Item 1. Financial Statements
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
GERON CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
SEPTEMBER 30,
DECEMBER 31,
2023
2022
(UNAUDITED)
(NOTE 1)
ASSETS
Current assets:
Cash and cash equivalents
$
30,709
$
56,845
Restricted cash
536
364
Marketable securities
282,818
115,901
Interest and other receivables
14,754
3,144
Prepaid and other current assets
6,268
3,992
Total current assets
335,085
180,246
Noncurrent marketable securities
67,821
—
Property and equipment, net
1,231
793
Operating leases, right-of-use assets
3,683
4,147
Deposits and other assets
5,197
5,389
$
413,017
$
190,575
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable
$
13,684
$
10,190
Accrued compensation and benefits
10,837
11,534
Operating lease liabilities
943
925
Debt
22,060
20,945
Accrued liabilities
41,862
33,100
Total current liabilities
89,386
76,694
Noncurrent operating lease liabilities
3,179
3,671
Noncurrent debt
29,838
30,212
Commitments and contingencies
Stockholders' equity:
Common stock
542
390
Additional paid-in capital
1,836,818
1,493,469
Accumulated deficit
( 1,545,796
)
( 1,413,642
)
Accumulated other comprehensive loss
( 950
)
( 219
)
Total stockholders' equity
290,614
79,998
$
413,017
$
190,575
See accompanying notes.
3
GERON CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
THREE MONTHS ENDED
NINE MONTHS ENDED
SEPTEMBER 30,
SEPTEMBER 30,
2023
2022
2023
2022
Revenues:
Royalties
$
164
$
297
$
214
$
493
Operating expenses:
Research and development
29,426
24,603
92,135
67,308
General and administrative
18,350
15,642
47,734
29,784
Total operating expenses
47,776
40,245
139,869
97,092
Loss from operations
( 47,612
)
( 39,948
)
( 139,655
)
( 96,599
)
Interest income
4,965
852
13,556
1,294
Interest expense
( 2,066
)
( 1,817
)
( 5,991
)
( 4,877
)
Other income and (expense), net
( 92
)
( 138
)
( 64
)
916
Net loss
$
( 44,805
)
$
( 41,051
)
$
( 132,154
)
$
( 99,266
)
Basic and diluted net loss per share
$
( 0.08
)
$
( 0.10
)
$
( 0.23
)
$
( 0.26
)
Shares used in computing
basic and diluted net loss per share
579,508,305
405,237,474
562,445,577
380,659,049
See accompanying notes.
4
GERON CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED
NINE MONTHS ENDED
SEPTEMBER 30,
SEPTEMBER 30,
2023
2022
2023
2022
Net loss
$
( 44,805
)
$
( 41,051
)
$
( 132,154
)
$
( 99,266
)
Net unrealized loss on marketable securities
( 11
)
153
( 722
)
( 468
)
Foreign currency translation adjustments
6
9
( 9
)
21
Comprehensive loss
$
( 44,810
)
$
( 40,889
)
$
( 132,885
)
$
( 99,713
)
See accompanying notes.
5
GERON CORPORATION
CONDENSED CONSOLIDATED STATEMENTS O F STOCKHOLDERS’ EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
Accumulated
Additional
Other
Total
Common Stock
Paid-In
Accumulated
Comprehensive
Stockholders'
Shares
Amount
Capital
Deficit
Gain (Loss)
Equity
Balance at December 31, 2022
390,262,524
$
390
$
1,493,469
$
( 1,413,642
)
$
( 219
)
$
79,998
Net loss
—
—
—
( 38,122
)
—
( 38,122
)
Other comprehensive income
—
—
—
—
75
75
Foreign currency translation
adjustment
—
—
—
—
( 16
)
( 16
)
Issuance of common stock and
pre-funded warrant to purchase
common stock in public
offering, net of issuance
costs of $ 14,507
68,007,741
68
213,269
—
—
213,337
Issuance of common stock in
connection with exercise of
warrants
44,983,193
45
59,790
—
—
59,835
Stock-based compensation related
to issuance of common stock
and options in exchange
for services
9,360
1
111
—
—
112
Issuance of common stock
under equity plans
5,469,028
5
7,870
—
—
7,875
Stock-based compensation for
equity-based awards to
employees and directors
—
—
2,961
—
—
2,961
Balance at March 31, 2023
508,731,846
509
1,777,470
( 1,451,764
)
( 160
)
326,055
Net loss
—
—
—
( 49,227
)
—
( 49,227
)
Other comprehensive loss
—
—
—
—
( 786
)
( 786
)
Foreign currency translation
adjustment
—
—
—
—
1
1
Issuance of common stock in
connection with exercise of
warrants
12,842,857
13
17,754
—
—
17,767
Stock-based compensation related
to issuance of common stock
and options in exchange
for services
6,327
—
99
—
—
99
Issuance of common stock
under equity plans
361,074
—
573
—
—
573
Stock-based compensation for
equity-based awards to
employees and directors
—
—
3,945
—
—
3,945
Balance at June 30, 2023
521,942,104
$
522
$
1,799,841
$
( 1,500,991
)
$
( 945
)
$
298,427
Net loss
—
—
—
( 44,805
)
—
( 44,805
)
Other comprehensive loss
—
—
—
—
( 11
)
( 11
)
Foreign currency translation
adjustment
—
—
—
—
6
6
Issuance of common stock in
connection with exercise of
warrants
19,523,808
19
28,290
—
—
28,309
Stock-based compensation related
to issuance of common stock
and options in exchange
for services
9,581
—
440
—
—
440
Issuance of common stock
under equity plans
1,004,173
1
1,043
—
—
1,044
Stock-based compensation for
equity-based awards to
employees and directors
—
—
7,204
—
—
7,204
Balance at September 30, 2023
542,479,666
$
542
$
1,836,818
$
( 1,545,796
)
$
( 950
)
$
290,614
6
GERON CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
Accumulated
Additional
Other
Total
Common Stock
Paid-In
Accumulated
Comprehensive
Stockholders'
Shares
Amount
Capital
Deficit
Gain (Loss)
Equity
Balance at December 31, 2021
323,731,591
$
324
$
1,398,006
$
( 1,271,741
)
$
( 173
)
$
126,416
Net loss
—
—
—
( 30,098
)
—
( 30,098
)
Other comprehensive loss
—
—
—
—
( 539
)
( 539
)
Foreign currency translation
adjustment
—
—
—
—
1
1
Stock-based compensation related
to issuance of common stock
and options in exchange
for services
5,284
—
15
—
—
15
Stock-based compensation for
equity-based awards to
employees and directors
—
—
1,692
—
—
1,692
Balance at March 31, 2022
323,736,875
324
1,399,713
( 1,301,839
)
( 711
)
97,487
Net loss
—
—
—
( 28,117
)
—
( 28,117
)
Other comprehensive loss
—
—
—
—
( 82
)
( 82
)
Foreign currency translation
adjustment
—
—
—
—
11
11
Issuance of common stock,
pre-funded warrant and
warrants to purchase
common stock in public
offering, net of issuance
costs of $ 5,066
53,333,334
53
69,863
—
—
69,916
Stock-based compensation related
to issuance of common stock
and options in exchange
for services
4,637
—
13
—
—
13
Issuance of common stock
under equity plans
589,913
1
760
—
—
761
Stock-based compensation for
equity-based awards to
employees and directors
—
—
2,058
—
—
2,058
Balance at June 30, 2022
377,664,759
$
378
$
1,472,407
$
( 1,329,956
)
$
( 782
)
$
142,047
Net loss
—
—
—
( 41,051
)
—
( 41,051
)
Other comprehensive loss
—
—
—
—
162
162
Foreign currency translation
adjustment
—
—
—
—
—
—
Stock-based compensation
related to issuance of common
stock and options in exchange
for services
3,071
—
112
—
—
112
Issuance of common stock in
connection with exercise of
warrants
2,798,003
3
3,635
3,638
Issuances of common stock
under equity plans
748,493
1
1,200
—
—
1,201
Stock-based compensation for
equity-based awards to
employees and directors
—
—
2,063
—
—
2,063
Balance at September 30, 2022
381,214,326
$
382
$
1,479,417
$
( 1,371,007
)
$
( 620
)
$
108,172
See accompanying notes.
7
GERON CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30,
2023
2022
Cash flows from operating activities:
Net loss
$
( 132,154
)
$
( 99,266
)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization
328
208
Accretion and amortization on investments, net
( 8,335
)
( 9
)
Amortization of debt issuance costs/debt discounts
742
1,103
Stock-based compensation for services by non-employees
650
140
Stock-based compensation for employees and directors
14,110
5,813
Amortization of right-of-use assets
464
431
Changes in assets and liabilities:
Current and noncurrent assets
( 13,694
)
( 24,506
)
Current and noncurrent liabilities
11,084
23,888
Net cash used in operating activities
( 126,805
)
( 92,198
)
Cash flows from investing activities:
Purchases of property and equipment
( 766
)
( 291
)
Purchases of marketable securities
( 459,727
)
( 97,336
)
Proceeds from maturities of marketable securities
232,602
140,706
Net cash (used in) provided by investing activities
( 227,891
)
43,079
Cash flows from financing activities:
Proceeds from issuances of common stock from equity plans
9,492
1,962
Proceeds from issuance of common stock from public offering
and pre-funded warrant, net of paid issuance costs
213,337
69,916
Proceeds from exercise of warrants
105,912
3,638
Debt discount and issuance costs for debt financing
—
( 175
)
Net cash provided by financing activities
328,741
75,341
Effect of exchange rates on cash, cash equivalents and restricted cash
( 9
)
10
Net increase in cash, cash equivalents and restricted cash
( 25,964
)
26,232
Cash, cash equivalents and restricted cash at the beginning of the period
57,209
35,235
Cash, cash equivalents and restricted cash at the end of the period
$
31,245
$
61,467
See accompanying notes.
8
GERON CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
(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 and its wholly-owned subsidiaries, Geron UK Limited, or Geron UK, a United Kingdom company, and Geron Netherlands B.V., or Geron Netherlands, a Netherlands company. Geron UK was incorporated in September 2021, and its operations commenced in January 2022. Geron Netherlands was incorporated in February 2023, and its operations commenced in June 2023.
