Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
GERN > SEC Filings for GERN > Form 10-Q on 2-Nov-2012All Recent SEC Filings

Show all filings for GERON CORP | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for GERON CORP


2-Nov-2012

Quarterly Report


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS

This Form 10-Q contains forward-looking statements that involve risks and uncertainties. We use words such as "anticipate", "believe", "plan", "expect", "future", "intend", "estimate", "may", "predict", "project", "potential", "should", "will", "would" and similar expressions to identify forward-looking statements. These statements are within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. These statements appear throughout the Form 10-Q and are statements regarding our intent, belief, or current expectations, primarily with respect to our operations and related industry developments. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this Form 10-Q. Our actual results could differ materially from those anticipated in these forward-looking statements for many reasons, including the risks faced by us and described in Part II, Item 1A, entitled "Risk Factors," and in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part I, Item 2 of this Form 10-Q.

OVERVIEW

The following discussion should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto included in Part I, Item 1 of this Form 10-Q and with "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained in our Annual Report on Form 10-K for the year ended December 31, 2011, as filed with the Securities and Exchange Commission on March 7, 2012.

Geron is a biopharmaceutical company developing first-in-class therapies for cancer. We have two lead product candidates in clinical development, GRN1005 and imetelstat. GRN1005 is a peptide-drug conjugate that is designed to transport a proven anti-cancer drug, paclitaxel, across the blood-brain barrier (BBB) by targeting low-density lipoprotein receptor-related proteins (LRPs) that are expressed on the BBB. GRN1005 is being evaluated in two Phase 2 clinical trials:
brain metastases arising from breast cancer and brain metastases arising from non-small cell lung cancer. Imetelstat is a telomerase inhibitor that is being evaluated in Phase 2 clinical trials for hematologic malignancies.

GRN1005. GRN1005 is a peptide-drug conjugate designed to deliver paclitaxel across the BBB and into tumors in the brain. The BBB prevents most drugs, including oncology drugs, from reaching the brain at levels that are clinically effective. GRN1005 is designed to overcome this challenge by linking paclitaxel to a proprietary peptide, Angiopep-2, that is actively transported across the BBB. Angiopep-2 may also facilitate uptake of the conjugate into tumor cells inside and outside the brain.

We are conducting two single-arm Phase 2 trials of GRN1005, one in patients with brain metastases associated with breast cancer and the other in patients with brain metastases associated with non-small cell lung cancer (NSCLC). We selected these indications because in Phase 1 trials clinical activity was observed in patients with these tumor types. Interim data from the Phase 2 clinical trial in patients with brain metastases arising from breast cancer will be presented at the San Antonio Breast Cancer Symposium in early December 2012.

Imetelstat. Imetelstat is an inhibitor of the enzyme telomerase. Because of the role of telomerase in extending cancer cell longevity and proliferation, we believe that inhibiting telomerase may be an effective strategy for treating a broad range of malignancies.

We are studying imetelstat in two single-arm Phase 2 trials in hematologic (blood-based) cancers, one in essential thrombocythemia (ET) and the other in multiple myeloma. Using biomarkers, these two studies are designed to evaluate whether inhibiting telomerase will selectively reduce the proliferation of the malignant progenitor cells responsible for these diseases. In the ET trial, we are also evaluating clinical and hematological responses. We expect to release top-line results from these studies in the fourth quarter of 2012. Data from the Phase 2 clinical trial in patients with ET will be presented at the American Society of Hematology annual meeting in early December 2012.

In September 2012, we announced that based on the results of an unplanned interim analysis, we have discontinued the randomized Phase 2 study of imetelstat in metastatic HER2-negative breast cancer because median progression-free survival (PFS) in the imetelstat arm was shorter than in the comparator arm. The clinical protocol for the metastatic HER2-negative breast cancer trial allowed for reductions or delays in the dosing of paclitaxel consistent with the approved labeling, and there were an increased number of such occurrences in the imetelstat arm of the study. A series of analyses suggested that reductions of paclitaxel dose intensity in the imetelstat arm were likely responsible for the difference in PFS in that study.


