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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, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO __________ .
COMMISSION FILE NUMBER: 0-20859
GERON CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 75-2287752
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
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 5, 2001, there were 21,781,392 shares of Common Stock
outstanding. The aggregate market value of voting stock held by non-affiliates
of the registrant was approximately $283,920,000 based upon the closing price of
the Common Stock on March 5, 2001 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.
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 "Additional
Factors That May Affect Future Results."
DOCUMENTS INCORPORATED BY REFERENCE:
DOCUMENT FORM 10-K PARTS
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Definitive 2000 Proxy Statement, to be filed within 120 days
of December 31, 2000 (specified portions)................. III
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PART I
ITEM 1. BUSINESS
OVERVIEW
We are a biopharmaceutical company focused on discovering, developing and
commercializing therapeutic and diagnostic products for applications in oncology
and regenerative medicine, and research tools for drug discovery. Geron's
product development programs are based upon three patented core technologies:
telomerase, human embryonic stem cells and nuclear transfer. Telomeres are the
ends of chromosomes that protect chromosomes from degradation and act as a
molecular "clock" for cellular aging. Telomerase is an enzyme that restores
telomere length and rewinds the molecular "clock," thereby extending the cell's
ability to multiply or replicate. By activating telomerase, we seek to increase
the lifespan of normal cells which have prematurely aged in the body to treat
chronic degenerative diseases. Conversely, by inhibiting telomerase we hope to
kill cancer cells where telomerase is abnormally turned on and to diagnose
cancer by measuring telomerase activity. Human embryonic stem cells can develop
and differentiate into all cells and tissues in the body. As such, they are a
potential source for the manufacture of replacement cells and tissues for
applications in regenerative medicine. Nuclear transfer is a method for
generating human cells or whole animals from genetic material derived solely
from the nucleus of a single cell obtained from a single individual. We intend
to develop this technology to produce genetically matched cells that would not
be rejected by the patient's immune system for use in repairing organs damaged
by chronic degenerative disease.
We were incorporated in 1990 under the laws of Delaware. Our principal
executive offices are located at 230 Constitution Drive, Menlo Park, California,
94025. Our telephone number is (650) 473-7700.
TECHNOLOGY PLATFORMS
Telomeres and Telomerase: Their role in cellular aging and cancer
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 during
the course of their normal lifespan.
We and our collaborators have shown that telomeres, located at the ends of
chromosomes, are key genetic elements involved in regulation of the cellular
aging process. Our work has shown that each time a normal cell divides,
telomeres shorten. Once telomeres reach a certain short length, cell division
halts and the cell enters a state known as senescence or aging. Our
collaborators have used mouse models to show that this type of cellular aging
can cause numerous age-related degenerative changes in mammals. We believe that
this cellular aging process, which occurs in numerous tissues throughout the
human body, causes or contributes to chronic degenerative diseases and
conditions including chronic liver disease, AIDS, macular degeneration (a
chronic disease of the eyes often leading to vision loss), atherosclerosis
(narrowing of arteries which reduces blood flow to internal organs) and impaired
wound healing.
We and our collaborators have demonstrated that telomeres serve as a
molecular "clock" for cellular aging and that the enzyme telomerase, when
introduced into normal cells, is capable of restoring telomere length or
resetting the "clock," thereby increasing the lifespan of cells without altering
their normal function or causing them to become cancerous. Human telomerase, a
complex enzyme, is composed of a ribonucleic acid component (RNA), also known as
hTR, and a protein component, known as hTERT. In 1994, in collaboration with Dr.
Carol Greider, we cloned the gene for hTR, and in 1997, in collaboration with
Dr. Thomas Cech, we cloned the gene for hTERT.
Our work and that of others has shown that telomerase is not present in
most normal cells and tissues, but that during tumor progression, telomerase is
abnormally reactivated in all major cancer types. We have shown that unlike the
mutations which cause cancer, the presence of telomerase only enables cancer
cells to maintain telomere length, providing them with indefinite replicative
capacity. We and others have shown in various
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tumor models that inhibiting telomerase activity results in telomere shortening
and therefore causes aging or death of the cancer cell.
We are working to discover and develop anti-cancer therapies based on
telomerase inhibitors, oncolytic (cancer killing) viruses and telomerase
vaccines. We also intend to continue to develop and commercialize products using
telomerase as a marker for cancer diagnosis, prognosis, patient monitoring and
screening.
Human Embryonic Stem Cells: A potential source for the manufacturing of
replacement cells and tissues
Stem cells generally are self-renewing primitive cells that can develop
into functional, differentiated cells. Human embryonic stem cells are unique
because they are pluripotent, that is they can develop into all cells and
tissues in the body. There are two types of human embryonic stem cells, also
called hESCs: human embryonic stem cells, also known as hES cells, which were
first derived by our collaborators from donated in vitro fertilized blastocysts
or very early-stage embryos; and human embryonic germ cells, also known as hEG
cells, which were derived from donated fetal material.
In addition to their pluripotent characteristics, hES cells express
telomerase and can therefore multiply or replicate indefinitely. The ability of
hES cells to divide indefinitely in the undifferentiated state without losing
pluripotency is a unique characteristic that distinguishes them from all other
stem cells discovered to date in humans. Other stem cells such as blood or gut
stem cells express telomerase at very low levels or only periodically; they
therefore age, limiting their use in research or therapeutic applications. Human
embryonic stem cells also maintain a structurally normal set of chromosomes even
after prolonged growth in culture. They do not, for example, have any abnormal
additions, deletions or rearrangements in their chromosomal structure as is
characteristic of cell lines derived from tumors or immortalized by viruses.
Although not as well characterized as hES cells, we believe that hEG cells will
share most of the characteristics of hES cells.
We intend to use hESC technology to
- enable the development of transplantation therapies by providing standard
starting material for the manufacture of cells and tissues;
- facilitate pharmaceutical research and development practices by providing
cells for screening and assigning function to newly discovered genes; and
- accelerate research in human developmental biology by identifying the
genes that control human development.
Nuclear Transfer: A potential mechanism for generating genetically matched
cells and tissues
Nuclear transfer is a method for generating human cells and whole animals
whose genetic material is derived solely from the nucleus of a single cell
obtained from a single individual. In this process, the nucleus containing all
of the chromosomal DNA is removed, or enucleated, from the egg cell and replaced
with the nucleus containing all of the chromosomal DNA from a donor somatic or
non-reproductive cell. Fusion between the resulting egg cell and the donor
somatic nucleus results in a new cell which gains a complete set of chromosomes
derived entirely from the donor nucleus. After a brief culture period, the
resulting embryo is implanted into the uterus of a female animal, where it can
develop and produce the live birth of a cloned offspring. The offspring is
essentially a genetic clone of the animal from which the donor nucleus was
obtained.
In early 1997, Dr. Ian Wilmut and his colleagues at the Roslin Institute
demonstrated with the birth of Dolly, the sheep, that the nucleus of an adult
cell can be transferred to an enucleated egg to create cloned offspring. The
birth of Dolly was significant because it demonstrated the ability of egg cell
cytoplasm, also known as the portion of the cell outside of the nucleus, to
reprogram an adult nucleus. Reprogramming enables the adult differentiated cell
nucleus to express all the genes required for full embryonic development of the
adult animal. Since Dolly was cloned, the technique has been used to clone mice,
goats, cattle and pigs from donor cells obtained from mice, goats, cattle and
pigs, respectively.
In order to complement and strengthen our technology platforms, in 1999, we
acquired Roslin Bio-Med Ltd., a commercial subsidiary of the Roslin Institute
which pioneered the use of nuclear transfer technology
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for the creation of cloned animals. We also entered into a research
collaboration with the Roslin Institute to focus on understanding the molecular
mechanisms used by animal egg cell cytoplasm to reprogram adult animal cell
nuclei.
A key objective of our collaboration with the Roslin Institute is to learn
how to confer the reprogramming capability normally found in the egg cell
cytoplasm to the cytoplasm of a somatic cell in order to eliminate reliance on
harvested eggs. In this way, we believe that transplantable genetically matched
cells could be derived from embryonic stem cells generated through nuclear
transfer using adult cells taken from the intended transplant recipient. We
believe such cells would not trigger immune rejection because they would exactly
match the tissue of the transplant recipient. We intend to develop this
technology to produce genetically matched cells for use in repairing organs
damaged by degenerative disease.
COMMERCIAL OPPORTUNITIES FOR OUR TECHNOLOGY PLATFORMS
Oncology
Cancer is a group of diseases characterized by the uncontrolled growth and
spread of abnormal cells. The American Cancer Society estimates that
approximately 1.2 million cancer cases were diagnosed in the year 2000. Overall
annual costs associated with cancer currently amount to $107 billion in the
United States alone. Because telomerase is detectable in more than 30 human
cancer types and in over 80 percent of cancer samples studied, we believe that a
telomerase inhibitor could overcome the limitations of current cancer therapies
and potentially be a broadly applicable and highly specific drug treatment for
cancer.
We are working to discover and develop anti-cancer therapies based on
telomerase inhibitors, oncolytic (cancer killing) viruses and telomerase
vaccines. We also intend to continue to develop and commercialize products using
telomerase as a marker for cancer diagnosis, prognosis, patient monitoring and
screening. We believe that we have achieved a dominant position in telomerase
research and in telomerase intellectual property which gives us a significant
advantage in the discovery and development of oncology products based on
telomerase.
Telomerase Inhibition. Telomerase activation is necessary for most cancer
cells to replicate indefinitely and thereby enable tumor growth and metastasis.
One of our strategies for the development of anti-cancer therapies is to inhibit
telomerase activity in cancer cells. Inhibiting telomerase activity should
result in telomere shortening and therefore cause the aging and eventual death
of cancer cells. Because telomerase is expressed at very low levels, if at all,
in most normal cells, the telomerase inhibition therapies described below are
not expected to be cytotoxic to normal cells. To produce a telomerase inhibitor
for the treatment of cancer, we have focused our efforts on two approaches:
template antagonists and small molecules. Both approaches have produced
compounds which we believe should advance to animal studies in 2001. We and our
collaborator have established research programs focused on our
telomerase-inhibiting compounds with the goal of advancing an inhibitor to
clinical development.
Template Antagonists. We have designed and synthesized a special class
of short-chain nucleic acid-like molecules, also known as oligonucleotides,
to target the template region, or active site, of telomerase. These
oligonucleotides have demonstrated highly potent telomerase inhibitory
activity at sub-nanomolar, or very low, concentrations in both biochemical
assays and various cellular systems. Published research by others has shown
that similar types of template antagonists inhibit the growth of malignant
human glioma (brain cancer) cells in animals. Based on these promising
results, we plan to continue tests of these oligonucleotides in animal
models of cancer in the coming year. We hold rights to this class of
oligonucleotides for telomerase inhibition, and have also developed several
new oligonucleotide-based chemistries for which we have filed our own
patent applications.
Small Molecules. Through high-throughput screening of highly diverse
chemical compound libraries, we have identified classes of small molecule
compounds that are telomerase inhibitors which are being further evaluated.
We continue to work toward improving the specificity and potency of these
small molecule compounds by modifying them chemically and testing them in
cancer cells in cell culture and in animal models.
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Oncolytic Virus. Our second anti-cancer therapeutic strategy is based on
viruses which have been manipulated or engineered to have oncolytic, or
cancer-killing, properties which would selectively target and destroy cancer
cells. We are developing customized adenoviruses, also known as common cold
viruses, that will infect and kill cancer cells which express telomerase and not
infect and kill normal cells which do not express telomerase. To pursue this
goal, we have cloned the region of the hTERT gene, called the promoter sequence,
that is responsible for turning on or off the activity of telomerase in a cell.
We have demonstrated that this promoter is turned on in telomerase-positive
cancer cells, and is turned off in most normal cells.
We are using the hTERT promoter to turn on the genes which are required for
the customized adenovirus to replicate within the cancer cell. Our data indicate
that when tumor cells are infected with the adenovirus which contains the hTERT
promoter, the virus multiplies or replicates within the cancer cells and causes
the rupture and death, or lysis, of the tumor cells. When these same
adenoviruses containing the hTERT promoter infect normal somatic tissue, there
is no similar effect on the cells. We are currently evaluating this oncolytic
virus in both local and metastatic animal tumor models. We believe that these
oncolytic viruses could be used to treat many types of primary and metastatic
cancers.
Telomerase Vaccine. Our third approach to developing an anti-cancer therapy
is to create a telomerase vaccine, exploiting the fact that telomerase is
present in all major cancer types but is expressed at very low levels, if at
all, in most normal cells. In this approach, we deliver telomerase to special
immune cells called dendritic cells which instruct the immune system to detect
cells that express telomerase and kill them.
We are conducting research to confirm the safety and efficacy of dendritic
cell telomerase vaccine therapies. In collaboration with scientists at Duke
University, we published studies in the September 2000 issue of Nature Medicine,
which demonstrate that cancer patients' immune cells can be activated with a
telomerase vaccine in the laboratory to kill their own cancer cells. This
technique was also effective in reducing tumors in animals. We are also
developing procedures to directly immunize patients using telomerase. This
direct method of vaccination would eliminate the need for manipulation of
dendritic cells in culture and could potentially allow simple vaccination
procedures to be available for all cancer patients.
Cancer Diagnostics. Telomerase is a broadly applicable and highly specific
marker for cancer because it has been detected in more than 30 human cancer
types and in over 80 percent of cancer samples studied. We believe that the
detection of telomerase may have significant clinical utility for cancer
diagnosis, prognosis, monitoring and screening. Current cancer diagnostics apply
only to a single or limited number of cancer types because they rely on
molecules expressed only by particular cancer types. However, telomerase-based
diagnostics could potentially address a broad range of cancers.
We have developed several proprietary assays for the detection of
telomerase which are based on its activity or the presence of its RNA or protein
components. The first-generation assay is the Telomeric Repeat Amplification
Protocol (TRAP) assay which can be used to detect telomerase activity in human
tissue or cells in culture. The second generation assays detect the presence of
hTR and hTERT in human tissues and body fluids. We own issued patents for the
detection of telomerase activity and the components of telomerase including
patents for the TRAP assay and diagnostic methods based on telomerase detection.
To date, our licensees have commercialized 13 research-use-only kits that
incorporate our technology.
We are working with Roche Diagnostics to develop the clinical potential of
our telomerase detection technology. Research data shows that an assay for
telomerase is a more sensitive and specific test for screening bladder cancer
than other commercially available tests. We believe that these and other data
support the clinical application of telomerase assays in diagnosis, staging,
monitoring and screening for bladder, cervical, prostate and other cancers.
Predictive Toxicology and Screening
Genomics and Human Developmental Biology. The first phase of the private
and publicly funded programs to complete the sequencing of the human genome is
now accomplished. Despite this catalogue of human gene sequences, little is
known about the structure of most genes, when and in what cells they are
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expressed or how they function. The next major hurdle is to determine the
function of these genes and to use this information to develop new diagnostic
and therapeutic approaches to treat many diseases.
Embryonic stem cells are especially suitable in the functional analysis of
genes involved in cell proliferation, differentiation and metabolism. The
effects of adding or knocking out specific genes in hESCs can be monitored,
providing evidence for the function of the gene on a particular proliferation or
differentiation process. In collaboration with Celera Genomics, we are
generating gene libraries from hESCs and sequencing them to identify genes
important for human development. We are simultaneously developing screening
procedures using hESCs to identify the function of multiple developmental genes.
Identification of the function of developmental genes will facilitate the
selection of genes that would be good targets for drug discovery.
Immortalized Cells for Research. Scientists study specific cells from
targeted tissues in order to understand their biological function. In these
studies, cells are usually isolated from tissue and maintained in culture. The
progressive changes in biological activity, morphology and proliferation as a
result of normal cell aging in tissue culture potentially limit the utility of
these cells in serial experiments and long term research. Because of these
limitations, most research laboratories utilize transformed cell lines for their
studies. Cells can be transformed by using viruses which ultimately cause the
cells to grow indefinitely in culture. However, such immortalized cell lines
have abnormal characteristics compared to non-transformed cells. For this
reason, they are not good models of normal tissue in the human body.
The telomerase-immortalized cells may be ideal for use in biological
research because these cells proliferate indefinitely and function in culture in
the same manner as the normal, mortal cells from which they were derived.
Moreover, telomerase-immortalized cells can function in the body to form normal
tissue and their capacity to differentiate into mature tissue is maintained. The
ability of these cells to maintain normal physical and biological
characteristics while retaining proliferative capacity allows them to be a
constant source of cells for repeat and long-term studies on the function of
cells both in culture and in the body. Telomerase-immortalized cells can be used
to study any of the normal biological pathways in cells and can be used to
screen for factors which influence the appropriate function of those cells.
Moreover, cells taken from diseased tissues which are then
telomerase-immortalized in culture can be used to explore the mechanism of the
disease process and to develop interventions to prevent or treat that disease.
We distribute the human telomerase gene under material transfer agreements
to academic laboratories worldwide in order to generate new applications of our
technology and to preserve our commercialization rights in these applications.
To date, we have material transfer agreements with over 500 academic
laboratories worldwide.
To distribute our telomerase-immortalized cell lines commercially, we
established an alliance with Clontech Laboratories, Inc., to distribute
telomerase-immortalized cell lines to the not-for-profit research market for
basic research applications. Under the alliance, we execute licenses with, and
receive license fees from, commercial entities that are supplied by Clontech.
Drug Screens and Toxicology. Three of the major hurdles of pharmaceutical
drug development are (i) identifying compounds with activity in diseased tissue;
(ii) understanding the metabolism and biodistribution of the compound; and (iii)
determining the potential toxic side effects of the compound. Undesirable
activity of a compound being evaluated as a candidate drug in any one of these
areas can impact the development and commercialization of the drug. The earlier
in development that a compound is found to have undesirable characteristics, the
faster these characteristics can be potentially corrected. This potentially
translates into reduced costs and time in drug development, and less harmful
exposure to patients in clinical trials.
Many prospective new drugs fail in clinical trials because of toxicity to
the liver or because of poor uptake, distribution or elimination of the active
compound in the human body. Much of the efficacy and safety of a drug will
depend on how that drug is metabolized into an active or inactive form, and on
the toxic metabolites that might be generated in the process. Hepatocytes, the
major cells of the liver, metabolize most compounds and thereby can be used to
predict many pharmacological characteristics of a drug.
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There are no completely effective systems available today to accurately
determine the metabolism or toxicity of a compound in human livers. Rat and
mouse metabolism models only approximate human metabolism. The development of
several drugs has been terminated late in human clinical trials because rodent
systems utilized early in the development process failed to predict that the
drug would be toxic to humans. Human hepatocyte cell lines available today do
not have the same attributes as their normal counterparts in the body and must
be transformed in order to maintain their proliferative capacity in culture.
Access to fresh primary human liver tissue for use in toxicity studies is very
unreliable and substantial variability can be observed depending on the
individual donor, the time and process of collection and the culture conditions
for the experiments.
We believe telomerase-immortalized hepatocytes would serve as a consistent
source of normal human liver tissue which would more closely predict the impact
of a new drug on human livers in the body. We believe that
telomerase-immortalized hepatocytes which retain normal drug metabolism enzymes
would revolutionize toxicity testing, address the largest bottleneck in new drug
research and accelerate the drug development process. To potentially meet this
need, we are creating immortalized hepatocytes using two methods. First, we will
apply our telomerase technology to immortalize human hepatocytes. In every cell
system tested, telomerase-immortalized cells have been shown to function
comparably to their normal non-immortalized counterparts. Therefore, we believe
telomerase-immortalized hepatocytes should also function comparably to
hepatocytes in a whole human liver in the body. Second, we are developing
procedures to differentiate hESCs into hepatocyte precursors and eventually into
mature hepatocytes. Functional hepatocytes, developed by either immortalization
by telomerase or derivation from hESCs, would provide a consistent and reliable
source of material for extensive and reproducible compound testing.
We intend to commercialize such cells as a means to more accurately
determine the potential toxicity and metabolism of a new candidate drug. In
addition, the availability of immortalized hepatocytes from numerous individuals
would allow a more thorough understanding of the effects of a drug candidate on
a specific individual, allowing full development of the field of
pharmacogenomics whereby a compound's activity will be correlated with an
individual's genetic make-up.
Regenerative Medicine
The preceding product opportunities are examples of how we plan to
separately use each of our three technology platforms. Additional opportunities
arise from their combination. The integration of our three technology
platforms -- telomerase, hESCs and nuclear transfer -- allow the development of
cell-based therapies that would have broad applications for the treatment of
chronic degenerative diseases which are occurring with increasing frequency in
our aging population. We are developing three basic approaches to restore organ
function lost to chronic diseases: gene, small molecule and cell-based
therapies.
We believe that the controlled activation of telomerase in the body will
have therapeutic applications for the treatment of blood, skin, liver and immune
disorders, conditions in which deficiencies in cell proliferation have been
implicated. In the gene-based approach, we intend to deliver the engineered
hTERT gene directly to cells to restore telomerase activity in order to restore
normal function to the cell. We are also developing a drug-like strategy with
our small molecule-based therapy which would reactivate the existing telomerase
gene already present in the cell to restore normal function to the cell.
In cell-based therapies, differentiated cells derived from hESCs would be
directly injected into the affected tissue where they would integrate into the
target tissue and thereby restore organ function. This approach is particularly
applicable for the regeneration of tissues that do not normally divide in the
body. Such cells include cardiomyocytes (heart muscle cells), neural cells,
hepatic (liver) cells and pancreatic islet SS cells. We are currently developing
the following cell types for therapeutic applications.
Chronic Liver Disease. There are over 25,000 deaths in the United States
every year due to chronic liver disease. This number is expected to increase
with the growing number of people who are infected with hepatitis B and C
viruses. Each year over nine billion dollars is spent in the United States alone
for the treatment and management of patients with chronic liver disease.
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Liver regeneration is not observed in most patients with chronic liver
disease. However, healthy livers, such as those used for partial transplants,
can fully regenerate within weeks after surgery. Compromised liver function and
chronic liver disease can result from prolonged exposure to various harmful
factors such as chemical toxins, chronic alcohol intake, autoimmune
inflammation, metabolic disorders and viral infections. Patients with advanced
stages of chronic liver disease often suffer from other complications such as
diabetes, bleeding disorders, portal hypertension (localized high blood
pressure), edema (fluid retention), mental dysfunction, immune dysfunction,
kidney failure and liver cancer which eventually lead to death. Treatment for
patients with advanced liver disease usually consists of liver transplantation.
