UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

FOR THE PERIOD ENDED MARCH 31, 2004

OR

FOR THE TRANSITION PERIOD FROM              TO          .

COMMISSION FILE NUMBER: 0-20859

GERON CORPORATION

230 CONSTITUTION DRIVE, MENLO PARK, CA 94025
(ADDRESS, INCLUDING ZIP CODE, OF PRINCIPAL EXECUTIVE OFFICES)

REGISTRANT’S TELEPHONE NUMBER, INCLUDING AREA CODE: (650) 473-7700

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

COMMON STOCK $0.001 PAR VALUE
(TITLE OF CLASS)

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

     Yes  x  No  o

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes  x  No  o

     Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

GERON CORPORATION

INDEX

PART I. FINANCIAL INFORMATION

     ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

GERON CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)

See accompanying notes.

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GERON CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)

See accompanying notes.

4

GERON CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
CHANGE IN CASH AND CASH EQUIVALENTS
(IN THOUSANDS)
(UNAUDITED)

See accompanying notes.

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GERON CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2004
(UNAUDITED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

     The terms “Geron”, the “Company”, “we” and “us” as used in this report refer to Geron Corporation. The accompanying condensed consolidated unaudited balance sheet as of March 31, 2004 and condensed consolidated statements of operations for the three month periods ended March 31, 2004 and 2003 have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of the management of Geron Corporation, all adjustments (consisting only of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three month period ended March 31, 2004 are not necessarily indicative of the results that may be expected for the year ending December 31, 2004 or any other period. These financial statements and notes should be read in conjunction with the financial statements for the year ended December 31, 2003, included in the Company’s Annual Report on Form 10-K. The accompanying condensed consolidated balance sheet as of December 31, 2003 has been derived from audited financial statements at that date.

Principles of Consolidation

     The consolidated financial statements include the accounts of Geron Corporation and its wholly-owned subsidiary, Geron Bio-Med Ltd., a United Kingdom company. Intercompany accounts and transactions have been eliminated. The financial statements of the Company’s subsidiary outside the United States are measured using the local currency as the functional currency. Assets and liabilities of this subsidiary are translated at rates of exchange at the balance sheet date. Income and expense items are translated at average monthly rates of exchange. The resultant translation adjustments are included in accumulated other comprehensive income (loss), a separate component of stockholders’ equity.

Net Loss Per Share

     Basic earnings (loss) per share is based on weighted average shares outstanding and excludes any dilutive effects of options, warrants and convertible securities. Diluted earnings (loss) per share includes any dilutive effect of options, warrants and convertible securities.

     A reconciliation of shares used in calculation of basic and diluted net loss per share follows:

     Because the Company is in a net loss position, diluted earnings per share is also calculated using the weighted average number of common shares outstanding and excludes the effects of options, warrants and convertible securities which are antidilutive. Had the Company been in a net income position, diluted earnings per share would have included the shares used in the computation of basic net loss per share as well as an additional 2,110,180 shares and 26,733 shares for 2004 and 2003, respectively related to outstanding options, warrants and convertible securities not included above (as determined using the treasury stock method at average market price during the period).

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Use of Estimates

     The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

Cash Equivalents and Marketable Debt Securities Available-For-Sale

     The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. The Company is subject to credit risk related to its cash equivalents and securities available-for-sale. The Company places its cash and cash equivalents in money market funds and commercial paper.

     The Company classifies its marketable debt securities as available-for-sale. Available-for-sale securities are recorded at fair value with unrealized gains and losses reported in accumulated other comprehensive income (loss) in stockholders’ equity. Fair values for investment securities are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments. Realized gains and losses are included in interest and other income and are derived using the specific identification method for determining the cost of securities sold and have been immaterial to date. Declines in market value judged other-than-temporary result in a charge to interest income. Dividend and interest income are recognized when earned. The Company’s investments include corporate notes in United States corporations with original maturities ranging from five to 24 months.

