Quarterly Report (10-q)

Date : 05/02/2019 @ 9:09PM
Source : Edgar (US Regulatory)
Stock : Geron Corp. (GERN)
Quote : 1.23  0.0 (0.00%) @ 9:08AM

Quarterly Report (10-q)

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

 

WASHINGTON D.C. 20549

 

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2019

 

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

incorporation or organization)

 

Identification No.)

 

 

 

149 COMMONWEALTH DRIVE, SUITE 2070, MENLO PARK, CA

 

94025

(Address of principal executive offices)

 

(Zip Code)

 

(650) 473-7700

(Registrant’s telephone number, including area code)

 

N/A

(Former name, former address and former fiscal year, if changed since last report)

 

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       No  

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes       No  

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer 

 

Accelerated filer 

 

 

 

 

 

Non-accelerated filer 

 

Smaller reporting company 

 

 

 

 

 

Emerging growth company

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes       No  

 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class:

Trading symbol(s):

Name of each exchange on which registered:

Common Stock, $0.001 par value

GERN

The Nasdaq Stock Market LLC

 

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

 

 

Class:

 

Outstanding at April 29, 2019:

Common Stock, $0.001 par value

 

186,516,047 shares

 

 

 


GERON CORPORATION

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTER ENDED MARCH 31, 2019

TABLE OF CONTENTS

 

 

 

 

 

Page

PART I. FINANCIAL INFORMATION

 

 

 

 

 

Item 1:

 

Condensed Financial Statements (Unaudited)

 

1

 

 

Condensed Balance Sheets as of March 31, 2019 and December 31, 2018

 

1

 

 

Condensed Statements of Operations for the three months ended March 31, 2019 and 2018

 

2

 

 

Condensed Statements of Comprehensive Loss for the three months ended March 31, 2019 and 2018

 

3

 

 

Condensed Statements of Stockholders’ Equity for the three months ended March 31, 2019 and 2018

 

4

 

 

Condensed Statements of Cash Flows for the three months ended March 31, 2019 and 2018

 

5

 

 

Notes to Condensed Financial Statements

 

6

Item 2:

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

17

Item 3:

 

Quantitative and Qualitative Disclosures About Market Risk

 

24

Item 4:

 

Controls and Procedures

 

24

 

 

 

 

 

PART II. OTHER INFORMATION

 

 

 

 

 

Item 1:

 

Legal Proceedings

 

25

Item 1A:

 

Risk Factors

 

25

Item 2:

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

55

Item 3:

 

Defaults Upon Senior Securities

 

55

Item 4:

 

Mine Safety Disclosures

 

55

Item 5:

 

Other Information

 

55

Item 6:

 

Exhibits

 

56

 

 

SIGNATURE

 

58

 

 

 


 

PART I. FINANCIAL INFORMATION

ITEM 1.

CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

GERON CORPORATION

CONDENSED BALANCE SHEETS

(IN THOUSANDS)

 

 

 

MARCH 31,

 

 

DECEMBER 31,

 

 

 

2019

 

 

2018

 

 

 

(UNAUDITED)

 

 

(NOTE 1)

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

6,800

 

 

$

10,575

 

Restricted cash

 

 

270

 

 

 

269

 

Marketable securities

 

 

145,180

 

 

 

152,714

 

Interest and other receivables

 

 

976

 

 

 

1,168

 

Prepaid assets

 

 

2,723

 

 

 

1,332

 

Total current assets

 

 

155,949

 

 

 

166,058

 

Noncurrent marketable securities

 

 

17,871

 

 

 

18,582

 

Property and equipment, net

 

 

89

 

 

 

59

 

Operating lease, right-of-use asset

 

 

571

 

 

 

 

Other assets

 

 

1,186

 

 

 

585

 

 

 

$

175,666

 

 

$

185,284

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

913

 

 

$

982

 

Accrued compensation and benefits

 

 

1,661

 

 

 

2,642

 

Amount due to Janssen Biotech, Inc.

 

 

2,071

 

 

 

2,610

 

Operating lease liability

 

 

571

 

 

 

 

Accrued liabilities

 

 

1,037

 

 

 

1,317

 

Total current liabilities

 

 

6,253

 

 

 

7,551

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

 

Common stock

 

 

186

 

 

 

186

 

Additional paid-in capital

 

 

1,190,651

 

 

 

1,189,194

 

Accumulated deficit

 

 

(1,021,523

)

 

 

(1,011,464

)

Accumulated other comprehensive gain (loss)

 

 

99

 

 

 

(183

)

Total stockholders' equity

 

 

169,413

 

 

 

177,733

 

 

 

$

175,666

 

 

$

185,284

 

 

See accompanying notes.