Table of Contents

At the same time that we announced the discontinuation of the randomized Phase 2 study of imetelstat in metastatic HER2-negative breast cancer, we also announced that the randomized Phase 2 study of imetelstat in advanced NSCLC would continue, because a separate unplanned interim analysis of that study suggested a modest, but not statistically significant, trend in PFS in favor of the imetelstat arm. Since the pre-specified criteria for success in this trial were not met, we have no plans to conduct a Phase 3 study of imetelstat in advanced NSCLC. Additional sub-group analyses, as called for in the protocol, are ongoing and we expect to publish the results of these analyses in a scientific forum at a later date.

Stem Cell Assets. In November 2011, we announced that we will focus on our oncology programs and consequently, we discontinued development of and have sought to divest our stem cell programs. We continue to accrue data on the patients already enrolled in the Phase 1 trial of our human embryonic stem-cell derived oligodendrocyte progenitor cell therapy (GRNOPC1) for the treatment of acute spinal cord injury. In the third quarter of 2012, we received decisions from the United States Patent and Trademark Office Board of Patent Appeals and Interferences, or BPAI, in two ongoing patent interference proceedings between us and ViaCyte, Inc., or ViaCyte, related to two of our patent applications covering the production of endoderm from human embryonic stem cells (part of the process for making pancreatic islet cells). In each case, the BPAI awarded all involved claims to ViaCyte. We have appealed the decisions of the BPAI in both interferences in a litigation proceeding brought in the United States District Court for the Northern District of California, or District Court, and ViaCyte has filed a counterclaim in the District Court, seeking affirmation of the rulings in the two interference proceedings. Although we have sought to divest our stem cell programs and have considered a number of alternatives with respect to our stem cell programs, these and other intellectual property matters, and the acceptance of new technologies, have adversely affected and may continue to adversely affect our efforts to divest our stem cell programs. While we continue to seek clarification and/or resolution of these matters, on October 18, 2012, BioTime, Inc., or BioTime, sent an unsolicited letter to our stockholders outlining BioTime's proposal to acquire our stem cell programs. Our board of directors is reviewing BioTime's proposal and will act in a manner that our board of directors believes is in the best interests of our stockholders.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

There have been no significant changes in our critical accounting policies and estimates during the nine months ended September 30, 2012 as compared to the critical accounting policies and estimates disclosed in our Annual Report on Form 10-K for the year ended December 31, 2011 that materially impact our condensed consolidated financial statements.

Our condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported assets, liabilities, revenues and expenses. Note 1 of Notes to Condensed Consolidated Financial Statements describes the significant accounting policies used in the preparation of the condensed consolidated financial statements.

Estimates and assumptions about future events and their effects cannot be determined with certainty. We base our estimates on historical experience and on various other assumptions believed to be applicable and reasonable under the circumstances. These estimates may change as new events occur, as additional information is obtained and as our operating environment changes. These changes historically have been minor and have been included in the condensed consolidated financial statements as soon as they became known. Based on a critical assessment of our accounting policies and the underlying judgments and uncertainties affecting the application of those policies, management believes that our condensed consolidated financial statements are fairly stated in accordance with accounting principles generally accepted in the United States, and present a meaningful presentation of our financial condition and results of operations.

RESULTS OF OPERATIONS

Our results of operations, as well as the progress of our research and development efforts and variations in the level of expenses related to developmental efforts, have fluctuated from period to period and may continue to fluctuate in the future. Results of operations for any period may be unrelated to results of operations for any other period. In addition, historical results should not be viewed as indicative of future operating results. We are subject to risks common to companies in our industry and at our stage of development, including, but not limited to, risks inherent in our research and development efforts, uncertainty of clinical trial results or regulatory approvals or clearances, need for future capital, enforcement of our patent and proprietary rights, reliance upon our collaborative partners and potential competition. In order for a product candidate to be commercialized based on our research, we and our collaborators must conduct preclinical tests and clinical trials, demonstrate the efficacy and safety of our product candidates, obtain regulatory approvals or clearances and enter into manufacturing, distribution and marketing arrangements, as well as obtain market acceptance. We do not expect to receive revenues or royalties based on therapeutic products for a number of years, if at all.