The accompanying unaudited condensed consolidated financial statements 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 United States, or U.S., generally accepted accounting principles, or GAAP, for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023 or any other period. These unaudited condensed consolidated financial statements and notes should be read in conjunction with the audited financial statements for each of the three years ended December 31, 2022, included in our Annual Report on Form 10-K for the year ended December 31, 2022, or the Form 10-K. The accompanying condensed consolidated balance sheet as of December 31, 2022 has been derived from audited financial statements at that date.
Prior Period Reclassification
The prior period presentations of other comprehensive loss in the condensed consolidated statements of stockholders' equity and accrued liabilities have been updated to conform to current period presentation. See Note 3 on Accrued Liabilities.
Principles of Consolidation
The condensed consolidated financial statements include the accounts of Geron Corporation and its wholly-owned subsidiaries, Geron UK and Geron Netherlands. For Geron UK and Geron Netherlands, we have eliminated intercompany accounts and transactions. We prepare the financial statements of Geron UK and Geron Netherlands using the local currency as the functional currency. We translate the assets and liabilities of Geron UK and Geron Netherlands at rates of exchange at the balance sheet date and 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, on our condensed consolidated balance sheets.
Net Loss Per Share
Basic net income (loss) per share is calculated by dividing net income (loss) by the weighted-average number of shares of common stock outstanding for the periods presented without consideration of potential common shares. In connection with previous public offerings, we issued pre-funded warrants to purchase shares of our common stock. These pre-funded warrants are exercisable immediately at an exercise price of $ 0.001 per share each, and as of September 30, 2023, none of these pre-funded warrants have been exercised. These pre-funded warrants, which represent an aggregate of 51,430,477 shares of common stock, have been included in the computation of basic net loss per share, since their exercise price is negligible and they may be exercised at any time.
Diluted net income per share would be calculated by adjusting the weighted-average number of shares of common stock outstanding for the dilutive effect of additional shares of common stock that would have been outstanding if potentially dilutive securities had been issued, as determined using the treasury-stock method. Potential dilutive securities consist of outstanding stock options and warrants to purchase our common stock. Diluted net loss per share excludes potential dilutive securities for all periods presented as their effect would be anti-dilutive. Accordingly, basic and diluted net loss per share is the same for all periods presented in the accompanying condensed consolidated statements of operations. Since we incurred a net loss for the three and nine months ended September 30, 2023 and 2022 , the diluted net loss per share calculation excludes potential dilutive securities of 77,651,673 and 174,347,456 , respectively, related to outstanding stock options and warrants as their effect would have been anti-dilutive.
Use of Estimates
The accompanying condensed consolidated financial statements have been prepared in accordance with U.S. GAAP. The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, we evaluate our estimates, including those related to accrued liabilities, revenue recognition, fair value of marketable securities, operating leases, right-of-use
9
GERON CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
(UNAUDITED )
assets, lease liabilities, income taxes, and stock-based compensation. We base our estimates on historical experience and on various other market specific and relevant assumptions that we believe to be reasonable under the circumstances. Actual results could differ from those estimates.
Fair Value of Financial Instruments
Cash Equivalents and Marketable Securities
We consider all highly liquid investments 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 marketable securities. Our marketable debt securities include U.S. Treasury securities, government-sponsored enterprise securities, commercial paper and corporate notes.
We classify our marketable debt securities as available for sale. We record available-for-sale debt securities at fair value with unrealized gains and losses reported in accumulated other comprehensive income (loss) in stockholders’ equity. Realized gains and losses are included in interest income and are derived using the specific identification method for determining the cost of securities sold and have been insignificant to date. Dividend and interest income are recognized when earned and included in interest income on our condensed consolidated statements of operations. See Note 2 on Fair Value Measurements.
Leases
At the inception of an arrangement, we determine whether the arrangement is or contains a lease based on the unique facts and circumstances present. Operating leases are included in operating leases, right-of-use assets and lease liabilities on our condensed consolidated balance sheets. Right-of-use assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease liabilities and their corresponding right-of-use assets are recorded based on the present value of remaining lease payments over the expected lease term. The present value of remaining lease payments within the 12 months following the balance sheet date are classified as current lease liabilities. The present value of lease payments not within the 12 months following the balance sheet date are classified as noncurrent lease liabilities. The interest rate implicit in lease contracts is typically not readily determinable. As such, to calculate the net present value of lease payments, we apply our incremental borrowing rate, which is the estimated rate to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment as of the lease commencement date. We may adjust the right-of-use assets for certain adjustments, such as initial direct costs paid or incentives received. In addition, we include any options to extend or terminate the lease in the expected lease term when it is reasonably certain that we will exercise any such option. Lease expense is recognized on a straight-line basis over the expected lease term.
For lease agreements entered into after January 1, 2019 that include lease and non-lease components, such components are generally accounted for separately. We have also elected not to recognize on our condensed consolidated balance sheets leases with terms of one year or less.
Debt Issuance Costs and Debt Discounts
Debt issuance costs include legal fees, accounting fees, and other direct costs incurred in connection with the execution of our debt financing. Debt discounts represent costs paid to the lenders. Debt issuance costs and debt discounts are deducted from the carrying amount of the debt liability and are amortized to interest expense over the term of the related debt using the effective interest method.
Revenue Recognition
We recognize revenue in accordance with the provisions of Accounting Standards Codification Topic 606, Revenue from Contracts with Customers , or Topic 606. In determining the appropriate amount and timing of revenue to be recognized under this guidance, we perform the following five steps: (i) identify the contract(s) with our customer; (ii) identify the promised goods or services in the agreement and determine whether they are performance obligations, including whether they are distinct in the context of the agreement; (iii) measure the transaction price, including the constraint on variable consideration; (iv) allocate the transaction price to the performance obligations based on stand-alone selling prices; and (v) recognize revenue when (or as) we satisfy each performance obligation.
A performance obligation is a promise in an agreement to transfer a distinct good or service to the customer and is the unit of account in Topic 606. Significant management judgment is required to determine the level of effort required and the period over which completion of the performance obligations is expected under an agreement. If reasonable estimates regarding when performance obligations are either complete or substantially complete cannot be made, then revenue recognition is deferred until a
10
GERON CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
(UNAUDITED )
reasonable estimate can be made. Revenue is then recognized over the remaining estimated period of performance using the cumulative catch-up method.
We allocate the total transaction price to each performance obligation based on the estimated relative stand-alone selling prices of the promised goods or services underlying each performance obligation. Estimated selling prices for license rights are calculated using an income approach model and include the following key assumptions, judgments and estimates: the development timeline, revenue forecast, commercialization expenses, discount rate and probabilities of technical and regulatory success.
Following is a description of the principal activities from which we generate revenue. License fees and royalty revenue primarily represent amounts earned under agreements that out-license our technology to various companies.
License Agreements
In connection with the divestiture of Geron’s human embryonic stem cell assets, including intellectual property and proprietary technology, to Lineage Cell Therapeutics, Inc. (formerly BioTime, Inc. which acquired Asterias Biotherapeutics, Inc.) in 2013, we are entitled to receive royalties on sales of certain research or commercial products utilizing Geron’s divested intellectual property.
Royalties . For agreements with sales-based royalties, including milestone payments based on the level of sales, where the license is deemed to be the predominant item to which the royalties relate, we recognize revenue at the later of (a) when the related sales occur, or (b) when the performance obligation, to which some or all of the royalty has been allocated, has been satisfied (or partially satisfied). At each reporting date, we estimate the sales incurred by each licensee during the reporting period based on historical experience and accrue the associated royalty amount.
Restricted Cash
Restricted cash consists of funds maintained in separate money market or certificate of deposit accounts for credit card purchases.
Research and Development Expenses
Research and development expenses currently consist of expenses incurred in developing and testing imetelstat and research related to potential next generation telomerase inhibitors. These expenses include, but are not limited to, payroll and personnel expense, lab supplies, non-clinical studies, clinical trials, including support for investigator-led clinical trials, raw materials to manufacture clinical trial drugs, manufacturing costs for research and clinical trial materials, sponsored research at other labs, consulting, costs to maintain technology licenses and research-related overhead.
Our current imetelstat clinical trials are being supported by contract research organizations, or CROs, and other vendors. We accrue expenses for clinical trial activities performed by CROs based upon the estimated amount of work completed on each trial. For clinical trial expenses and related expenses associated with the conduct of clinical trials, the significant factors used in estimating accruals include the number of patients enrolled, the number of active clinical sites, and the duration for which the patients have been enrolled in the trial. We monitor patient enrollment levels and related activities to the extent possible through internal reviews, review of contractual terms and correspondence with CROs. We base our estimates on the best information available at the time. However, additional information may become available to us which will allow us to make a more accurate estimate in future periods. In that event, we may be required to record adjustments to research and development expenses in future periods when the actual level of activity becomes more certain.
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
We maintain various stock incentive plans under which stock options and restricted stock awards can be granted to employees, non-employee directors and consultants. We also have an employee stock purchase plan for all eligible employees. We recognize stock-based compensation expense based on grant-date fair values of service-based stock options on a straight-line basis over the requisite service period, which is generally the vesting period. For performance-based stock options with vesting based on the
11
GERON CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
(UNAUDITED )
achievement of certain strategic milestones, stock-based compensation expense is recognized over the period from the date the performance condition is determined to be probable of occurring through the date the applicable condition is expected to be met and is reduced for estimated forfeitures, as applicable. If the performance condition is not considered probable of being achieved, no stock-based compensation expense is recognized until such time as the performance condition is considered probable of being met, if at all. If the assessment of probability of the performance condition changes, the impact of the change in estimate would be recognized in the period of the change. The determination of grant-date fair values for our service-based and performance-based stock options and employee stock purchases using the Black Scholes option‑pricing model is affected by our stock price as well as assumptions regarding a number of complex and subjective variables. The grant-date fair value for service-based restricted stock awards is determined using the fair value of our common stock on the date of grant. We evaluate whether an adjustment to the assumptions of fair value of our common stock and historical volatility are required if observed prices of our common stock materially differ from historical information.
