Geron Corporation (GERN) Q2 2016 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen. Welcome to the Q2 2016 Geron Earnings Conference Call. At this time all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions] I would now like to introduce your host for today's conference Head of Investor Relations, Miss Anna Krassowska. Please go ahead.

Thank you, Andrew. Good afternoon, everyone, and thank you for joining us for the Geron second quarter 2016 earnings call. With me this afternoon are Dr. John Scarlett, our President and Chief Executive Officer; and Olivia Bloom, our Executive Vice President of Finance and Chief Financial Officer. Today we issued a press release that reported results for the second quarter ended June 30, 2016. This release can be found on our website at geron.com. Today’s call is also being webcast live on our website and will be available for replay through September 2. Before we begin, please note that except for statements of historical fact, the statements during this conference call are forward-looking statements under the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These include, without limitations, statements regarding the potential payments under the Janssen collaboration agreement, the timeline, milestones, prospects and plans for imetelstat, including patient enrollment and planned internal data reviews and analysis, the therapeutic potential and safety of Imetelstat, Geron’s desire to diversify patent coverage and financial and operating projections or requirements. These statements involve risks and uncertainties that can cause actual results to differ materially from those in such forward-looking statements. These risks and uncertainties include without limitation that Imetelstat is safe and efficacious in multiple indications, clinical trials continue to proceed without delays caused by regulatory agencies or any other factors. Geron's patents maintain validity and that Geron will receive continuation milestone and royalty payments from Janssen. Additional information and factors that could cause actual results to differ materially from those in the forward-looking statements are contained in Geron’s periodic reports filed with the Securities and Exchange Commission under the heading Risk Factors, including Geron’s quarterly report on Form 10-Q for the quarter ending June 30, 2016. Undue reliance should not be placed on forward-looking statements, which speak only as of the date they are made, and the facts and assumptions underlying the forward-looking statements may change. Except as required by law, Geron disclaims any obligation to update these forward-looking statements reflect future information events and circumstances. We will begin today's call with the summary of the 2016 second quarter operating results from Olivia, and then Chip will review recent events and discuss the ongoing activities with the Imetelstat clinical trials that are being conducted by Janssen. Olivia?

Thanks, Anna. Good afternoon. For the second quarter of 2016, we reported a net loss of $8.6 million or $0.05 per share compared to a net loss of $9.4 million or $0.06 per share for the comparable 2015 period. For the first six months of 2016, we reported a net loss of $17.5 million or $0.11 per share compared to a net loss of $18.7 million or $0.12 per share for the comparable 2015 period. Revenues for the second quarter of 2016 were $211,000 compared to $251,000 for the comparable 2015 period. Revenues for the first six months of 2016 were $960,000 compared to $788,000 for the comparable 2015 period. Revenues for 2016 and 2015 primarily reflect royalty and license fee revenues under various non-imetelstat license agreements. Total operating expenses for the second quarter of 2016 were $9.1 million compared to $9.7 million for the comparable 2015 period. Research and development expenses for the second quarter of 2016 were $4.6 million compared to $4.8 million for the comparable 2015 period. General and administrative expenses for the second quarter of 2016 were $4.5 million compared to $4 million for the comparable 2015 period. Operating expenses for the second quarter of 2016 also included restructuring charges of $941,000 related to the organizational resizing announced in March 2015. Total operating expenses for the first six months of 2016 were $18.9 million compared to $19.7 million for the comparable 2015 period. Research and development expenses for the first six months of 2016 were $9.6 million compared to $9.8 million for the comparable 2015 period. General and administrative expenses for the first six months of 2016 were $9.3 million compared to $8.6 million for the comparable 2015 period. Year-to-date operating expenses for 2015 also included restructuring charges of $1.3 million related to the March 2015 organizational resizing. The decrease in research and development expenses for the 2016 period compared to the same periods in 2015 was primarily the net results of lower manufacturing cost for imetelstat and reduced personnel related cost resulting from the organizational resizing, which were partially offset by higher costs for the clinical development of imetelstat in collaboration with Janssen. The increase in general and administrative expenses for the 2016 periods compared to the same periods in 2015 was primarily result of higher non-cash stock based compensation expense and an increased allocation of facilities and other overhead cost to general and administrative activities. We ended the second quarter of 2016 with $136.4 million in cash and investment. We have not incurred any impairment charges on our marketable securities portfolio. I will now turn the call over to Chip to review current company events Chip?

