Geron Corporation — Q2 2011 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2011. Geron is a clinical-stage biotechnology company developing oncology drugs and human embryonic stem-cell therapies; it reported no product revenue and remained dependent on licensing, royalties and collaboration revenue.
Financial performance
Amounts below are in millions of dollars, except per-share data. “Q2” is the three months ended June 30; “H1” is the six months ended June 30.
| Metric | Q2 2011 | Q2 2010 | H1 2011 | H1 2010 |
|---|---|---|---|---|
| Total revenue | $0.462 | $1.001 | $1.967 | $1.919 |
| Research and development expense | $16.544 | $13.389 | $33.299 | $26.934 |
| General and administrative expense | $5.334 | $4.488 | $14.440 | $8.338 |
| Net loss | $21.088 | $17.031 | $45.477 | $33.671 |
| Basic and diluted net loss per share | $(0.17) | $(0.18) | $(0.37) | $(0.35) |
| Cash used in operating activities | — | $26.752 | $19.171 |
Cash, cash equivalents, restricted cash and marketable securities totaled $192.2 million at June 30, 2011, down from $221.3 million at December 31, 2010. Current assets were $157.2 million and current liabilities $9.3 million; stockholders’ equity was $191.1 million. The balance sheet reported no conventional borrowings at June 30; approximately $0.5 million remained available under the equipment financing facility. Gross margin is not presented and is not a meaningful standalone measure for this development-stage business.
Material changes and operating drivers
- Q2 revenue fell 54% year over year, mainly reflecting lower license and royalty revenue; H1 revenue was slightly higher overall. H1 royalties were $0.758 million versus $0.562 million, while Q2 royalties were $0.065 million versus $0.474 million.
- H1 R&D expense rose 24%, primarily from clinical-trial start-up and enrollment for four Phase 2 imetelstat studies and the Phase 1 GRNOPC1 study, as well as drug-product and manufacturing costs for imetelstat and GRN1005.
- H1 G&A expense rose substantially, in part due to $3.5 million of noncash stock compensation associated with former CEO Thomas Okarma’s separation agreement, plus higher legal and consulting costs.
- Operating cash use increased by $7.6 million year over year. H1 financing cash inflow was $0.3 million, versus $10.2 million in 2010, which included a warrant exchange and related stock sale.
Outlook, commentary and risks
- Management estimated existing resources, interest income, expected CIRM loan proceeds and equipment-facility availability would fund operations at the then-current level through at least December 2012. This estimate is subject to development spending, trial outcomes and other changes; the company expected future losses and negative cash flow.
- R&D spending was expected to increase with clinical development, including planned Phase 2 GRN1005 trials in brain metastases in the second half of 2011 and glioblastoma in 2012. Imetelstat Phase 2 trials were open for enrollment; GRNOPC1’s Phase 1 spinal-cord-injury trial was ongoing.
- Effective August 1, 2011, after quarter-end, Geron entered a CIRM loan agreement providing for up to $24.85 million over three years, subject to a disbursement schedule and, in certain cases, milestones. Proceeds are restricted to GRNOPC1 development. Interest is one-year LIBOR plus 2%; repayment is generally due at the end of the initial five-year term, and warrants are issued with disbursements. Future funding is not assured if milestones are not met.
- Key risks include clinical, manufacturing and regulatory uncertainty; need for additional capital; dependence on collaborators and third-party manufacturers; patent disputes; and legal, political and funding risks affecting embryonic stem-cell research. Geron disclosed ongoing patent proceedings, while the cited securities and derivative lawsuits had been dismissed without prejudice. No legal proceedings were reported in the filing’s legal-proceedings item.
- The filing gave no earnings or revenue guidance. Management cautioned that interim results may not predict full-year results and that therapeutic-product revenue may be years away, if it occurs at all.
Most important facts for investors to verify
- Whether clinical enrollment, safety findings and milestones support progress in the imetelstat, GRNOPC1 and GRN1005 programs.
- Actual cash burn and remaining liquidity relative to management’s December 2012 runway estimate, including the timing and milestone conditions on CIRM disbursements.
- Potential dilution from equity compensation, existing share reservations and warrants to be issued to CIRM; weighted-average shares for Q2 increased to 124.6 million from 96.7 million a year earlier.
- Whether development and manufacturing costs rise faster than available funding, and whether additional financing or collaborations become necessary.
- Developments in material patent disputes and regulatory or policy changes affecting stem-cell research and commercialization.