2023-03-17 18:16:56 ET
Summary
- Geron announced its Q422 earnings and updated investors on its progress with its only drug Imetelstat yesterday.
- Imetelstat's positive data in its Phase 3 in low-risk MDS sets up approval shots in the US and Europe.
- Management is talking up a blockbuster (>$1bn per annum) revenue opportunity, although approvals are likely >12m away and the market opportunity uncertain.
- Geron has raised >$210m on the back of its positive late-stage data, enough to last until 2025.
- I think the jury is still out on Imetelstat, however, which means I would not buy - although that may mean missing out if a big pharma comes calling with a buyout on its mind.
Investment Overview
In my last note on Geron Corporation (GERN) for Seeking Alpha back in September last year, I gave the company a "Hold" rating, but also advised investors to keep a very close on a January data readout in relation to the company's lead and only asset, the telomerase inhibitor Imetelstat.
Geron's thesis is that by inhibiting telomerase, Imetelstat can prevent the proliferation of malignant hematopoietic stem cells ("HSCs") which rely on continual upregulation of telomerase to multiply, and can therefore help treat a range of hematological cancers, such as Myelodysplastic Syndromes ("MDS"), Myelofibrosis ("MF"), and Acute Myeloid Leukemia.
Imetelstat is a "a lipid conjugated 13?mer oligonucleotide that we designed to be complementary to and bind with high affinity to the RNA template of telomerase," according to Geron's 2022 10-K submission , and Geron is the only company to have advanced a drug with such a mechanism of action into clinical studies.
Until 2018, pharma giant Johnson & Johnson's ( JNJ ) drug development subsidiary Janssen was partnering with Geron over development of Imetelstat - Geron's only drug - but after Janssen opted out, citing a "strategic portfolio evaluation," Geron's share price sank from ~$6, to ~$1.
I covered much of Geron's progress since that low in my last post, but to summarize, Geron continued to develop the drug under its own steam.
Geron Imetelstat Pipeline (Corporate Presentation March '23)
As we can see from the above slide from Geron's latest Corporate Presentation, the company has made some strong progress with Imetelstat in multiple indications, but perhaps the most important study is IMerge in lower risk MDS.
Back in September I emphasized that top line data from this Phase 3 study would be made available in January, and that this could be a hugely significant catalyst for Geron. If positive, Geron could look to commercialize a drug that management has long believed can earn blockbuster (>$1bn per annum) revenues. If negative, the company's stock price could plunge again as it had done in 2018 after Janssen withdrew from the development partnership.
Key Imerge Results Arrived In January - What Was The Verdict?
Geron release the Phase 3 Imerge data as promised in early January although they did not produce the expected momentous price catalyst. Geron shares did jump on the news, from ~$2, to ~$3.5, but have since fallen back in value to a price of $2.44 - more or less the same price they were trading when I gave the company a "HOLD" rating back in September, and giving the company a market cap valuation of $1.1bn.
The Imerge study focused on lower risk MDS patients who are relapsed, refractory or ineligible for erythropoiesis stimulating agents (ESAs) - the current standard of care for patients suffering from chronic anemia, a common side-effect of the disease. 118 patients were treated with imetelstat and 60 with placebo.
Geron was able to report that the study hit both the primary endpoint of eight-week red blood cell ("RBC") tranfusion independence ("TI"), with 47 patients - or 39.8% of patients in the Imetelstat arm achieving TI at eight weeks, vs. only 9, or 15% of patients in the placebo arm - a statistically significant result.
Importantly, the study also met the secondary endpoint of TI at 24 weeks, with 33, or 28% of patients in the Imetelstat arm achieving TI at that time period, versus only 2 - or 3.3% - in the placebo arm. The longer time wore on, the data confirms, the more the drug outperformed placebo. The study also showed a "highly statistically significant" mean change in hemoglobin levels for all Imetelstat patients.
Management Provides Its Take on Yesterday's Q422 Earnings Call
One of the first things that Geron did after revealing the results of Imerge - like any biotech company tends to do when meeting pivotal study endpoints - was raise a substantial sum of money via an at-the-market fundraising which raised ~$213m via the issuance of 68m shares at $2.45 each, and pre-funded warrants to purchase 25m shares.