Despite some success with this procedure, the majority of candidate patients do
not receive transplants due to low organ availability.
Telomerase is not normally expressed in human hepatocytes (liver cells) and
numerous studies have shown that shortened telomere lengths are observed in the
livers of patients with chronic liver disease. Studies in mice, in which the RNA
component of telomerase has been removed, show that these animals have increased
sensitivity to liver damage. Studies have shown that restoring telomerase
activity in those mice results in the restoration of hepatic regenerative
capacity.
We plan to utilize our technology platforms in several different formats to
treat liver disease. In one application, we are developing methods to generate
telomerase activity in hepatocytes. Using a gene-based therapy approach, the
telomerase gene is delivered directly to the liver to determine whether
telomerase can restore the regenerative capacity of the damaged liver. Using a
cell-based therapy approach, we will apply the same techniques being developed
to produce human hepatocytes for drug discovery to create hepatocytes for
therapeutic intervention in liver disease. Several potential alternative
cell-based therapy approaches are being explored. The first is an external
device which would incorporate immortalized human hepatocytes to supplement the
patient's own liver function during acute flares of chronic liver disease. The
second is the transplantation of immortalized hepatocytes into the patient's
liver to seed and stimulate hepatocyte repopulation. Successful development of
these therapies potentially could provide therapeutic alternatives for the high
proportion of patients who are not candidates for liver transplantation or for
whom transplantable organs are not available.
Heart Disease. Heart muscle cells, also known as cardiomyocytes, do not
regenerate during adult life. When heart muscle is damaged by injury or
decreased blood flow, functional contracting heart muscle is replaced with
nonfunctional scar tissue. Congestive heart failure, a common consequence of
heart muscle or valve damage, affects more than four million people in the
United States. This year, it is estimated that about 1.1 million people will
have a heart attack, which is the primary cause of heart muscle damage.
We intend to use cardiomyocytes derived from hESCs to treat heart disease.
Researchers have demonstrated proof of concept of our approach in mice. Mouse
embryonic stem cells were used to derive mouse cardiomyocytes. When injected
into the hearts of recipient adult mice, the cardiomyocytes repopulated the
heart tissue and stably integrated into the muscle tissue of the adult mouse
heart. These results suggest that hESC-derived cardiomyocytes could be developed
for cellular transplantation therapy in humans suffering from congestive heart
failure and the damage caused by heart attacks. We have derived human
cardiomyocytes from hESCs and observed their normal contractile function. We
plan to test these cardiomyocytes in animal models to establish the safety and
efficacy of this cell-based therapy.
Parkinson's Disease, Stroke and Spinal Cord Injury. The major neural cells
of the nervous system typically do not regenerate after injury. If a nerve cell
is damaged due to disease or injury, there is no treatment at present to restore
lost function. Millions of patients worldwide suffer from injury to the nervous
system or disorders associated with its degeneration. Strokes are caused by
blood clots or local bleeding in the brain and result in the death or
degeneration of critical brain cells. Over 500,000 Americans suffer strokes each
year. Stroke patients are often permanently compromised by loss of cognitive
motor and sensory functions for which there are no treatments available today
except costly long-term rehabilitation programs which have limited utility in
restoring function. Over one million Americans suffer from Parkinson's disease,
a neurological disorder caused by the progressive degeneration of specific cells
within the brain that control certain motor functions. In the case of spinal
cord injuries, patients are often left partly or wholly paralyzed
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because nerve and supporting cells in the spinal cord have been damaged and
cannot regenerate. Such patients are permanently disabled, often
institutionalized, and may require life support.
Embryonic stem cell-derived neural cells have been used by researchers to
treat nervous system disorders in animal models. Mouse embryonic stem cells were
stimulated to differentiate into neural cells which, when transplanted into mice
with neurological disorders, helped to restore normal function. In the case of
spinal cord injuries, neural cells derived from animal embryonic stem cells and
injected into the spinal cord injury site produced partial recovery of the
animal's ability to move and bear weight.
We have derived the major types of neural cells from hESCs in culture,
including human neurons, astrocytes and oligodendrocytes, and are characterizing
their functional properties. We have devoted a significant portion of our
research activities to develop procedures that could enable us to produce these
neural cells for transplantation therapy in humans. We will first test these
cells in appropriate animal models to determine whether they can restore normal
neural function. We intend to repair the damaged portions of patients' nervous
systems by transplanting hESC-differentiated neurons.
Skin. The skin is a major organ of the body whose deterioration with age
impacts not just human physical health but also appearance and self-esteem. The
thinning and increased wrinkling of older skin is symptomatic of impaired wound
healing and results in increased frequency of chronic ulcers. Skin cancers are
more prevalent than any other form of cancer and are believed to be caused in
part by aging of skin cells.
We have initiated a major skin program based upon the activation of
telomerase in skin cells. Our scientists and other researchers have established
that skin cells age in tissue culture and in the body with loss of telomeric
DNA. The restoration of telomerase activity in skin cells in culture
dramatically extends the healthy lifespan of these cells. Animal models of
telomere loss also correlate cellular aging with thinning of skin, graying of
hair, chronic ulcerative lesions at areas of stress and reduced ability to
repair wounds. Our approach to the therapeutic use of telomerase activation in
skin includes both small molecule drug discovery, as well as biological and
genetic methods of introducing telomerase into various skin cells.
Diabetes. It is estimated that there are as many as one million Americans
suffering from the type of diabetes known as Insulin Dependent Diabetes
Mellitus. Normally, certain cells in the pancreas, called the islet (beta)
cells, produce insulin which promotes the uptake of the sugar glucose by cells
in the human body. Degeneration of pancreatic islet (beta) cells results in a
lack of insulin in the bloodstream which results in diabetes. Although diabetics
can be treated with daily injections of insulin, these injections enable only
intermittent glucose control. As a result, patients with diabetes suffer chronic
degeneration of many organs, including the eye, kidney, nerves and blood
vessels. In some cases, patients with diabetes have been treated with islet
(beta) cell transplantation. However, poor availability of suitable sources for
islet (beta) cell transplantation and the complications of the required
co-administration of immunosuppressive drugs make this approach impractical as a
treatment for the growing numbers of individuals suffering from diabetes.
By integrating our three technology platforms -- telomerase, hESCs and
nuclear transfer -- we intend to derive histocompatible, or genetically matched,
insulin-producing islet (beta) cells for transplantation. Pilot studies are
underway with collaborators to determine the effects of telomerase expression on
primary (beta) cells derived from human islet tissue. In addition, we are
devising techniques to differentiate islet (beta) cells from hESCs which would
be used in studies of animal models of diabetes. We intend to derive long-lived,
transplantable islet (beta) cells which could support the patient's insulin
requirements for life.
Additional Applications for Nuclear Transfer
Xenotransplantation. The demand for organ transplantation far outweighs the
number of human organs available. It is estimated that there are over 150,000
people worldwide waiting for an organ. In the United States, more than 60,000
individuals were registered on transplant waiting lists at the end of 1998. That
year, however, less than half of the people listed received solid organ
transplants. The demand for organ transplantation will continue to increase as
improved technical skills and anti-rejection medication make whole organ
transplantation a realistic option for groups of people previously considered
not eligible for transplantation -- for example, those suffering from diabetes
or those over age 55.
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Programs to increase the number of registered donors are extremely
important, but these programs alone will not solve the problem of organ
shortages. One solution under consideration by the medical, pharmaceutical and
biotechnology communities is xenotransplantation -- the process of transplanting
cells, tissues or organs from one species to another, for example, from an
animal to a human. This approach potentially could be used either as a bridge to
human organ transplantation or as long-term therapy in the form of a permanent
transplant.
Pigs are the preferred source for xenotransplantation because they have
organs of comparable size and anatomy to human organs. Through nuclear transfer,
it should be possible to produce genetically modified pigs to make their organs
more suitable for transplantation to humans without causing an acute immune
rejection. Acute immune rejection of transplanted pig organs is caused by
natural human antibodies which recognize and react to certain sugar structures
present in the blood vessels of the transplanted pig tissue. By deleting the
gene for the enzyme which generates the key sugar structure that triggers the
immune rejection from the pig genome, we could clone an animal via nuclear
transfer that had organs with reduced probability of acute rejection. This would
enable the cost-effective and scalable production of identical animals for
clinical trials. Cloned herds of pigs which would no longer carry the foreign
sugar structure could become a commercial source of organs that would not be
rejected by the recipients' immune system. Such cloned pigs might serve as
sources for multiple transplantable organs such as hearts, kidneys and
pancreases.
Transgenic Animals. Our nuclear transfer technology can be applied to clone
animals that have been genetically engineered to produce proteins for human
therapeutic or industrial use. For example, herds which carry the genes to make
human antibodies could be cloned, thereby allowing for the large-scale
production of therapeutic antibodies or vaccines.
Agriculture. Our nuclear transfer and gene targeting technologies can be
used for applications in agriculture that improve livestock by producing
unlimited numbers of genetically identical animals with superior commercial
qualities. Such applications can be extended to major agricultural sectors, such
as beef, dairy, pig and chicken, to provide large numbers of animals with
superior characteristics of disease resistance, longevity, growth rate or
product quality.
We are focusing our research collaboration at the Roslin Institute on
developing more efficient nuclear transfer procedures suitable for
xenotransplantation, production of biologicals by transgenic animals and
agricultural applications. Such technologies should also prove useful in
reprogramming strategies for the production of genetically matched human cells
for tissue transplantation. We plan to widely license this technology to
companies working in these areas.
COMMERCIALIZATION
We believe that our broad scientific platforms will generate significant
opportunities for a variety of strategic collaborations. We have established and
intend to continue to establish selective collaborations with leading
pharmaceutical, diagnostic and technology companies to enhance our research,
development and commercialization capabilities and to participate in
commercialization opportunities. In each of these strategic collaborations and
in future collaborations, we retain and intend to retain co-promotion rights to
participate in the commercial success of our products.
Kyowa Hakko Collaboration
In April 1995, we entered into a license and research collaboration
agreement with Kyowa Hakko Kogyo Co., Ltd. Under the agreement, Kyowa Hakko
agreed to provide $16.0 million of research funding over four years to support
our program to discover and develop in several Asian countries a telomerase
inhibitor for the treatment of cancer. All of this research funding had been
received as of December 31, 2000. In addition, we are 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 product
sales. Kyowa Hakko also purchased $2.5 million of our common stock in connection
with our initial public offering. Under the Kyowa Hakko Agreement, we exercise
significant influence during the research phase and Kyowa Hakko exercises
significant influence during the development and commercialization phases. Kyowa
Hakko has agreed that it
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will not independently pursue telomerase inhibition for the treatment of cancer
in humans until March 2002. In February 2000, we amended our agreement with
Kyowa Hakko to extend the research period and the compound selection period for
one additional year each, to March 2001 and March 2002, respectively. We are
entitled to receive additional research funding as part of this extension
subject to the terms of the agreement.
Pharmacia Corporation Collaboration
In March 1997, we signed a license and research collaboration agreement
with Pharmacia Corporation to collaborate in the discovery, development and
commercialization of a new class of anti-cancer drugs that inhibit telomerase.
Under the collaboration, Pharmacia agreed to provide research funding over three
years. As of December 31, 2000, $18.8 million of research funding had been
received. In addition, the agreement provided for future payments to Geron upon
the achievement of certain contractual milestones relating to drug development
and regulatory progress, as well as royalty payments on future product sales. As
outlined in the stock purchase agreement, Pharmacia purchased equity in Geron in
installments of $2.0 million in January 1997, $4.0 million in April 1997 and
$4.0 million in March 1998. Pharmacia purchased each round of our common stock
at a premium. As part of this collaboration, we accessed the high throughput
screening capabilities and the three million compound library of Pharmacopoeia
in 1999, via an alliance between Pharmacia and Pharmacopoeia which included
telomerase inhibition. In January 2000, Pharmacia exercised an option to extend
the research period one year to March 2001 and added a one year compound
selection period for a back-up candidate. That agreement provided for additional
research funding to us as part of the extension.
In January 2001, the parties agreed to terminate the license and research
collaboration agreement. Pharmacia returned all product rights for telomerase
inhibitors to us. We plan to continue our development work on compounds that
inhibit telomerase for applications in cancer chemotherapy.
Roslin Institute Collaboration
In May 1999, we completed the acquisition of Roslin Bio-Med Ltd., a company
formed by the Roslin Institute in Midlothian, Scotland, in order to complement
and strengthen our technology platforms. Under the terms of the agreement, we
purchased all outstanding shares of Roslin Bio-Med in exchange for 2.1 million
shares of our common stock and Roslin Bio-Med became a wholly owned United
Kingdom subsidiary known as Geron Bio-Med Ltd. In addition, the Roslin Institute
transferred to us the exclusive rights to the patent applications covering
nuclear transfer technology for all animal and human-based biomedical
applications, excluding (i) human reproductive cloning, (ii) the production of
therapeutic proteins in the milk of ruminants and rabbit and (iii) the
modification of milk composition for nutraceutical use.
In connection with this acquisition, we also formed a research
collaboration with the Roslin Institute and have agreed to provide approximately
$20.0 million in applied research funding over six years. Under this
collaboration, we retain exclusive license rights to commercialize the results
of the research. This alliance brings together three complementary technologies:
telomerase, human embryonic stem cells and nuclear transfer technologies. We and
the Roslin Institute will focus on generating genetically matched human cells
and tissues with extended replicative capacity for use in repairing organ damage
caused by a range of degenerative diseases, including chronic liver disease,
heart disease, neurologic diseases, skin conditions and diabetes. We have
focused the research at the Roslin Institute on understanding the basic biology
of cellular reprogramming by animal egg cells in order to accelerate progress on
developing cells that could be transplanted without human immune rejection.
Also, we are advancing work underway at the Roslin Institute on the
development of genetically modified cloned animals for applications in
xenotransplantation and agriculture. Accordingly, we are engaged in discussions
with other companies to non-exclusively license our nuclear transfer technology
for commercial applications in agriculture, xenotransplantation and biological
production. Three such licenses have been granted thus far to AviGenics, Inc.
and Origen Therapeutics, Inc. for poultry applications, and to Clone Australia
Pty Ltd. for cattle cloning.
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Clontech Marketing Agreement
In March 1999, we entered into a development and license agreement with
Clontech Laboratories, Inc. to market the Infinity(TM) product family of primary
human cell lines immortalized with telomerase. Under the terms of the agreement,
Clontech manufactures and markets products resulting from the use of our
telomerase technology to the not-for-profit research market. Clontech also
supplies products to the biotechnology and pharmaceutical industries under
licenses to be executed between the individual commercial companies and us.
Under the Clontech agreement, Clontech paid us an up-front fee of $50,000 for
development activities. We will equally share operating profits with Clontech
from the sales of the Infinity(TM) Cell Lines, while we will retain all
licensing revenues.
In 2000, Clontech launched the hTERT-HME1 human mammary epithelial cell
line, which adds to the other two cell lines already being marketed in 1999. We
and Clontech plan to expand the family of Infinity(TM) Cell Lines in the future.
Diagnostic Collaborations
Research-Use-Only Kits. Roche Diagnostics has licensed all telomerase and
telomere length assay technologies, including TRAP, hTR, hTERT, and telomere
length, for research-use-only kits for cancer. All telomerase licenses
previously licensed to Boehringer Mannheim were transferred to Roche Diagnostics
following their acquisition of Boehringer Mannheim. Boehringer Mannheim's
telomerase-related products are now marketed under the Roche Diagnostics label.
In late 1996, Boehringer Mannheim commenced commercial sale of the TRAP research
kit. In 1999, Roche Diagnostics launched three additional research kits,
including quantitative TRAP, telomere length measurement and hTERT
quantification assays. In 2000, Roche Diagnostics launched an hTR quantification
kit. Roche Diagnostics is currently marketing a total of five kits.
Examples of other companies marketing research-use-only kits under license
include the following:
- In 1999, Roche Diagnostics entered into a sublicense agreement with Dako
under which Dako received non-exclusive rights to develop antibody
mediated telomerase detection assays and telomere length measurement
assays for research and clinical diagnostic applications in oncology. We
receive royalties from products commercialized under this sublicense. In
1999, Dako marketed two kits for measuring telomere length by
fluorescence microscopy. In 2000, Dako launched a telomere length
measurement kit for flow cytometry. Dako is currently marketing a total
of three kits.
- Kyowa Medex Co. has licensed our TRAP assay technology on a non-exclusive
basis for the research-use-only market in Japan and commenced commercial
sale of Intergen's TRAP kit in late 1996.
- We licensed the TRAP assay for research-use-only to Oncor Inc. and the
license has been subsequently transferred to the Intergen Company
following the acquisition of Oncor's research reagent division by
Intergen. Intergen is currently marketing three TRAP research kits.
- PharMingen has licensed our TRAP assay and telomere length measurement
technology on a non-exclusive basis for sale to the research-use-only
market and presently has two research kits on the market.
Although we do not expect royalties from the sale of these 13 research kits
to be significant, the use of these kits has stimulated additional studies of
telomerase activity by academic laboratories and standardized the methodology
used to evaluate the role of telomerase in cancer.
In Vitro Diagnostics. In addition to the rights described above related to
research-use-only kits, our December 1997 license, product development and
marketing agreement with Boehringer Mannheim also granted Boehringer Mannheim
rights to develop and commercialize clinical in vitro 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. We are entitled to
receive future payments upon achievement of certain contractual milestones
relating to levels of product sales, as well as
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royalties on product sales. Further, we have an option at our 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 Diagnostics
in 1998, all telomerase licenses previously licensed to Boehringer Mannheim were
transferred to Roche Diagnostics.
Celera Genomics Collaboration
In May 2000, we entered into a collaborative research and license agreement
with Celera Genomics to combine our expertise in human embryonic stem cell
biology with Celera's comprehensive sequencing information and gene discovery
capabilities. Under the terms of the collaboration, we will work together with
Celera to identify and assign biological function to genes involved in human
cell differentiation. We will utilize the information to develop and
commercialize a number of small molecule drugs, protein therapeutics, cell and
gene therapy products, and prenatal diagnostics. Celera will utilize the
information to enhance the annotation of the human genome and develop and
commercialize probe sets for gene expression analysis. Celera and Geron will
license to third parties certain intellectual property to develop other
products.
Merix Bioscience Collaboration
In August 2000, we initiated a collaboration with Merix Bioscience, Inc. to
develop telomerase-based cancer vaccines for clinical and commercial
applications using Merix's proprietary ex vivo RNA-modified dendritic cell
technology platform. Under the terms of the collaboration, we are sponsoring
preclinical studies at Duke University to confirm the safety and efficacy of
hTERT-modified dendritic cells to mediate immune responses against tumors.
Studies will be performed in parallel by Merix. We will jointly determine the
clinical development plan for the combined technology.
RESEARCH COLLABORATIONS
We selectively enter into, and intend to continue to enter into,
collaborative research agreements with leading academic and research
institutions. We design these collaborative agreements to significantly enhance
our research and development capabilities while enabling us to obtain commercial
rights to intellectual property developed through the research collaboration.
Under these agreements, we generally provide funding or other resources for
scientific research in return for commercial rights to materials and discoveries
arising out of this research. We seek to retain rights to commercially develop
and market discoveries made under these research programs by obtaining rights to
exclusively license technology developed under them, including patents and
patent applications filed in connection with these research programs.
As of December 31, 2000, we have collaborative research agreements in
support of our oncology program with a number of institutions, including Duke
University, Lawrence Berkeley National Laboratory, the National Cancer
Institute, Stanford University, the University of Texas Southwestern Medical
School at Dallas, the University of California at San Francisco, the Memorial
Sloan-Kettering Cancer Center, Texas A&M University, Hong Kong University of
Science and Technology and the University of Pittsburgh. We have collaborative
research agreements in support of our research of telomerase-immortalized cells
with numerous institutions, including Duke University and Stanford University.
We have exclusive license and collaborative research agreements in support of
our human embryonic stem cell research and regenerative medicine program with
The Johns Hopkins University, the University of California at San Francisco, the
University of Edinburgh, the University of Wisconsin -- Madison, Cornell
University and the University of Utah.
PATENTS, PROPRIETARY TECHNOLOGY AND TRADE SECRETS
Our three core technology platforms are supported by a broad intellectual
property portfolio of issued patents and pending patent applications. We
currently own or have licensed over 67 issued or allowed United States patents,
28 granted foreign patents and over 318 patent applications that are pending
around the world.
Our policy is to seek, when appropriate, patent protection for inventions
in our core technology platforms as well as ancillary technologies that support
these platforms or otherwise provide a competitive advantage to
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us. We achieve this by filing patent applications for discoveries made by us
alone or made in conjunction with our scientific collaborators and strategic
partners. Typically, although not always, we file patent applications in the
United States and internationally through the Patent Cooperation Treaty. In
addition, we obtain licenses or options to acquire licenses from other
organizations to patent filings that may be useful in advancing our scientific
and product development programs.
Patent rights to embryonic stem cells and telomerase underpin our
regenerative medicine program. Currently, we own or have licensed rights to two
issued United States patents relating to human embryonic stem cells and human
embryonic germ cells. Our licenses to certain of these patent rights arise from
the work that we funded at The University of Wisconsin, Johns Hopkins University
and The University of California at San Francisco. We have also developed our
own stem cell intellectual property asset based, among other things, on our
discoveries of new methods for growing the cells that are suitable for large
scale culture and techniques for making cells such as hepatocytes (liver cells),
cardiomyocytes (heart muscle cells) and neural cells (nerve cells) starting from
the stem cells. We currently have over 48 patent applications pending around the
world covering various aspects of our stem cell technology.
Our product development plans for our telomerase-related technologies are
protected by over 42 issued United States patents, 13 granted foreign patents
and over 202 patent applications pending around the world. These include patents
and patent applications that cover the use of telomerase for gene-based
therapeutic applications, which is part of our regenerative medicine program.