1


 

GERON CORPORATION

CONDENSED STATEMENTS OF OPERATIONS

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

(UNAUDITED)

 

 

 

THREE MONTHS ENDED

 

 

 

MARCH 31,

 

 

 

2019

 

 

2018

 

Revenues:

 

 

 

 

 

 

 

 

License fees and royalties

 

$

57

 

 

$

318

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

Research and development

 

 

5,906

 

 

 

2,440

 

General and administrative

 

 

5,452

 

 

 

5,315

 

Total operating expenses

 

 

11,358

 

 

 

7,755

 

Loss from operations

 

 

(11,301

)

 

 

(7,437

)

Interest and other income

 

 

1,162

 

 

 

394

 

Change in fair value of equity investment

 

 

98

 

 

 

(125

)

Other expense

 

 

(18

)

 

 

(18

)

Net loss

 

$

(10,059

)

 

$

(7,186

)

 

 

 

 

 

 

 

 

 

Basic and diluted net loss per share

 

$

(0.05

)

 

$

(0.04

)

 

 

 

 

 

 

 

 

 

Shares used in computing basic and diluted net loss per share

 

 

186,393,128

 

 

 

160,525,947

 

 

See accompanying notes.

2


 

GERON CORPORATION

CONDENSED STATEMENTS OF COMPREHENSIVE LOSS

(IN THOUSANDS)

(UNAUDITED)

 

 

 

THREE MONTHS ENDED

 

 

 

MARCH 31,

 

 

 

2019

 

 

2018

 

Net loss

 

$

(10,059

)

 

$

(7,186

)

Net unrealized gain (loss) on marketable securities

 

 

282

 

 

 

(124

)

Comprehensive loss

 

$

(9,777

)

 

$

(7,310

)

 

See accompanying notes.


3


 

GERON CORPORATION

CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY

(IN THOUSANDS, EXCEPT SHARE DATA)

(UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

Other

 

 

Total

 

 

 

Common Stock

 

 

Paid-In

 

 

Accumulated

 

 

Comprehensive

 

 

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Gain (Loss)

 

 

Equity

 

 

 

 

 

Balance at December 31, 2017

 

 

159,877,239

 

 

$

160

 

 

$

1,089,684

 

 

$

(985,840

)

 

$

(207

)

 

$

103,797

 

Cumulative effect of accounting principle

   change

 

 

 

 

 

 

 

 

 

 

 

1,393

 

 

 

 

 

 

1,393

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(7,186

)

 

 

 

 

 

(7,186

)

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(124

)

 

 

(124

)

Issuance of common stock in connection

   with at market offering, net of

   issuance costs of $48

 

 

776,788

 

 

 

1

 

 

 

1,552

 

 

 

 

 

 

 

 

 

1,553

 

Stock-based compensation related to

   issuance of common stock and

   options in exchange for services

 

 

8,308

 

 

 

 

 

 

71

 

 

 

 

 

 

 

 

 

71

 

Stock-based compensation for equity-

   based awards to employees and directors

 

 

 

 

 

 

 

 

1,614

 

 

 

 

 

 

 

 

 

1,614

 

401(k) contribution

 

 

 

 

 

 

 

 

10

 

 

 

 

 

 

 

 

 

10

 

Balance at March 31, 2018

 

 

160,662,335

 

 

$

161

 

 

$

1,092,931

 

 

$

(991,633

)

 

$

(331

)

 

$

101,128

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2018

 

 

186,392,682

 

 

$

186

 

 

$

1,189,194

 

 

$

(1,011,464

)

 

$

(183

)

 

$

177,733

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(10,059

)

 

 

 

 

 

(10,059

)

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

282

 

 

 

282

 

Stock-based compensation related to

   issuance of common stock in

   exchange for services

 

 

13,365

 

 

 

 

 

 

22

 

 

 

 

 

 

 

 

 

22

 

Stock-based compensation for equity-

   based awards to employees and directors

 

 

 

 

 

 

 

 

1,426

 

 

 

 

 

 

 

 

 

1,426

 

401(k) contribution

 

 

 

 

 

 

 

 

9

 

 

 

 

 

 

 

 

 

9

 

Balance at March 31, 2019

 

 

186,406,047

 

 

$

186

 

 

$

1,190,651

 

 

$

(1,021,523

)

 

$

99

 

 

$

169,413

 

 

See accompanying notes.