Table of Contents

Revenues

We recognized no revenues from collaborative agreements for the three months ended September 30, 2011, compared to $300,000 for the nine month period then ended. Revenues from collaborative agreements in 2011 reflect revenue recognized under our collaboration with GE Healthcare UK, Ltd., or GE Healthcare. No comparable amounts were recognized for the three and nine months ended September 30, 2012 because the collaboration with GE Healthcare concluded in June 2011.

We have entered into license and option agreements with companies involved with oncology, diagnostics, research tools, agriculture and biologics production. In each of these agreements, we have granted certain rights to our technologies. In connection with the agreements, we are eligible to receive license fees, option fees, milestone payments and royalties on future product sales, or any combination thereof. We recognized license fee revenues of $538,000 and $1.0 million for the three and nine months ended September 30, 2012, respectively, compared to $165,000 and $1.1 million for the comparable 2011 periods related to our various agreements. The increase in license fee revenues for the third quarter of 2012 compared to the comparable period in 2011 primarily reflects the full recognition of a license payment from GE Healthcare upon the exercise of an option to expand the scope of their original 2009 license agreement. Under the expanded license, GE Healthcare obtained exclusive global rights to our intellectual property and know-how for the development and sale of cellular assays derived from induced pluripotent stem cells. Current revenues may not be predictive of future revenues.

We received royalties of $98,000 and $1.0 million for the three and nine months ended September 30, 2012, respectively, compared to $55,000 and $813,000 for the comparable 2011 periods on product sales of telomerase detection and telomere measurement kits to the research-use-only market, cell-based research products and nutritional products. Future license and royalty revenues are dependent upon additional agreements being signed.

Research and Development Expenses

For each of our research and development programs, we incur direct external, personnel related and other research and development costs. Direct external expenses primarily consist of costs to outside parties to perform laboratory studies, develop manufacturing processes and manufacture raw materials and clinical trial drug materials, conduct and manage clinical trials and provide advice and consultation for scientific and clinical strategies. Personnel related expenses primarily consist of salaries and wages, stock-based compensation, payroll taxes and benefits for those individuals involved with ongoing research and development efforts. Other research and development expenses primarily consist of laboratory supplies, research-related overhead associated with leasing, operating and maintaining our facilities and equipment depreciation and maintenance. These costs apply to our clinical programs, preclinical programs as well as our discovery research efforts. Product candidates are designated clinical candidates once an investigational new drug application has been filed with the U.S. Food and Drug Administration, or a similar filing with regulatory agencies outside the United States, for the purpose of commencing clinical trials in humans. Preclinical programs include product candidates undergoing toxicology, pharmacology, metabolism and efficacy studies and manufacturing process development required before testing in humans can commence.

Research and development expenses were $11.7 million and $39.6 million for the three and nine months ended September 30, 2012, respectively, compared to $16.3 million and $49.6 million for the comparable 2011 periods. As shown in the table below, the decrease in research and development expenses for the three and nine months ended September 30, 2012 compared to the comparable periods in 2011 primarily reflects the discontinued development of our stem cell programs resulting in reduced direct external research and development costs for our Phase 1 trial of GRNOPC1 for the treatment of acute spinal cord injury, decreased personnel related costs and lower other research and development expenses, mainly for scientific supplies used to support our stem cell programs. The decrease in research and development expenses for the nine months ended September 30, 2012 compared to the comparable period in 2011, which primarily reflects the discontinued development of our stem cell programs, was partially offset by increased direct external research and development costs for our Phase 2 clinical trials of GRN1005 in patients with brain metastases that were initiated in December 2011. Overall, we expect research and development expenses for the remainder of 2012 to remain consistent with current levels as we incur expenses related to our clinical trials for imetelstat and GRN1005.


Table of Contents

Research and development expenses for the three and nine months ended September 30, 2012 and 2011 were as follows:

                                             Three Months Ended         Nine Months Ended
                                                September 30,             September 30,
(In thousands)                                2012          2011         2012         2011
                                                              (Unaudited)
Direct external research and
development expenses:
Clinical program: Imetelstat               $     2,828    $  3,522    $   10,974    $ 10,730
Clinical program: GRN1005                        2,199       1,988         7,595       3,514
Clinical program: GRNOPC1                           54         506           298       2,172
Preclinical programs                               348         352           883       1,908
Personnel related expenses                       4,419       6,642        14,403      21,427
All other research and development
expenses                                         1,836       3,335         5,415       9,893
Total                                      $    11,684    $ 16,345    $   39,568    $ 49,644

At this time, we cannot provide reliable estimates of how much time or investment will be necessary to commercialize products from our current product candidates in development. For a more complete description of the risks and uncertainties associated with completing development of our product candidates, see the sub-section titled, "Risks Related to Our Business" and "Risks Related to Clinical and Commercialization Activities", in Part II, Item 1A entitled, "Risk Factors", in this Form 10-Q.