Our telomerase intellectual property also covers our oncology program, aspects
of which include methods of detecting cancer based on telomerase, the use of
telomerase as a cancer vaccine and drugs designed to inhibit telomerase activity
in cancer cells. For example, our issued United States patents include purified
human telomerase, the cloned gene that encodes the RNA component of telomerase
and various methods of detecting and diagnosing conditions associated with
telomerase, including cancer. Our granted foreign patents include the cloned
genes that encode the RNA and protein components of human telomerase, the
promoter sequence that regulates the expression of the telomerase protein gene
and diagnostic methods. We also own several issued United States patents and
pending international patent applications directed to both small molecule and
template antagonist telomerase inhibitors, as well as particular nucleic acid
chemistry developed at Geron.
Our third technology platform, nuclear transfer, is protected in part by
the patent rights that we acquired in 1999 with the acquisition of Roslin
Bio-Med, now Geron Bio-Med. A number of patents have now issued based on that
technology, including one United States patent and 14 foreign patents. In
addition, we have more than 52 pending patent applications worldwide relating to
nuclear transfer and cell reprogramming, based both on our continued funding of
research at the Roslin Institute and our internal research programs.
Intellectual property rights to the nuclear transfer technology are the primary
asset of our licensing program through which we are granting licenses for
cloning animals for use in agriculture, xenotransplantation and
biopharmaceutical production. The use of nuclear transfer and related
reprogramming technologies in human cells may also allow us to produce
genetically matched cells for our regenerative medicine program.
GOVERNMENT REGULATION
Regulation by governmental authorities in the United States and other
countries is a significant factor in the development, manufacture and marketing
of our proposed products and in our ongoing research and product development
activities. The nature and extent to which such regulation applies to us will
vary depending on the nature of any products which may be developed by us. We
anticipate that many, if not all, of our products will require regulatory
approval by governmental agencies prior to commercialization. In particular,
human therapeutic and vaccine products are subject to rigorous preclinical and
clinical testing and other approval procedures of the Food & Drug
Administration, or FDA, and similar regulatory authorities in European and other
countries. Various governmental statutes and regulations also govern or
influence testing, manufacturing, safety, labeling, storage and recordkeeping
related to such products and their marketing. The process of obtaining these
approvals and the subsequent compliance with appropriate statutes and
regulations require the expenditure of substantial time and money. Any failure
by us or our collaborators to obtain, or any delay in obtaining these approvals
may affect the marketing of any products developed by us, will prevent us from
generating product revenues and obtaining adequate cash to continue present and
planned operations.
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FDA Approval Process
Prior to commencement of clinical studies involving humans, preclinical
testing of new pharmaceutical products is generally conducted on animals in the
laboratory to evaluate the potential efficacy and the safety of the product. The
results of these studies are submitted to the FDA as a part of an
Investigational New Drug application, which must become effective before
clinical testing in humans can begin. Typically, human clinical evaluation
involves a time consuming and costly three-phase process. In Phase 1, clinical
trials are conducted with a small number of people to assess safety and to
evaluate the pattern of drug distribution and metabolism within the body. In
Phase 2, clinical trials are conducted with groups of patients afflicted with a
specific disease in order to determine preliminary efficacy, optimal dosages and
expanded evidence of safety. In Phase 3, large-scale, multi-center, comparative
trials are conducted with patients afflicted with a target disease in order to
provide enough data to demonstrate the efficacy and safety required by the FDA.
The FDA closely monitors the progress of each of the three phases of clinical
testing and may, at its discretion, re-evaluate, alter, suspend, or terminate
the testing based upon the data which have been accumulated to that point and
its assessment of the risk/benefit ratio to the patient. Monitoring of all
aspects of the study to minimize risks is a continuing process. Reports of all
adverse events must be made to the FDA.
The results of the preclinical and clinical testing on a non-biologic drug
and certain diagnostic drugs are submitted to the FDA in the form of a New Drug
Application, or NDA, for approval prior to commencement of commercial sales. In
the case of vaccines or gene and cell therapies, the results of clinical trials
are submitted as a Biologics License Application. In responding to a NDA or
Biologics License Application, the FDA may grant marketing approval, request
additional information or deny the application if the FDA determines that the
application does not satisfy its regulatory approval criteria. There can be no
assurance that approvals will be granted on a timely basis, if at all, for any
of our products. Similar procedures are in place in countries outside the United
States.
European and Other Regulatory Approval
Whether or not FDA approval has been obtained, approval of a product by
comparable regulatory authorities in Europe and other countries will likely be
necessary prior to commencement of marketing the product in such countries. The
regulatory authorities in each country may impose their own requirements and may
refuse to grant, or may require additional data before granting an approval,
even though the relevant product has been approved by the FDA or another
authority. As with the FDA, the regulatory authorities in the European Union, or
EU, countries and other developed countries have lengthy approval processes for
pharmaceutical products. The process for gaining approval in particular
countries varies, but generally follows a similar sequence to that described for
FDA approval. In Europe, the European Committee for Proprietary Medicinal
Products provides a mechanism for EU-member states to exchange information on
all aspects of product licensing. The EU has established a European agency for
the evaluation of medical products, with both a centralized community procedure
and a decentralized procedure, the latter being based on the principle of
licensing within one member country followed by mutual recognition by the other
member countries.
Other Regulations
We are also subject to various United States, federal, state, local and
international laws, regulations and recommendations relating to safe working
conditions, laboratory and manufacturing practices and the use and disposal of
hazardous or potentially hazardous substances, including radioactive compounds
and infectious disease agents, used in connection with our research work. We
cannot accurately predict the extent of government regulation which might result
from future legislation or administrative action.
SCIENTIFIC ADVISORS AND CONSULTANTS
We have consulting agreements with a number of leading academic scientists
and clinicians. These individuals serve as members of our Scientific Advisory
Board or as key consultants with respect to our product development programs and
strategies. They are distinguished scientists and clinicians with expertise in
numerous scientific fields, including the genetics of aging, embryonic stem
cells, nuclear transfer, cell
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senescence and telomere and telomerase biology, as well as developmental
biology, cellular biology and molecular biology.
We established the advisory board to provide us with expert advice and
consultation on our scientific programs and strategies. Members of the advisory
board also serve as important contacts for us throughout the broader scientific
community. The advisory board meets at least once annually as a whole or in
smaller groups to focus on general strategy and certain specific scientific
issues. We also contact individual members of the advisory board to provide
advice and consultation on an ad hoc basis, as appropriate.
We retain each member of the advisory board according to the terms of a
consulting agreement between the advisory board member and us. Under such
consulting agreements, some advisory board members hold options to purchase our
common stock, subject to the vesting requirements contained in the consulting
agreements. In addition, we pay advisory board members a consulting fee and
reimburse them for out-of-pocket expenses incurred in attending each advisory
board meeting. Most members of the advisory board are employed by institutions
other than ours, and therefore may have commitments to, or consulting or
advisory agreements with, other entities or academic institutions that may limit
their availability to us.
As of December 31, 2000, our advisory board members and key consultants
included the following individuals:
STEPHEN BENKOVIC, PH.D., is Professor of Chemistry at the Pennsylvania
State University and is a member of our Scientific Advisory Board. 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.
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,
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 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
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).
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 NIA, and serves on its Board of Scientific Counselors. Her
major interests are the cellular and molecular biology of senescence and
tumorigenesis.
JOHN CLARK, OBE, FRSE, PH.D., is Head of the Division of Molecular Biology
at the Roslin Institute and is the leader of Geron Bio-Med's cellular
reprogramming team. Dr. Clark was a scientific founder of PPL Therapeutics, plc
and is also a Professor in the Division of Biology at Edinburgh University. He
received the Order of the British Empire from the Queen of England in 1997 for
his contribution to biotechnology and particularly his pioneering work on the
modification of milk composition by genetic engineering of livestock. He was
elected to the Royal Society of Edinburgh in 1999. Current research areas
include use of genetically modified animals for biomedical and agricultural
applications and fundamental studies of the control of gene expression.
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 our
Scientific Advisory Board. 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.
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RUDOLF JAENISCH, PH.D., is a Professor of Biology at the Massachusetts
Institute of Technology, a member of the Whitehead Institute for Biomedical
Research and a member of our Scientific Advisory Board. Dr. Jaenisch is
internationally known for his research on the control of gene expression in
mammalian development and genetic disease. He has recently turned his attention
to the use of mammalian cloning technology to distinguish epigenetic and genetic
alterations in the genome and their role in growth and development.
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 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
our Scientific Advisory Board. 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 D. WATSON, PH.D., is President of Cold Spring Harbor Laboratory and
is a member of our Scientific Advisory Board. 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 they shared the Nobel
Prize.
IAN WILMUT, OBE, B.SC., PH.D., D.SC., F.MED.SCI., is Professor of the
Division of Biological Science of the University of Edinburgh and is the head of
the Geron Bio-Med nuclear transfer team. Professor Wilmut has received numerous
prizes, including the Sir John Hammond Prize by the British Society of Animal
Production, the Golden Plate Award by the American Academy of Achievement of
Science and Technology, the Lord Lloyd of Kilgerran Prize by the Foundation of
Science and Technology, and the Order of the British Empire from the Queen of
England in 1999. He is the leader of the team that cloned Dolly, the first
animal to develop after nuclear transfer from an adult cell, and is an
internationally recognized expert in the field of nuclear transfer. Current
research areas include early mammalian development, embryo manipulation, nuclear
transfer and gene targeting in mice, cattle, sheep and pigs.
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 our Scientific Advisory Board. He is widely recognized as a
leading molecular biologist working in the field of cellular senescence and on
the molecular basis of muscle development.
GERON ETHICS ADVISORY BOARD
In July 1998, we created an Ethics Advisory Board whose members represent a
variety of philosophical and theological traditions with broad knowledge in
health care ethics. The advisory board functions as an independent entity,
consulting and giving advice to us on the ethical aspects of our work. Members
of the advisory board have no financial interest in Geron.
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As of December 31, 2000, the Ethics Advisory Board consisted of the
following individuals:
KAREN LEBACQZ, PH.D., is the Robert Gordon Sproul Professor of Theological
Ethics at the Pacific School of Religion in the Graduate Theological Union,
Berkeley, California. She has published extensively on ethics and genetics as
well as research ethics and served on the National Commission for the Protection
of Human Subjects of Biomedical and Behavioral Research.
ALBERT JONSEN, PH.D., is Professor Emeritus of Ethics in Medicine and
former chairperson of the Department of Medical History and Ethics, School of
Medicine, University of Washington. He has contributed chapters to more than 70
books on medicine and health care and his articles have appeared in numerous
publications.
TED PETERS, PH.D., is Professor of Systematic Theology at Pacific Lutheran
Theological Seminary. He conducts research at the Center for Theology and the
National Sciences where he is principle investigator for a research project on
"Theological and Ethical Implications of the Human Genome Initiative." He is
also editor of Genetics: Issues of Social Justice.
ERNLE W. D. YOUNG, PH.D., is Clinical Professor of Ethics in the Department
of Medicine and Pediatrics at Stanford University School of Medicine, a
Co-Director of Stanford University's Center for Biomedical Ethics, the Clinical
Ethics Consultant to Stanford University Hospital and to Veterans' Affairs
hospitals in Palo Alto and Fresno, California. He has published extensively on
issues in bioethics.
LAURIE ZOLOTH-DORFMAN, PH.D., is Associate Professor of Social Ethics and
Director of the Program in Jewish Studies at San Francisco State University and
a Co-Founder of The Ethics Practice, a group which provides education services
and consultation on bioethics to health care providers and health care systems.
She has published on bioethics, religion, and health care.
EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth certain information with respect to the
executive officers of Geron Corporation:
NAME AGE POSITION
---- --- --------
Thomas B. Okarma, Ph.D., M.D. ......... 55 President, Chief Executive Officer and
Director
David L. Greenwood..................... 49 Chief Financial Officer, Senior Vice
President Corporate Development, Treasurer
and Secretary
David J. Earp, Ph.D., J.D. ............ 36 Vice President, Intellectual Property
Calvin B. Harley, Ph.D. ............... 48 Chief Scientific Officer
Jane S. Lebkowski, Ph.D. .............. 45 Vice President, Cell and Gene Therapies
Jeannine M. Niacaris................... 48 Vice President, Human Resources and
Administrative Services
William D. Stempel, J.D. .............. 47 Vice President and General Counsel
Richard L. Tolman, Ph.D. .............. 59 Vice President, Drug Discovery
THOMAS B. OKARMA, PH.D., M.D., has served as our President, Chief Executive
Officer and director since July 1999. He is also a director of Geron Bio-Med
Limited, a United Kingdom company. From May 1998 until July 1999, Dr. Okarma was
the Vice President of Research and Development. From December 1997 until May
1998, Dr. Okarma was Vice President of Cell Therapies. From 1985 until joining
us, Dr. Okarma, the scientific founder of Applied Immune Sciences, Inc., served
initially as Vice President of Research and Development and then as its
chairman, chief executive officer and a director, until 1995 when it was
acquired by Rhone-Poulenc Rorer. Dr. Okarma was a Senior Vice President at
Rhone-Poulenc Rorer from the time of the acquisition of Applied Immune Sciences,
Inc. until December 1996. 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.
DAVID L. GREENWOOD has served as our Chief Financial Officer, Treasurer and
Secretary since August 1995, Vice President of Corporate Development since April
1997 and Senior Vice President of Corporate
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Development since August 1999. He is also a director of Geron Bio-Med Limited, a
United Kingdom company. From 1979 until joining us, 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.
DAVID J. EARP, J.D., PH.D., joined us in June 1999 and has served as our
Vice President, Intellectual Property since October 1999. From 1992 until
joining us, Dr. Earp was with the intellectual property law firm of Klarquist
Sparkman Campbell Leigh and Whinston, LLP where his practice focused on
biotechnology patent law. Dr. Earp holds a B.S. in microbiology from the
University of Leeds, England, a Ph.D. in biochemistry and molecular biology from
The University of Cambridge, England, and conducted postdoctoral research at the
University of California at Berkeley. He received his J.D. magna cum laude from
the Northwestern School of Law of Lewis and Clark College in Portland, Oregon.
CALVIN B. HARLEY, PH.D., has served as our Chief Scientific Officer since
July 1996. From May 1994 until July 1996, Dr. Harley was Vice President of
Research and from April 1993 to May 1994, Dr. Harley was Director, Cell Biology.
Dr. Harley was an Associate Professor from 1989 until joining us, and from 1982
to 1989, an Assistant Professor of Biochemistry at McMaster University. Dr.
Harley was also an executive of the Canadian Association on Gerontology,
Division of Biological Sciences from 1987 to 1991. 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.
JANE S. LEBKOWSKI, PH.D., has served as our Vice President of Cell and Gene
Therapies since August 1999. Since joining us in April 1998 and until August
1999, Dr. Lebkowski served as Senior Director, Cell and Gene Therapies.
Formerly, Dr. Lebkowski was employed at Applied Immune Sciences, from 1986 to
1995 where she served as Vice President, Research and Development. In 1995,
Applied Immune Sciences was acquired by Rhone-Poulenc Rorer, at which time Dr.
Lebkowski was appointed Vice President, Discovery & Product Development. Dr.
Lebkowski graduated Phi Beta Kappa with a B.S. in Chemistry and Biology from
Syracuse University and received her Ph.D. from Princeton University.
JEANNINE M. NIACARIS, joined us in November 1999 and has served as our Vice
President, Human Resources and Administrative Services since June 2000.
Previously, she held senior human resources positions at several biotech
companies including Matrix Pharmaceuticals, Sequus Pharmaceuticals and Affymax
Research Institute. She holds a B.A. in Education from Western Washington
University and a M.A. in Human Resources from Redland University.
WILLIAM D. STEMPEL, J.D., has served as our Vice President and General
Counsel since January 2001. From 1998 until joining us, Mr. Stempel was the
General Counsel at UCSF Stanford Health Care in San Francisco. From 1987 to
1998, Mr. Stempel was Deputy General Counsel at Yale University where he worked
in a wide range of areas including intellectual property, medical affairs and
research administration. Mr. Stempel holds B.A. and J.D. degrees from Yale
University. He is a member of the bars of the States of California, Connecticut
and New York, and the United States District Courts for the District of
Connecticut, Southern District of New York and Eastern District of New York.
RICHARD L. TOLMAN, PH.D., has served as our Vice President of Drug
Discovery since August 1999. From December 1998 until August 1999, Dr. Tolman
served as Senior Director, Medicinal Chemistry overseeing the program to
discover and develop a small molecule telomerase inhibitor. From 1973 until
joining us, Dr. Tolman was employed at the Merck Research Laboratories where he
served as Senior Director, Medicinal Chemistry. He received a B.A. in Chemistry
with Honors from Brigham Young University and earned a Ph.D. with distinction
from the University of Utah.
EMPLOYEES
As of December 31, 2000, we had 112 full-time employees of whom 32 hold
Ph.D. degrees and 39 hold other advanced degrees. Of the total workforce, 89 are
engaged in, or directly support, our research and development activities and 23
are engaged in business development, finance and administration. We also
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retain outside consultants. None of our employees is covered by a collective
bargaining agreement, nor have we experienced work stoppages. We consider
relations with our employees to be good.
ADDITIONAL FACTORS THAT MAY AFFECT FUTURE RESULTS
Our business is subject to 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. Any of these risks could materially
adversely affect our business, operating results and financial condition.
OUR BUSINESS IS AT AN EARLY STAGE OF DEVELOPMENT AND WE MAY NOT DEVELOP ANY
PRODUCTS THAT REACH CLINICAL TRIALS
The study of the mechanisms of cellular aging and cellular immortality,
including telomere biology and telomerase, the study of human embryonic stem
cells, and the process of nuclear transfer are relatively new areas of research.
Our business is at an early stage of development. We have not yet produced any
products that have progressed to clinical trials and we may never do so. Our
ability to produce products that progress to clinical trials is subject to our
ability to, among other things:
- 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.
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.
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. As of December 31, 2000, our accumulated deficit was approximately
$149.8 million. 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 collaboration agreements with Kyowa Hakko and Pharmacia. In 2001, we
regained our rights to telomerase inhibitors from Pharmacia. Kyowa Hakko will
provide additional research funding through 2001. We may be unsuccessful in
entering into any new corporate collaboration that results in revenues. Even if
we are able to obtain new collaboration arrangements with third parties, the
revenues generated from these arrangements will be insufficient to continue or
expand our research activities and otherwise sustain our operations.
We are unable to estimate at this time the level of revenue to be received
from the sale of diagnostic products, and do not currently expect to receive
significant revenues from the sale of research-use-only kits. Our ability to
continue or expand our research activities and otherwise sustain our operations
is dependent on our ability, alone or with others to, among other things,
manufacture and market therapeutic products.
We may never receive material revenues from product sales or if we do
receive revenues, such revenues may not be sufficient to continue or expand our
research activities and otherwise sustain our operations.
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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. While we estimate that our existing capital
resources, payments under the Kyowa Hakko collaborative agreement, interest
income and equipment financing arrangements will be sufficient to fund our
current level of operations through March 2003, we cannot guarantee that this
will be the case. 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 2001 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;
- 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, these 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.
OUR INABILITY TO IDENTIFY AN EFFECTIVE INHIBITOR OF TELOMERASE MAY PREVENT US
FROM DEVELOPING A VIABLE CANCER TREATMENT PRODUCT, WHICH WOULD ADVERSELY IMPACT
OUR FUTURE BUSINESS PROSPECTS
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. 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 prospects would be materially and adversely affected.
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IF OUR ACCESS TO NECESSARY TISSUE SAMPLES, INFORMATION OR LICENSED TECHNOLOGIES
IS RESTRICTED, WE WILL NOT BE ABLE TO DEVELOP OUR BUSINESS
To continue the research and development of our therapeutic and diagnostic
products, we need access to normal and diseased human and other tissue samples,
other biological materials and related clinical and other information. We
compete with many other companies for these materials and information. We may
not be able to obtain or maintain access to these materials and information on
acceptable terms, if at all. In addition, government regulation in the United
States and foreign countries could result in restricted access to, or
prohibiting the use of, human and other tissue samples. If we lose access to
sufficient numbers or sources of tissue samples, or if tighter restrictions are
imposed on our use of the information generated from tissue samples, our
business will be materially harmed.
SOME OF OUR COMPETITORS MAY DEVELOP TECHNOLOGIES THAT ARE SUPERIOR TO OR MORE
COST-EFFECTIVE THAN OURS, WHICH MAY IMPACT THE COMMERCIAL VIABILITY OF OUR
TECHNOLOGIES AND WHICH MAY SIGNIFICANTLY DAMAGE OUR ABILITY TO SUSTAIN
OPERATIONS
The pharmaceutical and biotechnology industries are intensely competitive.
We believe that other pharmaceutical and biotechnology 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, human embryonic stem cells and nuclear transfer.
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. Many of 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
the products that we develop obsolete.
THE ETHICAL, LEGAL AND SOCIAL IMPLICATIONS OF OUR RESEARCH USING EMBRYONIC STEM
CELLS AND NUCLEAR TRANSFER COULD PREVENT US FROM DEVELOPING OR GAINING
ACCEPTANCE FOR COMMERCIALLY VIABLE PRODUCTS IN THIS AREA
Our programs in regenerative medicine may involve the use of human
embryonic stem cells that would be derived from human embryonic or fetal tissue.
The use of human embryonic stem cells gives rise to ethical, legal and social
issues regarding the appropriate use of these cells. In the event that our
research related to human embryonic stem cells becomes the subject of adverse
commentary or publicity, the market price for our common stock could be
significantly harmed.
Some groups have voiced opposition to our technology and practices. The
concepts of cell regeneration, cell immortality, and genetic cloning have
stimulated significant ethical debates in both the social and political arenas.
We use human embryonic stem cells derived through a process that uses either
donated embryos that are no longer needed following a successful in vitro
fertilization procedure or donated fetal material as the starting material.