4


 

GERON CORPORATION

CONDENSED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

(UNAUDITED)

 

 

 

THREE MONTHS ENDED

 

 

 

MARCH 31,

 

 

 

2019

 

 

2018

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(10,059

)

 

$

(7,186

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

15

 

 

 

16

 

Accretion and amortization on investments, net

 

 

(482

)

 

 

24

 

Change in fair value of equity investment, including foreign currency translation

 

 

(103

)

 

 

125

 

Stock-based compensation for services by non-employees

 

 

22

 

 

 

71

 

Stock-based compensation for employees and directors

 

 

1,426

 

 

 

1,614

 

Amortization related to 401(k) contributions

 

 

9

 

 

 

10

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Current and noncurrent assets

 

 

(1,532

)

 

 

89

 

Current liabilities

 

 

(2,034

)

 

 

(2,131

)

Net cash used in operating activities

 

 

(12,738

)

 

 

(7,368

)

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(45

)

 

 

 

Purchases of marketable securities

 

 

(44,092

)

 

 

(19,768

)

Proceeds from maturities of marketable securities

 

 

53,101

 

 

 

17,160

 

Net cash provided by (used in) investing activities

 

 

8,964

 

 

 

(2,608

)

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from issuances of common stock, net of issuance costs

 

 

 

 

 

1,553

 

Net cash provided by financing activities

 

 

 

 

 

1,553

 

Net decrease in cash, cash equivalents and restricted cash

 

 

(3,774

)

 

 

(8,423

)

Cash, cash equivalents and restricted cash at the beginning of the period

 

 

10,844

 

 

 

16,603

 

Cash, cash equivalents and restricted cash at the end of the period

 

$

7,070

 

 

$

8,180

 

 

See accompanying notes.

 

 

5


GERON CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS

MARCH 31, 2019

(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 unaudited condensed financial statements 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 U.S. generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019 or any other period. These financial statements and notes should be read in conjunction with the financial statements for each of the three years ended December 31, 2018, included in the Company’s Annual Report on Form 10-K. The accompanying condensed balance sheet as of December 31, 2018 has been derived from audited financial statements at that date.

Net Loss Per Share

Basic net income (loss) per share is calculated by dividing net income (loss) by the weighted-average number of shares of common stock outstanding during the periods presented, without consideration for potential common shares. Diluted net income per share would be calculated by adjusting the weighted-average number of shares of common stock outstanding for the dilutive effect of potential common shares outstanding for the periods presented, as determined using the treasury-stock method. Potential dilutive securities consist of outstanding stock options and a warrant to purchase our common stock. Diluted net loss per share excludes potential dilutive securities outstanding for all periods presented as their effect would be anti-dilutive. Accordingly, basic and diluted net loss per share is the same for all periods presented in the accompanying condensed statements of operations. Since we incurred a net loss for the three months ended March 31, 2019 and 2018, the diluted net loss per share calculation excludes potential dilutive securities of 32,714,257 and 26,245,422, respectively, related to outstanding stock options and warrant as their effect would have been anti-dilutive.

Use of Estimates

The accompanying financial statements have been prepared in accordance with U.S. generally accepted accounting principles, or GAAP. The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, we evaluate our estimates, including those related to accrued liabilities, revenue recognition, fair value of marketable securities and equity investments, income taxes, and stock-based compensation. We base our estimates on historical experience and on various other market specific and relevant assumptions that we believe to be reasonable under the circumstances. Actual results could differ from those estimates.

Fair Value of Financial Instruments

Cash Equivalents and Marketable Securities

We consider all highly liquid investments with an original maturity of three months or less to be cash equivalents. We are subject to credit risk related to our cash equivalents and marketable securities. Our marketable debt securities include commercial paper and corporate notes.

We classify our marketable debt securities as available-for-sale. We record available-for-sale securities at fair value with unrealized gains and losses reported in accumulated other comprehensive income (loss) in stockholders’ equity. 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 insignificant to date. Dividend and interest income are recognized when earned and included in interest and other income in our condensed statements of operations. We recognize a charge when the declines in the fair values below the amortized cost bases of our available-for-sale securities are judged to be other-than-temporary. We consider various factors in determining whether to recognize an other-than-temporary charge, including whether we intend to sell the security or whether it is more likely than not that we would be required to sell the security before recovery of the amortized cost basis. Declines in market value judged as other-than-temporary result in a charge to interest and other income. We have not recorded any other-than-temporary

6


GERON CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS

MARCH 31, 2019

(UNAUDITED)

 

impairment charges on our available-for-sa le securities for the three months en ded March 31, 2019 and 2018 . See Note 2 on Fair Value Measurements.

