<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
---------------
FORM 10-Q
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[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE PERIOD ENDED SEPTEMBER 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _________ TO __________ .
COMMISSION FILE NUMBER: 0-20859
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GERON CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 75-2287752
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER IDENTIFICATION NO.)
OF INCORPORATION OR ORGANIZATION)
230 CONSTITUTION DRIVE, MENLO PARK, CA 94025
(ADDRESS, INCLUDING ZIP CODE, OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (650) 473-7700
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK $0.001 PAR VALUE
(TITLE OF CLASS)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class: Common Stock $0.001 par value Outstanding at November 6, 2000:
21,727,049 shares
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<PAGE> 2
GERON CORPORATION
INDEX
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
<S> <C> <C>
Item 1: Condensed Consolidated Financial Statements................................................. 3
Condensed Consolidated Balance Sheets as of September 30, 2000 and December 31, 1999........ 3
Condensed Consolidated Statements of Operations for the three and nine months
ended September 30, 2000 and 1999........................................................... 4
Condensed Consolidated Statements of Cash Flows for the nine months ended
September 30, 2000 and 1999................................................................. 5
Notes to Condensed Consolidated Financial Statements........................................ 6
Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations....... 8
Item 3: Quantitative and Qualitative Disclosures About Market Risk.................................. 23
PART II. OTHER INFORMATION
Item 1: Legal Proceedings............................................................................ 24
Item 2: Changes In Securities and Use of Proceeds.................................................... 24
Item 3: Defaults upon Senior Securities.............................................................. 24
Item 4: Submission of Matters to a Vote of Security Holders.......................................... 24
Item 5: Other Information............................................................................ 24
Item 6: Exhibits and Reports on Form 8-K............................................................. 24
SIGNATURES............................................................................................. 24
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GERON CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- -------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 54,251 $ 7,835
Short-term investments 1,000 31,452
Interest and other receivables 2,083 743
Other current assets 366 399
------------- -------------
Total current assets 57,700 40,429
Long-term investments 40,510 3,636
Property and equipment, net 3,280 3,783
Deposits and other assets 587 576
Intangibles 13,129 15,277
------------- -------------
$ 115,206 $ 63,701
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,068 $ 1,321
Accrued liabilities 2,954 2,723
Current portion of capital lease
obligations and equipment loans 1,004 1,183
Current portion of accrued
research funding commitment 3,126 2,721
Deferred revenue 1,000 --
------------- -------------
Total current liabilities 9,152 7,948
Noncurrent portion of capital lease
obligations and equipment loans 1,246 1,787
Accrued research funding commitment 10,968 12,413
Convertible debentures 31,375 15,327
Commitments
Stockholders' equity:
Common stock 22 17
Additional paid-in-capital 196,788 131,183
Notes receivable from stockholders (37) (70)
Deferred compensation (487) (853)
Accumulated deficit (133,878) (103,969)
Accumulated other comprehensive (loss)/income 57 (82)
------------- -------------
Total stockholders' equity 62,465 26,226
------------- -------------
$ 115,206 $ 63,701
============= =============
</TABLE>
See accompanying notes.
3
<PAGE> 4
GERON CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------- -------------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues from collaborative agreements $ 1,750 $ 1,250 $ 4,750 $ 3,994
Royalties 46 26 93 123
------------ ------------ ------------ ------------
Total revenues 1,796 1,276 4,843 4,117
Operating expenses:
Research and development 6,750 7,028 18,338 15,973
Acquired research technology -- -- -- 23,403
General and administrative 1,390 1,210 8,376 3,572
------------ ------------ ------------ ------------
Total operating expenses 8,140 8,238 26,714 42,948
------------ ------------ ------------ ------------
Loss from operations (6,344) (6,962) (21,871) (38,831)
Interest and other income 1,685 782 3,983 2,435
Interest and other expense (269) (760) (12,021) (1,887)
------------ ------------ ------------ ------------
Net loss $ (4,928) (6,940) $ (29,909) $ (38,283)
Accretion of redemption value of redeemable
convertible preferred stock -- -- -- (73)
------------ ------------ ------------ ------------
Net loss applicable to common stockholders $ (4,928) $ (6,940) $ (29,909) $ (38,356)
============ ============ ============ ============
Basic and diluted net loss per share $ (0.23) $ (0.42) $ (1.45) $ (2.55)
============ ============ ============ ============
Weighted average shares used in computing
basic and diluted net loss per share 21,586,722 16,499,403 20,585,395 15,043,967
============ ============ ============ ============
</TABLE>
See accompanying notes.
4
<PAGE> 5
GERON CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
CHANGE IN CASH AND CASH EQUIVALENTS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------
2000 1999
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(29,909) $(38,283)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 1,094 1,038
Interest on convertible debentures 11,268 1,131
Issuance of common and preferred stock in exchange
for services rendered 3,919 1,392
Issuance of common stock in acquisition for purchased
research -- 24,838
Accretion of interest on research funding obligation 368 --
Deferred compensation 366 398
Changes in assets and liabilities:
Other current and noncurrent assets 830 1,066
Other current and noncurrent liabilities 1,874 562
Translation adjustment (139) 207
-------- --------
Net cash used in operating activities (10,329) (7,651)
Cash flows from investing activities:
Capital expenditures (551) (2,487)
Purchases of securities available-for-sale (37,205) (12,864)
Proceeds from sales/calls of securities available-for-sale 15,526 2,004
Proceeds from maturities of securities available-for-sale 15,480 16,111
Accrued research funding payments (1,393) (1,538)
-------- --------
Net cash (used in) provided by investing activities (8,143) 1,226
Cash flows from financing activities:
Proceeds from equipment loans 201 1,907
Payments of obligations under capital leases and equipment (921) (963)
loans
Redemption of preferred stock -- (3,683)
Proceeds from issuance of common and preferred stock, net 40,608 598
Proceeds from issuance of debentures 25,000 20,000
-------- --------
Net cash provided by financing activities 64,888 17,859
-------- --------
Net increase in cash and cash equivalents 46,416 11,434
Cash and cash equivalents at the beginning of the period 7,835 16,360
-------- --------
Cash and cash equivalents at the end of the period $ 54,251 $ 27,794
======== ========
</TABLE>
See accompanying notes.
5
<PAGE> 6
GERON CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying condensed consolidated unaudited balance sheet as of
September 30, 2000 and condensed consolidated statements of operations for the
three and nine month periods ended September 30, 2000 and 1999 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 generally accepted accounting principles 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 month periods ended
September 30, 2000 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2000 or any other period. These
financial statements and notes should be read in conjunction with the financial
statements for the year ended December 31, 1999, included in the Company's
Annual Report on Form 10-K.
The consolidated financial statements include the accounts of Geron
Corporation, and its wholly owned subsidiary, Geron Bio-Med Ltd., a company
organized under the laws of the United Kingdom. All material intercompany
accounts, transactions, and expenses have been eliminated in consolidation.
The financial statements of the Company's subsidiary outside the United
States are measured using the local currency as the functional currency. Assets
and liabilities of this subsidiary are translated at the rates of exchange at
the balance sheet date. The resultant translation adjustments are included in
accumulated other comprehensive income/(loss), a separate component of
stockholders' equity. Income and expense items are translated at average monthly
rates of exchange.
Certain reclassifications of prior year amounts have been made to conform to
current year presentation.
NET LOSS PER SHARE
Basic earnings (loss) per share is calculated using the weighted average
number of common shares outstanding. Because the Company is in a net loss
position, diluted earnings per share is also calculated using the weighted
average number of common shares outstanding and excludes the effects of options,
warrants and convertible securities which are antidilutive. Had the Company been
in a net income position, diluted earnings per share would have included the
shares used in the computation of basic net loss per share as well as an
additional 2,148,481 and 1,334,937 shares for 2000 and 1999, respectively,
related to outstanding options and warrants not included above (as determined
using the treasury stock method at the estimated average market value).