Further, many research institutions, including some of our scientific
collaborators, have adopted policies regarding the ethical use of human
embryonic and fetal tissue. These policies may have the effect of limiting the
scope of research conducted using human embryonic stem cells, resulting in
reduced scientific progress. In addition, the United States government and its
agencies currently do not fund research which involves the use of human
embryonic tissue and may in the future regulate or otherwise restrict or
prohibit the public or private use of human embryonic or fetal tissue. Our
inability to conduct research using human embryonic stem cells due to such
factors as government regulation or otherwise could have a material adverse
effect on us. Finally, we acquired Roslin Bio-Med to gain the rights to nuclear
transfer technology. The Roslin Institute produced Dolly the sheep in
1997 -- the first mammal cloned from an adult cell in history. Geron acquired
exclusive rights to this technology for all areas except human cloning and
certain other limited applications. Although we will not be pursuing human
reproductive cloning, all of the techniques we continue to develop for use in
agricultural cloning and our nuclear transfer work for organ regeneration are
directly applicable to human cloning should some other group in the future
decide to pursue this avenue. Negative associations with any or all of these
practices could:
- harm our ability to establish critical partnerships and collaborations;
- prompt government regulation of our technologies;
- cause delays in our research and development; and
- cause a decrease in the price of our stock.
Also, if regulatory bodies were to ban nuclear transfer processes, our
research using nuclear transfer technology could be cancelled and our business
could be significantly harmed.
PUBLIC ATTITUDES TOWARDS GENE THERAPY MAY NEGATIVELY AFFECT REGULATORY APPROVAL
OR PUBLIC PERCEPTION OF OUR PRODUCTS
The commercial success of our product candidates will depend in part on
public acceptance of the use of gene therapies for the prevention or treatment
of human diseases. Public attitudes may be influenced by claims that gene
therapy is unsafe, and gene therapy may not gain the acceptance of the public or
the medical community. Adverse events in the field of gene therapy that have
occurred or may occur in the future also may result in greater governmental
regulation of our product candidates and potential regulatory delays relating to
the testing or approval of our product candidates.
Negative public reaction to gene therapy in the development of certain of
our therapies could result in greater government regulation, stricter clinical
trial oversight, commercial product labeling requirements of gene therapies, and
could cause a decrease in the demand for any products that we may develop. The
subject of genetically modified organisms has received negative publicity in
Europe, which has aroused public debate.
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The adverse publicity in Europe could lead to greater regulation and trade
restrictions on imports of genetically altered products. If similar adverse
public reaction occurs in the United States, genetic research and resultant
products could be subject to greater domestic regulation and could cause a
decrease in the demand for our potential products.
EVEN IF WE REACH CLINICAL TRIALS WITH ONE OR MORE OF OUR PRODUCTS, THEY MAY NOT
RESULT IN ANY COMMERCIALLY VIABLE PRODUCTS
We do not expect to generate any significant revenues from product sales
for a period of several years. We may never generate revenues from product sales
or become profitable because of a variety of risks inherent in our business,
including risks that:
- clinical trials may not demonstrate the safety and efficacy of our
products;
- completion of clinical trials may be delayed, or costs of clinical trials
may exceed anticipated amounts;
- we may not be able to obtain regulatory approval of our products, or may
experience delays in obtaining such approvals;
- we may not be able to manufacture our drugs economically on a commercial
scale;
- we and our licensees may not be able to successfully market our products;
- physicians may not prescribe our products, or patients may not accept
such products;
- others may have proprietary rights which prevent us from marketing our
products; and
- competitors may sell similar, superior or lower-cost products.
IMPAIRMENT OF OUR INTELLECTUAL PROPERTY RIGHTS MAY LIMIT OUR ABILITY TO PURSUE
THE DEVELOPMENT OF OUR INTENDED TECHNOLOGIES AND PRODUCTS
Our success will depend on our ability to obtain and enforce patents for
our discoveries; however, legal principles for biotechnology patents in the
United States and in other countries are not firmly established and the extent
to which we will be able to obtain patent coverage is uncertain.
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 may not continue to develop products or processes that are
patentable, and it is possible that patents will not issue from any of our
pending applications, including allowed patent applications. Further, our
current patents, or patents that issue on pending applications, may be
challenged, invalidated or circumvented, and our current or future patent rights
may not 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 filed in the United States prior to November 29, 2000,
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, the persons or
entities that we or our licensors name as inventors in our patents and patent
applications may not have been 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
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 may
not 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
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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 the disputed technology.
WE MAY BE SUBJECT TO INFRINGEMENT CLAIMS THAT ARE COSTLY TO DEFEND, AND WHICH
MAY LIMIT OUR ABILITY TO USE DISPUTED TECHNOLOGIES AND PREVENT US FROM PURSUING
RESEARCH AND DEVELOPMENT OR COMMERCIALIZATION OF POTENTIAL PRODUCTS
Our commercial success depends significantly on our ability to operate
without infringing patents and proprietary rights of others. Our technologies
may infringe the patents or proprietary rights of others. In addition, we may
become aware of discoveries and technology controlled by third parties that are
advantageous to our research programs. In the event our technologies do infringe
on the rights of others or we require the use of discoveries and technology
controlled by third parties, 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 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 the necessary licenses 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.
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, patents may not issue from any of our patent applications or our
existing patents may be found to be invalid by a court. In addition, 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 our technologies and we may have to obtain
licenses to use these 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 alternative
technology, and we may not be successful in this regard. If we cannot acquire or
develop the necessary technology, we may be prevented from pursuing some of our
business objectives. Moreover, one or more of our competitors could acquire or
license the necessary technology. Any of these events could materially harm our
business.
We may 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 research relating to embryonic stem cells 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 United States 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 agreed to provide
indemnification to Johns Hopkins University relating to potential claims.
However, any litigation resulting from this matter may divert significant
resources, both financial and otherwise, from our research programs. We may be
unsuccessful if the matter is litigated. If the outcome of litigation is
unfavorable to us, our business could be materially and adversely affected.
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 AND ESTABLISHING COMPETITIVE ENTERPRISES
We sometimes rely 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,
collaborators and contrac-
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tors. 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.
SOME OF OUR PATENTS AND PATENT APPLICATIONS RELATING TO TELOMERASE MAY BE
SUBJECT TO CHALLENGE. IN 1999, THE UNITED STATES PATENT AND TRADEMARK OFFICE
SUSPENDED PROSECUTION OF TWO OF OUR PATENT APPLICATIONS. THESE MATTERS COULD
JEOPARDIZE OUR ABILITY TO COMMERCIALIZE TELOMERASE PRODUCTS
Our patents and patent applications relating to telomerase are critically
important to our development and commercialization of therapeutic and diagnostic
products for applications in oncology and regenerative medicine. Patent
applications covering cloned human telomerase and its uses are pending in
several countries and patent prosecution is ongoing. Although we have been
granted patents in the United Kingdom and Switzerland, we have received
rejections in certain other countries and we may be unable to overcome those
rejections or any others that we may encounter.
In 1999, the United States Patent and Trademark Office suspended
prosecution of two of our patent applications relating to cloned human
telomerase pending possible declaration of an interference. This event signified
that the United States Patent and Trademark Office had determined that at least
one other entity had filed a patent application claiming cloned human telomerase
or its uses. In an interference, among other things, the United States Patent
and Trademark Office seeks to determine who made the claimed invention first;
that party typically, although not always, is awarded the patent. Examination of
one of our previously suspended cases has now been resumed. This does not mean
that the United States Patent and Trademark Office will necessarily issue a
patent to us for this subject matter, nor does it preclude the declaration of an
interference either before or after such a patent is issued.
Based on the information presently available to us, we believe that we
cloned the human telomerase protein prior to any other entity. However, we do
not yet have access to other entities' invention records or their patent
application files, which are maintained in secrecy by the United States Patent
and Trademark Office. We, therefore, do not have access to all pertinent
information for this analysis. Moreover, as interferences are typically complex
and highly contested legal proceedings subject to appeal, accurately predicting
an outcome is not possible, particularly at this stage. An interference would
divert significant resources, both financial and otherwise, from our research
programs.
If interferences or other challenges to our patents are not resolved
promptly in our favor, our existing business relationships could be jeopardized
and we could be delayed or prevented from entering into new collaborations or
from commercializing telomerase products, which could materially harm our
business.
WE DEPEND ON OUR COLLABORATORS TO HELP US COMPLETE THE PROCESS OF DEVELOPING AND
TESTING OUR PRODUCTS AND OUR ABILITY TO DEVELOP AND COMMERCIALIZE PRODUCTS MAY
BE IMPAIRED OR DELAYED IF OUR COLLABORATIVE PARTNERSHIPS ARE UNSUCCESSFUL
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. Our collaborators may not 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.
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Our ability to successfully develop and commercialize telomerase inhibition
products depends on our corporate alliance with Kyowa Hakko. Our ability to
successfully develop and commercialize telomerase diagnostic products depends on
our corporate alliance with Roche Diagnostics. Under our collaborative
agreements with these collaborators, we rely significantly on them, among other
activities, to:
- design and conduct advanced clinical trials in the event that we reach
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 or Roche Diagnostics fail to conduct these
collaborative activities in a timely manner or at all. In addition, Kyowa Hakko
or Roche Diagnostics could terminate their agreements with us and we may not
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 or
Roche Diagnostics or any of our future collaborators breach or terminate
collaborative agreements with us, our business may be materially harmed.
OUR RELIANCE ON THE RESEARCH ACTIVITIES OF OUR NON-EMPLOYEE SCIENTIFIC ADVISORS
AND OTHER RESEARCH INSTITUTIONS, WHOSE ACTIVITIES ARE NOT WHOLLY WITHIN OUR
CONTROL, MAY LEAD TO DELAYS IN TECHNOLOGICAL DEVELOPMENTS
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.
In addition, we have formed research collaborations with many academic and
other research institutions throughout the world, including the Roslin
Institute. These research facilities may have commitments to other commercial
and non-commercial entities. We have limited control over the operations of
these laboratories and can expect only limited amounts of time to be dedicated
to our research goals.
THE LOSS OF KEY PERSONNEL COULD SLOW OUR ABILITY TO CONDUCT RESEARCH AND DEVELOP
PRODUCTS
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. Competition for personnel is intense and we may be unable to
retain our current personnel or attract or assimilate other highly qualified
management and scientific personnel in the future. The loss of any or all of
these individuals could harm 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 these individuals on acceptable terms. Failure to do so would materially
harm our business.
WE MAY NOT BE ABLE TO OBTAIN OR MAINTAIN SUFFICIENT INSURANCE ON COMMERCIALLY
REASONABLE TERMS OR WITH ADEQUATE COVERAGE AGAINST POTENTIAL LIABILITIES IN
ORDER TO PROTECT OURSELVES AGAINST PRODUCT LIABILITY CLAIMS
Our business exposes us to potential product liability risks that are
inherent in the testing, manufacturing and marketing of human therapeutic and
diagnostic products. We may become subject to product liability claims if the
use of our products is alleged to have injured subjects or patients. This risk
exists for products tested in human clinical trials as well as products that are
sold commercially. We currently have no clinical trial liability insurance and
we may not be able to obtain and maintain this type of insurance for any of our
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clinical trials. In addition, product liability insurance is becoming
increasingly expensive. As a result, 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 which could have a material adverse
effect on us.
BECAUSE WE OR OUR COLLABORATORS MUST OBTAIN REGULATORY APPROVAL TO MARKET OUR
PRODUCTS IN THE UNITED STATES AND FOREIGN JURISDICTIONS, WE CANNOT PREDICT
WHETHER OR WHEN WE WILL BE PERMITTED TO COMMERCIALIZE OUR 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 collaborators 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 collaborators
of any commercially viable product will be subject to government regulation from
several standpoints, including the processes of:
- manufacturing;
- advertising and promoting;
- selling and marketing;
- labeling; and
- distributing.
We may not obtain regulatory approval for the products we develop and our
collaborators may not obtain regulatory approval for the products they develop.
Regulatory approval may also entail limitations on the indicated uses of a
proposed product. Because certain of our product candidates involve the
application of new technologies and may be based upon a new therapeutic
approach, such products may be subject to substantial additional review by
various government regulatory authorities, and, as a result, we may obtain
regulatory approvals for such products more slowly than for products based upon
more conventional technologies. If, and to the extent that, we are unable to
comply with these regulations, our ability to earn revenues will be materially
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.
Data obtained from preclinical and clinical activities is susceptible to
varying interpretations that could delay, limit or prevent regulatory agency
approvals or clearances. 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
collaborators develop;
- impose costly procedures upon our activities or the activities of our
collaborators;
- 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.
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Even if we commit the necessary time and resources, both economic and
otherwise, 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, this
approval or clearance may entail limitations on the indicated uses for which it
may be marketed that could limit the potential commercial use of the 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 the 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, financial condition and results of operations.
TO BE SUCCESSFUL, OUR PRODUCTS MUST BE ACCEPTED BY THE HEALTH CARE COMMUNITY,
WHICH CAN BE VERY SLOW TO ADOPT OR UNRECEPTIVE TO NEW TECHNOLOGIES AND PRODUCTS
Our products and those developed by our collaborative partners, if approved
for marketing, may not achieve market acceptance since physicians, patients or
the medical community in general may decide to not 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 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 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, or for any other reason, our business would be materially
harmed.
THE REIMBURSEMENT STATUS OF NEWLY-APPROVED HEALTH CARE PRODUCTS IS UNCERTAIN AND
FAILURE TO OBTAIN REIMBURSEMENT APPROVAL COULD SEVERELY LIMIT THE USE 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,
examples of which include:
- government health administration authorities;
- private health insurers;
- health maintenance organizations; and
- pharmacy benefit management companies.
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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 materially harm our business.
OUR ACTIVITIES INVOLVE HAZARDOUS MATERIALS AND IMPROPER HANDLING OF THESE
MATERIALS BY OUR EMPLOYEES OR AGENTS COULD EXPOSE US TO SIGNIFICANT LEGAL AND
FINANCIAL PENALTIES
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, including those governing laboratory procedures, exposure to
blood-borne pathogens and the handling of biohazardous materials. 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 these laws and regulations.
Although we believe that our safety procedures for using, handling, storing
and disposing of hazardous 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,
state or federal authorities could curtail our use of these materials and we
could be liable for any civil damages that result, the cost of which could be
substantial. Further, any failure by us to control the use, disposal, removal or
storage of, or to adequately restrict the discharge of, or assist in the cleanup
of, hazardous chemicals or hazardous, infectious or toxic substances could
subject us to significant liabilities, including joint and several liability
under certain statutes, and any liability could exceed our resources and could
have a material adverse effect on our business, financial condition and results
of operations. Additionally, an accident could damage our research and
manufacturing facilities and operations.
Additional federal, state and local laws and regulations affecting us may
be adopted in the future. We may incur substantial costs to comply with and
substantial fines or penalties if we violate any of these laws or regulations.
OUR STOCK PRICE HAS HISTORICALLY BEEN VERY VOLATILE
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 such as media coverage,
legislation and regulatory measures and the activities of various protest groups
or organizations. 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.
Historically, our stock price has been extremely volatile. Between January
1998 and December 31, 2000, our stock has traded as high as $75.88 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; and
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- 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, when they 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.
THE SALE OF A SUBSTANTIAL NUMBER OF SHARES, INCLUDING SHARES THAT WILL BECOME
ELIGIBLE FOR SALE IN THE NEAR FUTURE, MAY ADVERSELY AFFECT THE MARKET PRICE FOR
OUR COMMON STOCK
Sales of substantial number of shares of our common stock in the public
market could significantly and negatively affect the market price for our common
stock. As of December 31, 2000, we had approximately 21,780,812 shares of common
stock outstanding. Of these shares, approximately 10,284,534 shares were issued
(including shares issuable upon conversion or exercise of convertible notes or
warrants) since December 1998 pursuant to private placements. Of these shares,
approximately 9,423,463 shares have been registered pursuant to shelf
registration statements and therefore may be resold (if not sold prior to the
date hereof) in the public market and approximately 861,071 of the remaining
shares may be resold pursuant to Rule 144 into the public markets as early as
March 9, 2002, upon the expiration of a lockup agreement with us.
OUR UNDESIGNATED PREFERRED STOCK MAY INHIBIT POTENTIAL ACQUISITION BIDS; THIS
MAY ADVERSELY AFFECT THE MARKET PRICE OF 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. As of the date of this Form
10-K, the Board of Directors still has authority to designate and issue up to
3,000,000 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, WHICH MAY PREVENT HOLDERS OF OUR
COMMON STOCK FROM BENEFITING FROM WHAT THEY MAY BELIEVE MAY BE THE POSITIVE
ASPECTS OF ACQUISITIONS AND TAKEOVERS
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;
- divide the Board of Directors into separate classes with terms of office
that are structured to prevent all of the directors from being elected in
any one year; 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 or prevent us from engaging in 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.
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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 lease for the office space expires in January 2002, with
an option to renew the lease for two additional periods of two and one-half
years each. We intend to use this space for general office and biomedical
research and development purposes. We also currently lease 900 square feet of
office space at Roslin Biotechnology Centre, Roslin, Midlothian, United Kingdom.
The lease for the office space expires in May 2005. We believe that the existing
facilities are adequate to meet our requirements for the near term.
ITEM 3. LEGAL PROCEEDINGS
Geron 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
Geron's common stock trades on the Nasdaq Stock Market(R) under the symbol
GERN. The high and low closing sales prices (excluding retail markup, markdowns
and commissions) of Geron's stock for the years ending December 31, 2000 and
1999 are as follows:
HIGH LOW
------- -------
Year ended December 31, 2000
First quarter.......................................... $68.000 $13.000
Second quarter......................................... $35.000 $16.000
Third quarter.......................................... $33.500 $21.000
Fourth quarter......................................... $24.625 $14.750
Year ended December 31, 1999
First quarter.......................................... $13.188 $ 9.875
Second quarter......................................... $12.875 $ 9.250
Third quarter.......................................... $12.250 $10.500
Fourth quarter......................................... $14.875 $ 9.500
As of December 31, 2000, there were approximately 769 stockholders of
record. Geron is engaged in a highly dynamic industry, which often results in
significant volatility of our common stock price.
DIVIDEND POLICY
Geron has never paid cash dividends on our capital stock and does not
anticipate paying cash dividends in the foreseeable future, but intends to
retain our capital resources for reinvestment in our business. Any future
determination to pay cash dividends will be at the discretion of the Board of
Directors and will be dependent upon Geron's financial condition, results of
operations, capital requirements and other factors as the Board of Directors
deems relevant.
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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
YEARS ENDED DECEMBER 31,
---------------------------------------------------------------------------
2000 1999 1998 1997 1996
----------- -------------- -------------- -------------- ----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenues from collaborative
agreements...................... $ 6,500 $ 5,244 $ 6,706 $ 7,175 $ 5,235
License fees and royalties........ 109 168 91 78 58
----------- ----------- ----------- ----------- ----------
Total revenues........... 6,609 5,412 6,797 7,253 5,293
Operating expenses:
Research and development........ 23,548 20,571 15,619 15,139 14,260
Acquired research technology.... -- 23,403 -- -- --
General and administrative...... 9,273 5,574 3,769 3,120 3,161
----------- ----------- ----------- ----------- ----------
Total operating
expenses............... 32,821 49,548 19,388 18,259 17,421
----------- ----------- ----------- ----------- ----------
Loss from operations.............. (26,212) (44,136) (12,591) (11,006) (12,128)
Interest and other income......... 5,922 3,263 2,666 1,757 1,826
Interest and other expense........ (12,284) (5,503) (907) (392) (385)
----------- ----------- ----------- ----------- ----------
Loss before cumulative effect of a
change in accounting
principle....................... (32,574) (46,376) (10,832) (9,641) (10,687)
Cumulative effect of a change in
accounting principle............ (13,259) -- -- -- --
----------- ----------- ----------- ----------- ----------
Net loss.......................... (45,833) (46,376) (10,832) (9,641) (10,687)
Accretion of redemption value of
redeemable convertible preferred
stock........................... -- (73) (578) -- --
----------- ----------- ----------- ----------- ----------
Net loss applicable to common
stockholders.................... $ (45,833) $ (46,449) $ (11,410) $ (9,641) $ (10,687)
=========== =========== =========== =========== ==========
Basic and diluted net loss per
share:
Loss per share before cumulative
effect of a change in accounting
principle....................... $ (1.56) $ (3.00) $ (1.00) $ (0.91) $ (2.23)
Cumulative effect of a change in
accounting principle............ (0.64) -- -- -- --
----------- ----------- ----------- ----------- ----------
Net loss per share................ $ (2.20) $ (3.00) $ (1.00) $ (0.91) $ (2.23)
=========== =========== =========== =========== ==========
Shares used in computing net loss
per share....................... 20,869,791 15,489,035 11,439,084 10,551,054 4,789,388
=========== =========== =========== =========== ==========
DECEMBER 31,
------------------------------------------------------
2000 1999 1998 1997 1996
--------- --------- -------- -------- --------
(DOLLARS IN THOUSANDS)
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and short-term
investments.............................. $ 33,025 $ 39,287 $ 24,469 $ 21,597 $ 24,269
Working capital............................ 26,470 32,481 22,261 19,739 21,468
Total assets............................... 114,030 63,701 44,456 26,056 28,788
Noncurrent liabilities..................... 41,987 29,527 8,101 1,250 1,644
Redeemable convertible preferred stock..... -- -- 3,610 -- --
Accumulated deficit........................ (149,802) (103,969) (57,520) (46,110) (36,469)
Total stockholders' equity................. 63,918 26,226 29,191 21,066 23,591
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ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
This Form 10-K contains forward-looking statements that involve risks and
uncertainties. We use words such as "anticipate," "believe," "plan," "expect,"
"future," "intend" and similar expressions to identify forward-looking
statements. These statements appear throughout the Form 10-K and are statements
regarding our intent, belief, or current expectations, primarily with respect to
our operations and related industry developments. You should not place undue
reliance on these forward-looking statements, which apply only as of the date of
this Form 10-K. Our actual results could differ materially from those
anticipated in these forward-looking statements for many reasons, including the
risks faced by us and described in the section of Item 1 titled "Additional
Factors That May Affect Future Results," and elsewhere in this Form 10-K.
The following discussion should be read in conjunction with the audited
consolidated financial statements and notes thereto included in Part I, Item 8
of this Form 10-K.
