2 Stocks That Could Benefit Big From Geron's Stumble

Geron Corp. (NASDAQ: GERN) was dealt a blow this week when longtime collaborator Johnson & Johnson (NYSE: JNJ) walked away from continuing to develop its one and only clinical-stage drug, imetelstat. The news raises questions about a potential timeline for ongoing imetelstat development, and that could be a big win for Incyte Corporation (NASDAQ: INCY) and Celgene Corp. (NASDAQ: CELG). Read on to learn why Geron's setback may give these two competitors a boost.

One fewer player

One reason J&J decided against going forward appears to be imetelstat's lackluster early-stage trial results in myelofibrosis, a life-threatening bone marrow disease with few treatment options.

Because myelofibrosis causes bone marrow scarring that results in insufficient red blood cell counts, treatment often includes regular blood transfusions. The disease also causes an enlarged spleen and it can, sometimes, evolve into acute myeloid leukemia (AML).

The only potential cure for myelofibrosis is a bone marrow transplant, but most patients aren't eligible for a transplant because of high mortality rates and complications. Patients unable to undergo transplant are often prescribed Jakafi, which became the only treatment specifically approved for this indication after trials showed it can reduce spleen volume.

The problem with Jakafi, though, is that many patients are intolerant or develop a resistance to it, and as a result, 75% of myelofibrosis patients discontinue its use within five years.

Because Jakafi isn't an ideal drug, Geron had hoped that imetelstat, which works differently than Jakafi, could carve away meaningful market share. However, that appears less likely based on J&J's decision and data Geron disclosed to its investors this week.

The full early-stage trial results J&J relied upon to make its decision are embargoed until the American Society of Hematology (ASH) conference in December, but Geron did say that there was only a 10% spleen volume response rate and a 32% total symptom response rate at the 24-week mark in patients who were no longer taking Jakafi. Those results were shy of the 35% and 50% targets established at the onset of the trial, respectively.

Given imetelstat's relatively poor performance in myelofibrosis on those measures, Geron is taking a wait-and-see approach to continuing development in this indication. If additional results from an extension trial show a benefit to overall survival, then it may move it into phase 3 studies, but based on the data available now and the uncertainty associated with its future development in this indication, it appears Jakafi's insulated from imetelstat competition for a while.

Imetelstat's lackluster data is also good news for Celgene's fedratinib, a myelofibrosis therapy it acquired in its $1.1 billion acquisition of Impact Biomedicines in January 2018. Like Jakafi, fedratinib is a JAK inhibitor, but unlike Jakafi, it more selectively targets the JAK pathway, which may differentiate it.

Fedratinib was developed by Sanofi, but the Food and Drug Administration put a clinical hold on it in 2013 following reports of potential cases of Wernicke's encephalopathy (WE), an acute neurological condition. At the time, the halt was particularly discouraging because fedratinib had already demonstrated efficacy in treatment-naive myelofibrosis patients and patients who had discontinued use of Jakafi.

Former Sanofi researchers resurrected fedratinib in 2016 when they acquired it and founded Impact Biomedicines, and then, fedratinib's outlook brightened further last year after Impact successfully lobbied the FDA to lift its clinical hold. The FDA's about-face prompted Celgene to step in, and currently, Celgene plans to file fedratinib for approval in myelofibrosis soon.

Depending on the exact timing of its application, fedratinib could begin competing for market share next year and now that imetelstat's future is murky, fedratinib could wind up having the post-Jakafi market all to itself. In trials, 55% of post-Jakafi patients saw a reduction in spleen volume of 35% or more and a 50% or greater reduction in total symptom score.

Fedratinib would also carve away market share in treatment-naïve patients, because 47% of patients saw a 35% or greater reduction in spleen size at 24 weeks and 36% of patients had a symptom score that improved by at least 50% at 24 weeks in phase 3 studies. For comparison, 38% of patients had a 35% or greater reduction in spleen volume in Jakafi's trial.

What's the takeaway

Imetelstat's success would've been particularly intriguing in this indication because it inhibits telomerase, an enzyme that's important to cell replication, rather than the JAK pathway. Because it works differently, it was hoped that it could extend overall survival by more than Jakafi and perhaps, reverse bone marrow scarring.

There's still a chance that the extension study will show an overall survival benefit, but J&J's decision suggests they felt that any improvement wouldn't be needle-moving enough to compete successfully against Jakafi and, potentially, fedratinib.

Overall, it looks like Incyte will only have to worry about fedratinib for now, and minus one competitor in the indication, potential sales for each of these drugs just got better.

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Todd Campbell owns shares of Celgene. His clients may have positions in the companies mentioned. The Motley Fool owns shares of and recommends Celgene. 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.