The Beneficiaries of Geron's Exit From Stem Cell Therapy

by: Timeless Wealth

Geron Corporation (NASDAQ:GERN) said on Monday that the company would be discontinuing their stem cell programs to focus on developing "first-in-class oncology" products - a decision that did not sit well with shareholders. Shares of the stem cell research pioneer fell over 17.27% in after-hours trading. Geron said the company would cut 38% of its workforce in line with the restructuring decision.

But the news isn't all bad. In fact, it bodes particularly well for InVivo Therapeutics (NASDAQ:NVIV), a biotechnology company developing a novel biopolymer scaffolding device to treat spinal cord injury (SCI). Geron's GRNOPC1, a Human Embryonic Stem Cell (hESC) therapy, was in Phase I trials for the same indication - before Geron pulled the plug on the program. Geron had planned to invest at least $24.85 Million over the next 3 years to develop GRNOPC1, according to the company's latest quarterly filing with the SEC.

Investors who sought exposure in stem cell research allocated capital and vested in Geron Corporation. And just as their clinical focus has shifted, so will investors' dollars. Aastrom Biosciences (ASTM), StemCells (STEM), and Pluristem (NASDAQ:PSTI) are a few regenerative-medicine firms that could be the beneficiaries of a shift in assets. InVivo Therapeutics, similarly, is the only pure-play SCI company, and non-coincidentally, one that recently signed on Dr. Edward Wirth, who led the world’s first human embryonic stem cell clinical trial as Medical Director for Regenerative Medicine -- at Geron (see a more comprehensive overview of InVivo Therapeutics here).

Medivation (NASDAQ:MDVN) serves as a great example of how investors reallocate capital. When the company reported stellar clinical results from a prostate cancer trial, shares of the company soared. At the same time, investors began to sell allocations in Dendreon (NASDAQ:DNDN), which saw a second consecutive quarter of dismal sales of its pricey prostate cancer therapy (see David Zanoni's briefing on this topic). Invariably, the story with Geron is much the same.

Yet an unsettling air surrounds the entire ordeal. Why would the company that pioneered the field be the first to stage an exit? Perhaps the silver lining in this is that stem cell therapy does not hold the promise researchers once thought it did. So what we're seeing now is a shift in resources by Geron's top management.

Disclosure: I am long NVIV.OB and DNDN.