Geron Corporation (GERN) — FY 2013 Form 10-K
Reporting period: Fiscal year ended December 31, 2013. The filing also reports unaudited fourth-quarter results and significant subsequent events through March 2014. Geron is a clinical-stage biotechnology company with no products available for sale; its sole product candidate is imetelstat, a telomerase inhibitor.
Financial results and liquidity
| Metric | FY 2013 | FY 2012 |
|---|---|---|
| Revenue | $1.283 million | $2.709 million |
| Research and development expense | $23.155 million | $51.368 million |
| General and administrative expense | $15.624 million | $20.397 million |
| Operating loss | $38.958 million | $71.758 million |
| Net loss | $38.379 million | $68.881 million |
| Net loss per share | $0.30 | $0.54 |
| Cash, restricted cash, cash equivalents and marketable securities at year-end | $66.019 million | $96.329 million |
| Working capital at year-end | $59.470 million | $84.269 million |
Revenue was primarily license fees and royalties; there was no collaborative-agreement revenue in 2013. Revenue fell as certain licensing revenue streams declined or transferred with the stem-cell asset divestiture. Lower operating expenses—especially R&D—contributed to the narrower loss. Operating and net margins are not meaningful indicators for this pre-commercial, loss-making business.
Net cash used in operations was $36.680 million, versus $55.146 million in 2012. Cash and marketable securities declined by $30.310 million during 2013. The company reported no outstanding long-term debt at year-end; its equipment financing facility had approximately $500,000 available and no balance due. Contractual cash obligations disclosed for year-end totaled $1.130 million, before the subsequent lease extension.
Fourth quarter: Revenue was $225,000, operating expenses were $9.500 million, net loss was $9.281 million, and loss per share was $0.07. In fourth-quarter 2012, revenue was $689,000, operating expenses were $19.173 million, net loss was $15.863 million, and loss per share was $0.12. Fourth-quarter 2013 expenses included approximately $430,000 of research-lab closure restructuring charges.
Material changes and subsequent events
- R&D expense declined 55% year over year, primarily reflecting discontinued or wound-down programs, lower manufacturing and clinical-trial costs, and restructuring-related staff reductions.
- In October 2013, Geron transferred its human embryonic stem-cell assets and autologous cellular immunotherapy program to Asterias in exchange for 6.54 million Asterias Series A shares. Geron planned to distribute those shares to its stockholders, subject to registration and other conditions; the distribution was not completed as of the filing.
- In February 2014, Geron raised approximately $96.7 million net by selling 25.875 million common shares at $4.00 per share. Management estimated that year-end resources, offering proceeds, available equipment financing and interest income would fund its then-current operating level for at least 12 months. This estimate is subject to development plans and spending changes.
- After year-end, Geron amended its headquarters lease through January 2016; the amendment included $1.382 million in future minimum payments for the extended term.
Outlook, clinical program and key risks
- In March 2014, the FDA placed Geron’s imetelstat Investigational New Drug application on full clinical hold over hepatotoxicity concerns, citing uncertainty about reversibility, potential chronic liver injury and inadequate follow-up for patients with liver-function-test abnormalities. Geron stopped treatment in its sponsored Phase 2 trials in essential thrombocythemia (eight affected patients) and multiple myeloma (two affected patients). New U.S. trials under the IND cannot begin while the hold remains; the planned Phase 2 myelofibrosis trial was delayed indefinitely.
- Geron said it would submit clinical follow-up and animal data addressing liver-toxicity reversibility and work with the FDA toward release of the hold. If the hold is lifted or partially lifted, management intended to focus on indications including myelofibrosis, MDS or AML. The filing provides no assurance that the FDA will lift the hold or permit further development.
- Preliminary Mayo Clinic investigator-sponsored myelofibrosis data for the first 22 patients showed an overall response rate of 40.9% under the trial’s criteria, including 22.7% with complete or partial remission. These results were early, from a small, uncontrolled study, and subject to verification and further follow-up. In safety data for 33 patients, Grade 3/4 thrombocytopenia occurred in 30% and Grade 3/4 neutropenia in 21%; one death following febrile neutropenia and intracranial hemorrhage was assessed by the investigator as possibly related to imetelstat. The IST stopped enrolling new patients in January 2014; the filing said the investigator did not attribute that decision to efficacy or safety concerns.
- Management expected R&D expense to increase in 2014 if the FDA hold were lifted and development could advance. Geron has a history of operating losses, an accumulated deficit of $892.8 million, and expects continued losses; it may need additional capital. Funding access could be impaired by the clinical hold or unfavorable trial results.
- Other material risks include imetelstat’s liver and blood-cell toxicities, reliance on one unapproved candidate, uncertain clinical efficacy and regulatory timing, third-party manufacturing and supply, competition, patent protection, and potential dilution from future financing. A purported securities class action filed in March 2014 alleges misleading disclosures concerning liver-test abnormalities; Geron said it would defend the case and had not recorded a reserve because potential costs were not estimable.
- The Asterias distribution remained conditional and uncertain. The filing warns of potential tax consequences, limited liquidity or value in Asterias securities, and possible litigation relating to the divestiture.
Most important facts for investors to verify
- Whether and on what terms the FDA lifts or modifies the full clinical hold, and what additional liver-safety evidence or studies are required.
- Updated, independently verifiable safety and efficacy results from the myelofibrosis IST, including liver-function follow-up, response durability and serious adverse events.
- Post-offering cash balance and actual cash burn compared with management’s at-least-12-month runway estimate, particularly if development resumes.
- Whether the Asterias share distribution is completed, its timing and tax treatment, and the resulting value and liquidity for Geron stockholders.
- Developments in the securities litigation, including any changes to potential exposure or legal costs.