Geron Corporation 10-Q
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON
D.C. 20549
________________
FORM
10-Q
________________
|
R
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE
ACT OF 1934
|
FOR
THE QUARTERLY PERIOD ENDED MARCH 31, 2007
OR
|
£
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT
OF 1934
|
FOR
THE
TRANSITION PERIOD FROM _____
TO
_____ .
COMMISSION
FILE NUMBER: 0-20859
________________
GERON
CORPORATION
(EXACT
NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
|
DELAWARE
|
75-2287752
|
|
(STATE
OR OTHER JURISDICTION OF
|
(I.R.S.
EMPLOYER IDENTIFICATION NO.)
|
|
INCORPORATION
OR ORGANIZATION)
|
|
230
CONSTITUTION DRIVE, MENLO PARK, CA 94025
(ADDRESS,
INCLUDING ZIP CODE, OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT’S
TELEPHONE NUMBER, INCLUDING AREA CODE: (650)
473-7700
FORMER
NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED
SINCE
LAST REPORT: N/A
Indicate
by check mark whether the registrant (1) has filed all reports required to
be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements
for
the past 90 days.
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer” and “large accelerated filer” in Rule 12b-2 of the Exchange
Act.
|
Large
Accelerated Filer £
|
|
Accelerated
Filer R
|
|
Non-accelerated
Filer £
|
Indicate
by check mark whether the registrant is a shell company as defined in Rule
12b-2
of the Exchange Act.
Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date.
|
Class:
|
Outstanding
at April 24, 2007:
|
|
Common
Stock, $0.001 par value
|
72,872,137
shares
|
GERON
CORPORATION
INDEX
GERON
CORPORATION
(IN
THOUSANDS)
|
|
|
MARCH
31,
2007
|
|
DECEMBER
31,
2006
|
|
|
|
|
(UNAUDITED)
|
|
(SEE
NOTE 1)
|
|
| |
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
145,722
|
|
$
|
135,882
|
|
|
Restricted
cash
|
|
|
530
|
|
|
530
|
|
|
Marketable
securities
|
|
|
75,504
|
|
|
77,448
|
|
|
Interest
and other receivables (including amounts from related parties: 2007-$505,
2006-$293)
|
|
|
856
|
|
|
1,268
|
|
|
Current
portion of prepaid assets
|
|
|
2,343
|
|
|
2,025
|
|
|
Total
current assets
|
|
|
224,955
|
|
|
217,153
|
|
|
Noncurrent
portion of prepaid assets
|
|
|
226
|
|
|
396
|
|
|
Equity
investments in licensees
|
|
|
148
|
|
|
175
|
|
|
Property
and equipment, net
|
|
|
3,064
|
|
|
2,482
|
|
|
Deposits
and other assets
|
|
|
594
|
|
|
594
|
|
| |
|
$
|
228,987
|
|
$ |
220,800
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
3,342
|
|
$
|
1,959
|
|
|
Accrued
compensation
|
|
|
893
|
|
|
2,938
|
|
|
Accrued
liabilities
|
|
|
2,365
|
|
|
2,216
|
|
|
Current
portion of deferred revenue
|
|
|
605
|
|
|
1,159
|
|
|
Fair
value of derivatives
|
|
|
3,711
|
|
|
38,504
|
|
|
Total
current liabilities
|
|
|
10,916
|
|
|
46,776
|
|
|
Noncurrent
portion of deferred revenue
|
|
|
98
|
|
|
105
|
|
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
|
Stockholders’
equity:
|
|
|
|
|
|
|
|
|
Common
stock
|
|
|
73
|
|
|
70
|
|
|
Additional
paid-in capital
|
|
|
619,703
|
|
|
573,156
|
|
|
Accumulated
deficit
|
|
|
(401,588
|
)
|
|
(399,094
|
)
|
|
Accumulated
other comprehensive loss
|
|
|
(215
|
)
|
|
(213
|
)
|
|
Total
stockholders’ equity
|
|
|
217,973
|
|
|
173,919
|
|
| |
|
$
|
228,987
|
|
$
|
220,800
|
|
See
accompanying notes.
GERON
CORPORATION
(IN
THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
| |
|
THREE
MONTHS ENDED
MARCH
31,
|
|
|
|
|
2007
|
|
2006
As
Restated (1)
|
|
| |
|
|
|
|
|
|
Revenues
from collaborative agreements (including amounts from related parties:
2007-$212, 2006-$55)
|
|
$
|
293
|
|
$
|
55
|
|
|
License
fees and royalties
|
|
|
623
|
|
|
528
|
|
|
Total
revenues
|
|
|
916
|
|
|
583
|
|
| |
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
Research
and development (including amounts from related parties: 2007-$212,
2006-$55)
|
|
|
13,189
|
|
|
9,363
|
|
|
General
and administrative
|
|
|
4,129
|
|
|
2,082
|
|
|
Total
operating expenses
|
|
|
17,318
|
|
|
11,445
|
|
|
Loss
from operations
|
|
|
(16,402
|
)
|
|
(10,862
|
)
|
|
Unrealized
gain on derivatives
|
|
|
14,805
|
|
|
4,082
|
|
|
Interest
and other income
|
|
|
2,792
|
|
|
1,892
|
|
|
Interest
and other expense
|
|
|
(28
|
)
|
|
(40
|
)
|
|
Net
income (loss)
|
|
|
1,167
|
|
|
(4,928
|
)
|
|
Deemed
dividend on derivatives
|
|
|
(3,661
|
)
|
|
—
|
|
|
Net
loss applicable to common stockholders
|
|
$
|
(2,494
|
)
|
$
|
(4,928
|
)
|
| |
|
|
|
|
|
|
|
|
Basic
and diluted net loss per share applicable to common stockholders
|
|
$
|
(0.03
|
)
|
$
|
(0.08
|
)
|
|
Shares
used in computing basic and diluted net loss per share applicable
to
common stockholders
|
|
|
71,797,056
|
|
|
65,088,861
|
|
________________
|
(1)
|
See
Note 1 to condensed consolidated financial
statements.
|
See
accompanying notes.
GERON
CORPORATION
CHANGE
IN CASH AND CASH EQUIVALENTS
(IN
THOUSANDS)
(UNAUDITED)
| |
|
THREE
MONTHS ENDED
MARCH
31,
|
|
|
|
|
2007
|
|
2006
As
Restated (1)
|
|
| |
|
|
|
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
1,167
|
|
$
|
(4,928
|
)
|
|
Adjustments
to reconcile net income (loss) to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
277
|
|
|
268
|
|
|
Accretion
and amortization on investments
|
|
|
(717
|
)
|
|
239
|
|
|
Stock-based
compensation in exchange for services by non-employees
|
|
|
2,735
|
|
|
726
|
|
|
Stock-based
compensation for awards to employees and directors
|
|
|
2,922
|
|
|
962
|
|
|
Amortization
related to 401(k) contributions
|
|
|
41
|
|
|
33
|
|
|
Loss
on equity investments in licensees
|
|
|
28
|
|
|
119
|
|
|
Amortization
of intangible assets, principally research related
|
|
|
—
|
|
|
189
|
|
|
Unrealized
gain on derivatives
|
|
|
(14,805
|
)
|
|
(4,082
|
)
|
|
Changes
in assets and liabilities:
|
|
|
|
|
|
|
|
|
Other
current and noncurrent assets
|
|
|
455
|
|
|
150
|
|
|
Other
current and noncurrent liabilities
|
|
|
648
|
|
|
(510)
|
|
|
Accrued
research funding obligation
|
|
|
—
|
|
|
(15)
|
|
|
Translation
adjustment
|
|
|
—
|
|
|
2
|
|
|
Net
cash used in operating activities
|
|
|
(7,249
|
)
|
|
(6,847
|
)
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
|
(859
|
)
|
|
(127
|
)
|
|
Purchases
of marketable securities
|
|
|
(39,147
|
)
|
|
(23,102
|
)
|
|
Proceeds
from maturities of marketable securities
|
|
|
41,805
|
|
|
13,442
|
|
|
Net
cash provided by (used in) investing activities
|
|
|
1,799
|
|
|
(9,787
|
)
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
Payments
of obligations under equipment loans
|
|
|
—
|
|
|
(27
|
)
|
|
Proceeds
from issuances of common stock, net of issuance costs
|
|
|
290
|
|
|
433
|
|
|
Proceeds
from exercise of warrants
|
|
|
15,000
|
|
|
—
|
|
|
Net
cash provided by financing activities
|
|
|
15,290
|
|
|
406
|
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
9,840
|
|
|
(16,228
|
)
|
|
Cash
and cash equivalents at the beginning of the period
|
|
|
135,882
|
|
|
96,633
|
|
|
Cash
and cash equivalents at the end of the period
|
|
$
|
145,722
|
|
$
|
80,405
|
|
________________
|
(1)
|
See
Note 1 to condensed consolidated financial
statements.
|
See
accompanying notes.
GERON
CORPORATION
MARCH
31, 2007
(UNAUDITED)
1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
The
terms
“Geron”, the “Company”, “we” and “us” as used in this report refer to Geron
Corporation. The accompanying condensed consolidated unaudited balance sheet
as
of March 31, 2007 and condensed consolidated statements of operations for the
three months ended March 31, 2007 and 2006 (restated) have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by U.S. generally accepted accounting principles for complete financial
statements. In the opinion of management of Geron, all adjustments (consisting
only of normal recurring accruals) considered necessary for a fair presentation
have been included. Operating results for the three month period ended March
31,
2007 are not necessarily indicative of the results that may be expected for
the
year ending December 31, 2007 or any other period. These financial statements
and notes should be read in conjunction with the financial statements for each
of the three years ended December 31, 2006 (restated), included in the Company’s
Annual Report on Form 10-K. The accompanying condensed consolidated balance
sheet as of December 31, 2006 has been derived from audited financial statements
at that date.
Principles
of Consolidation
The
consolidated financial statements include the accounts of Geron and our one
wholly-owned subsidiary, Geron Bio-Med Ltd., a United Kingdom company. We have
eliminated intercompany accounts and transactions. We prepare the financial
statements of Geron Bio-Med using the local currency as the functional currency.
We translate the assets and liabilities of this subsidiary at rates of exchange
at the balance sheet date. We translate income and expense items at average
monthly rates of exchange. The resultant translation adjustments are included
in
accumulated other comprehensive income (loss), a separate component of
stockholders’ equity.
FASB
Interpretation No. 46-R (FIN 46R), “Consolidation of Variable Interest Entities,
an Interpretation of ARB No. 51,” as amended, provides guidance on the
identification, classification and accounting of variable interest entities
(VIEs). We have variable interests in VIEs through marketable and non-marketable
equity investments in various companies with whom we have executed licensing
agreements. In accordance with FIN 46R, we have concluded that we are not the
primary beneficiary in any of these VIEs and therefore have not consolidated
such entities in our consolidated financial statements.
Restatement
of Prior Period Information
Financial
results for the three months ended March 31, 2006 have been restated to account
for warrants to purchase shares of our common stock issued in connection with
equity financings pursuant to effective shelf registration statements as
liabilities in accordance with the provisions of Emerging Issues Task Force
Issue 00-19, “Accounting for Derivative Financial Instruments Indexed to, and
Potentially Settled in, a Company’s Own Stock” (Issue 00-19). Refer to our
Annual Report on Form 10-K for the year ended December 31, 2006 for a detailed
discussion of the restatement, including Note 2 to our consolidated financial
statements.
Net
Loss Per Share
Basic
earnings (loss) per share is calculated based on the weighted average number
of
shares of common stock outstanding during the period. Diluted earnings (loss)
per share is calculated based on the weighted average number of shares of common
stock and dilutive securities, such as stock options and equivalents,
outstanding during the period. Potential dilutive shares of common stock
resulting from the assumed exercise of outstanding stock options and equivalents
and the assumed exercise of warrants are determined under the treasury stock
method.
Because
we were in a net loss position, diluted earnings per share excludes the effects
of common stock equivalents consisting of options and warrants, which are all
antidilutive. Had we been in a net income position, diluted earnings per share
would have included the shares used in the computation of basic net loss
per share as well as an additional 3,376,507 shares and 2,070,837 shares for
2007 and 2006, respectively, related to outstanding options and warrants (as
determined using the treasury stock method at an average market price during
the
period).
GERON
CORPORATION
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2007
(UNAUDITED)
Use
of Estimates
The
preparation of financial statements in conformity with U.S. generally accepted
accounting principles requires us to make estimates and assumptions that affect
the amounts reported in the financial statements and accompanying notes. On
a
regular basis, we evaluate these estimates and assumptions. Actual results
could
differ from those estimates.
Cash
Equivalents and Marketable Securities
We
consider all highly liquid investments purchased with an original maturity
of
three months or less to be cash equivalents. We are subject to credit risk
related to our cash equivalents and available-for-sale securities. We place
our
cash and cash equivalents in money market funds and commercial paper. Our
investments include commercial paper, corporate notes in United States
corporations and asset-backed securities with original maturities ranging from
four to seven months.
