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Geron Corporation (GERN - Analyst Report) posted a net loss of 13 cents per share in the third quarter of 2012, narrower than the Zacks Consensus Estimate of a loss of 14 cents and the year-ago loss of 16 cents. Third quarter revenues of $636,000 were well above the Zacks Consensus Estimate of $200,000 and the year-ago revenues of $220,000. Higher revenues and a significant decline in expenses led to the narrower loss.

Quarter in Detail

Revenues consisted entirely of royalties and license fees. Geron has several license agreements with various oncology, diagnostics, research tools, agriculture and biologics production companies. Geron did not recognize any revenues from collaborative agreements in the reported quarter.

Total operating expenses declined 18.1% to $16.5 million. Research and development expenses declined 28.5% to $11.7 million due to reduced personnel-related costs and lower scientific supply expenses resulting from the discontinuation of the stem cell programs. Meanwhile, general and administrative expenses increased 26.7% to $4.8 million. Higher legal and consulting fees associated with the company`s intellectual property portfolio and the efforts to divest the stem cell portfolio led to the increase in general and administrative expenses.

In November 2011, Geron had announced its intention to exit the stem cell research market. The company, which was a leader in stem cell research, intends to focus on its oncology programs instead. In October 2012, BioTime, Inc. had issued an open letter to Geron's stockholders regarding the company’s stem cell assets. In its letter, BioTime had come up with a series of transactions that would result in the transfer of Geron’s stem cell assets to a subsidiary of BioTime. Geron is currently reviewing the proposal.

During 2012, Geron expects cash usage of about $65 million, which means the company should exit the year with about $90 million in cash and investments. Geron is currently reviewing all its programs to determine the proper allocation and usage of funds. The company expects to complete the review by year end. While Geron did not provide specific guidance for 2013, it said that it expects its 2013 burn rate to decline compared to 2012.

Key candidates in the company's oncology program include imetelstat and GRN1005. GRN1005 is in two phase II studies – one in breast cancer patients with brain metastases and the other in non-small cell lung cancer patients with brain metastases. While top-line data from the breast cancer study should be out in the second quarter of 2013, the non-small cell lung cancer study is currently running behind schedule due to slower-than-expected patient enrolment.

Geron said that it is evaluating the viability of continuing with the study given the enrolment challenges.

Meanwhile, imetelstat is being studied for hematologic malignancies - two single-arm phase II trials are ongoing, one in essential thrombocythemia (ET) and the other in multiple myeloma.

As far as the solid tumor indication is concerned, Geron had announced the discontinuation of a randomized phase II study of imetelstat in metastatic HER2-negative breast cancer in September 2012. Although the company is continuing with a randomized phase II study in advanced non-small cell lung cancer patients, it does not expect the study to achieve the pre-specified success criteria. As a result, the company does not expect to move imetelstat into phase III studies for the non-small cell lung cancer indication unless subsequent analysis shows significantly different data.

Neutral on Geron

We currently have a Neutral recommendation on Geron. Geron suffered a huge setback in September with the discontinuation of imetelstat for breast cancer. Given the imetelstat update, we have low expectations from this candidate and expect investor focus to shift entirely to GRN1005. The company expects to present interim data from the GRN1005 breast cancer trial (GRABM-B) in early December. We prefer to remain on the sidelines until we see data on GRN1005.
 

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