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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO .
COMMISSION FILE NUMBER: 0-20859
GERON CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 75-2287752
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
230 CONSTITUTION DRIVE, MENLO PARK, CA 94025
(ADDRESS, INCLUDING ZIP CODE, OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (650) 473-7700
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK $0.001 PAR VALUE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of March 8, 1999, there were 13,666,182 shares of Common Stock
outstanding. The aggregate market value of voting stock held by non-affiliates
of the registrant was approximately $135,583,000 based upon the closing price of
the Common Stock on March 8, 1999 on The Nasdaq National Market. Shares of
Common Stock held by each officer, director and holder of five percent or more
of the outstanding Common Stock have been excluded in that such persons may be
deemed to be affiliates. This determination of affiliate status is not
necessarily a conclusive determination for other purposes.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement of the Registrant for the 1999 Annual
Meeting of Stockholders to be filed with the Securities and Exchange Commission
not later than 120 days after the close of the Registrant's fiscal year are
incorporated into Part III of this Form 10-K.
Except for the historical information contained herein, the matters
discussed in this report are forward-looking statements that involve certain
risks and uncertainties that could cause actual results to differ materially
from those in the forward-looking statements. Potential risks and uncertainties
include, without limitation, those mentioned in this report and in particular,
the factors described below in Part II, Item 7, under the heading "Factors That
May Affect Future Results of Operations."
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PART I
ITEM 1. BUSINESS
Geron Corporation ("Geron" or the "Company") is a biopharmaceutical company
focused on discovering and developing therapeutic and diagnostic products to
treat cancer and other age-related degenerative diseases. The Company is
uniquely positioned to pursue this goal given its breakthrough discoveries
surrounding telomeres, telomerase and embryonic stem cells. Telomeres are
structures at the ends of chromosomes that the Company has shown act as a
molecular "clock" of cellular aging. Telomerase is an enzyme which appears to
stop the "clock" and confers cellular immortality. By manipulating telomere
length through telomerase regulation, the Company aims to kill cancer cells
where telomerase is abnormally turned on. Conversely, the Company seeks to
increase the lifespan of normal cells, where telomerase is normally turned off,
to treat age-related diseases such as atherosclerosis, macular degeneration and
osteoporosis. Embryonic stem cells are telomerase positive and therefore have an
unlimited ability to divide. They have the capability to turn into any and all
cell types and tissues in the body. The Company aims to use human embryonic stem
cells as a source of replacement cells for transplantation medicine to treat
patients suffering from congestive heart failure, Parkinson's Disease, diabetes,
osteoarthritis, osteoporosis, cancers, skin disorders and other age-related
conditions.
The Company and its collaborators have established that the fundamental
aspects of the telomere clock and the ability of telomerase to impart cellular
immortality in normal body cells and embryonic stem cells are important to many
age-related degenerative diseases and conditions, including cancer. Thus, the
Company believes it has a broadly applicable proprietary platform for
discovering and developing novel therapeutics and diagnostics as well as cell
and gene therapy approaches for such diseases. Geron intends to build upon its
leadership position in the field of telomere biology, telomerase regulation and
embryonic stem cells by continuing to selectively collaborate with
pharmaceutical companies and research institutions and protect its leadership
position with an extensive patent portfolio. The Company owns 23 issued United
States patents and over 46 United States patent applications and has licensed 20
issued United States patents and over 40 United States patent applications.
Cancer, age-related degenerative diseases and other conditions including
skin aging, atherosclerosis, osteoporosis, macular degeneration, congestive
heart failure, diabetes, Parkinson's and Alzheimer's diseases are difficult and
costly to diagnose and treat. In many cases, entirely effective means of
diagnosing and treating these diseases and conditions are not currently
available. Further, with the progressive "graying" of the population, the
incidence of cancer and other age-related diseases and conditions is expected to
increase. This will place a steadily growing financial burden on the health care
system. New technology in the diagnosis and treatment of these diseases and
conditions should lead to attractive commercial opportunities. For example, the
worldwide cancer treatment market is currently $9.1 billion and growing at a
rate of 8% per annum. In the United States alone, over 1.2 million new cases of
cancer are expected to be diagnosed and approximately 563,000 cancer deaths are
expected to occur in 1999.
Geron and collaborators have demonstrated both in vitro and in vivo that
telomeres, the repeated sequences of DNA located at the ends of chromosomes,
shorten throughout a normal cell's replicative lifespan. In addition, the
Company and its collaborators have also shown that when telomeres reach a
certain short length, cells stop dividing and become senescent. Senescent cells
display an altered pattern of gene expression compared to replicatively young
cells that leads to an imbalance in the production of proteins and other cell
products. This is believed to occur in many tissues throughout the body and may
contribute to many age-related degenerative diseases and conditions through a
direct and destructive effect on surrounding tissues. Geron scientists, with
collaborators, have cloned and characterized the two critical components of
telomerase that convey its activity, the RNA component and the catalytic protein
component. Among its many findings with respect to these two biologically
important components, Geron has shown that expression of the protein gene in
normal cells results in telomerase activity which halts telomere erosion and
dramatically extends the normal lifespan of the cell while maintaining normal
(youthful) gene expression and preventing the onset of senescence. Further,
Geron scientists and collaborators have shown that cellular immortality via
telomerase gene transfer does not cause malignant or cancerous changes in the
treated cells.
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Cancer cells escape senescence and maintain an extended ability to divide.
They continue to divide past the senescent fate of normal cells by virtue of
activated oncogenes and inactivated tumor suppressor genes. Geron and
collaborators have shown that for tumor cells to attain life threatening
characteristics, or to metastasize throughout the body, they generally must
become immortal through an alteration which prevents their telomeres from
shortening. In all cancer types studied to date, telomerase is abnormally
reactivated, thereby conferring cellular immortality. Data shows that telomerase
is present in the vast majority of tumor biopsies in the 20 - 30 types of cancer
that have been studied, including breast, prostate, lung, colon and bladder
cancers. Thus, Geron believes that telomerase inhibition has the potential to be
a universal and highly specific cancer therapy. Geron and partners are using
proprietary screening technologies to identify small molecule compounds that
selectively inhibit telomerase. Medicinal chemistry and combinatorial chemistry
are being used to optimize these compounds. Animal models of human tumor growth
have been developed to test the appropriateness of lead compounds for clinical
drug development.
Telomerase is also expressed in another cell type with vast potential for
clinical medicine: the human embryonic stem cell. Dr. James Thomson and
colleagues at the University of Wisconsin-Madison, and Dr. John Gearhart of
Johns Hopkins University have successfully derived human embryonic stem ("hES")
and human embryonic germ ("hEG") cells, respectively, and maintained them in
culture. Human embryonic stem and germ cells are different from every other
human stem cell previously derived in that they have the capability to turn into
any and all cell types and tissues in the body. These cells, licensed to Geron,
hold great promise as a universal source of replacement cells for
transplantation and for use in screens and functional genomics for
pharmaceutical research and development. Further, this promise is enhanced by
Geron's telomerase technology which can potentially increase the lifespan of
differentiated cells produced from hES or hEG cells. The technology combination
positions Geron to potentially supply an unlimited number of young human cells
and tissues for therapeutic uses in the body and for drug discovery purposes. In
addition, further research with hES and hEG cells will improve our understanding
of reproductive and developmental biology. This could lead to better treatments
for infertility and the discovery of new approaches to treat a wide variety of
diseases and developmental disorders.
The Company is focused on three therapeutic and diagnostic product
development programs: (i) TELOMERASE INHIBITION AND DETECTION -- developing
telomerase inhibitors as potentially universal and highly specific cancer
therapies and telomerase assays for the detection of cancer; (ii) TELOMERASE
ACTIVATION AND EXPRESSION -- developing genetic or drug therapies to modulate
telomere length, thereby regulating cell aging or senescence which contributes
to degenerative diseases; and (iii) EMBRYONIC STEM CELL THERAPIES -- generating
a broad array of cell types from human embryonic stem or germ cells for use in
transplantation medicine, pharmaceutical research and development and the study
of human developmental biology. In support of these programs, the Company
employs advanced drug discovery technologies, including proprietary assays, high
throughput screening, combinatorial chemistry, proprietary differential gene
display techniques, protein purification, gene sequencing, gene expression
microarray analysis, gene cloning, vectorology and gene transfer technologies.
The Company's strategy combines the following key elements: a focus on
telomeres and telomerase in mortal and immortal cells as molecular and
biological targets and embryonic stem cells to generate immortal cells and
tissues; building therapeutic and diagnostic discovery programs on this
scientific platform; selective formation of strategic partnerships; retention of
rights to develop and market products; and continued enhancement of its
proprietary leadership position in the field.
SCIENTIFIC BACKGROUND
Cellular Aging and Cellular Immortalization
Cells are the building blocks for all tissues in the human body, and cell
division plays a critical role in the normal growth, maintenance and repair of
human tissue. However, in the human body, cell division is a limited process.
Depending on the tissue type, cells generally divide only 60 to 100 times in the
course of their normal lifespan. Geron and collaborators have demonstrated that
telomeres, the repeated sequences of DNA located at the ends of chromosomes, are
key genetic elements involved in this process. Telomeres are
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important because they protect chromosomes from degradation and fusion. Each
time a normal cell divides, telomeres shorten, and once telomeres reach a
certain short length, cell division halts and the cell enters a state known as
senescence.
Cellular aging or senescence, although influenced by environmental factors,
is a genetically determined process. Although senescent cells no longer divide,
they generally remain metabolically active and, importantly, demonstrate an
altered pattern of gene expression. In senescent cells, certain genes normally
expressed by young and healthy cells are turned off or down-regulated while
other genes are turned on or up-regulated, creating an imbalance of proteins and
other gene products that Geron believes has a direct and destructive effect on
the surrounding tissue. Geron believes that this dysfunction at the cellular
level, which occurs in numerous tissues throughout the body, causes or
contributes to age-related degenerative diseases and conditions.
Recent work published by Geron and collaborators demonstrates that
telomeres not only serve as a molecular "clock" for cellular aging, but that
telomerase, when introduced into normal cells, is capable of restoring telomere
length or resetting the "clock" and increasing the lifespan of cells without
altering their "youthful" functions.
Normal cells have the potential to bypass senescence and become cancerous
when random or inherited mutations activate oncogenes or deactivate tumor
suppressor genes. With each mutation, pre-cancerous cells become increasingly
aberrant and uncontrolled, and may begin to generate a tumor mass. The Company
believes, however, that most cells which undergo such changes are eliminated
when telomere shortening leads to either cell senescence or chromosomal
instability and cell death. Research suggests that for most cancerous tumors to
attain life threatening size, or for cancer to metastasize throughout the body,
some cancer cells must become immortal, which occurs through the activation of
telomerase.
Telomerase is a complex enzyme, composed of an RNA and a catalytic protein
component. Telomerase is functionally active in reproductive cells to ensure the
full complement of genetic information is passed from generation to generation.
Telomerase is also present at low levels or is periodically activated in certain
hematopoietic (blood), skin and gastrointestinal cells. However, these cells
continue to age and gradually lose telomeric DNA, which suggests that telomerase
may not be essential for their normal functioning. With telomerase present at
adequate levels, telomeres do not shorten and cell senescence is averted.
Research has shown that telomerase is not present in most normal cells and
tissues after birth, but that during tumor formation or progression, telomerase
is abnormally reactivated in all major cancer types. However, unlike the
mutations which cause cancer, telomerase does not contribute to the
dysfunctional behavior of tumor cells; its presence enables cancer cells to
maintain telomere length, providing them with indefinite replicative capacity or
cellular immortality. This important distinction explains how selected
activation of telomerase can be beneficial for the treatment of certain
age-related diseases, while telomerase inhibition in cancer patients can provide
a novel way to cause tumor cells to age and ultimately die.
Embryonic Stem and Germ Cells
Another cell type which expresses telomerase at relatively high, constant
levels is the human embryonic stem ("hES") cell. Derived from donated in vitro
fertilized (IVF) blastocysts, hES cells have unique characteristics which make
them useful for multiple new therapeutic, pharmaceutical and scientific
applications. Human embryonic germ ("hEG") cells derived from donated fetal
material share many of the properties of hES cells, the most important of which
is unique to hES and hEG cells: they are both pluripotent -- capable of forming
into all of the different cell types in the body. Specifically they have the
potential to form derivatives of all three cellular layers, including the gut
epithelium (endoderm); cartilage, bone, and smooth and striated muscle
(mesoderm); and neural epithelium, embryonic ganglia and stratified squamous
epithelium (ectoderm).
Embryonic stem cells are also self-renewing, consistent with their natural
expression of telomerase. The continual steady state activity of telomerase in
hES cells conveys replicative immortality. Under appropriate in vitro
conditions, hES cells repopulate themselves indefinitely while remaining in the
undifferentiated state. Therefore, they are expected to be a continuous source
of normal pluripotent cells. Telomerase activity in hEG
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cells is not as well characterized. Human embryonic stem cells maintain a
structurally normal set of chromosomes (including the sex chromosomes, XX or XY)
even after prolonged growth in culture. They do not, for example, have any
additions, deletions or rearrangements in their chromosomal structure as is
characteristic of cell lines derived from tumors or immortalized by viruses.
The ability of hES cells to propagate indefinitely in the undifferentiated
state without losing pluripotency is a unique characteristic that distinguishes
them from all other "multipotent" stem cells discovered to date in humans. Other
stem cells such as blood or gut stem cells express telomerase at low levels or
only periodically, and therefore age. The Company believes hES cells can be
expanded on an industrial scale for commercial purposes.
The availability of hES and hEG cells opens extraordinary opportunities to
(i) enable development of transplantation therapies, (ii) re-tool pharmaceutical
research and development practices, and (iii) accelerate research in human
developmental biology. Moreover, hES and potentially hEG cells should provide an
immediate, alternative source and industrial supply of starting material,
relieving the need to continually resource primary human embryonic or
fetal-derived tissues. Much of the research necessary for product development
work can be performed on these cells now made available by Dr. Thomson's and Dr.
Gearhart's discoveries.
MARKET OPPORTUNITY
Cancer, age-related diseases and other conditions including skin aging,
atherosclerosis, osteoporosis, macular degeneration, congestive heart failure,
diabetes and Parkinson's and Alzheimer's are difficult and costly to diagnose
and treat. In many cases, entirely effective means of diagnosing and treating
these diseases and conditions are not currently available. Further, with the
progressive "graying" of the population, the incidence of cancer and other
age-related diseases and conditions is expected to increase. Of the 2.2 million
Americans who died in 1991, 1.6 million were elderly (65 years or older). Seven
in 10 of these deaths can be attributed to either heart disease, cancer or
stroke. A breakthrough technology in the diagnosis and treatment of these
diseases and conditions should provide attractive commercial opportunities.
Cancer
The incidence of cancer increases dramatically with age. Cancer ranks as
the leading cause of death in women over 55 and as the second leading cause for
men over 55 years of age. Twenty five percent of people over the age of 65 will
develop invasive cancers. In the United States, approximately 8.2 million people
alive today have a history of cancer, and since 1990, approximately 12 million
new cancer cases have been diagnosed including cancers of the lung, colon,
breast, prostate, pancreas, ovary, kidney and bladder, along with lymphomas and
leukemia. Despite significant medical advances, cancer researchers and
clinicians have had little impact on cancer mortality rates. Each year, cancer
will claim more than a half-million lives, or more than 1,500 per day. Since
1990, there have been approximately five million cancer deaths in the United
States. Within the next decade, largely because of population aging, cancer may
become the leading cause of death.
Cancer therapy relies heavily on three treatment modalities: surgery to
remove the tumor mass; radiation to destroy tumors localized to a small region;
and chemotherapy to eliminate tumor cells in diffuse parts of the body. Surgery
is an invasive procedure that may not remove the entire cancer, and the use of
radiation is limited to certain areas of the body. While drug therapies are less
invasive than surgery or radiation, many drugs used to treat cancer attack
rapidly dividing cells indiscriminately, damaging normal as well as cancer
cells. Further, when a drug is effective initially against a particular cancer,
it is often not effective against other types of cancer and, over time, the
particular cancer can become resistant to that drug and progress. Overall annual
direct medical costs for cancer currently amount to $37 billion with treatment
of breast, lung, and prostate cancers accounting for over half of those costs.
The Company believes that a telomerase inhibitor could overcome the limitations
of current therapies and potentially be a universal and highly specific drug
treatment for cancer.
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Other Age-related Degenerative Diseases and Conditions
There are numerous other diseases and conditions for which incidence
increases dramatically with age, including skin aging, atherosclerosis,
osteoporosis and macular degeneration. There are significant unmet medical needs
associated with these diseases and conditions. Many current therapies simply
address the symptoms of these diseases and conditions. Despite the limitation of
current therapies, drugs targeting these diseases and conditions represent some
of the largest selling pharmaceuticals. For example, the United States market
for cardiovascular drugs is approximately $6 billion, while the market for drugs
addressing osteoporosis and osteoarthritis is approximately $3.1 billion. The
market for retinoids used for skin therapy exceeds $3 billion. The Company's
focus on cellular aging and cellular immortality is designed to produce
therapeutics that address these diseases and conditions, and to treat their
causes rather than their symptoms.
Embryonic Stem and Germ Cell Therapies
The derivation of hES and hEG cells is a fundamental discovery that holds
great promise for three major areas of biomedicine: transplantation medicine,
pharmaceutical research and development and human developmental biology.
Transplantation Medicine. Because of the expected capability of hES and hEG
cells to produce virtually unlimited quantities of any cell in the body, their
potential therapeutic impact in transplantation medicine is enormous. In
addition, they have the potential to be genetically engineered to prevent their
immune rejection by the transplant recipient. Examples of medically relevant
cells that could potentially be developed for transplantation therapies in
humans include the following:
Cardiomyocytes. Heart muscle cells do not proliferate during adult life.
When heart muscle is damaged by injury, the functional heart muscle is replaced
with non-functional scar tissue. Congestive heart failure, a common consequence
of heart muscle or valve damage, affects nearly five million people in the
United States with 400,000 new cases diagnosed each year. In addition, about 1.5
million people each year suffer from myocardial infarction, the primary cause of
heart muscle damage, and about one third of them die. Treatment of heart disease
in the United States costs $117 billion annually. Mouse cardiomyocytes derived
from mouse embryonic stem ("ES") cells have been prepared and injected into the
hearts of recipient adult mice. It has been reported that the injected
cardiomyocytes repopulated the myocardial tissue and stably integrated with host
myocardial cells. These results suggest that the development of hES or hEG
cell-derived cardiomyocytes for cellular transplantation therapy for congestive
heart failure and myocardial infarction in humans will be technically feasible.
Hematopoietic stem cells (blood forming cells). Bone marrow transplantation
is a life saving procedure used in treating pediatric and adult cancers. In
1995, there were approximately 12,500 bone marrow transplants performed in North
America. The number of procedures performed dramatically underserves the medical
need. The main factor which limits the number of procedures that can be
performed is tissue or donor availability. Blood-forming stem cells potentially
could be developed from hES or hEG cells as has been done using mouse ES and EG
cells. This would increase the availability of these cells and reduce reliance
on donors. Further, hES or hEG cell-derived hematopoietic stem cells potentially
could be genetically engineered to resist infection by such agents as the HIV
virus and used in a transplant setting for the treatment of AIDS, or possibly
used for the treatment of patients with sickle cell anemia.
Endothelial cells (blood vessel cells). Mouse endothelial cells have been
derived from mouse ES cells. Similarly, in humans, blood vessel forming cells
potentially could be generated from hES cells and used to re-line blood vessels
for the purpose of treating atherosclerosis, a condition which contributes to
over 650,000 deaths annually in the United States. hES-derived endothelial cells
potentially could also be used for generating new blood vessels in damaged
regions of the heart, brain, or lower extremities to treat angina, stroke and
arterial insufficiency.
Islet cells (pancreatic cells that produce insulin). The 1.4 million
patients in the United States with Insulin Dependant Diabetes Mellitus
potentially could be treated with islet cells derived from hES cells. Such
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human cells are unavailable today and could provide a lifelong cure for this
disease. Health costs related to the treatment of diabetes runs over $90 billion
annually.
Neurons. It has been demonstrated that mouse neurons can be derived from
mouse embryonic stem and germ cells. Human neurons derived from hES or hEG cells
could potentially be prepared for the treatment of (i) the over one million
people in the United States who suffer from Parkinson's disease, (ii) the
500,000 individuals who suffer a stroke each year, and (iii) over four million
Americans affected with Alzheimer's disease. Treatment costs for patients
suffering from Parkinson's, Alzheimer's and stroke could total $5.7 billion by
the year 2001.
Fibroblast and keratinocyte cells (skin cells). Fibroblast and keratinocyte
cells of mice have been observed in cultures of differentiated mouse ES cells.
Geron scientists expect that comparable human skin cells could be produced from
hES cells and used for wound healing and the treatment of burns.
Chondrocytes (cartilage cells). Chondrocytes could potentially be generated
from hES cells for cartilage replacement in treating osteoarthritis which
affects over 16 million Americans, or rheumatoid arthritis which affects over
two million persons in the United States. The treatment of osteoarthritis alone
cost Americans $1.8 billion in 1996.
Pharmaceutical research and development. The potential to produce and
supply unlimited quantities of normal human cells of virtually any tissue type
could have a major impact on pharmaceutical research and development. Until now,
the only cell lines available for this work were either animal in origin or
abnormal transformed human cells. It may be possible to produce permanent,
stable sources of normal human differentiated cells for drug screening and
testing, drug toxicology studies, as well as new drug target identification.
Further, because hES cells express telomerase and can therefore undergo multiple
rounds of a sophisticated type of genetic engineering called gene targeting,
cellular models of human disease could be developed for use in drug development.
Finally, cell lines derived from hES or hEG cells may be useful for developing
screens for teratogens (drugs causing birth defects), extending the capability
of current assays based on bacterial and mouse systems.
Human reproductive and developmental biology. Unraveling the biology of hES
and hEG cells as they differentiate into functional cell types in vitro offers a
unique platform to understand and harness nature's mechanisms of embryonic
development and tissue differentiation and repair. Such understanding has
potential for contributing to (i) the treatment of fertility disorders which
affect one out of every six couples in the United States trying to become
pregnant, (ii) the prevention of premature pregnancy loss, estimated to be 15%
of recognized pregnancies in the United States, and (iii) the diagnosis and
prevention of birth defects which afflict 3% of live births in the United
States.
Until now, the early developmental events which naturally occur during
human embryogenesis have been inaccessible to direct study. The availability of
hES and hEG cells may facilitate a molecular understanding of how specific human
tissues and organs develop -- research which cannot be pursued today without
utilizing human embryos or fetuses. Further, it is possible that novel genes
which fundamentally control tissue differentiation could be identified by the
application of genomic technologies to cultured hES and hEG cells as they
differentiate into a variety of functional cell types. These new gene products
have potential to be developed into therapeutic proteins for treating wound
healing, stroke, myocardial infarction, spinal cord injury and tissue
regeneration.
These potential clinical applications would utilize suspensions of purified
hES- and hEG-derived differentiated cells administered by injection. With
further technical development, complex multi-cellular solid tissues and organs
could potentially be developed for application in organ support therapies for
lung, kidney, liver, cardiac and brain diseases. While the biomedical and
therapeutic promise of hES and hEG cells is vast, it should be re-emphasized
that the additional research and development required to realize this potential
is significant.
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STRATEGY
Geron's strategy is to be the leading biopharmaceutical company in the
discovery and development of therapeutic and diagnostic products based upon the
Company's understanding of telomere, telomerase and embryonic stem cell biology.
The key elements of this strategy are described below.
Focus on Fundamental Mechanisms of Cellular Aging and Cellular
Immortality. Geron focuses its research on fundamental mechanisms of cellular
aging and cellular immortality. These include telomere shortening and telomerase
regulation. As the pioneer in researching and modulating these mechanisms, which
affect all tissues of the body, the Company believes it has established a
broadly applicable, proprietary platform for discovering and developing novel
small molecule therapeutics, cell and gene therapeutics and diagnostics for
cancer and other age-related diseases.
Develop High Value Programs with a Common Scientific Platform. Geron's
strategy is to leverage its expertise in cellular aging and cellular immortality
to develop those programs which offer the shortest development path for
therapeutic and diagnostic products and the highest likelihood for success.
