Geron Corporation — Q1 2016 Form 10-Q
Reporting period: Three months ended March 31, 2016; balance-sheet amounts are as of March 31, 2016 unless otherwise noted. Geron is a clinical-stage biopharmaceutical company whose sole product candidate, imetelstat, is exclusively licensed to Janssen for worldwide development and commercialization.
Financial results and liquidity
| Metric | Q1 2016 | Q1 2015 / comparator |
|---|---|---|
| Revenue | $749,000 | $537,000 |
| Research and development expense | $5.033 million | $4.987 million |
| General and administrative expense | $4.793 million | $4.600 million |
| Operating loss | $9.077 million | $9.456 million |
| Net loss | $8.842 million | $9.315 million |
| Basic and diluted loss per share | $0.06 | $0.06 |
| Net cash used in operating activities | $5.578 million | $7.705 million |
- Revenue comprised $463,000 in license fees and $286,000 in royalties; Geron reported no product revenue. Revenue rose from the prior-year quarter, primarily on higher hTERT research-license fees and licensee product sales.
- Cash, cash equivalents, restricted cash, and marketable securities totaled approximately $141.9 million, down from $146.7 million at December 31, 2015. Cash and cash equivalents alone were $12.8 million; marketable securities were $128.8 million, including current and noncurrent securities.
- Management estimated existing capital resources and future interest income would fund the current level of operations for at least 12 months. Geron expects negative cash flow and significant operating expenses to continue.
- Total assets were $143.1 million; stockholders’ equity was $136.5 million; current liabilities were $6.7 million. The filing reports no debt balance. No gross-margin measure is presented.
Changes and management commentary
- Net loss improved by about 5% year over year, while operating loss narrowed. Operating expenses declined overall because 2015 restructuring charges did not recur; R&D and G&A expenses increased slightly.
- R&D expense composition shifted materially: direct external costs rose to $3.969 million from $1.801 million, largely reflecting Geron’s 50% share of Janssen trial costs; personnel-related costs fell to $856,000 from $2.602 million, principally following the 2015 workforce reduction.
- Operating cash use declined year over year, reflecting reduced manufacturing and personnel costs, partly offset by Janssen cost-sharing payments. Investing cash use was $3.694 million, versus $26.386 million in Q1 2015. Financing provided $826,000, versus $1.477 million.
- Geron expects direct external R&D expense to increase as imetelstat development progresses; lower personnel costs are expected to partly offset this. Management expected G&A expense to remain consistent through the rest of 2016.
- Janssen was conducting Phase 2 IMbark in myelofibrosis and Phase 2/3 IMerge in myelodysplastic syndromes. Geron expected an IMbark data cut in the second half of 2017, subject to enrollment and other factors. Janssen controls operational execution; Geron shares 50% of costs for these two trials.
Outlook, risks, and unusual items
- Geron’s future milestone and royalty revenue depends on clinical, regulatory, and commercial success of imetelstat. The company disclosed potential collaboration milestone payments of up to $900 million in aggregate, subject to contractual conditions and alternative opt-in arrangements; no future payment is assured. Imetelstat was not expected to be commercially available for many years, if at all.
- Following a qualifying Janssen continuation decision, Geron may elect to share additional U.S. development and promotion costs in exchange for higher potential milestones and royalties. If Janssen does not continue, or terminates the agreement, Geron could lose future collaboration payments and face substantial funding needs to continue development.
- Key clinical risks include uncertain efficacy and safety, including prior liver-function abnormalities, cytopenias, and a reported patient death assessed by an investigator as possibly related to imetelstat in the myelofibrosis pilot study. Further clinical holds, negative results, or delays could disrupt development.
- Geron disclosed pending securities class-action and derivative lawsuits concerning historical statements about imetelstat trials and liver-function abnormalities. Derivative proceedings were stayed; the company said it could not estimate potential costs or damages and had recorded no reserve.
- The March 2015 restructuring was completed in 2015. No new restructuring charge was recorded in Q1 2016; $35,000 remained accrued at quarter-end.
- Geron reported effective disclosure controls at quarter-end. It migrated its financial processing and reporting system to Microsoft Dynamics GP in January 2016, materially changing internal-control processes; operating effectiveness of the modified controls was to be evaluated by December 31, 2016.
- The company had a $50 million at-the-market sales agreement but had made no sales under it as of the filing. It also described a $250 million shelf registration capacity. Future equity financing could dilute shareholders; the company had no source of product revenue and no assurance of future milestone payments or royalties.
Investor facts to verify
- Progress, enrollment, safety findings, and timing of data from IMbark and IMerge, including any change to the anticipated IMbark data timing.
- Janssen’s continuation decision and the resulting terms, timing, and funding implications for Geron’s U.S. opt-in choices.
- Cash burn and the composition and liquidity of marketable securities, particularly if development costs rise or Geron pursues acquisitions or in-licensing.
- Developments in the securities and derivative litigation, including any change in estimated exposure or reserve status.
- Operating effectiveness of controls following the finance-system migration and any subsequent findings.