COMPREHENSIVE LOSS
Comprehensive loss is comprised of net loss and other comprehensive income
(loss). Other comprehensive income (loss) includes certain changes in equity
that are excluded from net loss. Specifically, unrealized holding gains on our
available-for-sale securities of $109,000, which were reported separately in
stockholders' equity, and cumulative translation adjustments of $52,000 are
included in accumulated other comprehensive income (loss).
6
<PAGE> 7
REVENUE RECOGNITION
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 ("SAB 101") which is effective no later than the
fourth fiscal quarter of 2000. SAB 101 summarizes certain areas of the Staff's
views in applying generally accepted accounting principles to revenue
recognition. The Company has not completed its assessment of the impact of SAB
101, but does not expect that the implementation of SAB 101 will have a material
effect.
2. CASH EQUIVALENTS AND INVESTMENTS
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. The Company
places its cash and cash equivalents in interest-bearing money market funds,
municipal notes and commercial paper. As of September 30, 2000, the Company's
investments consisted primarily of corporate notes with maturities ranging from
three to 19 months.
3. EQUITY LINE
In September 2000, the Company entered into an agreement with an
institutional investor for an equity financing facility covering the sale of up
to $50.0 million of the Company's common stock over 24 months. The shares will
be sold at the Company's discretion at a discount to the then current market
price of the Company's common stock on the day of sale. The Company controls the
amount and timing of each sale of stock. As of September 30, 2000, no common
stock has been issued under this equity line financing facility.
4. CONSOLIDATED STATEMENT OF CASH FLOW DATA
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED ENDED
(IN THOUSANDS) SEPTEMBER 30, 2000 SEPTEMBER 30, 1999
------------------ ------------------
<S> <C> <C>
Supplementary investing and financing activities
Common stock issued for services............................... $ 733 $ --
Common stock issued under purchase plan........................ $ 163 $ 105
Notes receivable from stockholders............................. $ 33 $ (59)
Accretion of premium on convertible preferred stock............ $ -- $ 73
Valuation of warrants issued with convertible debentures....... $ -- $ 719
Accrued research funding commitment............................ $ -- $ 17,187
Conversion of convertible debentures, net...................... $ 9,076 $ 6,555
Net unrealized gain (loss) on available-for-sale securities... $ 223 $ (149)
</TABLE>
5. SUBSEQUENT EVENTS
In October 2000, the Company sold $2.5 million of common stock under the
equity line financing facility. The financing was made pursuant to an effective
shelf registration previously filed with the Securities and Exchange Commission
in April 2000.
7
<PAGE> 8
GERON CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
This Form 10-Q contains forward-looking statements that involve risks and
uncertainties. We use words such as "anticipate", "believe", "plan", "expect",
"future", "intend" and similar expressions to identify forward-looking
statements. These statements appear throughout the Form 10-Q and are statements
regarding our intent, belief, or current expectations, primarily with respect to
our operations and related industry developments. You should not place undue
reliance on these forward-looking statements, which apply only as of the date of
this Form 10-Q. Our actual results could differ materially from those
anticipated in these forward-looking statements for many reasons, including the
risks faced by us and described under the heading "Risk Factors" in the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1999, in the section of this Item 2 titled "Additional Factors That May Affect
Future Results," and elsewhere in this Form 10-Q.
The following discussion should be read in conjunction with the unaudited
financial statements and notes thereto included in Part I, Item 1 of this
Quarterly Report and with Management's Discussion and Analysis of Financial
Condition and Results of Operations contained in the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1999.
We are a biopharmaceutical company focused on discovering, developing and
commercializing therapeutic and diagnostic products for applications in
oncology, drug discovery and regenerative medicine. Our product development
programs are based upon three patented, independent and synergistic
technologies: telomerase, human pluripotent stem cells and nuclear transfer.
Since inception, substantially all of our revenues have been generated from
license and research agreements with collaborators. In addition, we receive
license payments and royalties from license and marketing agreements with
various diagnostic and research tool product companies. We recognize revenue
from the license and research agreements with partners as the related research
and development costs are incurred under the licensing agreements.
In September 2000, the Company entered into an agreement with an
institutional investor for an equity financing facility covering the sale of up
to $50.0 million of the Company's common stock over 24 months. The shares will
be sold at the Company's discretion at a discount to the then current market
price of the Company's common stock on the day of sale. The Company controls the
amount and timing of each sale of stock.
In October 2000, the Company sold $2.5 million of common stock under the
equity line financing facility. The financing was made pursuant to an effective
shelf registration previously filed with the Securities and Exchange Commission
in April 2000.
Our results of operations have fluctuated from period to period and may
continue to fluctuate in the future based upon the timing and composition of
funding under our various collaborative agreements, as well as the progress of
our research and development efforts and variations in the level of expenses
related to developmental efforts during any given period. Results of operations
for any period may be unrelated to results of operations for any other period.
In addition, historical results should not be viewed as indicative of future
operating results. We are subject to risks common to companies in our industry
and at our stage of development, including risks inherent in our research and
development efforts, reliance upon our collaborative partners, enforcement of
our patent and proprietary rights, need for future capital, potential
competition and uncertainty of regulatory approvals or clearances. In order for
a product to be commercialized based on our research, we and our collaborators
must conduct preclinical tests and clinical trials, demonstrate the efficacy and
safety of our product candidates, obtain regulatory approvals or clearances and
enter into manufacturing, distribution and marketing arrangements, as well as
obtain market acceptance. We do not expect to receive revenues or royalties
based on therapeutic products for a period of years, if at all.
8
<PAGE> 9
RESULTS OF OPERATIONS
REVENUES
We recognized revenues from collaborative agreements of $1.8 million and
$4.8 million for the three and nine months ended September 30, 2000, compared to
$1.3 million and $4.0 million for the comparable periods in 1999. Revenues in
2000 and 1999 represented research support payments from our collaborative
agreements with Pharmacia and Kyowa Hakko. Increase in revenues from
collaborative agreements is primarily a result of renewed commitments from
Pharmacia and Kyowa Hakko in January 2000. As a result of the extensions of our
agreements with these parties, these agreements provide for additional funding
from Kyowa Hakko and Pharmacia.
We receive royalties from license and marketing agreements with various
diagnostic and research tool collaborators. We received royalties of $46,000 and
$93,000 for the three and nine months ended September 30, 2000, from Kyowa
Medex, Intergen, Roche Diagnostics, and PharMingen (a Becton Dickinson company)
on the sale of diagnostic kits to the research-use-only market and from Clontech
from the sale of telomerase-immortalized cell lines, compared to $26,000 and
$123,000 for the comparable periods in 1999.
RESEARCH AND DEVELOPMENT EXPENSES AND ACQUIRED RESEARCH EXPENSES
Research and development expenses were $6.8 million and $18.3 million for
the three and nine months ended September 30, 2000, compared to $7.0 million and
$16.0 million for the comparable periods in 1999. The increase in research and
development expenses for the nine month period in 2000 compared to the nine
month period in 1999 was primarily the result of amortization of the research
obligation to the Roslin Institute of $1.4 million and increased license fees of
$840,000. We expect research and development expenses to increase in the future
as a result of continued development of our therapeutic and diagnostic programs.
