What happened

big decision from Johnson & Johnson (NYSE:JNJ) on Geron Corp.'s (NASDAQ:GERN) myelodysplastic syndromes (MDS) drug, imetelstat, is expected soon, and although it's anyone's guess what it will decide to do, the drugmaker mentioned imetelstat in a job description last month, sparking a 59.6% rally in Geron's shares in August, according to S&P Global Market Intelligence.

So what

J&J's been developing imetelstat for use in hematologic myeloid malignancies, including myelofibrosis, since 2014, but the program has had some setbacks that have caused concern that J&J will walk away from its license.

A man in a suit points at a drawing of a light bulb containing a U.S. Dollar sign.


J&J ditched a low-dose arm of the drug following disappointing early stage interim data, and results showing that it doesn't reduce spleen volume by as much as the current standard care, Jakafi, has raised questions about its efficacy. The ability to reduce spleen volume in myleofibrosis patients was the primary endpoint in trials that led to Jakafi's FDA approval. 

If phase 2 results don't overcome concerns, then J&J has the right to return its rights to imetelstat to Geron. Phase 2 results haven't been reported yet, but Geron said earlier this year that data will be available in Q3 and J&J's decision will be reported by Sept. 30.

There's no guarantee J&J will advance imetelstat into late-stage trials, but it did post a job for a European strategic pricing manager last month that mentions imetelstat six times. The inclusion of imetelstat in this job description may indicate that J&J has decided to pursue development, even if it hasn't yet officially announced the news. 

Now what

Jakafi's annual sales exceed $1.5 billion, and roughly 75% of Jakafi patients end up abandoning treatment within five years because of side effects. The average life expectancy for patients discontinuing Jakafi is only 14 months, so there's clearly a need for new treatment options. 

The importance of this decision to Geron's future shouldn't be underestimated. If J&J continues to collaborate on imetelstat, then Geron can exercise co-commercializing rights. If it does, it would collect a $65 million milestone payment, up to $820 million in additional development, regulatory, and sales-based milestones, and royalties ranging from the high teens to the low 20s as a percentage of sales. If it doesn't, then it will receive a $135 million payment, up to $765 million in development, regulatory, and sales milestones, and low- to mid-double-digit percentage royalties. 

If, however, J&J abandons imetelstat, then Geron would be forced to either find a new development partner or pursue expensive phase 3 trials on its own. Geron has netted $87 million from selling stock this year, and as a result, it has $181 million in cash and securities on its balance sheet it can use for such an effort. But there's no guarantee that will be enough to fund the late-stage trials necessary to secure a regulatory OK.

The stakes are unquestionably high for this company, so only risk-tolerant investors should consider owning it in portfolios. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.