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Why Geron Corporation Stock Is Bolting Higher Today

By George Budwell – Updated Sep 24, 2018 at 11:24AM

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Geron's stock is heating up ahead of a key decision by its partner Johnson & Johnson.

What happened

Shares of the clinical-stage biotech Geron Corporation (GERN 2.19%) rose by as much as 12.19% in early-morning trading today on heavier-than-normal volume. What's driving this move?

Geron's stock is heating up ahead of Johnson & Johnson's (JNJ 1.01%) imminent continuation decision for the duo's first-in-class telomerase inhibitor imetelstat as a potential treatment for the blood disorders myelofibrosis and low-risk myelodysplastic syndromes. 

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Image Source: Getty Images.

As of 11:09 pm EDT, Geron's stock remains up by a noteworthy 8.69%. 

So what

The decision, if positive, could result in a massive short squeeze in Geron's stock. Geron, after all, has consistently been one of the most-shorted biotech stocks over the last year, thanks to the prevailing belief among bears that imetelstat is neither efficacious nor safe as a treatment for these hard-to-treat hematological malignancies. 

Now what

Fortunately, bulls and bears alike don't have long to wait to find out J&J's final decision. Although this long-awaited continuation decision is expected no later than the end of this month, J&J is more likely than not to make an announcement before the end of this week. Clinical and regulatory updates of any kind, after all, are rarely announced over the weekend. 

The good news is that it wouldn't make a whole lot of sense for J&J to flat-out drop imetelstat at this point. J&J has a well-earned reputation of abruptly dropping experimental drugs that fail to live up to expectations, but it has hung tough with imetelstat for nearly four years now. As such, this protracted waiting period is more likely due to ongoing negotiations between J&J and Geron than to a negative continuation decision. Investors shouldn't bet the farm on a positive continuation decision, obviously, but this stock is arguably a dangerous short play as well.

George Budwell owns shares of Geron and Johnson & Johnson. The Motley Fool owns shares of Johnson & Johnson and has the following options: short October 2018 $135 calls on Johnson & Johnson. The Motley Fool has a disclosure policy.

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