts are contingent, not assured revenue.
- Clinical outlook and safety: Preliminary MF Pilot Study results in 33 patients reported an overall response rate of 36.4% under study criteria, including four complete and three partial remissions; six of seven complete/partial responders remained in remission at the September 2014 data cutoff. The investigator reported myelosuppression as the principal dose-limiting toxicity. A possibly treatment-related intracranial hemorrhage with febrile neutropenia resulted in one death. Prior studies also raised liver-enzyme abnormalities and potential chronic liver-injury concerns. The filing cautions that the MF data are preliminary and may change with further follow-up and review.
- Dependence and funding: Geron depends heavily on Janssen for the future of its only product candidate and has no product revenue. A negative study result, safety concern, delayed development, or Janssen termination could eliminate potential milestones and royalties and require Geron to fund development or find another partner. Geron also noted possible future financing needs, including if it exercises U.S. opt-in rights or pursues acquisitions; equity financing could dilute shareholders.
- Post-year-end resizing: On March 3, 2015, Geron announced a planned workforce reduction from 39 to 21 positions, about 46%, following the collaboration. It expected approximately $1.9 million in restructuring charges, including about $1.5 million cash costs, mostly recognized in the first half of 2015.
- Litigation: Consolidated securities lawsuits and a separate derivative lawsuit allege, among other matters, inadequate disclosure of liver-safety information. The company said it could not estimate potential costs or damages and had not established a reserve. It also warned that legal costs and outcomes could be material.
- Other risks: Risks include clinical and regulatory uncertainty, manufacturing capacity and cost, competition, intellectual-property challenges, customer concentration, stock-price volatility and dependence on third-party suppliers. Geron said it did not expect imetelstat to be commercially available for many years, if at all. Auditors issued unqualified opinions on the financial statements and internal control over financial reporting; management and the auditor found controls effective as of year-end.
Most important facts for investors to verify
- Whether Janssen initiated the planned MF and MDS studies on the expected schedule, and what subsequent trial data show for efficacy and safety.
- Whether imetelstat’s liver-enzyme abnormalities and severe or persistent cytopenias prove manageable with the revised monitoring and dosing approach.
- When the $35 million upfront payment was recognized as revenue and how much cash Geron used after year-end, given the stated 12-month runway estimate.
- Janssen’s continuation decision, any opt-in election and the actual conditions, timing and costs attached to future milestone and royalty opportunities.
- The status and potential financial impact of the securities and derivative lawsuits, and the actual costs of the 2015 workforce reduction.