Geron is currently working in three program areas: (i) the inhibition and
detection of telomerase for the treatment and diagnosis of cancer; (ii) the
modulation of biological processes leading to and regulating cell aging or
senescence which contribute to degenerative diseases and (iii) embryonic stem
cell therapies for cell transplantation therapies, accelerating drug discovery
and the study of developmental biology.
Form Strategic Partnerships. Geron has established and intends to continue
to establish collaborations and alliances with pharmaceutical companies, other
biotechnology companies and leading academic institutions to enhance its
research, development and commercialization capabilities. Geron has entered into
a three-company strategic alliance with Kyowa Hakko Kogyo Co., Ltd. ("Kyowa
Hakko"), a leading oncology company in Japan, and Pharmacia & Upjohn S.p.A
("Pharmacia & Upjohn"), a global leader in oncology, for the development and
marketing of a telomerase inhibitor to treat cancer. The Company has also
established a clinical development partnership with Roche Diagnostics GmbH
("Roche Diagnostics"), the global leader in diagnostics, to develop
telomerase-based products for use in cancer diagnosis and treatment planning.
Retain the Ability to Develop and Market Products Independently. Geron
believes that its broad scientific platform will continue to generate
opportunities for a variety of collaborative arrangements. The Company intends
to retain significant rights to develop and market or co-promote products on key
therapeutic and diagnostic applications of discoveries resulting from its
research programs.
Enhance Proprietary Leadership Position. Geron intends to maintain its
scientific leadership and accelerate its research programs by continuing to
attract and retain leaders in the fields of cellular aging, cellular immortality
and stem cells either as employees or exclusive collaborators. Further, the
Company is aggressively pursuing a broad and extensive patent portfolio
internationally and in the United States to protect its proprietary technology.
To date, the Company owns 23 issued United States patents and over 46 United
States patent applications and has licensed 20 issued United States patents and
over 40 United States patent applications. Geron also owns or has licensed three
issued foreign patents and numerous patent applications.
RESEARCH PROGRAMS
Telomerase Inhibition and Detection
Geron intends to discover and develop a small molecule telomerase
inhibitor, which, by blocking the activity of telomerase, will allow telomeres
in cancer cells to resume shortening, ultimately leading to cancer cell death.
In addition, the Company's intention is to develop clinical products using
telomerase as a marker in cancer diagnosis, prognosis, patient monitoring and
screening.
Telomerase is not present in most normal cells, and as a result, normal
cells exhibit telomere shortening. In contrast, telomerase is abnormally active
in cancer cells, causing telomere length to be maintained, which Geron believes
confers immortality to cancer cells in malignant tumors. Research has shown that
telomerase is present in all of the over 20 - 30 different cancer types studied,
including the ten most prevalent cancers of prostate, breast, lung, colon,
bladder, uterus, pancreas and ovary, along with lymphomas, leukemias,
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melanomas and brain tumors. In all of these cancers, a very high percentage of
tumor samples contain telomerase. Because telomerase is present in all cancer
types evaluated and is not biologically active in most normal cells, telomerase
appears to be a universal and highly specific marker of cancer. These
characteristics combine to make telomerase an attractive target for inhibition
to treat cancer and for detection to diagnose cancer.
Therapeutics. Research by Geron and other independent groups has
demonstrated that a telomerase inhibitor can block cancer cells from using
telomerase to maintain telomere length. As a result, telomeres shorten as the
cancer cells continue to divide until a critically short length is reached, at
which point the cancer cells enter crisis. In some cases, cancer cells have a
more immediate response to loss of telomerase activity, undergoing rapid cell
death. Geron scientists and others have inhibited human telomerase in tumor cell
lines in culture using molecules which block the function of the RNA or the
essential protein component of telomerase. Based on these positive results,
Geron is aggressively pursuing the identification of telomerase inhibitors as
potential lead compounds for clinical development. While it has identified
several strategies for inhibiting telomerase activity, including antisense
technology and genetic regulation, Geron is primarily focused on developing a
small molecule inhibitor. The Company believes the small molecule approach will
produce a development candidate with a more favorable pharmaceutical and
commercial profile -- oral bioavailability, compound stability and low
manufacturing cost. Geron and partners are using proprietary screening
technologies employing combinatorial chemistry to identify small molecule
compounds that selectively inhibit telomerase. Traditional medicinal chemistry
and rapid parallel synthesis techniques are being used to optimize these
compounds. Cell and animal models, as well as cell-based models of human tumor
growth, have been developed to test the appropriateness of lead compounds for
development.
To advance this program, Geron has pursued the cloning and characterization
of the genes for the essential components of telomerase: the RNA template of
telomerase ("hTR") and the catalytic reverse transcriptase protein component
("hTERT"). The cloning of hTR by Geron in 1994 and of hTERT, in collaboration
with Dr. Thomas Cech of the University of Colorado in 1997, has allowed the
development of proprietary assays for discovering and characterizing telomerase
inhibitors. In addition, Geron has developed proprietary screening technology,
assembled a structurally diverse library of more than 100,000 small molecule
compounds and established medicinal and combinatorial and nucleic acid chemistry
capabilities. As a result of the combined screening efforts, Geron and its
corporate partners have identified several classes of compounds that demonstrate
telomerase inhibition and are actively pursuing structure/activity relationship
studies. Geron believes that its assays and screening methods provide a strong
competitive advantage in view of the difficulty and specialized skills required
for their development and use. The company's patent portfolio includes issued
patents for the RNA and catalytic protein components of telomerase as well as
Geron's telomerase inhibitor screens.
Geron believes that blocking telomerase activity will cause the affected
cancer cells to resume telomere shortening during cell division and lose their
immortality. Telomerase inhibition is therefore expected to have delayed
efficacy as cancer cell telomeres resume normal shortening. Although Geron
envisions that a telomerase inhibitor could be effective as a stand-alone
treatment in certain cases, it is expected that in most cases a telomerase
inhibitor will be used in conjunction with current anti-cancer therapies.
Geron believes that a telomerase inhibitor will be an effective therapeutic
for a broad range of cancers, although there may be certain limitations to its
use. Because telomerase is present in reproductive cells, a telomerase
inhibitor, like many cancer agents in current use, may have a negative impact on
such cells. Telomerase is also transiently expressed in certain cells in the
hematopoietic (blood), skin and gastrointestinal tract. However, Geron
scientists and others have demonstrated that these tissues age and show gradual
telomere shortening during the course of cell division. As a result, Geron
believes that telomerase is not biologically critical for these tissues, and
Geron predicts that telomerase inhibitors are unlikely to have a significant
negative effect on them.
Geron has established a strategic alliance with Kyowa Hakko, a leading
oncology company in Japan, for the development and commercialization in certain
Asian countries of a telomerase inhibitor for the treatment of cancer. Geron has
also established a strategic alliance with Pharmacia & Upjohn, a global leader
in
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oncology, for a complementary worldwide collaboration in telomerase inhibition.
This collaboration with Pharmacia & Upjohn has recently been enhanced by
accessing the high throughput screening capabilities and the two million
compound libraries of Pharmacopoeia, Incorporated ("Pharmacopoeia") via an
alliance between Pharmacia & Upjohn and Pharmacopoeia which includes telomerase
inhibition. Geron has established research collaborations for the study of
telomerase inhibition with the National Cancer Institute, Memorial
Sloan-Kettering Cancer Center, and the Lawrence Berkeley National Laboratory,
and for the study of telomere biology with Stanford University, the University
of Colorado, the University of Texas Southwestern Medical School at Dallas, the
Dana Farber Cancer Institute, and the University of California, San Francisco.
Diagnostics. Geron believes that telomerase is a universal and highly
specific marker of cancer and, therefore, the detection and quantification of
telomerase may have significant clinical utility for cancer diagnosis,
prognosis, and patient monitoring and screening. While current cancer
diagnostics apply to a single or limited number of cancer types,
telomerase-based diagnostics could potentially address a broad range of cancer
types. The Company also believes that the availability of telomerase-based
diagnostics for cancer, which are likely to reach the market before
telomerase-based therapeutics, will enhance the commercial opportunity for a
telomerase inhibitor by increasing the understanding by clinicians of the
biological significance of telomerase activity in cancer.
Geron has developed several proprietary assays for the detection of
telomerase which are based on its activity or components. The first generation
assay is the Telomeric Repeat Amplification Protocol ("TRAP") assay which can be
used to detect telomerase activity in malignant tumor tissue. The second
generation assay detects hTR, the RNA component of human telomerase, which was
first cloned by Geron scientists. This enables the Company to use proprietary in
situ hybridization and other methods to detect the presence of telomerase. The
Company was also the first to report the cloning of hTERT, the human telomerase
reverse transcriptase component of telomerase. The first patent for the hTERT
protein component of human telomerase has been issued in the United Kingdom and
is co-owned by Geron and the University of Colorado and exclusively licensed to
Geron. Further, the United States Patent and Trademark Office has issued patents
for the detection of telomerase activity or its components including patents for
the TRAP assay and diagnostic methods based on hTR detection.
Geron is overseeing preclinical studies to assess the full potential of its
telomerase detection technology. Data from two such studies indicate telomerase
levels correlate with clinical outcome in breast cancer and neuroblastoma
patients. Data from other published studies support clinical application of
telomerase in diagnosis, staging, monitoring and screening for bladder, cervical
and other cancers. In several reports, the sensitivity and specificity of
telomerase-based assays have proven superior to standard methods in the
detection of cancer in patient samples. The Company intends to proceed with
development of its telomerase detection technology, in collaboration with Roche
Diagnostics, as a novel and important diagnostic for cancer.
Telomerase Activation and Expression
Geron seeks to develop cell, gene and drug therapies to modulate biological
processes leading to and regulating cell aging or senescence which contribute to
degenerative diseases. As normal cells divide, they eventually exhaust their
capacity for renewal and become senescent, at which point they display an
altered pattern of gene expression and an altered function. An integral part of
this program is the extensive investigation of changes in gene expression as
cells age and the analysis of gene expression when telomerase is introduced into
cells at various times prior to senescence. The Company is applying proprietary
gene transfer technologies, gene expression systems and small molecule screening
technology to develop therapeutic agents to target, postpone and modulate the
destructive genetic changes that occur in senescent cells.
Research at Geron and the University of Texas Southwestern Medical Center
at Dallas has shown that the activation of telomerase in normal human cells
extends their cellular lifespan without causing cancerous changes. Such
telomerase expression prevents the senescent gene expression pattern and
preserves the youthful function of these cells. Geron has continued
investigations aimed at defining the differences in gene expression between
young and senescent cells using high density DNA arrays to efficiently monitor
gene
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expression in young and senescent cell cultures. This has allowed for a detailed
description of genes whose deregulation is associated with senescence. Such
genes can serve as markers in drug discovery screens to identify small molecules
capable of activating telomerase and thus suppressing the altered gene
expression patterns in senescent cells. Geron has entered into an agreement with
Synteni (an Incyte company) for the use of their microarray technology for gene
expression analysis. In addition, Geron maintains research collaborations with a
number of institutes to support its telomerase activation program including,
Lawrence Berkeley National Laboratory, Stanford University and the University of
Tennessee, Memphis.
The onset of diseases such as skin aging, atherosclerosis, osteoporosis,
arthritis, and macular degeneration is associated with dysfunction of specific
cell types. The effects of senescence on these cell types contribute to the
disease. For each of these cell types, Geron scientists have introduced the
hTERT gene and observed expression of telomerase, maintenance of telomere length
and extension of these cells' normal lifespan. The Company believes that these
telomerized cells will have extensive applications in research, production of
engineered cells and tissues and in the treatment of age-related diseases. To
pursue the applications of this technology, Geron scientists are working with
collaborators at Duke University, the University of California at Los Angeles,
the Memorial Sloan-Kettering Cancer Center and Stanford University.
Geron is developing proprietary gene vectors using the hTERT promoter to
drive expression of a gene that directly or indirectly kills that cell. These
systems are being tested in animal models. Specifically targeting cancer cells
should reduce the toxicity of the therapy to normal cells. Studies are also
planned to measure potential synergies of hTERT immunotherapy with traditional
chemotherapeutic, surgical and radiological cancer therapies.
Embryonic Stem Cell Therapies
Human embryonic stem ("hES") and germ ("hEG") cells are embryonic and fetal
derived cells, respectively, that are unique in that they are capable of
differentiation into any and all types of cells and tissues in the body.
Moreover, hES cells have been shown to be telomerase positive and capable of
essentially immortal growth in the differentiated state.
Geron collaborators at the University of Wisconsin-Madison have now
succeeded in isolating and culturing human embryonic stem cells. As published in
Science, these undifferentiated cells can be expanded in culture and can be
induced to differentiate both in vitro and in in vivo animal models into all
primary tissue types including cardiac and skeletal muscle, neuronal and
epithelial tissue.
The Company believes that hES and hEG cells offer significant advantages
over other stem cells, which have limited ability to proliferate and
differentiate in culture. With the derivation of hES and hEG cells, Geron has a
new set of product development opportunities in (i) transplantation medicine,
(ii) pharmaceutical research and development and (iii) the study of human
developmental biology.
The availability of hES and hEG cells allows for the first time a thorough
genomic analysis of gene expression patterns that control early human
development. Identification and functional assignment of these human
developmental genes will enhance our understanding of the molecular events that
control early human development with application toward the prevention of birth
defects, treatment of infertility disorders and the discovery of gene products
that enhance tissue differentiation and repair. The Company plans to apply its
microassay technologies in order to identify these genes and to seek corporate
partners to develop and commercialize those gene products with therapeutic
potential.
By combining cellular differentiation technologies with Geron's proprietary
telomerase gene transfer immortalization platform, the Company plans to develop
immortalized human cell lines useful for application in drug discovery screens.
Unlike transformed cells which have been engineered to express certain surface
receptors, for example, as targets for drug discovery, cells derived from hES or
hEG cells will retain the complete normal signal transduction pathways
downstream from the surface receptors. Screens based on such cells can therefore
not only be used to identify components that bind to the surface receptor, but
also those which act with intracellular pathways resulting in desired
alterations in gene expression consistent with the desired pharmacologic action
of the drug being discovered.
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Finally, by combining culture scale-up, telomerase gene transfer, cell
differentiation and genetic selection technologies with gene targeting
techniques, purified cell populations can be potentially manufactured for
application in tissue regeneration therapies. Degenerative tissues in such
conditions as heart failure, diabetes, stroke, arthritis, and atherosclerosis
could potentially be restored by the injection of youthful, functional cells
derived from pluripotent hES cells. The Company's intention is to assemble the
required technologies, personnel, licenses and collaborations to enable the
development of these tissue regeneration approaches.
STRATEGIC PARTNERSHIPS
Geron believes that its broad scientific platform will generate significant
opportunities for a variety of strategic partnership arrangements. Geron has
established and intends to continue to establish selective collaborations with
leading pharmaceutical and diagnostic companies to enhance its research,
development and commercialization capabilities. In each of these strategic
collaborations, the Company has retained significant rights to participate in
the commercial success of its products.
Kyowa Hakko Collaboration
In April 1995, the Company entered into a License and Research
Collaboration Agreement with Kyowa Hakko (the "Kyowa Hakko Agreement"). Under
the Kyowa Hakko Agreement, Kyowa Hakko agreed to provide $16.0 million of
research funding over four years to support the Company's program to discover
and develop in certain Asian countries a telomerase inhibitor for the treatment
of cancer. In addition, the Company is entitled to receive future payments
totaling $11.5 million upon the achievement of certain contractual milestones
relating to drug development and regulatory progress, as well as royalty
payments on product sales. Kyowa Hakko also purchased $2.5 million of Geron
Common Stock in connection with the Company's initial public offering. Under the
Kyowa Hakko Agreement, Geron exercises significant influence during the research
phase and Kyowa Hakko exercises significant influence during the development and
commercialization phases. Kyowa Hakko will pay for all clinical expenses
associated with product approval in the licensed territory, which includes the
countries of China, Hong Kong, India, Indonesia, Japan, Kampuchea, Korea, Laos,
Malaysia, Myan Mar, the Philippines, Singapore, Taiwan, Thailand and Vietnam.
The Kyowa Hakko Agreement provides that Kyowa Hakko will not pursue research and
development independent of its collaboration with Geron with respect to
telomerase inhibition for the treatment of cancer in humans until April 7, 2000,
at the earliest. Kyowa Hakko may terminate the agreement only in the event of
breach or bankruptcy by Geron or in the event that both parties agree that it is
no longer reasonably practical to pursue further research and development of an
inhibitor of telomerase. In March 1997, the Kyowa Hakko Agreement was amended to
extend its term until April 2000 and to make certain other changes in connection
with the signing of the Pharmacia & Upjohn Agreement (as defined below).
Pharmacia & Upjohn Collaboration
In March 1997, the Company signed a License and Research Collaboration
Agreement (the "Pharmacia & Upjohn Agreement") with Pharmacia & Upjohn to
collaborate in the discovery, development and commercialization of a new class
of anti-cancer drugs that inhibit telomerase. Under the collaboration, Pharmacia
& Upjohn will provide $15.0 million of research funding over three years. In
addition, the Company is entitled to receive future payments upon the
achievement of certain contractual milestones relating to drug development and
regulatory progress, as well as royalty payments on future product sales.
Further, the Company has an option to exercise co-promotion rights in the United
States. The companies also signed a Stock Purchase Agreement providing for an
initial equity investment of $2.0 million in Geron by Pharmacia & Upjohn, at a
premium, which was completed in January 1997. In addition on April 25, 1997 and
March 27, 1998, Pharmacia & Upjohn purchased an aggregate of $8.0 million ($4.0
million on each date) of Geron Common Stock at a premium. Through the Pharmacia
& Upjohn and Kyowa Hakko Agreements, the Company has granted to Pharmacia &
Upjohn and Kyowa Hakko exclusive worldwide rights to its telomerase inhibition
technology, with exception to certain antisense, gene therapy and vaccine
technologies outside Asia, for the treatment of cancer in humans. This
collaboration with Pharmacia & Upjohn has recently been enhanced by accessing
the high throughput screening capabilities and the two million compound library
of
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Pharmacopoeia, via an alliance between Pharmacia & Upjohn and Pharmacopoeia
which includes telomerase inhibition.
The Company incurred operating expenses of $19.4 million, $18.3 million and
$17.4 million in 1998, 1997 and 1996, respectively. Of these expenditures, $6.7
million, $6.7 million and $5.2 million related to costs incurred for research
and development activities attributable to strategic partnerships in 1998, 1997
and 1996, respectively. The Company funded the remaining expenditures. No
milestone payments have been received or earned to date.
Diagnostic Collaborations
Kyowa Medex Co., Ltd. ("Kyowa Medex") has licensed the Company's TRAP assay
technology; Dako Corporation ("Dako") has licensed the Company's hTR in situ
hybridization detection technology; and PharMingen (a Becton Dickinson company)
has licensed the Company's TRAP assay and telomere length measurement
technology, each on a non-exclusive basis for sale to the research-use-only
market. Roche Diagnostics GmbH ("Roche") has licensed all telomerase and
telomere length assay technologies, including TRAP, hTR, hTERT, and
immunoassays, for research-use-only and in vitro diagnostics in cancer. All
telomerase licenses previously licensed to Boehringer Mannheim GmbH ("Boehringer
Mannheim") have been transferred to Roche Diagnostics following the acquisition
of Boehringer Mannheim by Roche. The TRAP assay research-use-only license
originally granted to Oncor Inc. ("Oncor") has been transferred to the Intergen
Company ("Intergen") following the acquisition of Oncor's research reagent
division by Intergen. Oncor commenced commercial sale of the TRAP-eze(TM) kit in
May 1996, followed by Boehringer Mannheim and Kyowa Medex in late 1996.
Since mid-1998, Oncor's TRAP-eze(TM) and other TRAP-related products are
marketed under the Intergen label. Boehringer Mannheim's telomerase-related
products are now marketed under the Roche label. PharMingen began selling its
TeloQuant(TM) telomere length assay kit in 1997 and its TeloQuant(TM) telomere
length and TRAP assay kit in 1998. Although the Company does not expect
royalties from the sale of these kits to be significant, the use of these kits
is expected to stimulate additional studies of telomerase activity by academic
laboratories. The Company has also established research collaborations for the
study of telomerase detection with The Cleveland Clinic, Johns Hopkins
University, the Children's Hospital of Los Angeles, Madigan Army Medical Center
and the University of Texas Southwestern Medical Center at Dallas.
In December 1997, the Company entered into a License, Product and Marketing
Agreement with Boehringer Mannheim to develop and commercialize research and
clinical diagnostic products for cancer on an exclusive, worldwide basis. Under
the Agreement, Boehringer Mannheim provided reimbursement in the amount of
$500,000 for research previously conducted and is responsible for all clinical,
regulatory, manufacturing, marketing and sales efforts and expenses. The Company
is entitled to receive future payments upon achievement of certain contractual
milestones relating to levels of product sales, as well as royalties on product
sales. Further, the Company has an option at its sole discretion to exercise
co-promotion rights with respect to in vitro diagnostic products in the United
States. After the acquisition of Boehringer Mannheim by Roche in early 1998, all
licenses and agreements pertaining to telomerase-based cancer diagnostics
entered into with Boehringer Mannheim have been transferred to Roche
Diagnostics. It is expected that the combined clinical and technical expertise
of Boehringer Mannheim and Roche Diagnostics will enhance the telomerase
diagnostic product development.
RESEARCH COLLABORATIONS
The Company has entered into and intends to continue to enter into research
agreements selectively with leading academic and research institutions to
enhance significantly its research and development capabilities. Under these
agreements, the Company generally provides funding for scientific research in
exchange for exclusive commercial rights to the results of such research. In
each of these agreements, the Company seeks to retain rights to develop and
market applications of any discoveries made under such collaborations by
obtaining options to license exclusively any technology developed under such
programs, including patents or patent applications filed in connection with such
programs.
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The Company has established collaborations for the study of telomere and
telomerase biology and in support of its Telomerase Inhibition and Detection
with the National Cancer Institute, the Memorial Sloan-Kettering Cancer Center,
Lawrence Berkeley National Laboratory, Stanford University, the University of
Colorado, the University of Texas Southwestern Medical School at Dallas, the
Dana Farber Cancer Institute, the University of California at San Francisco, The
Cleveland Clinic, Johns Hopkins University, the Children's Hospital of Los
Angeles and Madigan Army Medical. In support of its Telomerase Activation and
Expression program, Geron has established collaborations with laboratories
including the Lawrence Berkeley National Laboratory, Stanford University, the
University of Tennessee, Memphis, Duke University, the University of California
at Los Angeles and the Memorial Sloan-Kettering Cancer Center. Geron has
established exclusive license and collaboration agreements in support of its
Embryonic Stem Cell Therapies program with the University of California at San
Francisco, Johns Hopkins University and the licensing arm of the University of
Wisconsin-Madison.
PATENTS, PROPRIETARY TECHNOLOGY AND TRADE SECRETS
Protection of the Company's proprietary compounds and technology is
important to the Company's business. The Company owns 23 issued United States
patents and over 46 United States patent applications and has licensed 20 issued
United States patents and over 40 United States patent applications, as well as
three issued foreign patents and numerous international filings under the Patent
Cooperation Treaty, and has pending foreign national patent applications
corresponding to certain of these United States applications. The Company's
policy is to seek, when appropriate, patent protection for its lead compounds,
gene discoveries, screening technologies and certain other proprietary
technologies through licensing and by filing patent applications in the United
States and certain other countries. The Company believes its patent filings and
patent licenses and options may provide protection for its drug discovery and
diagnostics development programs and that its patent applications disclose
useful discoveries in the field of telomere biology and telomerase regulation as
well as cellular senescence, cellular immortality and embryonic stem cell
technology. For example, the United States Patent and Trademark Office has
issued Geron five patents for telomerase inhibitor screening technology. The
Company's screening efforts have resulted in the identification of several
compounds that inhibit human telomerase in vitro and the Company has filed
United States patent applications on certain of these chemical classes of
telomerase inhibitors, six of which have issued. The Company has licensed
several issued United States patents relating to telomerase activity-based
cancer diagnostic and prognostic methods. In addition, the Company owns several
United States patents and an allowed United States patent application for the
TRAP assay and improvements to the TRAP assay. One patent relating to reagents
used in the assay has issued from the United States Patent and Trademark Office.
