Geron (NASDAQ:GERN) is a train wreck. And investors have punished the biotech for it.

Shares fell 20% when it gave up on development of treatments using stem cells last year and an additional 56% earlier this year when its lead cancer drug, imetelstat, failed a phase 2 trial in breast cancer. And now it's down 25% today after disclosing that its (now lead) drug GRN1005 failed to show an effect on brain metastases in patients with breast cancer.

What's left? Imetelstat. While it was hit by an oncoming train, it appears the drug wasn't completely knocked off the track. Geron blamed the lack of success in breast cancer patients on overlapping toxicities of imetelstat and a chemotherapy it was combined with, which led doctors to decrease the chemotherapy dose.

The biotech also stopped a lung cancer trial where imetelstat was used as a single agent because it appeared that any effect Geron might see wouldn't be statistically significant. As it had planned to do after the trial ended, Geron looked at patients with tumors that had short telomeres -- the protective ends of chromosomes -- and found patients in that subgroup taking imetelstat progressed slower than those on placebo.

The data are only from 19 patients, but the finding makes sense scientifically. Imetelstat is designed to inhibit the enzyme responsible for lengthening telomeres. Giving the drug a head start by starting with short telomeres would make it easier for the drug to kill the tumor cell.

Geron also has data from a phase 2 trial in patients with essential thrombocythemia, a blood cancer, where 100% of the patients had a response with 13 out of the 14 patients achieving a complete response. These are patients that failed or couldn't take other therapies, so any response is pretty impressive.

With promising data in hand, what's next? There's an investigator-sponsored pilot study to evaluate safety and efficacy of imetelstat in patients with myelofibrosis, another blood cancer related to essential thrombocythemia. And Geron is working on a test to measure telomere length in different tumor types so it can select just patients that might respond to the drug.

Geron is cutting staff to lower its cash burn rate from about $65 million in 2012 to approximately $33 million in 2013. With $90 million in cash and investments expected at the end of the year, the company has plenty of money to get the clinical trials started. And maybe Geron can even get a little more if it can find a company to top BioTime's (NYSEMKT: BTX) bid for Geron's stem cell assets.

Investors should watch closely how Geron proceeds from here. While tantalizing, the data are far from conclusive. If Geron jumps into phase 3 like Aeterna Zentaris (NASDAQ:AEZS) and Keryx Biopharmaceuticals (NASDAQ:KERX) did with their cancer drug perifosine, I'd be a lot more worried about a high-priced derailment than if the company proceeds slowly out of the train yard with a lower-cost phase 2 trial to confirm the results.

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