General and Administrative Expenses

General and administrative expenses were $4.8 million and $15.7 million for the three and nine months ended September 30, 2012, respectively, compared to $3.8 million and $18.3 million for the comparable 2011 periods. The increase in general and administrative expenses for the third quarter of 2012 compared to the comparable period in 2011 primarily reflects higher legal and consulting fees associated with our intellectual property portfolio and our stem cell divestiture efforts. The decrease in the 2012 year-to-date period compared to the comparable period in 2011 primarily reflects lower personnel related costs, including non-cash stock-based compensation expense, partially offset by higher legal and consulting fees associated with our intellectual property portfolio and our stem cell divestiture efforts.

Unrealized Gain (Loss) on Derivatives

Unrealized gain (loss) on fair value of derivatives reflects a non-cash adjustment for changes in fair value of options held by non-employees that are classified as current liabilities. Derivatives classified as assets or liabilities are marked to fair value at each financial reporting date with any resulting unrealized gain (loss) recorded in the condensed consolidated statements of operations. The derivatives continue to be reported as an asset or liability until such time as the instruments are exercised or expire or are otherwise modified to remove the provisions which require them to be recorded as assets or liabilities, at which time these instruments are marked to fair value and reclassified from assets or liabilities to stockholders' equity. We incurred unrealized losses on derivatives of $44,000 and $10,000 for the three and nine months ended September 30, 2012, respectively, compared to unrealized gains of $291,000 and $570,000 for the comparable 2011 periods. The unrealized gains and losses on derivatives for 2012 and 2011 primarily reflects the changes in fair value of derivative liabilities as a result of fluctuations in the market value of our stock and changes in other inputs factored into the estimate of their fair value such as the volatility of our stock. See Note 2 on Fair Value Measurements in Notes to Condensed Consolidated Financial Statements of this Form 10-Q for further discussion of the fair value of derivatives.

Interest and Other Income

Interest income was $140,000 and $481,000 for the three and nine months ended September 30, 2012, respectively, compared to $237,000 and $820,000 for the comparable 2011 periods. The decrease in 2012 compared to 2011 reflects lower cash and investment balances resulting from the use of cash for operations. Interest earned in future periods will depend on the size of our securities portfolio and prevailing interest rates.

Losses Recognized Under Equity Method Investment

We owned 40% of ViaGen, Inc. (ViaGen), a licensee with in-house breeding services and expertise in advanced reproductive technologies for animal cloning. In accordance with the equity method of accounting, we recognized a loss of $503,000 for our proportionate share of ViaGen's operating losses for the nine months ended September 30, 2011. No amounts were recognized for the three months ended September 30, 2011. No amounts were recognized for the three and nine months ended September 30, 2012 because we suspended the equity method of accounting in June 2011 since our proportionate share of net losses exceeded the value of our investment and we had no commitments to provide financial support or obligations to perform services or other activities for ViaGen. In September 2012, we sold our entire equity


Table of Contents

interest in ViaGen to Trans Ova Genetics, L.C. See Note 3 on Equity Method Investment in Notes to Condensed Consolidated Financial Statements of this Form 10-Q for further discussion of ViaGen.

Interest and Other Expense

Interest and other expense was $172,000 and $215,000 for the three and nine months ended September 30, 2012, respectively, compared to $114,000 and $178,000 for the comparable 2011 periods. The increase in 2012 compared to 2011 was primarily due to the recognition of accumulated foreign currency translation adjustments in connection with the dissolution of Geron Bio-Med in August 2012, partially offset by reduced bank charges as a result of lower cash and investment balances and interest expense for the loan with the California Institute for Regenerative Medicine that we repaid in full in November 2011.