The Company's telomerase RNA detection technology is the subject of several
patents that have issued from the United States Patent and Trademark Office. The
Company has also filed patent applications relating to the catalytic subunit of
telomerase and has been granted a patent in the United Kingdom to the catalytic
protein component of telomerase. The Company has patents and a patent
application relating to its technologies for identifying genes that are
differentially expressed in different cell types or at different stages of
cellular development. The United States Patent and Trademark Office has issued a
patent relating to the Company's "Enhanced Differential Display" technology, as
well as a patent for methods to increase the replicative capacity of skin cells.
The Company has licensed several patent applications relating to Embryonic Stem
Cells including the issued patent relating to Primate Embryonic Stem Cells and
methods for obtaining and maintaining them has issued from the United States
Patent and Trademark Office.
SCIENTIFIC ADVISORS AND CONSULTANTS
The Company has consulting agreements with a number of leading academic
scientists and clinicians who serve as members of its Scientific Advisory Board
("SAB") or as consultants. These individuals are distinguished scientists and
clinicians with expertise in the areas of genetics of aging, cell senescence,
telomerase, developmental biology, cell biology and molecular biology.
The SAB was established to consult with the Company with respect to
scientific programs and strategies. The individuals also provide important
contacts throughout the broader scientific community. The SAB meets
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as a whole or in smaller groups at least once per year to focus on general
strategy and certain scientific issues. Individual members are called upon on an
ad hoc basis as appropriate.
Each SAB member has entered into an agreement with the Company covering the
terms of his or her position as a member of the SAB. Certain SAB members hold
options to purchase or have purchased Common Stock of the Company. In addition,
members of the SAB are reimbursed for out-of-pocket expenses incurred in
attending each meeting. Most members of the SAB are employed by institutions
other than the Company and may have commitments to, or consulting or advisory
agreements with, other entities that may limit their availability to the
Company.
The Company's SAB members and consultants include the following
individuals:
STEPHEN BENKOVIC, PH.D., is Professor of Chemistry at the Pennsylvania
State University and is a member of the Company's SAB. Dr. Benkovic is a member
of the Chemical Society and the recipient of the 1998 Chemical Pioneer Award
given by the American Institute of Chemists. He is an internationally recognized
expert in protein chemistry, including the enzymology of DNA polymerases.
ELIZABETH BLACKBURN, PH.D., is a Professor and Chair of the Department of
Microbiology and Immunology at the University of California at San Francisco and
a member of the National Academy of Sciences. Dr. Blackburn is known for her
pioneering characterization of telomeres and for her co-discovery of telomerase
and subsequent characterization of this important enzyme.
GUNTER K. BLOBEL, M.D., PH.D., is an investigator at the Howard Hughes
Medical Institute, Rockefeller University and is a member of the Company's SAB.
Dr. Blobel is a member of the National Academy of Sciences, the recipient of the
1993 Lasker Award and past president of the American Society for Cell Biology.
He is well known for his work in protein translocation and is now turning much
of his research focus to nuclear trafficking.
DAVID BOTSTEIN, PH.D., is Professor and Chairman of the Department of
Genetics, Stanford University School of Medicine. He was elected to the National
Academy of Sciences in 1981 and to the Institute of Medicine in 1993. His
current research activities include studies of yeast genetics and cell biology
and linkage mapping of human genes predisposing to manic-depressive illness and
the development and maintenance of the Saccharomyces Genome Database on the
World Wide Web. He has received numerous awards, including the Eli Lilly Award
in Microbiology (1978), the Genetics Society of America Medal (1985), and the
Allen Award of the American Society of Human Genetics (1989). Dr. Botstein has
served on numerous committees including the NAS/NRC study on the Human Genome
Project (1987 - 88), the National Institutes of Health ("NIH") Program Advisory
Panel on the Human Genome (1989 - 90) and the Advisory Council of the National
Center for Human Genome Research (1990 - 95).
ROBERT N. BUTLER, M.D., is a gerontologist and psychiatrist with broad
experience in aging research and advocacy and is a member of the Company's SAB.
In 1982, he founded the first, and still the only, department of geriatrics at a
United States medical school -- the Department of Geriatrics and Adult
Development at the Mount Sinai Medical Center -- where he continues to serve as
Professor. Since 1990, he has also been Director of the International Longevity
Centers. In 1975, he became the founding director of the National Institute on
Aging of the NIH, a position he held until 1982. He currently serves on the
National Advisory Council of the National Institute on Aging. Dr. Butler also
serves as editor-in-chief of the journal Geriatrics and is the author of
approximately 300 scientific and medical articles. In 1976, he won the Pulitzer
Prize for his book, "Why Survive? Being Old in America."
JUDITH CAMPISI, PH.D., is a Senior Scientist and Acting Chair, Department
of Cancer Biology, Lawrence Berkeley National Laboratory. She has been an
Established Investigator of the American Heart Association and currently has a
MERIT Award from the National Institute on Aging ("NIA"), and serves on its
Board of Scientific Counselors. Her major interests are the cellular and
molecular biology of senescence and tumorigenesis.
VINCENT CRISTOFALO, PH.D., is a Professor of Biochemistry and Molecular
Pharmacology, and President of Lankenau Medical Research Center, Jefferson
Health System, Pennsylvania and is a member of the
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Company's SAB. In addition, he is professor emeritus at the University of
Pennsylvania and adjunct professor at the Wistar Institute. He sits on the Board
of Scientific Counselors of the NIA and the Department of Veterans Affairs
Geriatrics and Gerontology Advisory Committee, as well as numerous editorial
boards.
JOHN GEARHART, PH.D., is a Professor of Gynecology and Obstetrics,
Physiology, Comparative Medicine, and Population Dynamics at the School of
Medicine of Johns Hopkins University, where he is also the Director of the
Division of Genetics and the Preimplantation Genetics Diagnosis Program. Dr.
Gearhart has been a leader in the utilization of transgenic models and in the
development of new transgenic and embryonic stem cell technologies.
LEONARD GUARENTE, PH.D., is a Professor of Biology at the Massachusetts
Institute of Technology and a member of the Company's SAB. Dr. Guarente has
studied mechanisms of eukaryotic transcriptional regulation over the past 18
years. More recently, his lab has turned its focus to identifying causes of
aging by identifying genes and mechanisms that control lifespan in the model
system S. Cerevisiae and in mice. His lab has also begun a study of the WRN1
gene, mutations in which give rise to Werner's Syndrome, a human disease
characterized by premature aging.
DOUGLAS HANAHAN, PH.D., is a Professor of Biochemistry in the Department of
Biochemistry and Biophysics and Associate Director of the Hormone Research
Institute, University of California at San Francisco and is a member of the
Company's SAB. His major research interests are the cellular and genetic
mechanisms of tumor development and autoimmunity. Prior to joining the
University of California at San Francisco in 1988, Dr. Hanahan was with the Cold
Spring Harbor Laboratory for nine years, where he developed technologies for
recombinant DNA and molecular cloning and established transgenic mouse models to
study cancer and autoimmune diseases.
LEONARD HAYFLICK, PH.D., is a Professor of Anatomy at the School of
Medicine of the University of California at San Francisco, and is a member of
the Company's SAB. Dr. Hayflick is best known for his pioneering work in tissue
culture, where he discovered the finite replicative capacity of normal human
cells which he interpreted as aging at the cellular level. This phenomenon is
known as the "Hayflick Limit" and Dr. Hayflick is widely known as the "father"
of cellular gerontology. Dr. Hayflick has published over 200 papers and is the
recipient of numerous national and international research awards and honors, was
President of the Gerontological Society of America, was a founding member of the
Council of the NIA, and recently authored the popular book, "How and Why We
Age."
ERIC LANDER, PH.D., is a Professor of Biology at the Massachusetts
Institute of Technology and serves as the Director of the Whitehead
Institute/MIT Center for Genome Research and is a member of the Company's SAB.
Dr. Lander is active in several organizations involved in human genetics
research, including serving on the board of directors for the Genetic Society of
America and acting as former chair of the Genome Research Review Committee for
NIH's National Center for Human Genome. He brings broad experience in human and
mammalian genetic research.
GEORGE M. MARTIN, M.D., is Professor of Pathology, Adjunct Professor of
Genetics and Director of Alzheimer's Disease Research Center, University of
Washington School of Medicine. He has held various positions in the departments
of pathology and genetics at the University of Washington School of Medicine
since 1957, and was appointed director of the Alzheimer's Disease Research
Center in 1985. Dr. Martin's recent awards include a Research Medal granted by
the American Aging Association in 1992 and the Robert W. Kleemeier Award given
by the Gerontological Society of America in 1993.
MALCOLM MOORE, PH.D., is a Professor of Biology at the Sloan-Kettering
Division, Cornell Graduate School of Medical Sciences and is internationally
known for his pioneering work in hematopoiesis, growth factors, and cytokines.
He is also currently incumbent of the Enid A. Haupt Chair of Cell Biology,
Memorial Sloan-Kettering Cancer Center. Dr. Moore received the William B. Coley
Award For Distinguished Research in Immunology by the Cancer Research Institute
in June 1995.
ROGER A. PEDERSEN, PH.D., is a Professor of Obstetrics, Gynecology and
Reproductive Sciences at the University of California at San Francisco, where he
teaches developmental genetics and mammalian embryology. He received his B.A.
degree from Stanford University, and his Ph.D. at Yale University. He
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completed his postdoctoral research at the Johns Hopkins University. Since 1991
he has served as Series Editor of Current Topics in Developmental Biology. He
has written numerous original publications and reviews on early mouse
development, and co-produced two instructional videotapes on the use of mice in
transgenic and gene targeting research.
JERRY W. SHAY, PH.D., is a Professor of Cell Biology and Neuroscience at
the University of Texas Southwestern Medical Center at Dallas and is a member of
the Company's SAB. Dr. Shay's research focuses on molecular mechanisms of
tumorigenesis and immortalization with a particular emphasis on cancer of the
breast. Dr. Shay has numerous publications, honors and patents. He is also on
the editorial board for the Journal of Clinical Pathology.
JAMES A. THOMSON, V.M.D., PH.D., is a Staff Pathologist and Associate
Research Animal Veterinarian at the University of Wisconsin-Madison. He is known
for the first successful derivation of human embryonic stem cells. Dr. Thomson
has numerous awards and publications as well as an issued United States patent
for primate embryonic stem cells.
JAMES D. WATSON, PH.D., is President of Cold Spring Harbor Laboratory and
is a member of the Company's SAB. Dr. Watson is the former head of the NIH Human
Genome Project and is famous for his 1953 discovery with Francis Crick of the
double helical structure of DNA for which he received the Nobel Prize.
WOODRING E. WRIGHT, M.D., PH.D., is a Professor of Cell Biology and
Neuroscience at the University of Texas Southwestern Medical Center at Dallas
and is a member of the Company's SAB. He is widely recognized as a leading
molecular biologist working in the field of cellular senescence and on the
molecular basis of muscle development.
GOVERNMENT REGULATION
Regulation by governmental entities in the United States and other
countries will be a significant factor in the preclinical and clinical testing,
production, labeling, sale, distribution, marketing, advertising and promotion
of any products developed by the Company or its strategic partners. Most of the
Company's or its strategic partners' products will require regulatory approval
or clearance by governmental agencies prior to commercialization. The nature and
the extent to which such regulation may apply to the Company or its strategic
partners will vary depending on the nature of any such products. Generally,
biological drugs and non-biological drugs are regulated more rigorously than
medical devices. In particular, human pharmaceutical therapeutic products,
including a telomerase inhibitor, are subject to rigorous preclinical and
clinical testing and other requirements by the United States Food and Drug
Administration ("FDA") in the United States and similar health authorities in
foreign countries. Various federal and, in some cases, state statutes and
regulations also govern or influence the manufacturing, safety, labeling,
distribution, storage, record keeping and marketing of such products. The
process of obtaining these approvals or clearances is uncertain and the process
of and the subsequent compliance with appropriate federal and foreign statutes
and regulations are time consuming and require the expenditure of substantial
resources.
Generally, to gain FDA pre-market approval for a biopharmaceutical product,
a company first must conduct extensive preclinical studies in the laboratory and
in animal model systems to gain preliminary information on a product's potential
efficacy and to identify any safety problems. The results of these studies are
submitted as a part of an investigational new drug application ("IND"), which
must become effective before human clinical trials of an investigational drug
can start. To commercialize any products, the Company or its strategic partners
will be required to sponsor and file an IND and will be responsible for
initiating and overseeing a series of clinical studies to demonstrate the
safety, purity, efficacy and potency in the case of biological drugs, or safety
and efficacy in the case of non-biological drugs that are necessary to obtain
FDA approval of any such products. Clinical trials are normally done in three
phases (Phase I -- safety and pharmacologic assessment; Phase II -- a small
efficacy study; and Phase III -- 200 - 1000 patient studies to provide
substantial evidence of safety and effectiveness) which generally take three to
six or more years to complete. After completion of clinical trials of a new
product, FDA marketing approval must be obtained. If the product is classified
as a non-biological drug, the Company or its strategic partner will be required
to file a
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new drug application ("NDA") and receive approval before commercial marketing of
the drug. In the case of a biological drug, an Establishment License Application
("ELA") and Product License Application ("PLA") must be filed with and approved
by the FDA before marketing can occur. If a given recombinant product is
considered to be a well-characterized biological drug, only a Biological License
Application ("BLA") combining elements of an ELA and a PLA may be required.
These testing and approval processes are uncertain and require substantial time
and the expenditure of substantial resources, and there can be no assurance that
any such approval will be granted on a timely basis, if at all. NDAs or
PLAs/ELAs submitted to the FDA can take, on average, two to five years to
receive approval, and the FDA must confirm that good laboratory, clinical and
manufacturing practices were maintained as well as determine that safety,
purity, efficacy, and potency (in the case of a biological drug) or safety and
efficacy (in the case of a non-biological drug) have been established. If
questions arise during the FDA review process, approval can take more than five
years. Even if FDA regulatory approvals are obtained, a marketed product is
subject to continual review, and later discovery of previously unknown problems
or failure to comply with the applicable regulatory requirements may result in
restrictions on the marketing of a product or withdrawal of the product from the
market as well as possible civil or criminal sanctions, including but not
limited to recall or seizure of product, injunction against manufacture,
distribution, sales and marketing and criminal prosecution. For marketing
outside the United States, the Company will also be subject to foreign
regulatory requirements governing human clinical trials and marketing approval
for pharmaceutical products. The requirements governing the conduct of clinical
trials, product licensing, pricing and reimbursement vary widely from country to
country. Any diagnostic products to be developed by the Company or its strategic
partners are likely to be regulated by the FDA as medical devices rather than
drugs. The nature of the FDA requirements applicable to such medical diagnostic
devices depends on their classification by the FDA. A diagnostic device
developed by the Company or a strategic partner would initially be classified as
a Class III device, and would most likely require pre-market approval. Obtaining
pre-market approval involves the costly and time-consuming process, comparable
to that for new drugs, of conducting laboratory studies, obtaining an
investigational device exemption to conduct clinical tests, filing a pre-market
approval application ("PMA") and obtaining review and approval of the PMA by the
FDA. Such review and approval may take 12 - 18 months or more. The process from
laboratory to clinical studies to FDA review and approval of a PMA, which
approval cannot be assured on a timely basis, if at all, can take several years
or more. Both drugs and devices are subject to FDA current good manufacturing
practice regulations ("GMPs"), often even at the clinical trial stages. Both
drug and device GMPs specify extensive validation and record keeping
requirements, including the maintenance of product compliance files, as well as
require compliance with various standards governing personnel, equipment and raw
materials, including product stability requirements. There can be no assurance
that the Company or its collaborators or contract manufacturers, if any, will be
able to establish or maintain compliance with the GMP regulations on a
continuing basis. Failure to establish or maintain GMP compliance or compliance
with other FDA requirements could have a material adverse effect on the
Company's business.
The Company's research and development activities involve the controlled
use of hazardous materials, chemicals and various radioactive materials. The
Company is subject to federal, state and local laws and regulations governing
the use, storage, handling and disposal of such materials and certain waste
products. Although the Company believes that its safety procedures for using,
handling, storing and disposing of such materials comply with the standards
prescribed by state and federal laws and regulations, the risk of accidental
contamination or injury from these materials cannot be completely eliminated. In
the event of such an accident, the Company's use of these materials could be
curtailed by state or federal authorities, the Company could be held liable for
any damages that result and any liability could exceed the resources of the
Company.
COMPETITION
The pharmaceutical and biopharmaceutical industries are intensely
competitive. The Company believes that certain pharmaceutical and
biopharmaceutical companies as well as certain research organizations currently
engage in or have in the past engaged in efforts related to the biological
mechanisms of cell aging and cell immortality, including the study of telomeres
and telomerase. In addition, other products and therapies that could compete
directly with the products that the Company is seeking to develop and market
currently exist or are being developed by pharmaceutical and biopharmaceutical
companies, and by academic and other
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research organizations. Many companies are also developing alternative therapies
to treat cancer and, in this regard, are competitive with the Company. The
pharmaceutical companies developing and marketing such competing products have
significantly greater financial resources and expertise in research and
development, manufacturing, preclinical and clinical testing, obtaining
regulatory consents and marketing than the Company. Smaller companies may also
prove to be significant competitors, particularly through collaborative
arrangements with large and established companies. Academic institutions,
government agencies and other public and private research organizations may also
conduct research, seek patent protection and establish collaborative
arrangements for research, clinical development and marketing of products
similar to those of the Company. These companies and institutions compete with
the Company in recruiting and retaining qualified scientific and management
personnel as well as in acquiring technologies complementary to the Company's
programs. There is also competition for access to libraries of compounds to use
for screening. Any inability of the Company to secure and maintain access to
sufficiently broad libraries of compounds for screening potential targets would
have a material adverse effect on the Company. In addition to the above factors,
Geron will face competition with respect to product efficacy and safety, the
timing and scope of regulatory consents, availability of resources,
reimbursement coverage, price and patent position, including potentially
dominant patent positions of others. There can be no assurance that competitors
will not develop more effective or more affordable products, or achieve earlier
patent protection or product commercialization than the Company or that such
products will not render the Company's products obsolete.
EMPLOYEES
The Company had 97 full-time employees at December 31, 1998, of whom 36
hold Ph.D. degrees and 17 hold other advanced degrees. Of the total workforce,
78 are engaged in, or directly support, the Company's research and development
activities and 19 are engaged in business development, finance and
administration. The Company also retains outside consultants. None of the
Company's employees is covered by a collective bargaining agreement, nor has the
Company experienced work stoppages. The Company considers relations with its
employees to be good.
EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth certain information with respect to the
executive officers of the Company:
NAME AGE POSITION
---- --- --------
Ronald W. Eastman...................... 47 President, Chief Executive Officer and
Director
David L. Greenwood..................... 47 Chief Financial Officer, Vice President
of Corporate Development, Treasurer and
Secretary
Elaine R. Hamilton..................... 51 Vice President, Human Resources
Calvin B. Harley, Ph.D................. 46 Chief Scientific Officer
Thomas B. Okarma, Ph.D., M.D........... 53 Vice President, Research and
Development
RONALD W. EASTMAN has served as President, Chief Executive Officer and a
Director of the Company since May 1993. From 1978 until joining the Company, Mr.
Eastman was employed with American Cyanamid Co., most recently as a Vice
President and General Manager of Lederle Laboratories, American Cyanamid's
pharmaceutical business. Mr. Eastman holds a B.A. from Williams College and an
M.B.A. from Columbia University.
DAVID L. GREENWOOD has served as Chief Financial Officer, Treasurer and
Secretary of the Company since July 1995, and Vice President of Corporate
Development since April 1997. From 1979 until joining the Company, Mr. Greenwood
held various positions with J.P. Morgan & Co. Incorporated, an international
banking firm, and its subsidiaries, J.P. Morgan Securities Inc. and Morgan
Guaranty Trust Company of New York. Mr. Greenwood holds a B.A. from Pacific
Lutheran University and an M.B.A. from Harvard Business School.
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ELAINE R. HAMILTON has served as Vice President of Human Resources of the
Company since June 1998. From 1984 until joining the Company, Ms. Hamilton was
the head of Human Resources for Metricom Inc., International Network Services
and Portola Packaging and in Human Resources management at FMC Corporation. Ms.
Hamilton holds a B.A. in Education and Psychology from the University of Iowa
and an M.S. in Human Resources and Organization Development from the University
of California at San Francisco.
CALVIN B. HARLEY, PH.D., has served as Chief Scientific Officer of the
Company since July 1996. From May 1994 until July 1996, Dr. Harley was the Vice
President of Research of the Company and from April 1993 to May 1994, Dr. Harley
was Director, Cell Biology of the Company. Dr. Harley was an Associate Professor
from 1989 until joining the Company, and from 1982 to 1989, an Assistant
Professor of Biochemistry at McMaster University. Dr. Harley also was the Chair
of the Canadian Association on Gerontology, Division of Biological Sciences from
October 1989 to October 1991 and Chairman Elect from 1987 to 1989. Dr. Harley
holds a B.S. from the University of Waterloo and a Ph.D. from McMaster
University, and conducted postdoctoral work at the University of Sussex and the
University of California at San Francisco.
THOMAS B. OKARMA, PH.D., M.D., has served as Vice President of Research and
Development of the Company since May 1998. From December 1997 until May 1998,
Dr. Okarma was Vice President of Cell Therapies. From 1985 until joining the
Company, Dr. Okarma, the scientific founder of Applied Immune Sciences, Inc.,
served initially as Vice President of Research and Development and then as its
chairman and chief executive officer until 1995 when it was acquired by
Rhone-Poulenc Rorer. From 1980 to 1985, Dr. Okarma was a member of the faculty
of the Department of Medicine at Stanford University School of Medicine. Dr.
Okarma holds a A.B. from Dartmouth College and a M.D. and Ph.D. from Stanford
University.
ITEM 2. PROPERTIES
Geron currently leases approximately 41,000 square feet of office space at
194 Constitution Drive, 200 Constitution Drive and 230 Constitution Drive, Menlo
Park, California. The Company's lease for such office space expires in January
2002, with an option to renew the lease for two additional periods of two and
one-half years each. The Company intends to use this space for general office
and biomedical research and development purposes. The Company believes that its
existing facilities are adequate to meet its requirements for the near term.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
The Company's Common Stock trades on The Nasdaq National Market under the
symbol "GERN". The high and low closing sales prices (excluding retail markup,
markdowns and commissions) of the Company's stock for the years ending December
31, 1998 and 1997 are as follows:
HIGH LOW
------- ------
Year ended December 31, 1998
First quarter............................................... $14.375 $8.500
Second quarter.............................................. $12.125 $9.000
Third quarter............................................... $ 9.875 $4.219
Fourth quarter.............................................. $17.188 $5.063
Year ended December 31, 1997
First quarter............................................... $18.000 $9.625
Second quarter.............................................. $10.625 $7.125
Third quarter............................................... $16.125 $5.875
Fourth quarter.............................................. $11.250 $8.250
As of December 31, 1998, there were approximately 728 stockholders of
record. The Company is engaged in a highly dynamic industry, which often results
in significant volatility of the Company's Common Stock price.
DIVIDEND POLICY
The Company has never paid cash dividends on its capital stock and does not
anticipate paying cash dividends in the foreseeable future, but intends to
retain its capital resources for reinvestment in its business. Any future
determination to pay cash dividends will be at the discretion of the Board of
Directors and will be dependent upon the Company's financial condition, results
of operations, capital requirements and other such factors as the Board of
Directors deems relevant. As long as any Series A Convertible Preferred Stock is
outstanding, no dividend whatsoever may be declared or paid upon, nor shall any
distribution be made upon any junior securities without written consent of the
holders of a majority of the outstanding shares of Series A Convertible
Preferred Stock, voting together as a class.
RECENT SALES OF UNREGISTERED SECURITIES
On December 10, 1998, the Company entered into an agreement to sell $15.0
million in convertible zero coupon debentures to investment funds managed by
three institutional investors. The debentures are convertible by the holders at
a fixed conversion price of $10.00 per share. One-half of the proceeds were
funded upon signing the agreement. The second half will be funded upon
registration of the underlying Common Stock. The Company has agreed to register
the resale of the underlying Common Stock under the Securities Act of 1933. The
debentures convert at the Company's option when the Common Stock has traded at a
certain premium to the fixed conversion price for five consecutive trading days.
