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Geron Seen as Scientifically and Financially Risky

TheStreet.com, March 11, 2009

During a conference call for institutional investors held Monday by Summer Street Research Partners, an independent health care research firm, a spinal surgeon and stem cell researcher offered a negative and cautionary view of Geron's research. Subsequently, TheStreet.com decided not to disclose the doctor's name due to privacy concerns, "since the call was not intended for public dissemination." The doctor stated, however, that he has no financial ties to Geron, nor does he own, nor has he shorted, any of Geron's stock. Nevertheless, the doctor pointed out that the highly publicized upcoming clinical trial for which Geron recently received FDA approval is clinically dubious because the entire rationale for the study is "based on a single experiment in 8 rats."

In a highly controversial ruling, the FDA granted approval to Geron in January of this year to begin the first clinical trials ever to be conducted in the U.S. with human embryonic stem cells. The clinical trial will administer human embryonic stem cells to patients who have been paralyzed from the waist down with spinal cord injury. Since the primary objective of Phase I clinical trials is to test safety, efficacy will not be tested until years later - assuming, that is, that safety can be proven, although this remains the subject of widespread speculation. Without concrete evidence of safety, the proposed therapy cannot advance to further clinical trials.

In the days immediately following the FDA's announcement, Geron's stock soared from $5 a share to more than $48 a share, but such dramatic gains were quickly sold and the stock has steadily fallen ever since then, plummetting to a low of $3.79 on March 5th. According to Adam Feuerstein of TheStreet.com, "Even President Obama's lifting of the federal research ban on stem cell research Monday failed to provide more than a marginal lift to Geron's stock price, which closed Tuesday at $4.27", up a mere 1.4%.

As Mr. Feuerstein further explains, "Wall Street's health care investors, most notably biotech-focused hedge funds, have been more inclined to steer clear of Geron or short the company's stock. Geron's short interest has risen from 8 million shares to 17 million shares over the first two months of the year. Conference calls for Wall Street health care investors with experts critical of Geron's research, like those held by Summer Street Research on Monday, explain why. The doctor on the Summer Street conference call, a spinal cord injury expert who has also conducted stem cell research, was skeptical about Geron's study because there is very little animal data to support the theory that a therapy derived from [embryonic] stem cells will benefit patients with severe spinal cord injury."

Indeed, as the doctor stated, "The fact that Geron's entire study hinges on this one experiment in eight moderately injured rats is tenuous in terms of efficacy."

This laboratory experiment upon which Geron's upcoming clinical trial is based, was conducted by Dr. Hans Keirstead of the University of California at Irvine, using 8 rats in whom spinal cord injury had been deliberately inflicted in order to induce hind-leg paralysis. Rats that were treated with Geron's human embryonic stem cell product saw a partial return of some function to their paralyzed legs after 7 days, but all of the rats were considered to have "moderate" spinal cord injury. However, when the start of treatment was delayed for more than a week, and also when the experiment was conducted on rats with severe spinal cord injuries, Geron's therapy had no effect. The human patients who will participate in Geron's clinical trial will not have moderate spinal cord injury, but instead they will have been chosen for the clinical trial because they suffer from severe spinal cord injury.

According to the doctor who spoke during the conference call, "We don't know what will happen when these cells are placed into a human, which is the reason immune suppression is required. The risk is that these are not patients you would otherwise want to have on immune suppressants because the severity of their spinal cord injuries, the trauma they've suffered, their surgery and wounds make them more susceptible to infection."

In Geron's upcoming Phase I clinical trial, human embryonic stem cells will be injected directly into the spinal cords of the human patients. Ordinarily, after undergoing any type of transplantation, immune suppression is required for the remainder of the patient's life, but the patients in Geron's clinical trial will be removed from immunosuppressive drugs after 42 days, at which time there is a high risk of immune rejection by the patients' bodies to the stem cells. In and of itself, this type of immune rejection has the potential to be life-threatening. As Mr. Feuerstein adds, "Another safety concern is the risk that the cells in Geron's therapy may grow uncontrollably and form tumors on the spinal cord," to which the doctor from the conference call further adds, "If one patient gets a tumor from the Geron therapy, it will be catastrophic."

While the CEO of Geron, Tom Okarma, has tried to downplay expectations of efficacy by reminding the public that none of the patients are expected to be instantly cured from the Phase I clinical trial, it is a bit more difficult to dispel concerns about safety.

Despite the fact that Geron's preclinical data is based upon only one experiment with only 8 rats, Geron's FDA application nevertheless included a staggering 22,000 pages of data. Although such an unwieldy number might impress those who are uninitiated in "the scientific method", Mr. Feuerstein points out that such an enormous FDA application "has not stopped some experts from questioning Geron's science." One such expert is Dr. Evan Snyder of the California- and Florida-based Burnham Institute for Medical Research, who wrote in an article that was published in the January 30th issue of the journal Science that, "There's a lot of debate among spinal cord researchers that the preclinical data itself doesn't justify the clinical trial." Similarly, in the January 23rd edition of The New York Times, Dr. John Kessler, a neurologist and director of the Stem Cell Institute at Northwestern University, wrote, "We really want the best trial to be done for this first trial, and this might not be it."

As every investor knows, financial markets are forward-looking, and the price of any particular stock at any particular time is a measure of confidence in that company. In Geron's case, as with all other biotechs, the financial details are inextricably tied to the scientific details. Precisely for that reason, therefore, at least at this particular moment in history, institutional investors are growing increasingly wary of Geron because of the serious words of caution that are echoed throughout the medical and scientific communities.



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