In case you haven't been paying attention, Geron Corporation (NASDAQ:GERN), a tiny biotech company developing the telomerase inhibitor imetelstat for hematological malignancies with Johnson & Johnson's (NYSE:JNJ) biotech wing Janssen, has transformed into the most hotly contested stock within biotech over the last month. 

The catalyst? On March 19, Geron announced its fourth-quarter and full-year earnings, wherein the company noted that imetelstat had still not reached its median overall survival in a trial for relapsed and refractory myelofibrosis patients at a median follow-up time of 19 months, per a Jan. cutoff date.

A man in a suit holding a toy bear in one hand and a toy bull in the other.

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During the company's accompanying conference call the following Monday, CEO John Scarlett expounded upon these results by saying that "an analysis of real world data conducted by Janssen and presented at ASH in 2016 reviewed treatment patterns and outcomes of MF patients from two U.S. medical claims data basis. This analysis suggested that once patients fail or discontinue ruxolitinib mean overall survival is approximately seven months."

Immediately afterwards, Geron's stock skyrocketed on imetelstat's rosier outlook. Predictably, short-sellers chimed in soon thereafter, causing Geron's stock to pull back from its recent highs. 

Are the bears right about this battleground stock? Let's dig deeper to find out. 

The bear argument

The only Food and Drug Adminstration-approved treatment for primary myelofibrosis is Incyte's (NASDAQ:INCY) JAK1/2 inhibitor Jakafi (ruxolitinib). While Jakafi does reduce spleen volumes in a meaningful way and it has been positively associated with longer life-spans, most patients stop responding to it within five years. At that point, patients are left with few viable treatment options, resulting in an exceedingly poor prognosis going forward.

From a historical perspective, the peer-reviewed studies on the matter report a wide range of median overall survival rates for patients who discontinue Incyte's Jakafi, from a low of seven months to a high of 16 months. This wide variance among studies has sparked considerable debate within the investing community in regards to which historical norm is the most appropriate benchmark for imetelstat's ongoing myelofibrosis trial.

Some of Geron's doubters, for example, have taken this argument one step further to suggest that even the high end estimate of sixteen months isn't applicable in this case because the patient population is healthier than those used to calculate historical estimates of median overall survival. The implication is that imetelstat's projected median overall survival of 22 to 24 months won't be clinically meaningful, and J&J will ultimately walk away.

To back up this claim, bears have noted that Geron has so far refused to release the baseline data, implying that the company isn't being totally honest with investors about imetelstat's perceived clinical benefit in advanced myelofibrosis.   

Highly magnified view of a human blood cancer cell.

Image source: Getty Images.

Are short-sellers on point?

Well, the truth is that this raging debate over the appropriate historical benchmark can't be resolved yet because the baseline data simply aren't available to do so. Having said that, the bear argument that Geron is somehow being disingenuous with investors also doesn't stand up to reason.  

First off, it's fairly typical for companies to release granular details like baseline patient data at medical conferences or in a peer-reviewed journal article. Making these kinds of crucial data publicly available during a quarterly earnings release is not standard practice for competitive reasons. So Geron is doing nothing out of the ordinary by refusing to divulge baseline data ahead of an earmarked event like a conference or a journal article.    

Secondly, the speculation that imetelstat's enrolled patient population in this trial is "healthier" than those in former trials is, quite literally, based on nothing. Neither J&J nor Geron have released any data whatsoever that would permit such an analysis.

All we know now is that these patients had to have progressive disease during or after JAK inhibitor therapy and that they had to present with intermediate-2 or high-risk myelofibrosis after relapsing or being refractory to Jakafi in order to be enrolled. And those are very sick patients, according to the medical literature. 

Contrarian developments

Geron's shareholders were none too happy when the bears crushed the stock's monstrous rally last week. Instead of resorting to conspiracy theories, though, investors would be well served by at least considering the other side of the argument. Sometimes short-sellers have well-founded reasons for doubting a company's outlook that can save investors a lot of heartache, after all. 

In Geron's case, short-sellers are obviously encouraged by the drug's poor clinical track in solid tumors, and problematic side effects like cytopenias and liver toxicities. J&J has also yet to commit to imetelstat's continued development, suggesting that the drug's risk-to-reward ratio isn't overwhelmingly convincing.  

A more nuanced look at the situation, however, suggests that Geron is on the right track. If J&J was losing interest, after all, the company probably wouldn't have bothered filing for imetelstat's Fast Track status in myelodyspastic syndromes with the FDA, nor would it have plowed additional resources into vastly expanding the drug's patent portfolio.

Lastly, the FDA could have recently shut down imetelstat's ongoing myelofibrosis trial. But it did nothing after receiving a data package from J&J. It simply doesn't stand to reason that the FDA would allow a trial for a futile drug, with known toxicities, to continue as planned. The FDA apparently saw something in the data that convinced it to back off. 

The short thesis is shaky 

Geron's bears have been pouncing on the company in the past week for suggesting that imetelstat might confer a survival advantage in advanced myelofibrosis patients.

The obvious question here is: Why would Geron's management "pump" the stock by misleading investors via an unwarranted interpretation of the data? Geron didn't issue a large secondary offering when its share price spiked, and insiders didn't start dumping shares, either.

The point is that no one in the company has yet to directly benefit from this clinical update, strongly suggesting that there was literally no point in putting a positive "spin" on the data. Geron's insiders and shareholders, after all, are already painfully aware that the company won't last out the year if J&J walks in the third quarter. So a quick bump in share price won't matter at the end of the day. 

Additionally, J&J, one of the most conservative companies in the healthcare sector, didn't repudiate Geron's interpretation of the data. If Geron went rogue to boost its share price for whatever reason, it's seriously hard to imagine that J&J wouldn't say something, or terminate the relationship outright. By remaining silent, J&J is tacitly approving Geron's rosy interpretation of imetelstat's clinical progress. 

Investing takeaways

Short-sellers are essentially arguing that Geron, J&J, and the FDA are all allowing a futile clinical trial to proceed to its conclusion, and then allow patients to continue in an extension phase intended for the long-term treatment and follow-up of patients. The FDA, for instance, reviewed the drug's latest data in late 2017, which consists of over a year and a half worth of patient follow-ups. Yet they stood pat. 

The short's argument also hinges on their interpretation of the patient baseline data -- data that no one outside of Geron, J&J, and the FDA has seen in its totality. This exclusive group of insiders also just so happens to be the same ones that have seen fit to allow imetelstat's myelofibrosis trial to proceed to the finish line without any further modifications.

Not to say that imetelstat is a surefire thing, but the weight of the available evidence certainly doesn't favor the short thesis. If anything, those closest to the drug's development seem to believe it warrants further investigation.