Here we go
ke-Or-Break Catalyst This Week
Apr. 17, 2018 9:50 AM ET | About: Geron Corporation (GERN), Includes: JNJ
John Engle
John Engle
Value, special situations, Deep Value, Growth
LinkedIn
(2,750 followers)
Summary
Geron's lead drug candidate imetelstat, developed in collaboration with Johnson & Johnson subsidiary Janssen Biotech, is facing a key catalyst ahead.
If Janssen elects to continue backing the development of imetelstat into Phase 3 trials, Geron will receive a guaranteed payout; if not, the small biotech could fold.
Johnson & Johnson is expected to signal its intentions when it announces earnings on April 17.
Promising comments from Geron's management suggest that Johnson & Johnson's decision will be a positive one for the company.
Geron represents a serious case of high risk, high reward trading.
This article was co-authored by Stepan Lavrouk. Stepan is an investment analyst with Almington Capital.
There are few companies that exemplify the ups and downs of investing in the small-cap biotech space as well as Geron Corporation (GERN). Having languished in the $2-3 range for almost two years, the stock appreciated 140% over the course of March, peaking at $5.98 and then selling back down to $3.30.
Why the sudden movement?
The company's lead (and only) drug candidate is imetelstat, a telomerase inhibitor developed in collaboration with Janssen Biotech, a subsidiary of Johnson & Johnson (JNJ). The drug is currently being investigated in two active Phase 2 trials, for myelofibrosis (IMbark) and myelodysplastic syndrome (IMerge), scheduled to end in 2019 and 2022, respectively.
In the recent March 16th earnings call, Geron's management highlighted recent results from IMerge, stating that the results were significantly positive:
"These efficacy results represent clinically meaningful outcomes with a profound impact on a patient's quality of life and provide further support of data that imetelstat exhibits potential disease modifying activity by suppressing the malignant progenitor cell clones that drive the underlying disease".
Crucially, Geron relies on Johnson & Johnson's ongoing financial support, which is itself conditional on positive clinical results. Thus, the March comments were unsurprisingly received very positively by the broader market.
A Make-Or-Break Binary Catalyst Ahead
Geron currently has a market capitalization of just over $600 million and has averaged net losses of $30 million for the last two years. Accordingly, it is almost entirely dependent on development and regulatory milestone payments from Janssen Biotech. If the Johnson & Johnson subsidiary elects to continue backing the development of imetelstat into Phase 3 trials, Geron will receive a guaranteed $135 million payout, as well the potential for further milestone payments.
From an investor's point of view, the binary nature of these payouts actually makes it easier to weigh up Geron's prospects than it would be for a more conventional company: Either Janssen Biotech continues to back imetelstat, which will send Geron's share price soaring, or it chooses not to pursue the trial into the next phase, in which case it is highly likely that Geron will fold.
The market for blood cancer treatment is projected to grow to $50 billion by 2020. Imetelstat could see peak revenues of $1 billion off of myelofibrosis and myelodysplastic syndrome treatments alone, so clearly there is clearly enormous potential here.
Major Catalysts Inbound
Johnson & Johnson's first quarter earnings for 2018 are due on Tuesday, April 17th. Along with the usual financial statements, the manufacturing giant is expected to present new clinical data from its pipeline. As Johnson & Johnson has consistently named imetelstat as one of its leading blockbuster-potential drugs and since Geron's management themselves have hinted that promising clinical results are forthcoming, it would be extremely odd for Janssen Biotech to not address the issue soon. Not doing so would be a major red flag.
In fact, the expectation of big news is likely what caused share price to jump by almost 13% towards the end of last week, as more investors with relatively high appetites for risk and willing to play the catalyst took positions ahead of this binary event. Obviously, this announcement will either make or break the company, so we strongly advise readers to seriously consider the downside risk of their investment before committing.
Investor's Eye View
Geron is the perfect poster child for the peaks and troughs of the biotech investing game. As the company is essentially a one-trick pony, any news concerning imetelstat will take on significantly more importance than it would if the company had a more diverse pipeline.
Ultimately, it is impossible to know whether Johnson & Johnson will continue its support for the development of imetelstat. A catastrophe could still be in the works. However, the promising comments from management suggest that Johnson & Johnson's decision will be a positive one for the company. Were this to happen, we see Geron's share price going to at least $7 per share, with great potential for further growth as the drug continues to move through the approval process. Abandonment could take shares down toward zero - or at least fire sale prices.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Like this article
Follow John Engle and get email alerts
Recommended for you:
Brad Thomas
My Oh My, 4 Spec Buys
Brad Thomas • Apr. 17, 2018 7:00 AM ET