We
classify our marketable debt securities as available-for-sale. We record
available-for-sale securities at fair value with unrealized gains and losses
reported in accumulated other comprehensive income (loss) in stockholders’
equity. Fair values for investment securities are based on quoted market prices,
where available. If quoted market prices are not available, fair values are
based on quoted market prices of comparable instruments. Realized gains and
losses are included in interest and other income and are derived using the
specific identification method for determining the cost of securities sold
and
have been insignificant to date. We recognize an impairment charge when the
declines in the fair values of our available-for-sale securities below the
amortized cost basis are judged to be other-than-temporary. We consider various
factors in determining whether to recognize an impairment charge, including
the
length of time and extent to which the fair value has been less than our cost
basis, the financial condition and near-term prospects of the security issuer,
and our intent and ability to hold the investment for a period of time
sufficient to allow for any anticipated recovery in market value. Declines
in
market value judged other-than-temporary result in a charge to interest and
other income. No impairment charges were recorded for our available-for-sale
securities for the three months ended March 31, 2007 and 2006. Dividend and
interest income are recognized when earned.
Revenue
Recognition
We
recognize revenue related to license and research agreements with collaborators,
royalties, milestone payments and government grants. The principles and guidance
outlined in EITF Issue No. 00-21, “Revenue Arrangements with Multiple
Deliverables,” provide a framework to (i) determine whether an arrangement
involving multiple deliverables contains more than one unit of accounting,
(ii)
determine how the arrangement consideration should be measured and allocated
to
the separate units of accounting in the arrangement and (iii) apply relevant
revenue recognition criteria separately for each of the separate units. For
each
separate unit of accounting we have objective and reliable evidence of fair
value using available internal evidence for the undelivered item(s) and our
arrangements generally do not contain a general right of return relative to
the
delivered item.
We
have
several license and marketing agreements with various oncology, diagnostics,
research tools, agriculture and biologics production companies. With certain
of
these agreements, we receive nonrefundable license payments in cash or equity
securities, option payments in cash or equity securities, royalties on future
sales of products, milestone payments, or any combination of these items.
Nonrefundable signing or license fees that are not dependent on future
performance under these agreements or the intellectual property related to
the
license has been delivered are recognized as revenue when earned
and over the term of the arrangement if we have continuing performance
obligations. Option payments are recognized as revenue over the term of the
option agreement. Milestone payments are recognized upon completion of specified
milestones, representing the culmination of the earnings process, according
to
contract terms. Royalties are generally recognized upon receipt of the related
royalty payment.
We
recognize revenue under collaborative agreements, including related party
agreements, as the related research and development costs for services are
rendered. Deferred revenue represents the portion of research and license
payments received which had not been earned.
GERON
CORPORATION
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2007
(UNAUDITED)
Restricted
Cash
As
of
March 31, 2007 and December 31, 2006, we held $530,000 in a Certificate of
Deposit as collateral on an unused line of credit.
Marketable
and Non-Marketable Equity Investments in Licensees and Joint
Ventures
Investments
in non-marketable nonpublic companies are carried at cost, as adjusted for
other-than-temporary impairments. Investments in marketable equity securities
are carried at the market value as of the balance sheet date. For marketable
equity securities, unrealized gains and losses are reported in accumulated
other
comprehensive income (loss) in stockholders’ equity. Realized gains or losses
are included in interest and other income and are derived using the specific
identification method.
We
monitor our equity investments in licensees and joint ventures for impairment
on
a quarterly basis and make appropriate reductions in carrying values when such
impairments are determined to be other-than-temporary. Impairment charges are
included in interest and other income. Factors used in determining an impairment
include, but are not limited to, the current business environment including
competition and uncertainty of financial condition; going concern considerations
such as the rate at which the investee company utilizes cash, and the investee
company’s ability to obtain additional private financing to fulfill its stated
business plan; the need for changes to the investee company’s existing business
model due to changing business environments and its ability to successfully
implement necessary changes; and the general progress toward product
development, including clinical trial results. If an investment is determined
to
be impaired, then we determine whether such impairment is other-than-temporary.
We recognized impairment charges of $28,000 and $119,000 for the three months
ended March 31, 2007 and 2006, respectively, related to other-than-temporary
declines in fair values of our non-marketable equity investments. As of March
31, 2007 and December 31, 2006, the carrying values of our equity investments
in
non-marketable nonpublic companies, including our joint ventures, were $141,000
and $169,000, respectively.
Research
and Development Expenses
All
research and development costs are expensed as incurred. The value of acquired
in-process research and development is charged to research and development
expense on the date of acquisition. Research and development expenses include,
but are not limited to, acquired in-process technology deemed to have no
alternative future use, payroll and personnel expense, lab supplies, preclinical
studies, raw materials to manufacture clinical trial drugs, manufacturing costs
for research and clinical trial materials, sponsored research at other labs,
consulting and research-related overhead. Accrued liabilities for raw materials
to manufacture clinical trial drugs, manufacturing costs, clinical trial expense
and sponsored research reimbursement fees are included in accrued liabilities
and research and development expenses.
Depreciation
and Amortization
We
record
property and equipment at cost and calculate depreciation using the
straight-line method over the estimated useful lives of the assets, generally
four years. Leasehold improvements are amortized over the shorter of the
estimated useful life or remaining term of the lease.
Stock-Based
Compensation
Statement
of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment,”
(SFAS 123R) requires the measurement and recognition of compensation expense
for
all stock-based awards made to employees and directors, including stock options,
restricted stock awards and employee stock purchases related to our Employee
Stock Purchase Plan (ESPP purchases) based upon the grant-date fair value of
those awards.
On
January 1, 2006 we implemented the provisions of SFAS 123R using the modified
prospective transition method. In accordance with this method, for awards
expected to vest, we recognize compensation expense on a straight-line basis
for
stock-based awards granted after January 1, 2006, plus unvested awards granted
prior to January 1, 2006 based on the grant-date fair value estimated in
accordance with the original provisions of SFAS 123 and following the
straight-line attribution method elected originally upon the adoption of SFAS
123.
GERON
CORPORATION
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2007
(UNAUDITED)
The
following table summarizes the stock-based compensation expense related to
stock
options, restricted stock awards and employee stock purchases under SFAS 123R
for the three months ended March 31, 2007 and 2006 which was allocated as
follows:
| |
|
Three
Months Ended March 31,
|
|
|
|
|
2007
|
|
2006
|
|
| |
|
(In
Thousands)
|
|
|
Research
and development
|
|
$
|
1,252
|
|
$
|
672
|
|
|
General
and administrative
|
|
|
1,670
|
|
|
290
|
|
|
Stock-based
compensation expense included in operating expenses
|
|
$
|
2,922
|
|
$
|
962
|
|
The
fair
value of options granted during the three months ended March 31, 2007 and 2006
has been estimated at the date of grant using the Black Scholes option-pricing
model with the following assumptions:
| |
|
Three
Months Ended March 31,
|
|
|
|
|
2007
|
|
2006
|
|
|
Dividend
yield
|
|
|
None
|
|
|
None
|
|
|
Expected
volatility range
|
|
|
0.774
|
|
|
0.824
|
|
|
Risk-free
interest rate range
|
|
|
4.43%
to 4.80%
|
|
|
4.28%
to 4.60%
|
|
|
Expected
term
|
|
|
5
yrs
|
|
|
5
yrs
|
|
The
fair
value of employees’ purchase rights has been estimated using the Black Scholes
option-pricing model with the following assumptions:
| |
|
Three
Months Ended March 31,
|
|
|
|
|
2007
|
|
2006
|
|
|
Dividend
yield
|
|
|
None
|
|
|
None
|
|
|
Expected
volatility range
|
|
|
0.419
to 0.460
|
|
|
0.381
to 0.471
|
|
|
Risk-free
interest rate
|
|
|
5.00%
to 5.26%
|
|
|
4.81%
to 4.82%
|
|
|
Expected
term
|
|
|
6
- 12 mos
|
|
|
6
- 12 mos
|
|
The
expected volatility range is based on historical volatilities of our stock,
because traded options on Geron stock do not correspond to option terms or
the
underlying stock trading volume. The risk-free rate is based on the U.S. Zero
Coupon Treasury Strip Yields for the expected term in effect on the date of
grant. The expected term of options is derived from actual historical exercise
data and represents the period of time that options granted are expected to
be
outstanding. The expected term of employees’ purchase rights is equal to the
purchase period. We grant options under our equity plans to employees,
non-employee directors, and consultants, which generally vest over four years.
As
stock-based compensation expense recognized in the consolidated statements
of
operations for the quarters ended March 31, 2007 and 2006 is based on awards
ultimately expected to vest, it has been reduced for estimated forfeitures
but,
at a minimum, reflects the grant-date fair value of those awards that actually
vested in the period. SFAS 123R requires forfeitures to be estimated at the
time
of grant and revised, if necessary, in subsequent periods if actual forfeitures
differ from those estimates. Forfeitures were estimated based on historical
experience.
We
continue to apply the provisions of EITF Issue No. 96-18, “Accounting for Equity
Instruments that are Issued to Other than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services” (Issue 96-18) for our non-employee
stock-based awards. Under Issue 96-18, the measurement date at which the fair
value of the stock-based award is measured is equal to the earlier of 1) the
date at which a commitment for performance by the counterparty to earn the
equity instrument is reached or 2) the date at which the counterparty’s
performance is complete. We recognize stock-based compensation expense for
the
fair value of the vested portion of the awards in our consolidated statements
of
operations.
GERON
CORPORATION
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2007
(UNAUDITED)
Fair
Value of Derivatives
We
apply
the provisions of Statement of Financial Accounting Standards No. 133,
“Accounting for Derivative Instruments and Hedging Activities,” (SFAS 133),
Statement of Financial Accounting Standards No 150, “Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and Equity,”
(SFAS 150) and Emerging Issues Task Force Issue 00-19, “Accounting for
Derivative Financial Instruments Indexed to, and Potentially Settled in, a
Company’s Own Stock,” (Issue 00-19) in accounting for derivative financial
instruments.
For
warrants and non-employee options classified as assets or liabilities under
Issue 00-19, the fair value of these instruments is recorded on the consolidated
balance sheet at inception and marked to market at each financial reporting
date. The change in fair value of the warrants and non-employee options is
recorded in the consolidated statements of operations as an unrealized gain
(loss) on fair value of derivatives. Fair value of warrants and non-employee
options subject to Issue 00-19 is estimated using the Black Scholes
option-pricing model. The warrants and non-employee options continue to be
reported as an asset or liability until such time as the instruments are
exercised or expire or are otherwise modified to remove the provisions which
require this treatment, at which time the fair value of these instruments is
reclassified from assets or liabilities to stockholders’ equity. For warrants
and non-employee options classified as permanent equity under Issue 00-19,
the
fair value of the warrants and non-employee options is recorded in stockholders’
equity and no further adjustments are made.
Comprehensive
Income (Loss)
Comprehensive
income (loss) is comprised of net loss and other comprehensive income (loss).
Other comprehensive income (loss) includes certain changes in stockholders’
equity which are excluded from net income (loss). The activity in comprehensive
income (loss) during the three months ended March 31, 2007 and 2006 are as
follows:
| |
|
March
31,
2007
|
|
March
31,
2006
As
Restated
|
|
| |
|
(In
thousands)
|
|
|
Net
income (loss)
|
|
$
|
1,167
|
|
$
|
(4,928
|
)
|
|
Change
in unrealized gains (losses) on securities available-for-sale and
marketable equity securities
|
|
|
(2
|
)
|
|
24
|
|
|
Change
in foreign currency translation adjustments
|
|
|
—
|
|
|
2
|
|
|
Comprehensive
income (loss)
|
|
$
|
1,165
|
|
$
|
(4,902
|
)
|
The
components of accumulated other comprehensive loss are as follows:
| |
|
March
31,
2007
|
|
December
31,
2006
|
|
| |
|
(In
thousands)
|
|
|
Unrealized
holding loss on available-for-sale securities and marketable equity
investments
|
|
$
|
(42
|
)
|
$
|
(40
|
)
|
|
Foreign
currency translation adjustments
|
|
|
(173
|
)
|
|
(173
|
)
|
| |
|
$
|
(215
|
)
|
$
|
(213
|
)
|
2.
FAIR VALUE OF DERIVATIVES
In
March
2007, we modified certain warrant agreements to amend the provisions which
required liability treatment for these instruments under Issue 00-19. On the
effective date of these modifications for which we received no additional
consideration, the aggregate fair value of $22,646,000 for these warrants,
as
calculated using the Black Scholes option-pricing model, was reclassified from
current liabilities to additional paid-in capital. An unrealized gain of
$9,815,000, resulting from the change in fair value for these warrants from
December 31, 2006 to the effective date of the modifications, was recorded
in
the consolidated statements of operations. As of March 31, 2007, the fair value
of warrants that
were
not modified and continued to be treated as liabilities under Issue 00-19 was
$1,778,000. An unrealized gain of $1,923,000 was recorded in the consolidated
statements of operations for the change in fair value from December 31, 2006
to
March 31, 2007 for these instruments.