Acquired research expenses were the result of the acquisition of Roslin
Bio-Med in May 1999. We used the purchase method of accounting for the
acquisition. We allocated the purchase price among the acquired basic research
in the form of a license for the nuclear transfer technology, the research
agreement with the Roslin Institute and the net tangible assets of Roslin
Bio-Med. The value of the nuclear transfer technology of $23.4 million has been
reflected as acquired research expense and the value of the research agreement
of $17.2 million has been capitalized as an intangible asset and is currently
being amortized over six years. The total purchase price of $44.4 million also
included acquisition costs of $2.9 million. During 2000, payments totaling $1.4
million have been made to the Roslin Institute under the research funding
obligation. In addition, $368,000 of imputed interest was accreted to the value
of the research funding obligation and recognized as interest expense.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses were $1.4 million and $8.4 million for
the three and nine months ended September 30, 2000, compared to $1.2 million and
$3.6 million for the comparable periods in 1999. The increase in general and
administrative expenses for the nine month period in 2000 compared to the nine
month period in 1999 was primarily the result of increased business consulting
costs of $3.8 million, increased personnel related costs of $250,000, increased
accounting and legal costs of $330,000 and increased public and investor
relations costs of $240,000 for the company's new website and annual report.
INTEREST AND OTHER INCOME
Interest income was $1.7 million and $3.8 million for the three and nine
months ended September 30, 2000, compared to $506,000 and $1.6 million for the
comparable periods in 1999. The increase in interest income for 2000 compared to
1999 was primarily the result of higher cash balances in 2000 than 1999 as a
result of receiving proceeds from the exercise of warrants, the sale of common
stock to a private investor and the sale of convertible debentures. Interest
earned in the future will depend on any future funding cycles and prevailing
interest rates. We received none and $196,000 in research payments under
government grants for the three and nine months ended September 30, 2000,
compared to $276,000 and $846,000 for the comparable periods in 1999. We expect
income from government grants to decrease in the future.
9
<PAGE> 10
INTEREST AND OTHER EXPENSE
Interest and other expense was $269,000 and $12.0 million for the three and
nine months ended September 30, 2000, compared to $760,000 and $1.9 million for
the comparable periods in 1999. The increase in interest and other expense for
the nine month period in 2000 compared to the nine month period in 1999 was
primarily the result of recognizing the value of the warrants issued with the
series D convertible debentures. We recorded the warrant value of $10.5 million
as a charge to interest expense and an increase to additional-paid-in capital
NET LOSS
Net loss was $4.9 million and $29.9 million for the three and nine months
ended September 30, 2000, compared to $6.9 million and $38.4 million for the
comparable periods in 1999. The decrease in net loss for 2000 compared to 1999
was primarily the result of the charge for acquired research technology incurred
in 1999 offset partially by increased operating and interest expenses in 2000.
Excluding the effect of interest expense in the current periods, we expect net
loss to increase in the future from the current levels as a result of increased
operating expenses.
LIQUIDITY AND CAPITAL RESOURCES
Cash, cash equivalents and investments at September 30, 2000 were $95.8
million compared to $42.9 million at December 31, 1999. The increase in cash,
cash equivalents and investments in 2000 was the result of proceeds received
from the exercise of warrants, the sale of common stock to a private investor
and the sale of convertible debentures. We have an investment policy to invest
these funds in liquid, investment-grade securities, such as interest-bearing
money market funds, commercial paper and federal agency notes.
Net cash used in operations was $10.3 million for the nine months ended
September 30, 2000 compared to $7.7 million for the comparable period in 1999.
The increase was primarily due to an overall increase in operating expenses in
2000. We expect net cash used in operations to increase in the future as a
result of increased research and development expenditures.
Through September 30, 2000, we have invested approximately $10.3 million in
property and equipment, of which approximately $7.6 million was financed through
equipment financing. For the nine months ended September 30, 2000, additions of
equipment and leasehold improvements totaled approximately $551,000, half of
which were financed through equipment financing arrangements. Minimum annual
payments due under the equipment financing arrangements are expected to total
$1.2 million, $895,000, $772,000, $182,000 and $2,000 in 2000, 2001, 2002, 2003
and 2004, respectively. As of September 30, 2000, we had approximately $1.0
million available for borrowing under our equipment financing arrangements. The
drawdown period under the equipment financing arrangements expires on September
30, 2001. We intend to renew the commitment for new equipment financing
arrangements in 2001 to further fund equipment purchases. If we are unable to
renew the commitment, then we will need to spend our own resources for equipment
purchases.
We have agreed to fund scientific research at academic and research
institutions. Under these research arrangements, we are obligated to make
minimum annual payments of approximately $3.7 million and $2.7 million in 2000
and 2001, respectively. As of September 30, 2000, we have made payments of
approximately $2.6 million to academic and research institutions.
In September 2000, the Company entered into an agreement with an
institutional investor for an equity financing facility covering the sale of up
to $50.0 million of the Company's common stock over 24 months. The shares will
be sold at the Company's discretion at a discount to the then current market
price of the Company's common stock on the day of sale. The Company controls the
amount and timing of each sale of stock.
In October 2000, the Company sold $2.5 million of common stock under the
equity line financing facility. The financing was made pursuant to an effective
shelf registration previously filed with the Securities and Exchange Commission
in April 2000.
We estimate that our existing capital resources, payments expected to be
made under the Kyowa Hakko and Pharmacia collaborative agreements, interest
income and equipment financing will be sufficient to fund our current
10
<PAGE> 11
level of operations through December 2002. Changes in our research and
development plans or other changes affecting our operating expenses may result
in the expenditure of available resources before such time, and in any event, we
will need to raise substantial additional capital to fund our operations in the
future. We intend to seek additional funding through strategic collaborations,
public or private equity financings, capital lease transactions or other
financing sources that may be available.
ADDITIONAL FACTORS THAT MAY AFFECT FUTURE RESULTS
Our business is subject to various risks, including those described below.
You should carefully consider these risk factors, together with all of the other
information included in this Form 10-Q. Any of these risks could materially
adversely affect our business, operating results and financial condition.
OUR BUSINESS IS AT AN EARLY STAGE OF DEVELOPMENT AND WE MAY NOT DEVELOP ANY
PRODUCTS THAT REACH CLINICAL TRIALS
The study of the mechanisms of cellular aging and cellular immortality,
including telomere biology and telomerase, the study of human pluripotent stem
cells, and the process of nuclear transfer are relatively new areas of research.
Our business is at an early stage of development. We have not yet produced any
products that have progressed to clinical trials and we may never do so. Our
ability to produce products that progress to clinical trials is subject to our
ability to, among other things:
- continue to have success with our research and development efforts;
- select therapeutic compounds for development;
- obtain the required regulatory approvals; and
- manufacture and market resulting products.
If and when potential lead drug compounds or product candidates are
identified through our research programs, they will require significant
preclinical and clinical testing prior to regulatory approval in the United
States and elsewhere. In addition, we will also need to determine whether any of
these potential products can be manufactured in commercial quantities at an
acceptable cost. Our efforts may not result in a product that can be marketed.
Because of the significant scientific, regulatory and commercial milestones that
must be reached for any of our research programs to be successful, any program
may be abandoned, even after significant resources have been expended.
WE HAVE A HISTORY OF OPERATING LOSSES AND ANTICIPATE FUTURE LOSSES; CONTINUED
LOSSES COULD IMPAIR OUR ABILITY TO SUSTAIN OPERATIONS
We have incurred net operating losses every year since our operations began
in 1990. As of September 30, 2000, our accumulated deficit was approximately
$133.9 million. Losses have resulted principally from costs incurred in
connection with our research and development activities and from general and
administrative costs associated with our operations. We expect to incur
additional operating losses over the next several years as our research and
development efforts and preclinical testing activities are expanded.
Substantially all of our revenues to date have been research support payments
under the collaboration agreements with Kyowa Hakko and Pharmacia. The
agreements provide that through 2001, Kyowa Hakko and Pharmacia will provide
additional funding. We may be unsuccessful in entering into any new corporate
collaboration that results in revenues. Even if we are able to obtain new
collaboration arrangements with third parties the revenues generated from these
arrangements will be insufficient to continue or expand our research activities
and otherwise sustain our operations.
