PropThink: Stem Cell Divestiture May Benefit Geron Shareholders More than the Company

By Jake King

Geron Corp (GERN) may have finally found a buyer for its suspended stem cell program. The company has been searching since November of 2011 when Geron halted the projects to focus on the development of Imetelstat and GRN-1005, both cancer treatments. BioTime (BTX) has offered to combine some of its own stem cell assets with those of Geron - plus stock in two BTX subsidiaries - in a new, publicly traded company, BioTime Acquisition Corp (BAC). Through the transaction, GERN shareholders will be given a 21.4% stake in the new company (aggregate); subscription rights to purchase additional stock in BAC, potentially increasing aggregate ownership to 45%; $13M (current value) in BTX warrants; and additional BAC warrants as part of the subscription rights. Already the market likes the looks of the deal, and GERN is up 7% in the early afternoon. Through the transaction, GERN shareholders have the opportunity to continue investing in GERN`s human embryonic stem cell treatments, which many are calling the future of biotech. Divesting of the stem cell program has been a high priority for GERN, and management expected it to generate capital for the company; the all-stock transaction offered by BioTime, however, will do little for Geron`s balance sheet.

Details of the offer are available in an open letter to Geron shareholders, and encourages those interested in the transaction to contact Geron`s board of directors. In early September, the company announced the discontinuation of Imetelstat`s clinical development as a treatment for metastatic HER2-negative breast cancer, and reported that the company will probably not continue the drug`s development as a treatment for non small-cell lung cancer (NSCLC). The stock fell from $2.90 to $1.28 as imetelstat`s potential indications were cut in half (pending a final NSCLC decision). The drug is still in development for multiple myeloma and essential thrombocythemia; both Phase II trials should report top-line data in the fourth quarter.

Judging by the market`s reaction today, GERN investors are interested in the deal, but the transaction will require approval by the board of directors. With such dismal performance recently, the board may be quick to jump on any opportunity to keep investors happy. If the board passes on the opportunity, expect shares to weaken until imetelstat data sometime this quarter. GERN is down 33% in the last 12 months.

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PropThink: Stem Cell Divestiture May Benefit Geron Shareholders More than the Company