The following table summarizes the stock-based compensation expense included in operating expenses on our condensed consolidated statements of operations related to stock options and employee stock purchases for the three and nine months ended September 30, 2023 and 2022, which was allocated as follows:
Three Months Ended September 30,
Nine Months Ended September 30,
(In thousands)
2023
2022
2023
2022
Research and development
$
2,951
$
932
$
5,847
$
2,799
General and administrative
4,253
1,131
8,263
3,014
Stock-based compensation expense included in
operating expenses
$
7,204
$
2,063
$
14,110
$
5,813
As stock-based compensation expense recognized in our condensed consolidated statements of operations for the three and nine months ended September 30, 2023 and 2022 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. Forfeitures have been estimated at the time of grant based on historical data and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. We recognized stock-based compensation expense of $ 3.2 million related to performance-based stock options on our condensed consolidated statements of operations for the three and nine months ended September 30, 2023, as we achieved a specified strategic milestone associated with certain performance-based stock options. We have not recognized any additional stock-based compensation expense for any remaining performance-based stock options on our condensed consolidated statements of operations for the three and nine months ended September 30, 2023 and 2022, as achievement of the specified strategic milestones associated with the remaining performance-based stock options was not considered probable at that time.
Stock Options
We grant service-based and performance-based stock options under our equity plans to employees, non-employee directors and consultants. The service-based vesting period for employee stock options is generally four years from the date of the stock option grant. Performance-based stock options vest upon the achievement of specified strategic milestones. The fair value of service-based stock options granted during the nine months ended September 30, 2023 and 2022 has been estimated at the date of grant using the Black Scholes option-pricing model with the following assumptions:
Nine Months Ended September 30,
2023
2022
Dividend yield
0 %
0 %
Expected volatility range
81.5 % to 82.1 %
77.7 % to 81.6 %
Risk-free interest rate range
3.42 % to 4.62 %
1.69 % to 3.77 %
Expected term
6 years
5.5 years
12
GERON CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
(UNAUDITED )
Employee Stock Purchase Plan
The fair value of employees’ stock purchase rights during the nine months ended September 30, 2023 and 2022 has been estimated using the Black Scholes option-pricing model with the following assumptions:
Nine Months Ended September 30,
2023
2022
Dividend yield
0 %
0 %
Expected volatility range
79.0 % to 83.2 %
61.4 % to 86.5 %
Risk-free interest rate range
4.73 % to 5.40 %
0.40 % to 2.79 %
Expected term range
6 months to 12 months
6 months to 12 months
Dividend yield is based on historical cash dividend payments and Geron has paid no cash dividends to date. The expected volatility range is based on historical volatilities of our stock, since traded options on Geron common stock do not correspond to option terms and the trading volume of options is limited. The risk-free interest rate range is based on the U.S. Zero Coupon Treasury Strip Yields for the expected term in effect on the date of grant for an award. The expected term of stock options is derived from actual historical exercise and post-vesting cancellation data and represents the period of time that stock options granted are expected to be outstanding. The expected term of employees’ stock purchase rights is equal to the purchase period.
Non-Employee Stock-Based Awards
We measure share-based payments to non-employees based on the grant-date fair value of the equity awards. We recognize stock-based compensation expense for the fair value of the vested portion of non-employee stock-based awards on our condensed consolidated statements of operations.
Segment Information
Our executive management team represents our chief decision maker. We view our operations as a single segment, the development of therapeutic products for oncology. As a result, the financial information disclosed herein materially represents all of the financial information related to our principal operating segment.
Recent Accounting Pronouncements
New Accounting Pronouncements – Recently Adopted
In June 2016, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, 2016-13, Measurement of Credit Losses on Financial Instruments , or ASU 2016-13. Subsequent to issuing ASU 2016-13, the FASB issued ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments – Credit Losses , or ASU 2018-19, for the purpose of clarifying certain aspects of ASU 2016-13. In May 2019, the FASB issued ASU 2019-05, Financial Instruments – Credit Losses (Topic 326): Targeted Transition Relief , or ASU 2019-05, to provide entities with more flexibility in applying the fair value option on adoption of the credit impairment standard. In November 2019, the FASB issued ASU 2019-11, Codification Improvements to Topic 326, Financial Instruments – Credit Losses , or ASU 2019-11, which expands the scope of the practical expedient that allows entities to exclude the accrued interest component of amortized cost from various disclosure. We adopted ASU 2016-13 and related updates as of January 1, 2023. Adoption of this new guidance did not have a material impact on our condensed consolidated financial statements.
New Accounting Pronouncements – Issued But Not Yet Adopted
In August 2020, the FASB issued ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity , or ASU 2020-06. The key elements of ASU 2020-06 aim to reduce unnecessary complexity in GAAP for certain financial instruments with characteristics of liabilities and equity. In addressing the complexity, the FASB focused on amending the guidance on convertible instruments and the guidance on the derivatives scope exception for contracts in an entity’s own equity. For convertible instruments, the FASB decided to reduce the number of accounting models for convertible debt instruments and convertible preferred stock. For contracts in an entity’s own equity, the FASB observed that the application of the derivatives scope exception guidance results in accounting for some contracts as derivatives while accounting for economically similar contracts as equity. The FASB also decided to improve and amend the related earnings per share guidance. ASU 2020-06 is effective for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years for public business entities that are not smaller reporting companies. For all other entities, ASU 2020-06 is effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. We plan to adopt ASU 2020-06 as of January 1, 2024. We do not expect the adoption of this standard to have a material impact on our condensed consolidated financial statements.
13
GERON CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
(UNAUDITED )
Other recent accounting pronouncements issued by the FASB did not or are not believed by management to have a material impact on our condensed consolidated financial statements.
2. FAIR VALUE MEASUREMENTS
Cash Equivalents and Marketable Securities
Cash equivalents, restricted cash and marketable securities by security type at September 30, 2023 were as follows:
Gross
Gross
Amortized
Unrealized
Unrealized
Estimated
(In thousands)
Cost
Gains
Losses
Fair Value
Included in cash and cash equivalents:
Money market funds
$
12,549
$
—
$
—
$
12,549
Commercial Paper
3,970
—
—
3,970
$
16,519
$
—
$
—
$
16,519
Restricted cash:
Money market fund
$
264
$
—
$
—
$
264
Certificate of deposit
272
—
—
272
$
536
$
—
$
—
$
536
Marketable securities:
U.S. Treasury securities - due in 1 to 2 years
$
26,467
$
1
$
( 22
)
$
26,446
Government-sponsored enterprise
securities (due in less than one year)
94,524
4
( 293
)
94,235
Government-sponsored enterprise
securities (due in one to two years)
10,651
—
( 35
)
10,616
Commercial paper (due in less than
one year)
149,583
1
( 280
)
149,304
Corporate notes (due in less than one year)
39,438
2
( 160
)
39,280
Corporate notes (due in one to two years)
30,939
1
( 182
)
30,758
$
351,602
$
9
$
( 972
)
$
350,639
Cash equivalents, restricted cash and marketable securities by security type at December 31, 2022 were as follows:
14
GERON CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
(UNAUDITED )
Gross
Gross
Amortized
Unrealized
Unrealized
Estimated
(In thousands)
Cost
Gains
Losses
Fair Value
Included in cash and cash equivalents:
Money market funds
$
39,771
$
—
$
—
$
39,771
$
39,771
$
—
$
—
$
39,771
Restricted cash:
Money market fund
$
93
$
—
$
—
$
93
Certificate of deposit
271
—
—
271
$
364
$
—
$
—
$
364
Marketable securities:
U.S. Treasury securities (due in
less than one year)
$
12,983
$
—
$
( 62
)
$
12,921
Municipal securities (due in
less than one year)
3,000
—
( 24
)
2,976
Government-sponsored enterprise securities
(due in less than one year)
9,860
—
( 14
)
9,846
Commercial paper (due in less than
one year)
64,285
6
( 92
)
64,199
Corporate notes (due in less than one year)
26,014
—
( 55
)
25,959
$
116,142
$
6
$
( 247
)
$
115,901
15
GERON CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
(UNAUDITED )
Cash equivalents and marketable securities with unrealized losses that have been in a continuous unrealized loss position for less than 12 months and 12 months or longer at September 30, 2023 and December 31, 2022 were as follows:
Less Than 12 Months
12 Months or Longer
Total
Gross
Gross
Gross
Estimated
Unrealized
Estimated
Unrealized
Estimated
Unrealized
(In thousands)
Fair Value
Losses
Fair Value
Losses
Fair Value
Losses
As of September 30, 2023:
US Treasury Securities (due in less than one year)
$
26,446
$
( 22
)
$
—
$
—
$
26,446
$
( 22
)
Government-sponsored enterprise
securities (due in less than one year)
94,523
( 293
)
—
—
94,523
( 293
)
Government-sponsored enterprise
securities (due in one to two years)
10,651
( 35
)
—
—
10,651
( 35
)
Commercial paper (due in less than
one year)
149,584
( 281
)
—
—
149,584
( 281
)
Corporate notes (due in less than
one year)
39,438
( 160
)
—
—
39,438
( 160
)
Corporate notes (due in one to
two years)
30,939
( 181
)
—
—
30,939
( 181
)
$
351,581
$
( 972
)
$
—
$
—
$
351,581
$
( 972
)
As of December 31, 2022:
U.S. Treasury securities
(due in less than one year)
$
11,424
$
( 57
)
$
1,497
$
( 5
)
$
12,921
$
( 62
)
Municipal securities
(due in less than a year)
—
—
2,976
( 24
)
2,976
( 24
)
Government-sponsored
enterprise securities
(due in less than one year)
9,845
( 14
)
—
—
9,845
( 14
)
Commercial paper (due in less than
one year)
52,454
( 92
)
—
—
52,454
( 92
)
Corporate notes (due in
less than one year)
1,998
( 2
)
23,962
( 53
)
25,960
( 55
)
$
75,721
$
( 165
)
$
28,435
$
( 82
)
$
104,156
$
( 247
)
The gross unrealized losses related to U.S. Treasury securities, municipal securities, government-sponsored enterprise securities, commercial paper and corporate notes as of September 30, 2023 and December 31, 2022 were due to changes in interest rates and not credit risk. If an available-for-sale security’s fair value is less than its amortized cost basis, we evaluate whether the decline is the result of a credit loss, in which case an impairment is recorded through an allowance for credit losses. We have not recorded any allowances for credit losses on our available-for-sale securities for the three and nine months ended September 30, 2023 and 2022 as we have not identified any unrealized losses for these securities attributable to credit factors. Our exposure to unrealized losses may increase in the future due to the economic pressures or uncertainties associated with macroeconomic or other global economic conditions, including those resulting from inflation, rising interest rates, prospects of a recession, bank failures and other disruptions to financial systems, civil or political unrest, military conflicts, pandemics or other health crises.