The investors also received warrants to purchase up to $7.5 million of
additional Geron Common Stock at a price of $12.00 per share and will be issued
identical warrants upon funding of the remaining $7.5 million of convertible
debentures. The debentures and warrants were issued under a private placement in
Section 4(2) of the Securities Exchange Act of 1933.
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ITEM 6. SELECTED FINANCIAL DATA
YEARS ENDED DECEMBER 31,
-----------------------------------------------------------
1998 1997 1996 1995 1994
----------- ----------- ---------- ------- --------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Revenues from collaborative
agreements........................... $ 6,706 $ 7,175 $ 5,235 $ 5,490 $ --
License fees and royalties............. 91 78 58 -- --
Operating expenses:
Research and development............... 15,619 15,139 14,260 11,321 8,099
General and administrative............. 3,769 3,120 3,161 2,888 2,397
----------- ----------- ---------- ------- --------
Total operating expenses..... 19,388 18,259 17,421 14,209 10,496
----------- ----------- ---------- ------- --------
Loss from operations................... (12,591) (11,006) (12,128) (8,719) (10,496)
Interest and other income.............. 2,666 1,757 1,826 919 638
Interest and other expense............. (907) (392) (385) (399) (320)
----------- ----------- ---------- ------- --------
Net loss............................... $ (10,832) $ (9,641) $ (10,687) $(8,199) $(10,178)
Accretion of premium on redemption of
redeemable convertible preferred
stock................................ (578) -- -- -- --
----------- ----------- ---------- ------- --------
Net loss applicable to common
stockholders......................... $ (11,410) $ (9,641) $ (10,687) $(8,199) $(10,178)
=========== =========== ========== ======= ========
Basic and diluted net loss per share... $ (1.00) $ (0.91) $ (2.23) $ (9.77) $ (18.08)
=========== =========== ========== ======= ========
Shares used in computing basic and
diluted net loss per share........... 11,439,084 10,551,054 4,789,388 839,490 562,764
=========== =========== ========== ======= ========
DECEMBER 31,
--------------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
BALANCE SHEET DATA:
Cash, cash equivalents and
short-term investments............ $ 24,469 $ 21,597 $ 24,269 $ 15,553 $ 13,915
Working capital..................... 22,261 19,739 21,468 12,115 12,410
Total assets........................ 44,456 26,056 28,788 19,749 17,072
Noncurrent portion of liabilities... 8,101 1,250 1,644 1,654 1,647
Redeemable convertible preferred
stock............................. 3,610 -- -- -- --
Accumulated deficit................. (57,520) (46,110) (36,469) (25,782) (17,583)
Total stockholders' equity.......... 29,191 21,066 23,591 14,308 13,689
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Geron is a biopharmaceutical company focusing on discovering and developing
therapeutic and diagnostic products based upon the Company's understanding of
human embryonic stem cells and of telomeres and telomerase in
cells -- fundamental biological platforms underlying cancer and other
age-related degenerative diseases. The Company's results of operations have
fluctuated from period to period and will continue to fluctuate in the future
based upon the timing and composition of funding under various collaborative
agreements. Results of operations for any period may be unrelated to results of
operations for any other period. In addition, historical results should not be
viewed as indicative of future operating results. The following discussion
should be read in conjunction with the audited financial statements and notes
thereto included in Part II, Item 8 of this Report on Form 10-K.
On March 27, 1998, the Company completed a private placement with two
institutional investors for the sale of 15,000 shares of Series A Redeemable
Convertible Preferred Stock (the "Series A Preferred Stock") with a par value of
$0.001 and a stated value of $1,000 per share resulting in proceeds of $15.0
million. The
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Series A Preferred Stock is convertible into the number of shares of Common
Stock of the Company equal to the stated value plus a premium of 6% per annum
divided by a conversion price. The premium on the Series A Preferred Stock is
accreted and treated as a dividend. The premium has been accrued through
December 31, 1998 with the offsetting charge recorded to accumulated deficit.
The conversion price of the Series A Preferred Stock is based on the market
price of the Common Stock during a pricing period preceding conversion, up to a
conversion price cap of $16.88. The Series A Preferred Stock is subject to
redemption at the Company's option if the market price of the Common Stock
exceeds or falls below certain thresholds.
On November 6, 1998, 11,548 shares of Series A Preferred Stock were
converted into 2,173,446 shares of Geron Common Stock. The number of shares of
Common Stock issued in November 1998 met the maximum threshold of shares of
Common Stock that can be issued without obtaining stockholder approval under
NASD regulations. Because the Company had not obtained stockholder approval to
issue additional shares of Common Stock as of December 31, 1998, the remaining
3,452 shares of Series A Preferred Stock (with a book value of $3.5 million) are
redeemable at the option of the holders of the Series A Preferred Stock, have
been reclassified as Redeemable Convertible Preferred Stock and are excluded
from Stockholders' Equity. In addition, the 6% premium on the outstanding shares
of Series A Preferred Stock will be accreted to the value of the outstanding
Series A Preferred Stock.
In accordance with the Stock Purchase Agreement with Pharmacia & Upjohn,
S.p.A, in March 1998, Pharmacia & Upjohn purchased $4.0 million of Geron Common
Stock, at a premium.
On December 10, 1998, the Company entered into an agreement to sell $15.0
million in convertible zero coupon debentures to investment funds managed by
three institutional investors. The debentures are convertible at any time by the
holders at a fixed conversion price of $10.00 per share. One-half of the
proceeds were funded upon signing the agreement and the remaining $7.5 million
will be funded upon the registration of the underlying Common Stock. The
debentures convert at the Company's option when the Common Stock has traded at a
certain premium to the fixed conversion price for five consecutive trading days.
In December 1998, the Company recorded approximately $562,000 in interest
expense in connection with this financing for the difference between the fair
market value of the Common Stock on the date of issuance and the conversion
price of the debentures. An additional $562,000 in interest expense is expected
to be recorded upon the funding of the remaining $7.5 million of convertible
debentures in 1999.
In connection with the issuance of the convertible debentures, the Company
also issued warrants to purchase 625,000 shares of Common Stock at $12.00 per
share. The warrants are exercisable at any time through June 2000. The value of
the warrants was determined to be approximately $719,000. The proceeds of $7.5
million from the issuance of the debentures were allocated between the
debentures and the warrants. The convertible debentures, which were recorded at
a discount, are being accreted to the redemption amount over the three year term
using the interest method. Warrants to purchase 625,000 additional shares of
Common Stock at $12.00 per share will be issued upon the funding of the
remaining $7.5 million of convertible debentures in 1999.
Geron is subject to risks common to companies in its industry and at its
stage of development, including risks inherent in its research and development
efforts, reliance upon collaborative partners, enforcement of patent and
proprietary rights, need for future capital, potential competition and
uncertainty of regulatory approvals or clearances. In order for a product to be
commercialized based on the Company's research, it will be necessary for Geron
and collaborators to conduct preclinical tests and clinical trials, demonstrate
efficacy and safety of the Company's product candidates, obtain regulatory
approvals or clearances and enter into manufacturing, distribution and marketing
arrangements, as well as obtain market acceptance. The Company does not expect
to receive revenues or royalties based on therapeutic products for a period of
years. See "Additional Factors That May Affect Future Results."
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RESULTS OF OPERATIONS
Revenues
The Company recognized revenues of $6.7 million in fiscal 1998 compared to
$7.2 million in fiscal 1997 and $5.2 million in fiscal 1996. Revenues in 1998
were research support payments under the Company's collaborative agreements with
Pharmacia & Upjohn S.p.A ("Pharmacia & Upjohn") and Kyowa Hakko Kogyo Co., Ltd.
("Kyowa Hakko"). Revenues in 1998 decreased from 1997 as a result of reduced
research funding from Kyowa Hakko as contractually agreed. Revenues in 1997 also
included a one-time payment by Boehringer Mannheim for reimbursement of past
research efforts. Revenues in 1996 were research support payments from Kyowa
Hakko. The Company recognizes revenue as the related research and development
costs are incurred under the collaborative agreements. Annual funding payment of
$1.0 million was received under the Kyowa Hakko agreement in fiscal 1998.
Payments of $4.0 million each were received from Kyowa Hakko in fiscal 1997 and
1996, respectively. Funding payments totaling $5.0 million and $3.8 million were
received under the Pharmacia & Upjohn agreement in fiscal 1998 and 1997,
respectively. The Company expects to receive an aggregate of $5.0 million from
the Pharmacia & Upjohn collaboration in 1999.
The Company receives license payments and royalties from license and
marketing agreements with various diagnostic collaborators. No license fee
payments were received in 1998 or 1997. In fiscal 1998, the Company received
$91,000 in royalties on the sale of diagnostic kits to the research-use-only
market from Oncor (Intergen), Kyowa Medex, Boehringer Mannheim (Roche
Diagnostics) and PharMingen compared to $78,000 received in fiscal 1997. In
fiscal 1996, upon entering into a license and marketing agreement with Kyowa
Medex, the Company received a $50,000 license fee payment from Kyowa Medex. In
fiscal 1996, the Company received $8,000 in royalties from Oncor and Kyowa
Medex.
Research and Development Expenses
Research and development expenses were $15.6 million, $15.1 million and
$14.3 million for the years ended December 31, 1998, 1997 and 1996,
respectively. The increase in 1998 from 1997 was primarily a result of increased
personnel costs of $500,000 for additional scientific staff. The increase in
1997 from 1996 was primarily due to increased costs for expanded patent related
activities of $400,000 and increases in support of key outside collaborators of
$400,000. The Company expects research and development expenses to increase
significantly in the future as a result of continued development of its
therapeutic and diagnostic programs.
General and Administrative Expenses
General and administrative expenses were $3.8 million, $3.1 million and
$3.2 million for the years ended December 31, 1998, 1997 and 1996, respectively.
The increase in 1998 from 1997 was primarily a result of increased personnel
costs of approximately $420,000 for additional administrative personnel and
bonus accruals. In addition, 1998 also experienced increases in public and
investor relations expense of $80,000; legal, accounting and consulting fees of
$90,000; supplies and expensed office equipment of $50,000 and other taxes and
filing fees of $50,000. The slight decrease in 1997 from 1996 was the net effect
of a decrease in personnel costs of $300,000 as a result of departures of
administrative personnel and an increase in public and investor relations
expense of $200,000.
Interest and Other Income
Interest income was $1.9 million, $1.4 million and $1.1 million for the
years ended December 31, 1998, 1997 and 1996, respectively. The increases in
1998 and 1997 were due to higher average cash and investment balances as a
result of the sale of debt and equity securities and research funding received
under the Kyowa Hakko and Pharmacia & Upjohn collaborative agreements. Interest
earned in the future will depend on the Company's funding cycles and prevailing
interest rates. The Company also received $734,000, $369,000 and $714,000 in
research payments under government grants for the years ended December 31, 1998,
1997 and 1996, respectively. The Company does not expect income from government
grants to substantially increase in the future.
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Interest and Other Expense
Interest and other expense was $907,000, $392,000 and $385,000 for the
years ended December 31, 1998, 1997 and 1996, respectively. In December 1998,
the Company recorded approximately $562,000 in interest expense in connection
with the sale of convertible debentures, for the difference between the fair
market value of the Common Stock on the date of issuance and the conversion
price of the debentures. The convertible debentures, which are recorded at a
discount, are being amortized to the redemption amount over the three year term
using the interest method. The increase in 1997 was due to an increase in bank
charges during the year as a result of higher cash and short-term investment
balances. Interest and other expense in 1999 is expected to be consistent with
1998 as the Company expects to record an additional $562,000 in interest expense
upon the funding of the remaining $7.5 million of convertible debentures in
1999.
Net Loss
Net losses were $10.8 million, $9.6 million and $10.7 million for the years
ended December 31, 1998, 1997 and 1996, respectively. The increase in net loss
for 1998 was primarily the result of increased operating expenses during the
year and lower research support payments from Kyowa Hakko. The decrease in net
loss for 1997 was the net result of increased revenue from research support
payments from the Pharmacia & Upjohn, Kyowa Hakko and Boehringer Mannheim
collaborative agreements which more than offset the increase in operating
expenses during the year.
LIQUIDITY AND CAPITAL RESOURCES
Cash, cash equivalents and investments at December 31, 1998 were $40.4
million compared to $21.6 million at December 31, 1997 and $24.3 million at
December 31, 1996. It is the Company's investment policy to invest these funds
in liquid, investment grade securities, such as interest-bearing money market
funds, corporate notes, commercial paper and municipal securities. The increase
in cash, cash equivalents and investments in 1998 was the result of sale of
convertible preferred stock in March 1998 and the sale of convertible debentures
in December 1998. The decrease in cash, cash equivalents and investments in 1997
was the net result of increased operating expenses and increased research
funding support payments during the year.
Net cash used in operations was $7.8 million, $7.9 million and $9.9 million
for the years ended December 31, 1998, 1997 and 1996, respectively. The slight
decrease in net cash used in operations from 1997 to 1998 was the net result of
increased non-cash expenses and an increase in operating expenses in 1998. The
decrease in net cash used in operations from 1996 to 1997 was due to an increase
in research support payments as a result of funding under the Pharmacia & Upjohn
collaborative agreement entered into in 1997. The Company expects that its net
cash used in operations may increase in 1999 due to increased research and
development expenditures.
The Company has funded its operations primarily through public and private
debt and equity financings. The Company has also received additional funding
from collaborative agreements, grant revenues, interest income and equipment
financing. In January 1997, Pharmacia & Upjohn made an initial equity investment
of $2.0 million in Geron at a premium. In April 1997 and March 1998, Pharmacia &
Upjohn purchased an aggregate of $8.0 million ($4.0 million at each date) of
Geron Common Stock at a premium. Research support payments from Kyowa Hakko
expired in April 1998 as contractually agreed. Geron will have to expend its own
funds to continue the research. The Company will seek additional funding through
other strategic collaborations, public or private equity financing, or other
financing sources.
Cash provided by financing activities in 1998 also included net proceeds
from the issuance of convertible preferred stock of $15.0 million and net
proceeds of $7.5 million from the issuance of convertible debentures and
warrants. On March 27, 1998, the Company completed a private placement with two
institutional investors for the sale of 15,000 shares of Series A Preferred
Stock with a stated value of $1,000 per share resulting in proceeds of $15.0
million. In November 1998, 11,548 shares of Series A Convertible Preferred Stock
were converted into 2,173,446 shares of Geron Common Stock. The number of shares
of Common Stock issued in November 1998 met the maximum threshold of shares of
Common Stock that could be issued
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without obtaining stockholder approval under NASD regulations. Because the
Company had not obtained stockholder approval to issue additional shares of
Common Stock as of December 31, 1998, the remaining 3,452 shares of Series A
Preferred Stock (with a book value of $3.5 million) are redeemable at the option
of holders of Series A Preferred Stock, have been reclassified as Redeemable
Convertible Preferred Stock and are excluded from Stockholders' Equity. In
addition, the 6% premium on the outstanding shares of Series A Preferred Stock
will be accreted to the value of the outstanding Series A Preferred Stock.
On December 10, 1998, the Company entered into an agreement to sell $15.0
million in convertible zero coupon debentures to investment funds managed by
three institutional investors. The debentures are convertible at any time by the
holders at a fixed conversion price of $10.00 per share. One-half of the
proceeds were funded upon signing the agreement and the remaining $7.5 million
will be funded upon the registration of the underlying Common Stock. The
debentures convert at the Company's option when the Common Stock has traded at a
certain premium to the fixed conversion price for five consecutive trading days.
In December 1998, the Company recorded approximately $562,000 in interest
expense in connection with this financing for the difference between the fair
market value of the Common Stock on the date of issuance and the conversion
price of the debentures. An additional $562,000 in interest expense is expected
to be recorded upon the funding of the remaining $7.5 million of convertible
debentures in 1999.
Through December 31, 1998, the Company had invested approximately $7.1
million in property and equipment, of which approximately $5.5 million was
financed through equipment financing. Minimum annual payments due under the
equipment financing facility are expected to total $913,000, $726,000, $374,000
and $200,000 in 1999, 2000, 2001 and 2002, respectively. As of December 31,
1998, the Company had approximately $2.3 million available for borrowing under
its equipment financing facility. The drawdown period under the equipment
financing facility expires on July 31, 1999. The Company intends to renew the
commitment for a new equipment financing facility in 1999 to further fund
purchases of equipment. If the Company is unable to renew the commitment, then
the Company will need to expend its own resources.
The Company maintains agreements with academic and research institutions to
fund certain scientific research. Minimum annual payments due under these
agreements are expected to total approximately $950,000 and $250,000 in 1999 and
2000, respectively. The Company intends to continue to maintain and develop
relationships with academic and research institutions.
The Company estimates that its existing capital resources, payments under
the Pharmacia & Upjohn collaborative agreement, proceeds to be received under
convertible debentures in 1999, interest income and equipment financing will be
sufficient to fund its current and planned operations through the end of the
year 2000. There can be no assurance, however, that changes in the Company's
research and development plans or other changes affecting the Company's
operating expenses will not result in the expenditure of available resources
before such time, and in any event, the Company will need to raise substantial
additional capital to fund its operations in future periods. The Company intends
to seek additional funding through strategic collaborations, public or private
equity financings, capital lease transactions or other financing sources that
may be available.
ADDITIONAL FACTORS THAT MAY AFFECT FUTURE RESULTS
Before you invest in our common stock, you should be aware that there are
various risks, including those described below. You should carefully consider
these risk factors, together with all of the other information included in this
Form 10-K, before you decide whether to purchase shares of our common stock.
Some of the information in this prospectus contains forward-looking
statements that involve substantial risks and uncertainties. You can identify
these statements by forward-looking words such as "may, "will," "expect,"
"anticipate," "believe," "estimate," and "continue" or similar words. You should
read statements that contain these words carefully because they: (1) discuss our
future expectations; (2) contain projections of our future results of operations
or of our financial condition; or (3) state other "forward-looking" information.
We believe it is important to communicate our expectations to our investors.
However, there may be events in the future that we are not able to predict
accurately or over which we have no control. The risk factors listed in this
section, as well as any cautionary language in this prospectus, provide examples
of risks, uncertainties and
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events that may cause our actual results to differ materially from the
expectations we describe in our forward-looking statements. Before you invest in
our common stock, you should be aware that the occurrence of the events
described in the risk factors and elsewhere in this Form 10-K could have a
material adverse effect on our business, operating results and financial
condition.
OUR TECHNOLOGY IS NEW AND WE MAY NOT BE ABLE TO DEVELOP PRODUCTS SUCCESSFULLY.
The study of the mechanisms of cellular aging and cellular immortality,
including telomere biology and telomerase, and the study of embryonic stem cells
are relatively new areas of research. While our development efforts are at
different stages for different products, we cannot assure you that we will
successfully develop any products or that we will not abandon some or all of our
proposed research programs. In the long term, for any of our cancer treatments
or other discoveries to be proven commercially viable, we will need to
demonstrate to the health care community that the treatment or products are:
- safe;
- effective;
- reliable; and
- not subject to other problems that would affect commercial viability.
If and when potential lead drug compounds or product candidates are
identified through our research programs, they will require significant
preclinical and clinical testing prior to regulatory approval in the United
States and elsewhere. In addition, we will also need to determine whether any of
these potential products can be manufactured in commercial quantities at an
acceptable cost. Our efforts may not result in a product that can be marketed.
Because of the significant scientific, regulatory and commercial milestones that
must be reached for any of our research programs to be successful, any program
may be abandoned, even after significant resources have been expended.
Our cancer treatment research may not result in commercially viable
therapeutic products.
As a result of our drug discovery efforts to date, we have identified
compounds in laboratory studies that demonstrate potential for inhibiting
telomerase in humans. However, additional development efforts will be required
before we select a lead compound for preclinical development and clinical trials
as a telomerase inhibitor for cancer. We will have to conduct additional
research before we can select a compound and we may never identify a compound
that will enable us to fully develop a commercially viable treatment for cancer.
If and when selected, a lead compound may prove to have undesirable and
unintended side effects or other characteristics affecting its safety or
effectiveness that may prevent or limit its commercial use. In terms of safety,
our discoveries may result in cancer treatment solutions that cause unacceptable
side effects for the human body. Our discoveries may also not be as effective as
is necessary to market a commercially viable product for the treatment of
cancer. For example, we expect that telomerase inhibition may have delayed
effectiveness as telomeres resume normal shortening. As a result, telomerase
inhibition may need to be used in conjunction with other cancer therapies.
Accordingly, it may become extremely difficult for us to proceed with
preclinical and clinical development, to obtain regulatory approval or to market
a telomerase inhibitor for the treatment of cancer. If we abandon our research
for cancer treatment for any of these reasons or for other reasons, our business
would be materially and adversely affected.
Our research related to the treatment of age-related degenerative diseases may
not result in commercially viable therapeutic products.
The research resulting from our telomerase activation and expression
program has shown us that the activation of telomerase can extend cell lifespan
in normal human cells. While telomere length and replicative capacity have been
extended in laboratory studies, we may not discover a compound that will
modulate telomere length or increase replicative capacity effectively for
clinical use. We have yet to identify any lead
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compounds that have been demonstrated to modulate gene expression in human cells
and we cannot guarantee that we will be able to discover or develop the
necessary compound.
Our cancer diagnostic program may not result in commercially viable clinical
products.
There is, as yet, insufficient clinical data to confirm the full utility of
our proprietary telomerase detection technology to diagnose, prognose, monitor
patient status and screen for cancer. Although Intergen, Roche Diagnostics,
Kyowa Medex and PharMingen, our licensees, have begun to sell kits for research
use, additional development work and regulatory consents will be necessary prior
to the introduction of tests for clinical use.
Our research related to embryonic stem and germ cells may not result in
commercially viable clinical products.
Our Embryonic Stem Cell Therapies program is also at an early stage. While
human embryonic stem cells have been derived and allowed to expand and
differentiate into numerous cell types, our efforts to direct differentiation of
human embryonic stem cells and develop products from our research may not result
in any commercial applications.
WE HAVE A HISTORY OF OPERATING LOSSES AND ANTICIPATE FUTURE LOSSES; CONTINUED
LOSSES COULD IMPAIR OUR ABILITY TO SUSTAIN OPERATIONS.
We have incurred net operating losses every year since our operations began
in 1990. Losses have resulted principally from costs incurred in connection with
our research and development activities and from general and administrative
costs associated with our operations. We expect to incur additional operating
losses over the next several years as our research and development efforts and
preclinical testing activities are expanded. Substantially all of our revenues
to date have been research support payments under the collaborative agreements
with Kyowa Hakko and Pharmacia & Upjohn. Research support payments under the
agreement with Kyowa Hakko expired in April 1998. Research payments under the
agreement with Pharmacia & Upjohn expire in January 2000. We are unable to
estimate at this time the level of revenue to be received from the sale of
diagnostic products, and do not expect to receive significant revenues from the
sale of research-use-only kits. Our ability to achieve profitability is
dependent on our ability, alone or with others, to:
- continue to have success with our research and development efforts;
- select therapeutic compounds for development;
- obtain the required regulatory approvals; and
- manufacture and market resulting products.
We cannot assure you when or if we will receive material revenues from
product sales or achieve profitability. Failure to generate significant
additional revenues and achieve profitability could impair our ability to
sustain operations.
WE DEPEND ON OUR CURRENT COLLABORATIVE PARTNERS TO HELP US COMPLETE THE PROCESS
OF DEVELOPING, TESTING AND COMMERCIALIZING OUR PRODUCTS.
Our strategy for the development, clinical testing and commercialization of
our products requires entering into collaborations with corporate partners,
licensors, licensees and others. We are dependent upon the subsequent success of
these other parties in performing their respective responsibilities and the
continued cooperation of our partners. We cannot assure you that our partners
will cooperate with us or perform their obligations under our agreements with
them. We cannot control the amount and timing of our collaborators' resources
that will be devoted to our research activities related to our collaborative
agreements with them. Our collaborators may choose to pursue existing or
alternative technologies in preference to those being developed in collaboration
with us.
Our ability to successfully develop and commercialize telomerase inhibition
products depends on our corporate partnerships with Kyowa Hakko and Pharmacia &
Upjohn and our ability to successfully develop
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and commercialize telomerase diagnostic products depends on our corporate
partnership with Roche Diagnostics. Under our collaborative agreements with
these partners, we rely significantly on them, among other activities, to:
- design and conduct advanced clinical trials;
- fund research and development activities with us;
- pay us fees upon the achievement of milestones; and
- co-promote with us any commercial products that result from our
collaborations.