Thanks, Olivia. Good afternoon, everyone, and thank you for joining. I'll begin the call today with comments on the two large global imetelstat studies, IMerge and IMbark that are being conducted by Janssen. First IMbark. This is phase 2 clinical trial and approximately 200 patients with intermediate-2 and high risk mylofibrosis or MF, who are relapsed after or refractory due to treatment with the JAK inhibitor. These patients represent a significant unmet medical need. There are no approved alternative therapies beyond the one JAK inhibitor on the market today, which is ruxolitinib. And once the patient is relapsed after treatment median survival has been reported to be approximately 6 months. In IMBark, MF patients are initially assigned randomly to one of two dosing arms of imetelstat, either 9.4 milligrams per kilogram, or 4.7 milligrams per kilogram administered every three weeks. As I have discussed in the past one of the objectives of the study is to identify the appropriate dosing schedule in this relapsed or refractory MF patient population. To help inform this assessment, we expect Janssen to conduct periodic internal reviews of safety and efficacy from the two dosing arms. No review has been conducted to date. We expect the first internal review will include data from 20 patients from each of the two dosing arms, who've been followed on the study for at least 12 weeks. Janssen has reported to us that the patient enrollment to conduct this review has been achieved, so we expect this internal data review to be conducted by the end of the third quarter. As a reminder, the co-primary efficacy endpoints in this study are spleen response and symptom response rate assessed at the 24 week visit. Given the first internal data reviews occurring after 40 patients have been treated for only 12 weeks, we expect Janssen to conduct another internal data review to include longer follow-up with patients on the study of at least 24 weeks, consistent with these co-primary endpoints. We expect Janssen to conduct this additional review of safety and efficacy by the end of this year. There are no plans by either us or Janssen to publicly disclose the results of these internal data reviews except for any significant change to the study. During these internal data reviews, we expect patient enrollment for IMbark will continue. There are no predetermined study stopping rules in the protocol based on the results of these internal data reviews. Provided the data are sufficiently informative to enable decision-making, potential outcomes from any internal data reviews may include the following. If both doses show adequate activity and acceptable safety, we expect Janssen to continue with enrollment in both arms. If one of the doses does not show adequate activity or have acceptable safety, we expect that Janssen may stop enrollment in that arm. In the event that both arms do not have adequate activity or acceptable safety, we expect Janssen may select an alternative dose based on exposure response, efficacy or safety analyses or the study may be discontinued. Next, IMerge. This study is a Phase 2/3 clinical trial of approximately 200 patients with low and intermediate-1 risk myelodysplastic syndromes, or MDS, who have relapsed after or a refractory to treatment within erythropoiesis-stimulating agent or ESA. Chronic anemia remains the predominant clinical problem in low-risk and lower-risk MDS. ESA treatment can provide an improvement in anemia, but the effect is transient and patients may become dependent on frequent red blood cell transfusions, which is associated with poor survival. IMerge is planned to be conducted by Janssen in 2 parts. Part one is an open-label Phase 2 single-arm design to assess the efficacy and safety of imetelstat in up to 30 MDS patients before proceeding to part 2 of the study, which would be a Phase 3 randomized placebo-controlled trial. We have been informed by Janssen that the open-label Part 1 of the study is fully enrolled. A decision to move forward with to part 2 of the study will be based on a positive assessment of the benefit risk profile of imetelstat in this patient population, including red blood cell transfusion independent during any consecutive 8 weeks or longer since entering into the trial, consistent with the primary endpoint for the study. To inform this assessment, we expect Janssen to conduct an internal ongoing review of efficacy and safety from part 1 during the second half of 2016. No review has been conducted to date. During the review, no new patients will be enrolled into the study. If Janssen decides to move forward with part 2 of IMerge, depending on rate [ph] factors, including the timing of the completion of Janssen's internal data reviews and assessment, we expect part 2 of the clinical trial will be open for patient enrollment in the first half of 2017. As with IMbark, we do not expect data from any internal data reviews from IMerge to be presented or publicly disclosed by Janssen or us except for any significant change to the study design. If part 2 of the study is initiated by Janssen, we expect to disclose such an event upon the dosing of the first patient. Before I close my prepared remarks, I'd like to discuss other company activities. As many of you are aware tomorrow is the deadline for submitting abstract to be considered by the review committee of the American Society of Hematology, or ASH for presentation at the annual meeting to be held in December. I want to note the Janssen and Geron have no plans to submit abstracts related to imetelstat clinical data to ASH this year. We are still in the execution phase of the ongoing IMbark and IMerge studies, and data from those studies are not yet available. While waiting for clinical data to approve, Janssen has sponsored numerous preclinical studies to explore the effects of imetelstat in other myeloid hematologic malignancies, such as AML. Thus, we expect one or more preclinical abstracts to be submitted to ASH. However, until such abstracts are accepted and published, we're limited by the embargo policies of ASH in commenting further. We have indicated since announcing our collaboration with Janssen that we've been conducting a rigorous and comprehensive process to identify and evaluate the potential acquisition of new oncology products, programs or companies that we believe could potentially grow and diversify our business as well as to leverage the potential cash stream that could come from the successful development and commercialization of imetelstat. An ideal acquisition candidate would be a company that would possess either a platform technology or capability with outstanding science behind it, which could be used to develop a pipeline of preclinical or early clinical stage products that we believe can improve shareholder value on a risk-adjusted basis. This search and evaluation process continues, and we are uncertain whether we will be able to identify and make such an acquisition. Thanks to all of you for listening. I'd be pleased to answer questions in the time we have remaining. With that, operator, let's open the call to questions, please.