Fair Value on a Recurring Basis
We categorize financial instruments recorded at fair value on our condensed consolidated balance sheets based upon the level of judgment associated with inputs used to measure their fair value. The categories are as follows:
Level 1
—
Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date. An active market for an asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis.
Level 2
—
Inputs (other than quoted market prices included in Level 1) are either directly or indirectly observable for the asset or liability through correlation with market data at the measurement date and for the duration of the instrument’s anticipated life.
16
GERON CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
(UNAUDITED )
Level 3
—
Inputs reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.
A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Money market funds are categorized as Level 1 within the fair value hierarchy as their fair values are based on quoted prices available in active markets. U.S. Treasury securities, municipal securities, government-sponsored enterprise securities, commercial paper, and corporate notes are categorized as Level 2 within the fair value hierarchy as their fair values are estimated by using pricing models, quoted prices of securities with similar characteristics or discounted cash flows.
The following table presents information about our financial instruments that are measured at fair value on a recurring basis as of September 30, 2023 and December 31, 2022 and indicates the fair value category assigned.
Fair Value Measurements at Reporting Date Using
Quoted Prices in
Significant
Active Markets for
Significant Other
Unobservable
Identical Assets
Observable Inputs
Inputs
(In thousands)
Level 1
Level 2
Level 3
Total
As of September 30, 2023:
Money market funds (1)(2)
$
12,813
$
—
$
—
$
12,813
Certificate of deposit (2)
272
—
—
272
U.S. Treasury securities (3)
—
26,446
—
26,446
Government-sponsored enterprise
securities (3)(4)
—
104,852
—
104,852
Commercial paper (3)
—
153,274
—
153,274
Corporate notes (3)(4)
—
70,037
—
70,037
Total
$
13,085
$
354,609
$
—
$
367,694
As of December 31, 2022:
Money market funds (1)(2)
$
39,864
$
—
$
—
$
39,864
Certificate of deposit (2)
271
—
—
271
U.S. Treasury securities (3)
—
12,921
—
12,921
Municipal securities (3)
—
2,976
—
2,976
Government-sponsored enterprise
securities (2)
—
9,846
—
9,846
Commercial paper (3)
—
64,199
—
64,199
Corporate notes (3)
—
25,959
—
25,959
Total
$
40,135
$
115,901
$
—
$
156,036
(1) Included in cash and cash equivalents on our condensed consolidated balance sheets.
(2) Included in restricted cash on our condensed consolidated balance sheets.
(3) Included in current portion of marketable securities on our condensed consolidated balance sheets.
(4) Included in noncurrent portion of marketable securities on our condensed consolidated balance sheets.
17
GERON CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
(UNAUDITED )
3. ACCRUED LIABILITIES
Accrued liabilities consisted of the following as o f September 30, 2023 and December 31, 2022:
SEPTEMBER 30,
DECEMBER 31,
(In thousands)
2023
2022
CRO and clinical trial costs
$
18,271
$
17,040
Manufacturing activities
13,066
5,321
Legal settlements
7,000
8,350
Professional legal and accounting fees
718
1,318
Interest payable
594
561
Other
2,213
510
$
41,862
$
33,100
4. DEBT
On September 30, 2020, we, Hercules Capital, Inc., or Hercules, and Silicon Valley Bank, a Division of First-Citizens Bank & Trust Company (successor by purchase to the Federal Deposit Insurance Corporation as receiver for Silicon Valley Bridge Bank, N.A. (as successor to Silicon Valley Bank)), or SVB, entered into a term loan facility, or the Original Loan Agreement, consisting of up to $ 75,000,000 aggregate principal amount available to us, as amended in August 2021. On June 30, 2022, or the Effective Date, we entered into a second amendment to the Original Loan Agreement, or as amended, the Loan Agreement. Under the second amendment, the aggregate principal amount available to us increased from $ 75,000,000 to $ 125,000,000 , with such principal being available in a series of tranches, subject to certain terms and conditions.
As of September 30, 2023, a total of $ 50,000,000 has been drawn under the Loan Agreement. As of September 30, 2023 , $ 55,000,000 remains as committed principal that can be drawn as follows: (a) one tranche of $ 10,000,000 is available from January 1, 2023 until December 15, 2023 , subject to the achievement of certain clinical and regulatory milestones, and satisfaction of certain other requirements; (b) a second tranche of $ 20,000,000 is available from September 15, 2023 until September 15, 2024 , subject to the achievement of certain clinical and regulatory milestones, and satisfaction of certain capitalization requirements; and (c) a final tranche of $ 25,000,000 is available through December 31, 2024 , subject to approval by an investment committee comprised of Hercules and SVB. With the exception of the final tranche, and subject to achievement of the applicable milestones and other requirements with respect to each tranche, draw downs are at our election.
Under the Loan Agreement, if we choose to prepay the principal with respect to any future draw down after the Effective Date, any such prepayment within the first 36 months after the Effective Date will be subject to a prepayment charge equal to 1.5 % of the principal amount prepaid. No prepayment charge will be assessed for any prepayment occurring more than 36 months after the Effective Date.
Under the Loan Agreement, the maturity date, interest only payment dates, end of term charges, collateral, events of default, representations, warranties and covenants remain consistent with the terms of the Original Loan Agreement, except as follows:
• Beginning June 1, 2022 and prior to the regulatory approval for imetelstat, or the potential Regulatory Approval, if any, we are required to maintain a minimum cash balance in an amount equal to the greater of: 50 % of the outstanding principal amount under the Loan Agreement or $ 30,000,000 .
• After the potential Regulatory Approval, if any, the minimum cash requirement may be satisfied through one of the following three options, as elected by us: (a) maintaining a cash balance in an amount not less than 40 % of the outstanding principal amount under the Loan Agreement; (b) maintaining a cash balance in an amount not less than 25 % of the outstanding principal amount under the Loan Agreement, if our market cap is or exceeds $ 750,000,000 ; or (c) maintaining six month net product revenues of at least 70 % of net product revenues forecasted by us, should any potential Regulatory Approval for imetelstat be obtained.
We are in compliance with the covenants under the Loan Agreement as of September 30, 2023. The interest-only payment period was extended from April 2023 to April 2024 upon the achievement of positive top-line results from the IMerge Phase 3 clinical trial in January 2023.
As of September 30, 2023 , the net carrying value of the debt under the Loan Agreement was $ 51,898,000 , which includes the principal amount of $ 50,000,000 less net unamortized debt discounts and issuance costs of $ 408,000 plus accrued end of term charge
18
GERON CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
(UNAUDITED )
of $ 2,306,000 . The carrying value of the debt approximates the fair value as of September 30, 2023. The debt discounts and debt issuance costs are being amortized to interest expense over the life of the outstanding loan amounts using the effective interest rate method.
The following table presents future minimum payments, including interest and the end of term charge, under the Loan Agreement as of September 30, 2023 (in thousands):
Remainder of 2023
$
1,801
2024
39,362
2025
20,056
Total
61,219
Less: amount representing interest
( 7,944
)
Less: unamortized debt discount and issuance costs
( 408
)
Less: unaccrued end of term charge
( 969
)
Less: current portion of debt
( 22,060
)
Noncurrent portion of debt
$
29,838
5. CONTINGENCIES AND UNCERTAINTIES
Purported Securities Lawsuits
Between January 23, 2020 and March 5, 2020, three securities class action lawsuits were filed against us and certain of our officers. One of the lawsuits was voluntarily dismissed on March 19, 2020. The other two lawsuits, filed in the U.S. District Court, or the Court, for the Northern District of California, or the Northern District, were consolidated by the Court on May 14, 2020. On September 2, 2022 , the parties agreed to a settlement and entered into a Stipulation and Agreement of Settlement, or the Stipulation, which was subject to Court approval.
Under the terms of the Stipulation, in exchange for the release and dismissal with prejudice of all claims against the defendants in the consolidated class action complaint, we agreed to pay and/or to cause our insurance carriers to pay a total of $ 24,000,000 , comprised of $ 17,000,000 in cash, which was paid into an escrow account under our available insurance coverage and, at our election, $ 7,000,000 in either shares of our common stock and/or cash which was payable after final approval of the settlement by the Court. On October 13, 2022, the Court preliminarily approved the parties’ settlement, and the Court granted final approval of the settlement on September 28, 2023 and final judgment was entered on October 3, 2023. As of September 30, 2023 and December 31, 2022, our portion of the settlement amount of $ 7,000,000 has been included in accrued liabilities on our condensed consolidated balance sheets. The settlement amount was paid in the first week of October 2023.
Between April 23, 2020 and June 8, 2021, seven shareholder derivative actions were filed in a number of courts, naming as defendants certain of our current officers and certain current and former members of our board. On May 17, 2023, the Delaware Court of Chancery approved a settlement of the derivative case pending before it, and the case was dismissed with prejudice. Subsequently, each of the remaining derivative cases were dismissed with prejudice as well.
In exchange for the release and dismissal with prejudice of all claims against the defendants in the consolidated shareholder derivative actions filed in the Northern District, the District of Delaware, and the Chancery Court, the parties agreed to a cash settlement of $ 1,350,000 which was accrued on our consolidated balance sheet as of December 31, 2022. In the second quarter of 2023, our insurance carriers paid $ 525,000 in cash, and we paid $ 825,000 in cash, for an aggregate total payment of $ 1,350,000 .
Any other future lawsuits are subject to inherent uncertainties, and the actual defense and disposition costs will depend upon many unknown factors. The outcome of any other future lawsuits is necessarily uncertain. We could be forced to expend significant resources in the defense against any other future lawsuits, and we may not prevail. In addition, we have and may continue to incur substantial legal fees and costs in connection with such lawsuits. We currently are not able to estimate the possible additional costs to us, if any, from these matters, and we cannot be certain how long it may take to resolve any future lawsuit. Such amounts could be material to our condensed consolidated financial statements if we do not prevail in the defense against any future lawsuits, or even if we do prevail. We have not established any reserve for any potential liability relating to any future lawsuits. It is possible that we could, in the future, incur judgments or enter into settlements of claims for monetary damages.