The development and commercialization of products from these collaborations
will be delayed if Kyowa Hakko, Pharmacia & Upjohn or Roche Diagnostics fail to
conduct these collaborative activities in a timely manner or at all. In
addition, Kyowa Hakko, Pharmacia & Upjohn or Roche Diagnostics could terminate
these agreements and we cannot assure you that we will receive any development
or milestone payments. If we do not receive research funds or achieve milestones
set forth in the agreements, or if Kyowa Hakko, Pharmacia & Upjohn or Roche
Diagnostics or any of our future partners breach or terminate collaborative
agreements with us, our business may be damaged significantly.
We are also, to a lesser extent, dependent upon collaborative partners
other than Kyowa Hakko, Pharmacia & Upjohn and Roche Diagnostics. For example,
we have entered into licensing arrangements with several diagnostic companies
for our telomerase detection technology. However, because these licenses are
limited to the research-use-only market, such arrangements are not expected to
generate significant commercial revenues, if at all.
OUR ABILITY TO DEVELOP, MANUFACTURE AND MARKET PRODUCTS IS DEPENDENT UPON
WHETHER WE ARE SUCCESSFUL IN ENTERING INTO ADDITIONAL COLLABORATIVE
PARTNERSHIPS.
We currently have no manufacturing infrastructure and no marketing or sales
organization. As a result, we intend to rely almost entirely on our current and
future collaborative partners for the manufacture of any product and the
principal marketing and sales responsibilities for any such product. To the
extent that we choose not to or are unable to establish such arrangements, we
will require substantially greater capital to develop our own manufacturing,
marketing and sales capabilities.
We cannot assure you that we will be able to negotiate additional strategic
arrangements in the future on acceptable terms, if at all, or that any potential
strategic arrangement will be successful. In the absence of such arrangements,
we may encounter significant delays in introducing any product or find that the
research, development, manufacture, marketing or sale of any product is
adversely affected. In the event we need to enter into strategic arrangements in
the future, but are unable to do so, our business will be significantly and
negatively impacted.
WE HAVE LIMITED CONTROL OVER THE RESEARCH ACTIVITIES OF OUR SCIENTIFIC ADVISORS
ON WHICH WE RELY.
We rely extensively and have relationships with scientific advisors at
academic and other institutions, some of whom conduct research at our request.
These scientific advisors are not our employees and may have commitments to, or
consulting or advisory contracts with, other entities that may limit their
availability to us. We have limited control over the activities of these
advisors and, except as otherwise required by our collaboration and consulting
agreements, can expect only limited amounts of their time to be dedicated to our
activities. If our scientific advisors are unable or refuse to contribute to the
development of any of our potential discoveries, our ability to generate
significant advances in our technologies will be significantly harmed.
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OUR SUCCESS IS DEPENDENT UPON OUR ABILITY TO PROTECT OUR DISCOVERIES.
The sustainability of our business is dependent on our ability to protect our
discoveries with patents and enforce our patents.
Protection of our proprietary compounds and technology is critically
important to our business. Our success will depend in part on our ability to
obtain and enforce our patents and maintain trade secrets, both in the United
States and in other countries. The patent positions of pharmaceutical and
biopharmaceutical companies, including ours, are highly uncertain and involve
complex legal and technical questions for which legal principles are not firmly
established. We cannot assure you that we will continue to develop products or
processes that are patentable or that patents will issue from any of the pending
applications, including allowed patent applications. Further, we cannot assure
you that our current patents, or patents that issue on pending applications,
will not be challenged, invalidated or circumvented, or that our current or
future patent rights will provide proprietary protection or competitive
advantages to us. In the event that we are unsuccessful in obtaining and
enforcing patents, our business would be negatively impacted.
Patent applications in the United States are maintained in secrecy until
patents issue. Publication of discoveries in the scientific or patent literature
tends to lag behind actual discoveries by at least several months and sometimes
several years. Therefore, we cannot assure you that the persons or entities that
we or our licensors name as inventors in our patents and patent applications
were the first to invent the inventions disclosed in the patent applications or
patents, or file patent applications for these inventions. As a result, we may
not be able to obtain patents from discoveries that we otherwise would consider
patentable and that we consider to be extremely significant to our future
success.
Patent prosecution or litigation may also be necessary to obtain patents,
enforce any patents issued or licensed to us or to determine the scope and
validity of our proprietary rights or the proprietary rights of another. We
cannot assure you that we would be successful in any patent prosecution or
litigation. Patent prosecution and litigation in general can be extremely
expensive and time consuming, even if the outcome is favorable to us. An adverse
outcome in a patent prosecution, litigation or any other proceeding in a court
or patent office could subject our business to significant liabilities to other
parties, require disputed rights to be licensed from other parties or require us
to cease using such technology.
In the event that we are unsuccessful in obtaining and enforcing patents or
otherwise protecting our discoveries, we will be dependent on our ability to
develop alternative patentable technologies, avoid infringing on the patents of
others, and license from others the patents that are necessary.
Our commercial success depends significantly on our ability to operate
without infringing patents and proprietary rights of others. We cannot assure
you that our technologies do not and will not infringe the patents or
proprietary rights of others. In the event of such infringement, we may be
prevented from pursuing research, development or commercialization of potential
products or may be required to obtain licenses to these patents or other
proprietary rights or to develop or obtain alternative technologies. We may not
be able to obtain alternative technologies or any required license on
commercially favorable terms, if at all. If we do not obtain any such license or
alternative technologies, we may be delayed or prevented from pursuing the
development of some potential products. Our breach of an existing license or
failure to obtain alternative technologies or a license to any technology that
we may require to develop or commercialize our products will significantly and
negatively affect our business.
We cannot assure you that we will not be subject to claims or litigation as
a result of entering into license agreements with third parties or infringing on
the patents of others. For example, we signed a licensing and sponsored research
agreement relating to our Embryonic Stem Cell Therapies program with The Johns
Hopkins University School of Medicine in August 1997. Prior to signing this
agreement, we had been informed by a third party that we and Johns Hopkins
University would violate the rights of that third party and another academic
institution in doing so. After a review of the correspondence with the third
party and Johns Hopkins University, as well as related documents, including an
issued U.S. patent, we believe that both we and Johns Hopkins University have
substantial defenses to any claims that might be asserted by the third party. We
have provided indemnification to Johns Hopkins University relating to such
potential claims.
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However, any litigation resulting from this matter may divert significant
resources, both financial and otherwise, from our research programs. We cannot
assure you that we would be successful if the matter is litigated. If the
outcome of litigation is unfavorable to us, our business could be materially and
adversely affected.
Patent law relating to the scope and enforceability of claims in the
technology fields in which we operate is still evolving, and the degree of
future protection for any of our proprietary rights is highly uncertain. In this
regard we cannot assure you that independent patents will issue from any of our
patent applications, some of which include many interrelated applications
directed to common or related subject matter. As a result, our success may
become dependent on our ability to obtain licenses for using the patented
discoveries of others. We are aware of patent applications and patents that have
been filed by others with respect to telomerase and telomere length technology
and we may have to obtain licenses to use this technology. For example, there
are a number of issued patents and pending applications owned by others directed
to differential display, stem cell and other technologies relating to our
research, development and commercialization efforts. We may also become aware of
discoveries and technology controlled by third parties that is advantageous to
our other research programs. We cannot assure you that our discoveries and
treatments can be further developed and commercialized without a license to
these discoveries or technologies. Moreover, other patent applications may be
granted priority over patent applications that we or any of our licensors have
filed. Furthermore, others may independently develop similar or alternative
technologies, duplicate any of our technologies or design around the patented
technologies we have developed. In the event that we are unable to acquire
licenses to critical technologies that we cannot patent ourselves, we may be
required to expend significant time and resources to develop similar technology,
and we may not be successful in this regard. If we cannot acquire or develop
necessary technology, we may be prevented from pursuing some of our business
objectives. Moreover, one of our competitors could acquire or license such
technology. Any of these events could have a material adverse effect on our
business.
Much of the information and know-how that is critical to our business is not
patentable and we may not be able to prevent others from obtaining this
information.
We rely extensively on trade secrets to protect our proprietary technology,
especially in circumstances in which patent protection is not believed to be
appropriate or obtainable. We attempt to protect our proprietary technology in
part by confidentiality agreements with our employees, consultants and
contractors. We cannot assure you that these agreements will not be breached,
that we would have adequate remedies for any breach, or that our trade secrets
will not otherwise become known or be independently discovered by competitors,
any of which would harm our business significantly.
WE WILL NEED ADDITIONAL CAPITAL TO CONDUCT OUR OPERATIONS AND DEVELOP OUR
PRODUCTS, AND OUR ABILITY TO OBTAIN THE NECESSARY FUNDING IS UNCERTAIN.
We will require substantial capital resources in order to conduct our
operations and develop our products. Based on current projections, we estimate
that our existing capital resources, payments under our agreement with Pharmacia
& Upjohn, proceeds to be received under convertible debentures in 1999, interest
income and equipment financing will be sufficient to fund our current and
planned operations through the end of 2000. The timing and degree of any future
capital requirements will depend on many factors, including:
- the accuracy of the assumptions underlying our estimates for our capital
needs in 1999 and beyond;
- continued scientific progress in our research and development programs;
- the magnitude and scope of our research and development programs;
- our ability to maintain and establish strategic arrangements for
research, development, clinical testing, manufacturing and marketing;
- our progress with preclinical and clinical trials;
- the time and costs involved in obtaining regulatory approvals;
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- the costs involved in preparing, filing, prosecuting, maintaining,
defending and enforcing patent claims; and
- the potential for new technologies and products.
We intend to acquire additional funding through strategic collaborations,
public or private equity financings and capital lease transactions. Additional
financing may not be available on acceptable terms, or at all. Additional equity
financings could result in significant dilution to stockholders. Further, in the
event that additional funds are obtained through arrangements with collaborative
partners, such arrangements may require us to relinquish rights to some of our
technologies, product candidates or products that we would otherwise seek to
develop or commercialize ourselves. If sufficient capital is not available, we
may be required to delay, reduce the scope of or eliminate one or more of our
research or development programs, each of which could have a material adverse
effect on our business.
WE ARE IN A HIGHLY COMPETITIVE MARKET AND OUR COMPETITORS MAY DEVELOP
ALTERNATIVE TECHNOLOGIES THAT MAY IMPAIR OUR ABILITY TO SUSTAIN OPERATIONS.
The pharmaceutical and biopharmaceutical industries are intensely
competitive. We believe that other pharmaceutical and biopharmaceutical
companies and research organizations currently engage in or have in the past
engaged in efforts related to the biological mechanisms of cell aging and cell
immortality, including the study of telomeres, telomerase and stem cell
technologies. In addition, other products and therapies that could compete
directly with the products that we are seeking to develop and market currently
exist or are being developed by pharmaceutical and biopharmaceutical companies,
and by academic and other research organizations. Many companies are also
developing alternative therapies to treat cancer and, in this regard, are
competitors of ours. The pharmaceutical companies developing and marketing these
competing products have significantly greater financial resources and expertise
than we do in:
- research and development;
- manufacturing;
- preclinical and clinical testing;
- obtaining regulatory approvals; and
- marketing.
Smaller companies may also prove to be significant competitors,
particularly through collaborative arrangements with large and established
companies. Academic institutions, government agencies and other public and
private research organizations may also conduct research, seek patent protection
and establish collaborative arrangements for research, clinical development and
marketing of products similar to ours. These companies and institutions compete
with us in recruiting and retaining qualified scientific and management
personnel as well as in acquiring technologies complementary to our programs.
There is also competition for access to libraries of compounds to use for
screening. Should we fail to secure and maintain access to sufficiently broad
libraries of compounds for screening potential targets, our business would be
materially harmed. In addition to the above factors, we expect to face
competition in the following areas:
- product efficacy and safety;
- the timing and scope of regulatory consents;
- availability of resources;
- reimbursement coverage;
- price; and
- patent position, including potentially dominant patent positions of
others.
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As a result of the foregoing, our competitors may develop more effective or
more affordable products, or achieve earlier patent protection or product
commercialization than us. Most significantly, competitive products may render
our products that we develop obsolete.
OUR SUCCESS IS DEPENDENT ON OUR ABILITY TO RETAIN KEY PERSONNEL.
Our future success depends to a significant extent on the skills,
experience and efforts of our executive officers and key members of our
scientific staff. The loss of any or all of these individuals could damage our
business and might significantly delay or prevent the achievement of research,
development or business objectives.
We also rely on consultants and advisors, including the members of our
Scientific Advisory Board, who assist us in formulating our research and
development strategy. We face intense competition for qualified individuals from
numerous pharmaceutical, biopharmaceutical and biotechnology companies, as well
as academic and other research institutions. We may not be able to attract and
retain such individuals on acceptable terms. Failure to do so would adversely
affect our business.
THE ETHICAL, LEGAL AND SOCIAL IMPLICATIONS OF THE EMBRYONIC STEM CELL THERAPIES
PROGRAM COULD PREVENT US FROM DEVELOPING COMMERCIALLY VIABLE PRODUCTS IN THIS
AREA.
Our Embryonic Stem Cell Therapies program involves the use of human
embryonic stem and germ cells that would be derived from human embryonic or
fetal tissue, respectively. The use of human embryonic stem and germ cells gives
rise to ethical, legal and social issues regarding the appropriate utilization
of these cells. In the event that our research related to human embryonic stem
and germ cell therapies becomes the subject of adverse commentary or publicity,
our name and goodwill could be adversely affected.
We have established an Ethics Advisory Board comprised of independent and
recognized medical ethicists to advise us with respect to these issues. Indeed,
the use of embryonic cells in scientific research is an issue of national
interest. Many research institutions, including several of our scientific
collaborators, have adopted policies regarding the ethical use of these types of
human cells. These policies may have the effect of limiting the scope of
research conducted in this area. The United States government currently does not
fund research that involves the use of human embryonic cells or tissue and may
in the future regulate or otherwise restrict its use. The Embryonic Stem Cell
Therapies program would be significantly harmed if we are prevented from
conducting research on these cells due to government regulation or otherwise.
OUR ABILITY TO EARN REVENUES FROM THE SALE OF MARKETABLE PRODUCTS IS PARTLY
DEPENDENT ON THE SCOPE OF GOVERNMENT REGULATION AND OUR SUCCESS IN OBTAINING
REGULATORY APPROVAL FOR OUR PRODUCTS.
Our business is subject to intense government regulation and this regulation
may significantly impact our ability to create and market commercially viable
products.
Federal, state and local governments in the United States and governments
in other countries have significant regulations in place that govern many of our
activities. The preclinical testing and clinical trials of the products that we
develop ourselves or that our collaborative partners develop are subject to
intense government regulation and may prevent us from creating commercially
viable products from our discoveries. In addition, the sale by us or our
collaborative partners of any commercially viable product will be subject to
government regulation from several standpoints, including the processes of:
- manufacturing;
- labeling;
- selling;
- distributing;
- marketing;
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- advertising; and
- promoting.
We cannot assure you that we will be able to comply with these regulations
for any of our potentially marketable products. To the extent that we are
unable, our ability to earn revenues will be significantly and negatively
impacted.
The regulatory process, particularly for biopharmaceutical products like ours,
is uncertain, can take many years and requires the expenditure of substantial
resources.
Any product that we or our collaborative partners develop must receive all
relevant regulatory agency approvals or clearances, if any, before it may be
marketed in the United States or other countries. Generally, biological drugs
and non-biological drugs are regulated more rigorously than medical devices. In
particular, human pharmaceutical therapeutic products, including a telomerase
inhibitor, are subject to rigorous preclinical and clinical testing and other
requirements by the Food and Drug Administration in the United States and
similar health authorities in foreign countries. The regulatory process, which
includes extensive preclinical testing and clinical trials of each product in
order to establish its safety and efficacy, is uncertain, can take many years
and requires the expenditure of substantial resources. See
"Business -- Government Regulation" in our 1998 Form 10-K for an extensive
description of the approval steps for biopharmaceutical products.
Data obtained from preclinical and clinical activities is susceptible to
varying interpretations that could delay, limit or prevent regulatory agency
approval or clearance. In addition, delays or rejections may be encountered
based upon changes in regulatory agency policy during the period of product
development and/or the period of review of any application for regulatory agency
approval or clearance for a product. Delays in obtaining regulatory agency
approvals or clearances could:
- significantly harm the marketing of any products that we or our
collaborative partners develop;
- impose costly procedures upon our activities or the activities of our
collaborative partners;
- diminish any competitive advantages that we or our collaborative partners
may attain; or
- adversely affect our ability to receive royalties and generate revenues
and profits.
Even if we commit the time and resources, both economic and otherwise, that
are necessary, the required regulatory agency approvals or clearances may not be
obtained for any products developed by or in collaboration with us. If
regulatory agency approval or clearance for a new product is obtained, such
approval or clearance may entail limitations on the indicated uses for which it
may be marketed that could limit the potential market for any such product.
Furthermore, approved products and their manufacturers are subject to continual
review, and discovery of previously unknown problems with a product or its
manufacturer may result in restrictions on such product or manufacturer,
including withdrawal of the product from the market. Failure to comply with
regulatory requirements can result in severe civil and criminal penalties,
including but not limited to:
- recall or seizure of products;
- injunction against manufacture, distribution, sales and marketing; and
- criminal prosecution.
The imposition of any of these penalties could significantly impair our
business.
THE SUCCESS OF OUR PRODUCTS IS DEPENDENT UPON THEIR ACCEPTANCE IN THE HEALTH
CARE COMMUNITY.
We cannot assure you that any products successfully developed by us or by
our collaborative partners, if approved for marketing, will achieve market
acceptance since physicians, patients or the medical community in general may
decide not to accept and utilize these products. The products that we are
attempting to develop may represent substantial departures from established
treatment methods and will compete with a number of
34
35
traditional drugs and therapies manufactured and marketed by major
pharmaceutical companies. The degree of market acceptance of any of our
developed products will depend on a number of factors, including:
- our establishment and demonstration to the medical community of the
clinical efficacy and safety of our product candidates;
- our ability to create products that are superior to alternatives
currently on the market;
- our ability to establish in the medical community of the potential
advantage of our treatments over alternative treatment methods; and
- reimbursement policies of government and third-party payors.
If the health care community does not accept our products for any of the
foregoing reasons, our ability to generate revenues will be significantly
impaired
HEALTH CARE REFORM MEASURES MAY NEGATIVELY IMPACT THIRD PARTY REIMBURSEMENT FOR
OUR PRODUCTS AND PREVENT MARKET ACCEPTANCE OF OUR PRODUCTS.
Significant uncertainty exists as to the reimbursement status of newly
approved health care products, including pharmaceuticals. If we fail to generate
adequate third party reimbursement for the users of our potential products and
treatments, then we may be unable to maintain price levels sufficient to realize
an appropriate return on our investment in product development.
In both domestic and foreign markets, sales of our products, if any, will
depend in part on the availability of reimbursement from third-party payors such
as:
- government health administration authorities;
- private health insurers;
- health maintenance organizations; and
- pharmacy benefit management companies.
Both federal and state governments in the United States and foreign
governments continue to propose and pass legislation designed to contain or
reduce the cost of health care through various means. Legislation and
regulations affecting the pricing of pharmaceuticals and other medical products
may change or be adopted before any of our potential products are approved for
marketing. Cost control initiatives could decrease the price that we receive for
any product we may develop in the future. In addition, third-party payors are
increasingly challenging the price and cost-effectiveness of medical products
and services and any of our potential products and treatments may ultimately not
be considered cost effective by these third parties. Any of these initiatives or
developments could negatively impact our business.
IMPROPER USE OF HAZARDOUS MATERIALS COULD RESULT IN SIGNIFICANT ECONOMIC
PENALTIES AND ADVERSELY AFFECT OUR FINANCIAL CONDITION.
Our research and development activities involve the controlled use of
hazardous materials, chemicals and various radioactive compounds. As a
consequence, we are subject to numerous environmental and safety laws and
regulations. We may be required to incur significant costs to comply with
current or future environmental laws and regulations and may be adversely
affected by the cost of compliance with such laws and regulations. Although we
believe that our safety procedures for using, handling, storing and disposing of
such materials comply with the standards prescribed by state and federal
regulations, the risk of accidental contamination or injury from these materials
cannot be eliminated. In the event of such an accident, our use of these
materials could be curtailed by state or federal authorities, and we could be
held liable for any damages that result. Any such liability could materially
adversely affect our business.
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36
INSURANCE MAY NOT BE AVAILABLE TO COVER US IN THE EVENT THAT WE ARE EXPOSED TO
PRODUCT LIABILITY CLAIMS.
Although we believe that we do not currently have any exposure to product
liability claims, our future business will expose us to potential product
liability risks that are inherent in the testing, manufacturing and marketing of
human therapeutic and diagnostic products. We currently have no clinical trial
liability insurance and we may not be able to obtain and maintain such insurance
for any of our clinical trials. In addition, we may not be able to obtain or
maintain product liability insurance in the future on acceptable terms or with
adequate coverage against potential liabilities.
THE SUBSTANTIAL NUMBER OF SHARES THAT WILL BE ELIGIBLE FOR SALE IN THE NEAR
FUTURE MAY ADVERSELY AFFECT THE MARKET PRICE FOR OUR COMMON STOCK AND MAY RESULT
IN SIGNIFICANT DILUTION TO OUR CURRENT STOCKHOLDERS.
Sales of a substantial number of shares of our common stock in the public
market following this offering could significantly and negatively affect the
market price for our common stock. As of December 31, 1998, we had outstanding
approximately 13,661,274 shares of common stock. We also have reserved 4,152,017
shares of common stock for issuance upon exercise of outstanding warrants and
options that we issued to our employees and other entities.
The conversion of the all the debentures and exercise of the all the
warrants will result in our issuance of a minimum of 2,750,000 shares of common
stock. If the series A debentures were converted on December 31, 1998, the
series A debentures would be convertible into 750,000 shares of common stock.
Similarly, the series B debentures will be convertible into 750,000 shares of
common stock on their date of issuance if no adjustments in the conversion price
have occurred before that date. If the series A warrants were exercised on
December 31, 1998, the series A warrants would be exercisable into 625,000
shares of common stock. Similarly, the series B warrants would be exercisable
into 625,000 shares of common stock on their date of issuance if no adjustments
in the exercise price have occurred before that date. This number of shares
could prove to be significantly greater, and you would be increasingly diluted,
in the event that the conversion or exercise prices are reduced because we:
- have a rights offering, or a similar offering of securities to all
investors, at less than the conversion or exercise price per share
respectively; or
- issue common stock or securities convertible into common stock, other
than related to our option plans or in connection with a strategic joint
venture, at a price less than the conversion price per share.
Additionally, one of our current strategic partners and shareholders,
Pharmacia & Upjohn, has contractually agreed not to sell the 696,787 shares of
common stock that it holds until April 2000, at which time these shares will be
eligible for sale and freely transferable in the public market. We also continue
to have 3,452 outstanding shares of our series A convertible preferred stock,
which shares would be convertible into 380,026 shares of common stock as of
December 31, 1998. In order for these shares to be converted, we would have to
seek and obtain shareholder approval for the transaction or receive a waiver
from the Nasdaq National Market.
Current holders of our common stock will also be immediately and
substantially diluted to the extent that the weighted average conversion and
exercise price of the above-described convertible and exercisable securities is
less than the price of our common stock on the date holders of these securities
convert or exercise their convertible or exercisable securities.
OUR STOCK PRICE WILL LIKELY BE SUBJECT TO SUBSTANTIAL PRICE AND VOLUME
FLUCTUATIONS DUE TO A NUMBER OF FACTORS, MANY OF WHICH ARE BEYOND OUR CONTROL.
Stock prices and trading volumes for many biopharmaceutical companies
fluctuate widely for a number of reasons, including some reasons which may be
unrelated to their businesses or results of operations. This market volatility,
as well as general domestic or international economic, market and political
conditions, could materially and adversely affect the market price of our common
stock and your return on your investment.
36
37
Historically, our stock price has been extremely volatile. Between January
1998 and January 1999, our stock price traded as high as $24.50 per share and as
low as $3.50 per share. The significant market price fluctuations of our common
stock are due to a variety of factors, including:
- depth of the market for the common stock;
- the experimental nature of our prospective products;
- fluctuations in our operating results;
- market conditions relating to the biopharmaceutical and pharmaceutical
industries;
- any announcements of technological innovations, new commercial products
or clinical progress or lack thereof by us, our collaborative partners or
our competitors; or
- announcements concerning regulatory developments, developments with
respect to proprietary rights and our collaborations.