Equity Investments

With the adoption of ASU No. 2016-01, Financial Instruments - Overall: Recognition and Measurement of Financial Assets and Financial Liabilities , or ASU 2016-01, beginning January 1, 2018, we measure our investment in equity securities at fair value at each reporting period. Changes in fair value resulting from observable price changes are included in change in fair value of equity investment and changes in fair value resulting from foreign currency translation are included in other expense in our condensed statements of operations.

Leases

At the inception of an arrangement, we determine whether the arrangement is or contains a lease based on the unique facts and circumstances present. Operating leases are included in operating lease, right-of-use assets and lease liabilities in our condensed balance sheets. Right-of-use assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease liabilities and their corresponding right-of-use assets are recorded based on the present value of remaining lease payments over the expected lease term. The interest rate implicit in lease contracts is typically not readily determinable. As such, to calculate the net present value of lease payments, we apply our incremental borrowing rate, which is the rate incurred to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment as of the lease commencement date. We may adjust the right-of-use assets for certain adjustments, such as initial direct costs paid or incentives received. In addition, we include any options to extend or terminate the lease in the expected lease term when it is reasonably certain that we will exercise any such option. Lease expense is recognized on a straight-line basis over the expected lease term.

For lease agreements entered into after January 1, 2019 that include lease and non-lease components, such components are generally accounted for separately. For our office space lease, as a result of us having elected to adopt the package of practical expedients under accounting transition guidance, we account for the lease and non-lease components, such as common area maintenance, as a single lease component. We have also elected not to recognize on our condensed balance sheets leases with terms of one year or less. See “New Accounting Pronouncements – Recently Adopted” in this Note 1 on Summary of Significant Accounting Policies for additional information on the adoption of the new accounting standard for leases.

Revenue Recognition

Beginning January 1, 2018, we recognize revenue in accordance with the provisions of Accounting Standards Codification Topic 606, Revenue from Contracts with Customers , or Topic 606 . In determining the appropriate amount and timing of revenue to be recognized under this guidance, we perform the following five steps: (i) identify the contract(s) with our customer; (ii) identify the promised goods or services in the agreement and determine whether they are performance obligations, including whether they are distinct in the context of the agreement; (iii) measure the transaction price, including the constraint on variable consideration; (iv) allocate the transaction price to the performance obligations based on stand-alone selling prices; and (v) recognize revenue when (or as) we satisfy each performance obligation.

A performance obligation is a promise in an agreement to transfer a distinct good or service to the customer and is the unit of account in Topic 606. Significant management judgment is required to determine the level of effort required and the period over which completion of the performance obligations is expected under an agreement. If reasonable estimates regarding when performance obligations are either complete or substantially complete cannot be made, then revenue recognition is deferred until a reasonable estimate can be made. Revenue is then recognized over the remaining estimated period of performance using the cumulative catch-up method.

We allocate the total transaction price to each performance obligation based on the estimated relative stand-alone selling prices of the promised goods or services underlying each performance obligation. Estimated selling prices for license rights are calculated using an income approach model and include the following key assumptions, judgments and estimates: the development timeline, revenue forecast, commercialization expenses, discount rate and probabilities of technical and regulatory success.

7


GERON CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS

MARCH 31, 2019

(UNAUDITED)

 

Following is a description of the principal activities from which we generate revenue. License fees and royalty revenue primarily represent amounts earned under agreements that out-license our technology to various companies.

License and/or Collaboration Agreements

We have entered into several license agreements with various oncology, diagnostics, research tools and biologics production companies. Economic terms in these agreements may include non-refundable upfront license payments in cash or equity securities, annual license maintenance fees, cost sharing arrangements, milestone payments, royalties on future sales of products, or any combination of these items. Non-refundable upfront fees, annual license maintenance fees and funding of research and development activities are considered fixed, while milestone payments and royalties are identified as variable consideration.

Licenses of Intellectual Property. If we determine the license to intellectual property is distinct from the other performance obligations identified in the agreement and the licensee can use and benefit from the license, we recognize revenue from non-refundable upfront fees allocated to the license upon the completion of the transfer of the license to the licensee. For such licenses, we recognize revenue from annual license maintenance fees upon the start of the new license period. For licenses that are bundled with other performance obligations, we assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue from non-refundable upfront fees or annual license maintenance fees. At each reporting period, we reassess the progress and, if necessary, adjust the measure of performance and related revenue recognition.

