UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM
(Mark One)
For the quarterly period ended
OR
For the transition period from to .
Commission File Number:
(Exact name of registrant as specified in its charter)
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incorporation or organization) |
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Identification No.) |
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(Address of principal executive offices) |
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(Zip Code) |
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(Registrant’s telephone number, including area code)
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(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act: |
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Title of each class: |
Trading symbol(s): |
Name of each exchange on which registered: |
Common Stock, $0.001 par value |
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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.
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).
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.
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Accelerated filer |
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Non-accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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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: |
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Outstanding at August 5, 2024: |
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GERON CORPORATION
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED June 30, 2024
TABLE OF CONTENTS
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Item 1: |
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3 |
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9 |
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Item 2: |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3: |
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33 |
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Item 4: |
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33 |
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Item 1: |
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33 |
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Item 1A: |
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34 |
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Item 2: |
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Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities |
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Item 3: |
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Item 4: |
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Item 5: |
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Item 6: |
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77 |
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RYTELOTM and other trademarks or service marks of Geron Corporation appearing in this Quarterly Report on Form 10-Q (this "Report") are the property of Geron Corporation. This Report contains additional trade names, trademarks and service marks of others, which are the property of their respective owners. We do not intend our use or display of other companies’ trade names, trademarks or service marks to imply a relationship with, or endorsement or sponsorship of us by, these other companies.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
GERON CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
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JUNE 30, |
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DECEMBER 31, |
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2024 |
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2023 |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Restricted cash |
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Marketable securities |
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Accounts receivable, net |
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— |
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Interest and other receivables |
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Inventory |
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— |
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Prepaid expenses and other current assets |
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Total current assets |
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Noncurrent marketable securities |
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Property and equipment, net |
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Operating leases, right-of-use assets |
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Deposits and other assets |
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$ |
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$ |
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LIABILITIES AND STOCKHOLDERS' EQUITY |
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Current liabilities: |
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Accounts payable |
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$ |
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$ |
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Accrued compensation and benefits |
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Operating lease liabilities |
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Debt |
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Accrued liabilities |
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Total current liabilities |
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Noncurrent operating lease liabilities |
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Noncurrent debt |
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Commitments and |
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Stockholders' equity: |
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Common stock |
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Additional paid-in capital |
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Accumulated deficit |
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( |
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( |
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Accumulated other comprehensive loss |
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( |
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Total stockholders' equity |
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$ |
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$ |
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See accompanying notes.
3
GERON CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
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THREE MONTHS ENDED |
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SIX MONTHS ENDED |
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JUNE 30, |
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JUNE 30, |
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2024 |
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2023 |
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2024 |
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2023 |
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Revenues: |
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Product revenue, net |
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— |
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— |
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Royalties |
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Total revenues |
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$ |
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$ |
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$ |
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$ |
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Operating expenses: |
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Cost of goods sold |
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— |
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— |
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Research and development |
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Selling, general and administrative |
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Total operating expenses |
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Loss from operations |
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( |
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( |
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Interest income |
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Interest expense |
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( |
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( |
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( |
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( |
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Other income and (expense), net |
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( |
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( |
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( |
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Net loss |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
( |
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Basic and diluted net loss per share |
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$ |
( |
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$ |
( |
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$ |
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$ |
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Shares used in computing |
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See accompanying notes.
4
GERON CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(IN THOUSANDS)
(UNAUDITED)
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THREE MONTHS ENDED |
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SIX MONTHS ENDED |
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JUNE 30, |
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JUNE 30, |
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2024 |
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2023 |
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2024 |
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2023 |
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Net loss |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
( |
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Net unrealized loss on marketable securities |
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( |
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( |
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( |
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( |
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Foreign currency translation adjustments |
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( |
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( |
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( |
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Comprehensive loss |
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$ |
( |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
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See accompanying notes.
