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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
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
GERON CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 75-2287752
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
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
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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of March 8, 1999, there were 13,666,182 shares of Common Stock
outstanding. The aggregate market value of voting stock held by non-affiliates
of the registrant was approximately $135,583,000 based upon the closing price of
the Common Stock on March 8, 1999 on The Nasdaq National Market. Shares of
Common Stock held by each officer, director and holder of five percent or more
of the outstanding Common Stock have been excluded in that such persons may be
deemed to be affiliates. This determination of affiliate status is not
necessarily a conclusive determination for other purposes.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement of the Registrant for the 1999 Annual
Meeting of Stockholders to be filed with the Securities and Exchange Commission
not later than 120 days after the close of the Registrant's fiscal year are
incorporated into Part III of this Form 10-K.
Except for the historical information contained herein, the matters
discussed in this report are forward-looking statements that involve certain
risks and uncertainties that could cause actual results to differ materially
from those in the forward-looking statements. Potential risks and uncertainties
include, without limitation, those mentioned in this report and in particular,
the factors described below in Part II, Item 7, under the heading "Factors That
May Affect Future Results of Operations."
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PART I
ITEM 1. BUSINESS
Geron Corporation ("Geron" or the "Company") is a biopharmaceutical company
focused on discovering and developing therapeutic and diagnostic products to
treat cancer and other age-related degenerative diseases. The Company is
uniquely positioned to pursue this goal given its breakthrough discoveries
surrounding telomeres, telomerase and embryonic stem cells. Telomeres are
structures at the ends of chromosomes that the Company has shown act as a
molecular "clock" of cellular aging. Telomerase is an enzyme which appears to
stop the "clock" and confers cellular immortality. By manipulating telomere
length through telomerase regulation, the Company aims to kill cancer cells
where telomerase is abnormally turned on. Conversely, the Company seeks to
increase the lifespan of normal cells, where telomerase is normally turned off,
to treat age-related diseases such as atherosclerosis, macular degeneration and
osteoporosis. Embryonic stem cells are telomerase positive and therefore have an
unlimited ability to divide. They have the capability to turn into any and all
cell types and tissues in the body. The Company aims to use human embryonic stem
cells as a source of replacement cells for transplantation medicine to treat
patients suffering from congestive heart failure, Parkinson's Disease, diabetes,
osteoarthritis, osteoporosis, cancers, skin disorders and other age-related
conditions.
The Company and its collaborators have established that the fundamental
aspects of the telomere clock and the ability of telomerase to impart cellular
immortality in normal body cells and embryonic stem cells are important to many
age-related degenerative diseases and conditions, including cancer. Thus, the
Company believes it has a broadly applicable proprietary platform for
discovering and developing novel therapeutics and diagnostics as well as cell
and gene therapy approaches for such diseases. Geron intends to build upon its
leadership position in the field of telomere biology, telomerase regulation and
embryonic stem cells by continuing to selectively collaborate with
pharmaceutical companies and research institutions and protect its leadership
position with an extensive patent portfolio. The Company owns 23 issued United
States patents and over 46 United States patent applications and has licensed 20
issued United States patents and over 40 United States patent applications.
Cancer, age-related degenerative diseases and other conditions including
skin aging, atherosclerosis, osteoporosis, macular degeneration, congestive
heart failure, diabetes, Parkinson's and Alzheimer's diseases are difficult and
costly to diagnose and treat. In many cases, entirely effective means of
diagnosing and treating these diseases and conditions are not currently
available. Further, with the progressive "graying" of the population, the
incidence of cancer and other age-related diseases and conditions is expected to
increase. This will place a steadily growing financial burden on the health care
system. New technology in the diagnosis and treatment of these diseases and
conditions should lead to attractive commercial opportunities. For example, the
worldwide cancer treatment market is currently $9.1 billion and growing at a
rate of 8% per annum. In the United States alone, over 1.2 million new cases of
cancer are expected to be diagnosed and approximately 563,000 cancer deaths are
expected to occur in 1999.
Geron and collaborators have demonstrated both in vitro and in vivo that
telomeres, the repeated sequences of DNA located at the ends of chromosomes,
shorten throughout a normal cell's replicative lifespan. In addition, the
Company and its collaborators have also shown that when telomeres reach a
certain short length, cells stop dividing and become senescent. Senescent cells
display an altered pattern of gene expression compared to replicatively young
cells that leads to an imbalance in the production of proteins and other cell
products. This is believed to occur in many tissues throughout the body and may
contribute to many age-related degenerative diseases and conditions through a
direct and destructive effect on surrounding tissues. Geron scientists, with
collaborators, have cloned and characterized the two critical components of
telomerase that convey its activity, the RNA component and the catalytic protein
component. Among its many findings with respect to these two biologically
important components, Geron has shown that expression of the protein gene in
normal cells results in telomerase activity which halts telomere erosion and
dramatically extends the normal lifespan of the cell while maintaining normal
(youthful) gene expression and preventing the onset of senescence. Further,
Geron scientists and collaborators have shown that cellular immortality via
telomerase gene transfer does not cause malignant or cancerous changes in the
treated cells.
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Cancer cells escape senescence and maintain an extended ability to divide.
They continue to divide past the senescent fate of normal cells by virtue of
activated oncogenes and inactivated tumor suppressor genes. Geron and
collaborators have shown that for tumor cells to attain life threatening
characteristics, or to metastasize throughout the body, they generally must
become immortal through an alteration which prevents their telomeres from
shortening. In all cancer types studied to date, telomerase is abnormally
reactivated, thereby conferring cellular immortality. Data shows that telomerase
is present in the vast majority of tumor biopsies in the 20 - 30 types of cancer
that have been studied, including breast, prostate, lung, colon and bladder
cancers. Thus, Geron believes that telomerase inhibition has the potential to be
a universal and highly specific cancer therapy. Geron and partners are using
proprietary screening technologies to identify small molecule compounds that
selectively inhibit telomerase. Medicinal chemistry and combinatorial chemistry
are being used to optimize these compounds. Animal models of human tumor growth
have been developed to test the appropriateness of lead compounds for clinical
drug development.
Telomerase is also expressed in another cell type with vast potential for
clinical medicine: the human embryonic stem cell. Dr. James Thomson and
colleagues at the University of Wisconsin-Madison, and Dr. John Gearhart of
Johns Hopkins University have successfully derived human embryonic stem ("hES")
and human embryonic germ ("hEG") cells, respectively, and maintained them in
culture. Human embryonic stem and germ cells are different from every other
human stem cell previously derived in that they have the capability to turn into
any and all cell types and tissues in the body. These cells, licensed to Geron,
hold great promise as a universal source of replacement cells for
transplantation and for use in screens and functional genomics for
pharmaceutical research and development. Further, this promise is enhanced by
Geron's telomerase technology which can potentially increase the lifespan of
differentiated cells produced from hES or hEG cells. The technology combination
positions Geron to potentially supply an unlimited number of young human cells
and tissues for therapeutic uses in the body and for drug discovery purposes. In
addition, further research with hES and hEG cells will improve our understanding
of reproductive and developmental biology. This could lead to better treatments
for infertility and the discovery of new approaches to treat a wide variety of
diseases and developmental disorders.
The Company is focused on three therapeutic and diagnostic product
development programs: (i) TELOMERASE INHIBITION AND DETECTION -- developing
telomerase inhibitors as potentially universal and highly specific cancer
therapies and telomerase assays for the detection of cancer; (ii) TELOMERASE
ACTIVATION AND EXPRESSION -- developing genetic or drug therapies to modulate
telomere length, thereby regulating cell aging or senescence which contributes
to degenerative diseases; and (iii) EMBRYONIC STEM CELL THERAPIES -- generating
a broad array of cell types from human embryonic stem or germ cells for use in
transplantation medicine, pharmaceutical research and development and the study
of human developmental biology. In support of these programs, the Company
employs advanced drug discovery technologies, including proprietary assays, high
throughput screening, combinatorial chemistry, proprietary differential gene
display techniques, protein purification, gene sequencing, gene expression
microarray analysis, gene cloning, vectorology and gene transfer technologies.
The Company's strategy combines the following key elements: a focus on
telomeres and telomerase in mortal and immortal cells as molecular and
biological targets and embryonic stem cells to generate immortal cells and
tissues; building therapeutic and diagnostic discovery programs on this
scientific platform; selective formation of strategic partnerships; retention of
rights to develop and market products; and continued enhancement of its
proprietary leadership position in the field.
SCIENTIFIC BACKGROUND
Cellular Aging and Cellular Immortalization
Cells are the building blocks for all tissues in the human body, and cell
division plays a critical role in the normal growth, maintenance and repair of
human tissue. However, in the human body, cell division is a limited process.
Depending on the tissue type, cells generally divide only 60 to 100 times in the
course of their normal lifespan. Geron and collaborators have demonstrated that
telomeres, the repeated sequences of DNA located at the ends of chromosomes, are
key genetic elements involved in this process. Telomeres are
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important because they protect chromosomes from degradation and fusion. Each
time a normal cell divides, telomeres shorten, and once telomeres reach a
certain short length, cell division halts and the cell enters a state known as
senescence.
Cellular aging or senescence, although influenced by environmental factors,
is a genetically determined process. Although senescent cells no longer divide,
they generally remain metabolically active and, importantly, demonstrate an
altered pattern of gene expression. In senescent cells, certain genes normally
expressed by young and healthy cells are turned off or down-regulated while
other genes are turned on or up-regulated, creating an imbalance of proteins and
other gene products that Geron believes has a direct and destructive effect on
the surrounding tissue. Geron believes that this dysfunction at the cellular
level, which occurs in numerous tissues throughout the body, causes or
contributes to age-related degenerative diseases and conditions.
Recent work published by Geron and collaborators demonstrates that
telomeres not only serve as a molecular "clock" for cellular aging, but that
telomerase, when introduced into normal cells, is capable of restoring telomere
length or resetting the "clock" and increasing the lifespan of cells without
altering their "youthful" functions.
Normal cells have the potential to bypass senescence and become cancerous
when random or inherited mutations activate oncogenes or deactivate tumor
suppressor genes. With each mutation, pre-cancerous cells become increasingly
aberrant and uncontrolled, and may begin to generate a tumor mass. The Company
believes, however, that most cells which undergo such changes are eliminated
when telomere shortening leads to either cell senescence or chromosomal
instability and cell death. Research suggests that for most cancerous tumors to
attain life threatening size, or for cancer to metastasize throughout the body,
some cancer cells must become immortal, which occurs through the activation of
telomerase.
Telomerase is a complex enzyme, composed of an RNA and a catalytic protein
component. Telomerase is functionally active in reproductive cells to ensure the
full complement of genetic information is passed from generation to generation.
Telomerase is also present at low levels or is periodically activated in certain
hematopoietic (blood), skin and gastrointestinal cells. However, these cells
continue to age and gradually lose telomeric DNA, which suggests that telomerase
may not be essential for their normal functioning. With telomerase present at
adequate levels, telomeres do not shorten and cell senescence is averted.
Research has shown that telomerase is not present in most normal cells and
tissues after birth, but that during tumor formation or progression, telomerase
is abnormally reactivated in all major cancer types. However, unlike the
mutations which cause cancer, telomerase does not contribute to the
dysfunctional behavior of tumor cells; its presence enables cancer cells to
maintain telomere length, providing them with indefinite replicative capacity or
cellular immortality. This important distinction explains how selected
activation of telomerase can be beneficial for the treatment of certain
age-related diseases, while telomerase inhibition in cancer patients can provide
a novel way to cause tumor cells to age and ultimately die.
