What happened

Geron Corporation (GERN -0.80%) is continuing its hyper-volatile ways today, with its shares rising by as much as 10% in early morning trading. What's sparking this rally?

The biotech's stock is responding positively to the news that Johnson & Johnson (JNJ -0.02%) listed the experimental blood cancer drug imetelstat as a top product candidate in its latest pharma pipeline update. This pipeline update was rolled out as part of J&J's first-quarter earnings release before the opening bell today.

Geron and J&J are co-developing the drug as a potential treatment for the bone marrow disorders myelofibrosis and myelodysplastic syndromes.

Human cancer cell.

Image Source: Getty Images.

Despite this early double-digit rally, Geron's shares have cooled off a bit in the interim, and were up by only 3.98%, as of 12:25 p.m. EDT. 

So what

If imetelstat is the real deal, Geron is arguably a downright steal at current levels. Short-sellers, however, apparently think that imetelstat is destined to fail, which explains why they have continued to pile into this speculative biotech in recent months. But with J&J showing no signs of walking away from this collaboration, short-sellers may want to reassess their outlook.  

Now what

The fascinating part of this story is that J&J and Geron should have a really good handle on whether this drug works or not. Imetelstat's third internal review has been completed, and these are not placebo-controlled, double-blind trials, after all. 

Moreover, the type of bone marrow ailments exhibited by these patients do not spontaneously resolve. In fact, it's quite the opposite. So if these patients are showing signs of improving hematological and/or bone marrow characteristics, it can be taken as direct evidence that imetelstat is the underlying cause. 

All things considered, Geron is a far less risky blood cancer play than it was just a few months ago -- especially after J&J's decision to continue highlighting imetelstat as a top product candidate.