In November 2014, Geron (NASDAQ:GERN) entered into a collaboration agreement with Janssen Biotech (NYSE:JNJ) to develop Imetelstat for the myelofibrosis (MF), myelodysplastic syndrome (NYSE:MDS), and acute myelogenous leukemia (AML) diseases. Janssen's second Imetelstat trial (NCT02598661) involving MDS is underway, and it features a Phase 2/3 trial design that will both minimize trial expenses and expedite regulatory approval. The trial targets Low and Intermediate-1 risk MDS patients and features an 8-week primary outcome measure that was utilized by Celgene to gain 5q del MDS approval for lenalidomide (Revlimid).
As outlined in a prior article and summarized in the table below, Janssen could realize $1.1B per year of net sales following a second-line myelofibrosis regulatory approval. At this level of net sales, Geron would yield $175M of free cash flow (FCF) per year with the bulk of the $175M dropping to the bottom line (excluding taxes) due to Geron's minimal interest, depreciation, and amortization expenses.
Myelodysplastic Syndrome ((NYSE:MDS))
As illustrated in the table below, an Imetelstat approval for Low and Intermediate-1 risk MDS patients represents a $3.7B net sales opportunity for Janssen. At this level of net sales, Geron would yield $632M per year of free cash flow that would be available for corporate investment and/or return to shareholders. Based on 158M outstanding common shares, Geron would realize ~$4.00 per share of earnings (before income taxes).
Key inputs into the financial analysis include:
· Low and Int-1 risk categories represent ~70% of total MDS patients.
· US Imetelstat pricing of $130,000 per year is based on Janssen's pricing of Imbruvica. This is a reasonable pricing estimate as Celgene's lenalidomide (Revlimid) US price is currently $16,240 for a 28-day cycle which equates to ~$195,000/year.
· EU Imetelstat pricing of $68,500/year equals Celgene's capped EU price for Revlimid.
· Imetelstat's projected response rate of 38% is based on 3 of 8 transfusion dependent patients achieving transfusion independence (T-I) within Dr. Tefferi's pilot study.
· The use of the 11% sales discount rate is based on a recent Credit Suisse report, in which they determined Janssen's sales discounts for Imbruvica totaled 11%.
· An average royalty rate of 17.5% was utilized because the royalty rate will range from the mid-teens to the low-20s if Geron "opts in" per their agreement with Janssen.
The MDS financial projections may be conservative as they do not include potential sales into Russia, Asia, Brazil, or Mexico. These projections were omitted due to insufficient information regarding MDS patient populations and oncology drug prices.
MDS Comparison (Imetelstat vs. Lenalidomide)
Imetelstat demonstrated a 38% T-I rate in Dr. Tefferi's pilot study while Celgene's lenalidomide (Revlimid) realized a 27% T-I rate in a Phase 3 trial (NCT01029262) of 160 MDS patients. While the response rates were similar, the mix of patients in the respective trials (low-risk vs. high-risk) was quite different as illustrated in the table below.
Janssen's Phase 2/3 trial (NCT02598661) will exclude high-risk MDS patients in the same manner as lenalidomide's Phase 3 trial. Thus, Janssen may realize an improved response rate in the current trial due to the inclusion of low-risk patients and the exclusion of high-risk patients.
With regard to toxicity, the two studies yielded very similar rates of Grade 3-4 adverse events. In the lenalidomide trial, Grade 3-4 neutropenia and Grade 3-4 thrombocytopenia occurred in 61.9% and 35.6% of the patients, respectively. In the Imetelstat trial, Grade 3-4 neutropenia and thrombocytopenia were seen in 66% and 33% of patients, respectively with none of Imetelstat Grade 3-4 toxicities lasting beyond 4 weeks. One (1) patient with pre-existing cardiovascular disease history died while participating in the Imetelstat trial while three (3) patients died while participating in the lenalidomide trial.
Imetelstat has a good opportunity to gain regulatory approval for MDS based on the preliminary comparison to lenalidomide which has been approved for 5q delete MDS patients and will most likely gain approval in 2016 for Low and Intermediate-1 MDS patients based on their 27% T-I response rate. The speed in which Janssen is moving forward and the FDA's allowance of the Phase 2/3 trial design imply the experts and authorities are likely of the same opinion.
Acute Myeloid Leukemia (AML)
Janssen has already announced their intention to conduct a clinical trial involving AML patients. The trial will almost likely be based on Dr. Steven Lane's prior study involving Imetelstat in combination with Janssen's doxorubicin (Doxil) that was presented at ASH 2014. We don't know the exact trial design yet, but Janssen's May '15 investor presentation indicated the AML trial will be of the refractory / relapsed nature.
In addition to Dr. Lane's promising results, at least one (1 of 9) of Dr. Tefferi's AML pilot study patients had a very good response to Imetelstat when administered as a single agent. This data was not presented at ASH '15, but the response should better inform Janssen's upcoming AML trial design.
