Please ensure Javascript is enabled for purposes of website accessibility

Is This Biotech Fishing for a Higher Bid?

By Brian Orelli, PhD - Nov 19, 2012 at 11:41AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Geron announces that its selling its stem cell assets, but the deal isn't finalized yet.

Geron's (GERN 1.54%) deal with BioTime (NYSEMKT: BTX) might be the best the former stem-cell company can hope for. We'll know soon enough.

In a non-binding letter of intent, the companies have agreed to a deal that would send Geron's stem cell assets to a BioTime subsidiary. In exchange, BioTime will contribute $5 million in cash and $30 million of BioTime shares to the subsidiary.

Geron shareholders will receive shares in the new stem-cell company that will result in them owning 21.4% of the new company. Shareholders will also get warrants to buy BioTime shares at a specified price. Since BioTime owns 71.6% of the new subsidiary, investments in BioTime are indirectly an investment in the stem-cell assets.

A private investor has agreed to make a $5 million investment in the stem-cell company for which the investor will get a 7% stake in the company. That values the stem-cell company -- at least according to the investor -- at about $71 million. Geron's shareholders' piece of that will be about $15 million.

It's curious that Geron announced the letter of intent to divest the assets rather than just waiting until there was a final deal. Of course, it's been almost exactly a year since the biotech said it was shuttering its stem-cell program; investors deserve some news. And BioTime had already called the company out in a letter to Geron's shareholders, encouraging them to push for the deal.

It's also possible that the pre-final deal was released to see if any other companies would step up to the plate and acquire the assets. While Geron's shareholders will get something out of the deal, the company won't get any cash to help develop its oncology program. If a large company -- such as GlaxoSmithKline (GSK -0.16%), Pfizer (PFE 0.50%), or Teva Pharmaceuticals (TEVA 0.36%), which have all shown varying degrees of interest in stem cells -- would buy the assets for at least $15 million, Geron would likely jump at the deal rather than spinning them out into a BioTime-run company.

In that scenario, investors wouldn't get anything directly, but their shares of Geron would be worth more because the company would have a larger pile of cash to work with as it pushes its drugs through phase 2 development. If you own Geron right now, getting rid of the stem-cell assets -- no matter how it eventually goes down -- is positive because it helps the company focus on the programs that it's hitched its wagon to.


Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Geron Corporation Stock Quote
Geron Corporation
$1.32 (1.54%) $0.02
Pfizer Inc. Stock Quote
Pfizer Inc.
$50.65 (0.50%) $0.25
Teva Pharmaceutical Industries Limited Stock Quote
Teva Pharmaceutical Industries Limited
$8.31 (0.36%) $0.03
GlaxoSmithKline plc Stock Quote
GlaxoSmithKline plc
$43.56 (-0.16%) $0.07

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/20/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.