Geron exits embryonic stem cell stage

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Geron’s decision to call time on its human embryonic stem cell research program, due in part to ‘capital scarcity and uncertain economic conditions’, is a second major setback to the field within a matter of weeks (Embryo stem cell research in doubt after European ruling, October 19, 2011).

Despite plans to slash 38% of its workforce - 66 out of 175 full-time positions - and focus on relatively less risky small molecule oncology candidates in phase II, some investors, who perhaps were more attracted to Geron’s pioneering spirit, appear disappointed. Shares in the Californian biotech surprisingly fell as much as 25% in early trade today to a record low of $1.64. Geron’s change of heart, coming just six weeks after appointing a new chief executive, could have implications for Advanced Cell Technology, the only other company currently in the clinic in the US with an embryonic stem cell product.

New home required

Geron is terminating the ongoing phase I safety trial of its lead embryonic stem cell product GRNOPC1, the start of which just over a year ago was announced to much fanfare.

So far four out of the planned eight patients with spinal cord injury have been dosed with GRNOPC1, each patient receiving two million oligodendrocyte progenitor cells which were derived from human embryonic stem cells.

The two-year trial was due to complete in October next year and Geron’s chief financial officer, David Greenwood, told investors on a conference call today that development of its stem cell program would have “cost $25m per year for the next several years”.

With such a high cost, long development timelines, not to mention high-risk nature of stem cell research, new chief executive John Scarlett says the company is now looking for “partners with the technical and financial resources to maximise value” of its stem cell research, which includes four more pre-clinical stage candidates.

Worrying times

Given that Geron was very much a pioneer of this technology it will be fascinating to see what, if any, kind of company takes on this research and the price Geron can extract for all its years of hard work - not to mention $300m spent on R&D alone in the last five years.

Advanced Cell Technology, who started two phase I/II trials earlier this year with its retinal pigment epithelial cells in Stargardt's macular dystrophy (juvenile macular degeneration) and dry age-related macular degeneration, will be a keen observer of Geron’s divestment progress.

ACT plans to enrol 24 patients across both trials, yet the implied high cost of these studies suggest ACT’s current cash reserve of $14m might not stretch very far. Although the company already has a $25m stock purchase agreement in place with Socius Capital, Geron’s decision could have a bearing on how current and potential investors view ACT’s next demands for fresh funds. ACT’s OTC listed shares slipped 5% in early trade to 11 cents.

Stick to the knitting

Geron on the other hand is relatively flush with cash, which perhaps makes the decision to cull its stem cell programs all the more surprising to investors. The company held $143m in cash and current investments as of the end of September, with a further $38m in long-term marketable securities.

A big portion of this cash pile came from the sale of 20 million shares at $5 per share almost a year ago, soon after the stem cell clinical trial started, netting Geron a cool $94, one of the biggest equity financings of 2010. Investors who bought in to Geron’s stem cell story at $5 per share will be feeling pretty hacked off today.

In contrast, Dr Scarlett clearly sees Geron as a novel cancer candidate story, led by two phase II candidates which should deliver the ‘value inflection’ points he craves within the next two years.

Imetelstat is a first-in-class small molecule telomerase inhibitor, currently undergoing four phase II trials in breast cancer, non-small cell lung cancer, thrombocythaemia, and multiple myeloma. Results from all four trials should read out by the end of 2012.

GRN1005 is the lead candidate from Geron’s LRP-directed peptide-drug conjugate program, designed to deliver paclitaxel molecules to tumours in the brain, including metastases. Two phase II trials are due to start soon, one for brain metastases arising from non-small cell lung cancer, the other for brain metastases from breast cancer. Results should be available by the middle of 2013.

With the scrapping of the stem cell program, Geron has enough cash to reach these data points, whereupon licensing or M&A deals can be expected. In this regard Dr Scarlett has an impressive track record, having led three companies to lucrative trade sales in the last ten years - Proteolix, acquired by Onyx Pharmaceuticals in 2009, Tercica, bought out by Ipsen in 2008, and Sensus Drug Development, purchased by Pharmacia in 2001.

If investors can bear with Geron for a while longer and accept the change of tack, those that bought in at $5 per share may yet see a return on their investment.

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