Shares of Geron (GERN +2.98%) fell over 15% on Monday and, at first glance, the problem appeared to be the company's 8-K. In that filing, the company disclosing that 25% of patients enrolled in an early stage trial for Geron's experimental treatment for myelofibrosis, called imetelstat, dropped out. Put simply, the concern is that the dropout rate is so high because imetelstat is ineffective, or the side-effects are potentially too burdensome for some patients to handle.
But I'm not sure either scenario tells the full story. Instead, it looks like investors may have prematurely hit the eject button. To understand my view, we need to dig deeper into yesterday's trading in the health care sector, imetelstat's clinical history, and consider the dropout rates for similar types of drugs.
Biopharmas got walloped Monday
First off, it would be easy to pin the blame for Geron's massive decline squarely on the 8-K, but that would negate the downtrend in the health care sector as a whole. Despite Geron's decline Monday, it didn't even take the top spot among small caps in terms of losses. That dubious honor goes to Cell Therapeutics, which fell over 16% on heavy volume.
Most telling is the fact that Cell Therapeutics fell without a material event to blame, and this was the case for several other biopharmas as well. In a weird twist of fate, Cellular Therapeutics even received a major upgrade from Roth Capital just last week, further suggesting that small cap biopharmas are facing downward pressure in general. Keeping with this idea, the entire health care sector fell by 2.59% Monday, showing that Geron wasn't the only stock to drop in this space.
Investors are probably skittish over imetelstat's clinical history
Although imetelstat is showing impressive results in early stage trials as a potential treatment for hematologic malignancies, the drug has a history of failing as a cancer treatment in mid-stage trials. Back in 2012, Geron performed unplanned interim analyses for imetelstat as a treatment for both breast and lung cancer, after which the drug's development was discontinued in both indications. Put simply, imetelstat failed to outperform the current standards of care for these diseases, despite showing promise in early stage trials.
So, my take is that investors are worried that history may repeat itself. According to Monday's 8-K, Geron is planning to push imetelstat into a mid-stage for myelofibrosis, so we'll know the answer sooner than later. Nonetheless, I think the high discontinuation rate in the current trial stoked some of these fears, adding to the intensity of yesterday's sell-off.
Is a 25% dropout rate normal for clinical trials?
When looking across the broad spectrum of clinical trials, a recent study showed that a 20% or greater dropout rate occurs around 18% of the time. What's important to understand is that dropout rates tend to increase with the severity of the disease, in part because the treatments are more toxic, or the disease is progressing to the point where treatment is no longer viable.
Because myelofibrosis can cause debilitating symptoms that are life-threatening and imetelstat does have nasty side effects, it's entirely possible that a fair number of patients simply decided to discontinue treatment, feeling the risk to reward ratio wasn't beneficial. But what is important to understand is that this dropout rate isn't abnormal for life-threatening diseases like myelofibrosis.
If we look at Incyte's approved therapy for myelofibrosis called Jakafi, an interesting similarity arises. Specifically, Jakafi's developers reported that 24% of patients receiving the drug dropped out of early stage clinical trials within a year, and this rate climbed to 46% after thirty-two months. Viewed this way, I don't see imetelstat's 25% dropout rate as anything to panic over.
Foolish final thoughts
Geron is a highly speculative play in the biopharma sector, and it will undoubtedly be a volatile stock going forward. That said, I view this week's plunge as a conglomeration of a sector wide sell-off, fears over the drug's past failures, and a general overreaction to a dropout rate that wasn't given any context in the 8-K filing. None of these factors should change the current investment thesis for Geron, but don't expect smooth sailing head. Investors who aren't into wild swings in share price should probably look elsewhere during this turbulent time.