Embryonic Stem and Germ Cells
Another cell type which expresses telomerase at relatively high, constant
levels is the human embryonic stem ("hES") cell. Derived from donated in vitro
fertilized (IVF) blastocysts, hES cells have unique characteristics which make
them useful for multiple new therapeutic, pharmaceutical and scientific
applications. Human embryonic germ ("hEG") cells derived from donated fetal
material share many of the properties of hES cells, the most important of which
is unique to hES and hEG cells: they are both pluripotent -- capable of forming
into all of the different cell types in the body. Specifically they have the
potential to form derivatives of all three cellular layers, including the gut
epithelium (endoderm); cartilage, bone, and smooth and striated muscle
(mesoderm); and neural epithelium, embryonic ganglia and stratified squamous
epithelium (ectoderm).
Embryonic stem cells are also self-renewing, consistent with their natural
expression of telomerase. The continual steady state activity of telomerase in
hES cells conveys replicative immortality. Under appropriate in vitro
conditions, hES cells repopulate themselves indefinitely while remaining in the
undifferentiated state. Therefore, they are expected to be a continuous source
of normal pluripotent cells. Telomerase activity in hEG
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cells is not as well characterized. Human embryonic stem cells maintain a
structurally normal set of chromosomes (including the sex chromosomes, XX or XY)
even after prolonged growth in culture. They do not, for example, have any
additions, deletions or rearrangements in their chromosomal structure as is
characteristic of cell lines derived from tumors or immortalized by viruses.
The ability of hES cells to propagate indefinitely in the undifferentiated
state without losing pluripotency is a unique characteristic that distinguishes
them from all other "multipotent" stem cells discovered to date in humans. Other
stem cells such as blood or gut stem cells express telomerase at low levels or
only periodically, and therefore age. The Company believes hES cells can be
expanded on an industrial scale for commercial purposes.
The availability of hES and hEG cells opens extraordinary opportunities to
(i) enable development of transplantation therapies, (ii) re-tool pharmaceutical
research and development practices, and (iii) accelerate research in human
developmental biology. Moreover, hES and potentially hEG cells should provide an
immediate, alternative source and industrial supply of starting material,
relieving the need to continually resource primary human embryonic or
fetal-derived tissues. Much of the research necessary for product development
work can be performed on these cells now made available by Dr. Thomson's and Dr.
Gearhart's discoveries.
MARKET OPPORTUNITY
Cancer, age-related diseases and other conditions including skin aging,
atherosclerosis, osteoporosis, macular degeneration, congestive heart failure,
diabetes and Parkinson's and Alzheimer's are difficult and costly to diagnose
and treat. In many cases, entirely effective means of diagnosing and treating
these diseases and conditions are not currently available. Further, with the
progressive "graying" of the population, the incidence of cancer and other
age-related diseases and conditions is expected to increase. Of the 2.2 million
Americans who died in 1991, 1.6 million were elderly (65 years or older). Seven
in 10 of these deaths can be attributed to either heart disease, cancer or
stroke. A breakthrough technology in the diagnosis and treatment of these
diseases and conditions should provide attractive commercial opportunities.
Cancer
The incidence of cancer increases dramatically with age. Cancer ranks as
the leading cause of death in women over 55 and as the second leading cause for
men over 55 years of age. Twenty five percent of people over the age of 65 will
develop invasive cancers. In the United States, approximately 8.2 million people
alive today have a history of cancer, and since 1990, approximately 12 million
new cancer cases have been diagnosed including cancers of the lung, colon,
breast, prostate, pancreas, ovary, kidney and bladder, along with lymphomas and
leukemia. Despite significant medical advances, cancer researchers and
clinicians have had little impact on cancer mortality rates. Each year, cancer
will claim more than a half-million lives, or more than 1,500 per day. Since
1990, there have been approximately five million cancer deaths in the United
States. Within the next decade, largely because of population aging, cancer may
become the leading cause of death.
Cancer therapy relies heavily on three treatment modalities: surgery to
remove the tumor mass; radiation to destroy tumors localized to a small region;
and chemotherapy to eliminate tumor cells in diffuse parts of the body. Surgery
is an invasive procedure that may not remove the entire cancer, and the use of
radiation is limited to certain areas of the body. While drug therapies are less
invasive than surgery or radiation, many drugs used to treat cancer attack
rapidly dividing cells indiscriminately, damaging normal as well as cancer
cells. Further, when a drug is effective initially against a particular cancer,
it is often not effective against other types of cancer and, over time, the
particular cancer can become resistant to that drug and progress. Overall annual
direct medical costs for cancer currently amount to $37 billion with treatment
of breast, lung, and prostate cancers accounting for over half of those costs.
The Company believes that a telomerase inhibitor could overcome the limitations
of current therapies and potentially be a universal and highly specific drug
treatment for cancer.
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Other Age-related Degenerative Diseases and Conditions
There are numerous other diseases and conditions for which incidence
increases dramatically with age, including skin aging, atherosclerosis,
osteoporosis and macular degeneration. There are significant unmet medical needs
associated with these diseases and conditions. Many current therapies simply
address the symptoms of these diseases and conditions. Despite the limitation of
current therapies, drugs targeting these diseases and conditions represent some
of the largest selling pharmaceuticals. For example, the United States market
for cardiovascular drugs is approximately $6 billion, while the market for drugs
addressing osteoporosis and osteoarthritis is approximately $3.1 billion. The
market for retinoids used for skin therapy exceeds $3 billion. The Company's
focus on cellular aging and cellular immortality is designed to produce
therapeutics that address these diseases and conditions, and to treat their
causes rather than their symptoms.
Embryonic Stem and Germ Cell Therapies
The derivation of hES and hEG cells is a fundamental discovery that holds
great promise for three major areas of biomedicine: transplantation medicine,
pharmaceutical research and development and human developmental biology.
Transplantation Medicine. Because of the expected capability of hES and hEG
cells to produce virtually unlimited quantities of any cell in the body, their
potential therapeutic impact in transplantation medicine is enormous. In
addition, they have the potential to be genetically engineered to prevent their
immune rejection by the transplant recipient. Examples of medically relevant
cells that could potentially be developed for transplantation therapies in
humans include the following:
Cardiomyocytes. Heart muscle cells do not proliferate during adult life.
When heart muscle is damaged by injury, the functional heart muscle is replaced
with non-functional scar tissue. Congestive heart failure, a common consequence
of heart muscle or valve damage, affects nearly five million people in the
United States with 400,000 new cases diagnosed each year. In addition, about 1.5
million people each year suffer from myocardial infarction, the primary cause of
heart muscle damage, and about one third of them die. Treatment of heart disease
in the United States costs $117 billion annually. Mouse cardiomyocytes derived
from mouse embryonic stem ("ES") cells have been prepared and injected into the
hearts of recipient adult mice. It has been reported that the injected
cardiomyocytes repopulated the myocardial tissue and stably integrated with host
myocardial cells. These results suggest that the development of hES or hEG
cell-derived cardiomyocytes for cellular transplantation therapy for congestive
heart failure and myocardial infarction in humans will be technically feasible.
Hematopoietic stem cells (blood forming cells). Bone marrow transplantation
is a life saving procedure used in treating pediatric and adult cancers. In
1995, there were approximately 12,500 bone marrow transplants performed in North
America. The number of procedures performed dramatically underserves the medical
need. The main factor which limits the number of procedures that can be
performed is tissue or donor availability. Blood-forming stem cells potentially
could be developed from hES or hEG cells as has been done using mouse ES and EG
cells. This would increase the availability of these cells and reduce reliance
on donors. Further, hES or hEG cell-derived hematopoietic stem cells potentially
could be genetically engineered to resist infection by such agents as the HIV
virus and used in a transplant setting for the treatment of AIDS, or possibly
used for the treatment of patients with sickle cell anemia.
Endothelial cells (blood vessel cells). Mouse endothelial cells have been
derived from mouse ES cells. Similarly, in humans, blood vessel forming cells
potentially could be generated from hES cells and used to re-line blood vessels
for the purpose of treating atherosclerosis, a condition which contributes to
over 650,000 deaths annually in the United States. hES-derived endothelial cells
potentially could also be used for generating new blood vessels in damaged
regions of the heart, brain, or lower extremities to treat angina, stroke and
arterial insufficiency.
Islet cells (pancreatic cells that produce insulin). The 1.4 million
patients in the United States with Insulin Dependant Diabetes Mellitus
potentially could be treated with islet cells derived from hES cells. Such
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human cells are unavailable today and could provide a lifelong cure for this
disease. Health costs related to the treatment of diabetes runs over $90 billion
annually.
Neurons. It has been demonstrated that mouse neurons can be derived from
mouse embryonic stem and germ cells. Human neurons derived from hES or hEG cells
could potentially be prepared for the treatment of (i) the over one million
people in the United States who suffer from Parkinson's disease, (ii) the
500,000 individuals who suffer a stroke each year, and (iii) over four million
Americans affected with Alzheimer's disease. Treatment costs for patients
suffering from Parkinson's, Alzheimer's and stroke could total $5.7 billion by
the year 2001.
Fibroblast and keratinocyte cells (skin cells). Fibroblast and keratinocyte
cells of mice have been observed in cultures of differentiated mouse ES cells.
Geron scientists expect that comparable human skin cells could be produced from
hES cells and used for wound healing and the treatment of burns.
Chondrocytes (cartilage cells). Chondrocytes could potentially be generated
from hES cells for cartilage replacement in treating osteoarthritis which
affects over 16 million Americans, or rheumatoid arthritis which affects over
two million persons in the United States. The treatment of osteoarthritis alone
cost Americans $1.8 billion in 1996.
Pharmaceutical research and development. The potential to produce and
supply unlimited quantities of normal human cells of virtually any tissue type
could have a major impact on pharmaceutical research and development. Until now,
the only cell lines available for this work were either animal in origin or
abnormal transformed human cells. It may be possible to produce permanent,
stable sources of normal human differentiated cells for drug screening and
testing, drug toxicology studies, as well as new drug target identification.
Further, because hES cells express telomerase and can therefore undergo multiple
rounds of a sophisticated type of genetic engineering called gene targeting,
cellular models of human disease could be developed for use in drug development.
Finally, cell lines derived from hES or hEG cells may be useful for developing
screens for teratogens (drugs causing birth defects), extending the capability
of current assays based on bacterial and mouse systems.
Human reproductive and developmental biology. Unraveling the biology of hES
and hEG cells as they differentiate into functional cell types in vitro offers a
unique platform to understand and harness nature's mechanisms of embryonic
development and tissue differentiation and repair. Such understanding has
potential for contributing to (i) the treatment of fertility disorders which
affect one out of every six couples in the United States trying to become
pregnant, (ii) the prevention of premature pregnancy loss, estimated to be 15%
of recognized pregnancies in the United States, and (iii) the diagnosis and
prevention of birth defects which afflict 3% of live births in the United
States.
