Geron's (GERN) Q3 Earnings Beat, Revenues Miss, Shares Down

Geron Corporation (NASDAQ:GERN) reported a loss of 3 cents per share for the third quarter of 2018, narrower than the Zacks Consensus Estimates of a loss of 5 cents and the year-ago quarter loss of 4 cents.

Quarterly revenues increased 1.2% from the year-ago quarter to $0.17 million, which missed the Zacks Consensus Estimate of $0.22 million. Revenues comprised royalty and license fee revenues received under various non-imetelstat license agreements.

Shares were down 1.6% in pre-market trading on Nov 2. So far this year, Geron’s shares have risen 2.8% against the industry’s decline of 16.2%.

Research and development (R&D) expenses increased 2.7% to $2.7 million. The rise was due to variation in costs for the proportionate share of clinical development of imetelstat under collaboration with Janssen. General and administrative (G&A) expenses fell 10.6% to $4.3 million.

The company ended the quarter with $184.8 million in cash and investments compared with $181.4 million at the end of the second quarter.

Pipeline Update

In September, Geron announced that Johnson & Johnson (NYSE:JNJ) had decided to discontinue the collaboration agreement to co-develop Geron’s sole pipeline candidate, imetelstat. With the termination of the agreement, Geron regained global development rights to imetelstat and decided to continue developing the candidate independently.

Imetelstat is being evaluated in two clinical studies. Phase II IMbark and phase II/III IMerge are evaluating the candidate in myelofibrosis and myelodysplastic syndromes (“MDS”), respectively.

Geron remains confident about the potential of imetelstat in MDS indication based on supportive data from initial and expansion arms of phase II portion of IMerge study. The company expects to initiate the phase III portion of the IMerge study by mid-2019.

Earlier this month, the company announced the acceptance of two oral presentations at the American Society of Hematology ("ASH") meeting to be held in December. This has boosted investors’ confidence in imetestat development which was evident from the 20% rally in share price on Nov 1.

Our Take

With the termination of the agreement, Geron lost a strong and experienced partner as well as its major source of funds. Moreover, the cash resources, as of third-quarter end, will be sufficient to initiate the phase III study in MDS but it is not enough to support the continuation of the study. Meanwhile, operating expenses are likely to increase as J&J shared half of the imetelstat development costs in the past.

We expect that the company may face serious difficulties if it is unable to find new avenues for funds like new partnerships or share sale.

Zacks Rank & Stocks to Consider

Geron currently carries a Zacks Rank #3 (Hold).

A couple of better-ranked stocks in the biotech sector are CRISPR Therapeutics (NASDAQ:CRSP) and Vertex Pharmaceuticals Inc. (NASDAQ:VRTX) . While CRISPR Therapeutics sports a Zacks Rank #1 (Strong Buy), Vertex carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

CRISPR Therapeutics’ estimates have narrowed from loss of $2.95 to $2.92 for 2018 over the past 60 days. The company delivered a positive earnings surprise in two of the trailing four quarters, delivering average beat of 19.50%. Share price of the company has increased 51.6% year to date.

Vertex’s earnings per share estimates have moved up from $3.73 to $3.83 for 2018 over the past 30 days. The company delivered a positive earnings surprise in all the trailing four quarters, delivering average beat of 18.94%. The company’s shares have rallied 17% year to date.

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