10-Q 1 gern-20220331.htm 10-Q 10-Q
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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, 2022

 

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: 000-20859

 

 

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.)

 

 

 

919 EAST HILLSDALE BOULEVARD, SUITE 250, FOSTER CITY, CA

 

94404

(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)

 

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 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

 

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 May 3, 2022:

Common Stock, $0.001 par value

 

377,447,107 shares

 

 

 


 

GERON CORPORATION

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTER ENDED March 31, 2022

TABLE OF CONTENTS

 

 

 

 

 

Page

PART I. FINANCIAL INFORMATION

 

 

 

 

 

Item 1:

 

Financial Statements (Unaudited)

 

3

 

 

Condensed Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021

 

3

 

 

Condensed Consolidated Statements of Operations for the three months ended March 31, 2022 and 2021

 

4

 

 

Condensed Consolidated Statements of Comprehensive Loss for the three months ended March 31, 2022 and 2021

 

5

 

 

Condensed Consolidated Statements of Stockholders’ Equity for the three months ended March 31, 2022 and 2021

 

6

 

 

Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2022 and 2021

 

7

 

 

Notes to Condensed Consolidated Financial Statements

 

8

Item 2:

 

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

 

21

Item 3:

 

Quantitative and Qualitative Disclosures About Market Risk

 

28

Item 4:

 

Controls and Procedures

 

28

 

 

 

 

 

PART II. OTHER INFORMATION

 

 

 

 

 

Item 1:

 

Legal Proceedings

 

28

Item 1A:

 

Risk Factors

 

29

Item 2:

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

70

Item 3:

 

Defaults Upon Senior Securities

 

70

Item 4:

 

Mine Safety Disclosures

 

70

Item 5:

 

Other Information

 

71

Item 6:

 

Exhibits

 

71

 

 

SIGNATURES

 

72

 

 


 

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

GERON CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS)

 

 

 

MARCH 31,

 

 

DECEMBER 31,

 

 

 

2022

 

 

2021

 

 

 

(UNAUDITED)

 

 

(NOTE 1)

 

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

31,325

 

 

$

34,871

 

Restricted cash

 

 

364

 

 

 

364

 

Marketable securities

 

 

135,345

 

 

 

148,851

 

Interest and other receivables

 

 

5,239

 

 

 

1,763

 

Prepaid and other current assets

 

 

3,651

 

 

 

1,357

 

Total current assets

 

 

175,924

 

 

 

187,206

 

Noncurrent marketable securities

 

 

10,945

 

 

 

28,651

 

Property and equipment, net

 

 

643

 

 

 

650

 

Operating leases, right-of-use assets

 

 

4,586

 

 

 

4,727

 

Deposits and other assets

 

 

6,323

 

 

 

4,800

 

 

 

$

198,421

 

 

$

226,034

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

6,245

 

 

$

6,687

 

Accrued compensation and benefits

 

 

3,682

 

 

 

8,099

 

Operating lease liabilities

 

 

907

 

 

 

901

 

Accrued liabilities

 

 

35,796

 

 

 

29,834

 

Total current liabilities

 

 

46,630

 

 

 

45,521

 

Noncurrent operating lease liabilities

 

 

4,125

 

 

 

4,267

 

Noncurrent debt

 

 

50,179

 

 

 

49,830

 

Commitments and contingencies

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

Common stock

 

 

324

 

 

 

324

 

Additional paid-in capital

 

 

1,399,713

 

 

 

1,398,006

 

Accumulated deficit

 

 

(1,301,839

)

 

 

(1,271,741

)

Accumulated other comprehensive loss

 

 

(711

)

 

 

(173

)

Total stockholders' equity

 

 

97,487

 

 

 

126,416

 

 

 

$

198,421

 

 

$

226,034

 

 

See accompanying notes.

3


 

GERON CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

(UNAUDITED)

 

 

 

THREE MONTHS ENDED

 

 

 

MARCH 31,

 

 

 

2022

 

 

2021

 

Revenues:

 

 

 

 

 

 

Royalties

 

$

123

 

 

$

137

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

Research and development

 

 

22,099

 

 

 

21,113

 

General and administrative

 

 

6,699

 

 

 

7,478

 

Total operating expenses

 

 

28,798

 

 

 

28,591

 

Loss from operations

 

 

(28,675

)

 

 

(28,454

)

Interest income

 

 

112

 

 

 

173

 

Interest expense

 

 

(1,479

)

 

 

(743

)

Other income and (expense), net

 

 

(56

)

 

 

1,200

 

Net loss

 

$

(30,098

)

 

$

(27,824

)

 

 

 

 

 

 

 

Basic and diluted net loss per share

 

$

(0.09

)

 

$

(0.09

)

 

 

 

 

 

 

 

Shares used in computing basic and diluted net loss per share

 

 

332,066,889

 

 

 

323,638,696

 

 

See accompanying notes.

