Geron Corporation

Moat: 2/5

Understandability: 3/5

Balance Sheet Health: 4/5

A clinical-stage biopharmaceutical company focused on the development and commercialization of novel therapeutics for hematologic malignancies, specifically blood cancers.

Investor Relations Previous Earnings Calls

The moat, understandability, and balance sheet health scores reflect a conservative evaluation to ensure a margin of safety in any assessment.

Business Overview

Geron Corporation is a biopharmaceutical company dedicated to developing and commercializing innovative therapies for blood cancers. Their focus is on telomerase inhibition, a relatively novel approach in oncology, with a pipeline centered around their lead product candidate, Imetelstat.

  • Revenues: Geron does not have any products on the market that generate revenue. They are entirely reliant on the success of their clinical trials and potential future commercialization or collaboration agreements. Therefore, their revenues consist mostly of interest income and any gains that happen from investments or equity transactions. They also receive small amounts of revenue through collaboration agreements.

  • Industry Trends: The biopharmaceutical industry, particularly in oncology, is marked by high research and development costs, long development timelines, and a high risk of failure. The trend toward precision medicine and personalized therapies creates both opportunities and challenges for smaller companies like Geron, as they need to demonstrate not only clinical efficacy but also target specific patient populations.

  • Margins: Geron has not generated consistent operating revenue as it is in the clinical development stage. Currently, there is a lack of relevant margin information.

  • Competitive Landscape: Geron operates in a highly competitive industry that includes both established pharmaceutical giants and other biotechnology firms. Key competitors in MDS or other cancer treatment areas may include companies developing targeted therapies such as inhibitors, cell-based therapies like CAR T, or other treatment modalities, each with its own advantages and disadvantages. They are also working in areas where a great deal of innovation has already been done.

  • What Makes Geron Different?
    • Telomerase Inhibition Technology: Geron’s primary differentiator is their focus on telomerase inhibition, a mechanism of action that is not pursued by many other companies. Telomerase is an enzyme that enables cancer cells to achieve limitless growth. Therefore, Geron’s technology has the potential to stop this process.
    • Imetelstat: Their lead drug candidate targets hematologic malignancies specifically myelodysplastic syndromes (MDS), a type of blood cancer.
    • Focus on Specific Clinical Need: By focusing on the treatment of blood cancers, Geron aims to address an unmet clinical need. Many of the other treatment options are not very effective for a large number of patients.
  • Recent Concerns / Controversies and Problems:
    • Regulatory setbacks: The company has historically struggled to achieve regulatory approvals, and have previously withdrawn applications before. The company has also had clinical holds by FDA previously.
    • Funding Issues: As there are no marketed products, the company has to consistently rely on capital markets or other types of funding to continue operations. This poses a risk to the continuity of the business.
    • Trial delays or failures: The company needs to show efficacy of its drugs through human trials, and there is a substantial risk of these trials having issues and delays.
  • Management’s view on current concerns/problems:
    • Management continues to see a high unmet need for a treatment that will benefit patients with MDS and other blood cancers. They believe Imetelstat has shown very encouraging results and if approved, could significantly change the course of treatment for these patients. They are working to address all outstanding safety concerns to satisfy all regulatory authorities.

Moat Analysis: 2 / 5

Geron’s moat is not particularly strong due to the following:

  1. Intellectual Property: While Geron has intellectual property rights, these can be challenged or become less relevant if competitors develop superior alternatives. In the highly-innovative field of biotech, patents or technological leads may not provide long term competitive advantages. The drug or treatment has to be more effective and more safe than existing treatments. If the drug or treatment is only incrementally better than the existing treatment, the pricing power will be severely diminished or non-existent.
  2. First-Mover Advantage: While Imetelstat is a leader in telomerase inhibition, there isn’t a monopoly on the space or similar treatment types. As there are few competitors, another innovative treatment can quickly come and steal the first-mover advantage. Therefore this lead doesn’t necessarily provide much of a competitive advantage.
  3. Switching Costs: The treatment has to be given by trained medical personnel, and they are extremely unlikely to change to another therapy unless the new treatment shows substantial benefits in terms of either efficacy or cost. There aren’t strong switching costs that can protect them if their drug doesn’t have a significant impact over other options.
  4. Brand Recognition: While Geron’s name may be familiar to the medical community, it does not yet enjoy any form of consumer recognition or brand loyalty. There is no brand power to defend its treatments or drive higher prices.
  5. Network Effect: There is no network effect in the pharmaceutical and biotech industries.