Until now, the early developmental events which naturally occur during
human embryogenesis have been inaccessible to direct study. The availability of
hES and hEG cells may facilitate a molecular understanding of how specific human
tissues and organs develop -- research which cannot be pursued today without
utilizing human embryos or fetuses. Further, it is possible that novel genes
which fundamentally control tissue differentiation could be identified by the
application of genomic technologies to cultured hES and hEG cells as they
differentiate into a variety of functional cell types. These new gene products
have potential to be developed into therapeutic proteins for treating wound
healing, stroke, myocardial infarction, spinal cord injury and tissue
regeneration.
These potential clinical applications would utilize suspensions of purified
hES- and hEG-derived differentiated cells administered by injection. With
further technical development, complex multi-cellular solid tissues and organs
could potentially be developed for application in organ support therapies for
lung, kidney, liver, cardiac and brain diseases. While the biomedical and
therapeutic promise of hES and hEG cells is vast, it should be re-emphasized
that the additional research and development required to realize this potential
is significant.
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STRATEGY
Geron's strategy is to be the leading biopharmaceutical company in the
discovery and development of therapeutic and diagnostic products based upon the
Company's understanding of telomere, telomerase and embryonic stem cell biology.
The key elements of this strategy are described below.
Focus on Fundamental Mechanisms of Cellular Aging and Cellular
Immortality. Geron focuses its research on fundamental mechanisms of cellular
aging and cellular immortality. These include telomere shortening and telomerase
regulation. As the pioneer in researching and modulating these mechanisms, which
affect all tissues of the body, the Company believes it has established a
broadly applicable, proprietary platform for discovering and developing novel
small molecule therapeutics, cell and gene therapeutics and diagnostics for
cancer and other age-related diseases.
Develop High Value Programs with a Common Scientific Platform. Geron's
strategy is to leverage its expertise in cellular aging and cellular immortality
to develop those programs which offer the shortest development path for
therapeutic and diagnostic products and the highest likelihood for success.
Geron is currently working in three program areas: (i) the inhibition and
detection of telomerase for the treatment and diagnosis of cancer; (ii) the
modulation of biological processes leading to and regulating cell aging or
senescence which contribute to degenerative diseases and (iii) embryonic stem
cell therapies for cell transplantation therapies, accelerating drug discovery
and the study of developmental biology.
Form Strategic Partnerships. Geron has established and intends to continue
to establish collaborations and alliances with pharmaceutical companies, other
biotechnology companies and leading academic institutions to enhance its
research, development and commercialization capabilities. Geron has entered into
a three-company strategic alliance with Kyowa Hakko Kogyo Co., Ltd. ("Kyowa
Hakko"), a leading oncology company in Japan, and Pharmacia & Upjohn S.p.A
("Pharmacia & Upjohn"), a global leader in oncology, for the development and
marketing of a telomerase inhibitor to treat cancer. The Company has also
established a clinical development partnership with Roche Diagnostics GmbH
("Roche Diagnostics"), the global leader in diagnostics, to develop
telomerase-based products for use in cancer diagnosis and treatment planning.
Retain the Ability to Develop and Market Products Independently. Geron
believes that its broad scientific platform will continue to generate
opportunities for a variety of collaborative arrangements. The Company intends
to retain significant rights to develop and market or co-promote products on key
therapeutic and diagnostic applications of discoveries resulting from its
research programs.
Enhance Proprietary Leadership Position. Geron intends to maintain its
scientific leadership and accelerate its research programs by continuing to
attract and retain leaders in the fields of cellular aging, cellular immortality
and stem cells either as employees or exclusive collaborators. Further, the
Company is aggressively pursuing a broad and extensive patent portfolio
internationally and in the United States to protect its proprietary technology.
To date, the Company owns 23 issued United States patents and over 46 United
States patent applications and has licensed 20 issued United States patents and
over 40 United States patent applications. Geron also owns or has licensed three
issued foreign patents and numerous patent applications.
RESEARCH PROGRAMS
Telomerase Inhibition and Detection
Geron intends to discover and develop a small molecule telomerase
inhibitor, which, by blocking the activity of telomerase, will allow telomeres
in cancer cells to resume shortening, ultimately leading to cancer cell death.
In addition, the Company's intention is to develop clinical products using
telomerase as a marker in cancer diagnosis, prognosis, patient monitoring and
screening.
Telomerase is not present in most normal cells, and as a result, normal
cells exhibit telomere shortening. In contrast, telomerase is abnormally active
in cancer cells, causing telomere length to be maintained, which Geron believes
confers immortality to cancer cells in malignant tumors. Research has shown that
telomerase is present in all of the over 20 - 30 different cancer types studied,
including the ten most prevalent cancers of prostate, breast, lung, colon,
bladder, uterus, pancreas and ovary, along with lymphomas, leukemias,
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melanomas and brain tumors. In all of these cancers, a very high percentage of
tumor samples contain telomerase. Because telomerase is present in all cancer
types evaluated and is not biologically active in most normal cells, telomerase
appears to be a universal and highly specific marker of cancer. These
characteristics combine to make telomerase an attractive target for inhibition
to treat cancer and for detection to diagnose cancer.
Therapeutics. Research by Geron and other independent groups has
demonstrated that a telomerase inhibitor can block cancer cells from using
telomerase to maintain telomere length. As a result, telomeres shorten as the
cancer cells continue to divide until a critically short length is reached, at
which point the cancer cells enter crisis. In some cases, cancer cells have a
more immediate response to loss of telomerase activity, undergoing rapid cell
death. Geron scientists and others have inhibited human telomerase in tumor cell
lines in culture using molecules which block the function of the RNA or the
essential protein component of telomerase. Based on these positive results,
Geron is aggressively pursuing the identification of telomerase inhibitors as
potential lead compounds for clinical development. While it has identified
several strategies for inhibiting telomerase activity, including antisense
technology and genetic regulation, Geron is primarily focused on developing a
small molecule inhibitor. The Company believes the small molecule approach will
produce a development candidate with a more favorable pharmaceutical and
commercial profile -- oral bioavailability, compound stability and low
manufacturing cost. Geron and partners are using proprietary screening
technologies employing combinatorial chemistry to identify small molecule
compounds that selectively inhibit telomerase. Traditional medicinal chemistry
and rapid parallel synthesis techniques are being used to optimize these
compounds. Cell and animal models, as well as cell-based models of human tumor
growth, have been developed to test the appropriateness of lead compounds for
development.
To advance this program, Geron has pursued the cloning and characterization
of the genes for the essential components of telomerase: the RNA template of
telomerase ("hTR") and the catalytic reverse transcriptase protein component
("hTERT"). The cloning of hTR by Geron in 1994 and of hTERT, in collaboration
with Dr. Thomas Cech of the University of Colorado in 1997, has allowed the
development of proprietary assays for discovering and characterizing telomerase
inhibitors. In addition, Geron has developed proprietary screening technology,
assembled a structurally diverse library of more than 100,000 small molecule
compounds and established medicinal and combinatorial and nucleic acid chemistry
capabilities. As a result of the combined screening efforts, Geron and its
corporate partners have identified several classes of compounds that demonstrate
telomerase inhibition and are actively pursuing structure/activity relationship
studies. Geron believes that its assays and screening methods provide a strong
competitive advantage in view of the difficulty and specialized skills required
for their development and use. The company's patent portfolio includes issued
patents for the RNA and catalytic protein components of telomerase as well as
Geron's telomerase inhibitor screens.
Geron believes that blocking telomerase activity will cause the affected
cancer cells to resume telomere shortening during cell division and lose their
immortality. Telomerase inhibition is therefore expected to have delayed
efficacy as cancer cell telomeres resume normal shortening. Although Geron
envisions that a telomerase inhibitor could be effective as a stand-alone
treatment in certain cases, it is expected that in most cases a telomerase
inhibitor will be used in conjunction with current anti-cancer therapies.
Geron believes that a telomerase inhibitor will be an effective therapeutic
for a broad range of cancers, although there may be certain limitations to its
use. Because telomerase is present in reproductive cells, a telomerase
inhibitor, like many cancer agents in current use, may have a negative impact on
such cells. Telomerase is also transiently expressed in certain cells in the
hematopoietic (blood), skin and gastrointestinal tract. However, Geron
scientists and others have demonstrated that these tissues age and show gradual
telomere shortening during the course of cell division. As a result, Geron
believes that telomerase is not biologically critical for these tissues, and
Geron predicts that telomerase inhibitors are unlikely to have a significant
negative effect on them.
Geron has established a strategic alliance with Kyowa Hakko, a leading
oncology company in Japan, for the development and commercialization in certain
Asian countries of a telomerase inhibitor for the treatment of cancer. Geron has
also established a strategic alliance with Pharmacia & Upjohn, a global leader
in
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oncology, for a complementary worldwide collaboration in telomerase inhibition.
This collaboration with Pharmacia & Upjohn has recently been enhanced by
accessing the high throughput screening capabilities and the two million
compound libraries of Pharmacopoeia, Incorporated ("Pharmacopoeia") via an
alliance between Pharmacia & Upjohn and Pharmacopoeia which includes telomerase
inhibition. Geron has established research collaborations for the study of
telomerase inhibition with the National Cancer Institute, Memorial
Sloan-Kettering Cancer Center, and the Lawrence Berkeley National Laboratory,
and for the study of telomere biology with Stanford University, the University
of Colorado, the University of Texas Southwestern Medical School at Dallas, the
Dana Farber Cancer Institute, and the University of California, San Francisco.
Diagnostics. Geron believes that telomerase is a universal and highly
specific marker of cancer and, therefore, the detection and quantification of
telomerase may have significant clinical utility for cancer diagnosis,
prognosis, and patient monitoring and screening. While current cancer
diagnostics apply to a single or limited number of cancer types,
telomerase-based diagnostics could potentially address a broad range of cancer
types. The Company also believes that the availability of telomerase-based
diagnostics for cancer, which are likely to reach the market before
telomerase-based therapeutics, will enhance the commercial opportunity for a
telomerase inhibitor by increasing the understanding by clinicians of the
biological significance of telomerase activity in cancer.
Geron has developed several proprietary assays for the detection of
telomerase which are based on its activity or components. The first generation
assay is the Telomeric Repeat Amplification Protocol ("TRAP") assay which can be
used to detect telomerase activity in malignant tumor tissue. The second
generation assay detects hTR, the RNA component of human telomerase, which was
first cloned by Geron scientists. This enables the Company to use proprietary in
situ hybridization and other methods to detect the presence of telomerase. The
Company was also the first to report the cloning of hTERT, the human telomerase
reverse transcriptase component of telomerase. The first patent for the hTERT
protein component of human telomerase has been issued in the United Kingdom and
is co-owned by Geron and the University of Colorado and exclusively licensed to
Geron. Further, the United States Patent and Trademark Office has issued patents
for the detection of telomerase activity or its components including patents for
the TRAP assay and diagnostic methods based on hTR detection.
Geron is overseeing preclinical studies to assess the full potential of its
telomerase detection technology. Data from two such studies indicate telomerase
levels correlate with clinical outcome in breast cancer and neuroblastoma
patients. Data from other published studies support clinical application of
telomerase in diagnosis, staging, monitoring and screening for bladder, cervical
and other cancers. In several reports, the sensitivity and specificity of
telomerase-based assays have proven superior to standard methods in the
detection of cancer in patient samples. The Company intends to proceed with
development of its telomerase detection technology, in collaboration with Roche
Diagnostics, as a novel and important diagnostic for cancer.