19
GERON CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
(UNAUDITED )
Indemnifications to Officers and Directors
Our corporate bylaws require that we indemnify our directors, as well as those who act as directors and officers of other entities at our request, against expenses, judgments, fines, settlements and other amounts actually and reasonably incurred in connection with any proceedings arising out of their services to Geron. In addition, we have entered into separate indemnification agreements with each of our directors and officers which provide for indemnification of these directors and officers under similar circumstances and under additional circumstances. The indemnification obligations are more fully described in our bylaws and the indemnification agreements. We purchase standard insurance to cover claims or a portion of the claims made against our directors and officers. Since a maximum obligation is not explicitly stated in our bylaws or in our indemnification agreements and will depend on the facts and circumstances that arise out of any future claims, the overall maximum amount of the obligations cannot be reasonably estimated.
Severance Plan
We have an Amended and Restated Severance Plan, or Severance Plan, that applies to all employees that are (i) above the Vice President level, (ii) hired by the Company before January 1, 2022, or (iii) not subject to performance improvement plans, and provides for, among other benefits: (x) a severance payment upon a Change of Control Triggering Event and Separation from Service and (y) a severance payment for each non‑executive employee upon a Non‑Change of Control Triggering Event and Separation from Service. As defined in the Severance Plan, a Change of Control Triggering Event and Separation from Service requires a “double trigger” where: (i) an employee is terminated by us without cause in connection with a change of control or within 12 months following a change of control provided, however, that if an employee is terminated by us in connection with a change of control but immediately accepts employment with our successor or acquirer, the employee will not be eligible for the benefits outlined in the Severance Plan, (ii) an employee resigns because in connection with a change of control, the offered terms of employment (new or continuing) by us or our successor or acquirer within 30 days after the change of control results in a material change in the terms of employment, or (iii) after accepting (or continuing) employment with us after a change of control, an employee resigns within 12 months following a change of control due to a material change in the terms of employment. Under the Severance Plan, a Non‑Change of Control Triggering Event and Separation from Service is defined as an event where a non‑executive employee is terminated by us without cause. Severance payments range from three to 18 months of base salary, depending on the employee’s position with us, payable in a lump sum payment. The Severance Plan also provides that the provisions of employment agreements entered into between us and executive or non‑executive employees supersede the provisions of the Severanc e Plan. As of September 30, 2023, all our executive officers have employment agreements with provisions that may provide greater severance benefits than those in the Severance Plan.
Risks Related to Global Economic, Political and Health Conditions
Our business is subject to various risks and uncertainties, including risks and uncertainties associated with macroeconomic or other global economic conditions, including those resulting from inflation, rising interest rates, prospects of a recession, bank failures and other disruptions to financial systems, civil or political unrest, military conflicts, pandemics or other health crises and supply chain and resource issues. Occurrences of such events have caused and may cause in the future and unpredictable impacts on global societies, economies, financial markets and business practices. Specifically for our business, such risks and uncertainties have adversely affected and may continue to adversely affect our ability to:
• continue to develop imetelstat or advance imetelstat to subsequent clinical trials, including receiving regulatory approval for or to commercialize imetelstat, on a timely basis or at all;
• conduct and complete current imetelstat clinical trials on a timely basis or at all;
• establish sales, marketing and distribution capabilities, or obtain coverage and adequate third-party payor reimbursement, to successfully commercialize imetelstat, if regulatory approval is obtained;
• open clinical sites or recruit, enroll and retain patients in current or future clinical trials of imetelstat;
• manufacture and supply imetelstat in adequate quantities that meet specifications that may be approved or required by regulatory authorities and on timelines necessary for current and potential future clinical trials and potential commercial uses;
• execute on our business strategy and/or our operations by our employees without any restrictions; and
• obtain additional capital to continue the development of imetelstat in current and any potential future clinical trials of imetelstat, and establish potential future imetelstat commercialization efforts.
The extent to which macroeconomic or other global economic conditions, including those resulting from inflation, rising interest rates, prospects of a recession, bank failures and other disruptions to financial systems, civil or political unrest, military conflicts, pandemics or other health crises and supply chain and resource issues, ultimately impact our business, our regulatory and clinical
20
GERON CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
(UNAUDITED )
development activities, clinical supply chain and other business operations, as well as the value of and market for our common stock, will depend on future developments that are highly uncertain and cannot be predicted with confidence. Accordingly, we do not yet know the full extent of potential delays or impacts on our business, our regulatory and clinical development activities, clinical supply chain and other business operations or the global economy as a whole. However, these effects could materially and adversely affect our business and business prospects, our financial condition and the future of imetelstat.
6. STOCKHOLDERS’ EQUITY
Public Offering
On January 10, 2023 we completed the January 2023 offering consisting of 68,007,741 shares of our common stock and the 2023 pre-funded warrant. All of the securities were issued separately. The public offering price of the common stock was $ 2.45 per share. The public offering price of the 2023 pre-funded warrant was $ 2.449 per share. The 2023 pre- funded warrant has an exercise price of $ 0.001 per share and may be exercised at any time until the 2023 pre-funded warrant is exercised in full. As of September 30, 2023 , none of the 2023 pre-funded warrant has been exercised. The net cash proceeds from this offering were $ 213,337,000 , after deducting the underwriting discount and other offering expenses paid by us, and exclude any future proceeds from the exercise of the 2023 pre-funded warrant.
Upon the issuance of the 2023 pre-funded warrant, we evaluated the terms of each warrant to determine the appropriate accounting and classification pursuant to FASB Accounting Standards Codification Topic 480, Distinguishing Liabilities from Equity , and FASB Accounting Standards Codification Topic 815, Derivatives and Hedging . Warrants are classified as liabilities when the warrant terms allow settlement of the warrant exercise in cash and classified as equity when the warrant terms only allow settlement in shares of common stock. The terms of the 2023 pre-funded warrant include certain provisions related to fundamental transactions and a cashless exercise provision in the event registered shares are not available, and do not include any mandatory redemption provisions. Based on our evaluation, we concluded the 2023 pre-funded warrant should be classified as equity with no subsequent remeasurement as long as such warrant continue to be classified as equity.
Warrant Exercises
In the first quarter of 2023, warrants to purchase 44,983,194 shares of Geron common stock were exercised for net cash proceeds of approximately $ 59,835,000 . In the second quarter of 2023, warrants to purchase 12,842,857 shares of Geron common stock were exercised for net cash proceeds of approximately $ 17,767,000 . In the third quarter of 2023, warrants to purchase 19,523,808 shares of Geron common stock were exercised for net cash and receivables of approximately $ 28,309,522 . The warrants were issued in connection with underwritten public offerings of common stock and pre-funded warrants, together with accompanying stock purchase warrants in May 2020 and April 2022. As of September 30, 2023, the following warrants remained outstanding:
• pre-funded warrants with an exercise price of $ 0.001 per share to purchase 51,430,477 shares of our common stock; and
• stock purchase warrants with an exercise price of $ 1.30 per share to purchase 2,474,503 shares of our common stock related to the public offering of our common stock in May 2020.
2023 At Market Issuance Sales Agreement
On November 1, 2023, we entered into an At Market Issuance Sales Agreement, or the 2023 Sales Agreement with B. Riley Securities, Inc., or B. Riley Securities, pursuant to which we may issue and sell shares of our common stock having an aggregate offering price of up to $ 100 million from time to time through B. Riley Securities as the sales agent.
The issuance and sale of common stock under the 2023 Sales Agreement will be pursuant our effective shelf registration
statement on Form S-3 filed with the United States Securities and Exchange Commission, or the SEC, on January 4, 2023.
B. Riley Securities may sell the common stock by any method that is deemed an “at the market offering” as defined in Rule 415
promulgated under the Securities Act of 1933, as amended. Subject to the terms and conditions of the 2023 Sales Agreement, B. Riley
Securities will use commercially reasonable efforts consistent with its normal trading and sales practices to sell our common stock
from time to time, based upon our instructions (including any price, time or size limits or other customary parameters or conditions we
impose). We are not obligated to make any sales of common stock under the 2023 Sales Agreement.
We will pay B. Riley Securities an aggregate commission rate equal to up to 3.0 % of the gross proceeds of the sales price per
share for common stock sold through B. Riley Securities under the 2023 Sales Agreement. We have also provided B. Riley Securities
with customary indemnification rights.
Unless earlier terminated as provided below, the 2023 Sales Agreement will automatically terminate upon earlier of (i) the sale
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GERON CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
(UNAUDITED )
of all common stock subject to the 2023 Sales Agreement or (ii) termination of the 2023 Sales Agreement in accordance with its terms.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
This Form 10-Q contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. All statements other than statements of historical fact are statements that could be deemed forward-looking statements. In some cases, forward-looking statements can be identified by the use of terminology such as “may,” “expects,” “plans,” “intends,” “will,” “should,” “projects,” “believes,” “predicts,” “anticipates,” “estimates,” “potential” or “continue,” or the negative thereof or other comparable terminology. These statements are within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. These statements appear throughout the Form 10-Q and are statements regarding our intent, belief, or current expectations, primarily with respect to our business 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 II, Item 1A, entitled “Risk Factors,” and in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part I, Item 2 of this Form 10-Q.
OVERVIEW
The following discussion should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto included in Part I, Item 1 of this Form 10-Q; and the sections entitled “Business” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in our Form 10-K for the year ended December 31, 2022, as filed with the SEC on March 16, 2023, or 2022 Form 10-K.
Company Overview
Summary
We are a late-stage biopharmaceutical company pursuing therapies with the potential to extend and enrich the lives of patients living with hematologic malignancies. Our investigational first-in-class telomerase inhibitor, imetelstat, harnesses Nobel Prize winning science in a treatment that may alter the underlying course of these diseases.