We are a biopharmaceutical company focused on discovering, developing and
commercializing therapeutic and diagnostic products for applications in oncology
and regenerative medicine, and research tools for drug discovery. Our product
development programs are based upon three patented core technologies:
telomerase, human embryonic stem cells and nuclear transfer.
Since inception, substantially all of our revenues have been generated from
license and research agreements with collaborators. In addition, we receive
license payments and royalties from license and marketing agreements with
various diagnostic and research tool collaborators. We recognize revenue from
the license and research agreements with collaborators as the related research
and development costs are incurred under the collaborative agreements.
In January and February 2000, the Company extended its three-way License
and Research Collaboration Agreement with Pharmacia and Kyowa Hakko,
respectively. The agreement extends the research and compound selection periods
one additional year each, to March 2001 and March 2002, respectively. In 2000,
we received $3.8 million from Pharmacia and $2.0 million from Kyowa Hakko as a
result of the extensions.
In March 2000, we sold a total of 380,855 shares of our common stock and
300,000 warrants to purchase our common stock to a single investor for $9.0
million. We structured the sale of securities in two parts. We priced the first
$6.4 million of common stock at $50.32 per share, and 200,000 warrants are
exercisable at $67.09 per share. We priced the remaining $2.6 million of common
stock at $10.25 per share, and the remaining 100,000 warrants are exercisable at
$12.50 per share. The common stock and the stock underlying the warrants are not
registered for resale and are subject to a two-year prohibition on sale by
agreement. As of December 31, 2000, all of the warrants were outstanding.
During the first quarter of 2000, institutional investors exercised series
A warrants to purchase 625,000 shares of our common stock, series B warrants to
purchase 625,000 shares of our common stock and series C warrants to purchase
1,100,000 shares of our common stock. In total, we received $28.8 million in
proceeds from the exercise of these warrants.
In the first quarter of 2000, an institutional investor converted an
aggregate principal amount of $6.25 million plus accrued interest of series C
convertible debentures into 615,069 shares of our common stock. In addition, an
institutional investor converted an aggregate principal amount of $3.0 million
of series B convertible debentures into 300,000 shares of our common stock.
In June 2000, we sold $25.0 million in series D zero coupon convertible
debentures and warrants to purchase 834,836 shares of common stock to an
institutional investor. The debentures are convertible at any time by the holder
at a fixed conversion price of $29.95 per share. We can convert the debentures
at any time if our common stock has traded at a certain premium to the fixed
conversion price for five consecutive trading days. If unconverted, the
debentures have a maturity date of June 29, 2003. The warrant to purchase
834,836 shares of common stock is exercisable at $37.43 per share at the option
of the holder until December 29, 2001.
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In September 2000, we entered into an agreement with an institutional
investor for an equity financing facility covering the sale of up to $50.0
million of our common stock over 24 months. The shares will be sold at our
discretion at a discount to the then current market price of our common stock on
the day of sale. We control the amount and timing of each sale of stock.
In October 2000, we sold $2.5 million of our common stock under the equity
line financing facility. The financing was made pursuant to an effective shelf
registration previously filed with the Securities and Exchange Commission in
April 2000.
In January 2001, we and Pharmacia agreed to terminate our license and
research collaboration agreement. Pharmacia returned all product rights for
telomerase inhibitors to us. We plan to continue our development work on
compounds that inhibit telomerase for applications in cancer chemotherapy. The
extension agreement with Kyowa Hakko remains unchanged.
Our results of operations have fluctuated from period to period and may
continue to fluctuate in the future based upon the timing and composition of
funding under our various collaborative agreements, as well as the progress of
our research and development efforts and variations in the level of expenses
related to developmental efforts during any given period. 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. We are subject to risks common to companies in our industry
and at our stage of development, including risks inherent in our research and
development efforts, reliance upon our collaborative partners, enforcement of
our 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 our research, we and our collaborators
must conduct preclinical tests and clinical trials, demonstrate the efficacy and
safety of our product candidates, obtain regulatory approvals or clearances and
enter into manufacturing, distribution and marketing arrangements, as well as
obtain market acceptance. We do not expect to receive revenues or royalties
based on therapeutic products for a period of years, if at all.
RESULTS OF OPERATIONS
Revenues
We recognized revenues from collaborative agreements of $6.5 million in
fiscal 2000 compared to $5.2 million in fiscal 1999 and $6.7 million in fiscal
1998. Revenues in 2000, 1999 and 1998 represented research support payments from
our collaborative agreements with Kyowa Hakko and Pharmacia. Declining revenues
in 1999 were a result of reduced research funding from Kyowa Hakko as
contractually agreed in 1998. Increase in revenues in 2000 were a result of the
extension of our three-way agreement with Kyowa Hakko and Pharmacia (terminated
in January 2001). We recognize revenue under collaboration agreements as we
incur the related research and development costs. We received annual funding
payments of $2.0 million, none and $1.0 million under the Kyowa Hakko agreement
in 2000, 1999 and 1998, respectively. We received funding payments totaling $5.0
million each in fiscal 2000, 1999 and 1998 under the Pharmacia agreement. We
expect revenues from collaborative agreements to decrease in 2001 as compared to
2000 as a result of regaining our rights from Pharmacia.
We receive license payments and royalties from license and marketing
agreements with various diagnostic and research tool collaborators. We received
a license fee payment of $75,000 in 1999 under our product marketing agreement
with Clontech. We did not receive any license fee payments in 2000 or 1998. In
fiscal 2000, we received $80,000 in royalties on the sale of diagnostic kits to
the research-use-only market from Intergen, Kyowa Medex, Roche Diagnostics and
PharMingen compared to $85,000 received in fiscal 1999 and $91,000 received in
fiscal 1998. In 2000, we also recognized $29,000 in shared profits from sales of
cell-based research products from Clontech compared to $9,000 in fiscal 1999.
Sales of these cell-based research products began in September 1999.
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Research and Development Expenses
Research and development expenses were $23.5 million, $20.6 million and
$15.6 million for the years ended December 31, 2000, 1999 and 1998,
respectively. The increase in 2000 from 1999 was primarily the result of
increased contract research expenses of $1.4 million, increased license fees for
research technology of $880,000 and higher scientific supplies of $640,000. The
increase in 1999 from 1998 was primarily the result of the amortization of the
research funding obligation to the Roslin Institute of $1.9 million, increased
license fees for research technology of $1.0 million and increased personnel
related costs of $800,000. We expect research and development expenses to
increase significantly in the future as a result of the continued development of
our therapeutic and diagnostic programs.
Acquired Research Expenses
Acquired research expenses were the result of the acquisition of Roslin
Bio-Med in May 1999. We used the purchase method of accounting. We allocated the
purchase price between the acquired basic research in the form of a license to
the nuclear transfer technology, the research agreement with the Roslin
Institute and the net tangible assets of Roslin Bio-Med. We expensed the value
of the nuclear transfer technology of $23.4 million as acquired research expense
and capitalized the value of the research agreement of $17.2 million as an
intangible asset. The total purchase price of $44.4 million also included
acquisition costs of $2.9 million.
The license to the nuclear transfer technology was the only significant
asset of Roslin Bio-Med. We intend to enhance the research and development of
the nuclear transfer technology by combining it with our other technology
platforms. Before we can enter into clinical trials for a potential commercial
application, we must expand the research and development of the combined
technology platforms. Future products, if any, may take several years to develop
and commercialize and will require substantial additional funds. We may never be
able to create a commercial product from the nuclear transfer technology.
Although we have the right to sublicense the nuclear transfer technology, we
expect any future collaborations or sublicenses to fund future research and
development and not recover the cost of the basic nuclear transfer technology
that we acquired. We are using this technology for one research project. We have
concluded that this technology has no alternative future use, and accordingly,
have expensed the value of the acquired research technology at the time of the
acquisition.
General and Administrative Expenses
General and administrative expenses were $9.3 million, $5.6 million and
$3.8 million for the years ended December 31, 2000, 1999 and 1998, respectively.
The increase in 2000 from 1999 was primarily the result of increased business
consulting expenses of $3.0 million. The increase in 1999 from 1998 was
primarily the result of increased business consulting expenses of $600,000,
increased personnel related costs of $600,000, increased facilities maintenance
costs of $300,000 and increased legal and accounting expenses of $300,000.
Interest and Other Income
Interest income was $5.4 million, $2.3 million and $1.9 million for the
years ended December 31, 2000, 1999 and 1998, respectively. The increase in 2000
and 1999 was due to higher average cash and investment balances as a result of
investing proceeds from the sale of debt and equity securities in 2000 and 1999.
Interest earned in the future will depend on any future funding cycles and
prevailing interest rates. We also received $400,000, $1.0 million and $730,000
in research payments under government grants for the years ended December 31,
2000, 1999 and 1998, respectively. We expect income from government grants to
decrease in the future.
Interest and Other Expense
Interest and other expense was $12.3 million, $5.5 million and $907,000 for
the years ended December 31, 2000, 1999 and 1998, respectively. The increase in
interest and other expense in 2000 and 1999 over 1998 was primarily the result
of the various convertible debenture financings during 2000 and 1999. In
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connection with the issuance of series D convertible debentures in June 2000, we
recorded approximately $616,000 in interest expense for the difference between
the fair value of our common stock on the date of signing and the conversion
price of the debentures. In addition, we recorded the $10.5 million value of the
warrant issued with the series D convertible debentures as a charge to interest
expense and an increase to additional-paid-in capital.
At the end of 2000, we adopted a new accounting principle as required by
the Financial Accounting Standards Board. This new principle required us to
modify the way we calculated the interest expense recognized for the difference
between the fair value of our common stock on the closing date of the
convertible debenture financing and the conversion price of the debentures. We
were required to apply this new accounting principle retroactively to the
September 1999 series C convertible debenture issuance. As a result of adopting
this new accounting principle, we recognized $13.3 million in imputed non-cash
interest expense and have recorded it as a cumulative effect of a change in
accounting principle.
In connection with the issuance of series C convertible debentures in
September 1999, we recorded approximately $305,000 in interest expense for the
difference between the fair value of our common stock on the date of signing and
the conversion price of the debentures. In addition, we recognized $625,000 in
interest expense related to a potential penalty on redemption up through the
date our stockholders authorized the additional shares to be issued for the full
conversion of the series C convertible debentures and the exercise of the series
C warrants. We determined the value of the series C warrants to be $2.7 million.
We recorded this value as an increase to additional paid-in-capital with a
related charge to interest expense.
In connection with the issuance of series B convertible debentures in June
1999, we recorded approximately $563,000 in interest expense for the difference
between the fair value of our common stock on the date of signing and the
conversion price of the debentures.
In December 1998, we recorded approximately $562,000 in interest expense in
connection with the sale of series A convertible debentures, for the difference
between the fair market value of our common stock on the date of issuance and
the conversion price of the series A convertible debentures. We recorded the
series A convertible debentures at a discount and were amortizing the debentures
to the redemption amount prior to the conversion of the debentures into common
stock.
Net Loss
Losses before cumulative effect of a change in accounting principle were
$32.6 million, $46.4 million and $10.8 million for the years ended December 31,
2000, 1999 and 1998, respectively. Net losses after cumulative effect of a
change in accounting principle were $45.8 million, $46.4 million and $10.8
million for the year ended December 31, 2000, 1999 and 1998, respectively. The
net loss for 2000 was the net result of increased operating expenses, interest
expense and cumulative effect of a change in accounting principle which was
offset by the decrease in acquisition costs. The increase in net loss for 1999
was primarily the result of the charge for acquired research technology in
connection with the acquisition of Roslin Bio-Med and the amortization of the
research funding obligation to the Roslin Institute.
LIQUIDITY AND CAPITAL RESOURCES
Cash, cash equivalents and investments at December 31, 2000 were $95.8
million compared to $42.9 million at December 31, 1999 and $40.4 million at
December 31, 1998. We have an 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 2000 was primarily the result of the
exercise of warrants, the sale of equity to a private investor and the sale of
convertible debentures. The increase in cash, cash equivalents and investments
in 1999 was primarily the result of the sale of convertible debentures in June
1999 and September 1999.
Net cash used in operations was $13.6 million in 2000 and 1999. Cash used
in operations in 2000 was primarily the result of the net loss for the year of
$45.8 million offset partially by non-cash charges including $24.4 million of
interest arising from the beneficial conversion feature of convertible
debentures and the value
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of warrants issued with convertible debentures. We expect that our net cash used
in operations will increase in 2001 as a result of increased research and
development expenditures.
Through December 31, 2000, we have invested approximately $11.0 million in
property and equipment, of which approximately $7.7 million was financed through
equipment financing. Minimum annual payments due under the equipment financing
facility are expected to total $923,000, $803,000, $216,000 and $11,000 in 2001,
2002, 2003 and 2004, respectively. As of December 31, 2000, we had approximately
$1.5 million available for borrowing from our equipment financing facility. The
drawdown period under the equipment financing facility expires on October 31,
2001. We intend to renew the commitment for a new equipment financing facility
in 2001 to further fund equipment purchases. If we are unable to renew the
commitment, then we will need to spend our own resources for equipment
purchases.
We have agreed to fund scientific research at academic and research
institutions, including the Roslin Institute. Under these research arrangements,
we are obligated to make minimum annual payments of approximately $4.1 million
and $3.1 million in 2001 and 2002, respectively. We intend to continue to
maintain and develop relationships with academic and research institutions.
In 2000, Kyowa Hakko and Pharmacia both extended their research funding
commitment for an additional year. We received $2.0 million and $3.8 million of
additional funding from Kyowa Hakko and Pharmacia, respectively, in 2000 as a
result of the extension. In January 2001, we and Pharmacia agreed to terminate
the license and research collaboration agreement. Pharmacia returned all product
rights for telomerase inhibitors to us. We will seek further funding through
other strategic collaborations, public or private equity financing, or other
financing sources.
In December 1998, we sold $15.0 million in convertible zero coupon
debentures and warrants to purchase 1,250,000 shares our common stock to
investment funds managed by three institutional investors. We received one-half
of the proceeds upon signing the agreement which resulted in the issuance of
$7.5 million series A convertible debentures and warrants to purchase 625,000
shares of our common stock. The series A warrants are exercisable at $12.00 per
share by the holders of series A convertible debentures. During 1999, all of the
series A convertible debentures converted into 750,000 shares of our common
stock at $10.00 per share. In March 2000, we received proceeds of $7.5 million
from the exercise of all of the series A warrants. As of December 31, 2000, none
of series A convertible debentures or series A warrants were outstanding.
In June 1999, we sold $7.5 million of our series B convertible debentures
and warrants to purchase an additional 625,000 shares of our common stock. The
series B debentures are convertible at any time by the holders at a fixed
conversion price of $10.00 per share. The series B warrants are exercisable at
$12.00 per share by the holders of series B convertible debentures. During 1999,
$4.5 million of principal of series B convertible debentures converted into
450,000 shares of our common stock at $10.00 per share. In March 2000, the
remaining $3.0 million of principal of series B convertible debentures converted
into 300,000 shares of our common stock at $10.00 per share. In addition, we
received proceeds of $7.5 million from the exercise of all of the series B
warrants. As of December 31, 2000, none of the series B convertible debentures
or series B warrants were outstanding.
In September 1999, we sold $12.5 million in series C convertible
two-percent coupon debentures and warrants to purchase 1,100,000 shares of our
common stock to an institutional investor. The debentures are convertible at any
time by the holder at a fixed conversion price of $10.25 per share. We can
convert the debentures when our common stock has traded at a certain premium to
the fixed conversion price for ten consecutive trading days. If unconverted, the
series C convertible debentures have a maturity date of September 29, 2002. The
series C warrants to purchase 1,000,000 shares of our common stock are
exercisable at $12.50 per share and the series C warrants to purchase 100,000
shares of our common stock are exercisable at $12.75 per share. We determined
the value of the series C warrants to be approximately $2.7 million and recorded
this amount as interest expense. In March 2000, $6.3 million of principal of
series C convertible debentures converted into approximately 615,000 shares of
our common stock. In addition, we received proceeds of $13.8 million from the
exercise of all of the series C warrants. As of December 31, 2000, $6.3 million
of principal of series C convertible debentures and none of the series C
warrants were outstanding.
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In March 2000, we sold a total of 380,855 shares of our common stock and
warrants to purchase 300,000 shares of our common stock to a single investor for
$9.0 million. We structured the sale of securities in two parts. We priced the
first $6.4 million of common stock at $50.32 per share, and 200,000 warrants are
exercisable at $67.09 per share. We priced the remaining $2.6 million of common
stock at $10.25 per share, and the remaining 100,000 warrants are exercisable at
$12.50 per share. The warrants are exercisable through February 2010. The common
stock and the stock underlying the warrants are not registered for resale and
are subject to a two-year prohibition on sale by agreement. As of December 31,
2000, all of the warrants were outstanding.
In June 2000, we sold $25.0 million in series D zero coupon convertible
debentures and warrants to purchase 834,836 shares of our common stock to an
institutional investor. The debentures are convertible at any time by the holder
at a fixed conversion price of $29.95 per share. We can convert the debentures
at any time if our common stock has traded at a certain premium to the fixed
conversion price for five consecutive trading days. If unconverted, the
debentures have a maturity date of June 29, 2003. The warrants to purchase
834,836 shares of common stock are exercisable at $37.43 per share at the option
of the holder through December 2001. We determined the value of the series D
warrants to be approximately $10.5 million and recorded this amount as interest
expense. As of December 31, 2000, all of the series D convertible debentures and
series D warrants were outstanding.
In September 2000, we entered into an agreement with an institutional
investor for an equity financing facility covering the sale of up to $50.0
million of our common stock over 24 months. The shares will be sold at our
discretion at a discount to the then current market price of our common stock on
the day of sale. We control the amount and timing of each sale of stock.
In October 2000, we sold $2.5 million of our common stock under the equity
line financing facility. The financing was made pursuant to an effective shelf
registration previously filed with the Securities and Exchange Commission in
April 2000.
We estimate that our existing capital resources, payments expected to be
made under the Kyowa Hakko collaborative agreement, interest income and
equipment financing will be sufficient to fund our current level of operations
through March 2003. Changes in our research and development plans or other
changes affecting our operating expenses may not result in the expenditure of
available resources before such time, and in any event, we will need to raise
substantial additional capital to fund our operations in the future. We intend
to seek additional funding through strategic collaborations, public or private
equity financings, capital lease transactions or other financing sources that
may be available.
YEAR 2000 COMPUTER SYSTEMS COMPLIANCE
All of our computer hardware and software has been upgraded for Year 2000
compliance. All of our key vendors have provided assurance that they are Year
2000 compliant. While there were no Year 2000 related problems in the Year 2000,
we are maintaining our contingency plans in the event any problems arise in the
future.
The statement contained in the foregoing Year 2000 readiness disclosures is
subject to protection under Year 2000 Information and Readiness Disclosure Act.
ITEM 7A. 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 our available-for-sale
securities at December 31, 2000 was $95.1 million. These investments include
$29.3 million of cash and cash equivalents which are due in less than 90 days,
$3.0 million of short-term investments which are due in less than one year and
$62.8 million in long-term investments which are due in one to two years. Our
investment policy is to manage our marketable
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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. Due to the nature of our investments, which are primarily corporate and
municipal notes and money market funds, we have concluded that there is no
material market risk exposure.
Foreign Currency Exchange Risk. Because we translate foreign currencies
into United States dollars for reporting purposes, currency fluctuations can
have an impact, though generally immaterial, on our results. We believe that our
exposure to currency exchange fluctuation risk is insignificant primarily
because our international subsidiary satisfies its financial obligations almost
exclusively in its local currencies. For the fiscal 2000 year end, there was an
immaterial currency exchange impact from our intercompany transactions. However,
the financial obligations of Geron to the Roslin Institute are stated in British
pounds sterling over the next five years. This obligation may become more
expensive for us if the United States dollar becomes weaker against the British
pounds sterling. As of December 31, 2000, we did not engage in foreign currency
hedging activities.
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ITEM 8. CONSOLIDATED 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 consolidated balance sheets of Geron
Corporation at December 31, 2000 and 1999, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended December 31, 2000. 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 auditing standards generally
accepted in the United States. 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Geron Corporation at December 31, 2000 and 1999 and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 2000, in conformity with accounting principles generally
accepted in the United States.
ERNST & YOUNG LLP
Palo Alto, California
February 9, 2001
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GERON CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
ASSETS
DECEMBER 31,
----------------------
2000 1999
--------- ---------
Current assets:
Cash and cash equivalents................................. $ 29,985 $ 7,835
Short-term investments.................................... 3,040 31,452
Interest and other receivables............................ 1,156 705
Notes receivable from related parties..................... 50 38
Other current assets...................................... 364 399
--------- ---------
Total current assets.............................. 34,595 40,429
Long-term investments....................................... 62,760 3,636
Notes receivable from related parties....................... 282 275
Property and equipment, net................................. 3,681 3,783
Deposits and other assets................................... 299 301
Intangible assets........................................... 12,413 15,277
--------- ---------
$ 114,030 $ 63,701
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 1,459 $ 1,321
Accrued compensation...................................... 616 720
Accrued liabilities....................................... 708 2,003
Deferred revenue.......................................... 550 --
Current portion of capital lease obligations and equipment
loans.................................................. 923 1,183
Current portion of research funding obligation............ 3,869 2,721
--------- ---------
Total current liabilities......................... 8,125 7,948
Noncurrent portion of capital lease obligations and
equipment loans........................................... 1,030 1,787
Noncurrent portion of research funding obligation........... 9,551 12,413
Convertible debentures...................................... 31,406 15,327
Commitments
Stockholders' equity:
Common stock, $0.001 par value; 50,000,000 shares
authorized; 21,780,812 shares and 17,381,095 shares
issued and outstanding in 2000 and 1999,
respectively........................................... 22 17
Additional paid-in-capital................................ 214,012 131,183
Notes receivable from stockholders........................ -- (70)
Deferred compensation..................................... (475) (853)
Accumulated deficit....................................... (149,802) (103,969)
Accumulated other comprehensive income (loss)............. 161 (82)
--------- ---------
Total stockholders' equity........................ 63,918 26,226
--------- ---------
$ 114,030 $ 63,701
========= =========
See accompanying notes.
