3 Reasons Geron Corporation Stock Could Rise

[Fishermangents]

Tiny biotech Geron Corporation could see big gains from its collaboration with Johnson & Johnson.
by Cory Renauer, MottleyFool, 8 march 2016

Developing and commercializing new cancer therapies is difficult for any organization. For a company as small Geron Corporation (NASDAQ: GERN), it's nearly impossible. Investors nearly lost all hope a couple of years back, when the FDA put its sole candidate, imetelstat, on hold. Just days after the agency allowed trials to continue, Johnson & Johnson (NYSE: JNJ) recognized an opportunity and inked a collaboration deal with Geron. Now that Johnson & Johnson's pharmaceutical arm is ready to help with the heavy lifting, first-in-class telomerase inhibitor imetelstat has a chance to go all the way. Let's look at a few upcoming developments that could help Geron's stock rise.

1. IMbark
In addition to giving Geron $35 million upfront for rights to imetelstat, it also agreed to split costs of two initial studies. Furthest along is the phase 2 IMbark trial involving myelofibrosis patients with disease progression following treatment with JAK inhibitors. A rare blood cancer, myelofibrosis currently affects roughly 13,000 patients in the U.S., and about 3,000 more are diagnosed each year. The prevalence is low enough that the drug has been given an orphan designation, which, in addition to other perks, can lead to partial reimbursement of associated R&D expenses. This gives J&J a relatively inexpensive shot at developing a first-in-class therapy that should stand out from Incyte's JAK inhibitor Jakafi.
Jakafi won approval to treat myelofibrosis in late 2011 and by 2014 generated annual U.S. sales of $358 million from that indication alone, despite its limited population size. In late 2014, Jakafi's label expanded to include the larger polycythemia vera population, and its annual sales rose to $601 million last year.
Geron and J&J began treating patients last September in an open-label study with two imetelstat dosage arms. Success here probably wouldn't be enough to file an application, but it could do wonders for Geron's stock, and soon. In the second half of the year, then again in 2017, J&J is expected to check in on how things are going. If at least one of the dosage arms shows acceptable levels of safety and efficacy, J&J probably will probably take the drug through phase 3 and into commercial stages, triggering some hefty milestone payments for Geron.

2. IMerge
Also in partnership with J&J's Janssen subsidiary, Geron has started a two-part phase 2/3 study named IMerge to investigate imetelstat in patients with myelodysplastic disorders. This is an umbrella term for a diverse group of conditions in which bone marrow fails to produce enough healthy blood cells. Current treatment options involve blood transfusions and erythropoiesis-stimulating agents such as Amgen's Epogen and Aranesp, and J&J's Procrit, all of which all carry black-box warnings, the FDA's most severe.
The IMerge trial will test imetelstat in patients who no longer respond adequately to erythropoiesis-stimulating agents. Because myelodysplastic disorders arise from a myriad of issues, it's difficult to predict peak sales for a first-in-class drug such as imetelstat in this diverse population. Combined, Amgen's Epogen and Aranesp racked up $3.8 billion last year, so there's clearly demand. A win in the clinic here would certainly do wonders for Geron's stock. We'll have a clearer picture of imetelstat's future in this indication soon enough. The partners plan on an internal review in the second half of the year. If the data is promising, they'll continue with a phase 3 trial beginning next year.

3. Continued prudence
Johnson & Johnson's deal was heavily back-loaded, paying just $35 million upfront. If data from the IMbark or IMerge trials inspire J&J to continue the collaboration, the lion's share of the deal's potential value comes into play. Geron even has the option to pick up 20% of development and commercialization costs for a larger cut of potential sales. With just 19 employees, Geron ought to be able to keep the lights on with the $114 million in cash and short term investments it had on the books at the end of last year while J&J decides if it will take its partnership into the "continuation stage" or walk away. If J&J walks away, it would be devastating but hardly a total loss for shareholders, as the stock has recently been trading at just over three times its book value. The $35 million received upfront from J&J was recognized last year, and the company posted its first ever profit. It was just $46,000, but a profit nonetheless. With such a slow cash burn rate, if operations suddenly ceased mid-year, investors probably wouldn't suffer a total loss.