Certainly.[Operator Instructions] And our first question or comment comes from the line of Tom Shrader with Stifel.

Hi, good afternoon. Nice to talk to you again.

Hi, Tom.

I have some questions. I'm not sure you can answer them, but let's see. So in the myelofibrosis trial, you had 4 remarkable CRs. Will you update on those patients? Or do we know how long those lasts? Is that the kind of information we'll get and - will we get it from you or Janssen?

So this was in the - you're referring, Tom, I believe to the Mayo Clinic pilot study.

Right.

Yes. And those - the median durability of response that we've reported, which was some time ago now was 18 months for the CRs. We have not updated that and don't plan to. That study is sort of towards the end of its life, and we have decided not to make any further publications. I don't know if Dr. Tefferi will ever update that at ASH. I don't believe we expect that for this year, but that would be up to him.

So those - the 18 months, those CRs had all ended or some are ongoing?

No, they were all ongoing, and that was as of December the 5th, 2014, as I recall. So but we don't have any specific updates on that on any of them [ph].

Okay. And then kind of a theoretical question. So your endpoints on splenomegaly and sort of quality of life issues, in your interim look, how do you think the balance will be between your real end - from your official endpoint versus these remarkable results you see in a subset of patients. Any sense of how that would bias with those?

Yes, interesting - it's an interesting question, Tom. I would say that first and probably the first thing I'd say is that the reason that we picked splenomegaly as spleen response rate and total symptom response rate was really because those are the approved endpoints so far for ruxolitinib. And since these patients are all refractory or relapsed from JAK inhibitor therapy, that made a lot of sense. It is a regulatory-approved endpoint. However, as you've quite rightly pointed out, CRs PRs, there are a host of other secondary endpoints in the study that are really quite important from both the scientific, medical and ultimately, I would assume other development perspective. We're literally collecting all of that information. Those will all be reported eventually when the study results are reported. But I think the primary - the co-primary endpoints are in fact the spleen response rate and symptom response rate. I think that does makes sense from the precedent information that's available.

Okay. And last question. Given the Jakafi data as it's maturing and the relatively short half-life of Jakafi failures, do you expect OS to be the primary endpoint of a pivotal trial? Or do you think it will remain what you're doing in IMbark?

That's a really good question. I mean, OS is a secondary endpoint for us or maybe I think it might be officially an exploratory endpoint. But we're certainly intending to collect that information. I think you asked a really good theoretical question or question because on one hand, if you could recapture patients' improvement in splenomegaly and improvement in symptoms that would certainly be a clinical benefit and meaningfulness to patients. And I'm sure regulators would look at that very positively in the long run. On the other hand, OS is the ultimate gold standard for any oncology therapy, and this is most assuredly an oncology indication. So I think you've put your finger on it that these patients, when they relapse from JAK inhibitors, they actually have pretty short lifespan many of them at least. So it's a possibility. But right now, for this particular setting, we're really focused on the co-primary endpoints of spleen and symptoms.

Okay. Perfect. Thank you very much for the update.

Thank you, Tom.

And our next question or comment comes from the line of Roy Buchanan with Janney Montgomery Scott.

Hi, thanks for taking the questions and for the comprehensive update. John, I have some questions. You probably also can't answer, but I'll ask them anyway. The - I guess, outside of the interim analyses that you spoke of from Janssen, I presume there is a standard DSMB reviews for both studies. Can you confirm that? And tell us how frequent those happen?

Well, we haven't disclosed any of the internal workings of the study. But I think you can assume, Roy, that there are DSMBs. And all of the other standard procedural assessments and analyses that any major company and for that matter, any serious Phase II and beyond study would employ today.

Okay. Great. And then a question, I guess, maybe relevant for the search for another asset. But the biotech markets recovered a little bit recently. Do you have any thoughts on - these assets are becoming more expensive? And then I had a question. You probably can't answer, but just from my own curiosity about if you notice a dramatic difference between valuations for public assets and private assets and if you could comment on that. Thanks.

