Geron Corporation — Q2 2017 Form 10-Q
Reporting period: Three and six months ended June 30, 2017; unaudited. Geron is a clinical-stage oncology biopharmaceutical company whose sole supported clinical program, imetelstat, is licensed exclusively worldwide to Janssen.
Financial performance and position
| Metric | Q2 2017 | Q2 2016 | Six months 2017 | Six months 2016 |
|---|---|---|---|---|
| Revenue | $174,000 | $211,000 | $711,000 | $960,000 |
| Research and development expense | $2.5 million | $4.6 million | $5.9 million | $9.6 million |
| General and administrative expense | $4.4 million | $4.5 million | $9.1 million | $9.3 million |
| Operating loss | $6.7 million | $8.9 million | $14.2 million | $18.0 million |
| Net loss | $6.4 million | $8.6 million | $13.6 million | $17.5 million |
| Net loss per share | $0.04 | $0.05 | $0.09 | $0.11 |
Lower R&D spending, primarily reflecting reduced Janssen clinical-development cost share and personnel expense, drove most of the improvement in operating and net losses. Revenue fell, reflecting lower hTERT research-license fees and royalties on licensees’ sales. Geron has no product revenue; product margins are therefore not meaningful.
At June 30, 2017, cash, cash equivalents, restricted cash and marketable securities totaled approximately $117.2 million, versus $129.1 million at December 31, 2016. Total assets were $124.3 million; current liabilities were $11.3 million; stockholders’ equity was $113.0 million; accumulated deficit was $971.5 million. The filing reports no debt balance.
Six-month operating cash use was $11.7 million, compared with $11.2 million in 2016. Investing activities provided $5.5 million, mainly reflecting maturities exceeding purchases of securities; financing provided $37,000. Cash and cash equivalents ended the period at $6.6 million. Management said existing resources and interest income were expected to fund the current operating level for at least 12 months, while warning that spending or business-development activity could use resources sooner.
Clinical program, changes and outlook
- IMbark, myelofibrosis: Following an April 2017 review of about 100 enrolled patients, Janssen closed the 4.7 mg/kg arm and enrollment to the 9.4 mg/kg arm remained suspended. The review found no new safety signals and supported 9.4 mg/kg as a starting dose; observed activity included spleen and symptom measures and blood-count improvements. Spleen response was below rates reported for some front-line treatments. Median overall survival had not been reached in either arm. In July, the primary analysis was set to begin upon the earlier of a prespecified number of deaths or the end of Q3 2018; timing and the potential survival benefit remain uncertain.
- IMerge, lower-risk MDS: In a 13-patient subset of Part 1, more than 8-week red-blood-cell transfusion independence was 53.8%, versus 34.4% in the overall Part 1 population. These are preliminary subset data, not a controlled comparison. The joint steering committee chose to expand Part 1 by about 20 patients in a refined population; enrollment was expected to start in Q4 2017, subject to regulatory and site approvals. Janssen had not committed to begin Part 2.
- Geron and Janssen share IMbark and IMerge development costs 50/50. Janssen controls development, manufacturing, regulatory submissions and commercialization, and may terminate the collaboration. Following an affirmative continuation decision, Geron may opt in to share further U.S. costs for a $65 million continuation fee and potentially higher milestone and royalty economics; alternatively, if it does not opt in, the agreement provides for a $70 million U.S. rights fee. These payments are contingent, not current revenue.
- Management expects ongoing negative cash flow and future operating losses. It also plans to pursue acquisitions or in-licensing to diversify, which could require additional capital. No reliable estimate of the time or investment needed to commercialize imetelstat was provided; approval is not assured and is not expected for many years, if at all.
Risks, contingencies and unusual items
- Clinical and partner dependence: Further delay, inadequate efficacy—particularly survival benefit in IMbark—safety concerns, regulatory action, or Janssen’s discontinuation or termination could eliminate milestone and royalty prospects and leave Geron facing substantial development costs. Reported imetelstat risks include cytopenias, bleeding and liver-function-test abnormalities; prior studies included a possibly treatment-related patient death.
- Liquidity and financing: Cash needs depend on trial costs, Janssen’s decisions, any opt-in or independent development, and acquisition plans. Additional equity or other financing may be unavailable or dilutive. Geron said its $50 million at-the-market sales agreement had not been used as of the filing.
- Litigation settlement: The company recorded a $6.25 million settlement payable and a $6.0 million insurance recovery asset. The court granted final approval on July 21, 2017, after quarter-end; Geron’s stated share was $250,000. Five shareholders opted out, and the company noted possible additional litigation risks.
- Other items: On August 3, 2017, Sienna Cancer Diagnostics listed publicly in Australia. Geron’s 13.8 million Sienna shares had a zero cost basis and were subject to a 24-month trading restriction, so no readily determinable fair value was reported. Management said disclosure controls were effective at a reasonable-assurance level and there were no material changes in internal controls during the quarter.
Important facts for investors to verify
- Updates to IMbark survival data, the timing and outcome of its primary analysis, and Janssen’s continuation decision.
- Regulatory clearance, enrollment progress and results for the expanded IMerge Part 1, and whether Janssen commits to Part 2.
- Quarterly cash burn, remaining liquid resources, and any actual financing or acquisition/in-licensing transactions.
- Whether the securities settlement was fully distributed and whether any claims by opt-outs or other parties arise.
- Future hTERT license revenue as related patents approach expiration, including the company’s expectation that this revenue will be eliminated by the end of 2019.