Geron Announces Termination of Janssen Collaboration in Blood Cancer

~ Geron regains global rights to the imetelstat program and will focus on initiating Phase 3 studies ~

We’ve discussed Geron GERN previously in this space in recent months, initially in June with an overview of the imetelstat program in the common blood cancers of myelofibrosis (MF) and myelodysplastic syndromes (MDS) and following up in July with our thesis that Johnson & Johnson’s JNJ Janssen Biotech unit would decide to continue its collaboration. This morning, Geron ended months of speculation with the announcement that Janssen has decided to discontinue the agreement as “the result of a strategic portfolio evaluation and prioritization of assets.”

Those of you who follow this stock closely have witnessed the extreme volatility endured by investors. During just the nine-week period between our last discussion on July 18 and yesterday, Sept. 26, GERN stock increased from $3.59 to $6.23, a 74% rise fueled by investors’ belief that Janssen would decide to continue the collaboration and aided in no small part by the significant short interest in the stock—over 63.4 million shares according to the most recent Nasdaq data—about 34.5% of shares outstanding. Investors on the short side had reason to celebrate finally today, as the summer gains were wiped out in the wake of this news. The stock traded down to as low as $1.50 pre-market before settling mid-afternoon to the $2.30 level.

Janssen will provide operation support over the next 12 months for the orderly transfer of all ongoing clinical, regulatory, medical affairs, manufacturing and preclinical activities to Geron. Additionally, Janssen will supply imetelstat to Geron for up to 24 months during a transition period for clinical manufacturing. Geron now anticipates 2018 operating expenses to be about $37 million, up from the previous guidance of $30 million, as it hires additional personnel and service providers to support the development of imetelstat. The company had $183 million in cash and marketable securities as of August 31, 2018, which is expected to be sufficient to support its plans to initiate a Phase 3 study in MDS in 2019.

The punchline is that Geron now regains global rights to imetelstat, and CEO John Scarlett, MD, made it clear that the company is squarely focused on initiating Phase 3 trials in MDS (known as the IMerge study) if not MF (IMbark study).

We are grateful for the collaboration with Janssen, who successfully managed two Phase 2 trials of imetelstat. We believe the clinical results from IMbark provide valuable insights into the potential future development of imetelstat for an underserved relapsed and refractory myelofibrosis patient population. We also believe the combined data of 38 patients from the initial and expansion cohorts for the target patient population from the Phase 2 portion of IMerge support further development of imetelstat, and we are therefore prioritizing the initiation of the Phase 3 portion of IMerge.

– John A. Scarlett, MD, President and CEO, Geron

Next milestones?

Despite the evidence we analyzed that pointed to a Janssen continuation, we were clearly wrong in our conclusions. We have been reading today that short investors feel vindicated, but their total return obviously depends on the levels at which they initiated their positions. It would be instructive to know how many short investors initiated a position in July or August, and held on while suffering losses week after week, until today.

For those still on the long side, are there still reasons to be optimistic? We suspect that the stock will trade relatively quietly and sideways for the next two months. The next key date for investors is the 60th annual meeting of the American Society of Hematology (ASH) to be held December 1-4, 2018. Geron said today that Janssen submitted detailed results from the Phase 2 IMerge trial in MDS as an abstract for potential presentation at the ASH meeting.

On a conference call this morning, Dr. Scarlett said that the details of the abstract submission are on strict embargo. If the abstract is accepted for presentation at ASH, Geron expects more mature data from the target patient population to be included in the ASH presentation. The deadline for abstract submissions is October 30, 2018, so ASH will make acceptance decisions sometime in November. This would be the next milestone for Geron, and one for which long investors should keep close watch. Geron would not have submitted the data to ASH without good reason.

Dr. Scarlett also stressed on the call today that Geron is fully prepared to pursue the development of imetelstat alone but that it would continue to explore partners at the appropriate time, with a focus on a partner for commercialization outside the US. While Janssen’s decision to opt out is a blow for long investors, we believe the investment thesis rests on (1) the Phase 2 data is strong enough to warrant a Phase 3 trial, (2) Geron has enough in the bank to continue to fund development of imetelstat and (3) the market for blood cancers is large enough to attract another deep-pocketed partner. We believe it would be premature to sound the death knell for Geron just yet, and look forward to seeing what transpires leading up to the ASH meeting.

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DISCLOSURE: The author has no positions or any other beneficial interest in the companies mentioned in this article.