Geron's Blood Cancer Candidate Creates Buying Opportunity, Needham Says In Upgrade

Geron Corporation GERN announced in September that Johnson & Johnson JNJ's Janssen unit opted to terminate a collaboration and licensing agreement between the companies for imetelstat, the former's myelofibrosis treatment candidate.

In reaction to the development, Geron stock slumped about 63 percent Sept. 27.

A Needham analyst sees the return of imetelstat as creating a buying opportunity in Geron.

The Analyst

Analyst Chad Messer upgraded Geron from Hold to Buy and introduced a $3 price target.

The Thesis

The J&J unit's decision to discontinue the tie-up with Geron came after the Phase 2 IMbark and IMerge studies in myelofibrosis, or MF, and myelodysplastic syndrome, or MDS, both of which established efficacy, Messer said in the Tuesday upgrade note.

Patients with low-risk MDS are an underserved market, as they are dependent on blood transfusions; high transfusion rates lead to poor outcomes in patients due to iron overload; and involve a higher financial burden, the analyst said. 

Today's treatments include erythroid stimulating agents, which are effective only in the early stages of disease, he said. 

In comparing Acceleron Pharma Inc XLRN's luspatercept and imetelstat, Messer said the latter will have superior efficacy in patients with a higher transfusion burden, thereby splitting the market by disease severity.

"We believe it is also possible that imetelstat will be used in patients progressing on luspatercept." 

Geron expects to initiate a Phase 3 study in low-risk MDS by midyear, with a data readout expected in 2022, the analyst said. 

Imetelstat has also demonstrated efficacy in MF patients failing frontline treatment with Jakafi, Messer said. The analyst expects an update on the path forward for MF in the third quarter of 2019.

"We believe the negative optics of a big pharma passing on imetelstat, and not a fundamental issue with the drug itself, have created a buying opportunity for GERN shares." 

The Price Action

Geron shares were trading higher by 7.07 percent at $1.97 at the time of publication Tuesday. 

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