The resulting dilution - the share count increased from 327.6m shares to 381m shares, or by ~16%, may explain why Geron stock quickly fell in value, erasing most of the gains triggered by the IMerge data. On the plus side, Geron now has a cash position of >$445m. The company's net loss in 2022 was $141m,
Nevertheless, management struck a bullish tone on yesterday's Q422 earnings call , with long-term CEO John Scarlett stating in his opening remarks:
With positive top line results from IMerge Phase 3 in hand, we now have a charted path towards several potentially significant regulatory and commercial catalysts which we expect will further enhance the value of imetelstat... as a first step, in the commercially attractive lower-risk MDS indication, we remain on track to submit the NDA in mid-2023 and to complete the MAA submission in the second half of 2023
By early 2024, if all goes well, Geron will expect to have Imetelstat approved in Europe and the US, but just how attractive is the market?
Imetelstat market opportunity according to Geron (Geron Corporate Presentation)
As we can see from the above slide, of 37k patients diagnosed with lower risk MDS in the US and Europe, the vast majority will apparently be first treated with ESAs, although Geron believes most of those patients will ultimately fail treatment and end up using Imetelstat, as will ESA ineligible patients.
Imetelstat peak market opportunity (Geron Corporate Presentation)
In fact, Geron estimates that it will address a patient population of ~33k patients, and that the peak market opportunity is ~$1.2bn, which implies a potential drug price of ~$36.3k per patient.
If Geron could generate blockbuster sales from lower risk MDS alone then clearly the company ought to be valued closer to a $5bn market cap than a $1bn one, based on a broad pharma industry average of 5x sales, but in reality there are a lot of other competitors in this market.
In its 2022 10-K submission, Geron discusses its competition and lists Bristol Myers Squibb's ( BMY ) Revlimid, Vidaza and Reblozyl, Otsuka Pharma's Dacogen, and Astex Pharmaceuticals' Inqovi. BMY has recently completed a study, Geron says, that showed Reblozyl compared positively to ESAs on efficacy, data from which will soon be published "at a major medical meeting."
Perhaps this helps to explain why investors are not yet clamoring to buy Geron stock. Based on the forward price to sales ratio of 5x, it seems the market believes Imetelstat could earn ~$200m in peak revenues, at least in the lower risk MDS market. That sounds - to my mind at least - a more realistic number than $1.2bn, when we consider there are rivals in the space as deep-pocketed as BMY, armed with a drug that may be better than an ESA.
What Other Markets Can Geron Target With Imetelstat?
The obvious answer to this question is that Geron can - and is - targeting the relapsed or refractory (r/r) MF market - the drug is progressing through a Phase 3 study in this indication, and on the Q422 earnings call CEO Scarlett advised analysts:
In our second imetelstat Phase 3 trial, IMpactMF, a potential positive overall survival outcome could set the stage for changing the treatment landscape in myelofibrosis. Based on our current planning assumptions for enrollment and event rates, we expect an interim analysis for OS in IMpactMF in 2024.
2024 is still 8 and a half months away - so that data is still a long way away (it also should be noted that Geron doesn't expect the European Medicines Authority to approve Imetelstat in MDS until next year) and similarly to MDS, MF is not a simple market opportunity to break down, and it's also substantially smaller than the MDS market - Geron estimates the addressable patient population numbers ~18k patients.
The Janus Kinase Inhibitors ("JAKis") Ruxolitinib, Pacritinib, and Fedratinib are the standard of care therapies in MF, marketed respectively by Incyte ( INCY ), CTI BioPharma (CTIC) and Bristol Myers Squibb, as Jakafi, Vonjo, and Inrebic, respectively.
Geron says it believes that 75% of JAK users will discontinue after five years, and the market opportunity is worth ~$1.8bn as a result, since there are no other approved therapies. That may be true, but GSK may soon bring a more effective JAKi to market with Momelotinib, which it recently acquired via its buyout of Sierra Oncology, while Morphosys' BET inhibitor Pelabresib - currently in Phase 3 studies - is potentially a direct rival to Imetelstat.
Geron has other "shots at goal" - a Phase 2 study in r/r AML is ongoing - and thanks to Imetelstat's unique mechanism of action, the drug ought to be patent protected into the middle of the next decade, preventing any generic competition if approved.