We are unable to estimate at this time the level of revenue to be received
from the sale of diagnostic products, and do not currently expect to receive
significant revenues from the sale of research-use-only kits. Our ability to
continue or expand our research activities and otherwise sustain our operations
is dependent on our ability, alone or with others to, among other things,
manufacture and market therapeutic products.
11
<PAGE> 12
We may never receive material revenues from product sales or if we do
receive revenues, such revenues may not be sufficient to continue or expand our
research activities and otherwise sustain our operations.
WE WILL NEED ADDITIONAL CAPITAL TO CONDUCT OUR OPERATIONS AND DEVELOP OUR
PRODUCTS, AND OUR ABILITY TO OBTAIN THE NECESSARY FUNDING IS UNCERTAIN
We will require substantial capital resources in order to conduct our
operations and develop our products. While we estimate that our existing capital
resources, payments under the Kyowa Hakko and Pharmacia collaborative
agreements, interest income and equipment financing arrangements will be
sufficient to fund our current level of operations through December 2002, we
cannot guarantee that this will be the case. The timing and degree of any future
capital requirements will depend on many factors, including:
- the accuracy of the assumptions underlying our estimates for our capital
needs in 2000 and beyond;
- continued scientific progress in our research and development programs;
- the magnitude and scope of our research and development programs;
- our ability to maintain and establish strategic arrangements for
research, development, clinical testing, manufacturing and marketing;
- our progress with preclinical and clinical trials;
- the time and costs involved in obtaining regulatory approvals;
- the costs involved in preparing, filing, prosecuting, maintaining,
defending and enforcing patent claims; and
- the potential for new technologies and products.
We intend to acquire additional funding through strategic collaborations,
public or private equity financings and capital lease transactions. Additional
financing may not be available on acceptable terms, or at all. Additional equity
financings could result in significant dilution to stockholders. Further, in the
event that additional funds are obtained through arrangements with collaborative
partners, these arrangements may require us to relinquish rights to some of our
technologies, product candidates or products that we would otherwise seek to
develop or commercialize ourselves. If sufficient capital is not available, we
may be required to delay, reduce the scope of or eliminate one or more of our
research or development programs, each of which could have a material adverse
effect on our business.
OUR INABILITY TO IDENTIFY AN EFFECTIVE INHIBITOR FOR TELOMERASE MAY PREVENT US
FROM DEVELOPING A VIABLE CANCER TREATMENT PRODUCT, WHICH WOULD ADVERSELY IMPACT
OUR FUTURE BUSINESS PROSPECTS
As a result of our drug discovery efforts to date, we have identified
compounds in laboratory studies that demonstrate potential for inhibiting
telomerase in humans. However, additional development efforts will be required
before we select a lead compound for preclinical development and clinical trials
as a telomerase inhibitor for cancer. We will have to conduct additional
research before we can select a compound and we may never identify a compound
that will enable us to fully develop a commercially viable treatment for cancer.
If and when selected, a lead compound may prove to have undesirable and
unintended side effects or other characteristics affecting its safety or
effectiveness that may prevent or limit its commercial use. In terms of safety,
our discoveries may result in cancer treatment solutions that cause unacceptable
side effects for the human body. Our discoveries may also not be as effective as
is necessary to market a commercially viable product for the treatment of
cancer. As a result, telomerase inhibition may need to be used in conjunction
with other cancer therapies. Accordingly, it may become extremely difficult for
us to proceed with preclinical and clinical development, to obtain regulatory
approval or to market a telomerase inhibitor for the treatment of cancer. If we
abandon our research for cancer treatment for any of these reasons or for other
reasons, our business prospects would be materially and adversely affected.
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IF OUR ACCESS TO NECESSARY TISSUE SAMPLES, INFORMATION OR LICENSED TECHNOLOGIES
IS RESTRICTED, WE WILL NOT BE ABLE TO DEVELOP OUR BUSINESS
To continue the research and development of our therapeutic and diagnostic
products, we need access to normal and diseased human and other tissue samples,
other biological materials and related clinical and other information. We
compete with many other companies for these materials and information. We may
not be able to obtain or maintain access to these materials and information on
acceptable terms, if at all. In addition, government regulation in the United
States and foreign countries could result in restricted access to, or
prohibiting the use of, human and other tissue samples. If we lose access to
sufficient numbers or sources of tissue samples, or if tighter restrictions are
imposed on our use of the information generated from tissue samples, our
business will be materially harmed.
SOME OF OUR COMPETITORS MAY DEVELOP TECHNOLOGIES THAT ARE SUPERIOR TO OR MORE
COST-EFFECTIVE THAN OURS, WHICH MAY IMPACT THE COMMERCIAL VIABILITY OF OUR
TECHNOLOGIES AND WHICH MAY SIGNIFICANTLY DAMAGE OUR ABILITY TO SUSTAIN
OPERATIONS
The pharmaceutical and biotechnology industries are intensely competitive.
We believe that other pharmaceutical and biotechnology companies and research
organizations currently engage in or have in the past engaged in efforts related
to the biological mechanisms of cell aging and cell immortality, including the
study of telomeres, telomerase, human pluripotent stem cells, and nuclear
transfer. In addition, other products and therapies that could compete directly
with the products that we are seeking to develop and market currently exist or
are being developed by pharmaceutical and biopharmaceutical companies and by
academic and other research organizations.
Many companies are also developing alternative therapies to treat cancer
and, in this regard, are competitors of ours. Many of the pharmaceutical
companies developing and marketing these competing products have significantly
greater financial resources and expertise than we do in:
- research and development;
- manufacturing;
- preclinical and clinical testing;
- obtaining regulatory approvals; and
- marketing.
Smaller companies may also prove to be significant competitors, particularly
through collaborative arrangements with large and established companies.
Academic institutions, government agencies and other public and private research
organizations may also conduct research, seek patent protection and establish
collaborative arrangements for research, clinical development and marketing of
products similar to ours. These companies and institutions compete with us in
recruiting and retaining qualified scientific and management personnel as well
as in acquiring technologies complementary to our programs. There is also
competition for access to libraries of compounds to use for screening. Should we
fail to secure and maintain access to sufficiently broad libraries of compounds
for screening potential targets, our business would be materially harmed.
In addition to the above factors, we expect to face competition in the
following areas:
- product efficacy and safety;
- the timing and scope of regulatory consents;
- availability of resources;
- reimbursement coverage;
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- price; and
- patent position, including potentially dominant patent positions of
others.
As a result of the foregoing, our competitors may develop more effective or
more affordable products, or achieve earlier patent protection or product
commercialization than us. Most significantly, competitive products may render
the products that we develop obsolete.
THE ETHICAL, LEGAL AND SOCIAL IMPLICATIONS OF OUR RESEARCH USING PLURIPOTENT
STEM CELLS AND NUCLEAR TRANSFER COULD PREVENT US FROM DEVELOPING OR GAINING
ACCEPTANCE FOR COMMERCIALLY VIABLE PRODUCTS IN THIS AREA
Our programs in regenerative medicine may involve the use of human
pluripotent stem cells that would be derived from human embryonic or fetal
tissue. The use of human pluripotent stem cells gives rise to ethical, legal and
social issues regarding the appropriate use of these cells. In the event that
our research related to human pluripotent stem cells becomes the subject of
adverse commentary or publicity, the market price for our common stock could be
significantly harmed.
Some groups have voiced opposition to our technology and practices. The
concepts of cell regeneration, cell immortality, and genetic cloning have
stimulated significant ethical debates in both the social and political arenas.
We use human pluripotent stem cells derived through a process that uses either
donated embryos that are no longer necessary following a successful in vitro
fertilization procedure or donated fetal material as the starting material.