Milestone Payments . At the inception of each agreement that includes milestone payments, we evaluate whether the milestones are considered probable of being achieved and estimate the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant revenue reversal would not occur, the value of the associated milestone is included in the transaction price. For milestones that we do not deem to be probable of being achieved, the associated milestone payments are fully constrained and the value of the milestone is excluded from the transaction price with no revenue being recognized. Milestone payments that are not within our control, such as regulatory-related accomplishments, are not considered probable of being achieved until those accomplishments have been communicated by the relevant regulatory authority. Once the assessment of probability of achievement becomes probable, we recognize revenue for the milestone payment. At each reporting period, we assess the probability of achievement of each milestone under our current agreements.

Royalties . For agreements with sales-based royalties, including milestone payments based on the level of sales, where the license is deemed to be the predominant item to which the royalties relate, we recognize revenue at the later of (a) when the related sales occur, or (b) when the performance obligation, to which some or all of the royalty has been allocated, has been satisfied (or partially satisfied). At each reporting period, we estimate the sales incurred by each licensee based on historical experience and accrue the associated royalty amount.

Cost Sharing Arrangements . Research and development and other expenses being shared by both parties under an agreement are recorded as earned or owed based on the performance obligations by both parties under the respective agreement. For arrangements in which we and our collaboration partner in the agreement are exposed to significant risks and rewards that depend on the commercial success of the activity, we recognize payments between the parties on a net basis and record such amounts as a reduction or addition to research and development expense. For arrangements in which we have agreed to perform certain research and development services for our collaboration partner and are not exposed to significant risks and rewards that depend on the commercial success of the activity, we recognize the respective cost reimbursements as revenue under the collaborative agreement over time in a manner proportionate to the costs we incurred to perform the services using the input method.

Restricted Cash

Restricted cash consists of funds maintained in a separate certificate of deposit account for credit card purchases.

Research and Development Expenses

Research and development expenses consist of expenses incurred in identifying, developing and testing product candidates resulting from our independent efforts as well as efforts associated with collaborations. These expenses include, but are not limited to, in-process research and development acquired in an asset acquisition and deemed to have no alternative future use, payroll and personnel expense, lab supplies, non-clinical studies, clinical trials, including support for investigator-sponsored clinical trials, raw

8


GERON CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS

MARCH 31, 2019

(UNAUDITED)

 

materials to manufacture clinical trial drugs, manufacturing costs for research and clinical trial materials, sponsored research at other labs, consulting, costs to maintain technolog y licenses, our proportionate share of research and development costs under cost sharing arrangements with collaboration partners and research-related overhead. Research and development costs are expensed as incurred, including costs incurred under our collaboration and/or license agreements.

Until the sponsorship responsibilities for imetelstat transfer from Janssen to us, including the U.S. Investigational New Drug, or IND, application and all foreign regulatory applications, Janssen will continue conducting ongoing clinical trials of imetelstat during the transition of the program to us. For the clinical development activities being conducted by Janssen under the collaboration and license agreement, or Collaboration Agreement, which was terminated effective September 28, 2018, we monitor patient enrollment levels and related activities to the extent possible through discussions with Janssen personnel and base our estimates of clinical trial costs on the best information available at the time. However, additional information may become available to us which would allow us to make a more accurate estimate in future periods. In this event, we may be required to record adjustments to research and development expenses in future periods when the actual level of activity becomes more certain.

Depreciation and Amortization

We record property and equipment at cost and calculate 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.

Stock-Based Compensation

We recognize stock-based compensation expense based on grant-date fair values of service-based instruments on a straight-line basis over the requisite service period, which is generally the vesting period. For performance-based stock options with vesting based on the achievement of certain strategic milestones, stock-based compensation expense is recognized over the period from the date the performance condition is determined to be probable of occurring through the date the applicable condition is expected to be met and is reduced for estimated forfeitures, as applicable. If the performance condition is not considered probable of being achieved, no stock-based compensation expense is recognized until such time as the performance condition is considered probable of being met, if at all. If that assessment of probability of the performance condition changes, the impact of the change in estimate would be recognized in the period of the change. The following table summarizes the stock-based compensation expense included in operating expenses on our condensed statements of operations related to stock options and employee stock purchases for the three months ended March 31, 2019 and 2018 which was allocated as follows:

 

 

 

Three Months Ended March 31,

 

(In thousands)

 

2019

 

 

2018

 

Research and development

 

$

240

 

 

$

155

 

General and administrative

 

 

1,186

 

 

 

1,459

 

Stock-based compensation expense included in operating expenses

 

$

1,426

 

 

$

1,614

 

 

As stock-based compensation expense recognized in our condensed statements of operations for the three months ended March 31, 2019 and 2018 is based on awards ultimately expected to vest, it has been reduced for estimated forfeitures, but at a minimum, reflects the grant-date fair value of those awards that actually vested in the period. Forfeitures have been estimated at the time of grant based on historical data and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. We have not recognized any stock-based compensation expense for performance-based stock options in our condensed statements of operations for the three months ended March 31, 2019 and 2018, as the achievement of specified strategic milestones was not considered probable at that time.