Legitimate Risks to the Moat and Business Resilience

  1. Clinical Trial Failures: Clinical trials are inherently risky. If Imetelstat fails to demonstrate safety and efficacy in its ongoing trials, it would have a severe impact on the firm’s value.
  2. Regulatory Hurdles: Obtaining FDA approval is a complicated, time-consuming, and expensive process. Any regulatory delay or rejection would delay commercialization for several years, and severely harm the value of the company.
  3. Competition: The oncology and hematological malignancies treatment market is extremely competitive. The risk is that better alternatives, new drugs, or novel treatments might come to market and make the existing ones obsolete.
  4. Financial Instability: Since Geron does not generate any meaningful sales revenue, it is entirely reliant on outside funding. Any funding problem could mean that the company will be unable to execute its research and commercialization strategy or go bankrupt.
  5. Technological Obsolescence: The development of newer and more advanced technologies may make their existing technology obsolete. Any new mechanism that effectively targets cancer could lead to a fast decline for Imetelstat.

Business Resilience

Geron’s business resilience is fairly low. It is not generating any sales, profits, or cash. Thus, a negative result in a clinical trial could completely wipe out shareholder equity. Since Imetelstat is its core offering, its ability to pivot is limited. The only positive is that they are working in areas where there is a large unmet need, which makes the treatment more valuable. However, value only applies if their treatments work.

Financials

  • Cash Position: Geron has a sufficient cash position to continue operations in the short term. As of September 30, 2023, cash, cash equivalents, and marketable securities were $262.4 million. However, the company had net losses in 2023 and 2022. Therefore, at its current burn rate, cash will be slowly depleted.
  • Debt Level: Geron has no substantial debt obligations. However, they do have substantial liabilities, including those related to leases and some contractual liabilities. They also have share-based compensation expenses, with an increase seen since previous filings.
  • Losses: The company is not generating profit and had a net loss for the recent 3 months, of $-178 million, and a net loss for the last 9 months of $-485 million, which is extremely high. This is a very big negative, and given the lack of revenue it indicates that the company is likely to burn through its remaining cash over the next few years. The company can be forced to do more dilutions, which would further decrease shareholder value.
  • Research and Development Expenses: For the three months ended September 30, 2023, research and development expenses was $46.3 million and for the nine months ended September 30, 2023, was $139.7 million, which is very high, but as they are a company focused on drug development, such high spending is expected.
  • Operating Expenses: There are multiple other operating expenses, including sales and marketing, which indicates that they are ready to commercialize their drugs if they get approval from the regulators. These totaled $17.6 million for the recent 3 months and $54.6 million for the recent 9 months.

Understandability: 3 / 5

  • The concept of telomerase inhibition is somewhat complex, so some investors may have difficulties assessing its potential.
  • The underlying science is relatively complicated. The understanding of cell biology, biochemistry, and oncology research is essential for a complete understanding of Geron’s lead product.
  • However, the general concept of “moat investing” and the business risks involved are not particularly hard to understand for investors familiar with the industry.

Balance Sheet Health: 4 / 5

  • Geron has enough cash and liquid assets to continue for at least a few years. Its high levels of cash without a lot of debt are positives.
  • However, the constant high spending and complete lack of revenue streams is concerning. The company is burning a lot of cash, and has to continue to raise money to keep going.
  • Therefore, overall its balance sheet is a fairly healthy one, but only for the near term. However, its future viability is dependent on the success of its drug trials, which makes it a risky venture.