Revenue Recognition

     Geron recognizes revenue related to license and research agreements with collaborators, royalties, milestone payments and government grants. The Company’s revenue arrangements with multiple deliverables are divided into separate units of accounting if certain criteria are met, including whether the delivered item has stand-alone value to the end user and whether there is objective and reliable evidence of the fair value of the undelivered items. The consideration the Company receives is allocated among the separate units based on their respective fair values, and the applicable revenue recognition criteria are considered separately for each of the separate units.

     Since Geron’s inception, a substantial portion of its revenues has been generated from license and research agreements with collaborators. The Company recognizes revenue under these collaborative agreements as the related research and development costs are incurred. Deferred revenue represents the portion of research payments received which have not been earned. Milestone fees are recognized upon completion of specified milestones according to contract terms.

     The Company also has several license, option and marketing agreements with various oncology, diagnostics, research tools, agriculture and biologics production companies. With each of these agreements, the Company receives nonrefundable license payments in cash or equity securities, option payments in cash or equity securities, royalties on future sales of products, milestone payments, or any combination of these items. Nonrefundable signing or license fees that are not dependent on future performance under these agreements are recognized as revenue when received and over the term of the arrangement if the Company has continuing performance obligations. Option payments are recognized as revenue over the period of the option agreement. Milestone payments are recognized upon completion of specified milestones according to contract terms. Royalties are generally recognized upon receipt.

     The Company receives income from United States government grants that support the Company’s research efforts in defined research projects. These grants generally provided for reimbursement of approved costs incurred as defined in the various grants. Income associated with these grants is recognized upon receipt of reimbursement and is included in interest and other income.

Restricted Cash

     As of March 31, 2004 and December 31, 2003, the Company held $530,000 in a Certificate of Deposit as collateral on an unused line of credit.

Marketable and Non-Marketable Equity Investments in Licensees

     Investments in non-marketable nonpublic companies are carried at the lower of cost or net realizable value. Investments in marketable equity securities are carried at the market value as of the balance sheet date.

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Unrealized gains and losses are included as a separate component of stockholders’ equity. Realized gains or losses are included in interest and other income and are derived using the specific identification method. No writedowns were recorded for the three months ended March 31, 2004 and 2003.

Derivative Financial Instruments

     The Company owns a warrant to purchase common stock in a private company. In accordance with Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended (SFAS 133), the Company accounts for the warrant as a derivative financial instrument. Accordingly, the warrant is recorded at fair value as of the balance sheet date based on the Black-Scholes valuation of such instruments in comparable companies and other indicators of the investment’s value. Any gains or losses in fair value are recorded in interest and other income. The Company does not use derivative financial instruments for trading or speculative purposes.

     The Company’s exposure to currency exchange fluctuation risk is insignificant. Geron Bio-Med, Ltd., the Company’s international subsidiary, satisfies its financial obligations almost exclusively in its local currency. For 2004, there was an insignificant currency exchange impact from intercompany transactions. The Company does not engage in foreign currency hedging activities.

Intangible Asset and Research Funding Obligation

     In May 1999, the Company completed the acquisition of Roslin Bio-Med Ltd., a privately held company formed by the Roslin Institute in Midlothian, Scotland. In connection with this acquisition, the Company formed a research collaboration with the Roslin Institute and committed approximately $20,000,000 in research funding over six years. Using an effective interest rate of 6%, this research funding obligation had a net present value of $17,200,000 at the acquisition date and was capitalized as an intangible asset that is being amortized as research and development expense over the six year funding period. Imputed interest is also being accreted to the value of the research funding obligation and is recognized as interest expense.

Research and Development Expenses

     All research and development costs are expensed as incurred. The value of acquired in-process research technology is charged to expense on the date of acquisition if it has no alternative future uses in other research and development projects, and is recorded separately on the Condensed Consolidated Statement of Operations. Research and development expenses include, but are not limited to, payroll and personnel expense, purchased intangibles from others, lab supplies, preclinical studies, raw materials to manufacture clinical trial drugs, manufacturing costs, sponsored research at other labs, consulting and research-related overhead. Accrued liabilities for raw materials to manufacture clinical trial drugs, manufacturing costs and sponsored research reimbursement fees are included in accrued liabilities and research and development expenses.

