Is Geron Being Overly Punished?

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Geron Corp. (NASDAQ: GERN) has never been a stock without controversy. That controversy used to revolve around stem cells, but now it is a controversial stock for another reason. Investors never like to see a stock they own drop 17%, but there is at least one view that maybe the drop is an opportunity for those with longer-term views who remain bullish.

Monday’s largest losers included Geron, with a drop of 16.4% to $2.39, and its trading volume of 8.8 million shares at noon Eastern Time was already close to six times normal daily volume.

The driving force for the news was that Geron provided updates on the clinical trials being conducted by Janssen Research of the telomerase inhibitor imetelstat. Planned internal reviews of initial data from both trials have been completed by Janssen, and both trials are continuing in order to evaluate additional and more mature data.

To date, over 90 patients have been enrolled in the trial across both dosing arms. The IMbark trial was originally designed to evaluate two dose levels in approximately 200 patients. Janssen now plans to conduct an additional internal data review in the IMbark trial in the second quarter of 2017 to include a longer follow-up of patients at 24 weeks. Janssen expects to submit data from Part 1 of IMerge to be considered for presentation at a medical conference in the future. Geron also noted the IMerge Phase 2/3 trials by saying:

Janssen has conducted an initial internal review of efficacy, safety and pharmacokinetic data from a subset of patients from Part 1 of IMergeTM and this review indicated that emerging safety and efficacy in IMergeTM is consistent with data reported from the pilot study conducted at Mayo Clinic in MDS patients. IMergeTM will continue unmodified at this time.

Further assessment of data from IMergeTM is expected to occur in the second quarter of 2017 to include longer follow-up of all patients enrolled in Part 1. A decision on whether to move forward to Part 2 of IMergeTM will be based on an assessment of the benefit/risk profile of imetelstat in these patients. If Janssen decides to move forward with Part 2, the Phase 3 clinical trial is expected to be open for patient enrollment in mid-2017.

A report from Janney’s Roy Buchanan maintained a Buy rating with a $5 fair value estimate (down from $6.50). His take was that this process was never going to be an easy one and that IMerge in MDS is on track. His report said:

Geron announced a set of changes to the ongoing phase 2 study of imetelstat in Jakafi-relapsed/refractory myelofibrosis (MF) (IMbark study), some not too surprising like dropping the 4.7 mg/kg dose. The companies’ (including partner Janssen – not covered) halting enrollment in IMbark to evaluate the 24-week data at 9.4 mg/kg in 2Q17 is being interpreted as a sign of caution, we think. That’s a reasonable interpretation, and we’re lowering our probabilities of success in MF from ~60% to ~40%, and increasing our discount rate to 20%, resulting in a new fair value of $5 from $6.50. The lack of changes to IMerge is encouraging and apparently overlooked by the market at this point.

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Geron shares were down almost 17% at $2.37 in the noon hour on Monday. Its 52-week trading range is $2.06 (also from Monday morning) to $5.30.

When analysts lower their price targets, it is considered a light downgrade, even if the formal rating was maintained. That being said, this still implies more than 100% in long-term potential upside if Buchanan’s view proves to be correct. Just don’t expect any major snap back or reversal of this drop any time in the coming days or weeks.