5
GERON CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
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Accumulated |
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Additional |
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Other |
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Total |
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Common Stock |
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Paid-In |
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Accumulated |
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Comprehensive |
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Stockholders' |
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Shares |
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Amount |
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Capital |
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Deficit |
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Gain (Loss) |
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Equity |
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Balance at December 31, 2023 |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
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Net loss |
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— |
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— |
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— |
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( |
) |
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— |
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( |
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Other comprehensive income |
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— |
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— |
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— |
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— |
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( |
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( |
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Foreign currency translation |
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— |
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— |
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— |
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— |
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( |
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( |
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Issuances of common stock and |
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— |
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— |
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Issuances of common stock in |
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— |
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— |
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— |
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Issuances of common stock |
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— |
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— |
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Stock-based compensation related to |
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— |
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— |
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— |
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Stock-based compensation for |
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— |
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— |
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— |
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— |
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Balance at March 31, 2024 |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
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Net loss |
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— |
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— |
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— |
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( |
) |
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— |
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( |
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Other comprehensive loss |
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— |
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— |
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— |
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— |
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( |
) |
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( |
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Foreign currency translation |
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— |
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— |
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— |
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— |
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( |
) |
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( |
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Offering expenses |
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— |
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— |
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( |
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— |
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— |
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( |
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Issuances of common stock in |
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— |
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— |
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— |
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Stock-based compensation related |
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— |
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— |
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Issuances of common stock |
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— |
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— |
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Stock-based compensation for |
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— |
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— |
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— |
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— |
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Employee stock purchases |
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— |
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— |
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— |
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Balance at June 30, 2024 |
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$ |
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$ |
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$ |
( |
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$ |
( |
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$ |
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6
GERON CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
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Accumulated |
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Additional |
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Other |
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Total |
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Common Stock |
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Paid-In |
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Accumulated |
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Comprehensive |
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Stockholders' |
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Shares |
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Amount |
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Capital |
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Deficit |
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Gain (Loss) |
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Equity |
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Balance at December 31, 2022 |
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$ |
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$ |
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$ |
( |
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$ |
( |
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$ |
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Net loss |
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— |
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— |
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— |
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( |
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— |
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( |
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Other comprehensive loss |
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— |
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— |
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— |
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— |
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Foreign currency translation |
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— |
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— |
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— |
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— |
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( |
) |
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( |
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Issuance of common stock and |
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— |
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— |
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Issuance of common stock in |
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— |
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— |
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Stock-based compensation related |
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— |
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— |
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Issuance of common stock |
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— |
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— |
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Stock-based compensation for |
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— |
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— |
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— |
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— |
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Balance at March 31, 2023 |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
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$ |
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Net loss |
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— |
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— |
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— |
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( |
) |
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— |
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( |
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Other comprehensive loss |
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— |
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— |
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— |
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— |
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( |
) |
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( |
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Foreign currency translation |
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— |
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— |
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— |
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— |
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Issuance of common stock in |
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— |
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— |
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Stock-based compensation related |
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— |
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— |
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— |
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Issuance of common stock |
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— |
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— |
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— |
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Stock-based compensation for |
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— |
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— |
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— |
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— |
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Balance at June 30, 2023 |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
) |
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$ |
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||||
See accompanying notes.
7
GERON CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
|
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SIX MONTHS ENDED |
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|||||
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JUNE 30, |
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|||||
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2024 |
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2023 |
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Cash flows from operating activities: |
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Net loss |
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$ |
( |
) |
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$ |
( |
) |
Adjustments to reconcile net loss to net cash used in operating activities: |
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Depreciation and amortization |
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Accretion and amortization on investments, net |
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( |
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( |
) |
Amortization of debt issuance costs/debt discounts |
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Stock-based compensation for services by non-employees |
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Stock-based compensation for employees and directors |
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Amortization of right-of-use assets |
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Changes in assets and liabilities: |
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Inventory |
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( |
) |
|
|
— |
|
Accounts receivable, net |
|
|
( |
) |
|
|
— |
|
Prepaid expenses, interest receivable and other assets |
|
|
( |
) |
|
|
|
|
Current and noncurrent liabilities |
|
|
( |
) |
|
|
|
|
Net cash used in operating activities |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
||
Cash flows from investing activities: |
|
|
|
|
|
|
||
Purchases of property and equipment |
|
|
( |
) |
|
|
( |
) |
Purchases of marketable securities |
|
|
( |
) |
|
|
( |
) |
Proceeds from maturities of marketable securities |
|
|
|
|
|
|
||
Net cash used in investing activities |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
||
Cash flows from financing activities: |
|
|
|
|
|
|
||
Proceeds from issuances of common stock from equity plans |
|
|
|
|
|
|
||
Proceeds from issuance of common stock from offering |
|
|
|
|
|
|
||
Proceeds from exercise of warrants |
|
|
|
|
|
|
||
Proceeds from employee stock purchase plan |
|
|
|
|
|
— |
|
|
Net cash provided by financing activities |
|
|
|
|
|
|
||
Effect of exchange rates on cash, cash equivalents and restricted cash |
|
|
( |
) |
|
|
( |
) |
Net increase in cash, cash equivalents and restricted cash |
|
|
|
|
|
|
||
Cash, cash equivalents and restricted cash at the beginning of the period |
|
|
|
|
|
|
||
Cash, cash equivalents and restricted cash at the end of the period |
|
$ |
|
|
$ |
|
||
See accompanying notes.