In summary, the studies by Dr. Lane and Dr. Tefferi suggest Imetelstat may benefit AML patients who are in desperate need of improved treatments.
Multiple Myeloma (MM)
Janssen will revisit Imetelstat as a treatment for multiple myeloma based on the following:
· Imetelstat and lenalidomide appear to have similar efficacy in MDS.
· Lenalidomide sales as a multiple myeloma treatment are ~$5B per year.
· There are ~96,000 multiple myeloma patients living in the US alone.
· Janssen highlighted the need for new therapies in their May '15 investor presentation.
· The majority of multiple myeloma patients are anemic at diagnosis with the remainder becoming anemic during their disease progression.
· Multiple myeloma patients with increased marrow fibrosis have a poorer prognosis.
· Multiple myeloma is one of Janssen's core focus areas.
· Geron's prior Phase 2 trial suggests Imetelstat will benefit multiple myeloma patients.
Geron has conducted two Phase 1 clinical trials (NCT00718601, NCT00594126), and a Phase 2 clinical trial (NCT01242930) to investigate Imetelstat as a treatment for multiple myeloma. The Phase 2 trial (NCT01242930) featured Imetelstat as a single agent therapy dosing at 9.4 mg/kg on days 1 and 8 of a 28-day cycle. According to Geron's 2012 annual report, the Phase 2 multiple myeloma trial was designed as a biomarker trial and not necessarily to directly enable further development of Imetelstat in multiple myeloma. Preliminary data from the multiple myeloma trial showed a rapid and significant decrease in myeloma progenitor cells with several patients experiencing delayed, but sustained, clinical responses as measured by standard criteria. Geron concluded the Phase 2 data supported the thesis that Imetelstat has a beneficial effect on malignant progenitor cells. However, given the results of the ET trial and the potential application of Imetelstat in other hematologic myeloid malignancies, Geron chose not to pursue development of Imetelstat in lymphoid malignances at that point in time. A summary of Geron's multiple myeloma results and commentary is shown below.
Multiple Myeloma Phase 2 Preliminary Results: (From Geron's 2012 annual report)
We designed a Phase 2 trial of imetelstat in patients with multiple myeloma to measure the effect of imetelstat on the progenitor cells responsible for the disease. This trial was primarily designed as a biomarker trial and not necessarily to directly enable further development of imetelstat in myeloma. The preliminary data from this trial, as of July 30, 2012, have been published in an abstract in the journal, Blood (ASH Annual Meeting Abstracts) 2012 120: Abstract 4898. The published data showed a rapid and significant decrease in myeloma progenitor cells that were detected in the blood over the course of imetelstat treatment in eight out of nine patients assessed. In addition, several patients experienced delayed, but sustained, clinical responses as measured by standard criteria. We believe these data support the thesis that imetelstat has a beneficial effect on malignant progenitor cells.
As reported in the abstract, as of July 30, 2012, six patients remained on study. Four patients were discontinued from imetelstat therapy after receiving a median of seven doses of imetelstat. Of these four, two patients discontinued due to disease progression and two patients discontinued due to hematologic toxicity. Cytopenias, or reduced blood cell counts, were the most frequently reported toxicities with eight of ten patients demonstrating Grade 3-4 thrombocytopenia and neutropenia during cycle 2, which in many cases required dose reductions or holds in subsequent cycles.
This trial is no longer enrolling patients, and we expect full clinical data from all patients enrolled in the multiple myeloma trial will be available in 2013. Given the results of the ET trial and the potential application of imetelstat in other hematologic myeloid malignancies, at this time, we do not have any plans to pursue further development of imetelstat in lymphoid malignances, including multiple myeloma.
We intend to expand our directed program of investigator-sponsored trials to other hematologic myeloid malignancies, including myelodysplastic syndromes and acute myelogenous leukemia. The specific design of these trials will be informed by preliminary data from the Mayo Clinic Trial. At this time, we do not have any plans to develop imetelstat in lymphoid malignancies, including multiple myeloma.
For the above reasons, Janssen is likely to revisit Imetelstat as a treatment for multiple myeloma in hopes of aiding patients and capturing a portion of Celgene's ~$5B per year of lenalidomide sales. Future trials would feature revised dosing schedules and may utilize Imetelstat in combination with Daratumumab or Velcade, both of which are approved multiple myeloma therapies that were developed by Janssen. It should be noted that Geron has patent protection involving the treatment of multiple myeloma via a combination of Imetelstat and Velcade until April 2025.
Geron retail investors are anxiously awaiting solid tumor trials involving Imetelstat in combination with a kinase or p21 inhibitor (e.g. Sorafenib) based on the 2014 UC/Yale study. With regard to solid tumor opportunities, Geron investors should be aware of three scenarios.