4


 

GERON CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(IN THOUSANDS)

(UNAUDITED)

 

 

 

THREE MONTHS ENDED

 

 

 

MARCH 31,

 

 

 

2022

 

 

2021

 

Net loss

 

$

(30,098

)

 

$

(27,824

)

Net unrealized loss on marketable securities

 

 

(539

)

 

 

(43

)

Foreign currency translation adjustments

 

 

1

 

 

 

 

Comprehensive loss

 

$

(30,636

)

 

$

(27,867

)

 

See accompanying notes.

5


 

GERON CORPORATION

CONDENSED CONSOLIDATED 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, 2021

 

 

323,731,591

 

 

$

324

 

 

$

1,398,006

 

 

$

(1,271,741

)

 

$

(173

)

 

$

126,416

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(30,098

)

 

 

 

 

 

(30,098

)

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(538

)

 

 

(538

)

Stock-based compensation
   related to issuance of common
   stock and options in exchange
   for services

 

 

5,284

 

 

 

 

 

 

15

 

 

 

 

 

 

 

 

 

15

 

Stock-based compensation for
   equity-based awards to
   employees and directors

 

 

 

 

 

 

 

 

1,692

 

 

 

 

 

 

 

 

 

1,692

 

Balance at March 31, 2022

 

 

323,736,875

 

 

$

324

 

 

$

1,399,713

 

 

$

(1,301,839

)

 

$

(711

)

 

$

97,487

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

Other

 

 

Total

 

 

 

Common Stock

 

 

Paid-In

 

 

Accumulated

 

 

Comprehensive

 

 

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Gain (Loss)

 

 

Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2020

 

 

310,566,853

 

 

$

310

 

 

$

1,366,188

 

 

$

(1,155,629

)

 

$

78

 

 

$

210,947

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(27,824

)

 

 

 

 

 

(27,824

)

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(43

)

 

 

(43

)

Issuance of common stock in
   connection with at market
   offering, net of issuance
   costs of $
374

 

 

7,948,505

 

 

 

8

 

 

 

16,226

 

 

 

 

 

 

 

 

 

16,234

 

Stock-based compensation
   related to issuance of common
   stock and options in exchange
   for services

 

 

4,549

 

 

 

 

 

 

25

 

 

 

 

 

 

 

 

 

25

 

Issuance of common stock in
   connection with exercise of
   warrants

 

 

8,869

 

 

 

 

 

 

12

 

 

 

 

 

 

 

 

 

12

 

Issuance of common stock
    under equity plans

 

 

16,232

 

 

 

 

 

 

17

 

 

 

 

 

 

 

 

 

17

 

Stock-based compensation for
   equity-based awards to
   employees and directors

 

 

 

 

 

 

 

 

1,794

 

 

 

 

 

 

 

 

 

1,794

 

Balance at March 31, 2021

 

 

318,545,008

 

 

$

318

 

 

$

1,384,262

 

 

$

(1,183,453

)

 

$

35

 

 

$

201,162

 

 

See accompanying notes.

 

6


 

GERON CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

(UNAUDITED)

 

 

 

THREE MONTHS ENDED

 

 

 

MARCH 31,

 

 

 

2022

 

 

2021

 

Cash flows from operating activities:

 

 

 

 

 

 

Net loss

 

$

(30,098

)

 

$

(27,824

)

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

 

 

 

 

 

 

Depreciation and amortization

 

 

57

 

 

 

48

 

Accretion and amortization on investments, net

 

 

196

 

 

 

416

 

Amortization of debt issuance costs/debt discounts

 

 

349

 

 

 

180

 

Gain on sales of equity investment

 

 

 

 

 

(1,233

)

Stock-based compensation for services by non-employees

 

 

15

 

 

 

25

 

Stock-based compensation for employees and directors

 

 

1,692

 

 

 

1,794

 

Amortization of right-of-use assets

 

 

141

 

 

 

132

 

Changes in assets and liabilities:

 

 

 

 

 

 

Current and noncurrent assets

 

 

(7,293

)

 

 

(3,757

)

Current and noncurrent liabilities

 

 

967

 

 

 

(2,515

)

Net cash used in operating activities

 

 

(33,974

)

 

 

(32,734

)

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

Purchases of property and equipment

 