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GERON CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
YEARS ENDED DECEMBER 31,
-----------------------------------------
2000 1999 1998
----------- ----------- -----------
Revenues from collaborative agreements.............. $ 6,500 $ 5,244 $ 6,706
License fees and royalties.......................... 109 168 91
----------- ----------- -----------
Total revenues............................ 6,609 5,412 6,797
Operating expenses:
Research and development.......................... 23,548 20,571 15,619
Acquired research technology...................... -- 23,403 --
General and administrative........................ 9,273 5,574 3,769
----------- ----------- -----------
Total operating expenses.................. 32,821 49,548 19,388
----------- ----------- -----------
Loss from operations................................ (26,212) (44,136) (12,591)
Interest and other income........................... 5,922 3,263 2,666
Interest and other expense.......................... (12,284) (5,503) (907)
----------- ----------- -----------
Loss before cumulative effect of a change in
accounting principle.............................. (32,574) (46,376) (10,832)
Cumulative effect of a change in accounting
principle......................................... (13,259) -- --
----------- ----------- -----------
Net loss............................................ (45,833) (46,376) (10,832)
Accretion of redemption value of redeemable
convertible preferred stock....................... -- (73) (578)
----------- ----------- -----------
Net loss applicable to common stockholders.......... $ (45,833) $ (46,449) $ (11,410)
=========== =========== ===========
BASIC AND DILUTED NET LOSS PER SHARE:
Loss per share before cumulative effect of a change
in accounting principle........................... $ (1.56) $ (3.00) $ (1.00)
Cumulative effect of a change in accounting
principle......................................... (0.64) -- --
----------- ----------- -----------
Net loss per share.................................. $ (2.20) $ (3.00) $ (1.00)
=========== =========== ===========
Shares used in computing net loss per share......... 20,869,791 15,489,035 11,439,084
=========== =========== ===========
See accompanying notes.
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GERON CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
NOTES
PREFERRED STOCK COMMON STOCK ADDITIONAL RECEIVABLE
---------------- ------------------- PAID-IN FROM DEFERRED ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL STOCKHOLDERS COMPENSATION DEFICIT
------- ------ ---------- ------ ---------- ------------ ------------ -----------
Balances at December 31, 1997... -- $-- 10,795,913 $11 $ 67,879 $ -- $ (714) $ (46,110)
Net loss........................ -- -- -- -- -- -- -- (10,832)
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
debentures 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 -- -- (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) (57,520)
Net loss........................ -- -- -- -- -- -- -- (46,376)
Net change in unrealized gain
(loss) on available-for-sale
securities..................... -- -- -- -- -- -- -- --
Cumulative translation
adjustment..................... -- -- -- -- -- -- -- --
Comprehensive loss..............
Issuance of common stock in
connection with acquisition.... -- -- 2,100,000 2 24,384 -- -- --
Beneficial conversion feature
related to convertible
debentures issued.............. -- -- -- -- 867 -- -- --
Conversion of convertible
debentures..................... -- -- 1,200,000 1 11,058 -- -- --
Issuance of warrants to purchase
common stock in connection with
convertible debenture
financing...................... -- -- -- -- 3,451 -- -- --
Accrual of penalty under
convertible debentures......... -- -- -- -- 625 -- -- --
Accretion of premium on
redemption of convertible
preferred stock................ -- -- -- -- -- -- -- (73)
Issuance of common stock in
exchange for services.......... -- -- 21,126 -- 442 -- -- --
Issuance of common stock to
certain research institutions,
net of issuance costs of $5.... -- -- 92,000 -- 1,079 -- -- --
Issuance of common stock upon
exercise of warrants........... -- -- 3,229 -- 21 -- -- --
Issuance of common stock under
employee stock plans, net...... -- -- 303,466 1 1,201 (66) -- --
Amortization of deferred
compensation................... -- -- -- -- -- -- 530 --
------- --- ---------- --- -------- ---- ------- ---------
Balances at December 31, 1999... -- $-- 17,381,095 $17 $131,183 $(70) $ (853) $(103,969)
ACCUMULATED
OTHER TOTAL
COMPREHENSIVE STOCKHOLDERS'
INCOME (LOSS) EQUITY
------------- -------------
Balances at December 31, 1997... $ -- $ 21,066
Net loss........................ -- (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
debentures 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................ -- --
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... 30 29,191
Net loss........................ -- (46,376)
Net change in unrealized gain
(loss) on available-for-sale
securities..................... (144) (144)
Cumulative translation
adjustment..................... 32 32
--------
Comprehensive loss.............. (46,488)
Issuance of common stock in
connection with acquisition.... -- 24,386
Beneficial conversion feature
related to convertible
debentures issued.............. -- 867
Conversion of convertible
debentures..................... -- 11,059
Issuance of warrants to purchase
common stock in connection with
convertible debenture
financing...................... -- 3,451
Accrual of penalty under
convertible debentures......... -- 625
Accretion of premium on
redemption of convertible
preferred stock................ -- (73)
Issuance of common stock in
exchange for services.......... -- 442
Issuance of common stock to
certain research institutions,
net of issuance costs of $5.... -- 1,079
Issuance of common stock upon
exercise of warrants........... -- 21
Issuance of common stock under
employee stock plans, net...... -- 1,136
Amortization of deferred
compensation................... -- 530
----- --------
Balances at December 31, 1999... $ (82) $ 26,226
44
46
GERON CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
NOTES
PREFERRED STOCK COMMON STOCK ADDITIONAL RECEIVABLE
---------------- ------------------- PAID-IN FROM DEFERRED ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL STOCKHOLDERS COMPENSATION DEFICIT
------- ------ ---------- ------ ---------- ------------ ------------ -----------
Balances at December 31, 1999... -- $-- 17,381,095 $17 $131,183 $(70) $ (853) $(103,969)
Net loss........................ -- -- -- -- -- -- -- (45,833)
Net change in unrealized gain
(loss) on available-for-sale
securities..................... -- -- -- -- -- -- -- --
Cumulative translation
adjustment..................... -- -- -- -- -- -- -- --
Comprehensive loss..............
Issuance of common stock in
connection with equity line
less issuance costs of $9...... -- -- 87,654 1 2,491 -- -- --
Issuance of common stock in
connection with private
investor financing............. -- -- 380,855 -- 9,000 -- -- --
Beneficial conversion feature
related to convertible
debentures issued.............. -- -- -- -- 616 -- -- --
Conversion of convertible
debentures..................... -- -- 915,069 1 9,076 -- -- --
Issuance of warrants to purchase
common stock in connection with
convertible debenture
financing...................... -- -- -- -- 10,527 -- -- --
Issuance of warrants to purchase
common stock in exchange for
services....................... -- -- -- -- 3,780 -- -- --
Issuance of common stock in
exchange for services.......... -- -- 62,866 1 1,318 -- -- --
Issuance of common stock to
certain research
institutions................... -- -- 58,149 -- 691 -- -- --
Issuance of common stock upon
exercise of warrants........... -- -- 2,400,000 2 29,392 -- -- --
Issuance of common stock under
employee stock plans, net...... -- -- 495,124 -- 2,679 70 -- --
Amortization of deferred
compensation................... -- -- -- -- -- -- 378 --
Effect of a change in accounting
principle, beneficial
conversion related to
convertible debentures issue
($10,527 in 2000 and $2,732 in
1999).......................... -- -- -- -- 13,259 -- -- --
------- --- ---------- --- -------- ---- ------- ---------
Balances at December 31, 2000... -- $-- 21,780,812 $22 $214,012 $ -- $ (475) $(149,802)
======= === ========== === ======== ==== ======= =========
ACCUMULATED
OTHER TOTAL
COMPREHENSIVE STOCKHOLDERS'
INCOME (LOSS) EQUITY
------------- -------------
Balances at December 31, 1999... $ (82) $ 26,226
Net loss........................ -- (45,833)
Net change in unrealized gain
(loss) on available-for-sale
securities..................... 333 333
Cumulative translation
adjustment..................... (90) (90)
--------
Comprehensive loss.............. (45,590)
Issuance of common stock in
connection with equity line
less issuance costs of $9...... -- 2,492
Issuance of common stock in
connection with private
investor financing............. -- 9,000
Beneficial conversion feature
related to convertible
debentures issued.............. -- 616
Conversion of convertible
debentures..................... -- 9,077
Issuance of warrants to purchase
common stock in connection with
convertible debenture
financing...................... -- 10,527
Issuance of warrants to purchase
common stock in exchange for
services....................... -- 3,780
Issuance of common stock in
exchange for services.......... -- 1,319
Issuance of common stock to
certain research
institutions................... -- 691
Issuance of common stock upon
exercise of warrants........... -- 29,394
Issuance of common stock under
employee stock plans, net...... -- 2,749
Amortization of deferred
compensation................... -- 378
Effect of a change in accounting
principle, beneficial
conversion related to
convertible debentures issue
($10,527 in 2000 and $2,732 in
1999).......................... -- 13,259
----- --------
Balances at December 31, 2000... $ 161 $ 63,918
===== ========
See accompanying notes.
45
47
GERON CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEARS ENDED DECEMBER 31,
--------------------------------
2000 1999 1998
-------- -------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss.................................................... $(45,833) $(46,376) $(10,832)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization............................. 1,411 1,281 1,122
Amortization of intangible assets, principally research
related................................................. 2,864 1,910 --
Interest related to beneficial conversion feature......... 24,402 3,599 562
Accretion of discount on convertible debentures........... 8 241 --
Interest expense related to series C convertible
debentures.............................................. 148 688 --
Purchased research technology expense..................... -- 23,403 --
Accretion of interest on research funding obligation...... 491 312 --
Expense related to common stock issued for services
rendered................................................ 3,995 1,542 310
Amortization of deferred compensation..................... 378 530 623
Changes in assets and liabilities:
Interest and other receivables.......................... (451) (182) 378
Other current assets.................................... 35 286 (34)
Notes receivable from related parties................... (19) (63) 80
Deposits and other assets............................... (48) (62) (66)
Accounts payable........................................ 138 137 461
Accrued compensation.................................... (104) 3 286
Accrued liabilities..................................... 853 1,708 52
Deferred revenue........................................ 550 (244) (731)
Research funding payments............................... (2,190) (2,363) --
Translation adjustment.................................. (233) 49 --
-------- -------- --------
Net cash used in operating activities.............. (13,605) (13,601) (7,789)
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures........................................ (1,181) (2,728) (1,034)
Net cash acquired in acquisition............................ -- 983 --
Purchases of securities available-for-sale.................. (62,334) (31,294) (28,375)
Proceeds from maturities of securities available-for-sale... 16,480 18,103 21,817
Proceeds from sales/calls of securities
available-for-sale........................................ 15,526 2,004 --
-------- -------- --------
Net cash used in investing activities.............. (31,509) (12,932) (7,592)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of convertible debentures and
warrants.................................................. 25,000 20,000 7,500
Proceeds from equipment loans............................... 201 2,027 1,034
Payments of obligations under capital leases and equipment
loans..................................................... (1,218) (1,263) (1,084)
Redemption of redeemable convertible preferred stock........ -- (3,683) --
Proceeds from issuance of preferred stock, net.............. -- -- 14,928
Proceeds from issuance of common stock, net................. 43,281 927 5,241
-------- -------- --------
Net cash provided by financing activities.......... 67,264 18,008 27,619
-------- -------- --------
Net increase (decrease) in cash and cash equivalents........ 22,150 (8,525) 12,238
Cash and cash equivalents, at beginning of period........... 7,835 16,360 4,122
-------- -------- --------
Cash and cash equivalents, at end of period................. $ 29,985 $ 7,835 $ 16,360
======== ======== ========
See accompanying notes.
46
48
GERON CORPORATION
NOTES TO CONSOLIDATED 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, developing and commercializing therapeutic and diagnostic
products for applications in oncology and regenerative medicine, and research
tools for drug discovery. Geron's product development programs are based upon
three patented core technologies: telomerase, human embryonic stem cells and
nuclear transfer. 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.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Geron
Corporation and its wholly owned subsidiary, Geron Bio-Med Ltd., a United
Kingdom company. Intercompany accounts and transactions have been eliminated.
The financial statements of the Company's subsidiary outside the United States
are measured using the local currency as the functional currency. Assets and
liabilities of this subsidiary are translated at the rates of exchange at the
balance sheet date. The resultant translation adjustments are included in
accumulated other comprehensive income (loss), a separate component of
stockholders' equity. Income and expense items are translated at average monthly
rates of exchange.
Net Loss Per Share
The Company's basic and diluted net loss per share amounts are calculated
in accordance with Statement of Financial Accounting Standard No. 128, "Earnings
Per Share," ("SFAS 128"). Basic earnings (loss) per share excludes any dilutive
effects of options, warrants and convertible securities. Diluted earnings (loss)
per share includes any dilutive effect of options, warrants and convertible
securities.
A reconciliation of shares used in calculation of basic and diluted net
loss per share follows:
YEARS ENDED DECEMBER 31,
--------------------------------------------------
2000 1999 1998
-------------- -------------- --------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
Loss before cumulative effect of a change in
accounting principle.............................. $ (32,574) $ (46,376) $ (10,832)
Cumulative effect of a change in accounting
principle......................................... (13,259) -- --
----------- ----------- -----------
Net loss............................................ (45,833) (46,376) (10,832)
Accretion of redemption value of redeemable
convertible preferred stock....................... -- (73) (578)
----------- ----------- -----------
Net loss applicable to common stockholders.......... $ (45,833) $ (46,449) $ (11,410)
=========== =========== ===========
BASIC AND DILUTED NET LOSS PER SHARE:
Loss per share before cumulative effect of a change
in accounting principle........................... $ (1.56) $ (3.00) $ (1.00)
Cumulative effect of a change in accounting
principle......................................... (0.64) -- --
----------- ----------- -----------
Basic and diluted net loss per share................ $ (2.20) $ (3.00) $ (1.00)
=========== =========== ===========
Weighted average shares of common stock outstanding
used in computing net loss per share.............. 20,869,791 15,489,035 11,439,084
=========== =========== ===========
47
49
GERON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Had the Company been in a net income position, diluted earnings per share
would have included the shares used in the computation of basic net loss per
share as well as an additional 2,069,229, 1,392,833, and 1,370,960 shares
related to outstanding options and warrants not included above (as determined
using the treasury stock method at the estimated average market value) for 2000,
1999 and 1998, respectively. In addition, had the Company been in a net income
position, diluted earnings per share would also have included 1,479,760, 235,305
and 43,750 shares in 2000, 1999 and 1998, respectively, related to convertible
debentures.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States 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
Since Geron's inception, a substantial portion of its revenues has been
generated from license and research agreements with collaborators. In addition,
Geron has received license payments and royalties from license and marketing
agreements with various diagnostic and research tools collaborators.
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.
The majority of the Company's revenues was earned in the United States. Two
customers accounted for 76% and 22% of the Company's 2000 revenues, 92% and 5%
of the Company's 1999 revenues, and 74% and 25% of the Company's 1998 revenues.
In January 2001, the Company and its largest customer, accounting for 76% of
2000 revenues, agreed to terminate its agreement.
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 Income (Loss)
Comprehensive income (loss) is comprised of net income and other
comprehensive income (loss). Other comprehensive income (loss) includes certain
changes in equity that are excluded from net income. Specifically, unrealized
holding gains and losses on our available-for-sale securities, which were
reported separately in stockholders' equity, and the cumulative translation
adjustment are included in accumulated other comprehensive income (loss).
Comprehensive income (loss) of $161,000, $(82,000) and $30,000 for the years
ended December 31, 2000, 1999 and 1998, respectively, have been reflected in the
consolidated statement of stockholders' equity.
Other Recent Accounting Pronouncements
In June 1999, the Financial Accounting Standards Board ("FASB") issued FAS
137, "Accounting for Derivative Instruments and Hedging Activities -- Deferral
of the Effective Date of FASB Statement No. 133" ("FAS 137"), which amends FAS
133 to be effective for all fiscal quarters or all fiscal years
48
50
GERON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
beginning after June 15, 2000 or January 1, 2001 for the Company. Management
does not currently expect that adoption of FAS 133 will have a material impact
on the Company's financial position or results of operations.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB
101"). SAB 101 clarifies existing accounting principles related to revenue
recognition in financial statements. The adoption of SAB 101 in fiscal year 2000
had no impact on the Company's consolidated financial statements.
In March 2000, the FASB issued FASB Interpretation 44, "Accounting for
Certain Transactions involving Stock Compensation" ("FIN 44"), which provides
clarification on the application of APB Opinion No. 25, "Accounting for Stock
Issued to Employees," and is effective for the Company's year ended December 31,
2000. The adoption of FIN 44 in fiscal year 2000 had no impact on the Company's
consolidated financial statements.
In November 2000, the FASB issued Emerging Issues Task Force Issue No.
00-27, "Application of EITF Issue No. 98-5, Accounting for Convertible
Securities with Beneficial Conversion Features or Contingently Adjustable
Conversion Ratios, to Certain Convertible Instruments" ("EITF 00-27") which is
effective retroactively to September 1999 for all such instruments. EITF 00-27
clarifies the accounting for instruments with beneficial conversion features or
contingently adjustable conversion ratios. According to the new accounting
principle, the beneficial conversion feature should be calculated by first
allocating the proceeds received from the financing among the convertible
instrument and the detachable warrants and then, measuring the beneficial
conversion feature between the stated conversion price of the convertible
instrument and the effective conversion price based on the allocated proceeds.
Previously, the beneficial conversion feature calculation was based on the
difference between the stated conversion price of the convertible instrument and
the fair value of the company's stock price on the closing date of the
financing. As a result of the new accounting principle, the Company modified the
calculation of the beneficial conversion features associated with its series C
convertible debentures issued in September 1999 and series D convertible
debentures issued in June 2000.
The Company has presented the effect of the adopting the new accounting
principle as a cumulative effect of a change in accounting principle as allowed
for in EITF 00-27. Accordingly, the Company has recognized an additional
$13,259,000 in imputed non-cash interest expense. Prior year financial
statements have not been restated to reflect the change in accounting principle.
Had the Company adopted the new accounting principle in 1999, the effect of the
change on the Company's Consolidated Statement of Operations would have been to
increase the net loss by approximately $2,732,000 for the year ended December
31, 1999 and $10,527,000 for the year ended December 31, 2000.
2. ACQUISITION
In May 1999, the Company completed the acquisition of Roslin Bio-Med Ltd.,
a privately held company formed by the Roslin Institute in Midlothian, Scotland.
In connection with this acquisition, the Company formed a research collaboration
with the Roslin Institute and has committed approximately $20,000,000 in
research funding over six years which using an effective interest rate of 6% has
a net present value of $17,200,000. The Company issued 1,891,371 shares of its
common stock with a fair value of $22,200,000 in exchange for all of the
outstanding shares of Roslin Bio-Med Ltd. In addition, the Company issued fully
vested options to purchase 208,629 shares of Geron common stock with a fair
value of $2,200,000 in exchange for the outstanding fully vested stock options
in Roslin Bio-Med Ltd. The total purchase price of $44,400,000 also included
acquisition costs of $2,900,000. Under the terms of the agreement, Roslin
Bio-Med Ltd. became a wholly owned United Kingdom subsidiary of Geron and is
known as Geron Bio-Med Ltd.
49
51
GERON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The license to the nuclear transfer technology was the only significant
asset of Roslin Bio-Med. Geron intends to further the research and development
of the nuclear transfer technology, in combination with its other technology
platforms. Geron must further the research and development of the technology
before Geron can enter into clinical trials for a potential commercial
application. Future products, if any, may take several years to develop and
commercialize and will require substantial additional funds. Geron may never be
able to create a commercial product from the technology. Geron is using this
technology for one research project. Geron has concluded that this technology
has no alternative future use, and accordingly, Geron has expensed the value of
the acquired research technology at the time of the acquisition.
The transaction was accounted for using the purchase method of accounting.
The purchase price was allocated among the acquired basic research in the form
of a license in the nuclear transfer technology, the research agreement with the
Institute and the net tangible assets of Roslin Bio-Med Ltd. The value of the
nuclear transfer technology of $23,400,000 was reflected as acquired research
expense and the value of the research agreement of $17,200,000 has been
capitalized as an intangible asset and is being amortized over six years.
Payments totaling $2,200,000 and $2,300,000 were made to the Roslin Institute
under the research funding obligation in 2000 and 1999, respectively. Imputed
interest of $491,000 and $1,900,000 was accreted to the value of the research
funding obligation and was recognized as interest expense in 2000 and 1999,
respectively.
The unaudited pro forma consolidated statement of operations data for the
year ended December 31, 1999 set forth below give effect to the acquisition of
Roslin Bio-Med Ltd. as if it occurred on January 1, 1999. The unaudited pro
forma consolidated statement of operations data for the year ended December 31,
1998 set forth below give effect to the acquisition of Roslin Bio-Med Ltd. as if
it occurred on January 1, 1998.
The proforma results of operations for 1999 and 1998 do not include the
expense of $23,400,000 recorded in 1999 by Geron for the acquired research
technology. The results for both 1999 and 1998 include an adjustment to reflect
the amortization of the research funding obligation. The basic and diluted net
loss per share amounts are computed using the weighted average number of shares
of common stock outstanding after the issuance of Geron common stock in
connection with this acquisition.
YEAR ENDED YEAR ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998
------------------ ------------------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Revenues................................... $ 5,412 $ 6,799
Net loss................................... $(24,158) $(16,384)
Basic and diluted net loss per share....... $ (1.49) $ (1.24)
3. 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 United States corporations and municipal securities
with original maturities ranging from three to 19 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 accumulated other comprehensive
income (loss) in stockholders' equity. 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
50
52
GERON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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.