Telomerase Activation and Expression
Geron seeks to develop cell, gene and drug therapies to modulate biological
processes leading to and regulating cell aging or senescence which contribute to
degenerative diseases. As normal cells divide, they eventually exhaust their
capacity for renewal and become senescent, at which point they display an
altered pattern of gene expression and an altered function. An integral part of
this program is the extensive investigation of changes in gene expression as
cells age and the analysis of gene expression when telomerase is introduced into
cells at various times prior to senescence. The Company is applying proprietary
gene transfer technologies, gene expression systems and small molecule screening
technology to develop therapeutic agents to target, postpone and modulate the
destructive genetic changes that occur in senescent cells.
Research at Geron and the University of Texas Southwestern Medical Center
at Dallas has shown that the activation of telomerase in normal human cells
extends their cellular lifespan without causing cancerous changes. Such
telomerase expression prevents the senescent gene expression pattern and
preserves the youthful function of these cells. Geron has continued
investigations aimed at defining the differences in gene expression between
young and senescent cells using high density DNA arrays to efficiently monitor
gene
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expression in young and senescent cell cultures. This has allowed for a detailed
description of genes whose deregulation is associated with senescence. Such
genes can serve as markers in drug discovery screens to identify small molecules
capable of activating telomerase and thus suppressing the altered gene
expression patterns in senescent cells. Geron has entered into an agreement with
Synteni (an Incyte company) for the use of their microarray technology for gene
expression analysis. In addition, Geron maintains research collaborations with a
number of institutes to support its telomerase activation program including,
Lawrence Berkeley National Laboratory, Stanford University and the University of
Tennessee, Memphis.
The onset of diseases such as skin aging, atherosclerosis, osteoporosis,
arthritis, and macular degeneration is associated with dysfunction of specific
cell types. The effects of senescence on these cell types contribute to the
disease. For each of these cell types, Geron scientists have introduced the
hTERT gene and observed expression of telomerase, maintenance of telomere length
and extension of these cells' normal lifespan. The Company believes that these
telomerized cells will have extensive applications in research, production of
engineered cells and tissues and in the treatment of age-related diseases. To
pursue the applications of this technology, Geron scientists are working with
collaborators at Duke University, the University of California at Los Angeles,
the Memorial Sloan-Kettering Cancer Center and Stanford University.
Geron is developing proprietary gene vectors using the hTERT promoter to
drive expression of a gene that directly or indirectly kills that cell. These
systems are being tested in animal models. Specifically targeting cancer cells
should reduce the toxicity of the therapy to normal cells. Studies are also
planned to measure potential synergies of hTERT immunotherapy with traditional
chemotherapeutic, surgical and radiological cancer therapies.
Embryonic Stem Cell Therapies
Human embryonic stem ("hES") and germ ("hEG") cells are embryonic and fetal
derived cells, respectively, that are unique in that they are capable of
differentiation into any and all types of cells and tissues in the body.
Moreover, hES cells have been shown to be telomerase positive and capable of
essentially immortal growth in the differentiated state.
Geron collaborators at the University of Wisconsin-Madison have now
succeeded in isolating and culturing human embryonic stem cells. As published in
Science, these undifferentiated cells can be expanded in culture and can be
induced to differentiate both in vitro and in in vivo animal models into all
primary tissue types including cardiac and skeletal muscle, neuronal and
epithelial tissue.
The Company believes that hES and hEG cells offer significant advantages
over other stem cells, which have limited ability to proliferate and
differentiate in culture. With the derivation of hES and hEG cells, Geron has a
new set of product development opportunities in (i) transplantation medicine,
(ii) pharmaceutical research and development and (iii) the study of human
developmental biology.
The availability of hES and hEG cells allows for the first time a thorough
genomic analysis of gene expression patterns that control early human
development. Identification and functional assignment of these human
developmental genes will enhance our understanding of the molecular events that
control early human development with application toward the prevention of birth
defects, treatment of infertility disorders and the discovery of gene products
that enhance tissue differentiation and repair. The Company plans to apply its
microassay technologies in order to identify these genes and to seek corporate
partners to develop and commercialize those gene products with therapeutic
potential.
By combining cellular differentiation technologies with Geron's proprietary
telomerase gene transfer immortalization platform, the Company plans to develop
immortalized human cell lines useful for application in drug discovery screens.
Unlike transformed cells which have been engineered to express certain surface
receptors, for example, as targets for drug discovery, cells derived from hES or
hEG cells will retain the complete normal signal transduction pathways
downstream from the surface receptors. Screens based on such cells can therefore
not only be used to identify components that bind to the surface receptor, but
also those which act with intracellular pathways resulting in desired
alterations in gene expression consistent with the desired pharmacologic action
of the drug being discovered.
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Finally, by combining culture scale-up, telomerase gene transfer, cell
differentiation and genetic selection technologies with gene targeting
techniques, purified cell populations can be potentially manufactured for
application in tissue regeneration therapies. Degenerative tissues in such
conditions as heart failure, diabetes, stroke, arthritis, and atherosclerosis
could potentially be restored by the injection of youthful, functional cells
derived from pluripotent hES cells. The Company's intention is to assemble the
required technologies, personnel, licenses and collaborations to enable the
development of these tissue regeneration approaches.
STRATEGIC PARTNERSHIPS
Geron believes that its broad scientific platform will generate significant
opportunities for a variety of strategic partnership arrangements. Geron has
established and intends to continue to establish selective collaborations with
leading pharmaceutical and diagnostic companies to enhance its research,
development and commercialization capabilities. In each of these strategic
collaborations, the Company has retained significant rights to participate in
the commercial success of its products.
Kyowa Hakko Collaboration
In April 1995, the Company entered into a License and Research
Collaboration Agreement with Kyowa Hakko (the "Kyowa Hakko Agreement"). Under
the Kyowa Hakko Agreement, Kyowa Hakko agreed to provide $16.0 million of
research funding over four years to support the Company's program to discover
and develop in certain Asian countries a telomerase inhibitor for the treatment
of cancer. In addition, the Company is entitled to receive future payments
totaling $11.5 million upon the achievement of certain contractual milestones
relating to drug development and regulatory progress, as well as royalty
payments on product sales. Kyowa Hakko also purchased $2.5 million of Geron
Common Stock in connection with the Company's initial public offering. Under the
Kyowa Hakko Agreement, Geron exercises significant influence during the research
phase and Kyowa Hakko exercises significant influence during the development and
commercialization phases. Kyowa Hakko will pay for all clinical expenses
associated with product approval in the licensed territory, which includes the
countries of China, Hong Kong, India, Indonesia, Japan, Kampuchea, Korea, Laos,
Malaysia, Myan Mar, the Philippines, Singapore, Taiwan, Thailand and Vietnam.
The Kyowa Hakko Agreement provides that Kyowa Hakko will not pursue research and
development independent of its collaboration with Geron with respect to
telomerase inhibition for the treatment of cancer in humans until April 7, 2000,
at the earliest. Kyowa Hakko may terminate the agreement only in the event of
breach or bankruptcy by Geron or in the event that both parties agree that it is
no longer reasonably practical to pursue further research and development of an
inhibitor of telomerase. In March 1997, the Kyowa Hakko Agreement was amended to
extend its term until April 2000 and to make certain other changes in connection
with the signing of the Pharmacia & Upjohn Agreement (as defined below).
Pharmacia & Upjohn Collaboration
In March 1997, the Company signed a License and Research Collaboration
Agreement (the "Pharmacia & Upjohn Agreement") with Pharmacia & Upjohn to
collaborate in the discovery, development and commercialization of a new class
of anti-cancer drugs that inhibit telomerase. Under the collaboration, Pharmacia
& Upjohn will provide $15.0 million of research funding over three years. In
addition, the Company is entitled to receive future payments upon the
achievement of certain contractual milestones relating to drug development and
regulatory progress, as well as royalty payments on future product sales.
Further, the Company has an option to exercise co-promotion rights in the United
States. The companies also signed a Stock Purchase Agreement providing for an
initial equity investment of $2.0 million in Geron by Pharmacia & Upjohn, at a
premium, which was completed in January 1997. In addition on April 25, 1997 and
March 27, 1998, Pharmacia & Upjohn purchased an aggregate of $8.0 million ($4.0
million on each date) of Geron Common Stock at a premium. Through the Pharmacia
& Upjohn and Kyowa Hakko Agreements, the Company has granted to Pharmacia &
Upjohn and Kyowa Hakko exclusive worldwide rights to its telomerase inhibition
technology, with exception to certain antisense, gene therapy and vaccine
technologies outside Asia, for the treatment of cancer in humans. This
collaboration with Pharmacia & Upjohn has recently been enhanced by accessing
the high throughput screening capabilities and the two million compound library
of
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Pharmacopoeia, via an alliance between Pharmacia & Upjohn and Pharmacopoeia
which includes telomerase inhibition.
The Company incurred operating expenses of $19.4 million, $18.3 million and
$17.4 million in 1998, 1997 and 1996, respectively. Of these expenditures, $6.7
million, $6.7 million and $5.2 million related to costs incurred for research
and development activities attributable to strategic partnerships in 1998, 1997
and 1996, respectively. The Company funded the remaining expenditures. No
milestone payments have been received or earned to date.
Diagnostic Collaborations
Kyowa Medex Co., Ltd. ("Kyowa Medex") has licensed the Company's TRAP assay
technology; Dako Corporation ("Dako") has licensed the Company's hTR in situ
hybridization detection technology; and PharMingen (a Becton Dickinson company)
has licensed the Company's TRAP assay and telomere length measurement
technology, each on a non-exclusive basis for sale to the research-use-only
market. Roche Diagnostics GmbH ("Roche") has licensed all telomerase and
telomere length assay technologies, including TRAP, hTR, hTERT, and
immunoassays, for research-use-only and in vitro diagnostics in cancer. All
telomerase licenses previously licensed to Boehringer Mannheim GmbH ("Boehringer
Mannheim") have been transferred to Roche Diagnostics following the acquisition
of Boehringer Mannheim by Roche. The TRAP assay research-use-only license
originally granted to Oncor Inc. ("Oncor") has been transferred to the Intergen
Company ("Intergen") following the acquisition of Oncor's research reagent
division by Intergen. Oncor commenced commercial sale of the TRAP-eze(TM) kit in
May 1996, followed by Boehringer Mannheim and Kyowa Medex in late 1996.
Since mid-1998, Oncor's TRAP-eze(TM) and other TRAP-related products are
marketed under the Intergen label. Boehringer Mannheim's telomerase-related
products are now marketed under the Roche label. PharMingen began selling its
TeloQuant(TM) telomere length assay kit in 1997 and its TeloQuant(TM) telomere
length and TRAP assay kit in 1998. Although the Company does not expect
royalties from the sale of these kits to be significant, the use of these kits
is expected to stimulate additional studies of telomerase activity by academic
laboratories. The Company has also established research collaborations for the
study of telomerase detection with The Cleveland Clinic, Johns Hopkins
University, the Children's Hospital of Los Angeles, Madigan Army Medical Center
and the University of Texas Southwestern Medical Center at Dallas.
