Geron Corporation (GERN) recently announced its intention to exit the stem cell research market. The company, which was a leader in stem cell research, intends to focus on its oncology programs instead. The announcement comes a few weeks after the appointment of the new Chief Executive Officer (CEO), John A. Scarlett.
Decision Based on Strategic Review
Geron conducted a strategic review of the costs, timelines and complexities associated with the development and approval of its pipeline candidates. Given the current economic environment of capital scarcity and uncertainty, Geron decided to focus on its oncology program which has several important milestones coming up over the next 20 months.
Key candidates in the oncology program include imetelstat, which is currently in four phase II studies (non-small cell lung cancer, breast cancer, essential thrombocythemia and multiple myeloma), and GRN1005 (phase II studies for brain metastases arising from non-small cell lung cancer and breast cancer scheduled to commence shortly). While top-line data from the imetelstat studies should be out by late 2012, top-line data on GRN1005 should be available before the end of the second quarter of 2013.
Job Cuts
With Geron deciding to discontinue the development of its stem cell candidates, we were not surprised with the company’s decision to reduce its workforce. Geron is cutting 38% of its workforce (or 66 of 175 full-time positions) and expects to incur one-time cash expenditures of about $5 million in the fourth quarter of 2011 and approximately $3 million in the first half of 2012. The company expects to exit 2011 with more than $150 million in cash and investments.
During 2012, the company expects cash usage of about $60 million – $65 million, including restructuring charges and patient follow-up costs for the GRNOPC1 trial (stem cell candidate). This means that the company will exit 2012 with about $85 million to $90 million in cash. Geron believes these funds will be sufficient to meet its requirements beyond mid-2013. The company was expecting to spend about $25 million per year on its stem-cell development programs.
As far as the stem cell candidates are concerned, Geron intends to discontinue further development and strike partnership deals for these programs. Geron said that it will retain a core group of employees from its stem cell operations through the end of the second quarter of 2012 so as to facilitate the transfer of these programs to partners.
Our Take
Geron’s announcement regarding its decision to exit stem cell therapy came as a surprise as the company was a leader in the field. The shares declined more than 20% on the news. While the company’s decision to focus on oncology should deliver in the long term, we expect the stock to remain range-bound in the near term given the lack of catalysts. Results on the oncology candidates should start coming out in late 2012. We prefer to remain on the sidelines until we see data on these candidates. We remain Neutral on the stock, which carries a Zacks #3 Rank (short-term Hold rating).
