2023-08-23 13:00:00 ET
Summary
- Geron aims for FDA approval of imetelstat in June 2024 for hematologic malignancies, targeting an H1 2024 launch.
- Recent FDA decision for standard review of imetelstat suggests caution and potential regulatory challenges.
- Geron's financial health shows significant liquidity but consistent cash burn, leading to a recommendation to sell based on uncertainties.
Introduction
Geron ( GERN ) is a biopharmaceutical firm progressing with imetelstat, a distinct telomerase inhibitor designed for blood cancers. After encouraging Phase 3 findings, they are setting their sights on FDA endorsement in June 2024, with aspirations for an H1 2024 debut for various myeloid disorders.
I previously analyzed Geron, noting the significant promise of their drug, imetelstat, especially for lower-risk MDS patients. The impressive IMerge Phase 3 trial outcomes, combined with its safety profile, painted a hopeful picture for the treatment of hematologic malignancies. By mid-2023, the FDA's decision on Geron's application will be pivotal for a possible 2024 launch. Imetelstat outperformed existing therapies in various metrics, catering to a crucial medical void for patients unresponsive to frontline ESA therapy. However, I emphasized monitoring competition, market shifts, and other influencing factors. Given these elements and Geron's recent financial stance, I suggested a "Hold" rating, advising caution and further observation.
Recent developments: Earlier this week, the FDA accepted Geron's imetelstat application for blood cancer; PDUFA date is set for June 16, 2024. Launch planned for H1 2024 post-approval.
The following article discusses Geron's financial health, the FDA's decision regarding their drug, imetelstat, and advises investors to sell based on regulatory and financial uncertainties.
Q2 2023 Earnings
Looking at Geron's most recent earnings report , as of June 30, 2023, the company had $400.2M in cash and equivalents. In Q2 2023, Geron received $17.8M from cash exercises of warrants and may potentially receive another $31.5M from outstanding warrants. Revenues for the first half of 2023 were $50,000, a decrease from the previous year's $196,000. Operating expenses in the first half of 2023 totaled $92.1M, with R&D costs being $62.7M and general & administrative expenses at $29.4M. Interest income was $8.6M while interest expenses amounted to $3.9M. For 2023, they expect total expenses between $210M to $220M.
Liquidity & Cash Runway
Turning to Geron's balance sheet , the sum of the company's cash and cash equivalents, marketable securities, and investments for June 30, 2023, is $399.7M ($56.9M + $314.5M + $28.3M). Over the first six months of 2023, the company experienced a net cash used in operating activities of $75.966M, which translates to an average monthly cash burn of $12.6M. By dividing the total cash and securities ($399.7M) by this monthly average, I estimate Geron's cash runway to be approximately 31.7 months. However, these estimates are my own and may differ from other analyses. Overall, while Geron seems to maintain significant liquidity given its cash position and securities, it's also notable that the firm has accrued debt amounting to $51.6M. The consistent cash burn from operating activities and current liabilities could suggest a potential need for additional financing in the foreseeable future, especially if the company doesn't pivot towards profitability within two or three years.
Valuation, Growth, & Momentum
According to Seeking Alpha data: Geron has a relatively small amount of debt when compared to its market capitalization, while it holds a significant cash position. The enterprise value stands at $1.02B. In terms of valuation, traditional measures such as P/E are not meaningful ((NM)), and its EV/Sales is notably high. Geron's growth projection is particularly interesting, with a significant dip in sales forecasted for 2023 at $227K (a decrease of 61.91% YoY), followed by a massive surge in 2024 to $82.78M and further growth in 2025 to $284.69M. This highlights an expected transformative phase for the company in terms of revenue generation. Momentum-wise, the stock has experienced some fluctuations, underperforming the SP500 in the short term (3M and 6M) but has shown positive momentum over the 9M and 1Y periods.
Imetelstat's Review Pathway: Implications for Market Potential
Geron's recent announcement of the FDA's decision for a standard review of imetelstat has nuanced implications for its market potential. Specifically, the FDA's choice of a standard review, rather than the anticipated priority review, subtly suggests that the drug may not be seen by regulators as a groundbreaking treatment, despite its innovative approach to treating transfusion-dependent anemia in lower-risk MDS patients.