 

(50

)

 

 

(10

)

Purchases of marketable securities

 

 

(18,104

)

 

 

(25,122

)

Proceeds from maturities of marketable securities

 

 

48,581

 

 

 

61,621

 

Proceeds from sales of equity investment

 

 

 

 

 

1,594

 

Net cash provided by investing activities

 

 

30,427

 

 

 

38,083

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

Proceeds from issuances of common stock from equity plans

 

 

 

 

 

17

 

Proceeds from issuances of common stock from at market offerings,
    net of paid issuance costs

 

 

 

 

 

16,234

 

Proceeds from exercise of warrants

 

 

 

 

 

12

 

Net cash provided by financing activities

 

 

 

 

 

16,263

 

Effect of exchange rates on cash, cash equivalents and restricted cash

 

 

1

 

 

 

 

Net change in cash, cash equivalents and restricted cash

 

 

(3,547

)

 

 

21,612

 

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

 

 

35,235

 

 

 

10,288

 

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

 

$

31,689

 

 

$

31,900

 

 

See accompanying notes.

7


 

GERON CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2022

(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 consolidated 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 United States, or U.S., generally accepted accounting principles, or GAAP, 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, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022 or any other period. These unaudited condensed consolidated financial statements and notes should be read in conjunction with the audited financial statements for each of the three years ended December 31, 2021, included in our Annual Report on Form 10-K for the year ended December 31, 2021, or the Form 10-K. The accompanying condensed balance sheet as of December 31, 2021 has been derived from audited financial statements at that date.

Principles of Consolidation

The condensed consolidated financial statements include the accounts of Geron and our wholly-owned subsidiary, Geron UK Limited, or Geron UK, a United Kingdom company. Geron UK was incorporated in September 2021, and its operations commenced in January 2022. We have eliminated intercompany accounts and transactions. We prepare the financial statements of Geron UK using the local currency as the functional currency. We translate the assets and liabilities of Geron UK at rates of exchange at the balance sheet date and translate income and expense items at average monthly rates of exchange. The resultant translation adjustments are included in accumulated other comprehensive income (loss), a separate component of stockholders’ equity, on our condensed consolidated balance sheets.

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 for the periods presented without consideration of potential common shares. In May 2020, we entered into an underwriting agreement in connection with a public offering of our common stock, pursuant to which we issued a pre-funded warrant to purchase 8,335,239 shares of our common stock, also known as the 2020 pre-funded warrant, together with accompanying warrants to purchase shares of our common stock. The 2020 pre-funded warrant is exercisable immediately at an exercise price of $0.001 per share. We included the 2020 pre-funded warrant in the computation of basic net loss per share, as applicable, since the exercise price is negligible, and the 2020 pre-funded warrant may be exercised at any time.

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 additional shares of common stock that would have been outstanding if potentially dilutive securities had been issued, as determined using the treasury-stock method. Potential dilutive securities consist of outstanding stock options and warrants to purchase our common stock. Diluted net loss per share excludes potential dilutive securities 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 consolidated statements of operations. Since we incurred a net loss for the three months ended March 31, 2022 and 2021, the diluted net loss per share calculation excludes potential dilutive securities of 118,256,294 and 107,962,895, respectively, related to outstanding stock options and warrants as their effect would have been anti-dilutive.

Use of Estimates

The accompanying condensed consolidated financial statements have been prepared in accordance with U.S. GAAP. The preparation of financial statements in conformity with U.S. 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, operating leases, right-of-use assets, lease liabilities, 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.

8


 

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 U.S. Treasury securities, municipal securities, government-sponsored enterprise securities, commercial paper and corporate notes.

We classify our marketable debt securities as available for sale. We record available for sale debt 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 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 income on our condensed consolidated 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 income. We have not recorded any other-than-temporary impairment charges on our available-for-sale securities for the three months ended March 31, 2022 and 2021. See Note 2 on Fair Value Measurements.

Equity Investments

We measure our investment in equity securities at fair value at each reporting date. 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 income and (expense), net on our condensed consolidated 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 leases, right-of-use assets and lease liabilities on our condensed consolidated 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 present value of remaining lease payments within the 12 months following the balance sheet date are classified as current lease liabilities. The present value of lease payments not within the 12 months following the balance sheet date are classified as noncurrent lease liabilities. 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 estimated rate 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. We have also elected not to recognize on our condensed consolidated balance sheets leases with terms of one year or less.