In December 1997, the Company entered into a License, Product and Marketing
Agreement with Boehringer Mannheim to develop and commercialize research and
clinical diagnostic products for cancer on an exclusive, worldwide basis. Under
the Agreement, Boehringer Mannheim provided reimbursement in the amount of
$500,000 for research previously conducted and is responsible for all clinical,
regulatory, manufacturing, marketing and sales efforts and expenses. The Company
is entitled to receive future payments upon achievement of certain contractual
milestones relating to levels of product sales, as well as royalties on product
sales. Further, the Company has an option at its sole discretion to exercise
co-promotion rights with respect to in vitro diagnostic products in the United
States. After the acquisition of Boehringer Mannheim by Roche in early 1998, all
licenses and agreements pertaining to telomerase-based cancer diagnostics
entered into with Boehringer Mannheim have been transferred to Roche
Diagnostics. It is expected that the combined clinical and technical expertise
of Boehringer Mannheim and Roche Diagnostics will enhance the telomerase
diagnostic product development.
RESEARCH COLLABORATIONS
The Company has entered into and intends to continue to enter into research
agreements selectively with leading academic and research institutions to
enhance significantly its research and development capabilities. Under these
agreements, the Company generally provides funding for scientific research in
exchange for exclusive commercial rights to the results of such research. In
each of these agreements, the Company seeks to retain rights to develop and
market applications of any discoveries made under such collaborations by
obtaining options to license exclusively any technology developed under such
programs, including patents or patent applications filed in connection with such
programs.
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The Company has established collaborations for the study of telomere and
telomerase biology and in support of its Telomerase Inhibition and Detection
with the National Cancer Institute, the Memorial Sloan-Kettering Cancer Center,
Lawrence Berkeley National Laboratory, Stanford University, the University of
Colorado, the University of Texas Southwestern Medical School at Dallas, the
Dana Farber Cancer Institute, the University of California at San Francisco, The
Cleveland Clinic, Johns Hopkins University, the Children's Hospital of Los
Angeles and Madigan Army Medical. In support of its Telomerase Activation and
Expression program, Geron has established collaborations with laboratories
including the Lawrence Berkeley National Laboratory, Stanford University, the
University of Tennessee, Memphis, Duke University, the University of California
at Los Angeles and the Memorial Sloan-Kettering Cancer Center. Geron has
established exclusive license and collaboration agreements in support of its
Embryonic Stem Cell Therapies program with the University of California at San
Francisco, Johns Hopkins University and the licensing arm of the University of
Wisconsin-Madison.
PATENTS, PROPRIETARY TECHNOLOGY AND TRADE SECRETS
Protection of the Company's proprietary compounds and technology is
important to the Company's business. The Company owns 23 issued United States
patents and over 46 United States patent applications and has licensed 20 issued
United States patents and over 40 United States patent applications, as well as
three issued foreign patents and numerous international filings under the Patent
Cooperation Treaty, and has pending foreign national patent applications
corresponding to certain of these United States applications. The Company's
policy is to seek, when appropriate, patent protection for its lead compounds,
gene discoveries, screening technologies and certain other proprietary
technologies through licensing and by filing patent applications in the United
States and certain other countries. The Company believes its patent filings and
patent licenses and options may provide protection for its drug discovery and
diagnostics development programs and that its patent applications disclose
useful discoveries in the field of telomere biology and telomerase regulation as
well as cellular senescence, cellular immortality and embryonic stem cell
technology. For example, the United States Patent and Trademark Office has
issued Geron five patents for telomerase inhibitor screening technology. The
Company's screening efforts have resulted in the identification of several
compounds that inhibit human telomerase in vitro and the Company has filed
United States patent applications on certain of these chemical classes of
telomerase inhibitors, six of which have issued. The Company has licensed
several issued United States patents relating to telomerase activity-based
cancer diagnostic and prognostic methods. In addition, the Company owns several
United States patents and an allowed United States patent application for the
TRAP assay and improvements to the TRAP assay. One patent relating to reagents
used in the assay has issued from the United States Patent and Trademark Office.
The Company's telomerase RNA detection technology is the subject of several
patents that have issued from the United States Patent and Trademark Office. The
Company has also filed patent applications relating to the catalytic subunit of
telomerase and has been granted a patent in the United Kingdom to the catalytic
protein component of telomerase. The Company has patents and a patent
application relating to its technologies for identifying genes that are
differentially expressed in different cell types or at different stages of
cellular development. The United States Patent and Trademark Office has issued a
patent relating to the Company's "Enhanced Differential Display" technology, as
well as a patent for methods to increase the replicative capacity of skin cells.
The Company has licensed several patent applications relating to Embryonic Stem
Cells including the issued patent relating to Primate Embryonic Stem Cells and
methods for obtaining and maintaining them has issued from the United States
Patent and Trademark Office.
SCIENTIFIC ADVISORS AND CONSULTANTS
The Company has consulting agreements with a number of leading academic
scientists and clinicians who serve as members of its Scientific Advisory Board
("SAB") or as consultants. These individuals are distinguished scientists and
clinicians with expertise in the areas of genetics of aging, cell senescence,
telomerase, developmental biology, cell biology and molecular biology.
The SAB was established to consult with the Company with respect to
scientific programs and strategies. The individuals also provide important
contacts throughout the broader scientific community. The SAB meets
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as a whole or in smaller groups at least once per year to focus on general
strategy and certain scientific issues. Individual members are called upon on an
ad hoc basis as appropriate.
Each SAB member has entered into an agreement with the Company covering the
terms of his or her position as a member of the SAB. Certain SAB members hold
options to purchase or have purchased Common Stock of the Company. In addition,
members of the SAB are reimbursed for out-of-pocket expenses incurred in
attending each meeting. Most members of the SAB are employed by institutions
other than the Company and may have commitments to, or consulting or advisory
agreements with, other entities that may limit their availability to the
Company.
The Company's SAB members and consultants include the following
individuals:
STEPHEN BENKOVIC, PH.D., is Professor of Chemistry at the Pennsylvania
State University and is a member of the Company's SAB. Dr. Benkovic is a member
of the Chemical Society and the recipient of the 1998 Chemical Pioneer Award
given by the American Institute of Chemists. He is an internationally recognized
expert in protein chemistry, including the enzymology of DNA polymerases.
ELIZABETH BLACKBURN, PH.D., is a Professor and Chair of the Department of
Microbiology and Immunology at the University of California at San Francisco and
a member of the National Academy of Sciences. Dr. Blackburn is known for her
pioneering characterization of telomeres and for her co-discovery of telomerase
and subsequent characterization of this important enzyme.
GUNTER K. BLOBEL, M.D., PH.D., is an investigator at the Howard Hughes
Medical Institute, Rockefeller University and is a member of the Company's SAB.
Dr. Blobel is a member of the National Academy of Sciences, the recipient of the
1993 Lasker Award and past president of the American Society for Cell Biology.
He is well known for his work in protein translocation and is now turning much
of his research focus to nuclear trafficking.
DAVID BOTSTEIN, PH.D., is Professor and Chairman of the Department of
Genetics, Stanford University School of Medicine. He was elected to the National
Academy of Sciences in 1981 and to the Institute of Medicine in 1993. His
current research activities include studies of yeast genetics and cell biology
and linkage mapping of human genes predisposing to manic-depressive illness and
the development and maintenance of the Saccharomyces Genome Database on the
World Wide Web. He has received numerous awards, including the Eli Lilly Award
in Microbiology (1978), the Genetics Society of America Medal (1985), and the
Allen Award of the American Society of Human Genetics (1989). Dr. Botstein has
served on numerous committees including the NAS/NRC study on the Human Genome
Project (1987 - 88), the National Institutes of Health ("NIH") Program Advisory
Panel on the Human Genome (1989 - 90) and the Advisory Council of the National
Center for Human Genome Research (1990 - 95).
ROBERT N. BUTLER, M.D., is a gerontologist and psychiatrist with broad
experience in aging research and advocacy and is a member of the Company's SAB.
In 1982, he founded the first, and still the only, department of geriatrics at a
United States medical school -- the Department of Geriatrics and Adult
Development at the Mount Sinai Medical Center -- where he continues to serve as
Professor. Since 1990, he has also been Director of the International Longevity
Centers. In 1975, he became the founding director of the National Institute on
Aging of the NIH, a position he held until 1982. He currently serves on the
National Advisory Council of the National Institute on Aging. Dr. Butler also
serves as editor-in-chief of the journal Geriatrics and is the author of
approximately 300 scientific and medical articles. In 1976, he won the Pulitzer
Prize for his book, "Why Survive? Being Old in America."
JUDITH CAMPISI, PH.D., is a Senior Scientist and Acting Chair, Department
of Cancer Biology, Lawrence Berkeley National Laboratory. She has been an
Established Investigator of the American Heart Association and currently has a
MERIT Award from the National Institute on Aging ("NIA"), and serves on its
Board of Scientific Counselors. Her major interests are the cellular and
molecular biology of senescence and tumorigenesis.
VINCENT CRISTOFALO, PH.D., is a Professor of Biochemistry and Molecular
Pharmacology, and President of Lankenau Medical Research Center, Jefferson
Health System, Pennsylvania and is a member of the
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Company's SAB. In addition, he is professor emeritus at the University of
Pennsylvania and adjunct professor at the Wistar Institute. He sits on the Board
of Scientific Counselors of the NIA and the Department of Veterans Affairs
Geriatrics and Gerontology Advisory Committee, as well as numerous editorial
boards.
JOHN GEARHART, PH.D., is a Professor of Gynecology and Obstetrics,
Physiology, Comparative Medicine, and Population Dynamics at the School of
Medicine of Johns Hopkins University, where he is also the Director of the
Division of Genetics and the Preimplantation Genetics Diagnosis Program. Dr.
Gearhart has been a leader in the utilization of transgenic models and in the
development of new transgenic and embryonic stem cell technologies.
LEONARD GUARENTE, PH.D., is a Professor of Biology at the Massachusetts
Institute of Technology and a member of the Company's SAB. Dr. Guarente has
studied mechanisms of eukaryotic transcriptional regulation over the past 18
years. More recently, his lab has turned its focus to identifying causes of
aging by identifying genes and mechanisms that control lifespan in the model
system S. Cerevisiae and in mice. His lab has also begun a study of the WRN1
gene, mutations in which give rise to Werner's Syndrome, a human disease
characterized by premature aging.
DOUGLAS HANAHAN, PH.D., is a Professor of Biochemistry in the Department of
Biochemistry and Biophysics and Associate Director of the Hormone Research
Institute, University of California at San Francisco and is a member of the
Company's SAB. His major research interests are the cellular and genetic
mechanisms of tumor development and autoimmunity. Prior to joining the
University of California at San Francisco in 1988, Dr. Hanahan was with the Cold
Spring Harbor Laboratory for nine years, where he developed technologies for
recombinant DNA and molecular cloning and established transgenic mouse models to
study cancer and autoimmune diseases.
LEONARD HAYFLICK, PH.D., is a Professor of Anatomy at the School of
Medicine of the University of California at San Francisco, and is a member of
the Company's SAB. Dr. Hayflick is best known for his pioneering work in tissue
culture, where he discovered the finite replicative capacity of normal human
cells which he interpreted as aging at the cellular level. This phenomenon is
known as the "Hayflick Limit" and Dr. Hayflick is widely known as the "father"
of cellular gerontology. Dr. Hayflick has published over 200 papers and is the
recipient of numerous national and international research awards and honors, was
President of the Gerontological Society of America, was a founding member of the
Council of the NIA, and recently authored the popular book, "How and Why We
Age."