First, Janssen has already licensed a fibroblast growth factor receptor (FGFR) kinase inhibitor from Astex Pharmaceuticals for evaluation in solid tumors. FGFR is one of several kinases blocked by Sorafenib, and a 2014 publication involving hepatocellular carcinoma (NYSE:HCC) highlighted a potential correlation between Sorafenib responses and FGFR amplifications. A separate UCSD presentation on FGFR aberrations (slide #10) by cancer type indicates urothelial (33%) and breast (18%) cancer patients are most likely to exhibit FGFR aberrations. Thus, Janssen's urothelial cancer trial involving their FGFR inhibitor is logical. In summary, Janssen's licensed FGFR inhibitor may prove a good companion to Imetelstat in future solid tumor trials.
Second, the UC2288 compound utilized in the UC/Yale study lacks patent protection, and should be available to Janssen at a low (or zero) cost for further study. The UC2288 compound is described as a novel p21 attenuator that is structurally related to Sorafenib. In a surprising move, UC abandoned the patent application (US20110301192) following the USPTO's initial rejection. Thus, there is no US patent protection afforded to UC2288, and, similarly, there are no foreign patent protections afforded to the UC2288 compound. By way of the published and abandoned patent application, the teachings of this application are available for public use.
Finally, Janssen can most likely gain direct access to Sorafenib if they desire to evaluate the combination of Imetelstat and Sorafenib for solid tumors. The Sorafenib compound, and the relevant patents, is controlled by Bayer Healthcare. Janssen & Bayer are collaborating together on three (3) new FDA trials involving Xarelto, and I see no reason they couldn't team up again in order to evaluate an Imetelstat / Sorafenib combination.
Extended Patent Protection
Geron had the foresight to file a patent application (US20140163090) in Dec '12 just prior to the start of Dr. Tefferi's myelofibrosis pilot study. Following a detailed examination, the USPTO issued a formal Notice of Allowance on 10/2/2015 for the claims specific to MF, MDS, and CMML.
The patent was nearing issuance with an expiration date of December 7, 2032, but Geron recently (12/28/2015) filed a request for continued examination (RCE). A post-allowance RCE is typically made in hopes of being awarded a patent term adjustment (extension) based on a lengthy (>3 years) USPTO examination period. The issuance date and final expiration date of the patent are now uncertain, but, at a minimum, it appears Geron will secure patent protection involving the use of a telomerase inhibitor to treat MF, MDS, and CMML through December 7, 2032.
The extension of Imetelstat's patent protection by 7+ years (2025 to 2032) will serve to protect Imetelstat from competition in the primary MF and MDS indications, and, following regulatory approval, the new patent will extend the stream of net sales royalty income due from Janssen and significantly increase Geron's discounted cash flow (DCF) and/or aquisition valuation.
Geron's current share price is undervalued based on Imetelstat's probability of gaining regulatory approvals, patent protection, and the financial projections associated with future hematologic and lymphoid treatment opportunities.
Investor Risk Considerations
The financial analysis outlined in this article is largely based upon achievable (mature) sales figures associated with a second-line (R/R) treatment for myelofibrosis and a first-line treatment for Low & Intermediate-1 risk MDS patients in the US and European markets. Upon approval, Imetelstat sales are likely to ramp quickly due to Janssen's worldwide presence and expertise in commercializing pharmaceutical products. However, following a regulatory approval, Imetelstat's market penetration will be gradual, the actual rate of which is an unknown.
Geron has ~$147M in cash and investments and zero debt. With a cash burn rate less than $20M/year, there's no need for Geron to raise capital in support of 2016 operating expenses.
Geron is investigating potential acquisitions or partnerships involving oncology compounds, products, or companies for the purpose of new product development. The company's short-term strategic plan is clearly focused on the development of Imetelstat in collaboration with Janssen, but significant questions remain relative to Geron's long-term strategic plan.
The risk of another FDA clinical hold is believed to be low based on the unmet need associated with R/R myelofibrosis patients, the FDA's approval of Janssen's Phase 2/3 MDS trial design, and the FDA's previous (2014) comprehensive safety review and complete release of the full clinical hold.
Geron's biggest risk involves the "commitment level" of its collaboration partner, Janssen. This risk appears to be very low based on the following considerations.
· Janssen was selected by Geron over other prospective partners.
· Janssen negotiated a lucrative licensing agreement for Imetelstat during the time of (and in spite of) the FDA's previous clinical hold.
· Hematologic malignancies are one of Janssen's focus areas.
· Janssen's second-line R/R myelofibrosis trial features 70+ clinical trial sites and has been registered with multiple international regulatory agencies.
· Janssen's first-line MDS trial already features 49 trial sites and has been registered with multiple international regulatory agencies.
· Janssen has publicly stated plans to file for Imetelstat's regulatory approval in 2017.
Disclosure: I am/we are long GERN.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.