Debt Issuance Costs and Debt Discounts

Debt issuance costs include legal fees, accounting fees, and other direct costs incurred in connection with the execution of our debt financing. Debt discounts represent costs paid to the lenders. Debt issuance costs and debt discounts are deducted from the carrying amount of the debt liability and are amortized to interest expense over the term of the related debt using the effective interest method.

Revenue Recognition

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.

9


 

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.

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 Agreements

We previously entered into several license agreements with various oncology, diagnostics, research tools and biologics production companies, whereby we granted certain rights to our non-imetelstat related technologies. Under these agreements, non-refundable upfront fees and annual license maintenance fees were considered fixed consideration, while milestone payments and royalties were identified as variable consideration. As of June 30, 2021, no active license agreements remain.

In connection with the divestiture of Geron’s human embryonic stem cell assets, including intellectual property and proprietary technology, to Lineage Cell Therapeutics, Inc. (formerly BioTime, Inc. which acquired Asterias Biotherapeutics, Inc.) in 2013, we are entitled to receive royalties on sales of certain research or commercial products utilizing Geron’s divested intellectual property.

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 date, 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. For example, 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 date, 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 date, we estimate the sales incurred by each licensee during the reporting period based on historical experience and accrue the associated royalty amount.

Restricted Cash

Restricted cash consists of funds maintained in separate money market or certificate of deposit accounts for credit card purchases.

10


 

Research and Development Expenses

Research and development expenses currently consist of expenses incurred in developing and testing imetelstat and research related to potential next generation telomerase inhibitors. These expenses include, but are not limited to, payroll and personnel expense, lab supplies, non-clinical studies, clinical trials, including support for investigator-led clinical trials, raw materials to manufacture clinical trial drugs, manufacturing costs for research and clinical trial materials, sponsored research at other labs, consulting, costs to maintain technology licenses, our proportionate share of research and development costs under cost sharing arrangements with collaborative partners and research-related overhead.

Our current imetelstat clinical trials are being supported by contract research organizations, or CROs, and other vendors. We accrue expenses for clinical trial activities performed by CROs based upon the estimated amount of work completed on each trial. For clinical trial expenses and related expenses associated with the conduct of clinical trials, the significant factors used in estimating accruals include the number of patients enrolled, the number of active clinical sites, and the duration for which the patients have been enrolled in the trial. We monitor patient enrollment levels and related activities to the extent possible through internal reviews, review of contractual terms and correspondence with CROs. We base our estimates on the best information available at the time. However, additional information may become available to us which will allow us to make a more accurate estimate in future periods. In that 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 maintain various stock incentive plans under which stock options and restricted stock awards can be granted to employees, non-employee directors and consultants. We also have an employee stock purchase plan for all eligible employees. We recognize stock-based compensation expense based on grant-date fair values of service-based stock options 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 the 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 determination of grant-date fair values for our service-based and performance-based stock options and employee stock purchases using the Black Scholes option‑pricing model is affected by our stock price as well as assumptions regarding a number of complex and subjective variables. The grant-date fair value for service-based restricted stock awards is determined using the fair value of our common stock on the date of grant. We evaluate whether an adjustment to the assumptions of fair value of our common stock and historical volatility are required if observed prices of our common stock materially differ from historical information.

The following table summarizes the stock-based compensation expense included in operating expenses on our condensed consolidated statements of operations related to stock options and employee stock purchases for the three months ended March 31, 2022 and 2021, which was allocated as follows:

 

 

 

Three Months Ended March 31,

 

(In thousands)

 

2022

 

 

2021

 

Research and development

 

$

855

 

 

$

825

 

General and administrative

 

 

837

 

 

 

969

 

Stock-based compensation expense included in operating expenses

 

$

1,692

 

 

$

1,794

 

 

As stock-based compensation expense recognized in our condensed consolidated statements of operations for the three months ended March 31, 2022 and 2021 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 on our condensed consolidated statements of operations for the three months ended March 31, 2022 and 2021, as achievement of the specified strategic milestones was not considered probable at that time.