ERIC LANDER, PH.D., is a Professor of Biology at the Massachusetts
Institute of Technology and serves as the Director of the Whitehead
Institute/MIT Center for Genome Research and is a member of the Company's SAB.
Dr. Lander is active in several organizations involved in human genetics
research, including serving on the board of directors for the Genetic Society of
America and acting as former chair of the Genome Research Review Committee for
NIH's National Center for Human Genome. He brings broad experience in human and
mammalian genetic research.
GEORGE M. MARTIN, M.D., is Professor of Pathology, Adjunct Professor of
Genetics and Director of Alzheimer's Disease Research Center, University of
Washington School of Medicine. He has held various positions in the departments
of pathology and genetics at the University of Washington School of Medicine
since 1957, and was appointed director of the Alzheimer's Disease Research
Center in 1985. Dr. Martin's recent awards include a Research Medal granted by
the American Aging Association in 1992 and the Robert W. Kleemeier Award given
by the Gerontological Society of America in 1993.
MALCOLM MOORE, PH.D., is a Professor of Biology at the Sloan-Kettering
Division, Cornell Graduate School of Medical Sciences and is internationally
known for his pioneering work in hematopoiesis, growth factors, and cytokines.
He is also currently incumbent of the Enid A. Haupt Chair of Cell Biology,
Memorial Sloan-Kettering Cancer Center. Dr. Moore received the William B. Coley
Award For Distinguished Research in Immunology by the Cancer Research Institute
in June 1995.
ROGER A. PEDERSEN, PH.D., is a Professor of Obstetrics, Gynecology and
Reproductive Sciences at the University of California at San Francisco, where he
teaches developmental genetics and mammalian embryology. He received his B.A.
degree from Stanford University, and his Ph.D. at Yale University. He
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completed his postdoctoral research at the Johns Hopkins University. Since 1991
he has served as Series Editor of Current Topics in Developmental Biology. He
has written numerous original publications and reviews on early mouse
development, and co-produced two instructional videotapes on the use of mice in
transgenic and gene targeting research.
JERRY W. SHAY, PH.D., is a Professor of Cell Biology and Neuroscience at
the University of Texas Southwestern Medical Center at Dallas and is a member of
the Company's SAB. Dr. Shay's research focuses on molecular mechanisms of
tumorigenesis and immortalization with a particular emphasis on cancer of the
breast. Dr. Shay has numerous publications, honors and patents. He is also on
the editorial board for the Journal of Clinical Pathology.
JAMES A. THOMSON, V.M.D., PH.D., is a Staff Pathologist and Associate
Research Animal Veterinarian at the University of Wisconsin-Madison. He is known
for the first successful derivation of human embryonic stem cells. Dr. Thomson
has numerous awards and publications as well as an issued United States patent
for primate embryonic stem cells.
JAMES D. WATSON, PH.D., is President of Cold Spring Harbor Laboratory and
is a member of the Company's SAB. Dr. Watson is the former head of the NIH Human
Genome Project and is famous for his 1953 discovery with Francis Crick of the
double helical structure of DNA for which he received the Nobel Prize.
WOODRING E. WRIGHT, M.D., PH.D., is a Professor of Cell Biology and
Neuroscience at the University of Texas Southwestern Medical Center at Dallas
and is a member of the Company's SAB. He is widely recognized as a leading
molecular biologist working in the field of cellular senescence and on the
molecular basis of muscle development.
GOVERNMENT REGULATION
Regulation by governmental entities in the United States and other
countries will be a significant factor in the preclinical and clinical testing,
production, labeling, sale, distribution, marketing, advertising and promotion
of any products developed by the Company or its strategic partners. Most of the
Company's or its strategic partners' products will require regulatory approval
or clearance by governmental agencies prior to commercialization. The nature and
the extent to which such regulation may apply to the Company or its strategic
partners will vary depending on the nature of any such products. 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 United States Food and Drug
Administration ("FDA") in the United States and similar health authorities in
foreign countries. Various federal and, in some cases, state statutes and
regulations also govern or influence the manufacturing, safety, labeling,
distribution, storage, record keeping and marketing of such products. The
process of obtaining these approvals or clearances is uncertain and the process
of and the subsequent compliance with appropriate federal and foreign statutes
and regulations are time consuming and require the expenditure of substantial
resources.
Generally, to gain FDA pre-market approval for a biopharmaceutical product,
a company first must conduct extensive preclinical studies in the laboratory and
in animal model systems to gain preliminary information on a product's potential
efficacy and to identify any safety problems. The results of these studies are
submitted as a part of an investigational new drug application ("IND"), which
must become effective before human clinical trials of an investigational drug
can start. To commercialize any products, the Company or its strategic partners
will be required to sponsor and file an IND and will be responsible for
initiating and overseeing a series of clinical studies to demonstrate the
safety, purity, efficacy and potency in the case of biological drugs, or safety
and efficacy in the case of non-biological drugs that are necessary to obtain
FDA approval of any such products. Clinical trials are normally done in three
phases (Phase I -- safety and pharmacologic assessment; Phase II -- a small
efficacy study; and Phase III -- 200 - 1000 patient studies to provide
substantial evidence of safety and effectiveness) which generally take three to
six or more years to complete. After completion of clinical trials of a new
product, FDA marketing approval must be obtained. If the product is classified
as a non-biological drug, the Company or its strategic partner will be required
to file a
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new drug application ("NDA") and receive approval before commercial marketing of
the drug. In the case of a biological drug, an Establishment License Application
("ELA") and Product License Application ("PLA") must be filed with and approved
by the FDA before marketing can occur. If a given recombinant product is
considered to be a well-characterized biological drug, only a Biological License
Application ("BLA") combining elements of an ELA and a PLA may be required.
These testing and approval processes are uncertain and require substantial time
and the expenditure of substantial resources, and there can be no assurance that
any such approval will be granted on a timely basis, if at all. NDAs or
PLAs/ELAs submitted to the FDA can take, on average, two to five years to
receive approval, and the FDA must confirm that good laboratory, clinical and
manufacturing practices were maintained as well as determine that safety,
purity, efficacy, and potency (in the case of a biological drug) or safety and
efficacy (in the case of a non-biological drug) have been established. If
questions arise during the FDA review process, approval can take more than five
years. Even if FDA regulatory approvals are obtained, a marketed product is
subject to continual review, and later discovery of previously unknown problems
or failure to comply with the applicable regulatory requirements may result in
restrictions on the marketing of a product or withdrawal of the product from the
market as well as possible civil or criminal sanctions, including but not
limited to recall or seizure of product, injunction against manufacture,
distribution, sales and marketing and criminal prosecution. For marketing
outside the United States, the Company will also be subject to foreign
regulatory requirements governing human clinical trials and marketing approval
for pharmaceutical products. The requirements governing the conduct of clinical
trials, product licensing, pricing and reimbursement vary widely from country to
country. Any diagnostic products to be developed by the Company or its strategic
partners are likely to be regulated by the FDA as medical devices rather than
drugs. The nature of the FDA requirements applicable to such medical diagnostic
devices depends on their classification by the FDA. A diagnostic device
developed by the Company or a strategic partner would initially be classified as
a Class III device, and would most likely require pre-market approval. Obtaining
pre-market approval involves the costly and time-consuming process, comparable
to that for new drugs, of conducting laboratory studies, obtaining an
investigational device exemption to conduct clinical tests, filing a pre-market
approval application ("PMA") and obtaining review and approval of the PMA by the
FDA. Such review and approval may take 12 - 18 months or more. The process from
laboratory to clinical studies to FDA review and approval of a PMA, which
approval cannot be assured on a timely basis, if at all, can take several years
or more. Both drugs and devices are subject to FDA current good manufacturing
practice regulations ("GMPs"), often even at the clinical trial stages. Both
drug and device GMPs specify extensive validation and record keeping
requirements, including the maintenance of product compliance files, as well as
require compliance with various standards governing personnel, equipment and raw
materials, including product stability requirements. There can be no assurance
that the Company or its collaborators or contract manufacturers, if any, will be
able to establish or maintain compliance with the GMP regulations on a
continuing basis. Failure to establish or maintain GMP compliance or compliance
with other FDA requirements could have a material adverse effect on the
Company's business.
The Company's research and development activities involve the controlled
use of hazardous materials, chemicals and various radioactive materials. The
Company is subject to federal, state and local laws and regulations governing
the use, storage, handling and disposal of such materials and certain waste
products. Although the Company believes that its safety procedures for using,
handling, storing and disposing of such materials comply with the standards
prescribed by state and federal laws and regulations, the risk of accidental
contamination or injury from these materials cannot be completely eliminated. In
the event of such an accident, the Company's use of these materials could be
curtailed by state or federal authorities, the Company could be held liable for
any damages that result and any liability could exceed the resources of the
Company.
COMPETITION
The pharmaceutical and biopharmaceutical industries are intensely
competitive. The Company believes that certain pharmaceutical and
biopharmaceutical companies as well as certain 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
and telomerase. In addition, other products and therapies that could compete
directly with the products that the Company is seeking to develop and market
currently exist or are being developed by pharmaceutical and biopharmaceutical
companies, and by academic and other
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research organizations. Many companies are also developing alternative therapies
to treat cancer and, in this regard, are competitive with the Company. The
pharmaceutical companies developing and marketing such competing products have
significantly greater financial resources and expertise in research and
development, manufacturing, preclinical and clinical testing, obtaining
regulatory consents and marketing than the Company. 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 those of the Company. These companies and institutions compete with
the Company in recruiting and retaining qualified scientific and management
personnel as well as in acquiring technologies complementary to the Company's
programs. There is also competition for access to libraries of compounds to use
for screening. Any inability of the Company to secure and maintain access to
sufficiently broad libraries of compounds for screening potential targets would
have a material adverse effect on the Company. In addition to the above factors,
Geron will face competition with respect to product efficacy and safety, the
timing and scope of regulatory consents, availability of resources,
reimbursement coverage, price and patent position, including potentially
dominant patent positions of others. There can be no assurance that competitors
will not develop more effective or more affordable products, or achieve earlier
patent protection or product commercialization than the Company or that such
products will not render the Company's products obsolete.
EMPLOYEES
The Company had 97 full-time employees at December 31, 1998, of whom 36
hold Ph.D. degrees and 17 hold other advanced degrees. Of the total workforce,
78 are engaged in, or directly support, the Company's research and development
activities and 19 are engaged in business development, finance and
administration. The Company also retains outside consultants. None of the
Company's employees is covered by a collective bargaining agreement, nor has the
Company experienced work stoppages. The Company considers relations with its
employees to be good.
EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth certain information with respect to the
executive officers of the Company:
NAME AGE POSITION
---- --- --------
Ronald W. Eastman...................... 47 President, Chief Executive Officer and
Director
David L. Greenwood..................... 47 Chief Financial Officer, Vice President
of Corporate Development, Treasurer and
Secretary
Elaine R. Hamilton..................... 51 Vice President, Human Resources
Calvin B. Harley, Ph.D................. 46 Chief Scientific Officer
Thomas B. Okarma, Ph.D., M.D........... 53 Vice President, Research and
Development
RONALD W. EASTMAN has served as President, Chief Executive Officer and a
Director of the Company since May 1993. From 1978 until joining the Company, Mr.
Eastman was employed with American Cyanamid Co., most recently as a Vice
President and General Manager of Lederle Laboratories, American Cyanamid's
pharmaceutical business. Mr. Eastman holds a B.A. from Williams College and an
M.B.A. from Columbia University.