Our lead program for imetelstat is in Low or Intermediate-1 risk myelodysplastic syndromes, or lower risk MDS. In January 2023, we reported positive top-line results from our IMerge Phase 3 clinical trial. The trial met its primary endpoint of 8-week transfusion independence rate and a key secondary endpoint of 24-week transfusion independence rate, demonstrating highly statistically significant (i.e., P<0.001 for both) and clinically meaningful benefits in imetelstat versus placebo. Furthermore, statistically significant and clinically meaningful efficacy results were observed in the trial across key subtypes, including patients who were ringed sideroblast positive, or RS positive, and ringed sideroblast negative, or RS negative; patients with high and very high baseline transfusion burden; and patients classified as Low or Intermediate-1 risk according to the International Prognostic Scoring System, or IPSS. Consistent with prior imetelstat clinical experience, the most common serious adverse events were primarily short-lived, manageable thrombocytopenia and neutropenia.
Based on the positive top-line data from IMerge Phase 3 and the prior IMerge Phase 2 clinical trials, we submitted a New Drug Application, or NDA, to the FDA in the United States, or U.S., for the treatment of transfusion-dependent anemia in adult patients with low-to-intermediate-1 risk MDS who have failed to respond or have lost response to or are ineligible for erythropoiesis-stimulating agents, or ESAs, which was accepted for standard review in August 2023 and assigned a Prescription Drug User Fee Act (PDUFA) action date of June 16, 2024. In addition, the FDA informed us that it is currently planning to hold an advisory committee meeting as part of the NDA review. If imetelstat is approved for commercialization by the FDA in a timely manner, we anticipate commercial launch of imetelstat in lower risk MDS in the U.S. could occur by the end of the first half of 2024. In September 2023, we submitted a marketing authorization application, or MAA, in Europe that was validated for review by the European Medicines Agency, or EMA, for imetelstat for the same proposed indication as in the U.S. NDA. We anticipate review of the MAA could take approximately 14 months and, if approved by the European Commission by the end of 2024, we anticipate that the commercial launch of imetelstat in lower risk MDS in Europe could occur in 2025.
We believe that the positive data from IMerge Phase 3 and IMerge Phase 2, as well as our prior Phase 2 clinical trial of imetelstat in patients with Intermediate-2 or High-Risk myelofibrosis who have relapsed after or are refractory to treatment with a janus associate kinase inhibitor, or JAK inhibitor, or relapsed/refractory MF, provide strong evidence that imetelstat targets telomerase to inhibit the uncontrolled proliferation of malignant stem and progenitor cells enabling recovery of bone marrow and normal blood cell production, which suggest potential disease-modifying activity. We believe this potential for disease modification could differentiate imetelstat from currently approved treatments in myeloid hematologic malignancies. Accordingly, in addition to lower risk MDS, we are developing imetelstat for the treatment of several myeloid hematologic malignancies with the following ongoing clinical trials:
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• IMpactMF, a Phase 3 clinical trial in relapsed/refractory MF with overall survival, or OS, as the primary endpoint, that currently is enrolling patients. Based on our current planning assumptions for enrollment and event (death) rates in the trial, we expect the interim analysis for OS in IMpactMF may occur in the first half of 2025, and the final analysis may occur in the first half of 2026. Because these analyses are event-driven and it is uncertain whether actual rates for enrollment and events will reflect current planning assumptions, the results may be available at different times than currently expected.
• IMproveMF, a Phase 1 combination clinical trial in first-line Intermediate-1, Intermediate-2 or High-Risk myelofibrosis, or frontline MF, that currently is enrolling patients. In October 2023, the Safety Evaluation Team (SET) for the study evaluated patient data from the first cohort. No dose-limiting toxicities (DLTs) were identified, and the SET made a unanimous decision to escalate to the second dose cohort, effective immediately; and
• IMpress, an investigator-led Phase 2 clinical trial in Intermediate-2 or High-Risk myelodysplastic syndromes, or higher risk MDS, and acute myeloid leukemia, or AML, in which the first patient was dosed in June 2023.
In June 2023, we opened an expanded access program, sometimes called a compassionate use program, whereby imetelstat can be used outside of a clinical trial for lower risk MDS patients with serious or life-threatening conditions who have exhausted their treatment options and are not eligible for, or able to participate in, a clinical trial. To be considered for expanded access, requests must be submitted to Geron by a qualified and licensed physician with expertise and facilities appropriate for the administration of imetelstat.
Financial Overview
Since our inception, we have primarily financed our operations through the sale of equity securities, draw downs on our debt facility, interest income on our marketable securities and payments we received under our collaborative and licensing arrangements. As of September 30, 2023, we had approximately $381.9 million in cash, cash equivalents, restricted cash and marketable securities and a long-term principal debt balance of $50.0 million.
Substantially all of our revenues to date have been payments under collaboration agreements, and milestones, royalties and other revenues from our licensing arrangements. We currently have no source of product revenue. While we reported a small profit for the year ended December 31, 2015 due to our recognition of revenue in connection with the upfront payment under a former imetelstat collaboration agreement, until 2015 we had never been profitable, and we have not reported any profit since. We have incurred significant net losses since our inception in 1990, resulting principally from costs incurred in connection with our research and development activities and from general and administrative costs associated with our operations. As of September 30, 2023, we had an accumulated deficit of approximately $1.5 billion.
The significance of future losses, future revenues and any potential future profitability will depend primarily on the clinical and commercial success of imetelstat, our sole product candidate. In any event, imetelstat may require significant additional clinical testing prior to possible regulatory approval in the U.S. and other countries. We expect research and development expenses, general and administrative expenses, and losses to substantially increase in future periods as we continue to support the imetelstat development program, including the conduct and completion of IMpactMF, IMproveMF and IMpress, as well as the potential U.S. and European commercialization of imetelstat in lower risk MDS.
Based on our current operating plan and our expectations regarding the timing of potential approval of our NDA by the FDA for imetelstat for the treatment of transfusion-dependent anemia in adult patients with lower risk MDS, we believe that our existing cash, cash equivalents, and current and noncurrent marketable securities, together with projected revenues from U.S. sales of imetelstat, proceeds from the exercise of our outstanding warrants, and funding under the Loan Agreement, will be sufficient to fund our projected operating requirements through the end of the third quarter of 2025. Our ability to generate revenues from sales of imetelstat in the U.S., if regulatory approval is granted, depends on us being able to establish sales and marketing capabilities and gain acceptance in the marketplace, which we may be unable to do in a timely manner or at all. In addition, we cannot predict with any certainty whether and to what extent the outstanding remaining warrants will be exercised for cash, or the timing or availability of additional funds under the Loan Agreement, if at all. We will require substantial additional funding to further advance the imetelstat program, including through the completion of IMpactMF, IMproveMF and IMpress, as well as conducting the clinical, regulatory and potential commercialization activities necessary to potentially bring imetelstat to market in relapsed/refractory MF and any other future indications, and our need for additional funds may arise sooner than planned.
If approved for marketing by regulatory authorities outside of the U.S., we may seek potential commercialization partners for such territories. Until the FDA or similar international regulatory authorities approve imetelstat for marketing in lower risk MDS, if at all, we cannot begin commercialization.
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CRITICAL ACCOUNTING POLICIES AND ESTIMATES
There have been no significant changes in our critical accounting policies and estimates during the nine months ended September 30, 2023, as compared to the critical accounting policies and estimates disclosed in our 2022 Form 10-K.
Our condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Note 1 on Summary of Significant Accounting Policies in Notes to Condensed Consolidated Financial Statements of this quarterly report on Form 10-Q 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 historically have 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.
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RESULTS OF OPERATIONS
Our results of operations have fluctuated from period to period and may continue to fluctuate in the future. Results of operations for any period may be unrelated to results of operations for any other period. Thus, 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, but not limited to, risks inherent in research and development efforts, including the development, manufacture, regulatory approval for and commercialization of, imetelstat; uncertainty of non-clinical and clinical trial results or regulatory approvals or clearances; the future development of imetelstat by us, including any future efficacy or safety results that may cause the benefit-risk profile of imetelstat to become unacceptable; the uncertain and unpredictable drug research and discovery process; overcoming disruptions and/or delays due to macroeconomic or other global conditions, such as inflation, rising interest rates, prospects of a recession, bank failures and other disruptions to financial systems, civil or political unrest, military conflicts, pandemics or other health crises and supply chain and resource issues; our need for substantial additional capital; enforcement of our patent and proprietary rights; reliance upon our CROs, contract manufacturing organizations, or CMOs, consultants, licensees, investigators and other third parties; and potential competition. In order for imetelstat to be commercialized, we must conduct non-clinical tests and clinical trials to demonstrate the safety and efficacy of imetelstat, 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 revenue based on sales of imetelstat for the current year, if at all.
Revenues
In connection with the divestiture of Geron’s human embryonic stem cell assets, including intellectual property and proprietary technology, to Lineage Cell Therapeutics, Inc., or Lineage, (formerly BioTime, Inc. which acquired Asterias Biotherapeutics, Inc.) in 2013, we are entitled to receive royalties on sales from certain research or commercial products utilizing Geron’s divested intellectual property.
We recognized royalty revenues of $164,000 and $214,000 for the three and nine months ended September 30, 2023, respectively, compared to $297,000 and $493,000 for the same periods in 2022. Royalty revenues in 2023 and 2022 primarily reflect estimated royalties from sales of cell-based research products from our divested stem cell assets.
Future license fee and royalty revenues are dependent on additional agreements being signed, if any, our current license agreement with Lineage being maintained and the underlying patent rights for the license remaining active. Historical revenues may not be predictive of future revenues. We expect royalty revenues in 2023 to be lower than in 2022 from sales of cell-based research products from our divested stem cell assets.
Research and Development Expenses
During the three and nine months ended September 30, 2023 and 2022, our imetelstat program and our research discovery program related to potential next generation telomerase inhibitors were the only research and development programs we supported. For these research and development programs, we incur direct external, personnel-related and other research and development costs. For the three and nine months ended September 30, 2023 and 2022, direct external expenses included costs for our CROs, consultants and other clinical-related vendors, as well as expenses for contract manufacturing and quality activities. Personnel-related expenses primarily consist of salaries and wages, stock-based compensation, payroll taxes and benefits for our employees involved with ongoing research and development efforts. Other research and development expenses primarily consist of research-related overhead associated with allocated expenses for rent and maintenance of facilities and other supplies.