Depreciation and Amortization

     The Company records property and equipment at cost and calculates depreciation using the straight-line method over the estimated useful lives of the assets, generally four years. Leasehold improvements are amortized over the shorter of the estimated useful life or remaining term of the lease.

Employee Stock Plans

     As permitted by Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation,” (SFAS 123) the Company elected to continue to apply the provisions of Accounting Principle Board Opinion No. 25, “Accounting for Stock Issued to Employees,” (APB 25) and related interpretations in accounting for its employee stock option and stock purchase plans. The Company is generally not required under APB 25 and related interpretations to recognize compensation expense in connection with its employee stock option and stock purchase plans.

     Pro forma information regarding net loss and net loss per share is required by SFAS 123 and has been determined as if the Company had accounted for its employee stock options under the fair value method prescribed by the SFAS 123. The fair value for these options was estimated at the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions: risk-free interest rates ranging from 2.37% to 2.95% for the three months ended March 31, 2004 and 2.02% to 2.85% for the comparable period in 2003; a dividend yield of 0.0% for the three months ended March 31, 2004 and 2003; a

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volatility factor of the expected market price of the Company’s common stock of 0.992 and 1.013 as of March 31, 2004 and 2003, respectively; and a weighted average expected life of the options of 4 years for the three months ended March 31, 2004 and 2003.

     For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the vesting period of the options using the straight-line method. The Company’s pro forma information follows:

     The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company’s employee stock options and employee stock purchase plans have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair market value estimate, in management’s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options, nor do they necessarily represent the effects of employee stock options on reported net income (loss) for future years.

Comprehensive Loss

     Comprehensive loss is comprised of net loss and other comprehensive loss. Other comprehensive loss includes certain changes in equity that are excluded from net loss.

     The components of accumulated other comprehensive loss are as follows:

Reclassifications

     Certain reclassifications of prior year amounts have been made to conform to current year presentation. Patent legal expenses in the prior years have been reclassified from research and development expense to general and administrative expense.

2. ACQUISITION OF IN-PROCESS RESEARCH TECHNOLOGY

     In March 2004, the Company entered into an agreement with Merix Bioscience, Inc. under which the Company acquired a co-exclusive right under patents controlled by Merix for the use of defined antigens in therapeutic cancer vaccines. The technology covered by the Merix patents is currently being used in conjunction with Geron’s proprietary telomerase technology in a Phase I/II clinical trial under way at Duke University Medical Center. In conjunction with the agreement, the Company issued 5,000,000 shares of Geron common stock to Merix.

     The Company acquired the use of the Merix technology solely for developing its therapeutic cancer vaccine program. The Company must further the development of the technology before it can enter into advanced clinical trials for a potential commercial application. The Company has concluded that this

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technology has no alternative future use, and accordingly, has expensed the value of the acquired in-process research technology at the time of acquisition.

     In February 2004, the Company entered into a stock purchase agreement with Merix to purchase $4,000,000 of Merix common stock on March 15, 2004. In anticipation of this purchase, the Company deposited the funds with Merix. With the execution of the above license agreement, the February 2004 stock purchase agreement was canceled. The $4,000,000 deposit will be returned to the Company on the 91st day following the effective date of the registration statement underlying the above stock issuance. As of March 31, 2004, the registration statement has not been declared effective. The entire deposit remains outstanding as a receivable from Merix and is included in Interest and Other Receivables on the Condensed Consolidated Balance Sheets.

3. ISSUANCES OF COMMON STOCK

     In January 2004, the Company issued 39,468 shares of common stock to Transgenomic, Inc. as payment of the first installment under an addendum to the Company’s supply agreement with Transgenomic, pursuant to which Transgenomic is manufacturing certain chemicals used in producing telomerase inhibitor compounds. The fair value of the common stock has been recorded as a prepaid asset and will be amortized on a pro-rata basis as materials are received which is expected to be approximately three months. Also in January 2004, the Company issued 46,417 shares of common stock to Transgenomic as payment of the final installment under a separate addendum to the supply agreement. The fair value of the common stock has been recorded as research and development expense as the materials had been delivered at the time of the stock issuance.