GERON
CORPORATION
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2007
(UNAUDITED)
In
February 2007, we received proceeds of $15,000,000 from the exercise of warrants
subject to liability treatment under Issue 00-19 to purchase 1,875,000 shares
of
common stock. An unrealized gain of $2,342,000 resulting from the change in
fair
value for these warrants from December 31, 2006 to the date of exercise was
recorded in the consolidated statements of operations. The exercised warrants
were issued to institutional investors in connection with the financing
announced in December 2006 and had an expiration date of February 28, 2007.
In
conjunction with this warrant exercise, we issued warrants to purchase 1,125,000
shares of common stock, at a premium, exercisable from June 2007. The new
warrants are substantially the same as the A Warrants issued in the December
2006 financing. The aggregate fair value of $3,661,000 for these new
instruments, as calculated using the Black Scholes option-pricing model, was
recognized as a deemed dividend in the consolidated statements of operations.
In
January 2007, performance obligations related to services under certain
agreements with non-employees were completed. Options to purchase 340,000 shares
of common stock held by these individuals remained outstanding as of March
31,
2007 and required liability treatment under the provisions of Issue 00-19.
The
initial aggregate fair value was $2,658,000 for these instruments, as calculated
using the Black Scholes option-pricing model, and was recorded as a current
liability. Of that amount, $1,247,000 was reclassified from additional paid-in
capital and the remaining $1,411,000 was recognized as consulting expense.
As of
March 31, 2007, the fair value of these options was $1,933,000 and an unrealized
gain of $725,000 was recorded in the consolidated statements of operations
for
the change in fair value of these instruments from the initial measurement
date
to March 31, 2007. If unexercised, the options expire in March 2015.
3.
STOCKHOLDERS’ EQUITY
Issuances
of Common Stock
In
January 2007, we awarded 105,155 shares of common stock to employees in lieu
of
cash for 2006 year-end performance bonuses. The shares were granted under the
2002 Equity Incentive Plan. Compensation expense of $921,000 related to this
award was included in accrued compensation as of December 31, 2006.
In
January 2007, we issued 111,857 shares of common stock to MPI Research, Inc.
(MPI) in a private placement as advance consideration related to a services
agreement pursuant to which MPI provides certain preclinical services in support
of our programs. The total fair value of the common stock was $1,000,000 which
has been recorded as a prepaid asset and is being amortized to research and
development expense on a pro-rata basis as services are performed, which is
expected to be approximately two months. As of March 31, 2007, $191,000 remained
as a prepaid asset.
4.
INCOME TAXES
On
January 1, 2007, we adopted the provisions of Financial Accounting
Standards Board Interpretation No. 48, "Accounting for Uncertainty in
Income Taxes" (FIN 48), an interpretation of FASB Statement No. 109 (SFAS 109).
There was no impact on our financial statements upon adoption. Because of our
historical significant net operating losses, we have not been subject to income
tax since inception. There were no unrecognized tax benefits during all the
periods presented.
We
maintain deferred tax assets that reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. These deferred
tax assets include net operating loss carryforwards, research credits and
capitalized research and development. The net deferred tax asset has been fully
offset by a valuation allowance because of our history of losses. Utilization
of
operating losses and credits may be subject to substantial annual limitation
due
to ownership change provisions of the Internal Revenue Code of 1986 and similar
state provisions. The annual limitation may result in the expiration of net
operating losses and credits before utilization.
The
tax
years 2003-2006 remain open to examination by the major taxing jurisdictions
to
which we are subject.
GERON
CORPORATION
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2007
(UNAUDITED)
5.
SEGMENT INFORMATION
Statement
of Financial Accounting Standards No. 131, “Disclosures about Segments of an
Enterprise and Related Information” (SFAS 131) establishes standards for
reporting information regarding operating segments in annual financial
statements and requires selected information for those segments to be presented
in interim financial reports issued to stockholders. SFAS 131 also establishes
standards for related disclosures about products and services and geographic
areas. Operating segments are identified as components of an enterprise about
which separate discrete financial information is available for evaluation by
the
chief operating decision maker, or decision making group, in making decisions
how to allocate resources and assess performance. Our executive management
team
represents our chief decision maker, as defined under SFAS 131. To date, we
have
viewed our operations as principally one segment, the discovery and development
of therapeutic and diagnostic products for oncology and human embryonic stem
cell therapies. As a result, the financial information disclosed herein
materially represents all of the financial information related to our principal
operating segment.
6.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS DATA
| |
|
Three
Months Ended
March
31,
|
|
|
(In
Thousands)
|
|
2007
|
|
2006
|
|
| |
|
(Unaudited)
|
|
|
Supplemental
Operating Activities:
|
|
|
|
|
|
|
|
|
Net
unrealized gain (loss) on equity investments in licensees
|
|
$
|
1
|
|
$
|
8
|
|
|
Cash
in transit from options
|
|
$
|
—
|
|
$
|
(18
|
)
|
|
Reclassification
between derivative liabilities and equity
|
|
$
|
21,399
|
|
$
|
—
|
|
|
Shares
issued for 401(k) matching contribution and performance
bonus
|
|
$
|
1,722
|
|
$ |
2,173
|
|
|
Shares
or warrants issued for services
|
|
$
|
191
|
|
$ |
474
|
|
|
Supplemental
Investing Activities:
|
|
|
|
|
|
|
|
|
Net
unrealized gain (loss) on marketable securities
|
|
$
|
(3
|
)
|
$
|
16
|
|
OVERVIEW
This
Form
10-Q contains forward-looking statements that involve risks and uncertainties.
We use words such as “anticipate”, “believe”, “plan”, “expect”, “future”,
“intend” and similar expressions to identify forward-looking statements. These
statements appear throughout the Form 10-Q and are statements regarding our
intent, belief, or current expectations, primarily with respect to our
operations and related industry developments. You should not place undue
reliance on these forward-looking statements, which apply only as of the date
of
this Form 10-Q. Our actual results could differ materially from those
anticipated in these forward-looking statements for many reasons, including
the
risks faced by us and described in Part I, Item 1A, entitled “Risk Factors” in
the Company’s Annual Report on Form 10-K for the fiscal year ended December 31,
2006, and elsewhere in this Form 10-Q.
The
following discussion should be read in conjunction with the unaudited condensed
financial statements and notes thereto included in Part I, Item 1 of this
Quarterly Report on Form 10-Q and with Management’s Discussion and Analysis of
Financial Condition and Results of Operations contained in the Company’s Annual
Report on Form 10-K for the fiscal year ended December 31, 2006.
Geron
is
a Menlo Park, California-based biopharmaceutical company that is developing
first-in-class therapeutic products for the treatment of cancer and chronic
degenerative diseases, including spinal cord injury, heart failure, diabetes
and
HIV/AIDS. The products are based on our core expertise in telomerase and human
embryonic stem cells.
Our
results of operations have fluctuated from period to period and may continue
to
fluctuate in the future, as well as the progress of our research and development
efforts and variations in the level of expenses related to developmental efforts
during any given period. Results of operations for any period may be unrelated
to results of operations for any other period. In addition, historical results
should not be viewed as indicative of future operating results. We are subject
to risks common to companies in our industry and at our stage of development,
including risks inherent in our research and development efforts, reliance
upon
our collaborative partners, enforcement of our patent and proprietary rights,
need for future capital, potential competition and uncertainty of regulatory
approvals or clearances. In order for a product to be commercialized based
on
our research, we and our collaborators must conduct preclinical tests and
clinical trials, demonstrate the efficacy and safety of our product candidates,
obtain regulatory approvals or clearances and enter into manufacturing,
distribution and marketing arrangements, as well as obtain market acceptance.
We
do not expect to receive revenues or royalties based on therapeutic products
for
a period of years, if at all.
CRITICAL
ACCOUNTING POLICIES AND ESTIMATES
Our
condensed consolidated financial statements have been prepared in accordance
with U.S. generally accepted accounting principles. The preparation of these
financial statements requires management to make estimates and assumptions
that
affect the reported amounts of assets, liabilities, revenues and expenses.
Note
1 of Notes to Condensed Consolidated Financial Statements describes the
significant accounting policies used in the preparation of the condensed
consolidated financial statements.
Estimates
and assumptions about future events and their effects cannot be determined
with
certainty. We base our estimates on historical experience and on various other
assumptions believed to be applicable and reasonable under the circumstances.
These estimates may change as new events occur, as additional information is
obtained and as our operating environment changes. These changes have
historically been minor and have been included in the condensed consolidated
financial statements as soon as they became known. Based on a critical
assessment of our accounting policies and the underlying judgments and
uncertainties affecting the application of those policies, management believes
that our condensed consolidated financial statements are fairly stated in
accordance with accounting principles generally accepted in the United States,
and present a meaningful presentation of our financial condition and results
of
operations.
We
believe that there have been no significant changes in our critical accounting
policies and estimates during the three months ended March 31, 2007 as compared
to the critical accounting policies and estimates disclosed in our Annual Report
on Form 10-K for the year ended December 31, 2006.
RESULTS
OF OPERATIONS
Revenues
We
recognized revenues from collaborative agreements of $293,000 for the three
months ended March 31, 2007, compared to revenues of $55,000 for the comparable
period in 2006. Revenues in 2007 represent amounts earned under a contract
to
provide scientific research services to a related party, our joint venture
in
Hong Kong, TA Therapeutics (TAT) and revenue recognized under our collaboration
with Corning Life Sciences. Revenues in 2006 reflect only related party amounts
earned from TAT.
We
have
entered into license and option agreements with companies involved in oncology,
diagnostics, research tools, agriculture and biologics production. In each
of
these agreements, we have granted certain rights to our technologies. In
connection with the agreements, we are entitled to receive license fees, option
fees, milestone payments and royalties on future sales, or any combination
thereof. We recognized license and option fee revenues of $494,000 for the
three
months ended March 31, 2007, compared to $471,000 for the comparable 2006 period
related to our various agreements. The increase in license fee revenue primarily
reflects increased revenue recognized from the license agreement with Merck.
We
expect to recognize revenue of $598,000 for the remainder of 2007, $27,000
in
2008, $27,000 in 2009, $26,000 in 2010 and $25,000 thereafter related to our
existing deferred revenue. Current revenues may not be predictive of future
revenues.
We
received royalties of $129,000 for the three months ended March 31, 2007,
compared to $58,000 for the comparable 2006 period on product sales of
telomerase detection and telomere measurement kits to the research-use-only
market, cell-based research products and agricultural products. License and
royalty revenues are dependent upon additional agreements being signed and
future product sales.
Research
and Development Expenses
Research
and development expenses were $13.2 million for the three months ended March
31,
2007, compared to $9.4 million for the comparable 2006 period. The increase
for
2007 compared to 2006 is primarily the result of increased personnel-related
expense of $1.6 million, including an increase of $580,000 in stock-based
compensation expense associated with stock options, increased consulting fees
of
$1.7 million related to the telomerase cancer vaccine, GRNVAC1, increased
clinical trial costs of $306,000 associated with our telomerase inhibitor drug,
GRN163L and higher preclinical and toxicology study expenses of $285,000 for
GRNOPC1, our hESC-derived oligodendrocyte progenitor cells for the treatment
of
acute spinal cord injury. Overall, we expect research and development expenses
to increase in the next year as we incur expenses related to clinical trials
for
GRN163L and GRNVAC1 and continued development of our human embryonic stem cell
(hESC) programs.
Our
research and development activities have arisen from our two major technology
platforms, telomerase and hESCs. The oncology programs focus on treating or
diagnosing cancer by targeting or detecting the presence of telomerase, either
inhibiting activity of the telomerase enzyme, diagnosing cancer by detecting
the
presence of telomerase, or using telomerase as a target for therapeutic
vaccines. Our core knowledge base in telomerase and telomere biology supports
all these approaches, and our scientists may contribute to any or all of these
programs in a given period. Currently four sites have been designated as patient
enrollment centers for our Phase I/II clinical trial of GRN163L in patients
with
chronic lymphocytic leukemia. In April 2006, we initiated clinical testing
of
GRN163L in patients with solid tumor malignancies at one site. Preliminary
data
from these studies showed safety and tolerability of the drug in low-dose
cohorts as well as the expected pharmacokinetic properties after multiple
intravenous infusions of the drug.