With the company's market cap at just $482.6 million, investors opening positions now face a compelling risk-to-reward ratio if J&J can file a new drug application for imetelstat, even if the drug flops in the market. If it succeeds, the gains would be tremendous. However, if data thrown off from the IMbark or IMerge trials boosts the stock, I'm worried the company will get ahead of itself and raise equity to acquire another candidate. Beyond imetelstat, it has nothing in the pipe. Instead, what I'd like to see is for Geron to stay patient, let the J&J collaboration play out, and then increase its pipeline with positive cash flows, not equity. The temptation to raise equity will be hard to resist if the price spikes. However, remaining prudent will allow shareholders a larger slice of profits and increase the stock price over the long run.

link: http://www.fool.com/investing/general/2 ... -rise.aspx

[sargasso]

There appears to be considerable concern on the Yahoo GERN message board that GERN will make a premature purchase of an early development biotech company resulting in significant dilution of GERN. The CEO is in the habit of speaking of this possibility rather often.

This worry is repeated in the article you posted:

“I'm worried the company will get ahead of itself and raise equity to acquire another candidate. Beyond imetelstat, it has nothing in the pipe. Instead, what I'd like to see is for Geron to stay patient, let the J&J collaboration play out, and then increase its pipeline with positive cash flows, not equity. The temptation to raise equity will be hard to resist if the price spikes. However, remaining prudent will allow shareholders a larger slice of profits and increase the stock price over the long run.”

As a GERN shareholder do you share this concern?

I am long GERN and believe the stock has great potential. I am concerned, however, about the above possibility and wonder if it’s not creating considerable doubt and confusion among GERN shareholders and potential shareholders.

I do not post on the Yahoo GERN board as I find that board of limited value. Thanks for providing this board.

[Fishermangents]

Hi Sargasso, thanks for your excellent post. On the YMB this potential 'acquisition' is being used by many to create more uncertainty then is actually justified. Over 30 mln shares shorted represent a significant interest to keep pps low. So I am taking many of the concerns outed there with a lots of grains of salt.

The future of a company is built on uncertainties, that includes Geron's. My take on a potential acquisition is as follows:
- I think there are some clever people managing Geron and at JnJ, so any decision on diversification will be one that is taken with a lot of considerations and caution. In addition, they know more about imetelstat and what is needed to develop its potential than any of us or the competition does.
- There are many ways to diversify. At can be an acquisition, merger, partnership, inlicensing etc. So I take the term 'acquisition' broader than just buying a company.
- the article rightfully makes a difference between financing with equity or with cash from operations. If it is with cash there will be no dilution, so less risk for pps. Geron still has a lot of cash and will finance new trials with the cash coming from the JnJ agreement. This low pps is another reason to believe that an equity transaction is not the most likely.
- A CEO of a one compound drug company must think about long term growth and sustainability of the firm. That includes the possibility of an acquisition and certainly should not exclude it. It can also negatively influence the public debate if Dr. Scarlet would not mention this at all, thus encouraging uncertainty with people who see Geron as a one trick pony.
- in my opinion diversification can be interpreted in different ways. It can mean setting up a new line of oncology drugs in parallel of imetelstat, but it can also mean 'acquiring' technologies that are synergistic with the development of imetelstat as a platform drug. Dr. Scarlet said repeatedly that making imetelstat successful stays his first priority. That makes me believe that diversification in his view could very well mean strengthening the further clinical and commercial development of imetelstat as a platform drug. I think that would be a good thing.

Bottom line: I am confident that making imetelstat successful is Geron's first priority. If successful, a large free cash flow will emerge because of low burn rate. This cash flow can partly be used to acquire/develop/in-license means to broaden and accelerate the development of imetelstat as a platform drug.

As I said, the future is built on uncertainty, so I can easily be completely wrong. However, as long as it is confirmed by Geron and JnJ that 'continuing clinical data indicate broad and transformative potential of imetelstat' and that imetelstat remains Geron's priority, I remain confident about Dr.Scarlet's approach on expanding Geron's business.

I know there are people on this board with excellent views. I am most interested in hearing their opinions as well.

[sargasso]

Thanks for your thoughtful reply. I appreciate your insight. I hold a substantial position in GERN. I believe Geron has developed an important cancer drug, that the drug will be approved and will most likely be used in other indications. In other words I see imetelstat as a platform drug. Investment opportunities like this do not come along very often. It will be very interesting to see how this story plays out. I believe the stock has huge potential.