     In March 2004, the Company issued 33,662 shares of common stock to Transgenomic, Inc. as payment of the first installment under another addendum to the supply agreement pursuant to which Transgenomic is manufacturing certain chemicals used in producing telomerase inhibitor compounds. The fair value of the common stock has been recorded as a prepaid asset and will be amortized on a pro-rata basis as materials are received which is expected to be approximately three months.

4. LEASE MODIFICATION AND TERMINATION

     In March 2004, as payment of the total rent due for the Company’s premises at 200 Constitution Drive and 230 Constitution Drive in Menlo Park, California for the period from February 1, 2004 through July 31, 2008, the Company issued to the David D. Bohannon Organization, the lessor of those premises, 363,039 shares of common stock. The fair value of the common stock has been recorded as a prepaid asset and will be amortized to rent expense on a straight-line basis over the lease period. As consideration for the early termination of the lease on the premises at 255 Constitution Drive in Menlo Park, California, the Company issued to the Bohannon Development Company, the lessor of those premises, 46,902 shares of common stock. The lease termination is effective April 1, 2004. The fair value of the common stock has been recorded as rent expense in March 2004. The sublease agreement entered into in June 2003 between the Company and a third party was transferred to the lessor of the premises effective March 31, 2004. The remaining liability associated with the sublease was fully accreted and no liability remains outstanding as of March 31, 2004.

5. MARKETABLE AND NON-MARKETABLE EQUITY INVESTMENTS IN LICENSEES

     In March 2004, the Company granted a nonexclusive license to Xcellsyz Ltd. for human telomerase reverse transcriptase (hTERT) technology for research applications and the development of research products. Under the terms of the agreement, Xcellsyz will use hTERT to create immortalized cell lines for in vitro use in drug discovery and screening.

     In connection with the nonexclusive license, Xcellsyz paid Geron a license fee in cash and equity in Xcellsyz and will pay royalties on future product sales. Since there is no readily available market value for Xcellsyz shares the Company estimated the fair value based upon Xcellsyz’ financial statements and business plans. License fee revenue of $79,000 from the cash fee and value of the equity was recognized in March 2004.

     In February 2004, the Company sold its equity investment in Dendreon Corporation. The Company received $201,000 in proceeds from the sale and recognized $84,000 as a realized gain from the sale of common stock which is included in interest and other income. As of March 31, 2004, the Company has no further equity investment in Dendreon.

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     6. CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS DATA

     7. SUBSEQUENT EVENT

     On April 28, 2004, Geron Corporation announced that Kirin Brewery Co., Ltd. has filed a lawsuit against Geron in the U.S. District Court for the Northern District of California. The lawsuit alleges interference with contract and interference with Kirin’s prospective business advantage in connection with Geron’s recent acquisition of rights from Merix Bioscience, Inc. for the development of cancer vaccines.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

     This Form 10-Q contains forward-looking statements that involve risks and uncertainties. We use words such as “anticipate”, “believe”, “plan”, “expect”, “future”, “intend” and similar expressions to identify forward-looking statements. These statements appear throughout the Form 10-Q and are statements regarding our intent, belief, or current expectations, primarily with respect to our operations and related industry developments. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this Form 10-Q. Our actual results could differ materially from those anticipated in these forward-looking statements for many reasons, including the risks faced by us and described under the heading “Additional Factors that May Affect Future Results” in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2003, in the section of this Item 2 titled “Additional Factors That May Affect Future Results,” and elsewhere in this Form 10-Q.

     The following discussion should be read in conjunction with the unaudited condensed financial statements and notes thereto included in Part I, Item 1 of this Quarterly Report on Form 10-Q and with Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2003.

     We are a biopharmaceutical company focused on developing and commercializing therapeutic and diagnostic products for cancer based on our telomerase technology, and cell-based therapeutics using our human embryonic stem cell technology.