Taking
the results from the Duke University clinical studies in prostate cancer,
hematologic malignancies and renal cell carcinoma, we optimized the vaccine
manufacturing process and transferred it to a contract manufacturer. We filed
an
IND to initiate a Phase I/II clinical trial of our telomerase vaccine using
the
prime/boost scheme in patients with acute myelogenous leukemia. We are in the
process of initiating multiple sites to begin enrolling patients into this
study.
Our
hESC
therapy programs focus on treating injuries and degenerative diseases with
cell
therapies based on cells derived from hESCs. A core of knowledge of hESC
biology, as well as a significant continuing effort in deriving, growing,
maintaining, and differentiating hESCs, underlies all aspects of this group
of
programs. Many of our researchers are allocated to more than one hESC project,
and the percentage allocations of time change as the resource needs of
individual programs vary. In our hESC therapy programs, we have concentrated
our
resources on several specific cell types. We have developed proprietary methods
to grow, maintain and scale the culture of undifferentiated hESCs that use
feeder cell-free and serum-free media with chemically defined components.
Moreover, we have developed scalable processes to differentiate these cells
into
therapeutically relevant cells, including cryopreserved formulations in order
to
deliver these therapeutic cells “on demand”. We are now testing six different
hESC-derived therapeutic cell types in animal models. From these studies, we
are
advancing development of two hESC-based therapeutics to clinical
testing.
Research
and development expenses allocated to programs are as follows (in
thousands):
| |
|
Three
Months Ended
March
31,
|
|
|
|
|
2007
|
|
2006
|
|
| |
|
(Unaudited)
|
|
| |
|
|
|
|
|
|
Oncology
|
|
$
|
7,396
|
|
$
|
5,276
|
|
|
hESC
Therapies
|
|
|
5,793
|
|
|
4,087
|
|
|
Total
|
|
$
|
13,189
|
|
$
|
9,363
|
|
At
this
time, we cannot provide reliable estimates of how much time or investment will
be necessary to commercialize products from the programs currently in progress.
Drug development in the U.S. is a process that includes multiple steps defined
by the FDA under applicable statutes, regulations and guidance documents. After
the preclinical research process of identifying, selecting and testing in
animals a potential pharmaceutical compound, the clinical development process
begins with the filing of an IND. Clinical development typically involves three
phases of study: Phase I, II and III. The most significant costs associated
with
clinical development are incurred in Phase III trials, which tend to be the
longest and largest studies conducted during the drug development process.
After
the completion of a successful preclinical and clinical development program,
a
New Drug Application (NDA) or Biologics License Application (BLA) must be filed
with the FDA, which includes, among other things, very large amounts of
preclinical and clinical data and results and manufacturing-related information
necessary to support requested approval of the product. The NDA/BLA must be
reviewed and approved by the FDA.
According
to industry statistics, it generally takes 10 to 15 years to research, develop
and bring to market a new prescription medicine in the United States. In light
of the steps and complexities involved, the successful development of our
potential products is highly uncertain. Actual timelines and costs to develop
and commercialize a product are subject to enormous variability and are very
difficult to predict. In addition, various statutes and regulations also govern
or influence the manufacturing, safety reporting, labeling, storage, record
keeping and marketing of each product. The lengthy process of seeking these
regulatory reviews and approvals, and the subsequent compliance with applicable
statutes and regulations, require the expenditure of substantial resources.
Any
failure by us to obtain, or any delay in obtaining, regulatory approvals could
materially adversely affect our business. In responding to an NDA/BLA
submission, the FDA may grant marketing approval, may request additional
information, may deny the application if it determines that the application
does
not provide an adequate basis for approval, and may also refuse to review an
application that has been submitted if it determines that the application does
not provide an adequate basis for filing and review. We cannot provide assurance
that any approval required by the FDA will be obtained on a timely basis, if
at
all.
For
a
more complete discussion of the risks and uncertainties associated with
completing development of potential products, see the sub-section titled
“Because we or our collaborators must obtain regulatory approval to market our
products in the United States and other countries, we cannot predict whether
or
when we will be permitted to commercialize our products” and “Entry into
clinical trials with one or more product candidates may not result in any
commercially viable products” in Part II, Item 1A entitled “Risk Factors” and
elsewhere in this quarterly report.
General
and Administrative Expenses
General
and administrative expenses were $4.1 million for the three months ended March
31, 2007, compared to $2.1 million for the comparable 2006 period. The increase
in 2007 compared to 2006 was primarily due to increased recognition of
compensation expense related to restricted stock awards to employees and
directors during the first quarter of 2007. We currently anticipate general
and
administrative expenses to remain consistent with current levels.
Unrealized
Gain (Loss) on Derivatives
Unrealized
gain (loss) on derivatives reflects a non-cash adjustment for changes in fair
value of warrants and options held by non-employees to purchase common stock
that are classified as current liabilities. Under Issue 00-19, derivatives
classified as assets or liabilities are marked to market at each financial
reporting date with any resulting unrealized gain (loss) recorded in the
consolidated statements of operations. The derivatives continue to be reported
as an asset or liability until such time as the instruments are exercised or
expire or are otherwise modified to remove the provisions which require this
treatment, at which time the fair value of these instruments is marked to market
and reclassified from assets or liabilities to stockholders’ equity. We incurred
an unrealized gain on derivatives of $14.8 million for the three months ended
March 31, 2007 and $4.1 million for the comparable restated 2006 period. The
increase in unrealized gain on derivatives in 2007 as compared to 2006 primarily
reflects changes in fair value of warrants issued in connection with the
December 2006 financing. See Note 2, “Fair Value of Derivatives,” in Notes to
Consolidated Financial Statements of this Form 10-Q for further discussion
of
unrealized gain on derivatives.
Interest
and Other Income
Interest
income was $2.8 million for the three months ended March 31, 2007, compared
to
$1.9 million for the comparable 2006 period. The increase in interest income
for
2007 compared to 2006 was due to higher cash and investment balances as a result
of $40.0 million in proceeds received from the December 2006 financing and
$15.0
million in proceeds received in connection with the exercise of warrants in
February 2007. Interest earned in future periods will depend on the size of
our
securities portfolio and prevailing interest rates.
Interest
and Other Expense
Interest
and other expense was $28,000 for the three months ended March 31, 2007,
compared to $40,000 for the comparable 2006 period. The decrease in interest
and
other expense for 2007 compared to 2006 was primarily due to the conclusion
of
equipment financing payments in June 2006.
Net
Income (Loss)
Net
income was $1.2 million for the three months ended March 31, 2007, compared
to
$4.9 million net loss for the comparable restated 2006 period. Net income for
the three months ended March 31, 2007 resulted from unrealized gain on
derivatives of $14.8 million offset by increased operating expenses for the
clinical development of GRN163L and GRNVAC1.
Deemed
Dividend on Derivatives
In
conjunction with the warrant exercise in February 2007, we issued warrants
to
purchase 1,125,000 shares of common stock, at a premium, exercisable from June
2007. The new warrants are substantially the same as the A Warrants issued
in
the December 2006 financing. The aggregate fair value of $3.7 million for
these new instruments, as calculated using the Black Scholes option-pricing
model, was recognized as a deemed dividend in the consolidated statements of
operations.
LIQUIDITY
AND CAPITAL RESOURCES
Cash,
restricted cash, cash equivalents and marketable securities at March 31, 2007
totaled $221.8 million compared to $213.9 million at December 31, 2006. We
have
an investment policy to invest these funds in liquid, investment grade
securities, such as interest-bearing money market funds, corporate notes,
commercial paper, asset-backed securities and municipal securities. The increase
in cash, restricted cash, cash equivalents and marketable securities in 2007
resulted from the receipt of $15.0 million in proceeds from the exercise of
warrants issued to institutional investors in connection with a financing in
December 2006 offset by use of cash for operations.
Cash
Flows from Operating Activities. Net cash used in operations was $7.2
million for the three months ended March 31, 2007, compared to $6.8 million
for
the comparable 2006 period. The increase in net cash used for operations in
2007
was primarily the result of increased operating expenses.
Cash
Flows from Investing Activities. Net cash provided by investing activities
was $1.8 million for the three months ended March 31, 2007, compared to net
cash
used in investing activities of $9.8 million for the comparable 2006 period.
The
increase in cash provided by investing activities reflected increased proceeds
from the maturities of marketable securities.
Since
inception through March 31, 2007, we have invested approximately $17.1 million
in property and equipment, of which approximately $8.3 million was financed
through an equipment financing arrangement. As of March 31, 2007, no payments
were due under our equipment financing facilities. As of March 31, 2007, we
had
approximately $500,000 available for borrowing under our equipment financing
facilities. We intend to renew the commitment for new equipment financing
facilities in 2007 to further fund equipment purchases. If we are unable to
renew the commitment, we will use our cash resources for capital
expenditures.
Cash
Flows from Financing Activities. Net cash provided by financing activities
for the three months ended March 31, 2007 was $15.3 million, compared to
$406,000 for the comparable 2006 period. In 2007, we received $15.0 million
in
proceeds from the exercise of warrants issued to institutional investors in
connection with a financing in December 2006.
As
of
March 31, 2007, our contractual obligations for the next five years and
thereafter are as follows:
|
|
|
Principal
Payments Due by Period
|
|
|
Contractual
Obligations (1)
|
|
Total
|
|
Less
Than
1
Year
|
|
1-3
Years
|
|
4-5
Years
|
|
After
5
Years
|
|
| |
|
(Amounts
in thousands)
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
Operating
leases (2)
|
|
$
|
35
|
|
$
|
10
|
|
$
|
25
|
|
$
|
—
|
|
$
|
—
|
|
|
Research
funding (3)
|
|
|
5,697
|
|
|
3,305
|
|
|
1,148
|
|
|
504
|
|
|
740
|
|
|
Total
contractual cash obligations
|
|
$
|
5,732
|
|
$
|
3,315
|
|
$
|
1,173
|
|
$
|
504
|
|
$
|
740
|
|
____________
|
(1)
|
This
table does not include any milestone payments under research
collaborations or license agreements as the timing and likelihood
of such
payments are not known. In addition, this table does not include
payments
under our severance plan if there was a change in control of the
Company
or severance payments to key employees under involuntary termination.
|
| |
|
|
(2)
|
In
March 2004, we issued 363,039 shares of our common stock to the
lessor of
our premises at 200 and 230 Constitution Drive in payment of our
monthly
rental obligation from February 1, 2004 through July 31, 2008.
The fair
value of the common stock has been recorded as a prepaid asset
and is
being amortized to rent expense on a straight-line basis over the
lease
period.
|
| |
|
|
(3)
|
Research
funding is comprised of sponsored research commitments at various
laboratories around the world, including our Hong Kong joint
venture.
|
We
estimate that our existing capital resources, interest income and equipment
financing facilities will be sufficient to fund our current level of operations
through at least December 2008. Changes in our research and development plans
or
other changes affecting our operating expenses or cash balances may result
in
the expenditure of available resources before such time, and in any event,
we
will need to raise substantial additional capital to fund our operations in
the
future. We intend to seek additional funding through strategic collaborations,
public or private equity financings, equipment loans or other financing sources
that may be available.
The
following discussion about our market risk disclosures contains forward-looking
statements. Actual results could differ materially from those projected in
the
forward-looking statements. We are exposed to market risk related to changes
in
interest rates and foreign currency exchange rates. We do not use derivative
financial instruments for speculative or trading purposes.
Credit
Risk. We place our cash, restricted cash, cash equivalents, and marketable
securities with five financial institutions in the United States. Generally,
these deposits may be redeemed upon demand and therefore, bear minimal risk.
Deposits with banks may exceed the amount of insurance provided on such
deposits. Financial instruments that potentially subject us to concentrations
of
credit risk consist primarily of marketable securities. Marketable securities
consist of high-grade corporate notes, commercial paper and asset-backed
securities. Our investment policy, approved by our Board of Directors, limits
the amount we may invest in any one type of investment issuer, thereby reducing
credit risk concentrations.
Interest
Rate Sensitivity. The fair value of our cash equivalents and marketable
securities at March 31, 2007 was $220.9 million. These investments include
$145.4 million of cash and cash equivalents which are due in less than 90 days,
$19.5 million of asset-backed securities which have varying maturity dates,
and
$56.0 million of short-term investments which are due in less than one year.
Our
investment policy is to manage our marketable securities portfolio to preserve
principal and liquidity while maximizing the return on the investment portfolio
through the full investment of available funds. We diversify the marketable
securities portfolio by investing in multiple types of investment grade
securities. We primarily invest our marketable securities portfolio in
short-term securities with at least an investment grade rating to minimize
interest rate and credit risk as well as to provide for an immediate source
of
funds. Although changes in interest rates may affect the fair value of the
marketable securities portfolio and cause unrealized gains or losses, such
gains
or losses would not be realized unless the investments are sold. Due to the
nature of our investments, which are primarily corporate notes, commercial
paper, asset-backed securities and money market funds, we have concluded that
there is no material market risk exposure.