8
GERON CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2024
(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 and its wholly-owned subsidiaries, Geron UK Limited, or Geron UK, a United Kingdom company, and Geron Netherlands B.V., or Geron Netherlands, a Netherlands company. Geron UK was incorporated in September 2021, and its operations commenced in January 2022. Geron Netherlands was incorporated in February 2023, and its operations commenced in June 2023.
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 and six months ended June 30, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024 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, 2023, included in our Annual Report on Form 10-K for the year ended December 31, 2023, or the 2023 Form 10-K. The accompanying condensed consolidated balance sheet as of December 31, 2023 has been derived from audited financial statements at that date.
Principles of Consolidation
The condensed consolidated financial statements include the accounts of Geron Corporation and its wholly-owned subsidiaries, Geron UK and Geron Netherlands. For Geron UK and Geron Netherlands, we have eliminated intercompany accounts and transactions. We prepare the financial statements of Geron UK and Geron Netherlands using the local currency as the functional currency. We translate the assets and liabilities of Geron UK and Geron Netherlands 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 connection with previous public offerings, we issued pre-funded warrants to purchase shares of our common stock. These pre-funded warrants are exercisable immediately at an exercise price of $
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 and six months ended June 30, 2024 and 2023, the diluted net loss per share calculation excludes potential dilutive securities of
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, 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.
9
GERON CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2024
(UNAUDITED)
Accounts Receivable
In general, accounts receivable consists of amounts due from customers, net of customer allowances for cash discounts, product returns, and chargebacks. Accounts receivable are stated net of an allowance that reflects our current estimate of credit losses expected to occur over the life of the receivable. In developing our allowance for expected credit losses, we use assumptions to capture the risk of loss, even if remote, based on a number of factors including existing contractual payment terms, individual customer circumstances, historical payment patterns of our customers, a review of the local economic environment and its potential impact on expected future customer payment patterns. The payment terms on our trade receivables are relatively short. As a result, our collection risk is mitigated to a certain extent by the fact that sales are collected in a relatively short period of time, allowing for the ability to reduce exposure on defaults if collection issues are identified. We update our allowance as necessary to reflect expected credit losses over the remaining lives of the accounts receivable for outstanding trade receivables that are past due, have known disputes or have experienced any negative credit events that may result in future collectability issues. We do not currently expect our current or future exposures to credit losses to have a significant impact on us. The estimated allowance for expected credit losses was not material as of June 30, 2024, nor were the changes to the allowance during any of the periods presented.
Inventory
Inventory is recorded at the lower of cost or net realized value, with cost determined under the weighted average method. Inventory costs include third-party contract manufacturing, third-party packaging services, freight, salaries, wages and stock-based compensation for personnel involved in the manufacturing process, and indirect overhead costs. We periodically review our inventories to identify obsolete, slow moving, excess or otherwise unsaleable items. If obsolete, slow moving, excess or unsaleable items are observed and there are no alternate uses for the inventory, we record a write-down to net realizable value. The determination of net realizable value requires judgment including consideration of many factors, such as estimates of future product demand, product net selling prices, current and future market conditions and potential product obsolescence, among others. Prior to regulatory approval, we expense costs associated with the manufacture a product candidate to research and development expense unless we are reasonably certain such costs have future commercial use and net realizable value. Since we consider attaining regulatory approval of a product candidate to be highly uncertain and difficult to predict, we expect only in rare instances that pre-launch inventory will be capitalized, if at all.