9


GERON CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS

MARCH 31, 2019

(UNAUDITED)

 

Stock Options

We grant service-based and performance-based options under our equity plans to employees, non-employee directors and consultants. The service-based vesting period for employee options is generally four years from the date of the option grant. Performance-based options vest upon the achievement of specified strategic milestones. The fair value of service-based and performance-based options granted during the three months ended March 31, 2019 and 2018 has been estimated at the date of grant using the Black Scholes option-pricing model with the following assumptions:

 

 

 

Three Months Ended March 31,

 

 

 

2019

 

2018

 

Dividend yield

 

0%

 

0%

 

Expected volatility range

 

0.925 to 0.980

 

0.821

 

Risk-free interest rate range

 

2.24% to 2.56%

 

2.55%

 

Expected term range

 

5.25 yrs to 6.44 yrs

 

5.25 yrs

 

 

Employee Stock Purchase Plan

The fair value of employees’ purchase rights during the three months ended March 31, 2019 and 2018 has been estimated using the Black Scholes option-pricing model with the following assumptions:

 

 

 

Three Months Ended March 31,

 

 

2019

 

2018

Dividend yield

 

0%

 

0%

Expected volatility range

 

1.333 to 1.653

 

0.437 to 0.475

Risk-free interest rate range

 

2.56% to 2.63%

 

1.53% to 1.76%

Expected term range

 

6 mos to 12 mos

 

6 mos to 12 mos

 

Dividend yield is based on historical cash dividend payments. The expected volatility is based on historical volatilities of our stock since traded options on our common stock do not correspond to option terms and the trading volume of options is limited. The risk-free interest rate range is based on the U.S. Zero Coupon Treasury Strip Yields for the expected term in effect on the date of grant for an award. The expected term of options is derived from actual historical exercise and post-vesting cancellation data and represents the period of time that options granted are expected to be outstanding. The expected term of employees’ purchase rights is equal to the purchase period.

Non-Employee Stock-Based Awards

For our non-employee stock-based awards, the measurement date on which the fair value of the stock-based award is calculated is equal to the earlier of: (i) the date at which a commitment for performance by the counterparty to earn the equity instrument is reached or (ii) the date at which the counterparty’s performance is complete. We recognize stock-based compensation expense for the fair value of the vested portion of non-employee stock-based awards in our condensed statements of operations.

Segment Information

Our executive management team represents our chief decision maker. We view our operations as a single segment, the development of therapeutic products for oncology. As a result, the financial information disclosed herein materially represents all of the financial information related to our principal operating segment.

Recent Accounting Pronouncements

New Accounting Pronouncements – Recently Adopted

In February 2016, the Financial Accounting Standards Board, or FASB, issued ASU 2016-02, Leases (Topic 842) , or ASU 2016-02. ASU 2016-02 requires an entity to recognize a right-of-use asset and lease liability for all lease arrangements with terms of more than 12 months, measured at the present value of the lease payments. Recognition, measurement and presentation of expenses will depend on classification as a finance or operating lease. In July 2018, the FASB issued ASU 2018-11, Leases (Topic

10


GERON CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS

MARCH 31, 2019

(UNAUDITED)

 

842): Targeted Improvements , or ASU 2018-11. In issuing ASU 2018-11, the FASB decided to provide another transition method in addition to the existing transition method by allowing entities to initially apply the new leases standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption.

We adopted Topic 842 on January 1, 2019 using the modified retrospective approach as allowed under ASU 2018-11, and we elected to utilize the available practical expedients. Financial results for the reporting periods beginning after January 1, 2019 are presented under Topic 842, while prior period amounts have not been adjusted and continue to be reported in accordance with our historical accounting under Accounting Standards Codification Topic 840, Leases , or Topic 840 .

In connection with the adoption of Topic 842 as of January 1, 2019, we recorded an operating lease, right-of-use asset and a corresponding operating lease liability of approximately $736,000 for the net present value of remaining lease payments of our current operating lease for our office space. The adoption of Topic 842 did not have a material impact on our condensed statements of operations. See Note 4 on Operating Lease for further discussion of our operating lease obligation.

As of January 1, 2019 we also adopted ASU 2018-07, Improvements to Nonemployee Share-Based Payment Accounting , or ASU 2018-07, to simplify the accounting for share-based payments to nonemployees by aligning it with the accounting for share-based payments to employees, with certain exceptions. The new guidance applies to nonemployee awards issued in exchange for goods or services used or consumed in an entity’s own operations. Since all of our share-based payments to nonemployees were fully vested as of January 1, 2019, the adoption of ASU 2018-07 did not have a material impact on our financial statements.