Foreign
Currency Exchange Risk. Because we translate foreign currencies into United
States dollars for reporting purposes, currency fluctuations can have an impact,
though generally immaterial, on our results. We believe that our exposure to
currency exchange fluctuation risk is insignificant primarily because our
international subsidiary satisfies its financial obligations almost exclusively
in its local currency. As of March 31, 2007, there was an immaterial currency
exchange impact from our intercompany transactions. As of March 31, 2007, we
did
not engage in foreign currency hedging activities.
(a)
Evaluation of Disclosure Controls and Procedures. The Securities and
Exchange Commission defines the term “disclosure controls and procedures” to
mean a company’s controls and other procedures that are designed to ensure that
information required to be disclosed in the reports that it files or submits
under the Securities Exchange Act of 1934 is recorded, processed, summarized
and
reported, within the time periods specified in the Commission’s rules and forms.
As discussed in our Annual Report on Form 10-K for the year ended December
31,
2006, we identified a material weakness pertaining to controls related to the
process of accounting for complex, non-routine transactions, specifically
related to derivatives associated with equity financing transactions. Our
management, with oversight by our Audit Committee, has executed the following
remediation plan during the quarter ended March 31, 2007 to address the material
weakness:
| |
•
|
creation
and implementation of a policy regarding (i) the identification
of and
communications relating to complex, non-routine transactions, as
well as
(ii) consultation with persons with particular expertise in the
accounting
for complex, non-routine transactions in connection with the determination
of the appropriate accounting treatment and financial reporting
for such
transactions;
|
| |
|
|
| |
•
|
distribution
of the policy to employees most likely to be negotiating such
transactions;
|
| |
|
|
| |
•
|
training
for those employees involved with such transactions;
and
|
| |
|
|
| |
•
|
quarterly
review of transactions against the policy to ensure
compliance.
|
Based
on
the evaluation by our management, in which our chief executive officer and
our
chief financial officer participated, of the effectiveness of our disclosure
controls and procedures, including the remediation efforts described above,
our
chief executive officer and our chief financial officer have concluded that
our
disclosure controls and procedures were effective as of the end of the period
covered by this report.
(b)
Changes in Internal Controls Over Financial Reporting. Other than the
remediation efforts described above, there was no change in our internal control
over financial reporting for the three months ended March 31, 2007 that has
materially affected, or is reasonably likely to materially affect, our internal
control over financial reporting.
It
should
be noted that any system of controls, however well designed and operated, can
provide only reasonable assurance, and not absolute assurance, that the
objectives of the system are met. In addition, the design of any control system
is based in part upon certain assumptions about the likelihood of future events.
Because of these and other inherent limitations of control systems, there can
be
no assurance that any design will succeed in achieving its stated goals in
all
future circumstances.
None
Our
business is subject to various risks, including those described below. You
should carefully consider these risk factors, together with all of the other
information included in this Form 10-Q. Any of these risks could materially
adversely affect our business, operating results and financial
condition.
Our
business is at an early stage of development.
Our
business is at an early stage of development, in that we do not yet have product
candidates in late-stage clinical trials or on the market. One of our product
candidates, a telomerase therapeutic cancer vaccine, has been studied in
clinical trials conducted by an academic institution. We have begun clinical
testing of our lead anti-cancer drug, GRN163L, in patients with chronic
lymphocytic leukemia and solid tumor malignancies. We have no other product
candidates in clinical testing. Our ability to develop product candidates that
progress to and through clinical trials is subject to our ability to, among
other things:
| · |
succeed
in our research and development efforts;
|
| · |
select
therapeutic compounds or cell therapies for
development;
|
| · |
obtain
required regulatory approvals;
|
| · |
manufacture
product candidates; and
|
| · |
collaborate
successfully with clinical trial sites, academic institutions, physician
investigators, clinical research organizations and other third
parties.
|
Potential
lead drug compounds or other product candidates and technologies will require
significant preclinical and clinical testing prior to regulatory approval in
the
United States and other countries. Our product candidates may prove to have
undesirable and unintended side effects or other characteristics adversely
affecting their safety, efficacy or cost-effectiveness that could prevent or
limit their commercial use. In addition, our product candidates may not prove
to
be more effective for treating disease or injury than current therapies.
Accordingly, we may have to delay or abandon efforts to research, develop or
obtain regulatory approvals to market our product candidates. In addition,
we
will need to determine whether any of our potential products can be manufactured
in commercial quantities at an acceptable cost. Our research and development
efforts may not result in a product that can be approved by regulators or
marketed successfully. Because of the significant scientific, regulatory and
commercial milestones that must be reached for any of our development programs
to be successful, any program may be abandoned, even after we have expended
significant resources on the program, such as our investments in telomerase
technology and human embryonic stem cells, which could cause a sharp drop in
our
stock price.
The
science and technology of telomere biology and telomerase, human embryonic
stem
cells and nuclear transfer are relatively new. There is no precedent for the
successful commercialization of therapeutic product candidates based on our
technologies. These development programs are therefore particularly risky.
In
addition, we, our licensees or our collaborators must undertake significant
research and development activities to develop product candidates based on
our
technologies, which will require additional funding and may take years to
accomplish, if ever.
We
have a history of losses and anticipate future losses, and continued losses
could impair our ability to sustain operations.
We
have
incurred operating losses every year since our operations began in 1990. As
of
March 31, 2007, our accumulated deficit was approximately $401.6 million. Losses
have resulted principally from costs incurred in connection with our research
and development activities and from general and administrative costs associated
with our operations. We expect to incur additional operating losses and, as
our
development efforts
and clinical testing activities continue, our operating losses may increase
in
size.
Substantially
all of our revenues to date have been research support payments under
collaboration agreements and revenues from our licensing arrangements. We may
be
unsuccessful in entering into any new corporate collaboration or license
agreement that results in revenues. We do not expect that the revenues generated
from these arrangements will be sufficient alone to continue or expand our
research or development activities and otherwise sustain our
operations.
While
we
receive royalty revenue from licenses of diagnostic product candidates,
telomerase-immortalized cell lines and other licensing activities, we do not
currently expect to receive sufficient royalty revenues from these licenses
to
sustain our operations. Our ability to continue or expand our research and
development activities and otherwise sustain our operations is dependent on
our
ability, alone or with others, to, among other things, manufacture and market
therapeutic products.
We
also
expect to experience negative cash flow for the foreseeable future as we fund
our operating losses and capital expenditures. This will result in decreases
in
our working capital, total assets and stockholders’ equity, which may not be
offset by future financings. We will need to generate significant revenues
to
achieve profitability. We may not be able to generate these revenues, and we
may
never achieve profitability. Our failure to achieve profitability could
negatively impact the market price of our common stock. Even if we do become
profitable, we cannot assure you that we would be able to sustain or increase
profitability on a quarterly or annual basis.
We
will need additional capital to conduct our operations and develop our products,
and our ability to obtain the necessary funding is
uncertain.
We
will
require substantial capital resources in order to conduct our operations and
develop our product candidates, and we cannot assure you that our existing
capital resources, interest income and equipment financing arrangements will
be
sufficient to fund our current and planned operations. The timing and degree
of
any future capital requirements will depend on many factors,
including:
| · |
the
accuracy of the assumptions underlying our estimates for our capital
needs
in 2007 and beyond;
|
| · |
the
magnitude and scope of our research and development
programs;
|
| · |
the
progress we make in our research and development programs and in
preclinical development and clinical
trials;
|
| · |
our
ability to establish, enforce and maintain strategic arrangements
for
research, development, clinical testing, manufacturing and
marketing;
|
| · |
the
number and type of product candidates that we
pursue;
|
| · |
the
time and costs involved in obtaining regulatory approvals;
and
|
| · |
the
costs involved in preparing, filing, prosecuting, maintaining, defending
and enforcing patent claims.
|
We
do not
have any committed sources of capital. Additional financing through strategic
collaborations, public or private equity financings, capital lease transactions
or other financing sources may not be available on acceptable terms, or at
all.
The receptivity of the public and private equity markets to proposed financings
is substantially affected by the general economic, market and political climate
and by other factors which are unpredictable and over which we have no control.
Additional equity financings, if we obtain them, could result in significant
dilution to stockholders. Further, in the event that additional funds are
obtained through arrangements with collaborative partners, these arrangements
may require us to relinquish rights to some of our technologies, product
candidates or proposed products that we would otherwise seek to develop and
commercialize ourselves. If sufficient capital is not available, we may be
required to delay, reduce the scope of or eliminate one or more of our programs,
any of which could have a material adverse effect on our business.
We
do not have experience as a company conducting large-scale clinical trials,
or
in other areas required for the successful commercialization and marketing
of
our product candidates.
We
will
need to receive regulatory approvals for any product candidates before they
may
be marketed and distributed. Such approval will require, among other things,
completing carefully controlled and well-designed clinical trials demonstrating
the safety and efficacy of each product candidate. This process is lengthy,
expensive and uncertain. We have no experience as a company in conducting
large-scale, late stage clinical trials, and our experience with early-stage
clinical trials with small numbers of patients is limited. Such trials would
require either additional financial and management resources, or reliance on
third-party clinical investigators, clinical research organizations (CROs)
or
consultants. Relying on third-party clinical investigators or CROs may force
us
to encounter delays that are outside of our control.
We
also
do not currently have marketing and distribution capabilities for our product
candidates. Developing an internal sales and distribution capability would
be an
expensive and time-consuming process. We may enter into agreements with third
parties that would be responsible for marketing and distribution. However,
these
third parties may not be capable of successfully selling any of our product
candidates.
Because
we or our collaborators must obtain regulatory approvals to market our products
in the United States and other countries, we cannot predict whether or when
we
will be permitted to commercialize our products.
Federal,
state and local governments in the United States and governments in other
countries have significant regulations in place that govern many of our
activities and may prevent us from creating commercially viable products from
our discoveries.
The
regulatory process, particularly for biopharmaceutical product candidates like
ours, is uncertain, can take many years and requires the expenditure of
substantial resources. Any product candidate that we or our collaborators
develop must receive all relevant regulatory agency approvals before it may
be
marketed in the United States or other countries. Biological drugs and
non-biological drugs are rigorously regulated. In particular, human
pharmaceutical therapeutic product candidates are subject to rigorous
preclinical and clinical testing and other requirements by the Food and Drug
Administration (FDA) in the United States and similar health authorities in
other countries in order to demonstrate safety and efficacy. Because certain
of
our product candidates involve the application of new technologies or are based
upon a new therapeutic approach, they may be subject to substantial additional
review by various government regulatory authorities, and, as a result, the
process of obtaining regulatory approvals for them may proceed more slowly
than
for product candidates based upon more conventional technologies. We may never
obtain regulatory approval to market our product candidates.
Data
obtained from preclinical and clinical activities is susceptible to varying
interpretations that could delay, limit or prevent regulatory agency approvals.
In addition, delays or rejections may be encountered as a result of changes
in
regulatory agency policy during the period of product development and/or the
period of review of any application for regulatory agency approval for a product
candidate.
Delays
in
obtaining regulatory agency approvals could:
| · |
significantly
harm the marketing of any products that we or our collaborators
develop;
|
| · |
impose
costly procedures upon our activities or the activities of our
collaborators;
|
| · |
diminish
any competitive advantages that we or our collaborators may attain;
or
|
| · |
adversely
affect our ability to receive royalties and generate revenues and
profits.
|
Even
if we commit the necessary time and resources, the required regulatory
agency
approvals may not be obtained for any product candidates developed by us
or in
collaboration with us. If we obtain regulatory agency approval for a new
product, this approval may entail limitations on the indicated uses for
which it
can be marketed that could limit the potential commercial use of the
product.
Approved
products and their manufacturers are subject to continual review, and discovery
of previously unknown problems with a product or its manufacturer may result
in
restrictions on the product or manufacturer, including withdrawal of the product
from the market. The sale by us or our collaborators of any commercially viable
product will be subject to government regulation from several standpoints,
including the processes of:
| · |
advertising
and promoting;
|
If,
and
to the extent that, we are unable to comply with these regulations, our ability
to earn revenues will be materially and negatively impacted.
Failure
to comply with regulatory requirements can result in severe civil and criminal
penalties, including but not limited to:
| · |
recall
or seizure of products;
|
| · |
injunction
against manufacture, distribution, sales and marketing;
and
|
The
imposition of any of these penalties could significantly impair our business,
financial condition and results of operations.
Entry
into clinical trials with one or more product candidates may not result in
any
commercially viable products.