The following is a summary of available-for-sale securities at December 31,
2000 and 1999:
ESTIMATED FAIR VALUE
--------------------
2000 1999
-------- --------
(IN THOUSANDS)
Included in cash and cash equivalents:
Money market fund...................................... $10,479 $ 3,516
Municipal note......................................... 2,000 2,000
Corporate notes........................................ 16,794 --
------- -------
$29,273 $ 5,516
======= =======
Short-term investments (due in less than 1 year):
Certificate of deposit................................. $ 557 $ --
Corporate notes........................................ 2,483 31,452
------- -------
$ 3,040 $31,452
======= =======
Long-term investments (due in 1 - 2 years):
Corporate notes........................................ $62,760 $ 3,636
======= =======
As of December 31, 2000 and 1999, 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 $332,000 ($312,500 in 1999)
from employees of the Company related to housing costs following relocation.
These notes, which in general bear no interest, are collateralized by certain
real property assets of the employees. Two of the notes receivable are to be
paid in full by June 2002 and November 2003, respectively. The remaining two
notes receivable are being paid in a series of installments over three years
ending December 2002 and August 2003.
Other Fair Value Disclosures
At December 31, 2000, the fair value of the notes receivable from employees
is $280,000. 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
$1,953,000. 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.
The fair value of the convertible debentures approximates the carrying
value of $31,406,000. 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.
51
53
GERON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. PROPERTY AND EQUIPMENT
Property and equipment, stated at cost, is comprised of the following:
DECEMBER 31,
------------------
2000 1999
------- -------
(IN THOUSANDS)
Furniture and computer equipment......................... $ 2,502 $ 2,120
Lab equipment............................................ 4,670 4,440
Leasehold improvements................................... 3,864 3,309
------- -------
11,036 9,869
Less accumulated depreciation and amortization........... (7,355) (6,086)
------- -------
$ 3,681 $ 3,783
======= =======
Property and equipment at December 31, 2000 and 1999 includes assets under
capitalized leases and equipment loans of approximately $2,626,000 and
$2,879,000 respectively. Accumulated amortization related to leased assets was
approximately $1,566,000 and $1,307,000 at December 31, 2000 and 1999,
respectively.
5. EQUIPMENT LOANS
In 2000, the Company entered into equipment loan credit lines of
$1,500,000. As of December 31, 2000, the Company had approximately $1,500,000
available for borrowing under its equipment financing facilities. The drawdown
period under the equipment financing facilities expires on October 31, 2001. The
obligations under the equipment loans, which are secured by the equipment
financed, bear interest at fixed rates of approximately 11% and are due in
monthly installments through March 2004. 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 principal payments on equipment loans are as follows:
EQUIPMENT
LOANS
--------------
(IN THOUSANDS)
Years ending December 31:
2001................................................. $ 923
2002................................................. 803
2003................................................. 216
2004................................................. 11
------
Total minimum principal payments............. $1,953
======
6. OPERATING LEASE COMMITMENT
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 $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 $612,000, $652,000 and $637,000 for the years ended December 31,
2000, 1999 and 1998, respectively.
7. CONVERTIBLE DEBENTURES
Series A and B Debentures
On December 10, 1998, the Company entered into an agreement to sell
$15,000,000 in convertible zero coupon debentures and warrants to purchase
1,250,000 shares of common stock to investment funds managed
52
54
GERON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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, at which time $7,500,000 of
series A convertible debentures and warrants to purchase 625,000 shares of
common stock were issued. 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 warrants are exercisable at $12.00 per
share at any time through May 2000. The proceeds of $7,500,000 from the issuance
of series A convertible debentures and warrants were allocated between the
series A convertible debentures and warrants as follows: $6,800,000 to the
debentures and $719,000 to the warrants. The series A convertible debentures,
which were recorded at a discount, were being accreted to the redemption amount
over the three year term using the interest method. In connection with the
issuance of the series A convertible debentures and warrants, the Company
recorded approximately $563,000 in interest expense for the difference between
the fair value of the common stock on the date of signing and the conversion
price of the debentures. During 1999, all of the series A convertible debentures
with a face value of $7,500,000 were converted into 750,000 shares of Geron
common stock at $10.00 per share. In March 2000, all of the series A warrants
were exercised which resulted in proceeds of $7,500,000 and the issuance of
625,000 shares of Geron common stock. As of December 31, 2000, none of series A
convertible debentures or series A warrants remained outstanding.
In June 1999, $7,500,000 of series B convertible debentures and warrants to
purchase 625,000 shares of common stock were issued under the agreement entered
into in December 1998. The price and terms of the series B convertible
debentures were identical to the series A convertible debentures. In connection
with the issuance of the series B convertible debentures and warrants, the
Company recorded approximately $562,000 in interest expense for the difference
between the fair value of the common stock on the date of signing and the
conversion price of the debentures. The warrants are exercisable at $12.00 per
share at any time through November 2000. The $7,500,000 proceeds from the series
B convertible debentures and warrants were allocated between the series B
convertible debentures and the warrants as follows: $6,800,000 to the debentures
and $719,000 to the warrants. The series B convertible debentures, which were
recorded at a discount, were being accreted to the redemption amount over the
three year term using the interest method. During 1999, series B convertible
debentures with a face value of $4,500,000 were converted into 450,000 shares of
Geron common stock at $10.00 per share. In March 2000, series B convertible
debentures with a face value of $3,000,000 were converted into 300,000 shares of
Geron common stock. In addition, all of the series B warrants were exercised
which resulted in proceeds of $7,500,000 and the issuance of 625,000 shares of
Geron common stock. As of December 31, 2000, no series B convertible debentures
or series B warrants remained outstanding.
Series C Debentures
On September 30, 1999, the Company sold $12,500,000 in series C convertible
two-percent coupon debentures and warrants to purchase 1,100,000 shares of
common stock to an institutional investor. The series C convertible debentures
are convertible at any time by the holder at a fixed conversion price of $10.25
per share. The series C convertible debentures are convertible at the Company's
option when the common stock has traded at a certain premium to the fixed
conversion price for ten consecutive trading days. If unconverted, the
debentures have a maturity date of September 30, 2002. The series C warrants to
purchase 1,000,000 shares of common stock are exercisable at $12.50 per share
and the series C warrants to purchase 100,000 shares of common stock are
exercisable at $12.75 per share at the option of the holder through May 2001.
As of the date of the issuance of the series C convertible debentures, the
Company did not have sufficient authorized common shares to permit the series C
debenture holder to fully convert the series C debentures and exercise the
warrants. In the event that the Company did not obtain stockholder approval to
increase its authorized common shares to allow for full conversion of the series
C debentures and exercise of series C warrants prior to March 31, 2000, the
Company would have been in default of under the debenture and would
53
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GERON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
have been obligated to redeem the debentures at the request of the series C
convertible debenture holder at the greater of 115% of the principal amount of
the debentures or an amount equal to the fair value of the common stock such
debentures would have been converted into plus expenses. As of December 31,
1999, the Company had obtained stockholder approval to issue the additional
shares of common stock necessary in order for the holders of series C
convertible debentures to fully convert their debentures and exercise their
warrants. Prior to obtaining stockholder approval to increase the number of
authorized shares of the Company's common stock, the Company recognized $625,000
of interest expense related to this potential penalty on redemption up through
the date the additional shares were authorized.
On the date of issuance of the debentures, the Company recorded
approximately $305,000 in interest expense for the difference between the fair
value of the Company's common stock on September 30, 1999 and the conversion
price of the debentures. The value of the warrants was determined to be
$2,732,000. In accordance with Emerging Issue Task Force Issue No. 98-5, which
was effective for transactions with a commitment date after May 20, 1999, this
value was recorded as an increase to additional paid-in-capital and a related
charge to interest expense. This amount was recorded at the time when the
Company obtained stockholder approval to increase the number of authorized
shares of the Company's common stock to an amount sufficient to allow for the
full conversion of series C convertible debentures and exercise of the series C
warrants. See also Note 1, "Other Recent Accounting Pronouncements."
In March 2000, series C convertible debentures with a face value of
$6,250,000 plus accrued interest were converted into approximately 615,000
shares of Geron common stock at $10.25 per share. In addition, all of the series
C warrants were exercised which resulted in proceeds of $13,750,000 and the
issuance of 1,100,000 shares of Geron common stock. As of December 31, 2000,
series C convertible debentures with a face value of $6,250,000 and no series C
warrants remained outstanding.
Series D Debentures
On June 29, 2000, the Company sold $25,000,000 in series D zero coupon
convertible debentures and warrants to purchase 834,836 shares of Geron common
stock to an institutional investor. The debentures are convertible at any time
by the holder at a fixed conversion price of $29.95 per share. In connection
with the issuance of the series D convertible debentures, the Company recorded
approximately $616,000 in interest expense for the difference between the fair
value of the Company's common stock and the conversion price of the debentures
on the closing date of the financing. The debentures convert at the Company's
option when Geron common stock has traded at a certain premium to the fixed
conversion price for five consecutive trading days. If unconverted, the
debentures have a maturity date of June 29, 2003. The warrant to purchase
834,836 shares of Geron common stock is exercisable at $37.43 per share at the
option of the holder through December 2001. The value of the warrant of
$10,527,000 was determined using Black-Scholes and since the debentures were
immediately convertible at the option of the holder, the entire warrant value
was recorded as a charge to interest expense and a credit to additional
paid-in-capital. As of December 31, 2000, all of the series D convertible
debentures and series D warrants remained outstanding. See also Note 1, "Other
Recent Accounting Pronouncements."
8. 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 was 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 was accreted and recorded as a dividend. The premium was accrued
through December 31, 1998 with the offsetting charge recorded to accumulated
deficit. The conversion price of the series A preferred
54
56
GERON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
stock was 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 was subject to redemption at the Company's option if the market
price of the common stock exceeded or fell 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 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 $3,452,000), which were
then redeemable at the option of the holders of series A preferred stock, were
reclassified as redeemable convertible preferred stock and were excluded from
stockholders' equity. In addition, the 6% premium on the outstanding shares of
series A preferred stock was to be accreted to the value of the outstanding
series A preferred stock.
In May 1999, the Company redeemed the remaining 3,452 shares of series A
preferred stock. The total redemption value of $3,700,000 included the 6%
premium on the outstanding book value of the series A preferred stock. As of
December 31, 2000 and 1999, no shares of series A preferred stock remained
outstanding.
9. PRIVATE FINANCING
In March 2000, the Company sold a total of 380,855 shares of common stock
and warrants to purchase 300,000 shares of Geron common stock to a single
investor for $9,000,000. Warrants to purchase 100,000 shares of common stock are
exercisable at $12.50 per share and the warrants to purchase 200,000 shares of
common stock are exercisable at $67.09 per share by the holder at any time
through February 2010. As of December 31, 2000, all of the warrants issued with
the private financing remained outstanding.
10. EQUITY LINE
In September 2000, the Company entered into an agreement with an
institutional investor for an equity financing facility covering the sale of up
to $50,000,000 of the Company's common stock over 24 months. The shares will be
sold at the Company's discretion at a discount to the then current market price
of the Company's common stock on the day of sale. The Company controls the
amount and timing of each sale of stock.
In October 2000, the Company sold $2,500,000 of the Company's common stock
under the equity line financing facility. The financing was made pursuant to an
effective shelf registration previously filed with the Securities and Exchange
Commission in April 2000.
11. STOCKHOLDERS' EQUITY
Warrants
In August 2000, in connection with a milestone payment to an academic
institution, the Company issued a warrant to purchase 5,000 shares of common
stock. The warrant is exercisable at any time through August 2010 at $31.69 per
share. The fair value of this warrant was determined to be approximately
$148,000 and was recorded as a charge to research and development expense and a
credit to additional paid-in-capital. As of December 31, 2000, the warrant
issued with the milestone payment remained outstanding.
In July 2000, in connection with a milestone payment to an academic
institution, the Company issued a warrant to purchase 25,000 shares of common
stock. The warrant is exercisable at any time through June 2010 at $6.75 per
share. The fair value of this warrant was determined to be approximately
$770,000 and was
55
57
GERON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
recorded as a charge to research and development expense and a credit to
additional paid-in-capital. As of December 31, 2000, the warrant issued with the
milestone payment remained outstanding.
In June 2000, in connection with the sale of series D convertible
debentures to one institutional investor, the Company issued warrants to
purchase 834,836 shares of common stock at $37.43 per share. The series D
warrants are exercisable at any time through December 2001. The fair value of
these warrants in connection with the financing was determined to be
approximately $10,500,000. As of December 31, 2000, all of the series D warrants
remained outstanding.
In April 2000, in connection with a consulting services agreement, the
Company issued a warrant to purchase 142,350 shares of common stock. The warrant
is exercisable at any time through April 2002 at $10.52 per share. The fair
value of this warrant was determined to be approximately $2,500,000 and was
recorded as a charge to general and administrative expense and a credit to
additional paid-in-capital. As of December 31, 2000, the warrant issued with the
consulting services agreement remained outstanding.
In March 2000, in connection with a private financing, the Company issued
warrants to purchase 100,000 shares of common stock at $12.50 per share and the
warrants to purchase 200,000 shares of common stock at $67.09 per share. The
warrants are exercisable at any time through February 2010. As of December 31,
2000, all of the warrants issued with the private financing remained
outstanding.
In September 1999, in connection with the sale of series C convertible
debentures to one institutional investor, the Company issued warrants to
purchase 1,000,000 shares of common stock at $12.50 per share, and warrants to
purchase 100,000 shares of common stock at $12.75 per share. The series C
warrants were exercisable at any time through June 2001. The value of these
warrants in connection with the financing was determined to be approximately
$2,732,000. In March 2000, all of the series C warrants were exercised which
resulted in proceeds of $13,750,000 and the issuance of 1,100,000 shares of
Geron common stock. As of December 31, 2000, none of the series C warrants
remained outstanding.
In June 1999, in connection with the sale of series B convertible
debentures to three institutional investors, the Company issued warrants to
purchase 625,000 shares of common stock at $12.00 per share. The series B
warrants were exercisable at any time through November 2000. The value of these
warrants in connection with the financing was determined to be approximately
$719,000. In March 2000, all of the series B warrants were exercised which
resulted in proceeds of $7,500,000 and the issuance of 625,000 shares of Geron
common stock. As of December 31, 2000, none of the series B warrants remained
outstanding.
In December 1998, in connection with the sale of series A convertible
debentures to three institutional investors, the Company issued warrants to
purchase 625,000 shares of common stock at $12.00 per share. The series A
warrants were exercisable at any time through June 2000. The value of these
warrants in connection with the financing was determined to be approximately
$719,000. In March 2000, all of the series A warrants were exercised which
resulted in proceeds of $7,500,000 and the issuance of 625,000 shares of Geron
common stock. As of December 31, 2000, none of the series A warrants remained
outstanding.
In October 1998, in conjunction with a license agreement, the Company
issued a warrant to purchase 25,000 shares of common stock at $5.78 per share to
a research institution. The warrant is exercisable through September 2008. The
value of these warrants was determined to be immaterial. During 1999, 5,583 of
the warrants were exercised under a non-cash basis, which resulted in the
issuance of 2,586 shares of common stock. During 2000, 11,500 of these warrants
were exercised on non-cash basis, which resulted in the issuance of 9,722 shares
of common stock. As of December 31, 2000, warrants to purchase 7,917 shares of
common stock remain outstanding.
In August 1997, in conjunction with a license agreement, the Company issued
warrants to purchase 25,000 shares of common stock at $6.75 per share to a
research institution and its affiliates. The warrants are exercisable through
July 2007. The value of these warrants was determined to be immaterial. As of
56
58
GERON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 2000, all of the warrants issued in conjunction with the license
agreements remained outstanding.
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. The value of these warrants
was determined to be immaterial. In January 2000, all of the warrants were
exercised under a non-cash basis, which resulted in the issuance of 47,149
shares of common stock. As of December 31, 2000, none of the warrants issued in
conjunction with the research agreement remained outstanding.
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, 2000, the Company had reserved
5,944,362 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 2000 and 1999, the Company repurchased none and
118 shares, respectively, in accordance with these repurchase rights. As of
December 31, 2000, 114 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 in 1998 and recognized compensation expense related
to this option exchange of approximately $241,000, $241,000 and $334,000 in
2000, 1999 and 1998, respectively. 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.
In May 1999, the stockholders approved an
57
59
GERON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
amendment to increase the number of authorized shares to 500,000 shares of
common stock. As of December 31, 2000, 255,000 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 ----------------------------- WEIGHTED
AVAILABLE NUMBER OF PRICE PER AVERAGE
FOR GRANT SHARES SHARE EXERCISE PRICE
---------- ---------- --------------- --------------
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
Additional shares authorized....... 1,123,225 -- $ -- $ --
Options granted.................... (1,223,520) 1,223,520 $ 9.75 - $12.38 $11.30
Options exercised.................. -- (282,132) $ 0.78 - $13.00 $ 3.69
Options canceled................... 295,785 (295,785) $ 0.82 - $17.00 $ 8.12
Options repurchased................ 118 -- $ 0.82 - $ 2.04 $ 1.98
---------- ----------
Balance at December 31, 1999......... 742,337 3,297,522 $ 0.34 - $17.00 $ 7.11
Additional shares authorized....... 800,000 -- $ -- $ --
Options granted.................... (315,471) 315,471 $15.50 - $47.19 $25.62
Options exercised.................. -- (458,580) $ 0.78 - $27.00 $ 5.14
Options canceled................... 342,131 (342,131) $ 0.82 - $35.00 $10.37
---------- ----------
Balance at December 31, 2000......... 1,568,997 2,812,282 $ 0.34 - $47.19 $ 9.11
========== ==========
OPTIONS OUTSTANDING
-----------------------------------------------
WEIGHTED
AVERAGE
REMAINING
WEIGHTED AVERAGE CONTRACTUAL LIFE
EXERCISE PRICE RANGE NUMBER EXERCISE PRICE (IN YEARS)
- -------------------- --------- ---------------- ----------------
$ 0.34 - $ 4.56 415,744 $ 3.53 6.71
$ 4.63 - $ 4.75 905,223 $ 4.75 7.56
$ 4.81 - $11.19 719,403 $10.13 8.17
$11.69 - $47.19 771,912 $16.26 8.98
---------
$ 0.34 - $47.19 2,812,282 $ 9.11 7.98
=========
As of December 31, 2000 and 1999, there were 1,413,863 and 1,241,477
exercisable options outstanding at a weighted average exercise price of $7.15
and $5.07, 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 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
58
60
GERON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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
5.06% to 6.80% for 2000, 4.78% to 6.31% for 1999, and 4.25% to 5.62% for 1998; a
dividend yield of 0.0% for 2000, 1999 and 1998; a volatility factor of the
expected market price of the Company's common stock of 1.032 for 2000, 0.958 for
1999 and 1.078 for 1998; and a weighted average expected life of the options of
5 years for 2000, 1999 and 1998.
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 2000, 1999 and 1998
related to these options grants totaled approximately $137,000, $289,000 and
$289,000, respectively.
The weighted average fair value of options granted during 2000, 1999 and
1998 with an exercise price below the fair market value of the Company's common
stock on the date of grant was none, none and $3.79, respectively. The weighted
average fair value of options granted during 2000, 1999 and 1998 with an
exercise price equal to the fair market value of the Company's common stock on
the date of grant was $25.62, $11.30 and $5.81, respectively. The weighted
average fair value of options granted during 2000, 1999 and 1998 with an
exercise price greater than the fair market value of the Company's common stock
on the date of grant was none, none and $0.11, 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. The Company granted options to
consultants to purchase 18,771, 7,500 and 26,500 shares of the Company's common
stock in 2000, 1999 and 1998, respectively. The fair value of these options is
being amortized to expense over the vesting term of the options. In addition,
the Company will record any additional increase in the fair value of the option
grant as the options vest. The Company recorded expense of $121,000, $6,000 and
$59,000 for the fair value of these options in 2000, 1999 and 1998,
respectively. As of December 31, 2000, the fair value of the remaining unvested
options to consultants is $120,000.
The Company also grants common stock to consultants and research
institutions in exchange for services performed for the Company. In 2000 and
1999, the Company issued 121,015 and 113,126 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 2000, 1999 and 1998, the Company recognized approximately
$1,889,000, $1,526,000 and $172,000, respectively, of operating 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,
-----------------------------------------
2000 1999 1998
----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Net loss........................................... $(45,833) $(46,449) $(11,410)
Pro forma net loss................................. $(50,929) $(49,519) $(15,198)
Basic and diluted net loss per share as reported... $ (2.20) $ (3.00) $ (1.00)
Basic and diluted pro forma net loss per share..... $ (2.44) $ (3.20) $ (1.33)
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
59
61
GERON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 50% 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 108,000, 78,000 and 54,000 shares have been issued under the
Purchase Plan as of December 31, 2000, 1999 and 1998, 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 5.96% to 6.06% for 2000, 5.06% to 5.74% for 1999 and
4.58% to 5.51% for 1998; a dividend yield of 0.0% for 2000, 1999 and 1998; a
volatility factor of the expected market price of the Company's common stock of
1.032 for 2000, 0.958 for 1999 and 1.078 for 1998; and an expected life of the
purchase right of 6 months for 2000, 1999 and 1998. Based upon these
assumptions, the pro forma compensation cost estimated for the fair value of the
employees' purchase rights was approximately $160,000 for 2000, $100,000 for
1999 and $136,000 for 1998 has been included in the above pro forma information.
As of December 31, 2000, 192,384 shares were available for issuance under the
1996 Employee Stock Purchase Plan.
Common Shares Reserved for Future Issuance
At December 31, 2000, 5,706,039 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, conversion of outstanding convertible debentures
and exercise of outstanding warrants.
12. 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 $16,000,000 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
$7,500,000 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 $2,500,000 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 the Company with respect to telomerase inhibition for
the treatment of cancer in humans until April 7, 2000, at the earliest (see
extension below). Kyowa Hakko may terminate the agreement only in the event of
breach or bankruptcy by the Company 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 Agreement (as defined below).
In March 1997, the Company signed a License and Research Collaboration
Agreement (the "Pharmacia Agreement") with Pharmacia Corporation to collaborate
in the discovery, development and commercialization of a new class of
anti-cancer drugs that inhibit telomerase. Under the collaboration, Pharmacia
agreed to
60
62
GERON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
provide $15,000,000 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
$2,000,000 in Geron by Pharmacia, at a premium, which was completed in January
1997. In addition, on April 25, 1997 and March 27, 1998, Pharmacia purchased an
aggregate of $8,000,000 ($4,000,000 on each date) of Geron common stock at a
premium. Through the Pharmacia and Kyowa Hakko Agreements, the Company has
granted to Pharmacia 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.
