Can Geron Corporation Recover From Its Breakup With Johnson & Johnson?

Plenty of biotech investors have been feeling distraught after Johnson & Johnson (NYSE: JNJ) walked away from a four-year relationship with Geron Corporation (NASDAQ: GERN) despite several nuggets of encouraging data for the program that suggest its continued development is worth a shot.

Geron Corporation's going to reveal more results for imetelstat later this year that could support its claim and help the stock recover. Will any well-heeled partners want to dance with Geron, or will it have to develop imetelstat on its own?

Reasons for leaving

If Johnson & Johnson gave specific reasons for abandoning imetelstat in mid-stage testing, Geron didn't share them when it announced the end of their four-year-old collaboration. Instead, J&J said it was walking away because it had bigger fish to fry following an interim analysis of a myelofibrosis trial that failed to impress.

Success for the phase 2 IMbark study with myelofibrosis patients was an unofficial prerequisite for a licensing deal from J&J. After 24 weeks of treatment with imetelstat, patients still hadn't reached median overall survival, but that didn't persuade Johnson & Johnson to invest further in its development.

It seems Geron's former partner was too put off by the spleen response rates and symptom response rates that failed to meet predetermined targets of at least 35% and 50%, respectively. Patients treated with imetelstat fell far short of the mark, with a 10% spleen response rate and a 32% total symptom score reduction -- and that was just from patients who received the higher of two doses.

Hope for a rebound?

If any patients had achieved complete remission, there might be a reason to try another myelofibrosis study. Based on what we know now, though, nothing short of a big overall survival benefit will bring another big potential partner to the negotiating table for the treatment of myelofibrosis. The company's ongoing study as a treatment for patients with low-risk myelodysplastic syndromes (MDS), though, still has a chance.

A majority of MDS patients are 70 years old or older, which is an age group that will include every last baby boomer by 2034. Roughly 70% of MDS patients are in a low-risk category, and they'd prefer to stay there rather than become one of the 30% that develop acute myeloid leukemia.

The phase 2 portion of the IMerge study enrolled 32 low-risk MDS patients with the intent of lowering their dependence on red blood cell transfusions enough for them to last at least eight weeks without one. In June, Geron showed us that 34% of these patients hit the mark, which wasn't terrific, but it was enough to enroll another 25 patients. During J&J's more recent review of the new group of 25, only 28% went transfusion-free for at least eight weeks.

At least Geron's confident

Geron Corporation is encouraged by eight-week transfusion-free scores from the initial 13 patients enrolled into IMerge plus others from the expansion cohort that fall into a target patient group. Geron's so confident, in fact, that it plans to begin enrolling patients for the phase 3 portion of IMerge by the middle of 2019.

If you're new to biotech investing, you should know that pulling out subgroups that succeed when initial groups fail to impress is a strategy that rarely works as well as hoped. That's why the odds of another deep-pocketed partner coming along to help fund development of imetelstat are slim to none. Of course, that could change if Geron's scheduled presentation at the American Society of Hematology's annual meeting in December includes something unexpected.

Looking out

Those sniffing around Geron's beaten-down stock price looking for a bargain will probably want to keep on looking. The phase 3 portion of the IMerge trial probably won't be any shorter than the phase 2 portion, but it will involve a lot more patients.

Without a partner to foot the bill, Geron's cash reserves will probably evaporate more than once before investigators have phase 3 IMerge results to show us. The company finished June with just $161 million in cash and marketable securities after losing $14 million in the first half of the year. That means Geron will have to issue new shares to fund imetelstat's development, which will dilute existing shareholders' slice of any future profits.

If Geron can't sign a new partner but eventually earns an approval to treat MDS with imetelstat, there's still a chance investors won't come out ahead over the long run. Independent drug launches have an awful tendency to disappoint when launched without the backing of a big partner.

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Cory Renauer owns shares of Johnson & Johnson. 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.