Hi Jeff,
Whether GERN will be liable will remain to be seen, of course. I am happy to send you a copy of a filed complaint if you shoot me your email to jgrabar@grabarlaw.com. You can read and evaluate the complaint for yourself.
As alleged in the complaint, however, Geron was developing imetelstat in partnership with Janssen Biotech Inc. (“Janssen”), a division of Johnson & Johnson. During the Class Period, Janssen would decide
whether to continue to partner with Geron on imetelstat. If Janssen decided to continue with the
collaboration, it would owe Geron an upfront payment of $65 million, with hundreds of millions
of dollars in additional milestone payments possible. Janssen would make its decision based in part on the results of the IMbark trial. Janssen was conducting that trial under the supervision of the Joint Steering Committee (“JSC”) consisting of both Geron and Janssen employees. The JSC conducted an internal, nonpublic review of the IMbark results in March 2018. That review showed that IMbark was a failure.
The two primary endpoints for the study, the results which would determine whether the study was successful or not, were: (i) the spleen response rate, which measured the reduction in spleen swelling, and (ii) a composite of various symptoms called the Total Symptom Score (TSS). In order for IMbark to succeed, patients in the study needed to show at least a 35% reduction in spleen volume and a minimum 50% reduction in TSS. The actual results of the IMbark study were a disappointing 10% for the spleen response rate and 32% reduction in TSS—not even close to the results required for success.
These poor results boded ill for both the future of imetelstat and for Geron’s partnership with Janssen.
When Geron held a conference call with investors on March 19, 2018, however, defendant Scarlett, Geron’s President and CEO, chose to tout the median overall survival of patients in IMbark, one of the study’s fourteen secondary endpoints. Generally, a median value is that which separates the lower half and upper half of a data set. In this context, it referred to the amount of time that elapsed before half of the patients in the study had passed away. Scarlett announced that the median overall survival had not been reached after nineteen months, meaning that the final median would almost certainly be greater than nineteen months. He further claimed that, in comparison, an analysis of “real world” data showed that patients with myelofibrosis
who discontinued or no longer responded to their medication showed median overall survival of
just seven months.
Not surprisingly, Scarlett’s encouraging statements about the IMbark study caused Geron’s stock price to increase more than 28% in one trading day. While defendant Scarlett is free to tout “positive” information about IMbark, under the federal securities laws he is bound to do so in a manner that will not mislead investors. This responsibility includes disclosing any additional adverse information that cuts against the
voluntarily revealed, positive information. In this case, there was no adverse information more
significant than the actual results of the IMbark study, which were known to Defendants at the time. It was a failure. Moreover, Defendants knew, but failed to disclose, that the “real world” survival data that Scarlett was touting was itself misleading due to the disease characteristics of the patients in that study when compared to those in IMbark.
A week later, on March 27, 2018, a biotech journalist published an article which called out Scarlett and Geron for misleading the market with their statements on March 19, 2018, and for failing to disclose IMbark’s primary endpoint data or the baseline disease characteristics of patients in the study, all of which would help investors evaluate Defendants’ encouraging
claims.
On this news, Geron shares, which had closed at $5.98 per share on March 26, 2018, dropped 29% over the next two days to close at $4.23 per share on March 28, 2018.
This partial disclosure of Defendants’ deception, however, did not fully reveal the extent of the alleged fraud with respect to IMbark. Indeed, Defendants were undeterred and continued to push the misleading increased survival rate narrative at a March 27, 2018 Healthcare Conference and in the Company’s Q1 and Q2 Form 10-Qs filed on May 10, 2018 and July 31, 2018. At the same time, they continued to hold back the results of the IMbark study and other information which would have allowed investors to evaluate Defendants’ positive spin
on the study’s secondary results.
As a result, the price of Geron common stock continued to trade at artificially inflated levels. Geron took advantage of the inflation that it created by selling more than $83 million of its common stock to unsuspecting investors during the second quarter of 2018. On September 27, 2018, Defendants issued a press release finally admitting that IMbark was a failure. Geron disclosed that patients in the IMbark study had shown only
10% spleen volume reduction and 32% TSS reduction. Not coincidentally, Defendants further announced that Janssen had decided to terminate its partnership with Geron. In response to these belated disclosures, the price of Geron’s stock plummeted from $6.23 per share to $2.31 per share the next day, a decrease of over 62%.
Best,
Josh