In addition, the stock market is subject to other factors outside our
control that can cause extreme price and volume fluctuations. Securities class
action litigation has often been brought against companies, including many
biotechnology companies, which then experience volatility in the market price of
their securities. Litigation brought against us could result in substantial
costs and a diversion of management's attention and resources, which could
adversely affect our business.
OUR UNDESIGNATED PREFERRED STOCK MAY INHIBIT POTENTIAL ACQUISITION BIDS; THIS
MAY ADVERSELY AFFECT THE MARKET PRICE FOR OUR COMMON STOCK AND THE VOTING RIGHTS
OF THE HOLDERS OF COMMON STOCK.
Our certificate of incorporation provides our Board of Directors with the
authority to issue up to 3,000,000 shares of undesignated preferred stock and to
determine the rights, preferences, privileges and restrictions of these shares
without further vote or action by the stockholders. In March 1998, the Board of
Directors designated 15,000 shares as Series A preferred stock. As of December
31, 1998, the Board of Directors still has authority to designate and issue up
to 2,985,000 shares of preferred stock. The rights of the holders of common
stock will be subject to, and may be adversely affected by, the rights of the
holders of any preferred stock that may be issued in the future. The issuance of
shares of preferred stock may delay or prevent a change in control transaction
without further action by our stockholders. As a result, the market price of our
common stock may be adversely affected. The issuance of preferred stock may also
result in the loss of voting control by others.
PROVISIONS IN OUR CHARTER AND BYLAWS, AND PROVISIONS OF DELAWARE LAW, MAY
INHIBIT POTENTIAL ACQUISITION BIDS FOR US AND MAY PREVENT CHANGES IN MANAGEMENT.
In addition to the undesignated preferred stock, provisions of our charter
documents and bylaws may make it substantially more difficult for a third party
to acquire control of us and may prevent changes in our management, including
provisions that:
- prevent stockholders from taking actions by written consent;
- require a staggered election of our board of directors; and
- set forth procedures for nominating directors and submitting proposals
for consideration at stockholders' meetings
Provisions of Delaware law may also inhibit potential acquisition bids for
us. For example, Delaware law prevents Delaware corporations, including us, from
engaging in certain business combinations.
Either collectively or individually, these provisions may prevent holders
of our common stock from benefiting from what they may believe are the positive
aspects of acquisitions and takeovers, including the potential realization of a
higher rate of return on their investment from these types of transactions.
37
38
POTENTIAL YEAR 2000 PROBLEMS COULD ADVERSELY AFFECT OUR OPERATIONS.
Potential year 2000 problems are the result of computer programs being
written using two digits rather than four to define the applicable year. Any of
our computer programs or laboratory equipment that have time-sensitive software
may recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in a system failure or miscalculations causing disruptions in
operations, including, among other things, a temporary inability to:
- process transactions;
- send checks;
- perform research and development activities; or
- engage in similar normal business activities.
Based on a recent assessment, we have determined that we will be required
to modify or replace portions of our software so that our computer systems will
function properly with respect to dates in the year 2000 and thereafter. These
software programs include our accounting package and voicemail system. We
presently believe that with modifications to existing software and conversions
to new software, potential year 2000 problems will not pose significant
operational problems for our computer systems. However, if such modifications
and conversions are not made, or are not completed timely, potential year 2000
problems could have a significant and negative impact on our operations.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The following discussion about Geron's market risk disclosures contains
forward-looking statements. Actual results could differ materially from those
projected in the forward-looking statements. We are exposed to market risk
related to changes in interest rates and foreign currency exchange rates. We do
not use derivative financial instruments for speculative or trading purposes.
Interest Rate Sensitivity. The fair value of the Geron's investments in
marketable securities at December 31, 1998 was $24.1 million. Our investment
policy is to manage our marketable securities portfolio to preserve principal
and liquidity while maximizing the return on the investment portfolio through
the full investment of available funds. We diversify the marketable securities
portfolio by investing in multiple types of investment grade securities. We
primarily invest our marketable securities portfolio in short-term securities
with at least an investment grade rating to minimize interest rate and credit
risk as well as to provide for an immediate source of funds. Although changes in
interest rates may affect the fair value of the marketable securities portfolio
and cause unrealized gains or losses, such gains or losses would not be realized
unless the investments are sold.
Foreign Currency Exchange Risk. At this time, we participate in few foreign
currency exchange activities, therefore, would not be subject to risk of gains
or losses for changes in foreign exchange rates.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Geron Corporation
We have audited the accompanying balance sheets of Geron Corporation at
December 31, 1998 and 1997, and the related statements of operations,
stockholders' equity, and cash flows for each of the three years in the period
ended December 31, 1998. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Geron Corporation at
December 31, 1998 and 1997 and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1998, in conformity
with generally accepted accounting principles.
ERNST & YOUNG LLP
Palo Alto, California
February 12, 1999
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GERON CORPORATION
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
ASSETS
DECEMBER 31,
-------------------
1998 1997
-------- --------
Current assets:
Cash and cash equivalents................................. $ 16,360 $ 4,122
Short-term investments.................................... 8,109 17,475
Interest and other receivables............................ 523 901
Notes receivable from related parties..................... 138 330
Other current assets...................................... 685 651
-------- --------
Total current assets.............................. 25,815 23,479
Long-term investments....................................... 15,954 --
Notes receivable from related parties....................... 112 --
Property and equipment, net................................. 2,336 2,404
Deposits and other assets................................... 239 173
-------- --------
$ 44,456 $ 26,056
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 1,184 $ 723
Accrued compensation...................................... 717 431
Accrued liabilities....................................... 503 605
Deferred revenue.......................................... 244 975
Current portion of capital lease obligations and equipment
loans.................................................. 906 1,006
-------- --------
Total current liabilities......................... 3,554 3,740
Noncurrent portion of capital lease obligations and
equipment loans........................................... 1,300 1,250
Convertible debentures...................................... 6,801 --
Commitments
Redeemable convertible preferred stock, $0.001 par value;
3,452 shares issued and outstanding in 1998 and none in
1997 (liquidation preference of $3,610 at December 31,
1998)..................................................... 3,610 --
Stockholders' equity:
Preferred stock, $0.001 par value; 3,000,000 shares
authorized; 3,452 shares issued and outstanding in 1998
and none in 1997....................................... -- --
Common stock, $0.001 par value; 25,000,000 shares
authorized; 13,661,274 shares and 10,795,913 shares
issued and outstanding in 1998 and 1997,
respectively........................................... 13 11
Additional paid-in-capital................................ 88,055 67,879
Notes receivable from stockholders........................ (4) --
Deferred compensation..................................... (1,383) (714)
Accumulated deficit....................................... (57,520) (46,110)
Accumulated other comprehensive income.................... 30 --
-------- --------
Total stockholders' equity........................ 29,191 21,066
-------- --------
$ 44,456 $ 26,056
======== ========
See accompanying notes.
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GERON CORPORATION
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
YEARS ENDED DECEMBER 31,
----------------------------------------
1998 1997 1996
----------- ----------- ----------
Revenues from collaborative agreements............... $ 6,706 $ 7,175 $ 5,235
License fees and royalties........................... 91 78 58
----------- ----------- ----------
Total revenues............................. 6,797 7,253 5,293
Operating expenses:
Research and development........................... 15,619 15,139 14,260
General and administrative......................... 3,769 3,120 3,161
----------- ----------- ----------
Total operating expenses................... 19,388 18,259 17,421
----------- ----------- ----------
Loss from operations................................. (12,591) (11,006) (12,128)
Interest and other income............................ 2,666 1,757 1,826
Interest and other expense........................... (907) (392) (385)
----------- ----------- ----------
Net loss............................................. $ (10,832) $ (9,641) $ (10,687)
Accretion of redemption value of redeemable
convertible preferred stock........................ (578) -- --
----------- ----------- ----------
Net loss applicable to common stockholders........... $ (11,410) $ (9,641) $ (10,687)
=========== =========== ==========
Basic and diluted net loss per share................. $ (1.00) $ (0.91) $ (2.23)
Shares used in computing basic and diluted net loss
per share.......................................... 11,439,084 10,551,054 4,789,388
=========== =========== ==========
See accompanying notes.
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GERON CORPORATION
STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
NOTES
RECEIVABLE
PREFERRED STOCK COMMON STOCK ADDITIONAL FROM DEFERRED
------------------- ------------------- PAID-IN STOCK- COMPEN-
SHARES AMOUNT SHARES AMOUNT CAPITAL HOLDERS SATION
---------- ------ ---------- ------ ---------- ---------- --------
Balances at December 31, 1995............. 6,071,390 $ 6 929,089 $ 1 $40,205 $(131) $ --
Net loss.................................. -- -- -- -- -- -- --
Net change in unrealized gain (loss) on
available-for-sale securities........... -- -- -- -- -- -- --
Comprehensive loss........................
Issuance of preferred stock, net of
issuance costs of $13................... 294,844 -- -- -- 2,988 -- --
Issuance of common stock upon exercise of
options, net............................ -- -- 208,606 -- 190 12 --
Issuance of common stock upon exercise of
warrants................................ -- -- 12,055 -- 51 -- --
Issuance of preferred and common stock,
net of issuance costs of $2,050, in
connection with the Company's Initial
Public Offering ("IPO")................. 211,931 1 2,312,500 2 16,448 -- --
Conversion of preferred stock to common
stock in connection with the Company's
IPO..................................... (6,578,165) (7) 6,578,165 7 -- -- --
Deferred compensation related to certain
options and stock purchase rights
granted to employees and consultants.... -- -- -- -- 1,292 -- (1,292)
Amortization of deferred compensation..... -- -- -- -- -- -- 289
---------- --- ---------- --- ------- ----- -------
Balances at December 31, 1996............. -- -- 10,040,415 10 61,174 (119) (1,003)
Net loss.................................. -- -- -- -- -- -- --
Net change in unrealized gain (loss) on
available-for-sale securities........... -- -- -- -- -- -- --
Comprehensive loss........................
Issuance of common stock in connection
with corporate collaboration, net of
issuance costs of $9.................... -- -- 441,685 1 5,991 -- --
Issuance of common stock in exchange for
services................................ -- -- 6,925 -- 59 -- --
Issuance of common stock to certain
research institutions................... -- -- 8,940 -- 87 -- --
Issuance of common stock under employee
stock plans............................. -- -- 297,948 -- 568 119 --
Amortization of deferred compensation..... -- -- -- -- -- -- 289
---------- --- ---------- --- ------- ----- -------
Balances at December 31, 1997............. -- -- 10,795,913 11 67,879 -- (714)
Net loss.................................. -- -- -- -- -- -- --
Net change in unrealized gain (loss) on
available-for-sale securities........... -- -- -- -- -- -- --
Comprehensive loss........................
Issuance of common stock in connection
with corporate collaboration............ -- -- 255,102 -- 4,000 -- --
Issuance of convertible preferred stock,
net of issuance costs of $72. .......... 15,000 -- -- -- 14,928 -- --
Beneficial conversion feature related to
convertible debenture issued............ -- -- -- -- 562 -- --
Issuance of warrants to purchase common
stock in connection with convertible
debenture financing..................... -- -- -- -- 719 -- --
Accretion of premium on redemption of
convertible preferred stock............. -- -- -- -- 578 -- --
Conversion of convertible preferred stock
into common stock....................... (11,548) -- 2,173,446 2 (2) -- --
Issuance of common stock in exchange for
services................................ -- -- 14,772 -- 310 -- --
Issuance of common stock under employee
stock plans............................. -- -- 422,041 -- 1,399 (4) --
Transfer remaining shares of convertible
preferred stock to redeemable
convertible preferred stock............. (3,452) -- -- -- (3,610) -- --
Deferred compensation related to certain
options granted to employees............ -- -- -- -- 1,292 -- (1,292)
Amortization of deferred compensation..... -- -- -- -- -- -- 623
---------- --- ---------- --- ------- ----- -------
Balances at December 31, 1998............. -- $-- 13,661,274 $13 $88,055 $ (4) $(1,383)
========== === ========== === ======= ===== =======
ACCUMU-
LATED OTHER
COMPREHEN- TOTAL
ACCUMU- SIVE STOCK-
LATED INCOME HOLDERS'
DEFICIT (LOSS) EQUITY
-------- ----------- --------
Balances at December 31, 1995............. $(25,782) $ 9 $ 14,308
Net loss.................................. (10,687) -- (10,687)
Net change in unrealized gain (loss) on
available-for-sale securities........... -- (11) (11)
--------
Comprehensive loss........................ (10,698)
Issuance of preferred stock, net of
issuance costs of $13................... -- -- 2,988
Issuance of common stock upon exercise of
options, net............................ -- -- 202
Issuance of common stock upon exercise of
warrants................................ -- -- 51
Issuance of preferred and common stock,
net of issuance costs of $2,050, in
connection with the Company's Initial
Public Offering ("IPO")................. -- -- 16,451
Conversion of preferred stock to common
stock in connection with the Company's
IPO..................................... -- -- --
Deferred compensation related to certain
options and stock purchase rights
granted to employees and consultants.... -- -- --
Amortization of deferred compensation..... -- -- 289
-------- ---- --------
Balances at December 31, 1996............. (36,469) (2) 23,591
Net loss.................................. (9,641) -- (9,641)
Net change in unrealized gain (loss) on
available-for-sale securities........... -- 2 2
--------
Comprehensive loss........................ (9,639)
Issuance of common stock in connection
with corporate collaboration, net of
issuance costs of $9.................... -- -- 5,992
Issuance of common stock in exchange for
services................................ -- -- 59
Issuance of common stock to certain
research institutions................... -- -- 87
Issuance of common stock under employee
stock plans............................. -- -- 687
Amortization of deferred compensation..... -- -- 289
-------- ---- --------
Balances at December 31, 1997............. (46,110) -- 21,066
Net loss.................................. (10,832) -- (10,832)
Net change in unrealized gain (loss) on
available-for-sale securities........... -- 30 30
--------
Comprehensive loss........................ (10,802)
----
Issuance of common stock in connection
with corporate collaboration............ -- -- 4,000
Issuance of convertible preferred stock,
net of issuance costs of $72. .......... -- -- 14,928
Beneficial conversion feature related to
convertible debenture issued............ -- -- 562
Issuance of warrants to purchase common
stock in connection with convertible
debenture financing..................... -- -- 719
Accretion of premium on redemption of
convertible preferred stock............. (578) -- --
Conversion of convertible preferred stock
into common stock....................... -- -- --
Issuance of common stock in exchange for
services................................ -- -- 310
Issuance of common stock under employee
stock plans............................. -- -- 1,395
Transfer remaining shares of convertible
preferred stock to redeemable
convertible preferred stock............. -- -- (3,610)
Deferred compensation related to certain
options granted to employees............ -- -- --
Amortization of deferred compensation..... -- -- 623
-------- ---- --------
Balances at December 31, 1998............. $(57,520) $ 30 $ 29,191
======== ==== ========
See accompanying notes.
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GERON CORPORATION
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEARS ENDED DECEMBER 31,
-------------------------------
1998 1997 1996
-------- ------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss.................................................... $(10,832) $(9,641) $(10,687)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization............................. 1,122 1,277 947
Interest arising from beneficial conversion feature....... 562 -- --
Issuance of common and preferred stock in exchange for
in-process technology, services rendered and research
agreements............................................. 310 154 22
Amortization of deferred compensation..................... 623 289 289
Changes in assets and liabilities:
Interest and other receivables......................... 378 (558) (226)
Other current assets................................... (34) (242) (177)
Notes receivable from related parties.................. 80 294 193
Deposits and other assets.............................. (66) 2 109
Accounts payable....................................... 461 (71) 294
Accrued compensation................................... 286 (359) 127
Accrued liabilities.................................... 52 24 495
Deferred revenue....................................... (731) 975 (1,335)
-------- ------- --------
Net cash used in operating activities....................... (7,789) (7,856) (9,949)
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures........................................ (1,034) (713) (1,121)
Purchases of securities available-for-sale.................. (28,375) (27,015) (24,497)
Proceeds from maturities of securities available-for-sale... 21,817 21,454 15,585
-------- ------- --------
Net cash used in investing activities....................... (7,592) (6,274) (10,033)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of convertible debentures and
warrants.................................................. 7,500 -- --
Proceeds from equipment loans............................... 1,034 671 1,171
Payments of obligations under capital leases and equipment
loans..................................................... (1,084) (1,238) (1,044)
Proceeds from issuance of preferred stock, net.............. 14,928 -- 2,966
Proceeds from issuance of common stock...................... 5,241 6,462 16,704
-------- ------- --------
Net cash provided by financing activities................... 27,619 5,895 19,797
-------- ------- --------
Net increase (decrease) in cash and cash equivalents........ 12,238 (8,235) (185)
Cash and cash equivalents at beginning of period............ 4,122 12,357 12,542
-------- ------- --------
Cash and cash equivalents at end of period.................. $ 16,360 $ 4,122 $ 12,357
======== ======= ========
See accompanying notes.
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GERON CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Geron Corporation ("Geron" or the "Company") was incorporated in the State
of Delaware on November 29, 1990. Geron is a biopharmaceutical company focused
on discovering and developing therapeutic and diagnostic products to treat
cancer and other age-related degenerative diseases. Principal activities to date
have included obtaining financing, recruiting management and technical
personnel, securing operating facilities and conducting research and
development. The Company has no therapeutic products currently available for
sale and does not expect to have any therapeutic products commercially available
for sale for a period of years, if at all. These factors indicate that the
Company's ability to continue its research and development activities is
dependent upon the ability of management to obtain additional financing as
required.
Net Loss Per Share
In 1997, the Company adopted Statement of Financial Accounting Standard No.
128, "Earnings Per Share," ("SFAS 128"), which required the Company to simplify
its calculation of earnings per share. SFAS 128 replaced the calculation of
primary and fully diluted earnings per share with basic and diluted earnings per
share. Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants and convertible securities. Diluted
earnings per share is very similar to the previously reported fully diluted
earnings per share. All earnings per share amounts for all periods presented
have been restated, where appropriate, to conform to SFAS 128.
Basic and diluted net loss per share for 1996 have also been retroactively
restated to apply the requirements of Staff Accounting Bulletin No. 98, issued
by the SEC in February 1998 ("SAB 98"). Under SAB 98, certain shares of Common
Stock and options and warrants to purchase shares of Common Stock issued at
prices substantially below the per share price of shares sold in the Company's
initial public offering previously included in the computation of shares
outstanding pursuant to Staff Accounting Bulletin Nos. 55, 62 and 83 are now
excluded from the computation as their effect is antidilutive under SFAS 128.
Pro forma basic and diluted net loss per share for 1996 has been computed
as described above and also gives effect to the conversion of convertible
Preferred Stock which automatically converted to common shares upon closing of
the Company's initial public offering in 1996.
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45
GERON CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
A reconciliation of shares used in calculation of basic and diluted and pro
forma basic and diluted net loss per share follows:
YEARS ENDED DECEMBER 31,
----------------------------------------------------
1998 1997 1996
--------------- --------------- --------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
Net loss applicable to common stockholders........... $ (11,410) $ (9,641) $ (10,687)
=========== =========== ==========
Basic and Diluted
Weighted average shares of Common Stock outstanding
used in computing basic and diluted net loss per
share.............................................. 11,439,084 10,551,054 4,789,388
=========== =========== ==========
Basic and diluted net loss per share................. $ (1.00) $ (0.91) $ (2.23)
=========== =========== ==========
Pro Forma Basic and Diluted
Shares used in computing basic and diluted net loss
per share.......................................... 4,789,388
Adjusted to reflect the effect of the assumed
conversion of Preferred Stock from the date of
issuance........................................... 3,707,841
----------
Shares used in computing pro forma basic and diluted
net loss per share................................. 8,497,229
==========
Pro forma basic and diluted net loss per share....... $ (1.26)
==========
Had the Company been in a net income position, diluted earnings per share
would have included the shares used in the computation of pro forma basic net
loss per share as well as an additional 1,370,960, 936,782 and 823,214 shares
related to outstanding options and warrants not included above (as determined
using the treasury stock method at the estimated average market value) for 1998,
1997 and 1996, respectively.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Revenue Recognition
The Company recognizes revenue as the related research and development
costs are incurred. Milestone fees are recognized upon completion of specified
milestones according to contract terms. Deferred revenue represents the portion
of research payments received which have not been earned. Nonrefundable signing
or licensing fees that are not dependent on future performance under
collaborative agreements, are recognized as revenue when received assuming the
Company has no remaining obligations. Royalties are generally recognized upon
receipt.
Depreciation and Amortization
The Company records property and equipment at cost and calculates
depreciation using the straight-line method over the estimated useful lives of
the assets, generally four years. Furniture and equipment leased under capital
leases is amortized over the useful lives of the assets. Leasehold improvements
are amortized over the remaining term of the lease.
Comprehensive Loss
The Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standard No. 130, ("SFAS 130"), "Reporting Comprehensive
Income," in June 1997. SFAS 130 establishes
45
46
GERON CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
standards for reporting and display of comprehensive income (loss) and its
components as part of the Company's full set of financial statements and is
effective for fiscal years beginning after December 31, 1997. The Company
adopted SFAS 130 in it fiscal year ended December 31, 1998.
Other Recent Accounting Pronouncements
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position No. 98-5, "Reporting for the Costs of Start-Up
Activities," ("SOP 98-5"). The Company is required to expense all start-up costs
related to new operations as incurred. In addition, all start-up costs that were
capitalized in the past must be written off when SOP 98-5 is adopted. The
Company expects that the adoption of SOP 98-5 will not have a material impact on
its financial position or results of operations. Geron will be required to
implement SOP 98-5 for the year ending December 31, 1999.
In June 1998, the FASB issued Statement of Financial Accounting Standard
No. 133, "Accounting for Derivative Instruments and Hedging Activities," ("SFAS
133"). The Company is required to adopt SFAS 133 for the year ending December
31, 2000. SFAS 133 establishes methods of accounting for derivative financial
instruments and hedging activities related to those instruments as well as other
hedging activities. Because Geron currently holds no derivative financial
instruments and does not currently engage in hedging activities, adoption of
SFAS 133 is expected to have no material impact on Geron's financial condition
and results of operations.
Reclassifications
Certain reclassifications of prior year amounts have been made to conform
to current year presentation.
2. FINANCIAL INSTRUMENTS AND CREDIT RISK
Cash Equivalents and Securities Available-for-Sale
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. The Company is
subject to credit risk related to its cash equivalents and securities
available-for-sale. The Company places its cash and cash equivalents in money
market funds, municipal notes and commercial paper. The Company's investments
include corporate notes in U.S. corporations and municipal securities with
maturities ranging from three to 21 months.
The Company classifies its marketable equity and debt securities as
available-for-sale. Available-for-sale securities are recorded at fair value
with unrealized gains and losses reported in the accumulated deficit. Fair
values for investment securities are based on quoted market prices, where
available. If quoted market prices are not available, fair values are based on
quoted market prices of comparable instruments. Realized gains and losses are
included in interest and other income and are derived using the specific
identification method for determining the cost of securities sold and have been
immaterial to date. Declines in market value judged other-than-temporary result
in a charge to interest income. Dividend and interest income are recognized when
earned.
46
47
GERON CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The following is a summary of available-for-sale securities at December 31,
1998 and 1997:
ESTIMATED FAIR VALUE
--------------------
1998 1997
------- -------
(IN THOUSANDS)
Included in cash and cash equivalents:
Money market fund.................................... $13,595 $ 2,499
Municipal note....................................... $ 2,000 --
Commercial paper..................................... -- 998
------- -------
$15,595 $ 3,497
======= =======
Short-term investments (due in less than 1 year):
Municipal note....................................... $ -- $ 2,000
Corporate CD......................................... -- 1,000
Corporate notes...................................... 8,109 14,475
------- -------
$ 8,109 $17,475
======= =======
Long-term investments (due in 1 - 2 years):
Corporate notes...................................... $15,954 $ --
======= =======
As of December 31, 1998 and 1997, the difference between the fair value and
the amortized cost of available-for-sale securities was immaterial.