Net Loss

Net loss was $16.0 million and $53.0 million for the three and nine months ended September 30, 2012, respectively, compared to $19.5 million and $65.0 million for the comparable 2011 periods. The decrease in net loss in 2012 compared to 2011 was primarily due to reduced research and development expenses as a result of discontinuing development of our stem cell programs and lower non-cash stock-based compensation expense.

LIQUIDITY AND CAPITAL RESOURCES

Cash, restricted cash, cash equivalents and marketable securities at September 30, 2012 were $107.0 million, compared to $154.2 million at December 31, 2011. We have an investment policy to invest these funds in liquid, investment grade securities, such as interest-bearing money market funds, certificates of deposit, municipal securities, U.S. government and agency securities, corporate notes and commercial paper. Our investment portfolio does not contain securities with exposure to sub-prime mortgages, collateralized debt obligations, asset-backed securities or auction rate securities and, to date, we have not recognized any other-than-temporary impairment on our marketable securities or any significant changes in aggregate fair value that would impact our cash resources or liquidity. To date, we have not experienced lack of access to our invested cash and cash equivalents; however, access to our invested cash and cash equivalents may be impacted by adverse conditions in the financial and credit markets. The decrease in cash, restricted cash, cash equivalents and marketable securities in 2012 was the result of cash being used for operations.

In October 2012, we entered into the sales agreement with MLV which provides that, upon the terms and subject to the conditions and limitations set forth in the agreement, we may elect to issue and sell shares of our common stock having an aggregate offering price of up to $50.0 million from time to time through MLV as our sales agent. We are not obligated to make any sales of common stock under the sales agreement. To date, we have not sold any common stock pursuant to the sales agreement.

We estimate that our existing capital resources, amounts available to us under our equipment financing facility, future interest income and potential sales of our common stock will be sufficient to fund our current level of operations through at least the next 12 months. However, our future capital requirements will be substantial. Changes in our research and development plans or other changes affecting our operating expenses or cash balances may result in the unexpected expenditure of available resources. Factors that may require us to use our available capital resources sooner than we anticipate include:

the accuracy of the assumptions underlying our estimates for our capital needs for the remainder of 2012 and beyond;

changes in our clinical development plans for our product candidates, imetelstat and GRN1005;

our ability to meaningfully reduce manufacturing costs of current product candidates;

the magnitude and scope of our research and development programs, including the number and type of product candidates and indications we intend to pursue;

the progress we make in our research and development programs, preclinical development and clinical trials;

our ability to establish, enforce and maintain strategic arrangements for research, development, clinical testing, manufacturing and marketing;


Table of Contents

the timing of a potential divestiture of our stem cell assets and the consideration, if any, we may receive as a result of such divestiture;

the time and costs involved in obtaining regulatory clearances and approvals; and

the costs involved in preparing, filing, prosecuting, defending and enforcing patent claims.

If our existing capital resources, equipment financing arrangement, future interest income and potential sales of our common stock are insufficient to meet future capital requirements, we will need to raise additional capital to fund our operations. We anticipate that we would need to seek additional funding through strategic collaborations, public or private equity financings, equipment loans or other financing sources that may be available. However, we may be unable to raise sufficient additional capital when we need it, on favorable terms or at all. Our ability to raise additional funds may be severely impaired if any of our product candidates fails to show adequate safety or efficacy in clinical testing. If we are unable to obtain adequate funds on reasonable terms, we may be required to curtail operations significantly or obtain funds by entering into financing, supply or collaboration agreements on unattractive terms or we may be required to relinquish rights to technology or product candidates or to grant licenses on terms that are unfavorable to us.

Cash Flows from Operating Activities. Net cash used in operations for the nine months ended September 30, 2012 and 2011 was $44.7 million and $41.0 million, respectively. The increase in net cash used in operations in 2012 compared to 2011 was primarily the result of cash payments incurred in connection with our November 2011 restructuring and reduced usage of our common stock in payment for services.

Cash Flows from Investing Activities. Net cash provided by investing activities . . .

  Add GERN to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for GERN - All Recent SEC Filings
Sign Up for a Free Trial to the NEW EDGAR Online Pro
Detailed SEC, Financial, Ownership and Offering Data on over 12,000 U.S. Public Companies.
Actionable and easy-to-use with searching, alerting, downloading and more.
Request a Trial Sign Up Now


Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.