Geron Corporation — Q3 2015 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2015. Geron is a clinical-stage biotechnology company focused on imetelstat; it reported no product sales.
Financial results and liquidity
| Metric | Q3 2015 | Q3 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| Revenue | $35.36 million | $0.16 million | $36.15 million | $0.98 million |
| Operating expenses | $8.34 million | $10.07 million | $28.07 million | $28.28 million |
| Operating income (loss) | $27.02 million | ($9.91 million) | $8.09 million | ($27.30 million) |
| Net income (loss) | $27.19 million | ($9.55 million) | $8.51 million | ($26.72 million) |
| Basic and diluted EPS | $0.17 | ($0.06) | $0.05 | ($0.18) |
- Q3 revenue included recognition of the entire $35 million Janssen upfront payment, previously deferred, after Geron completed specified technology-transfer activities. The resulting profit is unusual and does not reflect recurring product revenue; Geron said it expected continued operating losses.
- License fees and royalties totaled $363,000 in Q3 and $1.15 million for nine months. Nine-month royalty revenue rose to $554,000 from $340,000 a year earlier; license-fee revenue was $597,000 versus $635,000.
- R&D expense declined 32% in Q3 to $4.05 million and 15% for nine months to $13.85 million, mainly due to lower manufacturing and personnel costs, partly offset by Janssen collaboration costs. G&A increased to $4.33 million in Q3 and $12.91 million for nine months, primarily reflecting stock compensation and patent-related legal costs.
- Q3 operating margin was approximately 76%, substantially driven by the one-time upfront-payment revenue. No meaningful recurring-product margin is reported.
- Cash and cash equivalents were $16.82 million; marketable securities totaled $134.68 million and restricted cash was $0.27 million. Combined, these resources were approximately $151.8 million, down from $170.6 million at December 31, 2014. Current assets were $122.02 million and current liabilities $6.13 million. No debt is reported on the balance sheet.
- Net cash used in operating activities was $18.95 million for nine months, versus $19.13 million in 2014. Cash and cash equivalents fell by $25.97 million during the period. Financing provided $1.77 million, versus $97.83 million in 2014, which included a public stock offering.
- Accumulated deficit was $919.9 million. Geron estimated existing capital resources and future interest income would fund its current operating level for at least 12 months, while cautioning that resources could be used sooner.
Material developments and outlook
- Janssen holds exclusive worldwide development and commercialization rights to imetelstat and is responsible for its development, manufacturing and commercialization. Geron and Janssen share costs for the initial IMbark myelofibrosis study and IMerge myelodysplastic-syndromes study 50/50.
- IMbark opened to enrollment in July 2015 and its first patient was dosed in September. Geron expected IMerge to open for enrollment by year-end 2015. The FDA granted imetelstat orphan-drug designation for myelofibrosis in June; designation does not constitute approval or ensure exclusivity.
- Geron’s March workforce resizing, from 39 to 21 positions, was substantially complete. The company recorded approximately $1.3 million in net restructuring charges and expected annualized personnel-cost reductions of about $5 million. It estimated total cash restructuring costs of $999,000, with $921,000 paid by quarter-end.
- Geron expected R&D spending to increase as collaborative development advanced, partly offset by lower personnel costs; it expected G&A expense to remain broadly consistent during the remainder of 2015. It provided no reliable estimate of the time or investment needed to commercialize imetelstat and said approval could be many years away, if achieved.
- Potential Janssen payments include up to $900 million in development, regulatory and sales milestones, plus royalties, subject to development and commercial success. Depending on Janssen’s continuation decision, Geron may choose to share further U.S. costs in exchange for enhanced economics, or retain lower-tier royalties without opting in.
- Geron established an at-the-market sales agreement permitting up to $50 million of stock sales; none had occurred by September 30. The company also had a $250 million shelf registration statement. Future equity financing could dilute shareholders.
Risks, contingencies and unusual items
- Imetelstat is Geron’s sole product candidate, and future milestone and royalty revenue depends heavily on Janssen’s continued development and the drug’s clinical, regulatory and commercial success. Janssen may terminate the agreement or decide not to continue development.
- Safety remains a significant risk. The filing discusses liver-function abnormalities and potential hepatotoxicity in prior studies, as well as profound myelosuppression; one MF Pilot Study patient experienced intracranial hemorrhage and died after prolonged myelosuppression, assessed by the investigator as possibly related to imetelstat. Further safety concerns could delay or halt trials or lead to clinical holds.
- Three securities lawsuits and four derivative lawsuits relate to alleged disclosures concerning liver-test abnormalities and imetelstat. Some claims survived a motion to dismiss; derivative proceedings were stayed. Geron said it could not estimate potential costs and had recorded no reserve. Any exposure could be material.
- The company extended its office lease through January 2018, with approximately $1.32 million in future minimum payments. It reported no material off-balance-sheet arrangements.
Most important facts for investors to verify
- Whether IMbark and IMerge progress on schedule and whether Janssen reports clinically meaningful efficacy and acceptable safety, especially regarding liver toxicity and myelosuppression.
- Geron’s cash, securities and operating cash burn in subsequent filings, and whether the stated minimum 12-month funding outlook remains supportable.
- Whether Janssen makes a continuation decision and how Geron’s U.S. opt-in decision could change costs, financing needs and potential milestone and royalty economics.
- Progress and potential outcomes of the securities and derivative litigation, including any changes to estimated exposure or reserves.
- Any ATM stock sales, other financings or acquisitions that could affect liquidity and shareholder dilution.