When it comes to investing in new medical technologies, some of the most exciting and dynamic equities are companies that are involved in stem cell technology. There are several companies and firms that are working in the field of stem cells. Currently that number is roughly 300 entities engaged in the effort. Of those 300, only 2 companies have received the approval from the Food and Drug Administration (FDA) to conduct actual clinical trials using embryonic stem cells. Those companies are Geron Corp., (GERN) and Advanced Cell Technology (ACTC). ACTC has opted to use its stem cell technology to tackle macular degeneration within their clinical trials. In turn, Geron made a decision to test its stem cell technology on spinal cord injury patients, which is a much more ambitious project due to the complexity of that part of the nervous system.
Geron’s main catalyst is the spinal cord injury trials that are being conducted. Currently only two human test subjects are undergoing the stem cell treatments. The company plans to enroll up to ten test subjects across the nation. Initial Phase I test results on the first patient were recently released and showed that safety and tolerability of the tests were well within the acceptable ranges. The trials are such a high profile event that any reports of success or failure can really have a material impact on the share price. The current share price averages $5, but as further patients are enrolled and more information is released to the media the volatility of the share price will increase dramatically. Rightfully so, if the company is finally successful in helping patients with spinal cord injuries walk again, the price per share should appreciate well above current levels.
Geron, unlike other stem cell companies, also has other products in its pipeline. While a failure of the spinal cord trials would have a dramatically negative effect on the stock price, it would not be the end of the company. If the spinal cord injury trials were to fail, the company would have other products to fall back on. The company is currently advancing through multiple Phase 2 clinical trials for the anti-cancer therapies. On the stem cell front, it also has in development multiple therapies to treat such medical conditions as heart failure, diabetes and osteoarthritis.
1st Quarter Results
For the first quarter of 2011, Geron posted a loss of 20 cents per share. The revenue for the quarter was $1.5 million, which was most made up of license fees and royalties. In turn, the operating expenses total was $25.9 million. When compared with the first quarter of 2010, the operating expenses have made a healthy increase of 49%. When analyzing these figures, one is quick to see that Geron falls into the same category as many other biomedical companies that have a negative cash flow from operations. As a result, one must look to the cash burn rate for the company. At the end of 2010, Geron expended roughly $50 million and had current assets of roughly $200 million. When analyzed, results from the first quarter of 2011 cash flow statements show that the burn rate is close to the levels that was experienced in 2010. As 2011 continues, it is expected that the total expenditure costs will increase as further testing and related research cost will increased based upon the FDA trials. To help address the coming increase in costs, Geron was recently approved to get a Targeted Clinical Development Award totaling $25 million from the California Institute for Regenerative Medicine (CIRM). The funding will be used to offset costs related to the studies based upon the embryonic stem cells studies currently in Phase 1 trials.
Investing with Geron does come with significant risks. The primary risk though is if the spinal cord injury trials will prove to be successful or not. The spinal cord injury trial is so high profile that any failure on that front will likely be viewed as very negative for the stock price. Also, like several other biomedical companies, Geron cannot sustain its operations under its current revenue stream. So the question always becomes how long can it operate with the current cash on hand. Once those funds have been used, the company is forced to find a way to come up with more cash. Many companies will attempt to try to secure a joint venture (JV) with a larger company, but that often proves hard to do. Most often they will reissue new shares, which will dilute the current shareholders and drive the stock price down.