Further, many research institutions, including some of our scientific
collaborators, have adopted policies regarding the ethical use of human
embryonic and fetal tissue. These policies may have the effect of limiting the
scope of research conducted using human pluripotent stem cells, resulting in
reduced scientific progress. In addition, the United States government and its
agencies currently do not fund research which involves the use of human
embryonic tissue and may in the future regulate or otherwise restrict or
prohibit the public or private use of human embryonic or fetal tissue. Our
inability to conduct research using human pluripotent stem cells due to such
factors as government regulation or otherwise could have a material adverse
effect on us. Finally we acquired Roslin Bio-Med to gain the rights to nuclear
transfer technology. The Roslin Institute produced Dolly the sheep in 1997 --
the first mammal cloned from an adult cell in history. Geron acquired exclusive
rights to this technology for all areas except human cloning and certain other
limited applications. Although we will not be pursuing human reproductive
cloning, all of the techniques we continue to develop for use in agricultural
cloning and our nuclear transfer work for organ regeneration are directly
applicable to human cloning should some other group in the future decide to
pursue this avenue. Negative associations with any or all of these practices
could:
- harm our ability to establish critical partnerships and collaborations;
- prompt government regulation of our technologies;
- cause delays in our research and development; and
- cause a decrease in the price of our stock.
Also, if regulatory bodies were to ban nuclear transfer processes, our
research using nuclear transfer technology could be cancelled and our business
could be significantly harmed.
PUBLIC ATTITUDES TOWARDS GENE THERAPY MAY NEGATIVELY AFFECT REGULATORY APPROVAL
OR PUBLIC PERCEPTION OF OUR PRODUCTS
The commercial success of our product candidates will depend in part on
public acceptance of the use of gene therapies for the prevention or treatment
of human diseases. Public attitudes may be influenced by claims that gene
therapy is unsafe, and gene therapy may not gain the acceptance of the public or
the medical community. Adverse events in the field of gene therapy that have
occurred or may occur in the future also may result in greater
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governmental regulation of our product candidates and potential regulatory
delays relating to the testing or approval of our product candidates.
Negative public reaction to gene therapy in the development of certain of
our therapies could result in greater government regulation, stricter clinical
trial oversight, commercial product labeling requirements of gene therapies and
could cause a decrease in the demand for any products that we may develop. The
subject of genetically modified organisms has received negative publicity in
Europe, which has aroused public debate. The adverse publicity in Europe could
lead to greater regulation and trade restrictions on imports of genetically
altered products. If similar adverse public reaction occurs in the United
States, genetic research and resultant products could be subject to greater
domestic regulation and could cause a decrease in the demand for our potential
products.
EVEN IF WE REACH CLINICAL TRIALS WITH ONE OR MORE OF OUR PRODUCTS, THEY MAY NOT
RESULT IN ANY COMMERCIALLY VIABLE PRODUCTS
We do not expect to generate any significant revenues from product sales for
a period of several years. We may never generate revenues from product sales or
become profitable because of a variety of risks inherent in our business,
including risks that:
- clinical trials may not demonstrate the safety and efficacy of our
products;
- completion of clinical trials may be delayed, or costs of clinical
trials may exceed anticipated amounts;
- we may not be able to obtain regulatory approval of our products, or may
experience delays in obtaining such approvals;
- we may not be able to manufacture our drugs economically on a commercial
scale;
- we and our licensees may not be able to successfully market our
products;
- physicians may not prescribe our products, or patients may not accept
such products;
- others may have proprietary rights which prevent us from marketing our
products; and
- competitors may sell similar, superior or lower-cost products.
IMPAIRMENT OF OUR INTELLECTUAL PROPERTY RIGHTS MAY LIMIT OUR ABILITY TO PURSUE
THE DEVELOPMENT OF OUR INTENDED TECHNOLOGIES AND PRODUCTS
Our success will depend on our ability to obtain and enforce patents for our
discoveries; however, legal principles for biotechnology patents in the United
States and in other countries are not firmly established and the extent to which
we will be able to obtain patent coverage is uncertain.
Protection of our proprietary compounds and technology is critically
important to our business. Our success will depend in part on our ability to
obtain and enforce our patents and maintain trade secrets, both in the United
States and in other countries. The patent positions of pharmaceutical and
biopharmaceutical companies, including ours, are highly uncertain and involve
complex legal and technical questions for which legal principles are not firmly
established. We may not continue to develop products or processes that are
patentable, and it is possible that patents will not issue from any of our
pending applications, including allowed patent applications. Further, our
current patents, or patents that issue on pending applications, may be
challenged, invalidated or circumvented, and our current or future patent rights
may not provide proprietary protection or competitive advantages to us. In the
event that we are unsuccessful in obtaining and enforcing patents, our business
would be negatively impacted.
Patent applications in the United States are maintained in secrecy until
patents issue. Publication of discoveries in the scientific or patent literature
tends to lag behind actual discoveries by at least several months and sometimes
several years. Therefore, the persons or entities that we or our licensors name
as inventors in our patents and patent applications may not have been the first
to invent the inventions disclosed in the patent applications or patents, or
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file patent applications for these inventions. As a result, we may not be able
to obtain patents from discoveries that we otherwise would consider patentable
and that we consider to be extremely significant to our future success.
Patent prosecution or litigation may also be necessary to obtain patents,
enforce any patents issued or licensed to us or to determine the scope and
validity of our proprietary rights or the proprietary rights of another. We may
not be successful in any patent prosecution or litigation. Patent prosecution
and litigation in general can be extremely expensive and time consuming, even if
the outcome is favorable to us. An adverse outcome in a patent prosecution,
litigation or any other proceeding in a court or patent office could subject our
business to significant liabilities to other parties, require disputed rights to
be licensed from other parties or require us to cease using the disputed
technology.
WE MAY BE SUBJECT TO INFRINGEMENT CLAIMS THAT ARE COSTLY TO DEFEND, AND WHICH
MAY LIMIT OUR ABILITY TO USE DISPUTED TECHNOLOGIES AND PREVENT US FROM PURSUING
RESEARCH AND DEVELOPMENT OR COMMERCIALIZATION OF POTENTIAL PRODUCTS
Our commercial success depends significantly on our ability to operate
without infringing patents and proprietary rights of others. Our technologies
may infringe the patents or proprietary rights of others. In addition, we may
become aware of discoveries and technology controlled by third parties that are
advantageous to our research programs. In the event our technologies do infringe
on the rights of others or we require the use of discoveries and technology
controlled by third parties, we may be prevented from pursuing research,
development or commercialization of potential products or may be required to
obtain licenses to these patents or other proprietary rights or develop or
obtain alternative technologies. We may not be able to obtain alternative
technologies or any required license on commercially favorable terms, if at all.
If we do not obtain the necessary licenses or alternative technologies, we may
be delayed or prevented from pursuing the development of some potential
products. Our breach of an existing license or failure to obtain alternative
technologies or a license to any technology that we may require to develop or
commercialize our products will significantly and negatively affect our
business.
Patent law relating to the scope and enforceability of claims in the
technology fields in which we operate is still evolving, and the degree of
future protection for any of our proprietary rights is highly uncertain. In this
regard, patents may not issue from any of our patent applications or our
existing patents may be found to be invalid by a court. In addition, our success
may become dependent on our ability to obtain licenses for using the patented
discoveries of others. We are aware of patent applications and patents that have
been filed by others with respect to our technologies and we may have to obtain
licenses to use these technologies. Moreover, other patent applications may be
granted priority over patent applications that we or any of our licensors have
filed. Furthermore, others may independently develop similar or alternative
technologies, duplicate any of our technologies or design around the patented
technologies we have developed. In the event that we are unable to acquire
licenses to critical technologies that we cannot patent ourselves, we may be
required to expend significant time and resources to develop alternative
technology, and we may not be successful in this regard. If we cannot acquire or
develop the necessary technology, we may be prevented from pursuing some of our
business objectives. Moreover, one or more of our competitors could acquire or
license the necessary technology. Any of these events could materially harm our
business.