DAVID L. GREENWOOD has served as Chief Financial Officer, Treasurer and
Secretary of the Company since July 1995, and Vice President of Corporate
Development since April 1997. From 1979 until joining the Company, Mr. Greenwood
held various positions with J.P. Morgan & Co. Incorporated, an international
banking firm, and its subsidiaries, J.P. Morgan Securities Inc. and Morgan
Guaranty Trust Company of New York. Mr. Greenwood holds a B.A. from Pacific
Lutheran University and an M.B.A. from Harvard Business School.
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ELAINE R. HAMILTON has served as Vice President of Human Resources of the
Company since June 1998. From 1984 until joining the Company, Ms. Hamilton was
the head of Human Resources for Metricom Inc., International Network Services
and Portola Packaging and in Human Resources management at FMC Corporation. Ms.
Hamilton holds a B.A. in Education and Psychology from the University of Iowa
and an M.S. in Human Resources and Organization Development from the University
of California at San Francisco.
CALVIN B. HARLEY, PH.D., has served as Chief Scientific Officer of the
Company since July 1996. From May 1994 until July 1996, Dr. Harley was the Vice
President of Research of the Company and from April 1993 to May 1994, Dr. Harley
was Director, Cell Biology of the Company. Dr. Harley was an Associate Professor
from 1989 until joining the Company, and from 1982 to 1989, an Assistant
Professor of Biochemistry at McMaster University. Dr. Harley also was the Chair
of the Canadian Association on Gerontology, Division of Biological Sciences from
October 1989 to October 1991 and Chairman Elect from 1987 to 1989. Dr. Harley
holds a B.S. from the University of Waterloo and a Ph.D. from McMaster
University, and conducted postdoctoral work at the University of Sussex and the
University of California at San Francisco.
THOMAS B. OKARMA, PH.D., M.D., has served as Vice President of Research and
Development of the Company since May 1998. From December 1997 until May 1998,
Dr. Okarma was Vice President of Cell Therapies. From 1985 until joining the
Company, Dr. Okarma, the scientific founder of Applied Immune Sciences, Inc.,
served initially as Vice President of Research and Development and then as its
chairman and chief executive officer until 1995 when it was acquired by
Rhone-Poulenc Rorer. From 1980 to 1985, Dr. Okarma was a member of the faculty
of the Department of Medicine at Stanford University School of Medicine. Dr.
Okarma holds a A.B. from Dartmouth College and a M.D. and Ph.D. from Stanford
University.
ITEM 2. PROPERTIES
Geron currently leases approximately 41,000 square feet of office space at
194 Constitution Drive, 200 Constitution Drive and 230 Constitution Drive, Menlo
Park, California. The Company's lease for such office space expires in January
2002, with an option to renew the lease for two additional periods of two and
one-half years each. The Company intends to use this space for general office
and biomedical research and development purposes. The Company believes that its
existing facilities are adequate to meet its requirements for the near term.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
The Company's Common Stock trades on The Nasdaq National Market under the
symbol "GERN". The high and low closing sales prices (excluding retail markup,
markdowns and commissions) of the Company's stock for the years ending December
31, 1998 and 1997 are as follows:
HIGH LOW
------- ------
Year ended December 31, 1998
First quarter............................................... $14.375 $8.500
Second quarter.............................................. $12.125 $9.000
Third quarter............................................... $ 9.875 $4.219
Fourth quarter.............................................. $17.188 $5.063
Year ended December 31, 1997
First quarter............................................... $18.000 $9.625
Second quarter.............................................. $10.625 $7.125
Third quarter............................................... $16.125 $5.875
Fourth quarter.............................................. $11.250 $8.250
As of December 31, 1998, there were approximately 728 stockholders of
record. The Company is engaged in a highly dynamic industry, which often results
in significant volatility of the Company's Common Stock price.
DIVIDEND POLICY
The Company has never paid cash dividends on its capital stock and does not
anticipate paying cash dividends in the foreseeable future, but intends to
retain its capital resources for reinvestment in its business. Any future
determination to pay cash dividends will be at the discretion of the Board of
Directors and will be dependent upon the Company's financial condition, results
of operations, capital requirements and other such factors as the Board of
Directors deems relevant. As long as any Series A Convertible Preferred Stock is
outstanding, no dividend whatsoever may be declared or paid upon, nor shall any
distribution be made upon any junior securities without written consent of the
holders of a majority of the outstanding shares of Series A Convertible
Preferred Stock, voting together as a class.
RECENT SALES OF UNREGISTERED SECURITIES
On December 10, 1998, the Company entered into an agreement to sell $15.0
million in convertible zero coupon debentures to investment funds managed by
three institutional investors. The debentures are convertible by the holders at
a fixed conversion price of $10.00 per share. One-half of the proceeds were
funded upon signing the agreement. The second half will be funded upon
registration of the underlying Common Stock. The Company has agreed to register
the resale of the underlying Common Stock under the Securities Act of 1933. The
debentures convert at the Company's option when the Common Stock has traded at a
certain premium to the fixed conversion price for five consecutive trading days.
The investors also received warrants to purchase up to $7.5 million of
additional Geron Common Stock at a price of $12.00 per share and will be issued
identical warrants upon funding of the remaining $7.5 million of convertible
debentures. The debentures and warrants were issued under a private placement in
Section 4(2) of the Securities Exchange Act of 1933.
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ITEM 6. SELECTED FINANCIAL DATA
YEARS ENDED DECEMBER 31,
-----------------------------------------------------------
1998 1997 1996 1995 1994
----------- ----------- ---------- ------- --------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Revenues from collaborative
agreements........................... $ 6,706 $ 7,175 $ 5,235 $ 5,490 $ --
License fees and royalties............. 91 78 58 -- --
Operating expenses:
Research and development............... 15,619 15,139 14,260 11,321 8,099
General and administrative............. 3,769 3,120 3,161 2,888 2,397
----------- ----------- ---------- ------- --------
Total operating expenses..... 19,388 18,259 17,421 14,209 10,496
----------- ----------- ---------- ------- --------
Loss from operations................... (12,591) (11,006) (12,128) (8,719) (10,496)
Interest and other income.............. 2,666 1,757 1,826 919 638
Interest and other expense............. (907) (392) (385) (399) (320)
----------- ----------- ---------- ------- --------
Net loss............................... $ (10,832) $ (9,641) $ (10,687) $(8,199) $(10,178)
Accretion of premium on redemption of
redeemable convertible preferred
stock................................ (578) -- -- -- --
----------- ----------- ---------- ------- --------
Net loss applicable to common
stockholders......................... $ (11,410) $ (9,641) $ (10,687) $(8,199) $(10,178)
=========== =========== ========== ======= ========
Basic and diluted net loss per share... $ (1.00) $ (0.91) $ (2.23) $ (9.77) $ (18.08)
=========== =========== ========== ======= ========
Shares used in computing basic and
diluted net loss per share........... 11,439,084 10,551,054 4,789,388 839,490 562,764
=========== =========== ========== ======= ========
DECEMBER 31,
--------------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
BALANCE SHEET DATA:
Cash, cash equivalents and
short-term investments............ $ 24,469 $ 21,597 $ 24,269 $ 15,553 $ 13,915
Working capital..................... 22,261 19,739 21,468 12,115 12,410
Total assets........................ 44,456 26,056 28,788 19,749 17,072
Noncurrent portion of liabilities... 8,101 1,250 1,644 1,654 1,647
Redeemable convertible preferred
stock............................. 3,610 -- -- -- --
Accumulated deficit................. (57,520) (46,110) (36,469) (25,782) (17,583)
Total stockholders' equity.......... 29,191 21,066 23,591 14,308 13,689
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Geron is a biopharmaceutical company focusing on discovering and developing
therapeutic and diagnostic products based upon the Company's understanding of
human embryonic stem cells and of telomeres and telomerase in
cells -- fundamental biological platforms underlying cancer and other
age-related degenerative diseases. The Company's results of operations have
fluctuated from period to period and will continue to fluctuate in the future
based upon the timing and composition of funding under various collaborative
agreements. 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. The following discussion
should be read in conjunction with the audited financial statements and notes
thereto included in Part II, Item 8 of this Report on Form 10-K.
On March 27, 1998, the Company completed a private placement with two
institutional investors for the sale of 15,000 shares of Series A Redeemable
Convertible Preferred Stock (the "Series A Preferred Stock") with a par value of
$0.001 and a stated value of $1,000 per share resulting in proceeds of $15.0
million. The
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Series A Preferred Stock is convertible into the number of shares of Common
Stock of the Company equal to the stated value plus a premium of 6% per annum
divided by a conversion price. The premium on the Series A Preferred Stock is
accreted and treated as a dividend. The premium has been accrued through
December 31, 1998 with the offsetting charge recorded to accumulated deficit.
The conversion price of the Series A Preferred Stock is based on the market
price of the Common Stock during a pricing period preceding conversion, up to a
conversion price cap of $16.88. The Series A Preferred Stock is subject to
redemption at the Company's option if the market price of the Common Stock
exceeds or falls below certain thresholds.
On November 6, 1998, 11,548 shares of Series A Preferred Stock were
converted into 2,173,446 shares of Geron Common Stock. The number of shares of
Common Stock issued in November 1998 met the maximum threshold of shares of
Common Stock that can be issued without obtaining stockholder approval under
NASD regulations. Because the Company had not obtained stockholder approval to
issue additional shares of Common Stock as of December 31, 1998, the remaining
3,452 shares of Series A Preferred Stock (with a book value of $3.5 million) are
redeemable at the option of the holders of the Series A Preferred Stock, have
been reclassified as Redeemable Convertible Preferred Stock and are excluded
from Stockholders' Equity. In addition, the 6% premium on the outstanding shares
of Series A Preferred Stock will be accreted to the value of the outstanding
Series A Preferred Stock.
In accordance with the Stock Purchase Agreement with Pharmacia & Upjohn,
S.p.A, in March 1998, Pharmacia & Upjohn purchased $4.0 million of Geron Common
Stock, at a premium.
On December 10, 1998, the Company entered into an agreement to sell $15.0
million in convertible zero coupon debentures to investment funds managed by
three institutional investors. The debentures are convertible at any time by the
holders at a fixed conversion price of $10.00 per share. One-half of the
proceeds were funded upon signing the agreement and the remaining $7.5 million
will be funded upon the registration of the underlying Common Stock. The
debentures convert at the Company's option when the Common Stock has traded at a
certain premium to the fixed conversion price for five consecutive trading days.
In December 1998, the Company recorded approximately $562,000 in interest
expense in connection with this financing for the difference between the fair
market value of the Common Stock on the date of issuance and the conversion
price of the debentures. An additional $562,000 in interest expense is expected
to be recorded upon the funding of the remaining $7.5 million of convertible
debentures in 1999.
In connection with the issuance of the convertible debentures, the Company
also issued warrants to purchase 625,000 shares of Common Stock at $12.00 per
share. The warrants are exercisable at any time through June 2000. The value of
the warrants was determined to be approximately $719,000. The proceeds of $7.5
million from the issuance of the debentures were allocated between the
debentures and the warrants. The convertible debentures, which were recorded at
a discount, are being accreted to the redemption amount over the three year term
using the interest method. Warrants to purchase 625,000 additional shares of
Common Stock at $12.00 per share will be issued upon the funding of the
remaining $7.5 million of convertible debentures in 1999.