We
may
never generate revenues from product sales because of a variety of risks
inherent in our business, including the following risks:
| · |
clinical
trials may not demonstrate the safety and efficacy of our product
candidates;
|
| · |
completion
of clinical trials may be delayed, or costs of clinical trials may
exceed
anticipated amounts;
|
| · |
we
may not be able to obtain regulatory approval of our product candidates,
or may experience delays in obtaining such
approvals;
|
| · |
we
may not be able to manufacture our product candidates economically
on a
commercial scale;
|
| · |
we
and any licensees of ours may not be able to successfully market
our
products;
|
| · |
physicians
may not prescribe our products, or patients or third party payors
may not
accept such products;
|
| · |
others
may have proprietary rights which prevent us from marketing our products;
and
|
| · |
competitors
may sell similar, superior or lower-cost
products.
|
With
respect to our telomerase cancer vaccine product candidate, clinical testing
has
been limited to early-stage testing for a small number of patients. The results
of this testing may not be indicative of successful outcomes in later stage
trials. We have begun clinical testing of our telomerase inhibitor compound,
GRN163L. This is the first clinical trial for this product. We have not
commenced clinical testing for any other product candidate.
Restrictions
on the use of human embryonic stem cells, political commentary and the ethical
and social implications of research involving human embryonic stem cells could
prevent us from developing or gaining acceptance for commercially viable
products based upon such stem cells and adversely affect the market price of
our
common stock.
Some
of
our most important programs involve the use of stem cells that are derived
from
human embryos. The use of human embryonic stem cells gives rise to ethical
and
social issues regarding the appropriate use of these cells. Our research related
to human embryonic stem cells may become the subject of adverse commentary
or
publicity, which could significantly harm the market price for our common
stock.
Some
political and religious groups have voiced opposition to our technology and
practices. We use stem cells derived from human embryos that
have
been created for in vitro fertilization procedures but are no longer
desired or suitable for that use and are donated with appropriate informed
consent for research use. Many research institutions, including some of our
scientific collaborators, have adopted policies regarding the ethical use of
human embryonic tissue. These policies may have the effect of limiting the
scope
of research conducted using human embryonic stem cells, thereby impairing our
ability to conduct research in this field.
In
addition, the United States government and its agencies have until recently
refused to fund research which involves the use of human embryonic tissue.
President Bush announced on August 9, 2001 that he would permit federal funding
of research on human embryonic stem cells using the limited number of embryonic
stem cell lines that had already been created, but relatively few federal grants
have been made so far. The President’s Council on Bioethics will monitor stem
cell research, and the guidelines and regulations it recommends may include
restrictions on the scope of research using human embryonic or fetal tissue.
Certain states are considering, or have in place, legislation relating to stem
cell research, including California whose voters approved Proposition 71 to
provide state funds for stem cell research in November 2004. It is not yet
clear
what, if any, affect such state actions may have on our ability to commercialize
stem cell products. In the United Kingdom and other countries, the use of
embryonic or fetal tissue in research (including the derivation of human
embryonic stem cells) is regulated by the government, whether or not the
research involves government funding.
Government-imposed
restrictions with respect to use of embryos or human embryonic stem cells in
research and development could have a material adverse effect on us,
including:
| · |
harming
our ability to establish critical partnerships and
collaborations;
|
| · |
delaying
or preventing progress in our research and development;
and
|
| · |
causing
a decrease in the price of our
stock.
|
Impairment
of our intellectual property rights may adversely affect the value of our
technologies and product candidates and limit our ability to pursue their
development.
Protection
of our proprietary technology is critically important to our business. Our
success will depend in part on our ability to obtain and enforce our patents and
maintain trade secrets, both in the United States and in other countries. In
the
event that we are unsuccessful in obtaining and enforcing patents, our business
would be negatively impacted. Further, our patents may be challenged,
invalidated or circumvented, and our patent rights may not provide proprietary
protection or competitive advantages to us.
The
patent positions of pharmaceutical and biopharmaceutical companies, including
ours, are highly uncertain and involve complex legal and technical questions.
In
particular, legal principles for biotechnology patents in the United States
and
in other countries are evolving, and the extent to which we will be able to
obtain patent coverage to protect our technology, or enforce issued patents,
is
uncertain.
For
example, the European Patent Convention prohibits the granting of European
patents for inventions that concern “uses of human embryos for industrial or
commercial purposes.” The European Patent Office is presently interpreting this
prohibition broadly, and is applying it to reject patent claims that pertain
to
human embryonic stem cells. However, this broad interpretation is being
challenged through the European Patent Office appeals system. As a result,
we do
not yet know whether or to what extent we will be able to obtain European patent
protection for our human embryonic stem cell technologies in Europe.
Publication
of discoveries in scientific or patent literature tends to lag behind actual
discoveries by at least several months and sometimes several years. Therefore,
the persons or entities that we or our licensors name as inventors in our
patents and patent applications may not have been the first to invent the
inventions disclosed in the patent applications or patents, or the first to
file
patent applications for these inventions. As a result, we may not be able to
obtain patents for discoveries that we otherwise would consider patentable
and
that we consider to be extremely significant to our future success.
Where
several parties seek U.S. patent protection for the same technology, the U.S.
Patent and Trademark Office (the Patent Office) may declare an interference
proceeding in order to ascertain the party to which the patent should be issued.
Patent interferences are typically complex, highly contested legal proceedings,
subject to appeal. They are usually expensive and prolonged, and can cause
significant delay in the issuance of patents. Moreover, parties that receive
an
adverse decision in an interference can lose important patent rights. Our
pending patent applications, or our issued patents, may be drawn into
interference proceedings which may delay or prevent the issuance of patents,
or
result in the loss of issued patent rights. If more groups become engaged in
scientific research related to telomerase biology and/or embryonic stem cells,
the number of patent filings by such groups and therefore the risk of our
patents or applications being drawn into interferences may
increase.
The
interference process can also be used to challenge a patent that has been issued
to another party. For example, in 2004 we were party to two interferences
declared by the Patent Office at our request. These interferences involved
two
of our pending applications relating to nuclear transfer technology and two
issued patents, held by the University of Massachusetts (U. Mass) and licensed
to Advanced Cell Technology, Inc. (ACT) of Worcester, Massachusetts. We
requested these interferences in order to clarify our patent rights to this
technology and to facilitate licensing to companies wishing to utilize this
technology in animal cloning. The Board of Patent Appeals and Interferences
issued final judgments in each of these cases, finding in both instances that
all of the claims in the U. Mass patents in question were unpatentable, and
upholding the patentability of Geron’s pending claims. These judgments were
appealed by U. Mass and ACT, but the appeals have now been dismissed as part
of
a settlement agreement, resulting in invalidation of the U. Mass
patents.
Outside
of the United States, certain jurisdictions, such as Europe, New Zealand and
Australia, permit oppositions to be filed against the granting of patents.
Because our intent is to commercialize products internationally, securing both
proprietary protection and freedom to operate outside of the United States
is
important to our business. We are involved in both opposing the grant of patents
to others through such opposition proceedings and in defending our patent
applications against oppositions filed by others. For example, we are involved
in two patent oppositions before the European Patent Office (EPO) with a Danish
company, Pharmexa. Pharmexa (which acquired the Norwegian company GemVax in
2005) is developing a cancer vaccine that employs a short telomerase peptide
to
induce an immune response against telomerase and has announced plans to begin
Phase III clinical trials. Pharmexa obtained a European patent with claims
to
the use of telomerase peptides for the treatment of cancer, and Geron opposed
that patent in 2004. In 2005, the Opposition Division (OD) of the EPO revoked
the claims originally granted to Pharmexa, but permitted Pharmexa to add new,
narrower claims. Pharmexa has appealed that decision to the Technical Board
of
Appeal (TBA), seeking restoration of the original claims, while Geron has
cross-appealed, seeking revocation of all the claims.
In
parallel, Pharmexa opposed a European patent held by Geron, the claims of which
cover many facets of human telomerase, including the use of telomerase peptides
in cancer vaccines. In June 2006, the OD of the EPO revoked three of the granted
claims in Geron’s patent, specifically the three claims covering telomerase
peptide cancer vaccines. We have appealed that decision to the TBA. We are
also
seeking to obtain patent coverage in Europe for telomerase peptides through
a
European divisional patent application.
The
appeals in each of these European opposition cases will take a minimum of 12
months and most likely considerably longer. Because these oppositions are
on-going proceedings, the outcomes cannot be determined at this time. These
oppositions reflect the complexity of the patent landscape in which we operate,
and illustrate the risks and uncertainties. We are also involved in other patent
oppositions in Europe, Australia and New Zealand.
Patent
opposition proceedings are not currently available in the U.S. patent system,
but legislation is pending to introduce them. However, issued U.S. patents
can
be reexamined by the Patent Office at the request of a third party. Patents
owned or licensed by Geron may therefore be subject to reexamination. As in
any
legal proceeding, the outcome of patent reexaminations is uncertain, and a
decision adverse to our interests could result in the loss of valuable patent
rights. In July 2006, requests were filed on behalf of the Foundation for
Taxpayer and Consumer Rights for reexamination of three issued U.S. patents
owned by the Wisconsin Alumni Research Foundation (WARF) and relating to human
embryonic stem cells. These three patents (U.S. Patent Nos. 5,843,780, 6,200,806
and 7,029,913) are licensed to Geron pursuant to a January 2002 license
agreement with WARF. The license agreement conveys exclusive rights to Geron
under the WARF patents for the development and commercialization of therapeutics
based on neural cells, cardiomyocytes and pancreatic islet cells, derived from
human embryonic stem cells, as well as nonexclusive rights for other product
opportunities. In October 2006, the Patent Office initiated the reexamination
proceedings and in March 2007 it issued initial non-final actions rejecting
all
claims of each of the three patents in reexamination. We are cooperating with
WARF in the reexamination proceedings, and expect that WARF will respond to
these and any subsequent Patent Office actions and, if necessary, appeal any
adverse decision. Reduction or loss of claim scope in these WARF embryonic
stem
cell patents would negatively impact Geron’s proprietary position in this
technology. Because these reexaminations are ongoing, the outcome of these
matters cannot be determined at this time.
Successful
challenges to our patents through interferences, oppositions or reexamination
proceedings could result in a loss of patent rights in the relevant
jurisdiction(s). If we are unsuccessful in actions we bring against the patents
of other parties, we may be subject to litigation, or otherwise prevented from
commercializing potential products in the relevant jurisdiction, or may be
required to obtain licenses to those patents or develop or obtain alternative
technologies, any of which could harm our business. As more groups become
engaged in scientific research and product development in the areas of
telomerase biology and/or embryonic stem cells, the risk of our patents being
challenged through patent interferences, oppositions, reexaminations or other
means will likely increase.
Furthermore,
if such challenges to our patent rights are not resolved promptly in our favor,
our existing business relationships may be jeopardized and we could be delayed
or prevented from entering into new collaborations or from commercializing
certain products, which could materially harm our business.
Patent
litigation may also be necessary to enforce patents issued or licensed to us
or
to determine the scope and validity of our proprietary rights or the proprietary
rights of others. We may not be successful in any patent litigation. Patent
litigation can be extremely expensive and time-consuming, even if the outcome
is
favorable to us. An adverse outcome in a patent litigation, patent opposition,
patent interference, or any other proceeding in a court or patent office could
subject our business to significant liabilities to other parties, require
disputed rights to be licensed from other parties or require us to cease using
the disputed technology, any of which could severely harm our
business.
If
we fail to meet our obligations under license agreements, we may lose our rights
to key technologies on which our business depends.
Our
business depends on several critical technologies that are based in part on
patents licensed from third parties. Those third-party license agreements impose
obligations on us, such as payment obligations and obligations to diligently
pursue development of commercial products under the licensed patents. If a
licensor believes that we have failed to meet our obligations under a license
agreement, the licensor could seek to limit or terminate our license rights,
which could lead to costly and time-consuming litigation and, potentially,
a
loss of the licensed rights. During the period of any such litigation our
ability to carry out the development and commercialization of potential products
could be significantly and negatively affected. If our license rights were
restricted or ultimately lost, our ability to continue our business based on
the
affected technology platform would be severely adversely affected.
We
may be subject to litigation that will be costly to defend or pursue and
uncertain in its outcome.
Our
business may bring us into conflict with our licensees, licensors, or others
with whom we have contractual or other business relationships, or with our
competitors or others whose interests differ from ours. If we are unable to
resolve those conflicts on terms that are satisfactory to all parties, we may
become involved in litigation brought by or against us. That litigation is
likely to be expensive and may require a significant amount of management’s time
and attention, at the expense of other aspects of our business. The outcome
of
litigation is always uncertain, and in some cases could include judgments
against us that require us to pay damages, enjoin us from certain activities,
or
otherwise affect our legal or contractual rights, which could have a significant
adverse effect on our business.
We
may be subject to infringement claims that are costly to defend, and which
may
limit our ability to use disputed technologies and prevent us from pursuing
research and development or commercialization of potential
products.