We began capitalizing inventory related to RYTELO in the quarter ended June 30, 2024, as we received approval of RYTELO on June 6, 2024, and the related costs were expected to be recoverable through the commercialization of RYTELO.
Cost of Goods Sold
Cost of goods sold includes the cost of producing and distributing inventories that are related to product revenue during the respective period, including salary related and stock-based compensation expense for employees involved with production and distribution, freight, and indirect overhead costs. Cost of goods sold may also include costs related to excess or obsolete inventory adjustment charges, abnormal costs, unabsorbed manufacturing and overhead costs, and manufacturing variances. For the three and six months ended June 30, 2024, other than packaging costs, substantially all of our RYTELO inventory sold had a zero-cost basis as it was recorded as research and development expenses prior to the FDA’s approval.
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, 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. See Note 2 on Fair Value Measurements.
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
10
GERON CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2024
(UNAUDITED)
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, based on whether they are capable of being distinct and distinct in the context of the agreement; (iii) determine 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. We recognize shipping and handling costs as an expense in cost of goods sold when we transfer control to a customer.
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.
We distribute RYTELO in the U.S. through third party distributors and specialty pharmacies who are our customers. The third party distributors subsequently resell our product through their related specialty pharmacy providers to patients and health care providers. Separately, we have or may enter into payment arrangements with various third-party payers including pharmacy benefit managers, private healthcare insurers and government healthcare programs who provide coverage and reimbursement for our product that have been prescribed to a patient.
The 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. To date, our only source of product revenue has been from the U.S. sales of RYTELO, which we began shipping to our customers in June 2024. See Note 2 Revenue Recognition.
Net Product Revenues
Our net product revenues are recognized, net of variable consideration related to certain allowances and accruals, at the time our customers obtain control of our product, which is generally upon delivery to our customers. We use the expected value method, which
11
GERON CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2024
(UNAUDITED)
is the sum of probability-weighted amounts in a range of possible consideration amounts to estimate variable consideration and consideration payable to parties other than our customers related to our product sales.
We record reserves, based on contractual terms, for components related to product sold during the reporting period, as well as our estimate of product that remains in the distribution channel inventory at the end of the reporting period that we expect will be sold to qualified healthcare providers. On a quarterly basis, we update our estimates and record any needed adjustments in the period we identify the adjustments.
We sell RYTELO to our customers at wholesale acquisition cost, and calculate product revenue from RYTELO sales, net of variable consideration and consideration payable to parties other than our customers. Variable consideration and consideration payable to parties other than our customers consists of estimates related to the following categories:
Other Allowances
We pay fees for distribution services, such as fees for certain data that customers provide to us. We estimate our customers will earn these fees and deduct these fees from gross product revenues and accounts receivable at the time we recognize the related revenues.
Discounts for Prompt Payment
We provide for prompt payment discounts to our customers, which are recorded as a reduction in gross product revenue in the same period that the related product revenue is recognized.
Product Returns
We offer customers the right to return products if they are damaged, defective, or expired, as defined in customer agreements. We estimate product returns considering experience from similar products in the market, historical return patterns, sales data, and inventory levels in the distribution channel. These estimates are recorded as a reduction in gross product revenue at the time of sale. Once products are returned, they are destroyed; we do not record a right of return asset.
Chargebacks
Chargebacks occur when our contracted customers, mainly federal agencies that can purchase off the Federal Supply Schedule and Public Health Service 340B covered entities, buy directly from our distributors and wholesalers at discounted prices. The distributors and wholesalers then charge us the difference between their purchase price and the discounted price. We estimate chargebacks considering the terms of the applicable arrangement and our visibility regarding utilization. These chargebacks are recorded in the same period as the related revenue, reducing our net product revenue and receivables. We typically issue credits for these amounts within a few weeks of notification.
