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Geron Corporation ( GERN - Analyst Report ) announced that it has signed an Asset Contribution Agreement with BioTime, Inc. ( BTX ) and BioTime's recently formed subsidiary, BioTime Acquisition Corporation (BAC).
Per the terms of the agreement, Geron’s stem cell assets will be divested to BAC on the closing of the deal. The deal is scheduled to close by September 30, 2013.
Once the deal is closed, Geron will provide BAC with the intellectual property and other assets related to its discontinued human embryonic stem cell programs. BioTime will provide BAC with cash ($5 million), shares (8.9 million), warrants to purchase 8 million shares at a price of $5.00 per share, rights to use certain human embryonic stem cell lines, and minority stakes in two subsidiaries of BioTime.
Meanwhile, Geron stockholders would have a 21% stake in BAC. Geron will also be entitled to receive royalties on the sale of products covered by the patents acquired by BAC from Geron.
Apart from Geron, BioTime would have a 72% stake in BAC and the remaining 7% would be owned by a private investor (for an investment of $5 million). BioTime will also have warrants which would allow the company to increase its stake in BAC by 2%. However, this would lead to a 2% dilution in Geron’s stake.
Geron, an erstwhile leader in stem cell research, had announced its intention to exit the stem cell therapy market in mid-Nov 2011. The company’s decision was based on a strategic review.
Neutral on Geron
We currently have a Neutral recommendation on Geron, which carries a Zacks Rank #2 (Buy). The company suffered two pipeline setbacks in 2012 – the first when its phase II breast cancer study with imetelstat had to be discontinued and the second with the scrapping of the second candidate in its pipeline – GRN1005. The company now has only imetelstat in its pipeline. Although the company presented promising results on the candidate in December 2012, we prefer to remain on the sidelines until we gain more visibility on the late-stage development potential of imetelstat.
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