In August 2018, the Securities and Exchange Commission issued Release No. 33-10532 that amends and clarifies certain financial reporting requirements. The principal change to our financial reporting is the inclusion of the annual disclosure requirement of changes in stockholders’ equity in Rule 3-04 of Regulation S-X to interim periods. With the adoption of this new rule on January 1, 2019, condensed statements of stockholders’ equity for the current reporting period and the corresponding prior period are presented.

New Accounting Pronouncements – Issued But Not Yet Adopted

In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments , or ASU 2016-13. The main objective of ASU 2016-13 is to provide financial statement users with more decision-useful information about an entity's expected credit losses on financial instruments and other commitments to extend credit at each reporting date. To achieve this objective, the amendments in this update replace the incurred loss impairment methodology currently used today with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to develop credit loss estimates. Subsequent to issuing ASU 2016-13, the FASB issued ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments - Credit Losses , for the purpose of clarifying certain aspects of ASU 2016-13. ASU 2018-19 has the same effective date and transition requirements as ASU 2016-13. ASU 2016-13 will be effective for fiscal years beginning after December 15, 2019, using a modified retrospective approach. Early adoption is permitted. We do not expect the adoption of this standard to have a material impact on our financial statements.

In August 2018, the FASB issued ASU 2018-13, Disclosure Framework — Changes to the Disclosure Requirements for Fair Value Measurement, which modifies the disclosure requirements on fair value measurements. The new standard is effective for fiscal years beginning after December 15, 2019, and early adoption is permitted. We plan to adopt ASU 2018-13 as of January 1, 2020. While we continue to assess the potential impact of this standard, we do not expect the adoption of this standard to have a material impact on our financial statements.

In November 2018, the FASB issued ASU 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction Between Topic 808 and Topic 606 . The amended guidance precludes presenting consideration from a transaction in a collaborative arrangement as revenue from contracts with customers if the counterparty is not a customer for that transaction. The new guidance is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted. We plan to adopt ASU 2018-18 as of January 1, 2020. We do not expect the adoption of ASU 2018-18 to have a material impact on our financial statements given the termination of the Collaboration Agreement in September 2018.

 

11


GERON CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS

MARCH 31, 2019

(UNAUDITED)

 

2 . FAIR VALUE MEASUREMENTS

Cash Equivalents and Marketable Securities

Cash equivalents, restricted cash and marketable securities by security type at March 31, 2019 were as follows:

 

 

 

 

 

 

 

Gross

 

 

Gross

 

 

 

 

 

 

 

Amortized

 

 

Unrealized

 

 

Unrealized

 

 

Estimated

 

(In thousands)

 

Cost

 

 

Gains

 

 

Losses

 

 

Fair Value

 

Included in cash and cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

4,750

 

 

$

 

 

$

 

 

$

4,750

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Restricted cash:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Certificate of deposit

 

$

270

 

 

$

 

 

$

 

 

$

270

 

Marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial paper (due in less than one year)

 

$

56,474

 

 

$

45

 

 

$

(19

)

 

$

56,500

 

Corporate notes (due in less than one year)

 

 

88,648

 

 

 

45

 

 

 

(13

)

 

 

88,680

 

Corporate notes (due in one to two years)

 

 

17,830

 

 

 

46

 

 

 

(5

)

 

 

17,871

 

 

 

$

162,952

 

 

$

136

 

 

$

(37

)

 

$

163,051

 

Cash equivalents, restricted cash and marketable securities by security type at December 31, 2018 were as follows:

 

 

 

 

 

 

 

Gross

 

 

Gross

 

 

 

 

 

 

 

Amortized

 

 

Unrealized

 

 

Unrealized

 

 

Estimated

 

(In thousands)

 

Cost

 

 

Gains

 

 

Losses

 

 

Fair Value

 

Included in cash and cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

7,003

 

 

$

 

 

$

 

 

$

7,003

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Restricted cash:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Certificate of deposit

 

$

269

 

 

$

 

 

$

 

 

$

269

 

Marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial paper (due in less than one year)

 

$

57,594

 

 

$

22

 

 

$

(29

)

 

$

57,587

 

Corporate notes (due in less than one year)

 

 

95,238

 

 

 

7

 

 

 

(118

)

 

 

95,127

 

Corporate notes (due in one to two years)

 

 

18,647

 

 

 

 

 

 

(65

)