The forthcoming advisory committee meeting compounds this uncertainty. Such meetings typically convene to discuss and often scrutinize specific aspects of a drug's clinical data, safety profile, or its place in the therapeutic landscape. It could indicate that the FDA has particular questions or concerns, which they'd like external experts to weigh in on.
While Geron remains hopeful about launching imetelstat by mid-2024, these regulatory developments might hint at a more cautious or even critical reception. This sentiment contrasts with the Fast Track designation previously granted to imetelstat, which was aimed at facilitating the development and expediting the review of drugs treating serious conditions and addressing unmet medical needs.
Investors and stakeholders should stay attuned to the outcomes of the FDA's deeper dives and the advisory committee's perspectives. The discussions and decisions arising from these processes could significantly influence imetelstat's trajectory to market and its ultimate position within the therapeutic arsenal for hematologic malignancies.
My Analysis & Recommendation
In light of recent events and data, it's crucial for investors to adopt a dynamic and agile stance towards Geron and its flagship drug, imetelstat. The financial metrics, while painting a picture of significant liquidity, also imply a noteworthy and consistent cash burn. This balance, when juxtaposed with the forthcoming FDA's deep dives into imetelstat, sets a stage of uncertainty.
Momentum-wise, the stock's recent underperformance relative to broader benchmarks such as the SP500 in the short term is a red flag. Even with the positive momentum witnessed over longer timeframes, the looming regulatory scrutiny can't be ignored. The transformative revenue growth expected post-2024 is highly contingent on the FDA's reception of imetelstat and its subsequent market positioning. This presents a temporal risk - a bottleneck phase, if you will - where the company's valuation and future prospects could be significantly recalibrated based on regulatory outcomes.
Considering the blend of these financial and regulatory signals, I now find it prudent to adjust my prior stance. Although Geron still holds promise in the long term, especially if imetelstat clears the regulatory hurdles and captures its targeted market, the heightened near-term uncertainties suggest a more cautious approach is warranted.
My updated investment recommendation is "Sell". The rationale for this shift lies in the immediate regulatory and financial challenges Geron faces. Investors should consider reallocating assets until there's greater clarity post the FDA's deeper evaluations and the advisory committee's discussions. It might be beneficial to re-enter or adjust positions once these critical milestones have been navigated, and the company's trajectory becomes clearer.
Risks to Thesis
When the facts change, I change my mind.
While I've given a "Sell" recommendation for Geron based on my analysis, it's essential to understand the potential risks associated with this decision:
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Regulatory Surprises: My recommendation is grounded in perceived regulatory hurdles. However, the FDA's decision-making process can often yield surprises. There's a possibility that the FDA could give a more favorable review to imetelstat than currently anticipated. Should this happen, the stock might surge, and investors who acted on the "Sell" recommendation could miss out on potential gains.
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Financial Resilience: While Geron's cash burn rate is a concern, the company's significant liquidity and potential revenue from the sale of imetelstat post-approval could transform its financial health rapidly. This turnaround can make the company more financially resilient than my current analysis suggests.
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Competitive Positioning: Geron's imetelstat has shown to cater to a significant medical void, especially for patients unresponsive to frontline ESA therapy. If no strong competitors emerge in this space and imetelstat maintains its unique value proposition, the stock could perform better than expected.
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Long-term Vision: My recommendation leans towards the short-to-mid-term uncertainties. However, if Geron's long-term strategy proves robust and imetelstat becomes a standard treatment for hematologic malignancies, then an early "Sell" could mean missing out on a long-term growth story.
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Market Reactions: Stock markets are not always rational and can sometimes react positively to news or developments that aren't necessarily grounded in fundamentals. External factors, broader market sentiments, or significant endorsements from industry influencers can lead to stock appreciation even amidst uncertainties.
For further details see:
FDA's Twist In Geron's Telomerase Tale (Rating Downgrade)