We may be subject to claims or litigation as a result of entering into
license agreements with third parties or infringing on the patents of others.
For example, we signed a licensing and sponsored research agreement relating to
our research relating to pluripotent stem cells with The Johns Hopkins
University School of Medicine in August 1997. Prior to signing this agreement,
we had been informed by a third party that we and Johns Hopkins University would
violate the rights of that third party and another academic institution in doing
so. After a review of the correspondence with the third party and Johns Hopkins
University, as well as related documents, including an issued United States
patent, we believe that both we and Johns Hopkins University have substantial
defenses to any claims that might be asserted by the third party. We have agreed
to provide indemnification to Johns Hopkins University relating to potential
claims. However, any litigation resulting from this matter may divert
significant resources, both financial and otherwise, from our research programs.
We may be unsuccessful if the matter is litigated. If the outcome of litigation
is unfavorable to us, our business could be materially and adversely affected.
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MUCH OF THE INFORMATION AND KNOW-HOW THAT IS CRITICAL TO OUR BUSINESS IS NOT
PATENTABLE AND WE MAY NOT BE ABLE TO PREVENT OTHERS FROM OBTAINING THIS
INFORMATION AND ESTABLISHING COMPETITIVE ENTERPRISES
We rely extensively on trade secrets to protect our proprietary technology,
especially in circumstances in which patent protection is not believed to be
appropriate or obtainable. We attempt to protect our proprietary technology in
part by confidentiality agreements with our employees, consultants,
collaborators and contractors. We cannot assure you that these agreements will
not be breached, that we would have adequate remedies for any breach, or that
our trade secrets will not otherwise become known or be independently discovered
by competitors, any of which would harm our business significantly.
SOME OF OUR PATENTS AND PATENT APPLICATIONS RELATING TO TELOMERASE MAY BE
SUBJECT TO CHALLENGE AND THE UNITED STATES PATENT AND TRADEMARK OFFICE HAVE
SUSPENDED PROSECUTION OF TWO OF OUR PATENT APPLICATIONS. THESE MATTERS COULD
JEOPARDIZE OUR ABILITY TO COMMERCIALIZE TELOMERASE PRODUCTS
Our patents and patent applications relating to telomerase are critically
important to our development and commercialization of therapeutic and diagnostic
products for applications in oncology and regenerative medicine. Patent
applications covering cloned human telomerase and its uses are pending in
several countries and patent prosecution is ongoing. Although we have been
granted patents in the United Kingdom and Switzerland, we have received
rejections in certain other countries and we may be unable to overcome those
rejections or any others that we may encounter.
The United States Patent and Trademark Office has advised us that the claims
of two of our United States patent applications relating to cloned human
telomerase are allowable, but that further prosecution of these applications has
been suspended pending a determination of whether the initiation of an
interference proceeding is appropriate to ascertain who made the claimed
inventions first. We believe this event indicates, among other things, that the
Patent and Trademark Office has established that at least one other entity has
filed a United States patent application also claiming cloned human telomerase
or its uses. As a result, one or more interferences could be declared, in which
case the United States Patent and Trademark Office would undertake a multi-year
process to decide who made the underlying invention or inventions first. If an
interference is declared one result is that another entity could be awarded the
patents.
Based on the information presently available to us, we believe that we
cloned human telomerase protein prior to any other entity. However, we do not
yet have access to other entities' invention records or their patent application
files, which are maintained in secrecy by the United States Patent and Trademark
Office. We, therefore, do not have access to all pertinent information for this
analysis. Moreover, as interferences are typically complex, highly contested
legal proceedings subject to appeal, accurately predicting an outcome is not
possible, particularly at this stage. An interference would divert significant
resources, both financial and otherwise, from our research programs.
If interferences or other challenges to our patents are not resolved
promptly in our favor, our existing business relationships could be jeopardized
and we could be delayed or prevented from entering into new collaborations or
from commercializing telomerase products, which could materially harm our
business.
WE DEPEND ON OUR COLLABORATORS TO HELP US COMPLETE THE PROCESS OF DEVELOPING AND
TESTING OUR PRODUCTS AND OUR ABILITY TO DEVELOP AND COMMERCIALIZE PRODUCTS MAY
BE IMPAIRED OR DELAYED IF OUR COLLABORATIVE PARTNERSHIPS ARE UNSUCCESSFUL
Our strategy for the development, clinical testing and commercialization of
our products requires entering into collaborations with corporate partners,
licensors, licensees and others. We are dependent upon the subsequent success of
these other parties in performing their respective responsibilities and the
continued cooperation of our partners. Our collaborators may not cooperate with
us or perform their obligations under our agreements with them. We cannot
control the amount and timing of our collaborators' resources that will be
devoted to our research activities related to our collaborative agreements with
them. Our collaborators may choose to pursue existing or alternative
technologies in preference to those being developed in collaboration with us.
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Our ability to successfully develop and commercialize telomerase inhibition
products depends on our corporate alliances with Kyowa Hakko and Pharmacia, and
our ability to successfully develop and commercialize telomerase diagnostic
products depends on our corporate alliance with Roche Diagnostics. Under our
collaborative agreements with these collaborators, we rely significantly on
them, among other activities, to:
- design and conduct advanced clinical trials in the event that we reach
clinical trials;
- fund research and development activities with us;
- pay us fees upon the achievement of milestones; and
- co-promote with us any commercial products that result from our
collaborations.
The development and commercialization of products from these collaborations
will be delayed if Kyowa Hakko, Pharmacia or Roche Diagnostics fail to conduct
these collaborative activities in a timely manner or at all. In addition, Kyowa
Hakko, Pharmacia or Roche Diagnostics could terminate these agreements and we
may not receive any development or milestone payments. If we do not receive
research funds or achieve milestones set forth in the agreements, or if Kyowa
Hakko, Pharmacia or Roche Diagnostics or any of our future collaborators breach
or terminate collaborative agreements with us, our business may be materially
harmed.
OUR RELIANCE ON THE RESEARCH ACTIVITIES OF OUR NON-EMPLOYEE SCIENTIFIC ADVISORS
AND OTHER RESEARCH INSTITUTIONS, WHOSE ACTIVITIES ARE NOT WHOLLY WITHIN OUR
CONTROL, MAY LEAD TO DELAYS IN TECHNOLOGICAL DEVELOPMENTS
We rely extensively and have relationships with scientific advisors at
academic and other institutions, some of whom conduct research at our request.
These scientific advisors are not our employees and may have commitments to, or
consulting or advisory contracts with, other entities that may limit their
availability to us. We have limited control over the activities of these
advisors and, except as otherwise required by our collaboration and consulting
agreements, can expect only limited amounts of their time to be dedicated to our
activities. If our scientific advisors are unable or refuse to contribute to the
development of any of our potential discoveries, our ability to generate
significant advances in our technologies will be significantly harmed.
In addition, we have formed research collaborations with many academic and
other research institutions throughout the world, including the Roslin
Institute. These research facilities may have commitments to other commercial
and non-commercial entities. We have limited control over the operations of
these laboratories and can expect only limited amounts of time to be dedicated
to our research goals.
THE LOSS OF KEY PERSONNEL COULD SLOW OUR ABILITY TO CONDUCT RESEARCH AND DEVELOP
PRODUCTS
Our future success depends to a significant extent on the skills, experience
and efforts of our executive officers and key members of our scientific staff.
Competition for personnel is intense and we may be unable to retain our current
personnel or attract or assimilate other highly qualified management and
scientific personnel in the future. The loss of any or all of these individuals
could harm our business and might significantly delay or prevent the achievement
of research, development or business objectives.
We also rely on consultants and advisors, including the members of our
Scientific Advisory Board, who assist us in formulating our research and
development strategy. We face intense competition for qualified individuals from
numerous pharmaceutical, biopharmaceutical and biotechnology companies, as well
as academic and other research institutions. We may not be able to attract and
retain these individuals on acceptable terms. Failure to do so would materially
harm our business.