 

 

18,582

 

 

 

$

171,479

 

 

$

29

 

 

$

(212

)

 

$

171,296

 

Cash equivalents and marketable securities with unrealized losses that have been in a continuous unrealized loss position for less than 12 months and 12 months or longer at March 31, 2019 and December 31, 2018 were as follows:

 

 

 

Less Than 12 Months

 

 

12 Months or Longer

 

 

Total

 

 

 

 

 

 

 

Gross

 

 

 

 

 

 

Gross

 

 

 

 

 

 

Gross

 

 

 

Estimated

 

 

Unrealized

 

 

Estimated

 

 

Unrealized

 

 

Estimated

 

 

Unrealized

 

(In thousands)

 

Fair Value

 

 

Losses

 

 

Fair Value

 

 

Losses

 

 

Fair Value

 

 

Losses

 

As of March 31, 2019:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial paper (due in less than one year)

 

$

15,792

 

 

$

(19

)

 

$

 

 

$

 

 

$

15,792

 

 

$

(19

)

Corporate notes (due in less than one year)

 

 

27,115

 

 

 

(5

)

 

 

13,226

 

 

 

(8

)

 

 

40,341

 

 

 

(13

)

Corporate notes (due in one to two years)

 

 

1,999

 

 

 

(5

)

 

 

 

 

 

 

 

 

1,999

 

 

 

(5

)

 

 

$

44,906

 

 

$

(29

)

 

$

13,226

 

 

$

(8

)

 

$

58,132

 

 

$

(37

)

As of December 31, 2018:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial paper (due in less than one year)

 

$

22,628

 

 

$

(29

)

 

$

 

 

$

 

 

$

22,628

 

 

 

(29

)

Corporate notes (due in less than one year)

 

 

66,557

 

 

 

(82

)

 

 

14,221

 

 

 

(36

)

 

 

80,778

 

 

 

(118

)

Corporate notes (due in one to two years)

 

 

18,582

 

 

 

(65

)

 

 

 

 

 

 

 

 

18,582

 

 

 

(65

)

 

 

$

107,767

 

 

$

(176

)

 

$

14,221

 

 

$

(36

)

 

$

121,988

 

 

$

(212

)

 

12


GERON CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS

MARCH 31, 2019

(UNAUDITED)

 

The gross unrealized losses relat ed to commercial paper an d corporate notes as of March 31, 2019 and December 31, 201 8 were due to changes in interest rates and not credit risk . We determined that the gross unrealized losses on our marketable sec urities as of March 31, 2019 and December 3 1, 201 8 were temporary in nature. We review our investments quarterly to identify and evaluate whether any investments have indications of possible other - than - temporary impairment. Factors considered in determining whether a loss is temporary include the l ength of time and extent to which the fair value has been less than the amortized cost basis and whether we intend to sell the security or whether it is more likely than not that we would be required to sell the security before recovery of the amortized co st basis. We currently do not intend to sell these securities before recovery of their amortized cost bases.

Fair Value on a Recurring Basis

We categorize financial instruments recorded at fair value on our condensed balance sheets based upon the level of judgment associated with inputs used to measure their fair value. The categories are as follows:

 

 

Level 1

Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date. An active market for an asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis.

 

Level 2

Inputs (other than quoted market prices included in Level 1) are either directly or indirectly observable for the asset or liability through correlation with market data at the measurement date and for the duration of the instrument’s anticipated life.

 

Level 3

Inputs reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.

A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Below is a description of the valuation methodologies used for financial instruments measured at fair value on our condensed balance sheets, including the category for such financial instruments.

Money market funds are categorized as Level 1 within the fair value hierarchy as their fair values are based on quoted prices available in active markets. Commercial paper, corporate notes and equity investments are categorized as Level 2 within the fair value hierarchy as their fair values are estimated by using pricing models, quoted prices of securities with similar characteristics or discounted cash flows.

13


GERON CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS

MARCH 31, 2019

(UNAUDITED)

 

The following table presents information about our fin ancial instruments that are measured at fair value on a recurrin g basis as of March 31, 2019 and December 31, 201 8 and indicates the fair value category assigned.

 

 

 

Fair Value Measurements at Reporting Date Using

 

 

 

Quoted Prices in

 

 

 

 

 

 

Significant

 

 

 

 

 

 

 

Active Markets for

 

 

Significant Other

 

 

Unobservable

 

 

 

 

 

 

 

Identical Assets

 

 

Observable Inputs

 

 

Inputs

 

 

 

 

 

(In thousands)

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

As of March 31, 2019:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds (1)

 

$

4,750

 

 

$

 

 

$