Other Assets
The Company presently holds notes receivable of $250,000 ($330,000 in 1997)
from employees of the Company. These notes, which in general bear no interest,
are collateralized by certain personal assets of the employees and are being
paid in a series of installments over four years ending December 31, 2002.
Other Fair Value Disclosures
At December 31, 1998, the fair value of the notes receivable from employees
is $221,000. The fair value was estimated using discounted cash flow analyses,
using interest rates currently being offered for loans with similar terms of
borrowers of similar credit quality.
The fair value of the equipment loans approximates the carrying value of
$2,068,000. The fair value was estimated using discounted cash flow analyses,
based on the Company's current incremental borrowing rates for similar types of
borrowing arrangements.
3. PROPERTY AND EQUIPMENT
Property and equipment, stated at cost, is comprised of the following:
DECEMBER 31,
------------------
1998 1997
------- -------
(IN THOUSANDS)
Furniture and equipment.................................. $ 1,766 $ 1,537
Lab equipment............................................ 3,383 2,963
Leasehold improvements................................... 1,992 1,621
------- -------
7,141 6,121
Less accumulated depreciation and amortization........... (4,805) (3,717)
------- -------
$ 2,336 $ 2,404
======= =======
47
48
GERON CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Property and equipment at December 31, 1998 and 1997 includes assets under
capitalized leases of approximately $2,882,000 and $3,465,000, respectively.
Accumulated amortization related to leased assets was approximately $1,482,000
and $1,725,000 at December 31, 1998 and 1997, respectively.
4. CAPITAL LEASE OBLIGATIONS AND EQUIPMENT LOANS
The Company has lease and equipment loan credit lines available of
$3,000,000 of which approximately $2,300,000 was unused and available at
December 31, 1998. The drawdown period under the lease and equipment loan credit
lines expires on July 31, 1999. The obligations under the equipment loans are
secured by the equipment financed, bear interest at fixed rates of approximately
11% and are due in monthly installments through November 2002. Under the terms
of the master lease agreement, ownership of the leased equipment will transfer
to the Company at the end of the lease term.
Future minimum lease payments under capital leases and principal payments
on equipment loans are as follows:
CAPITAL EQUIPMENT
LEASES LOANS
------- ---------
(IN THOUSANDS)
Years ending December 31:
1999................................................... $ 138 $ 775
2000................................................... 7 719
2001................................................... -- 374
2002................................................... -- 200
----- ------
Total minimum lease and principal payments,
respectively................................. 145 $2,068
======
Amount representing interest............................. (7)
-----
Present value of future lease payments................... 138
Current portion of capital lease obligations............. (131)
-----
Noncurrent portion of capital lease obligations.......... $ 7
=====
5. OPERATING LEASE COMMITMENTS
On March 25, 1996, the Company leased two facilities under two five-year
noncancelable operating leases. Future minimum payments under noncancelable
operating leases are approximately $641,000 in 1999, $666,000 in 2000, $693,000
in 2001 and $58,000 in 2002. The Company has the option to extend the term of
both leases for two additional periods of two and one half years each. Rent
expense under operating leases was approximately $637,000 and $581,000 for the
years ended December 31, 1998 and 1997, respectively.
6. CONVERTIBLE DEBENTURES
On December 10, 1998, the Company entered into an agreement to sell
$15,000,000 in convertible zero coupon debentures to investment funds managed by
three institutional investors. The debentures are convertible at any time by the
holders at a fixed conversion price of $10.00 per share. One-half of the
proceeds were funded upon signing the agreement and the remaining $7,500,000
will be funded upon the registration of the underlying Common Stock. The
debentures convert at the Company's option when the Common Stock has traded at a
certain premium to the fixed conversion price for five consecutive trading days.
In December 1998, the Company recorded approximately $562,000 in interest
expense in connection with this financing for the difference between the fair
market value of the Common Stock on the date of issuance and the conversion
48
49
GERON CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
price of the debentures. An additional $562,000 in interest expense is expected
to be recorded upon the funding of the remaining $7,500,000 of convertible
debentures in 1999.
In connection with the issuance of the convertible debentures, the Company
also issued warrants to purchase 625,000 shares of Common Stock at $12.00 per
share. The warrants are exercisable at any time through June 2000. The value of
the warrants was determined to be approximately $719,000. The proceeds of
$7,500,000 from the issuance of the debentures were allocated between the
debentures and the warrants. The convertible debentures, which are recorded at a
discount, are being accreted to the redemption amount over the three year term
using the interest method. Warrants to purchase an additional 625,000 shares
with the same terms will be issued upon funding of the remaining $7,500,000 of
convertible debentures.
7. REDEEMABLE CONVERTIBLE PREFERRED STOCK
On March 27, 1998, the Company completed a private placement with two
institutional investors for the sale of 15,000 shares of Series A Redeemable
Convertible Preferred Stock (the "Series A Preferred Stock") with a par value of
$0.001 and a stated value of $1,000 per share resulting in proceeds of
$15,000,000. The Series A Preferred Stock is convertible into the number of
shares of Common Stock of the Company equal to the stated value plus a premium
of 6% per annum divided by a conversion price. The premium on the Series A
Preferred Stock is accreted and treated as a dividend. The premium has been
accrued through December 31, 1998 with the offsetting charge recorded to
accumulated deficit. The conversion price of the Series A Preferred Stock is
based on the market price of the Common Stock during a pricing period preceding
conversion, up to a conversion price cap of $16.88. The Series A Preferred Stock
is subject to redemption at the Company's option if the market price of the
Common Stock exceeds or falls below certain thresholds.
On November 6, 1998, 11,548 shares of Series A Preferred Stock were
converted into 2,173,446 shares of Common Stock. The number of shares of Common
Stock issued in November 1998 met the maximum threshold of shares of Common
Stock that could be issued without obtaining stockholder approval under NASD
regulations. Because the Company has not obtained stockholder approval to issue
additional shares of Common Stock as of December 31, 1998, the remaining 3,452
shares of Series A Preferred Stock (with a book value of $3,452,000) are now
redeemable at the option of the holders of Series A Preferred Stock, have been
reclassified as Redeemable Convertible Preferred Stock and are excluded from
Stockholders' Equity. In addition, the 6% premium on the outstanding shares of
Series A Preferred Stock will be accreted to the value of the outstanding Series
A Preferred Stock.
The holders of Series A Preferred Stock have no voting power and are not
entitled to receive any dividends. As long as the Series A Preferred Stock is
outstanding, no dividends may be declared or paid upon, nor shall any
distribution be made upon any junior securities without written consent of the
holders of a majority of the outstanding shares of Series A Preferred Stock,
voting together as a class.
8. STOCKHOLDERS' EQUITY
Capital Stock
On July 30, 1996, the Company completed an initial public offering of
2,000,000 shares of Common Stock at $8.00 per share. In addition to and in
conjunction with the offering, Kyowa Hakko Kogyo Co., Ltd. purchased 312,500
shares of Common Stock at $8.00 per share. The total net proceeds from the
initial public offering and the Kyowa Hakko stock purchase were approximately
$16.7 million. Concurrent with the closing of the offering, all the outstanding
shares of Preferred Stock converted to Common Stock at various ratios.
Additional shares of Preferred Stock were issued upon conversion to Common Stock
in accordance with certain anti-dilution provisions.
In July 1996, the Company effected a 1-for-3.4 reverse stock split. All
share and per share amounts have been adjusted to reflect this stock split
retroactively.
49
50
GERON CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Warrants
In December 1998, in connection with the sale of convertible debentures to
three institutional investors, the Company issued warrants to purchase 625,000
shares of Common Stock at $12.00 per share. The warrants are exercisable at any
time through June 2000. The value of these warrants in connection with the
financing was determined to be approximately $719,000. Warrants to purchase an
additional 625,000 shares with the same terms will be issued upon the funding of
the remaining $7,500,000 of convertible debentures.
In August 1997, in conjunction with a license agreement, the Company issued
a warrant to purchase 25,000 shares of Common Stock at $6.75 per share. The
warrant is exercisable through August 2007.
In June 1994, in conjunction with the Series C Preferred Stock financing,
the Company issued warrants to purchase 3,253 shares of Common Stock at $9.28
per share. The warrants are exercisable through June 1999.
In February 1994, in conjunction with a research agreement, the Company
issued a warrant to purchase 47,058 shares of Common Stock at $7.65 per share.
The warrant is exercisable through February 2004.
1992 Stock Option Plan
The Company administers the 1992 Stock Option Plan (the "Plan"). The
options granted under this Plan may be either incentive stock options or
nonstatutory stock options. As of December 31, 1998, the Company had reserved
4,271,137 shares of Common Stock for issuance under the Plan. Options granted
under this Plan expire no later than ten years from the date of grant. For
incentive stock options and nonstatutory stock options, the option price shall
be at least 100% and 85%, respectively, of the fair market value on the date of
grant. If, at the time the Company grants an option the optionee directly or by
attribution owns stock possessing more than 10% of the total combined voting
power of all classes of stock of the Company, the option price shall be at least
110% of the fair market value and shall not be exercisable more than five years
after the date of grant.
Options to purchase shares of Common Stock generally vest over a period of
four or five years from the date of the option grant, with a portion vesting
after six months and the remainder vesting ratably over the remaining period.
Options granted under the Plan prior to July 1996 (the date of the Company's
initial public offering) are generally immediately exercisable; however, any
unvested shares issued are subject to repurchase rights whereby the Company has
the option to repurchase any unvested shares upon termination of employment at
the original exercise price. In 1998 and 1997, the Company repurchased none and
18,737 shares, respectively, in accordance with these repurchase rights. As of
December 31, 1998, 9,717 shares remained subject to repurchase.
On September 18, 1998, the Board of Directors approved a resolution to
offer all employees holding outstanding options to purchase Common Stock of the
Company under the Company's 1992 Stock Option Plan with exercise prices in
excess of the closing price of the Company's Common Stock on September 17, 1998
of $4.75 the option to exchange all such options for new incentive and/or
nonstatutory stock options. Each such new incentive and/or nonstatutory stock
option was on the same terms as the surrendered option, except that (i) the
exercise price was equal to the closing price of the Company's Common Stock as
reported on September 17, 1998 of $4.75, (ii) the vesting period of each
exchanged option as set forth in the applicable stock option agreement was
extended for one year beginning from the original vesting commencement date,
(iii) no exchanged option could be exercised or sold by the optionee prior to
September 18, 1999, except due to the involuntary termination of the employee by
the Company or his or her death or permanent disability, and (iv) options so
exchanged were exchanged for the maximum number of incentive stock options
permitted under applicable rules and regulations. In connection with this option
exchange program, options to purchase 1,148,224 shares of Common Stock were
cancelled and regranted. In addition, the Company recorded deferred compensation
of approximately $1,300,000 and recognized approximately $334,000 in
compensation
50
51
GERON CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
expense in 1998. The remaining deferred compensation is being amortized over the
remaining vesting term of the options.
Directors' Option Plan
In July 1996, the Company adopted the 1996 Directors' Stock Option Plan and
reserved an aggregate of 250,000 shares of Common Stock for issuance thereunder.
As of December 31, 1998, 125,000 options have been granted under the Directors'
Option Plan.
Aggregate option activity for the 1992 Stock Option Plan and Directors'
Stock Option Plan is as follows:
OUTSTANDING OPTIONS
SHARES ---------------------------------------------
AVAILABLE NUMBER OF PRICE PER WEIGHTED AVERAGE
FOR GRANT SHARES SHARE EXERCISE PRICE
---------- ---------- ------------- ----------------
Balance at December 31, 1995.............. 261,333 1,067,649 $0.34 - $ 0.82 $ 0.77
Additional shares authorized............ 1,073,529 -- $ -- $ --
Options granted......................... (841,068) 841,068 $1.02 - $ 8.75 $ 4.09
Options exercised....................... -- (212,579) $0.34 - $ 8.00 $ 0.90
Options canceled........................ 137,237 (137,237) $0.34 - $ 8.00 $ 1.79
---------- ----------
Balance at December 31, 1996.............. 631,031 1,558,901 $0.34 - $ 8.75 $ 2.45
Additional shares authorized............ 1,000,808 -- $ -- $ --
Options granted......................... (1,491,830) 1,491,830 $6.75 - $17.00 $11.07
Options exercised....................... -- (292,904) $0.34 - $12.75 $ 1.54
Options canceled........................ 332,036 (332,036) $0.34 - $12.75 $ 8.70
---------- ----------
Balance at December 31, 1997.............. 472,045 2,425,791 $0.34 - $17.00 $ 6.98
Additional shares authorized............ 715,918 -- $ -- $ --
Options granted......................... (2,008,822) 2,008,822 $4.56 - $13.75 $ 5.79
Options exercised....................... -- (415,106) $0.34 - $13.75 $ 3.44
Options canceled........................ 1,367,588 (1,367,588) $0.78 - $13.25 $10.29
---------- ----------
Balance at December 31, 1998.............. 546,729 2,651,919 $0.34 - $17.00 $ 4.92
========== ==========
OPTIONS OUTSTANDING
---------------------------------------------
WEIGHTED AVERAGE
WEIGHTED REMAINING
EXERCISE PRICE AVERAGE CONTRACTUAL LIFE
RANGE NUMBER EXERCISE PRICE (IN YEARS)
-------------- --------- -------------- ----------------
$0.34 - $ 1.02......................................... 266,178 $ 0.81 5.98
$2.04 - $ 4.63......................................... 694,435 $ 3.51 8.70
$4.75 - $ 4.81......................................... 1,232,074 $ 4.75 9.39
$5.95 - $ 9.63......................................... 283,159 $ 8.40 8.51
$9.69 - $17.00......................................... 176,073 $12.26 8.61
---------
$0.34 - $17.00......................................... 2,651,919 $ 4.92 8.72
=========
As of December 31, 1998 and 1997, there were 762,038 and 1,229,900
exercisable options outstanding at a weighted average exercise price of $3.20
and $3.44, respectively.
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" ("APB 25") and the related
Interpretations in accounting for its employee stock options and options granted
to non-employee directors because, as discussed below, the alternative fair
value accounting provided for under Financial Accounting Standards Board
Statement No. 123 ("SFAS 123"), "Accounting for Stock Based Compensation,"
requires use of option pricing valuation models that were not
51
52
GERON CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
developed for use in valuing employee stock options and options granted to
non-employee directors. Under APB 25, the Company generally recognizes no
compensation expense with respect to such awards.
Pro forma information regarding net loss and net loss per share is required
by SFAS 123 and has been determined as if the Company had accounted for its
employee stock options under the fair value method prescribed by the Statement.
The fair value for these options was estimated at the date of grant using the
Black-Scholes option pricing model with the following weighted average
assumptions: risk-free interest rates ranging from 4.25% to 5.62%, 5.79% to
6.85% and 5.68% to 6.70% for 1998, 1997 and 1996 respectively; a dividend yield
of 0.0% for 1998, 1997 and 1996; a volatility factor of the expected market
price of the Company's Common Stock of 1.078 for 1998, 1.1 for 1997 and 0.7 for
1996; and a weighted average expected life of the options of 5 years for 1998,
1997 and 1996.
The Company has recorded deferred compensation of approximately $1,300,000
for the difference between the grant price and the deemed fair value of certain
of the Company's Common Stock options granted in 1996. This amount is being
amortized over the vesting period of the individual options, generally a
60-month period. Deferred compensation expense recognized in 1998, 1997 and 1996
related to these options grants totaled $289,000.
The weighted average fair value of options granted during 1998, 1997 and
1996 with an exercise price below the fair market value of the Company's Common
Stock on the date of grant was $3.79, $6.69 and $2.84, respectively. The
weighted average fair value of options granted during 1998, 1997 and 1996 with
an exercise price equal to the fair market value of the Company's Common Stock
on the date of grant was $5.81, $7.65 and $3.03, respectively. The weighted
average fair value of options granted during 1998, 1997 and 1996 with an
exercise price greater than the fair market value of the Company's Common Stock
on the date of grant was $0.11, none and $0.20, respectively.
The Company grants options to consultants from time to time in exchange for
services performed for the Company. In general, these options vest over the
contractual period of the consulting arrangement. In 1998, the Company granted
options to consultants to purchase 26,550 shares of the Company's Common Stock.
The fair value of these option grants was determined to be approximately
$197,000 and is being amortized to expense over the vesting term of the options.
In addition, the Company will record any additional increase in the value of the
option grants as the options vest. In 1997, the Company granted options to
consultants to purchase 55,288 shares of the Company's Common Stock. The
amortized fair value of these options was determined to be immaterial in 1997.
The Company also grants stock to consultants and research institutions in
exchange for services performed for the Company. In 1998 and 1997, the Company
issued 4,772 and 15,865 shares of Common Stock, respectively, in exchange for
services. For these stock grants, the Company recognized an expense equal to the
fair market value of the granted shares on the date of grant. In 1998 and 1997,
the Company recognized approximately $172,000 and $146,000 of research and
development expenses in connection with stock grants to consultants and research
institutions.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the vesting period of the options using the
straight-line method. The Company's pro forma information follows:
YEARS ENDED DECEMBER 31,
-----------------------------------------
1998 1997 1996
----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Net loss applicable to common stockholders............... $(11,410) $ (9,641) $(10,687)
Pro forma net loss....................................... $(15,198) $(11,325) $(11,142)
Basic and diluted net loss per share as reported......... $ (1.00) $ (0.91) $ (2.23)
Basic and diluted pro forma net loss per share........... $ (1.33) $ (1.07) $ (2.33)
52
53
GERON CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The effects of applying SFAS 123 for pro forma disclosures are not likely
to be representative of the effects on reported net loss for future years. Pro
forma net loss for the year ended December 31, 1998 reflects expense for four
years' vesting while pro forma data for 1999 will reflect compensation expense
for five years' vesting of outstanding stock options.
Employee Stock Purchase Plan
In July 1996, the Company adopted the 1996 Employee Stock Purchase Plan
("Purchase Plan") and reserved an aggregate of 300,000 shares of Common Stock
for issuance thereunder. Under the terms of the Purchase Plan, employees can
choose to have up to 10% of their annual salary withheld to purchase the
Company's Common Stock. The purchase price of the stock is 85% of the lower of
the subscription date fair market value and the purchase date fair market value.
Approximately 35% of the eligible employees have participated in the Purchase
Plan. The Company does not recognize compensation cost related to employee
purchase rights under the Purchase Plan. Approximately, 54,000 and 33,000 shares
have been issued under the Purchase Plan as of December 31, 1998 and 1997,
respectively. To comply with the pro forma reporting requirements of SFAS 123,
compensation cost is estimated for the fair value of the employees' purchase
rights using the Black-Scholes model with the following weighted average
assumptions: risk-free interest rates ranging from 4.58% to 5.51% and 5.62% to
5.68% for 1998 and 1997, respectively; a dividend yield of 0.0% for 1998 and
1997; a volatility factor of the expected market price of the Company's Common
Stock of 1.078 and 1.1 for 1998 and 1997, respectively; and an expected life of
the purchase right of 6 months for 1998 and 1997. Based upon these assumptions,
the pro forma compensation cost estimated for the fair value of the employees'
purchase rights was approximately $136,000 and $42,000 for 1998 and 1997,
respectively and has been included in the above pro forma information. There
were no shares issued under the Purchase Plan in 1996.
At December 31, 1998, 4,152,017 shares of Common Stock are reserved for
issuance upon exercise of options currently outstanding and options available
for grant under the 1992 Stock Option Plan, 1996 Directors' Option Plan, 1996
Employee Stock Purchase Plan and exercise of warrants.
9. COLLABORATIVE AGREEMENTS
In April 1995, the Company entered into a License and Research
Collaboration Agreement with Kyowa Hakko (the "Kyowa Hakko Agreement"). Under
the Kyowa Hakko Agreement, Kyowa Hakko agreed to provide $16.0 million of
research funding over four years to support the Company's program to discover
and develop in certain Asian countries a telomerase inhibitor for the treatment
of cancer. In addition, the Company is entitled to receive future payments
totaling $11.5 million upon the achievement of certain contractual milestones
relating to drug development and regulatory progress, as well as royalty
payments on product sales. Kyowa Hakko also purchased $2.5 million of Geron
Common Stock in connection with the Company's initial public offering. Under the
Kyowa Hakko Agreement, Geron exercises significant influence during the research
phase and Kyowa Hakko exercises significant influence during the development and
commercialization phases. Kyowa Hakko will pay for all clinical expenses
associated with product approval in the licensed territory, which includes the
countries of China, Hong Kong, India, Indonesia, Japan, Kampuchea, Korea, Laos,
Malaysia, Myan Mar, the Philippines, Singapore, Taiwan, Thailand and Vietnam.
The Kyowa Hakko Agreement provides that Kyowa Hakko will not pursue research and
development independent of its collaboration with Geron with respect to
telomerase inhibition for the treatment of cancer in humans until April 7, 2000,
at the earliest. Kyowa Hakko may terminate the agreement only in the event of
breach or bankruptcy by Geron or in the event that both parties agree that it is
no longer reasonably practical to pursue further research and development of an
inhibitor of telomerase. In March 1997, the Kyowa Hakko Agreement was amended to
extend its term until April 2000 and to make certain other changes in connection
with the signing of the Pharmacia & Upjohn Agreement (as defined below).
53
54
GERON CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
In March 1997, the Company signed a License and Research Collaboration
Agreement (the "Pharmacia & Upjohn Agreement") with Pharmacia & Upjohn to
collaborate in the discovery, development and commercialization of a new class
of anti-cancer drugs that inhibit telomerase. Under the collaboration, Pharmacia
& Upjohn will provide $15.0 million of research funding over three years. In
addition, the Company is entitled to receive future payments upon the
achievement of certain contractual milestones relating to drug development and
regulatory progress, as well as royalty payments on future product sales.
Further, the Company has an option to exercise co-promotion rights in the United
States. The companies also signed a Stock Purchase Agreement providing for an
initial equity investment of $2.0 million in Geron by Pharmacia & Upjohn, at a
premium, which was completed in January 1997. In addition on April 25, 1997 and
March 27, 1998, Pharmacia & Upjohn purchased an aggregate of $8.0 million ($4.0
million on each date) of Geron Common Stock at a premium. Through the Pharmacia
& Upjohn and Kyowa Hakko Agreements, the Company has granted to Pharmacia &
Upjohn and Kyowa Hakko exclusive worldwide rights to its telomerase inhibition
technology, with exception to certain antisense, gene therapy and vaccine
technologies outside Asia, for the treatment of cancer in humans. This
collaboration with Pharmacia & Upjohn has recently been enhanced by accessing
the high throughput screening capabilities and the two million compound library
of Pharmacopoeia, Incorporated ("Pharmacopoeia") via an alliance between
Pharmacia & Upjohn and Pharmacopoeia which includes telomerase inhibition.
In March 1997, the Company entered into a three-way agreement with
Pharmacia & Upjohn and Kyowa Hakko to clarify the rights and obligations of the
parties under the two existing agreements and formalize a high level of
cooperation among all of the parties. These rights include coordination of
research and development, licensing of technology, manufacturing, disclosure of
know-how and co-marketing and co-promotion of products. Under the three-way
collaboration, the original individual agreements between the Company and Kyowa
Hakko and the Company and Pharmacia & Upjohn remain intact.
Costs associated with research and development activities attributable to
the above agreements approximate revenue recognized. Under these agreements,
revenues of approximately $6,700,000, $6,700,000 and $5,200,000 were recognized
in 1998, 1997 and 1996, respectively. No milestone payments have been received
or earned to date.
In December 1997, the Company entered into a License, Product and Marketing
Agreement with Boehringer Mannheim to develop and commercialize research and
clinical diagnostic products for cancer on an exclusive, worldwide basis. Under
the Agreement, Boehringer Mannheim provided reimbursement for research
previously conducted and is responsible for all clinical, regulatory,
manufacturing, marketing and sales efforts and expenses. The Company is entitled
to receive future payments upon achievement of certain contractual milestones
relating to levels of product sales, as well as royalties on product sales.
Further, the Company has an option to exercise co-promotion rights in the United
States. After the acquisition of Boehringer Mannheim by Roche in early 1998, all
licenses and agreements pertaining to telomerase-based cancer diagnostics
entered into with Boehringer Mannheim have been transferred to Roche
Diagnostics. In accordance with the agreement, the Company received a $500,000
research reimbursement payment in January 1998.