A Final Risk To Consider
This post may come across as overly-critical of Geron and Imetelstat - looking at the positives, you have strong Phase 3 trial data, US and European approval in play within the next 12 months, substantial markets where standards of care are far from perfect and unmet need is high, and form an investors' perspective, Geron is flush with cash and significantly undervalued if you believe management's estimation of the peak sales Imetelstat may achieve in not just MDS, but also MF.
These are the positives, and perhaps Geron's share price will finally begin to rise to match these exalted peak revenue figures once the approval process is concluded positively, implying that buying shares today would be a wise move.
I have expressed some reservations on these fronts however and would draw reader's attention to a final issues that concerns me - safety.
I mentioned in my last post that high levels of Grade 3/4 neutropenia - 62% in the IMerge study, vs 8.5% in the placebo - concerned me. Quoted in the results press release , the principal trial investigator does not seem to mention them when discussing safety, commenting instead:
With regards to the safety results, cytopenias were manageable and reversible. Importantly for hematologists, who are accustomed to managing cytopenias, clinical consequences were limited and similar to placebo treated patients. As a once per month out-patient IV therapy, imetelstat will hopefully become a novel treatment option for lower risk MDS patients in the near future.
Perhaps the case of neutropenia are manageable and had "limited clinical consequences," as Geron management has put it, but sticking with safety, the below slide from Geron's latest corporate presentation is interesting.
Patient disposition after 18m (Geron Corporate Presentation)
Asa shown above, it seems that after 18m of treatment, 77% of patients had discontinued use of Imetelstat. That strikes me as potentially concerning - one of the ways Geron is selling the drug is its usefulness as a fall back drug after patients begin to fail on ESAs in MDS< or JAKi's in MF - but what if Imetelstat itself ends up with high levels of patient failures? In the above chart it says that 28 patients stopped using Imetelstat due to a "lack of efficacy," while 11 stopped due to "cytopenias" and a further eight due to another adverse event.
Nearly half of the patients on placebo discontinued due to lack of efficacy, which is understandable, but none withdrew on safety grounds - that may imply that treatment with Imetelstat comes with challenging side effects that may not prevent it being approved, but could prevent it being a success in a real-world setting, with physicians unwilling to prescribe it and patients unwilling to take it.
Conclusion - I Think The Jury May Still Be Out On Imetelstat - And The Verdict May Be Another 12m - Or More - Away
In this post I have tried to present a balanced view around the profile of Imetelstat and the market opportunity and the prospects for Geron's share price.
Clearly, the Phase 3 IMerge results did not act as the kind of catalyst management may have hoped for - sending the stock price skyward in anticipation of a blockbuster drug launch - but it did allow it to raise >$210m, which it says will last until 2025.
In the meantime, Geron will attempt to get its drug approved in the US and the EU, and although such approvals seem likely and ought to provide upside catalysts, I'm not sure the upside will be especially pronounced, given mine - and the market's - reservations about peak sales and how the drug may perform in a real-world setting.
The picture ought to be clearer in early 2024 than it is today, by which time we may have MF data also, and will know more about the progress of Geron's rivals' drugs.
I think the sensible option may be to wait until there's more clarity, as although Geron shareholders could earn double or even triple their investment buying today if a blockbuster revenue opportunity reveals itself, equally, $1bn is a substantial valuation for a biotech, and we know that Geron shares do not respond well to setbacks and can fall >$1, as they did in 2018, meaning the downside here could be as high as a >80% loss on investment.
Which brings me to my final point - M&A. If there's a pharma out there that believes in Geron's telomerase based approach to treating hematological cancers, it may reveal itself this year with a substantial bid for the company, as GSK did with Sierra, and Morphosys did with Constellation Pharma in the MF space.
It seems unlikely that pharma will be Johnson & Johnson (although stranger things than former partners reuniting happen every day in biotech), and I also would rule out BMY, apparently Geron's biggest rival. There are other Pharmas that could make a bid, however, with a presence in hematological cancers.
The prospect of a lucrative buyout is another tempting reason to own Geron stock, but the single asset risk and some other issues around Imetelstat - safety and market opportunity primarily - would make me too nervous to give Geron anything other than another "Hold" recommendation at this time.
For further details see:
Geron: After Study Results And Q4 Updates, The Outlook Is Still Too Cloudy