Our
commercial success depends significantly on our ability to operate without
infringing patents and the proprietary rights of others. Our technologies may
infringe the patents or proprietary rights of others. In addition, we may become
aware of discoveries and technology controlled by third parties that are
advantageous to our programs. In the event our technologies infringe the rights
of others or we require the use of discoveries and technology controlled by
third parties, we may be prevented from pursuing research, development or
commercialization of potential products or may be required to obtain licenses
to
those patents or other proprietary rights or develop or obtain alternative
technologies. We have obtained licenses from several universities and companies
for technologies that we anticipate incorporating into our potential products,
and we initiate negotiation for licenses to other technologies as the need
or
opportunity arises. We may not be able to obtain a license to patented
technology on commercially favorable terms, or at all. If we do not obtain
a
necessary license, we may need to redesign our technologies or obtain rights
to
alternate technologies, the research and adoption of which could cause delays
in
product development. In cases where we are unable to license necessary
technologies, we could be prevented from developing certain potential products.
Our failure to obtain alternative technologies or a license to any technology
that we may require to research, develop or commercialize our product candidates
would significantly and negatively affect our business.
Much
of the information and know-how that is critical to our business is not
patentable and we may not be able to prevent others from obtaining this
information and establishing competitive enterprises.
We
sometimes rely on trade secrets to protect our proprietary technology,
especially in circumstances in which we believe patent protection is not
appropriate or available. We attempt to protect our proprietary technology
in
part by confidentiality agreements with our employees, consultants,
collaborators and contractors. We cannot assure you that these agreements will
not be breached, that we would have adequate remedies for any breach, or that
our trade secrets will not otherwise become known or be independently discovered
by competitors, any of which would harm our business significantly.
We
depend on our collaborators and joint venture partners to help us develop and
test our product candidates, and our ability to develop and commercialize
potential products may be impaired or delayed if collaborations are
unsuccessful.
Our
strategy for the development, clinical testing and commercialization of our
product candidates requires that we enter into collaborations with corporate
or
joint venture partners, licensors, licensees and others. We are dependent upon
the subsequent success of these other parties in performing their respective
responsibilities and the continued cooperation of our partners. By way of
examples: Merck is principally responsible for developing cancer vaccines
targeted to telomerase other than the dendritic cell-based vaccines that we
are
developing; Cell Genesys is principally responsible for developing oncolytic
virus therapeutics utilizing the telomerase promoter; and Roche is responsible
for developing cancer diagnostics using our telomerase technology. Our
collaborators may not cooperate with us or perform their obligations under
our
agreements with them. We cannot control the amount and timing of our
collaborators’ resources that will be devoted to activities related to our
collaborative agreements with them. Our collaborators may choose to pursue
existing or alternative technologies in preference to those being developed
in
collaboration with us.
Under
agreements with collaborators and joint venture partners, we may rely
significantly on these parties to, among other activities:
| · |
conduct
research and development activities in conjunction with us;
|
| · |
design
and conduct advanced clinical trials in the event that we reach clinical
trials;
|
| · |
fund
research and development activities with us;
|
| · |
manage
and license certain patent rights;
|
| · |
pay
us fees upon the achievement of milestones; and
|
| · |
market
with us any commercial products that result from our collaborations
or
joint ventures.
|
The
development and commercialization of potential products will be delayed if
collaborators or joint venture partners fail to conduct these activities in
a
timely manner or at all. In addition, our collaborators could terminate their
agreements with us and we may not receive any development or milestone payments.
If we do not achieve milestones set forth in the agreements, or if our
collaborators breach or terminate their collaborative agreements with us, our
business may be materially harmed.
Our
reliance on the activities of our non-employee consultants, research
institutions, and scientific contractors, whose activities are not wholly within
our control, may lead to delays in development of our product
candidates.
We
rely
extensively upon and have relationships with scientific consultants at academic
and other institutions, some of whom conduct research at our request, and other
consultants with expertise in clinical development strategy or other matters.
These consultants are not our employees and may have commitments to, or
consulting or advisory contracts with, other entities that may limit their
availability to us. We have limited control over the activities of these
consultants and, except as otherwise required by our collaboration and
consulting agreements, can expect only limited amounts of their time to be
dedicated to our activities.
We
also
rely on consultants and advisors who assist us in formulating our research
and
development and clinical strategy. We face intense competition for qualified
individuals from numerous pharmaceutical, biopharmaceutical and biotechnology
companies, as well as academic and other research institutions. We may not
be
able to attract and retain these individuals on acceptable terms. Failure
to do
so could materially harm our business.
In
addition, we have formed research collaborations with many academic and other
research institutions throughout the world. These research facilities may have
commitments to other commercial and non-commercial entities. We have limited
control over the operations of these laboratories and can expect only limited
amounts of their time to be dedicated to our research goals.
We
also
rely on other companies for certain process development, manufacturing or other
technical scientific work, especially with respect to our GRN163L, GRNVAC1
and
GRNOPC1 programs. We have contracts with these companies that specify the work
to be done and results to be achieved, but we do not have direct control over
their personnel or operations.
If
any of
these third parties are unable or refuse to contribute to projects on which
we
need their help, our ability to generate advances in our technologies and
develop or manufacture our product candidates could be significantly
harmed.
The
loss of key personnel could slow our ability to conduct research and develop
product candidates.
Our
future success depends to a significant extent on the skills, experience and
efforts of our executive officers and key members of our scientific staff.
Competition for personnel is intense and we may be unable to retain our current
personnel or attract or assimilate other highly qualified management and
scientific personnel in the future. The loss of any or all of these individuals
could harm our business and might significantly delay or prevent the achievement
of research, development or business objectives.
Failure
to achieve and maintain effective internal controls in accordance with Section
404 of the Sarbanes-Oxley Act of 2002 could have a material adverse effect
on
our business and stock price.
Section
404 of the Sarbanes-Oxley Act of 2002 (the Sarbanes-Oxley Act) requires that
we
establish and maintain an adequate internal control structure and procedures
for
financial reporting and include a report of management on our internal control
over financial reporting. Our annual report on Form 10-K must contain an
assessment by management of the effectiveness of our internal control over
financial reporting and must include disclosure of any material weaknesses
in
internal control over financial reporting that we have identified. In addition,
our independent registered public accounting firm must attest to and report
on
management’s assessment of the effectiveness of our internal control over
financial reporting.
We
identified a material weakness in our internal control over financial reporting
as of December 31, 2006 which pertains to controls relating to the process
of
accounting for complex non-routine transactions. As of the date of this
quarterly report on Form 10-Q, we have implemented a plan to remediate the
identified material weakness. The requirements of Section 404 of the
Sarbanes-Oxley Act are ongoing and also apply to future years. We expect that
our internal control over financial reporting will continue to evolve as our
business develops. Although we are committed to continue to improve our internal
control processes and we will continue to diligently and vigorously review
our
internal control over financial reporting in order to ensure compliance with
the
Section 404 requirements, any control system, regardless of how well designed,
operated and evaluated, can provide only reasonable, not absolute, assurance
that its objectives will be met. Therefore, we cannot be certain that in the
future material weaknesses or significant deficiencies will not exist or
otherwise be discovered. If material weaknesses or other significant
deficiencies occur, these weaknesses or deficiencies could result in
misstatements of our results of operations, restatements of our consolidated
financial statements, a decline in our stock price, or other material effects
on
our business, reputation, results of operations, financial condition or
liquidity.
Potential
restrictions or a ban on nuclear transfer could prevent us from benefiting
financially from our research in this area.
Our
nuclear transfer technology could theoretically be used to produce human embryos
for the derivation of embryonic stem cells (sometimes referred to as therapeutic
cloning) or cloned humans (sometimes referred to as reproductive cloning).
The
U.S. Congress has recently considered legislation that would ban human
therapeutic cloning as well as reproductive cloning. Such a bill was passed
by
the House of Representatives, although not by the Senate.
The
July
2002 report of the President’s Council on Bioethics recommended a four-year
moratorium on therapeutic cloning. If human therapeutic cloning is restricted
or
banned, we will not be able to benefit from the scientific knowledge that
would
be generated by research in that area. Further, if regulatory bodies were
to
restrict or ban the sale of food products from cloned animals, our financial
participation in the businesses of our nuclear transfer licensees or the
value
of our ownership in our joint venture, Start Licensing, could be significantly
harmed.
Our
products are likely to be expensive to manufacture, and they may not be
profitable if we are unable to significantly reduce the costs to manufacture
them.
Our
telomerase inhibitor compound, GRN163L, and our hESC-based products are likely
to be more expensive to manufacture than most other drugs currently on the
market today. Oligonucleotides are relatively large molecules with complex
chemistry, and the cost of manufacturing an oligonucleotide like GRN163L is
greater than the cost of making most small-molecule drugs. Our present
manufacturing processes are conducted at a small scale and are at an early
stage
of development. We hope to substantially reduce manufacturing costs through
process improvements, as well as through scale increases. If we are not able
to
do so, however, and, depending on the pricing of the potential product, the
profit margin on the telomerase inhibitor may be significantly less than that
of
most drugs on the market today. Similarly, we currently make differentiated
cells from hESCs on a laboratory scale, at a high cost per unit measure. The
cell-based therapies we are developing based on hESCs will probably require
large quantities of cells. We continue to develop processes to scale up
production of the cells in a cost-effective way. We may not be able to charge
a
high enough price for any cell therapy product we develop, even if it is safe
and effective, to make a profit. If we are unable to realize significant profits
from our potential product candidates, our business would be materially
harmed.
Some
of our competitors may develop technologies that are superior to or more
cost-effective than ours, which may impact the commercial viability of our
technologies and which may significantly damage our ability to sustain
operations.
The
pharmaceutical and biotechnology industries are intensely competitive. Other
pharmaceutical and biotechnology companies and research organizations currently
engage in or have in the past engaged in efforts related to the biological
mechanisms that are the focus of our programs in oncology and human embryonic
stem cell therapies, including the study of telomeres, telomerase, human
embryonic stem cells, and nuclear transfer. In addition, other products and
therapies that could compete directly with the product candidates that we are
seeking to develop and market currently exist or are being developed by
pharmaceutical and biopharmaceutical companies and by academic and other
research organizations.
Many
companies are developing alternative therapies to treat cancer and, in this
regard, are competitors of ours. According to public data from the FDA and
NIH,
there are more than 200 approved anti-cancer products on the market in the
United States, and several thousand in clinical development. Many of the
pharmaceutical companies developing and marketing these competing products
(including GlaxoSmithKline, Bristol-Myers Squibb Company and Novartis AG, among
others) have significantly greater financial resources and expertise than we
do
in:
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research
and development;
|
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preclinical
and clinical testing;
|
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obtaining
regulatory approvals; and
|
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marketing
and distribution.
|
Smaller
companies may also prove to be significant competitors, particularly through
collaborative arrangements with large and established companies. Academic
institutions, government agencies and other public and private research
organizations may also conduct research, seek patent protection and establish
collaborative arrangements for research, clinical development and marketing
of
products similar to ours. These companies and institutions compete with us
in
recruiting and retaining qualified scientific and management personnel as well
as in acquiring technologies complementary to our programs.
In
addition to the above factors, we expect to face competition in the following
areas:
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product
efficacy and safety;
|
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the
timing and scope of regulatory consents;
|
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availability
of resources;
|
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reimbursement
coverage;
|
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patent
position, including potentially dominant patent positions of others.
|
As
a
result of the foregoing, our competitors may develop more effective or more
affordable products, or achieve earlier patent protection or product
commercialization than we do. Most significantly, competitive products may
render any product candidates that we develop obsolete, which would negatively
impact our business and ability to sustain operations.
We
may not be able to obtain or maintain sufficient insurance on commercially
reasonable terms or with adequate coverage against potential liabilities in
order to protect ourselves against product liability
claims.
Our
business exposes us to potential product liability risks that are inherent
in
the testing, manufacturing and marketing of human therapeutic and diagnostic
products. We may become subject to product liability claims if the use of our
potential products is alleged to have injured subjects or patients. This risk
exists for product candidates tested in human clinical trials as well as
potential products that are sold commercially. We currently have limited
clinical trial liability insurance and we may not be able to maintain this
type
of insurance for any of our clinical trials. In addition, product liability
insurance is becoming increasingly expensive. As a result, we may not be able
to
obtain or maintain product liability insurance in the future on acceptable
terms
or with adequate coverage against potential liabilities that could have a
material adverse effect on our business.
To
be successful, our product candidates must be accepted by the health care
community, which can be very slow to adopt or unreceptive to new technologies
and products.
Our
product candidates and those developed by our collaborative or joint venture
partners, if approved for marketing, may not achieve market acceptance since
hospitals, physicians, patients or the medical community in general may decide
not to accept and utilize these products. The product candidates that we are
attempting to develop represent substantial departures from established
treatment methods and will compete with a number of conventional drugs and
therapies manufactured and marketed by major pharmaceutical companies. The
degree of market acceptance of any of our developed potential products will
depend on a number of factors, including:
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our
establishment and demonstration to the medical community of the clinical
efficacy and safety of our product candidates;
|
| · |
our
ability to create products that are superior to alternatives currently
on
the market;
|
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our
ability to establish in the medical community the potential advantage
of
our treatments over alternative treatment methods; and
|
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reimbursement
policies of government and third-party payors.
|
If
the
health care community does not accept our potential products for any of the
foregoing reasons, or for any other reason, our business would be materially
harmed.