Research and development expenses for the three and nine months ended September 30, 2023 and 2022 were as follows:
Three Months Ended September 30,
Nine Months Ended September 30,
(In thousands)
2023
2022
2023
2022
(Unaudited)
Direct external expenses
$
18,756
$
17,351
$
62,298
$
46,277
Personnel-related expenses
8,812
5,748
24,266
16,970
All other expenses
1,858
1,504
5,571
4,061
Total research and development expenses
$
29,426
$
24,603
$
92,135
$
67,308
The increase in research and development expenses for the three and nine months ended September 30, 2023, compared to the same periods in 2022, primarily reflects the net result of higher manufacturing costs due to the timing of imetelstat manufacturing batches and increased personnel-related expenses for additional headcount. At this time, we cannot provide reliable estimates of how much time or investment will be necessary to advance imetelstat toward commercialization. For a more complete discussion of the risks and uncertainties associated with the development of imetelstat, see the sub‑sections entitled “Risks Related to the Development
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of Imetelstat” and “Risks Related to Regulatory Compliance Matters and Commercialization of Imetelstat” in Part II, Item 1A entitled “Risk Factors” and elsewhere in this quarterly report on Form 10‑Q.
General and Administrative Expenses
General and administrative expenses were $18.4 million and $47.7 million for the three and nine months ended September 30, 2023, respectively, compared to $15.6 million and $29.8 million for the same periods in 2022. The increase in general and administrative expenses for the three and nine months ended September 30, 2023, compared to the same periods in 2022, primarily reflects higher personnel-related expenses of approximately $5.7 million and $14.2 million, respectively, for additional headcount; as well as new costs for commercial preparatory activities of approximately $1.9 million and $6.8 million, respectively. The increases in expense were partially offset by a decrease in legal and accounting expenses of $6.8 million and $6.1 million for the three and nine months ended September 30, 2023, respectively, primarily related to $7.0 million recorded in the third quarter of 2022 for our portion of the settlement in connection with the class action lawsuit. We expect general and administrative expenses to increase in the future as the imetelstat program matures and potential stage-gated commercialization activities continue.
Interest Income
Interest income was $5.0 million and $13.6 million for the three and nine months ended September 30, 2023, respectively, compared to $852,000 and $1.3 million for the same periods in 2022. The increase in interest income for the three and nine months ended September 30, 2023, compared to the same periods in 2022, primarily reflects a larger marketable securities portfolio with the receipt of net cash proceeds from the underwritten public offering completed in January 2023 and cash proceeds from warrant exercises in the first nine months of 2023, as well as higher yields from recent marketable securities purchases. Interest earned in future periods will depend on the size of our marketable securities portfolio and prevailing interest rates.
Interest Expense
Interest expense was $2.1 million and $6.0 million for the three and nine months ended September 30, 2023, respectively, compared to $1.8 million and $4.9 million for the same periods in 2022. The increase in interest expense for the three and nine months ended September 30, 2023, compared to the same periods in 2022, primarily reflects rising interest rates. Currently, we have $50.0 million in principal debt outstanding. Interest expense reflects interest owed under the Loan Agreement, as well as amortization of associated debt issuance costs and debt discounts using the effective interest method and accrual for an end of term charge. See Note 4 on Debt in Notes to Condensed Consolidated Financial Statements of this quarterly report on Form 10-Q for additional information about the Loan Agreement.
Other Income and (Expense), Net
Net other expense was $92,000 for the three months ended September 30, 2023 and net other expense was $64,000 for the nine months ended September 30, 2023, compared to net other expense of $138,000 and net other income of $916,000 for the three and nine months ended September 30, 2022. Net other income and expense primarily reflects bank charges related to our cash operating accounts and marketable securities portfolio and foreign currency transaction adjustments.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2023, we had cash, restricted cash, cash equivalents, and marketable securities of $381.9 million, compared to $173.1 million at December 31, 2022. The increase in cash, restricted cash, cash equivalents and marketable securities during the nine months ended September 30, 2023 was primarily the net result of the receipt of net cash proceeds of $213.3 million from our underwritten public offering completed in January 2023 and receipt of cash and receivables from the exercise of outstanding warrants of $105.9 million, partially offset by cash being used for operations.
On January 10, 2023, we completed an underwritten public offering of 68,007,741 shares of our common stock and a pre-funded warrant to purchase 25,000,000 shares of our common stock, or the 2023 pre-funded warrant. The net cash proceeds from this offering are $213.3 million, after deducting the underwriting discount and other offering expenses paid by us, and excludes any future proceeds from the exercise of the 2023 pre-funded warrant, which has not been exercised. See Note 6 on Stockholders’ Equity in Notes to Condensed Consolidated Financial Statements of this quarterly report on Form 10-Q for additional information about the underwritten public offering completed in January 2023.
From January 1, 2023 through September 30, 2023, we have received $54.1 million in cash proceeds from the exercise of warrants we issued in 2020, covering 41,635,576 shares of our common stock. From January 1, 2023 through September 30, 2023, we have received $51.8 million in cash and receivables from the exercise of warrants we issued in 2022, covering 35,714,282 shares of our common stock. As of September 30, 2023, we had warrants remaining from our 2020 issuance covering 2,474,503 shares of our common stock, which if exercised in full for cash, would provide $3.2 million in cash proceeds.
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As of September 30, 2023, we had a long-term principal debt balance of $50.0 million under the Loan Agreement with Hercules and SVB. In June 2022, we entered into a second amendment to the Loan Agreement with Hercules and SVB. Under the second amendment, the aggregate principal amount available to us increased from $75.0 million to $125.0 million. As of September 30, 2023, a total of $55.0 million is available to be drawn in a series of tranches under the Loan Agreement, subject to certain terms and conditions. Of this amount, $30.0 million is available subject to our achievement of certain clinical and regulatory milestones and satisfaction of certain capitalization and other requirements, and the remaining $25.0 million is available subject to approval by an investment committee comprised of Hercules and SVB. See Note 4 on Debt in Notes to Condensed Consolidated Financial Statements of this quarterly report on Form 10-Q for additional information on the second amendment.
We have an investment policy to invest our cash in liquid, investment grade securities, such as interest-bearing money market funds, certificates of deposit, U.S. Treasury securities, municipal securities, government and agency securities, commercial paper and corporate notes. Our investment portfolio does not contain securities with exposure to sub-prime mortgages, collateralized debt obligations, asset-backed securities or auction rate securities and, to date, we have not recognized any impairment charges on our marketable securities or any significant changes in aggregate fair value that would impact our cash resources or liquidity. To date, we have not experienced lack of access to our invested cash and cash equivalents; however, access to our invested cash and cash equivalents may be impacted by adverse conditions in the financial and credit markets.
On September 4, 2020, we entered into an At Market Issuance Sales Agreement, or the 2020 Sales Agreement, with B. Riley Securities, Inc., or B. Riley Securities, pursuant to which we were able to elect to issue and sell shares of our common stock having an aggregate offering price of up to $100.0 million in such quantities and on such minimum price terms as we set from time to time through B. Riley Securities as our sales agent. B. Riley Securities was eligible to receive an aggregate commission equal to up to 3.0% of the gross proceeds of the sales under the agreement. We did not sell any shares of our common stock pursuant to the 2020 Sales Agreement during the nine months ended September 30, 2023. Approximately $79.1 million of our common stock remained available for issuance under the 2020 Sales Agreement as of September 4, 2023 when the 2020 Sales Agreement expired. No further stock will be sold pursuant to the 2020 Sales Agreement.
On November 1, 2023, we entered into a new At Market Issuance Sales Agreement, or the 2023 Sales Agreement, with B. Riley Securities, pursuant to which we may elect to issue and sell shares of our common stock having an aggregate offering price of up to $100.0 million in such quantities and on such minimum price terms as we set from time to time through B. Riley Securities as our sales agent. We have agreed to pay B. Riley Securities an aggregate commission equal to up to 3.0% of the gross proceeds of the sales under the agreement.
Financing Strategy
We may, from time to time, consider additional funding through a combination of new collaborative arrangements, strategic alliances, and additional equity and debt financings or from other sources. We will continue to manage our capital structure and consider all financing opportunities, whenever they may occur, that could strengthen our long-term liquidity profile. Any such capital transactions may or may not be similar to transactions in which we have engaged in the past. There can be no assurance that any such financing opportunities will be available on acceptable terms, if at all.
Future Funding Requirements
Based on our current operating plan and our expectations regarding the timing of the potential approval of our NDA by the FDA for imetelstat for the treatment of transfusion-dependent anemia in adult patients with lower risk MDS, we believe that our existing cash, cash equivalents, and current and noncurrent marketable securities, together with projected revenues from U.S. sales of imetelstat, proceeds from the exercise of our outstanding warrants, and funding under the Loan Agreement, will be sufficient to fund our projected operating requirements through the end of the third quarter of 2025. Our ability to generate revenues from sales of imetelstat in the U.S., if regulatory approval is granted, depends on us being able to establish sales and marketing capabilities and gain acceptance in the marketplace, which we may be unable to do in a timely manner or at all. In addition, we cannot predict with any certainty whether and to what extent the outstanding remaining warrants will be exercised for cash, or the timing or availability of additional funds under the Loan Agreement, if at all. We will require substantial additional funding to further advance the imetelstat program, including through the completion of IMpactMF, IMproveMF and IMpress, as well as conducting the clinical, regulatory and potential commercialization activities necessary to potentially bring imetelstat to market in relapsed/refractory MF and any other future indications, and our need for additional funds may arise sooner than planned.