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WE MAY NOT BE ABLE TO OBTAIN OR MAINTAIN SUFFICIENT INSURANCE ON COMMERCIALLY
REASONABLE TERMS OR WITH ADEQUATE COVERAGE AGAINST POTENTIAL LIABILITIES IN
ORDER TO PROTECT OURSELVES AGAINST PRODUCT LIABILITY CLAIMS
Our business exposes us to potential product liability risks that are
inherent in the testing, manufacturing and marketing of human therapeutic and
diagnostic products. We may become subject to product liability claims if the
use of our products is alleged to have injured subjects or patients. This risk
exists for products tested in human clinical trials as well as products that are
sold commercially. We currently have no clinical trial liability insurance and
we may not be able to obtain and maintain this type of insurance for any of our
clinical trials. In addition, product liability insurance is becoming
increasingly expensive. As a result, we may not be able to obtain or maintain
product liability insurance in the future on acceptable terms or with adequate
coverage against potential liabilities which could have a material adverse
effect on us.
BECAUSE WE OR OUR COLLABORATORS MUST OBTAIN REGULATORY APPROVAL TO MARKET OUR
PRODUCTS IN THE UNITED STATES AND FOREIGN JURISDICTIONS, WE CANNOT PREDICT
WHETHER OR WHEN WE WILL BE PERMITTED TO COMMERCIALIZE OUR PRODUCTS
Federal, state and local governments in the United States and governments in
other countries have significant regulations in place that govern many of our
activities. The preclinical testing and clinical trials of the products that we
develop ourselves or that our collaborators develop are subject to intense
government regulation and may prevent us from creating commercially viable
products from our discoveries. In addition, the sale by us or our collaborators
of any commercially viable product will be subject to government regulation from
several standpoints, including the processes of:
- manufacturing;
- advertising and promoting;
- selling and marketing;
- labeling; and
- distributing.
We may not obtain regulatory approval for the products we develop and our
collaborators may not obtain regulatory approval for the products they develop.
Regulatory approval may also entail limitations on the indicated uses of a
proposed product. Because certain of our product candidates involve the
application of new technologies and may be based upon a new therapeutic
approach, such products may be subject to substantial additional review by
various government regulatory authorities, and, as a result, we may obtain
regulatory approvals for such products more slowly than for products based upon
more conventional technologies. If, and to the extent that, we are unable to
comply with these regulations, our ability to earn revenues will be materially
and negatively impacted.
The regulatory process, particularly for biopharmaceutical products like
ours, is uncertain, can take many years and requires the expenditure of
substantial resources. Any product that we or our collaborative partners develop
must receive all relevant regulatory agency approvals or clearances, if any,
before it may be marketed in the United States or other countries. Generally,
biological drugs and non-biological drugs are regulated more rigorously than
medical devices. In particular, human pharmaceutical therapeutic products,
including a telomerase inhibitor, are subject to rigorous preclinical and
clinical testing and other requirements by the Food and Drug Administration in
the United States and similar health authorities in foreign countries. The
regulatory process, which includes extensive preclinical testing and clinical
trials of each product in order to establish its safety and efficacy, is
uncertain, can take many years and requires the expenditure of substantial
resources.
Data obtained from preclinical and clinical activities is susceptible to
varying interpretations that could delay, limit or prevent regulatory agency
approvals or clearances. In addition, delays or rejections may be encountered
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based upon changes in regulatory agency policy during the period of product
development and/or the period of review of any application for regulatory agency
approval or clearance for a product. Delays in obtaining regulatory agency
approvals or clearances could:
- significantly harm the marketing of any products that we or our
collaborators develop;
- impose costly procedures upon our activities or the activities of our
collaborators;
- diminish any competitive advantages that we or our collaborative
partners may attain; or
- adversely affect our ability to receive royalties and generate revenues
and profits.
Even if we commit the time and resources, both economic and otherwise, that
are necessary, the required regulatory agency approvals or clearances may not be
obtained for any products developed by or in collaboration with us. If
regulatory agency approval or clearance for a new product is obtained, this
approval or clearance may entail limitations on the indicated uses for which it
may be marketed that could limit the potential commercial use of the product.
Furthermore, approved products and their manufacturers are subject to continual
review, and discovery of previously unknown problems with a product or its
manufacturer may result in restrictions on the product or manufacturer,
including withdrawal of the product from the market. Failure to comply with
regulatory requirements can result in severe civil and criminal penalties,
including but not limited to:
- recall or seizure of products;
- injunction against manufacture, distribution, sales and marketing; and
- criminal prosecution.
The imposition of any of these penalties could significantly impair our
business, financial condition and results of operations.
TO BE SUCCESSFUL, OUR PRODUCTS MUST BE ACCEPTED BY THE HEALTH CARE COMMUNITY,
WHICH CAN BE VERY SLOW TO ADOPT OR UNRECEPTIVE TO NEW TECHNOLOGIES AND PRODUCTS
Our products and those developed by our collaborative partners, if approved
for marketing, may not achieve market acceptance since physicians, patients or
the medical community in general may decide to not accept and utilize these
products. The products that we are attempting to develop may represent
substantial departures from established treatment methods and will compete with
a number of traditional drugs and therapies manufactured and marketed by major
pharmaceutical companies. The degree of market acceptance of any of our
developed products will depend on a number of factors, including:
- our establishment and demonstration to the medical community of the
clinical efficacy and safety of our product candidates;
- our ability to create products that are superior to alternatives
currently on the market;
- our ability to establish in the medical community the potential
advantage of our treatments over alternative treatment methods; and
- reimbursement policies of government and third party-payors.
If the health care community does not accept our products for any of the
foregoing reasons, or for any other reason, our business would be materially
harmed.
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THE REIMBURSEMENT STATUS OF NEWLY-APPROVED HEALTH CARE PRODUCTS IS UNCERTAIN AND
FAILURE TO OBTAIN REIMBURSEMENT APPROVAL COULD SEVERELY LIMIT THE USE OF OUR
PRODUCTS
Significant uncertainty exists as to the reimbursement status of newly
approved health care products, including pharmaceuticals. If we fail to generate
adequate third party reimbursement for the users of our potential products and
treatments, then we may be unable to maintain price levels sufficient to realize
an appropriate return on our investment in product development.
In both domestic and foreign markets, sales of our products, if any, will
depend in part on the availability of reimbursement from third-party payors,
examples of which include:
- government health administration authorities;
- private health insurers;
- health maintenance organizations; and
- pharmacy benefit management companies.
Both federal and state governments in the United States and foreign
governments continue to propose and pass legislation designed to contain or
reduce the cost of health care through various means. Legislation and
regulations affecting the pricing of pharmaceuticals and other medical products
may change or be adopted before any of our potential products are approved for
marketing. Cost control initiatives could decrease the price that we receive for
any product we may develop in the future. In addition, third-party payors are
increasingly challenging the price and cost-effectiveness of medical products
and services and any of our potential products and treatments may ultimately not
be considered cost effective by these third parties. Any of these initiatives or
developments could materially harm our business.
OUR ACTIVITIES INVOLVE HAZARDOUS MATERIALS AND IMPROPER HANDLING OF THESE
MATERIALS BY OUR EMPLOYEES OR AGENTS COULD EXPOSE US TO SIGNIFICANT LEGAL AND
FINANCIAL PENALTIES
Our research and development activities involve the controlled use of
hazardous materials, chemicals and various radioactive compounds. As a
consequence, we are subject to numerous environmental and safety laws and
regulations, including those governing laboratory procedures, exposure to
blood-borne pathogens and the handling of biohazardous materials. We may be
required to incur significant costs to comply with current or future
environmental laws and regulations and may be adversely affected by the cost of
compliance with these laws and regulations.
