Geron (NASDAQ: GERN ) has had a wild ride this year, bouncing between a 52-week low of $0.98 in April all the way to a high of $7.79 earlier this month. Investors who held on to shares through that volatility ended up with a 230% year-to-date gain -- not bad for a development-stage biotech with only one viable drug candidate.
Geron's main drug, imetelstat, is a telomerase inhibitor. Telomerase is an enzyme that enables rapid cell division for normal growth. They are the most active during the embryonic phase. In adulthood, telomerase maintains the length of telomeres -- the protective caps on each end of a chromosome in a cell's nucleus -- which determine how many times a cell can ultimately divide.
Geron's approach with imetelstat is to target the telomerase that helps cancer cells stay alive and proliferate. However, this approach is highly experimental, and no telomerase inhibitor has ever been approved.
Considering that its most promising treatment is still in early and midstage trials, why did Geron rebound from less than a dollar to its highest price since 2010? In addition, how will Geron's unexpected comeback affect industry peers Novartis (NYSE: NVS ) , Incyte (NASDAQ: INCY ) , and Celgene (NASDAQ: CELG ) in the coming year?
Reason No. 1: Learning from the mistakes of the past
Geron was originally focused on development of embryonic stem cell treatments, which are more controversial than the use of placental stem cells.
However, Geron completely discontinued stem cell operations in 2011, deciding to focus all its research and development efforts on two drugs -- imetelstat, a treatment for non-small cell lung cancer (NSCLC), breast cancer, essential thrombocythemia, and multiple myeloma; and GRN1005, a treatment for brain metastases from NSCLC and breast cancer.
In October 2013, Geron sold its entire embryonic stem cell pipeline to BioTime's (NYSEMKT: BTX ) new subsidiary Asterias Biotherapeutics, in exchange for a 21.4% stake in Asterias and undisclosed royalties on commercialized treatments.
Unfortunately, Geron's new dedication to imetelstat and GRN1005 didn't pan out. In September 2012, Geron halted clinical studies for imetelstat as a treatment for breast cancer and NSCLC -- eliminating two of its most promising indications. In December 2012, Geron scrapped GRN1005 due to a lack of efficacy during phase 2 trials.
As a result of those two huge disappointments, shares of Geron plunged from $2.90 to $1.06 between September and December 2012.
Reason No. 2: A surprising announcement in August
Although the odds were heavily stacked against Geron at the beginning of 2013, the company didn't give up on imetelstat. The drug remained in phase 2 trials for essential thrombocythemia and multiple myeloma -- indicating that there could still be a future for imetelstat in blood disorders.
However, what sparked Geron's massive rally this year was an announcement in August that it had been testing imetelstat as a treatment for myelofibrosis, a bone marrow disorder that interferes with the body's natural production of blood cells, in a phase 1 study at the Mayo Clinic.
The current market for myelofibrosis is very narrow, dominated by Celgene, Novartis, and Incyte. Since myelofibrosis often leads to anemia and an enlarged spleen, Celgene's Revlimid and Thalomid are frequently prescribed. However, those two drugs are not dedicated treatments for myelofibrosis -- they are approved for other blood disorders, such as multiple myeloma, and can weaken the patient's immune system.
Incyte and Novartis' Jakavi (known as Jakafi in the United States), approved by the FDA in November 2011 and by the EU in August 2012, was the first dedicated treatment for myelofibrosis. Jakavi targets a mutation of janus kinases, or JAKs, proteins that are believed to cause the disease with overactive signals. However, since Jakavi attempts to inhibit all JAK-related genes in the body, even in healthy cells, it can decrease levels of red blood cells and increase the risk of bleeding and infection.
In other words, current myelofibrosis treatments are far from perfect and could represent a golden opportunity for imetelstat. Incyte reported $60.2 million in U.S. sales of Jakafi last quarter -- a 38% year-over-year gain indicating robust market demand.
Reason No. 3: Encouraging developments in December
After Geron's announcement in August, the company became a polarizing topic among biotech investors.
The bulls believed that Geron could get things right this time around, while the bears suspected this was just another glimmer of hope that would fizzle out like the stem cell and cancer projects before it.
Earlier this month, however, Geron announced that five of the 22 patients in the Mayo Clinic study achieved partial or complete remissions, while 41% responded to the therapy, meaning that they exhibited a response in their bone marrow and a partial reduction in spleen size. The second fact is notable, since Jakavi was initially approved based on its ability to significantly reduce spleen size by up to 35%.
Shares initially soared on Dec. 6 following the announcement, but the stock has since plunged 30% after the euphoria wore off. Five big questions were likely on investors minds:
Can a test on a small group of 22 patients accurately prove imetelstat's efficacy?
Will Geron, which only has $66 million in cash and equivalents, eventually deliver a share-diluting offering to fund a larger phase 2 trial?
Will Geron be the first company to prove that telomerase inhibitors are a viable treatment?
Even if approved, will imetelstat even be considered a viable alternative treatment to Jakavi/Jakafi?
Will other experimental myelofibrosis treatments, like Gilead Sciences' momelotinib (another JAK inhibitor), or Novartis/Incyte's new oral JAK inhibitor, reach the market first and render imetelstat irrelevant?
Those uncertainties paint a murky picture for Geron's future. There is only one real certainty in all of this -- this is an all-in bet that will make or break the company.
The Foolish takeaway
In a nutshell, there are two takes on Geron -- either the "third time's the charm," or "three strikes and this stock's out."
Geron's failures with stem cells and cancer treatments are still fresh on investors' minds. After all, this is the same company that hit a dot-com bubble high of $68 back in 2000 on hype that embryonic stem cells would be the future of medicine.
In my opinion, it's still far too early to tell where Geron is headed. Investors looking to invest in myelofibrosis treatments might want to stick with Incyte, Novartis, or even Celgene instead.
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