Sure. The - I think that we've been predominantly focused, I must say, on scientific quality and medical appropriateness. And have probably spent a little bit less time for separating about the cost of particular assets. If we get to the point where we've identified a company or an asset that we are really interested in possibly acquiring, then we'll be very focused, obviously, on all of the economics. So I'm not - I think that most of my comments about economics are those of someone who doesn't spend all day thinking about them. I think there is little question that there have been some changes for later-stage clinical assets, which we're frankly not likely to be able to afford or be as attracted to because of price. And yes, I think there has been some recovery of that. But that's in a different type of assets. And generally speaking on a company that we've been looking at which are earlier-stage clinical or even late preclinical. There it's a lot harder to know what the market really is because there haven't been very many transactions. With regard to your question about the difference in transactions between private and public companies, that's a really individualized basis. Some private companies bring very high valuations because of the nature of their breakthrough businesses. Other public companies reflect broad shareholder interest and broad market interest. So I don't think that there is any way I could make a reasonable characterization between the 2.

Okay. Very helpful. Thanks.

Sure. Happy.

And our next question or comment comes from the line of Thomas Yip with FBR Company.

Hi, everyone. Thank you for taking my questions. First question regarding IMerge. Chip, you mentioned that patient enrollment will temporarily pause during the internal review. How long should we expect a typical review of this nature to last?

Yes, it's a little hard to know exactly. This - IMerge has - there is an interesting feature to it, Thomas. The primary endpoint for IMerge is an eight-week transfusion independent. And that requires a rolling measurement of time, during which patients don't require red blood cell transfusions. So the patients who achieve transfusion independence for consecutive 8-week period or longer at any time on the study would meet the primary endpoint. So the internal data review is being conducted by Janssen or being conducted in the second half of 2016 are going to provide an ongoing assessment of the data from part 1. But there is no specific final line in the sand date when all of the data will get cut off. So this is - it is an open-label portion of the study, and Janssen will presumably be looking at this. And I can't give you a highly specific time frame because of that. And I can - you can just imagine a patient who's at seven weeks of transfusion. I think you might want to wait for the next week to see if they trip the number and so forth. So it's a little hard to be as precise about it as we would like. But I think sometime in the first half, it's probably - or second - second half of this year is probably the right way to think about that.

Okay. Thanks for the explanation. I mean that's reasonable. Next, I have a couple of questions for perhaps, Olivia. Given the new patents that were issued in July, did that trigger any milestone payment? Or did that check or any reimbursement from Janssen?

Thomas, there was no milestone associated with the new patents or any reimbursement. I would say that in general, the collaboration agreement was set up in the beginning, though that the costs for all patent prosecution and maintenance is being shared between Geron and Janssen on a 50-50 basis.

Okay. Thanks, thanks for reminder [ph] I guess, one final question. You previously guided to cash use for the entire year 2016 of $34 million. Should we expect a similar level on an ongoing basis for the next 12 months?

The guidance still is the same for 2016 at $34 million. So I'm not - there's no update there. And I haven't provided any guidance yet for 2017, so really couldn't speak to the next 6 months after that.

Okay. Got it. Thanks again for taking my questions guys. And I look forward to the next and updates on the trials.

Okay. Thanks, Thomas.

Thanks, Thomas.

And our next question or comment comes from the line of Chad Messer with Needham & Company. Your line is now open.

Great. Thanks. Good evening, everyone. Thanks for taking my question. Given all that's been going on and is going on in AML and the potential interest of maybe looking at imetelstat there, I guess, we'll see if there is any interesting preclinical data that comes out, I was wondering if you've given any thought and would be willing to speculate on ways imetelstat might be looked back clinically in AML?

Chad, what we've said in the past, and I think it would still probably be pretty relevant is that we know that when Dr. Tefferi treated some acute blast crisis MF patients who are basically secondary AML. We know that there was anti-leukemic activity, meaning their white counts went down, their blast counts went down. But there was - but it was also pretty clear that these patients, the majority of them certainly would require more than simply imetelstat, especially early in the course of such a devastatingly violent onset of disease. So I think we've concluded and would probably still theorize that a combination therapy would be required with it for imetelstat in some manner, whether imetelstat would be used after induction 7 plus 3 or whether they would be used concomitantly. That will require some additional considerations, but probably some thinking about things preclinically et cetera. But we don't have any further update on any of those plans. That's what we said in the past, and I would - can't reiterate it today.

All right. Great. Thank you very much.

And at this time, I'm showing no further questions or comments. So with that said, I like to turn the conference back over to CEO, Dr. John Scarlett, for closing remarks.

Thank you all very much for your continued interest in the company. We look forward to our next opportunity to talk with all of you and provide an update later in the year. Have a good day.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and you may now disconnect. Everyone, have a wonderful day.