Government Rebates
We are subject to discount obligations under government programs. Reserves for rebates payable under these government programs are recorded in the same period as gross product revenue, reducing our gross product revenue and creating a liability in accrued liabilities. Major rebates include those from the Medicare and Medicaid programs. Estimates for rebates are made considering statutory discount rates and expected utilization. These estimates are updated each period with actual claims and other current information, taking into account historical data, comparable products and other considerations.
Co-payment Assistance
We offer co-payment assistance to patients with commercial insurance that have coverage and reside in states that allow co-payment assistance. We estimate the average co-payment assistance amounts for our products based on expected customer demographics and record any such amounts within accrued expenses and a reduction to product revenue.
License Agreements
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.
12
GERON CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2024
(UNAUDITED)
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.
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 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 and managed by CROs based upon the amount of work completed on each trial. Expenses are recorded based on contracted amounts agreed to with our CROs and through monthly reporting provided by CROs. We monitor activities conducted and managed by the CROs to the extent possible through internal reviews, review of contractual terms and correspondence with CROs. We record expense on the best information available at the time. However, additional information may become available to us which may require adjustments to research and development expenses in future periods.
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
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.
13
GERON CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2024
(UNAUDITED)
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 and six months ended June 30, 2024 and 2023, which was allocated as follows:
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
(In thousands) |
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Research and development |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Selling, general and administrative |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total stock-based compensation expense |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Stock-based compensation of $
As stock-based compensation expense recognized in our condensed consolidated statements of operations for the three and six months ended June 30, 2024 and 2023 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 recognized stock-based compensation expense for the achievement of a milestone achieved upon FDA approval of RYTELO on our condensed consolidated statements of operations for the three and six months ended June 30, 2024 and 2023.
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
|
|
Six Months Ended June 30, |
||
|
|
2024 |
|
2023 |
Dividend yield |
|
|
||
Expected volatility range |
|
|
||
Risk-free interest rate range |
|
|
||
Expected term |
|
|
||
Employee Stock Purchase Plan
The fair value of employees’ stock purchase rights during the six months ended June 30, 2024 and 2023 has been estimated using the Black-Scholes option-pricing model with the following assumptions:
|
|
Six Months Ended June 30, |
||
|
|
2024 |
|
2023 |
Dividend yield |
|
|
||
Expected volatility range |
|
|
||
Risk-free interest rate range |
|
|
||
Expected term range |
|
|
||
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.
14
GERON CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2024
(UNAUDITED)
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 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 adopted ASU 2020-06 as of January 1, 2024 and it did not have a material impact on our condensed consolidated financial statements.
New Accounting Pronouncements – Issued But Not Yet Adopted
In March 2024, the FASB issued ASU 2024-01, Accounting for Application of Profits Interest and Similar Awards, or ASU 2024-01. The key elements of ASU 2024-01 aim to account for profit interest awards as compensation to employees or nonemployees in return for goods and services effective for annual periods beginning after December 15, 2024 and interim periods with those annual periods. 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. REVENUE RECOGNITON
Net Product Revenue
To date, our only source of product revenue has been from the U.S. sales of RYTELO, which we began shipping to our customers in June 2024.
|
Three and Six Months Ended |
|
|
|
June 30, |
|
|
|
(in thousands) |
|
|
Gross product revenue |
$ |
|
|
Gross-to-net adjustments: |
|
|
|
Chargebacks and distributor service fees |
|
( |
) |
Government rebates |
|
( |
) |
Sales returns and allowances |
|
( |
) |
Total gross-to-net adjustments (1) |
$ |
( |
) |
Net product revenue |
$ |
|
|
15
GERON CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2024
(UNAUDITED)
3. INVENTORY
All of our inventories are related to the manufacturing of RYTELO.
|
Six Months Ended |
|
|
|
June 30, |
|
|
|
(in thousands) |
|
|
Finished goods |
|
|
|
Total inventory |
$ |
|
|
4. FAIR VALUE MEASUREMENTS
Cash Equivalents and Marketable Securities
Cash equivalents, restricted cash and marketable securities by security type at June 30, 2024 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 |
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
||
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Restricted cash: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Money market fund |
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
||
Certificate of deposit |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Marketable securities: |
|
|
|
|
|
|
|
|
|
|||||||