     Our results of operations have fluctuated from period to period and may continue to fluctuate in the future based upon the timing and composition of funding under our various collaborative agreements, as well as the progress of our research and development efforts and variations in the level of expenses related to developmental efforts during any given period. Results of operations for any period may be unrelated to results of operations for any other period. In addition, historical results should not be viewed as indicative of future operating results. We are subject to risks common to companies in our industry and at our stage of development, including risks inherent in our research and development efforts, reliance upon our collaborative partners, enforcement of our patent and proprietary rights, need for future capital, potential competition and uncertainty of regulatory approvals or clearances. In order for a product to be commercialized based on our research, we and our collaborators must conduct preclinical tests and clinical trials, demonstrate the efficacy and safety of our product candidates, obtain regulatory approvals or clearances and enter into manufacturing, distribution and marketing arrangements, as well as obtain market acceptance. We do not expect to receive revenues or royalties based on therapeutic products for a period of years, if at all.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

     We believe that there have been no significant changes in our critical accounting policies and estimates during the three months ended March 31, 2004 as compared to the critical accounting policies and estimates disclosed in our Annual Report on Form 10-K for the year ended December 31, 2003 as filed with the Securities and Exchange Commission on February 27, 2004.

     Our condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Note 1 of Notes to Condensed Consolidated Financial Statements describes the significant accounting policies used in the preparation of the condensed consolidated financial statements. Certain of these significant accounting policies are considered to be critical accounting policies, as defined below.

     A critical accounting policy is defined as one that is both material to the presentation of our financial statements and requires management to make difficult, subjective or complex judgments that could have a material effect on our financial condition and results of operations. Specifically, critical accounting estimates have the following attributes: 1) we are required to make assumptions about matters that are highly uncertain at the time of the estimate; and 2) different estimates we could reasonably have used, or changes in the estimate that are reasonably likely to occur, would have a material effect on our financial condition or results of operations.

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     Estimates and assumptions about future events and their effects cannot be determined with certainty. We base our estimates on historical experience and on various other assumptions believed to be applicable and reasonable under the circumstances. These estimates may change as new events occur, as additional information is obtained and as our operating environment changes. These changes have historically been minor and have been included in the consolidated financial statements as soon as they became known. Based on a critical assessment of our accounting policies and the underlying judgments and uncertainties affecting the application of those policies, management believes that our consolidated financial statements are fairly stated in accordance with accounting principles generally accepted in the United States, and present a meaningful presentation of our financial condition and results of operations.

     We believe the following critical accounting policies reflect our more significant estimates and assumptions used in the preparation of our condensed consolidated financial statements:

Revenue Recognition

     We recognize revenue related to license and research agreements with collaborators, royalties, milestone payments and government grants. Our revenue arrangements with multiple deliverables are divided into separate units of accounting if certain criteria are met, including whether the delivered item has stand-alone value to the end user and whether there is objective and reliable evidence of the fair value of the undelivered items. The consideration we receive is allocated among the separate units based on their respective fair values, and the applicable revenue recognition criteria are considered separately for each of the separate units.

     Since our inception, a substantial portion of our revenues has been generated from license and research agreements with collaborators. We recognize cost reimbursement revenue under these collaborative agreements as the related research and development costs are incurred. Deferred revenue represents the portion of research payments received which has not been earned. We recognize milestone fees upon completion of specified milestones according to contract terms.

     We also have several license, option and marketing agreements with various oncology, diagnostics, research tools, agriculture and biologics production companies. With each of these agreements, we may receive nonrefundable license payments in cash or equity securities, option payments in cash or equity securities, royalties on future sales of products, milestone payments, or any combination of these items. We recognize nonrefundable signing or license fees that are not dependent on future performance under these agreements as revenue when received and over the term of the arrangement if we have continuing performance obligations. We recognize option payments as revenue over the period of the option agreement. We recognize milestone payments upon completion of specified milestones according to contract terms. We generally recognize royalties as revenue upon receipt.