11


 

Stock Options

We grant service-based and performance-based stock options under our equity plans to employees, non-employee directors and consultants. The service-based vesting period for employee stock options is generally four years from the date of the stock option grant. Performance-based stock options vest upon the achievement of specified strategic milestones. The fair value of service-based stock options granted during the three months ended March 31, 2022 and 2021 has been estimated at the date of grant using the Black Scholes option-pricing model with the following assumptions:

 

 

 

Three Months Ended March 31,

 

 

2022

 

2021

Dividend yield

 

0%

 

0%

Expected volatility range

 

77.7% to 78.2%

 

77.9% to 78.3%

Risk-free interest rate range

 

1.69% to 2.23%

 

0.51% to 0.94%

Expected term

 

5.5 years

 

5.5 years

Employee Stock Purchase Plan

The fair value of employees’ stock purchase rights during the three months ended March 31, 2022 and 2021 has been estimated using the Black Scholes option-pricing model with the following assumptions:

 

 

 

Three Months Ended March 31,

 

 

2022

 

2021

Dividend yield

 

0%

 

0%

Expected volatility range

 

50.9% to 61.4%

 

50.7% to 68.0%

Risk-free interest rate range

 

0.09% to 0.40%

 

0.09% to 0.16%

Expected term range

 

6 months to 12 months

 

6 months to 12 months

 

Dividend yield is based on historical cash dividend payments and Geron has paid no cash dividends to date. The expected volatility range is based on historical volatilities of our stock, since traded options on Geron 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 stock options is derived from actual historical exercise and post-vesting cancellation data and represents the period of time that stock options granted are expected to be outstanding. The expected term of employees’ stock purchase rights is equal to the purchase period.

Non-Employee Stock-Based Awards

We measure share-based payments to non-employees based on the grant-date fair value of the equity awards. We recognize stock-based compensation expense for the fair value of the vested portion of non-employee stock-based awards on our condensed consolidated 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 – Issued But Not Yet Adopted

In June 2016, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or 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, or ASU 2018-19, for the purpose of clarifying certain aspects of ASU 2016-13. In May 2019, the FASB issued ASU 2019-05, Financial Instruments – Credit Losses (Topic 326): Targeted Transition Relief, or ASU 2019-05, to provide entities with more flexibility in applying the fair value option on adoption of the credit impairment standard. In November 2019, the FASB issued ASU 2019-11, Codification Improvements to Topic 326, Financial Instruments – Credit Losses, or ASU 2019-11, which expands the scope of the practical expedient that allows entities to exclude the accrued interest component of amortized cost from various disclosure. Entities that elect to apply the practical expedient must disclose the total amount of accrued interest that they exclude from their disclosures of amortized cost. ASU 2018-19, ASU 2019-05 and ASU 2019-11 have the same effective date and transition requirements as ASU 2016-13. ASU 2016-13 will be

12


 

effective for fiscal years beginning after December 15, 2022, using a modified retrospective approach, for smaller reporting companies. Early adoption is permitted. We plan to adopt ASU 2016-13 and related updates as of January 1, 2023. We do not expect the adoption of this standard to have a material impact on our condensed consolidated financial statements.

In August 2020, the FASB issued ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, or ASU 2020-06. The key elements of ASU 2020-06 aim to reduce unnecessary complexity in GAAP for certain financial instruments with characteristics of liabilities and equity. In addressing the complexity, the FASB focused on amending the guidance on convertible instruments and the guidance on the derivatives scope exception for contracts in an entity’s own equity. For convertible instruments, the FASB decided to reduce the number of accounting models for convertible debt instruments and convertible preferred stock. For contracts in an entity’s own equity, the FASB observed that the application of the derivatives scope exception guidance results in accounting for some contracts as derivatives while accounting for economically similar contracts as equity. The FASB also decided to improve and amend the related earnings per share guidance. ASU 2020-06 is effective for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years for public business entities that are not smaller reporting companies. For all other entities, ASU 2020-06 is effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. We plan to adopt ASU 2020-06 as of January 1, 2024. We do not expect the adoption of this standard to have a material impact on our condensed consolidated financial statements.

Other recent accounting pronouncements issued by the FASB did not or are not believed by management to have a material impact on our condensed consolidated financial statements.

2. FAIR VALUE MEASUREMENTS

Cash Equivalents and Marketable Securities

Cash equivalents, restricted cash and marketable securities by security type at March 31, 2022 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

 

$

15,327

 

 

$

 

 

$

 

 

$

15,327

 

Commercial paper

 

 

7,999

 

 

 

 

 

 

 

 

 

7,999

 

Corporate notes

 

 

4,251

 

 

 

 

 

 

(1

)

 

 

4,250

 

 

 

$

27,577

 

 

$

 

 

$

(1

)

 

$

27,576

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Restricted cash:

 

 

 

 

 

 

 

 

 

 

 

 

Money market fund

 

$

93

 

 

$

 

 

$

 

 

$

93

 

Certificate of deposit

 

 

271

 

 

 

 

 

 

 

 

 

271

 

 

 

$

364

 

 

$

 

 

$

 

 

$

364

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities (due in less than
   one year)

 

$

20,650

 

 

$

 

 

$

(107

)

 

$