If
we fail to obtain acceptable prices or adequate reimbursement for our product
candidates, the use of our potential products could be severely
limited.
Our
ability to successfully commercialize our product candidates will depend
significantly on our ability to obtain acceptable prices and the availability
of
reimbursement to the patient from third-party payors. Significant uncertainty
exists as to the reimbursement status of newly-approved health care products,
including pharmaceuticals. If our potential products are not considered
cost-effective or if we fail to generate adequate third-party reimbursement
for
the users of our potential products and treatments, then we may be unable to
maintain price levels sufficient
to realize an appropriate return on our investment in product
development.
In
both
U.S. and other markets, sales of our potential products, if any, will depend
in
part on the availability of reimbursement from third-party payors, examples
of
which include:
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government
health administration authorities;
|
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private
health insurers;
|
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health
maintenance organizations; and
|
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pharmacy
benefit management companies.
|
Both
federal and state governments in the United States and governments in other
countries continue to propose and pass legislation designed to contain or reduce
the cost of health care. Legislation and regulations affecting the pricing
of
pharmaceuticals and other medical products may be adopted before any of our
potential products are approved for marketing. Cost control initiatives could
decrease the price that we receive for any product candidate we may develop
in
the future. In addition, third-party payors are increasingly challenging the
price and cost-effectiveness of medical products and services and any of our
potential products may ultimately not be considered cost-effective by these
third parties. Any of these initiatives or developments could materially harm
our business.
Our
activities involve hazardous materials, and improper handling of these materials
by our employees or agents could expose us to significant legal and financial
penalties.
Our
research and development activities involve the controlled use of hazardous
materials, chemicals and various radioactive compounds. As a consequence, we
are
subject to numerous environmental and safety laws and regulations, including
those governing laboratory procedures, exposure to blood-borne pathogens and
the
handling of biohazardous materials. We may be required to incur significant
costs to comply with current or future environmental laws and regulations and
may be adversely affected by the cost of compliance with these laws and
regulations.
Although
we believe that our safety procedures for using, handling, storing and disposing
of hazardous materials comply with the standards prescribed by state and federal
regulations, the risk of accidental contamination or injury from these materials
cannot be eliminated. In the event of such an accident, state or federal
authorities could curtail our use of these materials and we could be liable
for
any civil damages that result, the cost of which could be substantial. Further,
any failure by us to control the use, disposal, removal or storage, or to
adequately restrict the discharge, or assist in the cleanup, of hazardous
chemicals or hazardous, infectious or toxic substances could subject us to
significant liabilities, including joint and several liability under certain
statutes. Any such liability could exceed our resources and could have a
material adverse effect on our business, financial condition and results of
operations. Additionally, an accident could damage our research and
manufacturing facilities and operations.
Additional
federal, state and local laws and regulations affecting us may be adopted in
the
future. We may incur substantial costs to comply with these laws and regulations
and substantial fines or penalties if we violate any of these laws or
regulations.
Our
stock price has historically been very volatile.
Stock
prices and trading volumes for many biopharmaceutical companies fluctuate widely
for a number of reasons, including factors which may be unrelated to their
businesses or results of operations such as media coverage, legislative and
regulatory measures and the activities of various interest groups or
organizations. This market volatility, as well as general domestic or
international economic, market and political conditions, could materially and
adversely affect the market price of our common stock and the return on your
investment.
Historically,
our stock price has been extremely volatile. Between January 1998 and March
2007, our stock has traded as high as $75.88 per share and as low as $1.41
per
share. Between January 1, 2003 and March 31, 2007, the price has ranged between
a high of $16.80 per share and a low of $1.41 per share. The significant market
price fluctuations of our common stock are due to a variety of factors,
including:
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the
demand in the market for our common stock;
|
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the
experimental nature of our product candidates;
|
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fluctuations
in our operating results;
|
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market
conditions relating to the biopharmaceutical and pharmaceutical
industries;
|
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announcements
of technological innovations, new commercial products, or clinical
progress or lack thereof by us, our collaborative partners or our
competitors;
|
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announcements
concerning regulatory developments, developments with respect to
proprietary rights and our collaborations;
|
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comments
by securities analysts;
|
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general
market conditions;
|
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political
developments related to human embryonic stem cell research;
|
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public
concern with respect to our product candidates; or
|
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the
issuance of common stock to partners, vendors or to investors to
raise
additional capital.
|
In
addition, the stock market is subject to other factors outside our control
that
can cause extreme price and volume fluctuations. Securities class action
litigation has often been brought against companies, including many
biotechnology companies, which experience volatility in the market price of
their securities. Litigation brought against us could result in substantial
costs and a diversion of management's attention and resources, which could
adversely affect our business.
The
sale of a substantial number of shares may adversely affect the market price
for
our common stock.
Sale
of a
substantial number of shares of our common stock in the public market, or the
perception that such sales could occur, could significantly and negatively
affect the market price for our common stock. As of March 31, 2007, we had
200,000,000 shares of common stock authorized for issuance and 72,866,080 shares
of common stock outstanding. In addition, as of March 31, 2007, we have reserved
for future issuance approximately 27,164,325 shares of common stock for our
stock plans, potential milestone payments and outstanding warrants.
In
addition, we have issued common stock to certain parties, such as vendors and
service providers, as payment for products and services. Under these
arrangements, we typically agree to register the shares for resale soon after
their issuance. We may continue to pay for certain goods and services in this
manner, which would dilute your interest in us. Also, sales of the shares issued
in this manner could negatively affect the market price of our
stock.
Our
undesignated preferred stock may inhibit potential acquisition bids; this may
adversely affect the market price for our common stock and the voting rights
of
holders of our common stock.
Our
certificate of incorporation provides our Board of Directors with the authority
to issue up to 3,000,000 shares of undesignated preferred stock and to determine
the rights, preferences, privileges and restrictions of these shares without
further vote or action by our stockholders. As of the date of this filing,
50,000 shares of preferred stock have been designated Series A Junior
Participating Preferred Stock and the Board of Directors still has authority
to
designate and issue up to 2,950,000 shares of preferred stock. The issuance
of
shares of preferred stock may delay or prevent a change in control transaction
without further action by our stockholders. As a result, the market price of
our
common stock may be adversely affected.
In
addition, if we issue preferred stock in the future that has preference over
our
common stock with respect to the payment of dividends or upon our liquidation,
dissolution or winding up, or if we issue preferred stock with voting rights
that dilute the voting power of our common stock, the rights of holders of
our
common stock or the market price of our common stock could be adversely
affected.
Provisions
in our share purchase rights plan, charter and bylaws, and provisions of
Delaware law, may inhibit potential acquisition bids for us, which may prevent
holders of our common stock from benefiting from what they believe may be the
positive aspects of acquisitions and takeovers.
Our
Board
of Directors has adopted a share purchase rights plan, commonly referred to
as a
“poison pill.” This plan entitles existing stockholders to rights, including the
right to purchase shares of common stock, in the event of an acquisition of
15%
or more of our outstanding common
stock.
Our
share
purchase rights plan could prevent stockholders from profiting from an increase
in the market value of their shares as a result of a change of control of us
by
delaying or preventing a change of control. In addition, our Board of Directors
has the authority, without further action by our stockholders, to issue
additional shares of common stock, and to fix the rights and preferences of
one
or more series of preferred stock.
In
addition to our share purchase rights plan and the undesignated preferred stock,
provisions of our charter documents and bylaws may make it substantially more
difficult for a third party to acquire control of us and may prevent changes
in
our management, including provisions that:
| · |
prevent
stockholders from taking actions by written consent;
|
| · |
divide
the Board of Directors into separate classes with terms of office
that are
structured to prevent all of the directors from being elected in
any one
year; and
|
| · |
set
forth procedures for nominating directors and submitting proposals
for
consideration at stockholders' meetings.
|
Provisions
of Delaware law may also inhibit potential acquisition bids for us or prevent
us
from engaging in business combinations. In addition, we have severance
agreements with several employees and a change of control severance plan which
could require an acquiror to pay a higher price. Either collectively or
individually, these provisions may prevent holders of our common stock from
benefiting from what they may believe are the positive aspects of acquisitions
and takeovers, including the potential realization of a higher rate of return
on
their investment from these types of transactions.
We
do not intend to pay cash dividends on our common stock in the foreseeable
future.
We
do not
anticipate paying cash dividends on our common stock in the foreseeable future.
Any payment of cash dividends will depend upon our financial condition, results
of operations, capital requirements and other factors and will be at the
discretion of the Board of Directors. Furthermore, we may incur additional
indebtedness that may severely restrict or prohibit the payment of
dividends.
Recent
Sale of Unregistered Securities
In
January 2007, we issued 111,857 shares of Geron common stock to MPI Research,
Inc. (MPI) in a private placement as advance consideration related to a services
agreement pursuant to which MPI provides certain preclinical services in support
of our programs. The total fair value of the common stock was $1,000,000 which
has been recorded as a prepaid asset and is being amortized to research and
development expense on a pro-rata basis as services are performed. As of March
31, 2007, $191,000 remained as a prepaid asset.
We
issued
the above-described shares of common stock in reliance upon the exemption from
registration provided by Section 4(2) of the Securities Act of 1933, as amended.
MPI represented to us that they are accredited investors as defined in Rule
501(a) of the Securities Act of 1933, as amended, and that the securities issued
pursuant thereto were being acquired for investment purposes.
None
None
None
|
Exhibit
Number
|
|
Description
|
|
4.1
|
|
Form
of A Warrant, Amended and Restated, dated March 13, 2007, issued
by the
Registrant to
certain
Purchasers
|
|
4.2
|
|
Form
of A Warrant, Amended and Restated, dated March 13, 2007, issued
by the
Registrant to
certain
Purchasers
|
|
4.3
|
|
Form
of C Warrant, Amended and Restated, dated March 13, 2007, issued
by the
Registrant to
certain
Purchasers
|
|
4.4
|
|
Form
of D Warrant, dated March 1, 2007, issued by the Registrant to certain
Purchasers
|
|
10.1
|
|
Amended
and Restated 2002 Equity Incentive Plan
|
|
10.2
|
|
Amended
and Restated 2006 Directors’ Stock Option Plan
|
|
31.1
|
|
Certification
of Chief Executive Officer pursuant to Form of Rule 13a-14(a), as
Adopted
Pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002, dated April 30,
2007.
|
|
31.2
|
|
Certification
of Chief Financial Officer pursuant to Form of Rule 13a-14(a), as
Adopted
Pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002, dated April 30,
2007.
|
|
32.1
|
|
Certification
of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as
Adopted
Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002, dated April 30,
2007.
|
|
32.2
|
|
Certification
of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as
Adopted
Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002, dated April 30,
2007.
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant
has
duly caused this Report to be signed on its behalf by the undersigned, thereunto
duly authorized.
| |
|
|
| |
GERON
CORPORATION
|
|
|
|
| |
By: |
/s/
DAVID
L. GREENWOOD |
| |
David
L. Greenwood |
| |
Executive
Vice President and Chief
Financial
Officer (Duly Authorized
Signatory)
|
|
Date:
April 30, 2007
|
|
EXHIBIT
INDEX
|
Exhibit
Number
|
|
Description
|
|
4.1
|
|
Form
of A Warrant, Amended and Restated, dated March 13, 2007, issued
by the
Registrant to
certain
Purchasers
|
|
4.2
|
|
Form
of A Warrant, Amended and Restated, dated March 13, 2007, issued
by the
Registrant to
certain
Purchasers
|
|
4.3
|
|
Form
of C Warrant, Amended and Restated, dated March 13, 2007, issued
by the
Registrant to
certain
Purchasers
|
|
4.4
|
|
Form
of D Warrant, dated March 1, 2007, issued by the Registrant to
certain
Purchasers
|
|
10.1
|
|
Amended
and Restated 2002 Equity Incentive Plan
|
|
10.2
|
|
Amended
and Restated 2006 Directors’ Stock Option Plan
|
|
31.1
|
|
Certification
of Chief Executive Officer pursuant to Form of Rule 13a-14(a),
as Adopted
Pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002, dated April 30,
2007.
|
|
31.2
|
|
Certification
of Chief Financial Officer pursuant to Form of Rule 13a-14(a),
as Adopted
Pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002, dated April 30,
2007.
|
|
32.1
|
|
Certification
of Chief Executive Officer pursuant to 18 U.S.C. Section 1350,
as Adopted
Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002, dated April 30,
2007.
|
|
32.2
|
|
Certification
of Chief Financial Officer pursuant to 18 U.S.C. Section 1350,
as Adopted
Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002, dated April 30,
2007.
|
34