     We receive income from United States government grants that support our research efforts in defined research projects. These grants generally provide for reimbursement of approved costs incurred as defined in the various grants. Income associated with these grants is recognized upon receipt of reimbursement and is included in interest and other income on the condensed consolidated statements of operations. We estimate the projected future life of license agreements over which we recognize revenue. Our estimates are based on historical experience and general industry practice. Revisions in the estimated lives have the effect of increasing or decreasing license fee revenue in the period of revision. As of March 31, 2004, no revisions to the estimated future lives of license agreements have been made and we do not expect revisions in the future.

Intangible Asset and Research Funding Obligation

     In May 1999, we completed the acquisition of Roslin Bio-Med Ltd., a privately held company formed by the Roslin Institute in Midlothian, Scotland. In connection with this acquisition, we formed a research collaboration with the Roslin Institute and committed approximately $20,000,000 in research funding over six years. Using an effective interest rate of 6%, this research funding obligation had a net present value of $17,200,000 at the acquisition date and was capitalized as an intangible asset that is being amortized as research and development expense over the six year funding period. Imputed interest is also being accreted to the value of the research funding obligation and is recognized as interest expense.

     At the time of acquisition, we estimated the effective interest rate and have been evaluating the spending rate under the collaboration as compared to the contractual funding period. Revisions in the effective interest rate or amortization period would have the effect of increasing or decreasing research and development expense as well as the balance of intangible assets and research funding obligation on the balance sheet. As

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of March 31, 2004, no revisions to the effective interest rate or amortization period have been made and we do not expect revisions in the future.

Valuation of Equity Instruments

     As permitted by SFAS No. 123, “Accounting for Stock-Based Compensation,” (SFAS 123) we elected to continue to apply the provisions of APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations in accounting for our employee stock option and stock purchase plans. We are generally not required under APB Opinion No. 25 and related interpretations to recognize compensation expense in connection with our employee stock option and stock purchase plans. We are required by SFAS 123 to present, in the Notes to Condensed Consolidated Financial Statements, the pro forma effects on reported net income and earnings per share as if compensation expense had been recognized based on the fair value method of accounting prescribed by SFAS 123.

     In valuing our options using the Black-Scholes option pricing model, we make assumptions about risk-free interest rates, dividend yields, volatility and weighted average expected lives of the options. Risk-free interest rates are derived from United States zero-coupon treasury strip yields as of the option grant date. Dividend yields are based on our historical dividend payments, which have been zero to date. Volatility is derived from the historical volatility of our common stock as traded on Nasdaq. The weighted average expected lives of the options is based on historical experience of option exercises. Each year, we have consistently applied the same methodology when deriving these assumptions. Revisions of any of these assumptions would increase or decrease the value of the option and increase or decrease the pro forma effect on reported net income and earnings per share if the compensation expense had been recognized based on the fair value method. As of March 31, 2004, no revisions to the assumptions used in the Black-Scholes option pricing model have been made and we do not expect revisions in the future.

     In valuing our warrants using the Black-Scholes option pricing model, we make assumptions about risk-free interest rates, dividend yields, volatility and weighted average expected lives of the warrants. Risk-free interest rates are derived from United States zero-coupon treasury strip yields as of the warrant issue date. Dividend yields are based on our historical dividend payments, which have been zero to date. Volatility is derived from the historical volatility of our common stock as traded on Nasdaq. The weighted average expected lives of the warrants is based on the term of the warrant. Upon issuance of a warrant to consultants or collaborators, we recognize an expense in our consolidated statements of operations. Upon issuance of warrants in connection with an equity financing, we recognize issuance costs with an offset to additional paid-in capital in our consolidated balance sheets. Each year, we have consistently applied the same methodology when deriving these assumptions. Revisions of any of these assumptions would increase or decrease the value of the warrant and increase or decrease the expense or issuance cost recognized upon issuance of the warrant. As of March 31, 2004, no revisions to the assumptions used in the Black-Scholes option pricing model have been made and we do not expect revisions in the future.

