Image source: Getty Images.

What happened

Shares of Geron Corporation (GERN 1.07%), a small-cap clinical-stage biotech company with a focus on developing therapies to treat cancer, fell 16% during September, according to data from S&P Global Market Intelligence. The majority of the decline can be traced to Geron's Sept. 12 update for its two ongoing studies involving lead drug imetelstat.

So what

On Sept. 12, Geron provided updates on the two clinical studies being run by licensing partner Johnson & Johnson (JNJ -0.64%) on imetelstat.

The first study, IMbark, is a phase 2 trial that's evaluating two doses of imetelstat as a treatment for myelofibrosis, a rare cancer type that leads to the scarring of bone marrow. Geron announced that the lower-dose study at 4.7 mg/kg would be discontinued after demonstrating insufficient efficacy, but that the higher-dose 9.4 mg/kg warranted further consideration because of encouraging efficacy data trends. However, not enough patients in this arm met the predefined 12-week interim criteria, meaning further enrollment is being put on hold until 24-week data can be analyzed, which should be available during the second quarter of 2017.

The second study, known as IMerge, is a phase 2/3 trial examining imetelstat as a treatment for myelodysplastic syndromes. The first part of this study, which is the phase 2 open-label study in about 30 patients, is fully enrolled. An interim analysis of IMerge is also expected to occur during the second quarter, which is where Johnson & Johnson will determine if IMerge will move into phase 3 trials. If J&J elects to move forward, enrollment of the roughly 170 patients would begin in mid-2017.

It appears that what investors really didn't care for was the lack of efficacy in the low-dose arm of IMbark, as well as the inability of the higher dose to meet the 12-week defined criteria in myelofibrosis. This delay isn't a big deal for Johnson & Johnson which has dozens of revenue channels, but it's bad news for Geron which has essentially bet the boat on imetelstat and has only a finite amount of cash on its balance sheet.

Image source: Getty Images.

Now what

Though the risks are clearly high with Geron leveraging so much of its future on one drug, it could represent an intriguing value here considering its early stage success.

If you recall, Geron announced in early stage trials that imetelstat had led to partial and complete objective responses in some myelofibrosis patients. Comparatively, no prior clinical therapy had ever incited an objective response in patients with myelofibrosis. In fact, the only Food and Drug Administration-approved therapy, Novartis' Jakafi, works solely to abate the symptoms caused by the disease, such as an enlarged spleen. It does absolutely nothing with regard to halting disease progression. In many was imetelstat could be a game-changer for patients with this rare form of cancer, assuming it holds its efficacy in the IMbark study.

Geron and J&J also stand to earn a pretty penny if everything goes as planned. Geron's deal with Johnson & Johnson included $35 million in upfront cash, and up to $900 million in various development, regulatory, and sales-based milestones. Meanwhile, Johnson & Johnson could have the opportunity to add another blockbuster drug to its arsenal by 2018 or 2019 if imetelstat proves successful in clinical trials.

Investors should understand that success isn't guaranteed, and without imetelstat Geron could be in serious trouble. However, based on its early stage efficacy and the backing of J&J, I'd encourage biotech-savvy investors with a high tolerance for risk to give Geron a closer look.