Is Geron Finally Onto Something?

What some investors might not know is that Geron (NASDAQ: GERN  ) turned 23 years old this year. And in all that time, it has never had a drug reach the market. Most biotechs in a similar situation would have gone bankrupt long ago, but Geron is alive and kicking. In fact, Geron's shares have more than doubled this year based on positive clinical trial results for the company's experimental cancer drug imetelstat, as a possible treatment for essential thrombocytopenia, or ET, as well as myelofibrosis, a form of blood cancer.

And what makes this dramatic turnaround so impressive is that most industry insiders believed Geron was doomed after the failure of its lead brain cancer drug GRN1005 late last year. Indeed, Wall Street dropped the stock nearly 50% in a single day upon announcing GRN1005's clinical failure and its plans to focus solely on imetelstat for hematologic malignancies.

So what makes Geron different?

Restructuring in late 2012 was a key development
After shuttering the GRN1005 development program and dropping imetelstat's solid tumor indications, CEO Chip Scarlett had little choice but to make some bold moves to keep the company alive. He decided to focus the company's remaining assets on imetelstat's hematologic malignancies, laid off 40% of the workforce, and changed a number of executives. Geron has continued reshaping itself this year by closing a deal to sell its human embryonic stem cell assets to BioTime (NYSEMKT: BTX  ) , and closing its research facility in California last April.

To save money, Geron decided to hire third-party research organizations, instead of keeping full-time research staff on its payroll and paying the massive overhead that goes along with running a research facility. The net result has been that Geron has not had to tap its $50 million At-The-Market Sales Agreement of Common Stock to fund its operations since the agreement was put into place in October 2012.

Prior to Scarlett's arrival, Geron was heavily criticized for repeatedly dumping shares on the back of positive clinical trial results, thus putting the brakes on rallies before they even got started. Geron's new managerial team appears keen to avoid this scenario and is intent on creating value for shareholders.

Is imetelstat a game-changing cancer drug?
One of the major consequences of this restructuring is that it left Geron with only two experimental indications for a single drug -- imetelstat. By putting all its eggs in the imetelstat basket, management is betting the drug is a game changer in terms of treating hematologic malignancies. The good news is that the clinical trials are returning impressive results thus far.

In mid-stage ET trials, patients receiving imetelstat showed a 100% hematologic response rate without any notable adverse effects. But what is most encouraging is that some patients in an early stage trial for myelofibrosis went into complete remission.

To date, Incyte  (NASDAQ: INCY  ) and Novartis'  (NYSE: NVS  ) Jakafi is the only drug approved by the Food and Drug Administration for myelofibrosis. And while Jakafi is effective at alleviating symptoms resulting from myelofibrosis and improving overall survival, it's never led to complete remission. In 2013, Jakafi sales are on track to exceed $200 million and sales are growing at a steady clip year over year.  So there is a lot to be excited about for Geron's imetelstat.

That said, it's important to remember that these are still early-stage results, and expectations should be tempered by the fact that many oncology drugs fail in larger late-stage trials. So imetelstat's game-changer status remains an open question.

Geron's future
Geron is also busy looking into additional hematological indications for imetelstat. My take is that management wants to make imetelstat a one-stop shop for hematological malignancies in order to give it multiple potential routes to blockbuster status.

Even so, I think management's ultimate goal is to make Geron an attractive buyout target. While it's certainly easy to draw comparisons to Gilead Sciences buyout of YM Biosciences for its mid-stage myelofibrosis drug, Foolish investors would be wise to look into Scarlett's track record as a CEO.

Basically, Scarlett is famous for selling his companies to the highest bidder. In short, I think Geron is a strong buyout candidate going forward, especially if imetelstat continues to show promise as a treatment for myelofibrosis.

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