10. INCOME TAXES
As of December 31, 1998, the Company had federal and state net operating
loss carryforwards of approximately $52,800,000 and $5,300,000, respectively.
The federal net operating loss carryforwards will expire at various dates
beginning in 2006 through 2018, if not utilized. The state net operating loss
carryforwards will expire at various dates beginning in 1997 through 2002.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
54
55
GERON CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Significant components of the Company's deferred tax assets as of December
31 are as follows:
1998 1997
------- -------
(IN THOUSANDS)
Net operating loss carryforwards......................... $18,300 $14,500
Research credits (expiring 2007 - 2011).................. 3,500 2,600
Capitalized research and development..................... 2,400 1,000
Other -- net............................................. 100 1,200
------- -------
Total deferred tax assets...................... 24,300 19,300
Valuation allowance for deferred tax assets.............. (24,300) (19,300)
------- -------
Net deferred tax assets.................................. $ -- $ --
======= =======
Because of the Company's history of losses, the net deferred tax asset has
been fully offset by a valuation allowance. The valuation allowance increased by
$4,400,000 and $4,100,000 during the years ended December 31, 1997 and 1996,
respectively.
Approximately $800,000 of the valuation allowance for deferred tax assets
relates to benefits of stock option deductions which, when recognized, will be
allocated directly to contributed capital.
Utilization of the net operating losses and credits may be subject to a
substantial annual limitation due to the ownership change provisions of the
Internal Revenue Code of 1986. The annual limitation may result in the
expiration of net operating losses and credits before utilization.
11. IMPACT OF YEAR 2000 (UNAUDITED)
The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the Company's
computer programs or laboratory equipment that have time-sensitive software may
recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in a system failure or miscalculations causing disruptions in
operations, including, among other things, a temporary inability to process
transactions, send checks, perform research and development activities or engage
in similar normal business activities.
Based on a recent assessment, the Company has determined that it will be
required to modify or replace certain portions of its software so that its
computer systems will function properly with respect to dates in the year 2000
and thereafter. These software programs include the Company's accounting package
and voicemail system. The Company presently believes that with modifications to
existing software and conversions to new software, the Year 2000 issue will not
pose significant operational problems for its computer systems. However, if such
modifications and conversions are not made, or are not completed in a timely
manner, the Year 2000 issue could have a material impact on the operations of
the Company.
The Company has initiated formal communications with all of its significant
suppliers, service providers and corporate partners to determine the extent to
which the Company's interface systems are vulnerable to those third parties'
failure to remediate their own Year 2000 issues. The Company's total Year 2000
project cost and estimated time to complete include the estimated costs and time
associated with the impact of third party Year 2000 issues and is based on
presently available information. However, there can be no guarantee that the
systems of other companies on which the Company's systems rely will be upgraded
or converted and would not have an adverse effect on the Company's systems. Such
suppliers, service providers and corporate partners include the Company's
payroll service provider, local financial institutions and website maintenance
organization.
The Company will utilize both internal and external resources to replace
and test software for Year 2000 modifications. Approximately half of the
Company's Year 2000 (Y2K) scheduled work is complete. The remaining work is
scheduled to be completed by the end of the second quarter of 1999, which is
prior to any
55
56
GERON CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
anticipated impact on its operating systems. The Y2K project phases include: (1)
inventorying and prioritizing business critical systems; (2) Y2K compliance
analysis; (3) remediation activities including repairing or replacing identified
systems; (4) testing; and (5) developing contingency plans. An inventory of
business critical financial, informational and operational systems, including
laboratory equipment, has been completed. Compliance analysis is approximately
80% complete for these systems. Remediation activities vary by department,
however, on the average, remediation activities are approximately 50% complete.
Testing of the Company's information technology infrastructure is 75% complete.
Testing of business critical application programs is 75% complete. The Company
believes that with the completed modifications, the Y2K issue will not pose
significant operational problems for its computer systems and equipment.
However, if such modifications and conversions are not made, or are not
completed in a timely fashion, the Year 2000 issue could have a material impact
on the operations of the Company, the precise degree of which cannot be known at
this time.
The total cost of the Year 2000 project is estimated at $200,000 and is
being funded through current cash holdings. Of the total project cost,
approximately $100,000 is attributable to the purchase of new software and
equipment which will be capitalized. The remaining $100,000, which will be
expensed as incurred, is not expected to have a material effect on the Company's
results of operations. To date, the Company has incurred approximately $60,000
($40,000 capitalized for new systems and $20,000 expensed), related to the
assessment of, and preliminary efforts on, its Year 2000 project.
The costs of the project and the date on which the Company believes it will
complete the Year 2000 modifications are based on management's best estimates,
which were derived utilizing numerous assumptions of future events, including
the continued availability of certain resources, third party modification plans
and other factors. However, there can be no guarantee that these estimates will
be achieved, and actual results could differ materially from those anticipated.
Specific factors that might cause such material differences include, but are not
limited to, the availability and cost of personnel trained in this area, the
ability to locate and correct all relevant computer codes and similar
uncertainties.
Although the Company does not believe that it will incur any material costs
or experience material disruptions in its business associated with preparing its
internal systems for the year 2000, there can be no assurance that the Company
will not experience serious unanticipated negative consequences and/or material
costs caused by undetected errors or defects in the technology used in its
internal systems, which are composed of third party software and third party
hardware that contains embedded software. The most reasonably likely worst case
scenarios would include: (i) corruption of data contained in the Company's
internal information systems, (ii) hardware failure, and (iii) the failure of
infrastructure services provided by government agencies and other third parties
(e.g., electricity, phone service, water, transport, Internet services, etc.).
The Company is in the process of implementing action plans for the remediation
of high risk areas and is scheduled to implement remediation plans for medium to
low risk areas during the remainder of fiscal 1999. The Company expects its
contingency plans to include, among other things, manual "work-arounds" for
software and hardware failures, finding alternate vendors for supplies and
equipment as well as substitution of systems, if necessary.
12. SEGMENT INFORMATION
The Company adopted Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information" ("SFAS
131") in its fiscal year ended December 31, 1998. SFAS 131 establishes standards
for reporting information regarding operating segments in annual financial
statements and requires selected information for those segments to be presented
in interim financial reports issued to stockholders. SFAS 131 also establishes
standards for related disclosures about products and services and geographic
areas. Operating segments are identified as components of an enterprise about
which separate discrete financial information is available for evaluation by the
chief operating decision maker, or
56
57
GERON CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
decision making group, in making decisions how to allocate resources and assess
performance. The Company's chief decision maker, as defined under SFAS 131, is
the Chief Executive Officer. To date, the Company has viewed its operations as
principally one segment, the discovery and development of therapeutic and
diagnostic products for the treatment of cancer and other age-related
degenerative diseases. As a result, the financial information disclosed herein
materially represents all of the financial information related to the Company's
principal operating segment.
13. STATEMENT OF CASH FLOWS DATA
YEARS ENDED DECEMBER 31,
--------------------------
1998 1997 1996
------- ---- -------
(IN THOUSANDS)
Supplementary information
Interest paid............................................ $ 246 $332 $ 337
Supplementary investing and financing activities
Equipment acquired under capital leases.................. $ -- $ -- $ 48
Common stock issued under purchase plan.................. $ 154 $209 $ --
Notes receivable from stockholders....................... $ (4) $ -- $ (12)
Valuation of warrants issued with convertible
debentures............................................. $ 719 $ -- $ --
Accretion of premium on convertible preferred stock...... $ (578) $ -- $ --
Redeemable convertible preferred stock................... $ 3,610 $ -- $ --
Deferred compensation related to options granted......... $(1,292) $ -- $(1,292)
Net unrealized gain (loss) on available-for-sale
securities............................................. $ 30 $ 2 $ (11)
57
58
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Identification of Directors
The information required by this Item concerning the Company's directors is
incorporated by reference from the section captioned "Proposal 1: Election of
Directors" contained in the Company's Definitive Proxy Statement related to the
Annual Meeting of Stockholders to be held May 28, 1999, to be filed by the
Company with the Securities and Exchange Commission (the "Proxy Statement").
IDENTIFICATION OF EXECUTIVE OFFICERS
The information required by this Item concerning the Company's executive
officers is set forth in Part I of this Report.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference from the
section captioned "Executive Compensation" contained in the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference from the
section captioned "Security Ownership of Certain Beneficial Owners and
Management" contained in the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by reference from the
sections captioned "Certain Transactions" and "Executive Compensation" contained
in the Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) FINANCIAL STATEMENTS
Included in Part II of this Report:
PAGE IN
FORM 10-K
---------
Report of Ernst & Young LLP, Independent Auditors........... 39
Balance Sheets -- December 31, 1998 and 1997................ 40
Statements of Operations -- Years ended December 31, 1998,
1997 and 1996............................................. 41
Statement of Stockholders' Equity -- Three years ended
December 31, 1998......................................... 42
Statements of Cash Flows -- Years ended December 31, 1998,
1997 and 1996............................................. 43
Notes to Financial Statements............................... 44
(2) FINANCIAL STATEMENT SCHEDULES
Financial statement schedules are omitted because they are not required or
the information is disclosed in the financial statements listed in item
14(a)(1).
58
59
(3) EXHIBITS.
EXHIBIT
NUMBER DESCRIPTION
- -------------- -----------
3.1*** Amended and Restated Certificate of Incorporation of
Registrant
3.2**** Bylaws of Registrant
3.3****** Certificate of Designations, Preferences, and Rights of
Series A Preferred Stock
4.1** Form of Common Stock Certificate
10.1** Form of Indemnification Agreement
10.2** 1992 Stock Option Plan
10.3** 1996 Employee Stock Purchase Plan
10.4** 1996 Directors' Stock Option Plan
10.5** Investors' Rights Agreement dated November 10, 1995 among
the Registrant and certain security holders of the
Registrant
10.6+** Agreement with Respect to Option dated August 31, 1992
between the Registrant and Cold Spring Harbor Laboratory and
Amendments No. 1 and 2 thereto dated May 3, 1993 and January
1994
10.7+** Patent License Agreement dated September 8, 1992 between the
Registrant and University of Texas Southwestern Medical
Center at Dallas
10.8+** Sponsored Research Agreement dated as of September 8, 1992
between the Registrant and University of Texas Southwestern
Medical Center at Dallas
10.9+** Exclusive License Agreement dated February 2, 1994 between
the Registrant and the Regents of the University of
California
10.10+** License and Research Collaboration Agreement dated April 24,
1995 between the Registrant and Kyowa Hakko Kogyo Co., Ltd,
and Amendment No. 1 thereto dated July 15, 1995
10.11+** Standard Nonexclusive License Agreement dated January 1,
1996 between the Registrant and Wisconsin Alumni Research
Foundation
10.12** Business Park Lease dated March 25, 1996 between the
Registrant and David D. Bohannon Organization
10.13** Business Park Lease dated January 20, 1993 between the
Registrant and David D. Bohannon Organization and Amendments
Nos. 1, 2 and 3 thereto dated July 26, 1993, February 22,
1994 and March 25, 1996, respectively
10.14** Equipment Financing Agreement dated January 5, 1992 between
the Registrant and Lease Management Services, Inc.
10.15** Master Lease Agreement dated January 5, 1993 between the
Registrant and Lease Management Services, Inc.
10.16** Note Secured by Stock Pledge Agreement dated July 7, 1993
between the Registrant and Michael West and Amendment
thereto dated May 20, 1996
10.19** Note Secured by Second Deed of Trust dated May 20, 1993
between the Registrant and Jeryl Lynn Hilleman and Amendment
thereto dated May 20, 1996
10.20** Note Secured by Second Deed of Trust dated December 1993
between the Registrant and Calvin B. Harley
10.21** Note Secured by Second Deed of Trust dated September 30,
1995 between the Registrant and David L. Greenwood
10.22** Note Secured by Second Deed of Trust dated September 30,
1995 between the Registrant and David L. Greenwood
59
60
EXHIBIT
NUMBER DESCRIPTION
- -------------- -----------
10.23** Common Stock Warrant dated May 4, 1994, issued by the
Registrant to Cold Spring Harbor Laboratory
10.24** Series C Preferred Stock Purchase Warrants issued to certain
investors on June 29, 1994
10.25* Common Stock Purchase Agreement dated December 20, 1996
between the Registrant and Pharmacia & Upjohn S.p.A.
10.26+***** License and Research Collaboration Agreement dated March 23,
1997 between
Registrant and Pharmacia & Upjohn S.p.A.
10.27+***** Amendment No. 2 to License and Research Collaboration
Agreement dated April 24, 1995 between Registrant and Kyowa
Hakko Kogyo Co., Ltd. dated March 23, 1997
10.28+***** Three Party Agreement dated March 23, 1997 by and among
Registrant, Kyowa Hakko Kogyo Co., Ltd. and Pharmacia &
Upjohn S.p.A.
10.29+***** Common Stock Purchase Agreement dated March 23, 1997 between
Registrant and Pharmacia & Upjohn S.p.A.
10.30+***** Intellectual Property License Agreement dated December 9,
1996 between Registrant and University Technology
Corporation
10.31***** Second Amendment to Note Secured by Second Deed of Trust
with Hilleman
10.32***** Second Amendment to Note Secured by Stock Pledge Agreement
with West
10.33***** First Amendment to Note Secured by Deed of Trust with Harley
10.34***** Note Secured by Second Deed of Trust with Greenwood
10.35+****** License Agreement dated August 1, 1997 between Registrant
and The Johns Hopkins University
10.36+****** Research Agreement dated August 1, 1997 between Registrant
and The Johns Hopkins University
10.37+@ License, Product Development, and Marketing Agreement by and
between Registrant and Boehringer Mannheim, GmbH
10.38******* Securities Purchase Agreement dated as of March 27, 1998
between Registrant and Certain Investors
10.39******* Registration Rights Agreement dated as of March 27, 1998
between Registrant and Certain Investors
10.40******** Securities Purchase Agreement dated as of December 10, 1998
among Geron Corporation and certain investors
10.41******** Registration Rights Agreement dated as of December 10, 1998
among Geron Corporation and certain investors
23.1 Consent of Ernst & Young LLP, Independent Auditors
24.1 Power of Attorney (see signature page)
27.1 Financial Data Schedule
99.1+ Form of Debenture
99.2# Form of Warrant
- ---------------
+ Certain portions of this Exhibit have been omitted for which
confidential treatment has been requested and filed separately with
the Securities and Exchange Commission.
* Incorporated by reference to Exhibit 10.1 on the Registrant's Form 8-K
filed on January 24, 1997.
60
61
** Incorporated by reference to identically numbered exhibits filed with
the Registrant's Registration Statement on Form S-1 which became
effective on July 30, 1996.
*** Incorporated by reference to Exhibit 3.3 filed with the Registrant's
Registration Statement on Form S-1 which became effective July 30,
1996.
**** Incorporated by reference to Exhibit 3.4 filed with the Registrant's
Registration Statement on Form S-1 which became effective July 30,
1996.
***** Incorporated by reference to identically numbers exhibits filed with
Registrant's Quarterly Report on Form 10-Q for the period ended March
31, 1997.
****** Incorporated by reference to identically numbered exhibits filed with
Registrant's Quarterly Report on Form 10-Q for the period ended
September 30, 1997.
******* Incorporated by reference to identically numbered exhibits filed with
Registrants' Registration Statement on Form S-3 which became effective
on July 17, 1998.
******** Incorporated by reference to identically numbered exhibits filed on the
Registrant's Form 8-K filed on December 17, 1998.
+ Incorporated by reference to Exhibit 4.1 of the Registrant's Form 8-K
filed on December 17, 1998.
# Incorporated by reference to Exhibit 4.2 of the Registrant's Form 8-K
filed on December 17, 1998.
@ Incorporated by reference to identically numbered exhibit of the
Registrant's Form 10-K filed on March 31, 1998.
(b) REPORTS ON FORM 8-K.
(i) The Company filed the following reports on Form 8-K relating to the
issuance of convertible debentures:
Form 8-K
Report Date: December 10, 1998
Filing Date: December 17, 1998
Item 5: Other Events
Item 7(c): Exhibits
(c) INDEX TO EXHIBITS.
61
62
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Menlo
Park, State of California, on the 16th day of March, 1999.
GERON CORPORATION
By: /s/ RONALD W. EASTMAN
------------------------------------
Ronald W. Eastman
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW BY ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints, jointly and severally, Ronald W. Eastman
and David L. Greenwood, and each one of them, attorneys-in-fact for the
undersigned, each with the power of substitution, for the undersigned in any and
all capacities, to sign any and all amendments to this Report on Form 10-K, and
to file the same, with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that each of said attorneys-in-fact, or his substitutes, may do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, each of the undersigned has executed this Power of
Attorney as of the date indicated opposite his/her name.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ RONALD W. EASTMAN President, Chief Executive March 16, 1999
- -------------------------------------------------------- Officer and Director
Ronald W. Eastman (Principal Executive Officer)
/s/ DAVID L. GREENWOOD Chief Financial Officer, Vice March 16, 1999
- -------------------------------------------------------- President of Corporate
David L. Greenwood Development, Treasurer and
Secretary (Principal
Financial and Accounting
Officer)
/s/ ALEXANDER E. BARKAS Director March 16, 1999
- --------------------------------------------------------
Alexander E. Barkas
/s/ EDWARD V. FRITZKY Director March 16, 1999
- --------------------------------------------------------
Edward V. Fritzky
/s/ THOMAS D. KILEY Director March 16, 1999
- --------------------------------------------------------
Thomas D. Kiley
/s/ GARY L. NEIL Director March 16, 1999
- --------------------------------------------------------
Gary L. Neil
/s/ ROBERT B. STEIN Director March 16, 1999
- --------------------------------------------------------
Robert B. Stein
/s/ JOHN P. WALKER Director March 16, 1999
- --------------------------------------------------------
John P. Walker
62
63
EXHIBIT INDEX
EXHIBIT DESCRIPTION
------- -----------
3.1*** Amended and Restated Certificate of Incorporation of
Registrant
3.2**** Bylaws of Registrant
3.3****** Certificate of Designations, Preferences, and Rights of
Series A Preferred Stock
4.1** Form of Common Stock Certificate
10.1** Form of Indemnification Agreement
10.2** 1992 Stock Option Plan
10.3** 1996 Employee Stock Purchase Plan
10.4** 1996 Directors' Stock Option Plan
10.5** Investors' Rights Agreement dated November 10, 1995 among
the Registrant and certain security holders of the
Registrant
10.6+** Agreement with Respect to Option dated August 31, 1992
between the Registrant and Cold Spring Harbor Laboratory and
Amendments No. 1 and 2 thereto dated May 3, 1993 and January
1994
10.7+** Patent License Agreement dated September 8, 1992 between the
Registrant and University of Texas Southwestern Medical
Center at Dallas
10.8+** Sponsored Research Agreement dated as of September 8, 1992
between the Registrant and University of Texas Southwestern
Medical Center at Dallas
10.9+** Exclusive License Agreement dated February 2, 1994 between
the Registrant and the Regents of the University of
California
10.10+** License and Research Collaboration Agreement dated April 24,
1995 between the Registrant and Kyowa Hakko Kogyo Co., Ltd,
and Amendment No. 1 thereto dated July 15, 1995
10.11+** Standard Nonexclusive License Agreement dated January 1,
1996 between the Registrant and Wisconsin Alumni Research
Foundation
10.12** Business Park Lease dated March 25, 1996 between the
Registrant and David D. Bohannon Organization
10.13** Business Park Lease dated January 20, 1993 between the
Registrant and David D. Bohannon Organization and Amendments
Nos. 1, 2 and 3 thereto dated July 26, 1993, February 22,
1994 and March 25, 1996, respectively
10.14** Equipment Financing Agreement dated January 5, 1992 between
the Registrant and Lease Management Services, Inc.
10.15** Master Lease Agreement dated January 5, 1993 between the
Registrant and Lease Management Services, Inc.
10.16** Note Secured by Stock Pledge Agreement dated July 7, 1993
between the Registrant and Michael West and Amendment
thereto dated May 20, 1996
10.19** Note Secured by Second Deed of Trust dated May 20, 1993
between the Registrant and Jeryl Lynn Hilleman and Amendment
thereto dated May 20, 1996
10.20** Note Secured by Second Deed of Trust dated December 1993
between the Registrant and Calvin B. Harley
10.21** Note Secured by Second Deed of Trust dated September 30,
1995 between the Registrant and David L. Greenwood
10.22** Note Secured by Second Deed of Trust dated September 30,
1995 between the Registrant and David L. Greenwood
63
64
EXHIBIT DESCRIPTION
------- -----------
10.23** Common Stock Warrant dated May 4, 1994, issued by the
Registrant to Cold Spring Harbor Laboratory
10.24** Series C Preferred Stock Purchase Warrants issued to certain
investors on June 29, 1994
10.25* Common Stock Purchase Agreement dated December 20, 1996
between the Registrant and Pharmacia & Upjohn S.p.A.
10.26+***** License and Research Collaboration Agreement dated March 23,
1997 between Registrant and Pharmacia & Upjohn S.p.A.
10.27+***** Amendment No. 2 to License and Research Collaboration
Agreement dated April 24, 1995 between Registrant and Kyowa
Hakko Kogyo Co., Ltd. dated March 23, 1997
10.28+***** Three Party Agreement dated March 23, 1997 by and among
Registrant, Kyowa Hakko Kogyo Co., Ltd. and Pharmacia &
Upjohn S.p.A.
10.29+***** Common Stock Purchase Agreement dated March 23, 1997 between
Registrant and Pharmacia & Upjohn S.p.A.
10.30+***** Intellectual Property License Agreement dated December 9,
1996 between Registrant and University Technology
Corporation
10.31***** Second Amendment to Note Secured by Second Deed of Trust
with Hilleman
10.32***** Second Amendment to Note Secured by Stock Pledge Agreement
with West
10.33***** First Amendment to Note Secured by Deed of Trust with Harley
10.34***** Note Secured by Second Deed of Trust with Greenwood
10.35+****** License Agreement dated August 1, 1997 between Registrant
and The Johns Hopkins University
10.36+****** Research Agreement dated August 1, 1997 between Registrant
and The Johns Hopkins University
10.37+@ License, Product Development, and Marketing Agreement by and
between Registrant and Boehringer Mannheim, GmbH
10.38******* Securities Purchase Agreement dated as of March 27, 1998
between Registrant and Certain Investors
10.39******* Registration Rights Agreement dated as of March 27, 1998
between Registrant and Certain Investors
10.40******** Securities Purchase Agreement dated as of December 10, 1998
among Geron Corporation and certain investors
10.41******** Registration Rights Agreement dated as of December 10, 1998
among Geron Corporation and certain investors
23.1 Consent of Ernst & Young LLP, Independent Auditors
24.1 Power of Attorney (see signature page)
27.1 Financial Data Schedule
99.1+ Form of Debenture
99.2# Form of Warrant
- ---------------
+ Certain portions of this Exhibit have been omitted for which
confidential treatment has been requested and filed separately with
the Securities and Exchange Commission.
* Incorporated by reference to Exhibit 10.1 on the Registrant's Form 8-K
filed on January 24, 1997.
** Incorporated by reference to identically numbered exhibits filed with
the Registrant's Registration Statement on Form S-1 which became
effective on July 30, 1996.
64
65
*** Incorporated by reference to Exhibit 3.3 filed with the Registrant's
Registration Statement on Form S-1 which became effective July 30,
1996.
**** Incorporated by reference to Exhibit 3.4 filed with the Registrant's
Registration Statement on Form S-1 which became effective July 30,
1996.
***** Incorporated by reference to identically numbers exhibits filed with
Registrant's Quarterly Report on Form 10-Q for the period ended March
31, 1997.
****** Incorporated by reference to identically numbered exhibits filed with
Registrant's Quarterly Report on Form 10-Q for the period ended
September 30, 1997.
******* Incorporated by reference to identically numbered exhibits filed with
Registrants' Registration Statement on Form S-3 which became effective
on July 17, 1998.
******** Incorporated by reference to identically numbered exhibits filed on the
Registrant's Form 8-K filed on December 17, 1998.
+ Incorporated by reference to Exhibit 4.1 of the Registrant's Form 8-K
filed on December 17, 1998.
# Incorporated by reference to Exhibit 4.2 of the Registrant's Form 8-K
filed on December 17, 1998.
@ Incorporated by reference to identically numbered exhibit of the
Registrant's Form 10-K filed on March 31, 1998.
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