RESULTS OF OPERATIONS

Revenues

     We recognized no revenues from collaborative agreements for the three months ended March 31, 2004, compared to $36,000 for the comparable period in 2003. Revenues recognized in 2003 primarily related to a consulting arrangement.

     We have entered into license and option agreements with various companies involved in fields such as diagnostics, research tools, agriculture, biologics production and cancer therapeutics. In each of these agreements, we have conveyed certain rights to our technologies. In connection with the agreements, we are entitled to receive license fees, option fees, milestone payments, royalties on future sales, or any combination, which may be payable in cash or equity securities or both. We recognized license and option fee revenues of $241,000 for the three months ended March 31, 2004 as compared to $186,000 for the same period in 2003 related to our various agreements. Also, we received royalties of $7,000 for the three months ended March 31, 2004, compared to $40,000 for the comparable period in 2003, on product sales of telomerase diagnostic kits to the research-use-only market and cell-based research products. License and royalty revenues are dependent upon additional agreements being signed and future product sales. We expect to recognize revenue of $115,000 during the remainder of 2004, $137,000 each in 2005, 2006, and 2007 and $405,000 thereafter related to our existing deferred revenue. Current revenues may not be predictive of future results.

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Research and Development Expenses

     Research and development expenses were $5.7 million for the three months ended March 31, 2004, compared to $6.9 million for the comparable period in 2003. The overall decrease for the first quarter 2004 compared to the first quarter 2003 was the net result of reduced personnel-related costs of approximately $468,000 and lower costs of raw materials to manufacture clinical trial drugs of $1.1 million. Overall, we expect research and development expenses to increase in the next year as we continue to incur expenses related to manufacturing and testing of our telomerase inhibitor compounds and continue development of our telomerase cancer vaccine and human embryonic stem cell (hESC) programs.

     Our research and development activities can be divided into two major categories of related programs, oncology and hESC therapies. The oncology programs focus on treating or diagnosing cancer by targeting or detecting the presence of telomerase, either inhibiting activity of the telomerase enzyme, diagnosing cancer by detecting the presence of telomerase, or using telomerase as a target for therapeutic vaccines. Our core knowledge base in telomerase and telomere biology supports all these approaches, and our scientists may contribute to any or all of these programs in a given period. Our telomerase inhibitor compounds, GRN163 and GRN163L, are in preclinical animal toxicology and efficacy studies. We hope to complete the preclinical studies successfully during 2004, after which we expect to prepare and file an IND application. A telomerase therapeutic vaccine for patients with metastatic prostate cancer is currently in an investigator-sponsored Phase I/II clinical study at Duke University Medical Center.

     Our hESC therapy programs focus on treating degenerative diseases with cell therapies based on cells derived from hESCs. A core of knowledge of hESC biology, as well as a significant continuing effort in deriving, growing, maintaining, and differentiating hESCs, underlies all aspects of this group of programs. Many of our researchers are allocated to more than one hESC project, and the percentage allocations of time change as the resource needs of individual programs vary. In our hESC therapy programs, we have concentrated our resources on several specific cell types. We have developed proprietary methods to derive, maintain and scale up undifferentiated hESCs and differentiate them into therapeutically relevant cells. We are now testing six different therapeutic cell types in animal models. In three of these cell types, we have preliminary results indicating efficacy as evidenced by functional recovery of the treated animals. After completion of these studies, we expect to begin one or more Phase I clinical trials, most likely for treatment of spinal cord injury.

     Research and development expenses allocated to programs are as follows (in thousands):

     At this time, we cannot provide reliable estimates of how much time or investment will be necessary to complete the programs currently in progress. Drug development in the U.S. is a process that includes multiple steps defined by the FDA under applicable statutes, regulations and guidance documents. After the preclinical research process of identifying, selecting and testing in animals a potential pharmaceutical compound, the clinical development process begins with the filing of an IND. Clinical development typically involves three phases of study: Phase I, II, and III. The most significant costs associated with clinical development are incurred in Phase III trials, which tend to be the longest and largest studies conducted during the drug development process. After the completion of a successful preclinical and clinical development program, a New Drug Application (NDA) or Biologics License Application (BLA) must be filed with the FDA, which includes among other things very large amounts of preclinical and clinical data and results and manufacturing-related information necessary to support requested approval of the product. The NDA/BLA must be reviewed and approved by the FDA.