Because the outcome of any clinical activities and/or regulatory approval process is highly uncertain, we cannot reasonably estimate whether any development activities we may undertake will succeed; whether we will obtain regulatory approval for imetelstat in any indication we pursue, including lower risk MDS; or, if approved, whether we will be able to effectively commercialize imetelstat, if at all. We may never recoup our investment in any imetelstat development which would adversely affect our financial condition and our business and business prospects, and might cause us to cease operations. In addition, our plans and timing expectations could be further delayed or interrupted by the effects of macroeconomic or other global conditions, including those resulting from inflation, rising interest rates, prospects of a recession, bank failures and other disruptions to financial systems, civil or
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political unrest, military conflicts, pandemics or other health crises and supply chain and resource issues. Further, our future capital requirements are difficult to forecast and will depend on many factors, including:
• the accuracy of the assumptions underlying our estimates for our capital needs;
• the scope, progress, timing, magnitude and costs of clinical development, manufacturing and potential commercialization of imetelstat, including the number of indications being pursued, subject to clearances and approvals by the FDA and similar international regulatory authorities;
• the scope, progress, duration, results and costs of current clinical trials, including IMerge Phase 3, IMpactMF, IMproveMF and IMpress, and any potential future clinical trials of imetelstat, as well as our expanded access program and non-clinical studies and assessments of imetelstat;
• delays or disruptions in opening sites, screening and enrolling patients or treating and following patients, in IMpactMF, IMproveMF, IMpress, or any potential future clinical trials of imetelstat, whether as a result of the effects of macroeconomic or other global conditions, including those resulting from inflation, rising interest rates, prospects of a recession, bank failures and other disruptions to financial systems, civil or political unrest, military conflicts, pandemics or other health crises and supply chain and resource issues;
• the costs, timing and outcomes of regulatory reviews or other regulatory actions related to imetelstat, such as obtaining and maintaining regulatory clearances and approvals to continue clinical development of imetelstat in current and potential future clinical trials, as well as to commence potential commercialization of imetelstat in the U.S. and in other countries;
• the costs of preparing, filing and prosecuting patent applications and maintaining, enforcing and defending intellectual property-related claims;
• the costs of manufacturing imetelstat, including our ability to achieve any meaningful reduction in manufacturing costs;
• the costs of multiple third-party vendors and service providers, including our CROs and third-party manufacturers, to pursue the development, manufacturing and potential commercialization of imetelstat;
• our ability to establish, enforce and maintain collaborative or other strategic arrangements for the research, development, clinical testing and manufacturing of imetelstat on favorable terms, if at all;
• our efforts to enhance operational, financial and management processes and systems that will be required for future development and commercialization of imetelstat, and our ability to successfully recruit and retain additional key personnel to support the development and potential future commercialization of imetelstat;
• our ability to successfully market and sell imetelstat, if imetelstat receives future regulatory approval or clearance, in the U.S. and other countries, and the associated costs;
• the costs and timing necessary to build a sales force in the U.S. and potentially other countries to market and sell imetelstat, should it receive regulatory approval, to the extent that such sales, marketing, manufacturing and distribution are not the responsibility of any collaborator;
• the sales price for imetelstat, if any;
• the availability of coverage and adequate third-party reimbursement for imetelstat, if any;
• the extent to which we acquire or in-license other drugs and technologies, or invest in businesses, products or technologies, although we currently have no commitments or agreements relating to any of these types of transactions, or to which we out-license imetelstat;
• the extent to which we are able to enter into strategic partnerships, collaborations and alliances or licensing arrangements with third parties including for the commercialization and marketing of imetelstat in certain global regions;
• the success of any collaborations that we may enter into with third parties;
• expenses associated with potential litigation;
• the extent and scope of our general and administrative expenses, including expenses associated with potential future litigation;
• our level of indebtedness and associated debt service obligations;
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• the costs of maintaining and operating facilities in California and New Jersey, telecommunications and administrative oversight, as well as higher expenses for travel;
• macroeconomic or other global conditions, including those resulting from inflation, rising interest rates, the prospects of a recession, bank failure and other disruptions to financial systems, civil or political unrest, military conflicts, pandemics or other health crises and supply chain and resource issues, that may reduce our ability to access debt capital or financing on preferable terms, which may adversely affect future capital requirements and forecasts;
• the costs of enabling our personnel to work remotely, including providing supplies, equipment and technology necessary for them to perform their responsibilities; and
• the amount of proceeds, if any, of cash exercises of our currently outstanding warrants.
Until we can generate a sufficient amount of revenue from imetelstat to finance our cash requirements, which we may never achieve, we expect to finance future cash needs through a combination of public or private equity offerings, debt financings, collaborations, strategic alliances, licensing arrangements and other marketing and distribution arrangements, which may not be possible. Availability of such financing sources may be negatively impacted by any further delays in reporting results from IMpactMF or investors’ perception of top-line results from IMerge Phase 3, despite our interpretation of such data being positive, as well as macroeconomic or other global conditions, including those resulting from inflation, rising interest rates, prospects or a recession, bank failures and other disruptions to financial systems, civil or political unrest, military conflicts, pandemics or other health crises and supply chain and resource issues.
Additional financing through public or private debt or equity financings, including pursuant to the 2023 Sales Agreement with B. Riley Securities, Inc., or B. Riley, the remaining tranches of up to $55.0 million available under the Loan Agreement, which are subject to the achievement of certain clinical and regulatory milestones and satisfaction of certain capitalization and other requirements, as well as approval by an investment committee comprised of Hercules and SVB for the final $25.0 million tranche; capital lease transactions or other financing sources, may not be available on acceptable terms, or at all. We may be unable to raise equity capital, or may be forced to do so at a stock price or on other terms that could result in substantial dilution of ownership for our stockholders. The receptivity of the public and private debt and equity markets to proposed financings has been substantially affected by uncertainty in the general economic, market and political climate due to the effects of macroeconomic or other global conditions, such as inflation, rising interest rates, prospects of a recession, government shutdowns, bank failures and other disruptions to financial systems, civil or political unrest, military conflicts, pandemics or other health crises and supply chain and resource issues, and may in the future be affected by other factors which are unpredictable and over which we have no control. These effects have increased market volatility and could result in a significant long-term disruption of global financial markets, which could reduce or eliminate our ability to raise additional funds through financings, and could negatively impact the terms upon which we may raise those funds. Similarly, these macroeconomic conditions have created extreme volatility and disruption in the capital markets and is expected to have further global economic consequences. If the equity and credit markets deteriorate, including as a result of macroeconomic or other global conditions, such as inflation, rising interest rates, prospects of a recession, government shutdowns, bank failures and other disruptions to financial systems, civil or political unrest, military conflicts, pandemics or other health crises and supply chain and resource issues, it may make any necessary debt or equity financing more difficult to obtain in a timely manner or on favorable terms, more costly or more dilutive. If we are unable to raise additional capital or establish alternative collaborative arrangements with third-party collaborative partners for imetelstat, the development and potential commercialization of imetelstat may be further delayed, altered or abandoned, which might cause us to cease operations.
In addition, we may seek additional capital due to market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. Due to uncertainty in the general economic, market and political climate, we may determine that it is necessary or appropriate to raise additional funds proactively to meet longer-term anticipated operating plans. To the extent that we raise additional capital through the sale of equity or convertible debt securities, including pursuant to the 2023 Sales Agreement, your ownership interest as a stockholder may be diluted, and the terms may include liquidation or other preferences that materially and adversely affect your rights as a stockholder. In addition, we have borrowed, and in the future may borrow, additional capital from institutional and commercial banking sources to fund imetelstat development and our future growth, including pursuant to our Loan Agreement or potentially pursuant to new arrangements with different lenders. We may borrow funds on terms under agreements, such as the Loan Agreement, that include restrictive covenants, including covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. Moreover, if we raise additional funds through alliance, collaborative or licensing arrangements with third parties, we may have to relinquish valuable rights to imetelstat or our technologies or grant licenses on terms that are not favorable to us.
We cannot assure you that our existing capital resources, future interest income, future proceeds from potential cash exercises of currently outstanding warrants, potential future sales of our common stock, including under the 2023 Sales Agreement, and potential future drawdowns, if available, of the remaining up to $55.0 million under the Loan Agreement (which are subject to the achievement of certain clinical and regulatory milestones and satisfaction of certain capitalization and other requirements, as well as approval by an investment committee comprised of Hercules and SVB for the final $25.0 million tranche), will be sufficient to fund our operating plans. While we did not hold cash deposits or securities at SVB, if other banks and financial institutions enter receivership, become insolvent or otherwise fail in the future in response to financial conditions affecting the banking system and financial markets or
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otherwise, our ability to access our existing cash, cash equivalents and marketable securities may be delayed or precluded, which could have a material adverse effect on our business, business prospects and financial position.
Cash Flows from Operating Activities
Net cash used in operations for the nine months ended September 30, 2023 and 2022 was $126.8 million and $92.2 million, respectively. The increase in net cash used in operations for the nine months ended September 30, 2023, compared to the same period in 2022, primarily reflects higher payments to support ongoing clinical trials of imetelstat, commercial preparatory activities, and increases in headcount to support pre-approval and commercialization efforts.
Cash Flows from Investing Activities
Net cash used in investing activities was $227.9 million for the nine months ended September 30, 2023 and net cash provided by investing activities was $43.1 million for the nine months ended September 30, 2022. The increase in net cash used in investing activities for the nine months ended September 30, 2023, compared to the same period in 2022, primarily reflects a higher rate of purchases than maturities of marketable securities in 2023 from the investment of net cash proceeds received from the underwritten public offering completed in January 2023 and warrant exercises in the first half of 2023.
Cash Flows from Financing Activities
Net cash provided by financing activities for the nine months ended September 30, 2023 and 2022 was $328.7 million and $75.3 million, respectively. Financing activities in 2023 primarily reflect the receipt of net cash proceeds from the underwritten public offering completed in January 2023 and warrant exercises in the first half of 2023.
Contractual Obligations
We have entered into arrangements that contractually obligate us to make payments that will affect our liquidity and cash flows in future periods. Our contractual obligations primarily consist of our current and noncurrent debt obligations under the Loan Agreement with Hercules and SVB, as described above and in Note 4 on Debt in Notes to Condensed Consolidated Financial Statements of this quarterly report on Form 10-Q, and obligations under non-cancellable operating leases. The aggregate amount of our future operating lease payments was reported in our 2022 Form 10-K and there have been no changes to the contractual terms of our operating leases during the nine months ended September 30, 2023.
In the normal course of business, we enter into agreements with CROs for clinical trials and third-party manufacturers for clinical supply manufacturing and with other vendors for non-clinical research studies, investigator-led trials and other services and products for operating purposes. We have not considered these payments to be contractual obligations since the contracts are generally cancellable at any time by us upon less than 180 days’ prior written notice. We also have certain in-license agreements that require us to pay milestones to such third parties upon achievement of certain development, regulatory or commercial milestones. Amounts related to contingent milestone payments are not considered contractual obligations as they are contingent on the successful achievement of certain development, regulatory approval and commercial milestones, which may not be achieved.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act, and are not required to provide the information specified under this item.
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.