Although we believe that our safety procedures for using, handling, storing
and disposing of hazardous materials comply with the standards prescribed by
state and federal regulations, the risk of accidental contamination or injury
from these materials cannot be eliminated. In the event of such an accident,
state or federal authorities could curtail our use of these materials and we
could be liable for any civil damages that result, the cost of which could be
substantial. Further, any failure by us to control the use, disposal, removal or
storage of, or to adequately restrict the discharge of, or assist in the cleanup
of, hazardous chemicals or hazardous, infectious or toxic substances could
subject us to significant liabilities, including joint and several liability
under certain statutes, and any liability could exceed our resources and could
have a material adverse effect on our business, financial condition and results
of operations. Additionally, an accident could damage our research and
manufacturing facilities and operations.
Additional federal, state and local laws and regulations affecting us may be
adopted in the future. We may incur substantial costs to comply with and
substantial fines or penalties if we violate any of these laws or regulations.
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OUR STOCK PRICE HAS HISTORICALLY BEEN VERY VOLATILE
Stock prices and trading volumes for many biopharmaceutical companies
fluctuate widely for a number of reasons, including some reasons which may be
unrelated to their businesses or results of operations such as media coverage,
legislation and regulatory measures and the activities of various protest groups
or organizations. This market volatility, as well as general domestic or
international economic, market and political conditions, could materially and
adversely affect the market price of our common stock and your return on your
investment.
Historically, our stock price has been extremely volatile. Between January
1998 and September 30, 2000, our stock has traded as high as $75.88 per share
and as low as $3.50 per share. The significant market price fluctuations of our
common stock are due to a variety of factors, including:
- depth of the market for the common stock;
- the experimental nature of our prospective products;
- fluctuations in our operating results;
- market conditions relating to the biopharmaceutical and pharmaceutical
industries;
- any announcements of technological innovations, new commercial products
or clinical progress or lack thereof by us, our collaborative partners
or our competitors; or
- announcements concerning regulatory developments, developments with
respect to proprietary rights and our collaborations.
In addition, the stock market is subject to other factors outside our
control that can cause extreme price and volume fluctuations. Securities class
action litigation has often been brought against companies, including many
biotechnology companies, which then experience volatility in the market price of
their securities. Litigation brought against us could result in substantial
costs and a diversion of management's attention and resources, which could
adversely affect our business.
THE SALE OF A SUBSTANTIAL NUMBER OF SHARES, INCLUDING SHARES THAT WILL BECOME
ELIGIBLE FOR SALE IN THE NEAR FUTURE, MAY ADVERSELY AFFECT THE MARKET PRICE FOR
OUR COMMON STOCK
Sales of substantial number of shares of our common stock in the public
market could significantly and negatively affect the market price for our common
stock. As of September 30, 2000, we had approximately 21,635,347 shares of
common stock outstanding. Of these shares, approximately 10,284,534 shares were
issued (including shares issuable upon conversion or exercise of convertible
notes or warrants) since December 1998 pursuant to private placements. Of these
shares, approximately 9,423,463 shares have been registered pursuant to shelf
registration statements and therefore may be resold (if not sold prior to the
date hereof) in the public market and approximately 861,071 of the remaining
shares may be resold pursuant to Rule 144 into the public markets as early as
March 9, 2002 upon the expiration of a lockup agreement with us.
OUR UNDESIGNATED PREFERRED STOCK MAY INHIBIT POTENTIAL ACQUISITION BIDS; THIS
MAY ADVERSELY AFFECT THE MARKET PRICE FOR OUR COMMON STOCK AND THE VOTING RIGHTS
OF THE HOLDERS OF COMMON STOCK
Our certificate of incorporation provides our Board of Directors with the
authority to issue up to 3,000,000 shares of undesignated preferred stock and to
determine the rights, preferences, privileges and restrictions of these shares
without further vote or action by the stockholders. As of the date of this Form
10-Q, the Board of Directors still has authority to designate and issue up to
3,000,000 shares of preferred stock. The rights of the holders of common stock
will be subject to, and may be adversely affected by, the rights of the holders
of any preferred stock that may be issued in the future. The issuance of shares
of preferred stock may delay or prevent a change in control
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transaction without further action by our stockholders. As a result, the market
price of our common stock may be adversely affected. The issuance of preferred
stock may also result in the loss of voting control by others.
PROVISIONS IN OUR CHARTER AND BYLAWS, AND PROVISIONS OF DELAWARE LAW, MAY
INHIBIT POTENTIAL ACQUISITION BIDS FOR US, WHICH MAY PREVENT HOLDERS OF OUR
COMMON STOCK FROM BENEFITING FROM WHAT THEY BELIEVE MAY BE THE POSITIVE ASPECTS
OF ACQUISITIONS AND TAKEOVERS
In addition to the undesignated preferred stock, provisions of our charter
documents and bylaws may make it substantially more difficult for a third party
to acquire control of us and may prevent changes in our management, including
provisions that:
- prevent stockholders from taking actions by written consent;
- divide the Board of Directors into separate classes with terms of office
that are structured to prevent all of the directors from being elected
in any one year; and
- set forth procedures for nominating directors and submitting proposals
for consideration at stockholders' meetings.
Provisions of Delaware law may also inhibit potential acquisition bids for
us or prevent us from engaging in business combinations.
Either collectively or individually, these provisions may prevent holders of
our common stock from benefiting from what they may believe are the positive
aspects of acquisitions and takeovers, including the potential realization of a
higher rate of return on their investment from these types of transactions.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risk related to changes in interest rates and
foreign currency exchange rates. We do not use derivative financial instruments
for speculative or trading purposes.
Interest Rate Sensitivity. The fair value of our available for sale
securities at September 30, 2000 was $94.5 million. These investments include
$53.0 million of cash equivalents which are due in less than 90 days, $1.0
million of short-term investments which are due in less than one year and $40.5
million in long-term investments which are due in one to two years. Our
investment policy is to manage our marketable securities portfolio to preserve
principal and liquidity while maximizing the return on the investment portfolio
through the full investment of available funds. We diversify the marketable
securities portfolio by investing in multiple types of investment grade
securities. We primarily invest our marketable securities portfolio in
short-term securities with at least an investment grade rating to minimize
interest rate and credit risk as well as to provide for an immediate source of
funds. Although changes in interest rates may affect the fair value of the
marketable securities portfolio and cause unrealized gains or losses, such gains
or losses would not be realized unless the investments are sold. Due to the
nature of our investments, which are primarily corporate and municipal notes and
money market funds, we have concluded that there is no material market risk
exposure.
Foreign Currency Exchange Risk. Because we translate foreign currencies into
United States dollars for reporting purposes, currency fluctuations can have an
impact, though generally immaterial, on our results. We believe that our
exposure to currency exchange fluctuation risk is insignificant primarily
because our international subsidiary satisfies its financial obligations almost
exclusively in its local currencies. For the nine months ended September 30,
2000, there was an immaterial currency exchange impact from our intercompany
transactions. However, the financial obligations of Geron to the Roslin
Institute over the next five years are stated in British pounds sterling. This
obligation may become more expensive for us if the United States dollar becomes
weaker against the British pounds sterling. As of September 30, 2000, we did not
engage in foreign currency hedging activities.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
27.1 Financial Data Schedule
(b) REPORTS ON FORM 8-K
(i) The Company filed a report on Form 8-K dated September 26, 2000
announcing that it had entered into a common stock purchase agreement
for the sale of up to an aggregate of $50.0 million of the Company's
Common Stock.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
GERON CORPORATION
By: /s/ DAVID L. GREENWOOD
--------------------------------
David L. Greenwood
Senior Vice President and
Chief Financial Officer
(Duly Authorized Signatory)
Date: November 8, 2000
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EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
27.1 Financial Data Schedule
</TABLE>
25