     According to industry statistics, it generally takes 10 to 15 years to research, develop and bring to market a new prescription medicine in the United States. In light of the steps and complexities involved, the successful development of our products is highly uncertain. Actual product timelines and costs are subject to enormous variability and are very difficult to predict, as our clinical development programs are updated and changed to reflect the most recent preclinical and clinical data and other relevant information. In addition, various statutes and regulations also govern or influence the manufacturing, safety reporting, labeling,

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storage, recordkeeping and marketing of each product. The lengthy process of seeking these regulatory reviews and approvals, and the subsequent compliance with applicable statutes and regulations, require the expenditure of substantial resources. Any failure by us to obtain, or any delay in obtaining, regulatory approvals could materially adversely affect our business. In responding to an NDA/BLA submission, the FDA may grant marketing approval, may request additional information, may deny the application if it determines that the application does not provide an adequate basis for approval, and may also refuse to review an application that has been submitted if it determines that the application does not provide an adequate basis for filing and review. We cannot assure you that any approval required by the FDA will be obtained on a timely basis, if at all.

     For a more complete discussion of the risks and uncertainties associated with completing development of potential products, see the sub-section titled “Because we or our collaborators must obtain regulatory approval to market our products in the United States and other countries, we cannot predict whether or when we will be permitted to commercialize our products” and “Entry into clinical trials with one or more product candidates may not result in any commercially viable products” in the section of Item 2 entitled “Additional Factors That May Affect Future Results,” and elsewhere in this Form 10-Q.

Acquired In-Process Research Technology

     In March 2004, we entered into an agreement with Merix Bioscience, Inc. under which we acquired a co-exclusive right under patents controlled by Merix for the use of defined antigens in therapeutic cancer vaccines. In conjunction with the agreement, we issued 5,000,000 shares of Geron common stock to Merix.

     We acquired rights to the Merix technology for commercial development of our therapeutic cancer vaccine. Further development of the technology is required before we can enter into advanced clinical trials for a potential commercial application. We have concluded that this technology has no alternative future use as defined in Statement of Financial Accounting Standards No. 2, and accordingly, have expensed the value of the acquired in-process research technology of $45.2 million at the time of acquisition.

General and Administrative Expenses

     General and administrative expenses were $1.4 million for the three months ended March 31, 2004, compared to $1.5 million for the comparable period in 2003. The decrease in general and administrative expenses for the three month period ending March 31, 2004 primarily reflects reduced personnel-related costs.

Interest and Other Income

     Interest income was $424,000 for the three months ended March 31, 2004, compared to $249,000 for the comparable period in 2003. The increase in interest income for 2004 compared to 2003 was due to higher cash and investment balances as a result of proceeds received from equity financings in 2003. Interest earned in the future will depend on future funding and prevailing interest rates. Included in interest income is a gain of $84,000 from the sale of an equity investment in a licensee.

     We also received $74,000 in research payments under government grants for the three months ended March 31, 2004, compared to $27,000 for the comparable period in 2003.

Interest and Other Expense

     Interest and other expense was $170,000 for the three months ended March 31, 2004, compared to $164,000 for the comparable period in 2003. The increase in interest and other expense for 2004 compared to 2003 was primarily due to increased bank charges as a result of higher cash and investment balances.

Net Loss

     Net loss was $51.7 million for the three months ended March 31, 2004, compared to $7.9 million for the comparable period in 2003. The increase in net loss for the three months ended March 31, 2004 was the net result of reduced operating expenses as a result of our January 2003 restructuring and the increase in acquired in-process research technology expense of $45.2 million associated with the Merix transaction.

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LIQUIDITY AND CAPITAL RESOURCES

     Cash, restricted cash, cash equivalents and marketable securities at March 31, 2004 totaled $99.7 million compared