Geron is subject to risks common to companies in its industry and at its
stage of development, including risks inherent in its research and development
efforts, reliance upon collaborative partners, enforcement of 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 the Company's research, it will be necessary for Geron
and collaborators to conduct preclinical tests and clinical trials, demonstrate
efficacy and safety of the Company's product candidates, obtain regulatory
approvals or clearances and enter into manufacturing, distribution and marketing
arrangements, as well as obtain market acceptance. The Company does not expect
to receive revenues or royalties based on therapeutic products for a period of
years. See "Additional Factors That May Affect Future Results."
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RESULTS OF OPERATIONS
Revenues
The Company recognized revenues of $6.7 million in fiscal 1998 compared to
$7.2 million in fiscal 1997 and $5.2 million in fiscal 1996. Revenues in 1998
were research support payments under the Company's collaborative agreements with
Pharmacia & Upjohn S.p.A ("Pharmacia & Upjohn") and Kyowa Hakko Kogyo Co., Ltd.
("Kyowa Hakko"). Revenues in 1998 decreased from 1997 as a result of reduced
research funding from Kyowa Hakko as contractually agreed. Revenues in 1997 also
included a one-time payment by Boehringer Mannheim for reimbursement of past
research efforts. Revenues in 1996 were research support payments from Kyowa
Hakko. The Company recognizes revenue as the related research and development
costs are incurred under the collaborative agreements. Annual funding payment of
$1.0 million was received under the Kyowa Hakko agreement in fiscal 1998.
Payments of $4.0 million each were received from Kyowa Hakko in fiscal 1997 and
1996, respectively. Funding payments totaling $5.0 million and $3.8 million were
received under the Pharmacia & Upjohn agreement in fiscal 1998 and 1997,
respectively. The Company expects to receive an aggregate of $5.0 million from
the Pharmacia & Upjohn collaboration in 1999.
The Company receives license payments and royalties from license and
marketing agreements with various diagnostic collaborators. No license fee
payments were received in 1998 or 1997. In fiscal 1998, the Company received
$91,000 in royalties on the sale of diagnostic kits to the research-use-only
market from Oncor (Intergen), Kyowa Medex, Boehringer Mannheim (Roche
Diagnostics) and PharMingen compared to $78,000 received in fiscal 1997. In
fiscal 1996, upon entering into a license and marketing agreement with Kyowa
Medex, the Company received a $50,000 license fee payment from Kyowa Medex. In
fiscal 1996, the Company received $8,000 in royalties from Oncor and Kyowa
Medex.
Research and Development Expenses
Research and development expenses were $15.6 million, $15.1 million and
$14.3 million for the years ended December 31, 1998, 1997 and 1996,
respectively. The increase in 1998 from 1997 was primarily a result of increased
personnel costs of $500,000 for additional scientific staff. The increase in
1997 from 1996 was primarily due to increased costs for expanded patent related
activities of $400,000 and increases in support of key outside collaborators of
$400,000. The Company expects research and development expenses to increase
significantly in the future as a result of continued development of its
therapeutic and diagnostic programs.
General and Administrative Expenses
General and administrative expenses were $3.8 million, $3.1 million and
$3.2 million for the years ended December 31, 1998, 1997 and 1996, respectively.
The increase in 1998 from 1997 was primarily a result of increased personnel
costs of approximately $420,000 for additional administrative personnel and
bonus accruals. In addition, 1998 also experienced increases in public and
investor relations expense of $80,000; legal, accounting and consulting fees of
$90,000; supplies and expensed office equipment of $50,000 and other taxes and
filing fees of $50,000. The slight decrease in 1997 from 1996 was the net effect
of a decrease in personnel costs of $300,000 as a result of departures of
administrative personnel and an increase in public and investor relations
expense of $200,000.
Interest and Other Income
Interest income was $1.9 million, $1.4 million and $1.1 million for the
years ended December 31, 1998, 1997 and 1996, respectively. The increases in
1998 and 1997 were due to higher average cash and investment balances as a
result of the sale of debt and equity securities and research funding received
under the Kyowa Hakko and Pharmacia & Upjohn collaborative agreements. Interest
earned in the future will depend on the Company's funding cycles and prevailing
interest rates. The Company also received $734,000, $369,000 and $714,000 in
research payments under government grants for the years ended December 31, 1998,
1997 and 1996, respectively. The Company does not expect income from government
grants to substantially increase in the future.
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Interest and Other Expense
Interest and other expense was $907,000, $392,000 and $385,000 for the
years ended December 31, 1998, 1997 and 1996, respectively. In December 1998,
the Company recorded approximately $562,000 in interest expense in connection
with the sale of convertible debentures, for the difference between the fair
market value of the Common Stock on the date of issuance and the conversion
price of the debentures. The convertible debentures, which are recorded at a
discount, are being amortized to the redemption amount over the three year term
using the interest method. The increase in 1997 was due to an increase in bank
charges during the year as a result of higher cash and short-term investment
balances. Interest and other expense in 1999 is expected to be consistent with
1998 as the Company expects to record an additional $562,000 in interest expense
upon the funding of the remaining $7.5 million of convertible debentures in
1999.
Net Loss
Net losses were $10.8 million, $9.6 million and $10.7 million for the years
ended December 31, 1998, 1997 and 1996, respectively. The increase in net loss
for 1998 was primarily the result of increased operating expenses during the
year and lower research support payments from Kyowa Hakko. The decrease in net
loss for 1997 was the net result of increased revenue from research support
payments from the Pharmacia & Upjohn, Kyowa Hakko and Boehringer Mannheim
collaborative agreements which more than offset the increase in operating
expenses during the year.
LIQUIDITY AND CAPITAL RESOURCES
Cash, cash equivalents and investments at December 31, 1998 were $40.4
million compared to $21.6 million at December 31, 1997 and $24.3 million at
December 31, 1996. It is the Company's investment policy to invest these funds
in liquid, investment grade securities, such as interest-bearing money market
funds, corporate notes, commercial paper and municipal securities. The increase
in cash, cash equivalents and investments in 1998 was the result of sale of
convertible preferred stock in March 1998 and the sale of convertible debentures
in December 1998. The decrease in cash, cash equivalents and investments in 1997
was the net result of increased operating expenses and increased research
funding support payments during the year.
Net cash used in operations was $7.8 million, $7.9 million and $9.9 million
for the years ended December 31, 1998, 1997 and 1996, respectively. The slight
decrease in net cash used in operations from 1997 to 1998 was the net result of
increased non-cash expenses and an increase in operating expenses in 1998. The
decrease in net cash used in operations from 1996 to 1997 was due to an increase
in research support payments as a result of funding under the Pharmacia & Upjohn
collaborative agreement entered into in 1997. The Company expects that its net
cash used in operations may increase in 1999 due to increased research and
development expenditures.
The Company has funded its operations primarily through public and private
debt and equity financings. The Company has also received additional funding
from collaborative agreements, grant revenues, interest income and equipment
financing. In January 1997, Pharmacia & Upjohn made an initial equity investment
of $2.0 million in Geron at a premium. In April 1997 and March 1998, Pharmacia &
Upjohn purchased an aggregate of $8.0 million ($4.0 million at each date) of
Geron Common Stock at a premium. Research support payments from Kyowa Hakko
expired in April 1998 as contractually agreed. Geron will have to expend its own
funds to continue the research. The Company will seek additional funding through
other strategic collaborations, public or private equity financing, or other
financing sources.
Cash provided by financing activities in 1998 also included net proceeds
from the issuance of convertible preferred stock of $15.0 million and net
proceeds of $7.5 million from the issuance of convertible debentures and
warrants. On March 27, 1998, the Company completed a private placement with two
institutional investors for the sale of 15,000 shares of Series A Preferred
Stock with a stated value of $1,000 per share resulting in proceeds of $15.0
million. In November 1998, 11,548 shares of Series A Convertible Preferred Stock
were converted into 2,173,446 shares of Geron Common Stock. The number of shares
of Common Stock issued in November 1998 met the maximum threshold of shares of
Common Stock that could be issued
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without obtaining stockholder approval under NASD regulations. Because the
Company had not obtained stockholder approval to issue additional shares of
Common Stock as of December 31, 1998, the remaining 3,452 shares of Series A
Preferred Stock (with a book value of $3.5 million) are redeemable at the option
of holders of Series A Preferred Stock, have been reclassified as Redeemable
Convertible Preferred Stock and are excluded from Stockholders' Equity. In
addition, the 6% premium on the outstanding shares of Series A Preferred Stock
will be accreted to the value of the outstanding Series A Preferred Stock.
On December 10, 1998, the Company entered into an agreement to sell $15.0
million in convertible zero coupon debentures to investment funds managed by
three institutional investors. The debentures are convertible at any time by the
holders at a fixed conversion price of $10.00 per share. One-half of the
proceeds were funded upon signing the agreement and the remaining $7.5 million
will be funded upon the registration of the underlying Common Stock. The
debentures convert at the Company's option when the Common Stock has traded at a
certain premium to the fixed conversion price for five consecutive trading days.
In December 1998, the Company recorded approximately $562,000 in interest
expense in connection with this financing for the difference between the fair
market value of the Common Stock on the date of issuance and the conversion
price of the debentures. An additional $562,000 in interest expense is expected
to be recorded upon the funding of the remaining $7.5 million of convertible
debentures in 1999.
Through December 31, 1998, the Company had invested approximately $7.1
million in property and equipment, of which approximately $5.5 million was
financed through equipment financing. Minimum annual payments due under the
equipment financing facility are expected to total $913,000, $726,000, $374,000
and $200,000 in 1999, 2000, 2001 and 2002, respectively. As of December 31,
1998, the Company had approximately $2.3 million available for borrowing under
its equipment financing facility. The drawdown period under the equipment
financing facility expires on July 31, 1999. The Company intends to renew the
commitment for a new equipment financing facility in 1999 to further fund
purchases of equipment. If the Company is unable to renew the commitment, then
the Company will need to expend its own resources.
The Company maintains agreements with academic and research institutions to
fund certain scientific research. Minimum annual payments due under these
agreements are expected to total approximately $950,000 and $250,000 in 1999 and
2000, respectively. The Company intends to continue to maintain and develop
relationships with academic and research institutions.
The Company estimates that its existing capital resources, payments under
the Pharmacia & Upjohn collaborative agreement, proceeds to be received under
convertible debentures in 1999, interest income and equipment financing will be
sufficient to fund its current and planned operations through the end of the
year 2000. There can be no assurance, however, that changes in the Company's
research and development plans or other changes affecting the Company's
operating expenses will not result in the expenditure of available resources
before such time, and in any event, the Company will need to raise substantial
additional capital to fund its operations in future periods. The Company intends
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
Before you invest in our common stock, you should be aware that there are
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-K, before you decide whether to purchase shares of our common stock.
Some of the information in this prospectus contains forward-looking
statements that involve substantial risks and uncertainties. You can identify
these statements by forward-looking words such as "may, "will," "expect,"
"anticipate," "believe," "estimate," and "continue" or similar words. You should
read statements that contain these words carefully because they: (1) discuss our
future expectations; (2) contain projections of our future results of operations
or of our financial condition; or (3) state other "forward-looking" information.
We believe it is important to communicate our expectations to our investors.
However, there may be events in the fut