In March 1997, the Company entered into a three-way agreement with
Pharmacia 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 remain intact.
In January and February 2000, the Company extended its three-way License
and Research Collaboration Agreement with Pharmacia and Kyowa Hakko,
respectively. The agreement extends the research and compound selection periods
one additional year each, to March 2001 and March 2002, respectively. As of
December 31, 2000, the Company had received additional research funding of
$5,750,000 from Pharmacia and Kyowa Hakko as a result of the extension.
In January 2001, Geron and Pharmacia agreed to terminate the license and
research collaboration agreement. Pharmacia returned all product rights for
telomerase inhibitors to the Company. The extension agreement with Kyowa Hakko
remains unchanged.
Costs associated with research and development activities attributable to
the above agreements approximate revenue recognized. Under these agreements,
revenues of approximately $6,500,000, $5,200,000 and $6,700,000, were recognized
in 2000, 1999 and 1998, 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 (the "Boehringer Mannheim Agreement") to
develop and commercialize research and clinical diagnostic products for cancer
on an exclusive, worldwide basis. Under the Boehringer Mannheim 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
Boehringer Mannheim Agreement, the Company received approximately $31,000 and
$18,000 in royalty payments from Roche during 2000 and 1999, respectively.
In March 1999, the Company entered into an exclusive License, Product and
Marketing Agreement with Clontech (the "Clontech Agreement") to develop,
manufacture and sell six cell lines. Under the terms of the Clontech Agreement,
Clontech will be responsible for manufacturing and marketing of products
resulting from the use of the Company's telomerase technology. The Clontech
Agreement provides for Clontech to pay an up-front technology licensing fee of
$50,000, and for Clontech and Geron to equally share operating profits generated
from the sale of the cell lines. Specifically, the Company is to receive
reimbursement funding of the
61
63
GERON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
greater of $25,000 or 10% of sales on December 31, 1999, December 31, 2000, and
December 31, 2001. Clontech launched its first product using the Company's
telomerase technology in September 1999, but sales did not exceed $250,000.
Therefore, the Company recognized revenue of $25,000 during 1999. In addition,
the Company recognized approximately $29,000 and $9,000 in shared profits from
sales of cell lines in 2000 and 1999, respectively.
13. INCOME TAXES
As of December 31, 2000, the Company had federal and state net operating
loss carryforwards of approximately $109,000,000 which will expire at various
dates beginning 2006 through 2020, if not utilized. The Company also had federal
research and development tax credit carryforwards of approximately $1,700,000
which will expire at various dates beginning in 2007 through 2020, if not
utilized.
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 and similar state provisions. The annual
limitation may result in the expiration of net operating losses and credits
before utilization.
Significant components of the Company's deferred tax assets as of December
31 are as follows:
2000 1999
-------- --------
(IN THOUSANDS)
Net operating loss carryforwards....................... $ 37,800 $ 34,600
Research credits (expiring 2007 - 2020)................ 3,000 3,900
Capitalized research and development................... 4,900 3,200
Other -- net........................................... 1,900 (200)
-------- --------
Total deferred tax assets.................... 47,600 41,500
Valuation allowance for deferred tax assets............ (47,600) (41,500)
-------- --------
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 decreased by
$6,100,000 and increased by $17,200,000 during the years ended December 31, 2000
and 1999, respectively.
Approximately $2,400,000 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.
14. SEGMENT INFORMATION
The Company adopted Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information" ("SFAS
131") in 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 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 oncology and regenerative
medicine and research tools for drug discovery. As a result, the financial
information disclosed herein materially represents all of the financial
information related to the Company's principal operating segment.
62
64
GERON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. STATEMENT OF CASH FLOWS DATA
YEARS ENDED DECEMBER 31,
----------------------------
2000 1999 1998
------ ------- -------
(IN THOUSANDS)
Supplementary information
Interest paid............................................. $ 250 $ 299 $ 246
Supplementary investing and financing activities
Common stock issued under purchase plan................... $ 317 $ 208 $ 154
Notes receivable from stockholders........................ $ 70 $ (70) $ (4)
Conversion of convertible debentures...................... $9,077 $11,059 $ --
Warrants to purchase common stock and common stock issued
for services........................................... $1,098 $ -- $ --
Accretion of premium on convertible preferred stock....... $ -- $ (73) $ (578)
Redeemable convertible preferred stock.................... $ -- $ -- $ 3,610
Acquired research funding obligation...................... $ -- $17,187 $ --
Common stock issued in connection with acquisition........ $ -- $24,386 $ --
Deferred compensation related to options granted.......... $ -- $ -- $(1,292)
Unrealized loss on equity investments..................... $ 50 $ -- $ --
Net unrealized gain (loss) on available-for-sale
securities............................................. $ 384 $ (144) $ 30
16. QUARTERLY RESULTS (UNAUDITED)
FIRST SECOND THIRD FOURTH
YEAR ENDED DECEMBER 31, 2000 QUARTER QUARTER QUARTER QUARTER
---------------------------- -------- -------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Revenues......................................... $ 1,271 $ 1,776 $ 1,796 $ 1,766
Operating expenses............................... (10,236) (8,339) (8,140) (6,106)
Net loss applicable to common stockholders....... (8,484) (16,498) (4,928) (15,923)
Basic and diluted net loss per share............. $ (0.45) $ (0.77) $ (0.23) $ (0.73)
FIRST SECOND THIRD FOURTH
YEAR ENDED DECEMBER 31, 1999 QUARTER QUARTER QUARTER QUARTER
---------------------------- -------- -------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Revenues......................................... $ 1,495 $ 1,346 $ 1,276 $ 1,295
Operating expenses............................... (5,368) (29,342) (8,238) (6,600)
Net loss applicable to common stockholders....... (3,394) (28,022) (6,940) (8,093)
Basic and diluted net loss per share............. $ (0.25) $ (1.87) $ (0.42) $ (0.48)
Basic and diluted net losses per share are computed independently for each
of the quarters presented. Therefore, the sum of the quarters may not be equal
to the full year net loss per share amounts.
17. SUBSEQUENT EVENTS (UNAUDITED)
In January 2001, Geron and Pharmacia agreed to terminate the license and
research collaboration agreement. Pharmacia returned all product rights for
telomerase inhibitors to the Company. The extension agreement with Kyowa Hakko
remains unchanged.
63
65
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 18, 2001, 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
section 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) CONSOLIDATED FINANCIAL STATEMENTS
Included in Part II of this Report:
PAGE
----
Report of Ernst & Young LLP, Independent Auditors........... 41
Consolidated Balance Sheets -- December 31, 2000 and 1999... 42
Consolidated Statements of Operations -- Three years ended
December 31, 2000, 1999 and 1998.......................... 43
Consolidated Statement of Stockholders' Equity -- Three
years ended December 31, 2000............................. 44
Consolidated Statements of Cash Flows -- Three years ended
December 31, 2000, 1997 and 1998.......................... 46
Notes to Consolidated Financial Statements.................. 47
(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).
64
66
(3) EXHIBITS.
EXHIBIT
NUMBER DESCRIPTION
- ---------- -----------
2.1(1)+ Sale and Purchase Agreement dated May 3, 1999, among the
Registrant and each of the shareholders of Roslin
2.2(1) Escrow Agreement dated May 3, 1999, among the Registrant, a
committee acting for and on behalf of the Warrantors, and
U.S. Bank Trust National Association
3.1(2) Amended and Restated Certificate of Incorporation of
Registrant
3.2* Certificate of Amendment of Restated Certificate of
Incorporation of Geron Corporation
3.3* Bylaws of Registrant
4.1(3) Form of Common Stock Certificate
4.2(4) Registration Rights Agreement dated March 27, 1998, among
the Registrant Certain Investors
4.3(5) Registration Rights Agreement dated as of December 10, 1998
among the Registrant and certain investors
4.4(6) Registration Rights Agreement, dated April 30, 1999, by and
among the Registrant and each of the Shareholders of Roslin
4.5(7) Registration Rights Agreement dated as of September 30, 1999
by and between the Registrant and RGC International
Investors, LDC
4.5(8) Form of Warrant
4.5(9) Form of Debenture
10.1(3) Form of Indemnification Agreement
10.2(10) 1992 Stock Option Plan, as amended
10.3(3) 1996 Employee Stock Purchase Plan
10.4(11) 1996 Directors' Stock Option Plan, as amended
10.6(3)+ Agreement with Respect to Option dated August 31, 1992
between Registrant and Cold Spring Harbor Laboratory and
Amendments No. 1 and 2 thereto dated May 3, 1993 and January
1994
10.7(3)+ Patent License Agreement dated September 8, 1992 between
Registrant and University of Texas Southwestern medical
Center at Dallas
10.8(3)+ Sponsored Research Agreement dated as of September 8, 1992
between the Registrant and University of Texas Southwestern
Medical Center at Dallas
10.9(3)+ Exclusive License Agreement dated February 2, 1994 between
the Registrant and the Regents of the University of
California
10.10(3)+ 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(3)+ Standard Nonexclusive License Agreement dated January 1,
1996 between the Registrant and Wisconsin Alumni Research
Foundation
10.12(3) Business Park Lease dated March 25, 1996 between the
Registrant and David D. Bohannon Organization
10.13(3) Business Park Lease dated March 25, 1996 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(3) Equipment Financing Agreement dated January 5, 1992 between
the Registrant and Lease Management Services, Inc.
10.15(3) Master Lease Agreement dated January 5, 1993 between the
Registrant and Lease Management Services, Inc.
10.20(3) Note Secured by Second Deed of Trust dated December 1993
between the Registrant and Calvin B. Harley
10.23(3) Common Stock Warrant dated May 4, 1994, issued by the
Registrant to Cold Spring Harbor Laboratory
10.25(12) Common Stock Purchase Agreement dated December 20, 1996
between the Registrant and Pharmacia & Upjohn S.p.A.
65
67
EXHIBIT
NUMBER DESCRIPTION
- ---------- -----------
10.26(13)+ License and Research Collaboration Agreement dated March 23,
1997 between Registrant and Pharmacia & Upjohn S.p.A.
10.27(13)+ Amendment No. 2 to License and Research Collaboration
Agreement dated April 24, 1995 between the Registrant and
Kyowa Hakko Kogyo Co., Ltd. dated March 23, 1997
10.28(13)+ Three Party Agreement dated March 23, 1997 by and among
Registrant, Kyowa Hakko Kogyo Co., Ltd. and Pharmacia &
Upjohn S.p.A.
10.29(13)+ Common Stock Purchase Agreement dated March 23, 1997 between
Registrant and Pharmacia & Upjohn S.p.A.
10.30(13)+ Intellectual Property License Agreement dated December 9,
1996 between Registrant and University Technology
Corporation
10.33(13) First Amendment to Note Secured by Deed of Trust with Harley
10.35(14)+ License Agreement dated August 1, 1997 between Registrant
and The Johns Hopkins University
10.36(14)+ Research Agreement dated August 1, 1997 between Registrant
and The Johns Hopkins University
10.37(15)+ License, Product Development, and Marketing Agreement by and
between Registrant and Boehringer Mannheim, GmbH
10.38(16) Securities Purchase Agreement dated as of March 27, 1998
between Registrant and Certain Investors
10.40(17) Securities Purchase Agreement dated as of December 10, 1998
among the Registrant and certain investors
10.42(1)+ Research and License Agreement dated May 3, 1999 by and
between the Registrant, Roslin, and the Institute
10.43(1)+ License Agreement dated May 3, 1999, among the Registrant,
Roslin and the Institute.
10.44(18) Amendment No. 1 to the Securities and Purchase Agreement,
dated as of June 17, 1999, by and among the Registrant and
certain investors
10.45(18) Amendment No. 1 to the Registration Rights Agreement, dated
as of June 17, 1999, by and among the Registrant and certain
investors
10.46(19) Securities Purchase Agreement dated as of September 30, 1999
between Registrant and RGC International Investors, LDC
10.47(20) License Agreement with Wisconsin Alumni Research Foundation
10.48(21) Option Agreement with Wisconsin Alumni Research Foundation
10.49(22) Amendment to the License Agreement with Wisconsin Alumni
Research Foundation
10.50(23) Secured Loan Agreement, dated as of August 10, 1999, by and
between David J. Earp and Andrea L. Earp and the Registrant
10.51(24) Letter to Thomas Okarma, dated as of October 7, 1999,
extending License and Research Collaboration Agreement
between Pharmacia & Upjohn and the Registrant
10.52(25) Amendment No. 3 to the License and Research Collaboration
Agreement, dated as of January 24, 2000, by and between the
Registrant and Kyowa Hakko Kogyo Co., Ltd.
10.53(26) Securities Purchase Agreement by and between Registrant and
private investor dated March 9, 2000
10.54(27) Warrant to purchase 100,000 shares of common stock issued by
Registrant to private investor dated March 9, 2000
10.55(28) Warrant to purchase 200,000 shares of common stock issued by
Registrant to private investor dated March 9, 2000
10.53(29) Securities Purchase Agreement dated as of June 29, 2000, by
and between Registrant and the Purchaser
10.54(30) Registration Rights Agreement dated as of June 29, 2000, by
and between Registrant and the Purchaser
10.55(31) Series D Zero Coupon Convertible Debenture
66
68
EXHIBIT
NUMBER DESCRIPTION
- ---------- -----------
10.56(32) Warrant to purchase 834,836 shares of common stock issued by
Registrant to the Purchaser, dated as of June 29, 2000
10.56(33) Common Stock Purchase Agreement, dated as of September 6,
2000, by and between the Registrant and Acqua Wellington
21.1* List of Subsidiaries
23.1 Consent of Ernst & Young LLP, Independent Auditors
24.1 Power of Attorney (see signature page)
- ---------------
+ 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 identically numbered exhibits filed with the
Registrant's Annual Report on Form 10-K filed on March 13, 2000.
(1) Incorporated by reference to identically numbered exhibits filed on the
Registrant's Form 8-K filed on May 18, 1999.
(2) Incorporated by reference to Exhibit 3.3 filed with the Registrant's
Registration Statement on Form S-1 which became effective on July 30, 1996.
(3) 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.
(4) Incorporated by reference to Exhibit 10.39 of the Registrant's Current
Report on Form 8-K filed on April 2, 1998.
(5) Incorporated by reference to Exhibit 10.41 of the Registrant's Current
Report on Form 8-K filed on December 17, 1998.
(6) Incorporated by reference to Exhibit 4.1 of the Registrant's Current Report
on Form 8-K filed on May 18, 1999.
(7) Incorporated by reference to Exhibit 99.2 of the Registrant's Current
Report on Form 8-K filed on October 7, 1999.
(8) Incorporated by reference to Exhibit 4.2 of the Registrant's Current Report
on Form 8-K filed on December 17, 1998.
(9) Incorporated by reference to Exhibit 4.1 of the Registrant's Current Report
on Form 8-K filed on December 17, 1998.
(10) Incorporated by reference to Exhibit 99.1 of the Registrant's Registration
Statement on Form S-8 filed on December 23, 1999.
(11) Incorporated by reference to Exhibit 99.2 of the Registrant's Registration
Statement on Form S-8 filed on December 23, 1999.
(12) Incorporated by reference to Exhibit 10.1 of the Registrant's Current
Report on Form 8-K filed on January 24, 1997.
(13) Incorporated by reference to identically numbered exhibits filed with
Registrant's Quarterly Report on Form 10-Q for the period ended March 31,
1997.
(14) Incorporated by reference to identically numbered exhibits filed with
Registrant's Quarterly Report on Form 10-Q for the period ended September
30, 1997.
(15) Incorporated by reference to identically numbered exhibits filed with
Registrant's Annual Report on Form 10-K filed on March 31, 1998.
(16) Incorporated by reference to Exhibit 10.39 of the Registrant's Current
Report on Form 8-K filed on April 2, 1998.
(17) Incorporated by reference to Exhibit 10.40 of the Registrant's Current
Report on Form 8-K filed on December 17, 1998.
67
69
(18) Incorporated by reference to identically numbered exhibits filed with
Registrant's Registration Statement on Form S-3 filed on April 2, 1998.
(19) Incorporated by reference to Exhibit 99.1 of the Registrant's Current
Report on Form 8-K filed on October 5, 1999.
(20) Incorporated by reference to Exhibit 10.1 filed with Registrant's Quarterly
Report on Form 10-Q for the period ended September 30, 1999.
(21) Incorporated by reference to Exhibit 10.2 filed with Registrant's Quarterly
Report on Form 10-Q for the period ended September 30, 1999.
(22) Incorporated by reference to Exhibit 10.3 filed with Registrant's Quarterly
Report on Form 10-Q for the period ended September 30, 1999.
(23) Incorporated by reference to Exhibit 10.11 of the Registrant's Annual
Report on Form 10-K filed on March 13, 2000.
(24) Incorporated by reference to Exhibit 10.12 of the Registrant's Annual
Report on Form 10-K filed on March 13, 2000.
(25) Incorporated by reference to Exhibit 10.13 of the Registrant's Annual
Report on Form 10-K filed on March 13, 2000.
(26) Incorporated by reference to Exhibit 4.7 of the Registrant's Quarterly
Report on Form 10-Q filed on May 15, 2000.
(27) Incorporated by reference to Exhibit 4.8 of the Registrant's Quarterly
Report on Form 10-Q filed on May 15, 2000.
(28) Incorporated by reference to Exhibit 4.9 of the Registrant's Quarterly
Report on Form 10-Q filed on May 15, 2000.
(29) Incorporated by reference to Exhibit 4.1 of the Registrant's Current Report
on Form 8-K filed on July 6, 2000.
(30) Incorporated by reference to Exhibit 4.2 of the Registrant's Current Report
on Form 8-K filed on July 6, 2000.
(31) Incorporated by reference to Exhibit 4.3 of the Registrant's Current Report
on Form 8-K filed on July 6, 2000.
(32) Incorporated by reference to Exhibit 4.4 of the Registrant's Current Report
on Form 8-K filed on July 6, 2000.
(33) Incorporated by reference to Exhibit 10.1 of the Registrant's Current
Report on Form 8-K filed on September 26, 2000.
(b) REPORTS ON FORM 8-K.
(i) Geron has not filed any reports on Form 8-K during the last quarter of
the period covered by the Form 10-K.
(c) INDEX TO EXHIBITS.
68
70
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 23rd day of March, 2001.
GERON CORPORATION
By: /s/ THOMAS B. OKARMA
------------------------------------
Thomas B. Okarma
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, Thomas B. Okarma
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/ THOMAS B. OKARMA President, Chief Executive March 23, 2001
- --------------------------------------------------- Officer and Director (Principal
Thomas B. Okarma Executive Officer)
/s/ DAVID L. GREENWOOD Chief Financial Officer, Senior March 23, 2001
- --------------------------------------------------- Vice President of Corporate
David L. Greenwood Development, Treasurer and
Secretary (Principal Financial
and Accounting Officer)
/s/ ALEXANDER E. BARKAS Director March 23, 2001
- ---------------------------------------------------
Alexander E. Barkas
/s/ RONALD W. EASTMAN Director March 23, 2001
- ---------------------------------------------------
Ronald W. Eastman
/s/ EDWARD V. FRITZKY Director March 23, 2001
- ---------------------------------------------------
Edward V. Fritzky
/s/ THOMAS D. KILEY Director March 23, 2001
- ---------------------------------------------------
Thomas D. Kiley
/s/ ROBERT B. STEIN Director March 23, 2001
- ---------------------------------------------------
Robert B. Stein
/s/ JOHN P. WALKER Director March 23, 2001
- ---------------------------------------------------
John P. Walker
69
71
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ---------- -----------
2.1(1)+ Sale and Purchase Agreement dated May 3, 1999, among the
Registrant and each of the shareholders of Roslin
2.2(1) Escrow Agreement dated May 3, 1999, among the Registrant, a
committee acting for and on behalf of the Warrantors, and
U.S. Bank Trust National Association
3.1(2) Amended and Restated Certificate of Incorporation of
Registrant
3.2* Certificate of Amendment of Restated Certificate of
Incorporation of Geron Corporation
3.3* Bylaws of Registrant
4.1(3) Form of Common Stock Certificate
4.2(4) Registration Rights Agreement dated March 27, 1998, among
the Registrant Certain Investors
4.3(5) Registration Rights Agreement dated as of December 10, 1998
among the Registrant and certain investors
4.4(6) Registration Rights Agreement, dated April 30, 1999, by and
among the Registrant and each of the Shareholders of Roslin
4.5(7) Registration Rights Agreement dated as of September 30, 1999
by and between the Registrant and RGC International
Investors, LDC
4.5(8) Form of Warrant
4.5(9) Form of Debenture
10.1(3) Form of Indemnification Agreement
10.2(10) 1992 Stock Option Plan, as amended
10.3(3) 1996 Employee Stock Purchase Plan
10.4(11) 1996 Directors' Stock Option Plan, as amended
10.6(3)+ Agreement with Respect to Option dated August 31, 1992
between Registrant and Cold Spring Harbor Laboratory and
Amendments No. 1 and 2 thereto dated May 3, 1993 and January
1994
10.7(3)+ Patent License Agreement dated September 8, 1992 between
Registrant and University of Texas Southwestern medical
Center at Dallas
10.8(3)+ Sponsored Research Agreement dated as of September 8, 1992
between the Registrant and University of Texas Southwestern
Medical Center at Dallas
10.9(3)+ Exclusive License Agreement dated February 2, 1994 between
the Registrant and the Regents of the University of
California
10.10(3)+ 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(3)+ Standard Nonexclusive License Agreement dated January 1,
1996 between the Registrant and Wisconsin Alumni Research
Foundation
10.12(3) Business Park Lease dated March 25, 1996 between the
Registrant and David D. Bohannon Organization
10.13(3) Business Park Lease dated March 25, 1996 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(3) Equipment Financing Agreement dated January 5, 1992 between
the Registrant and Lease Management Services, Inc.
10.15(3) Master Lease Agreement dated January 5, 1993 between the
Registrant and Lease Management Services, Inc.
10.20(3) Note Secured by Second Deed of Trust dated December 1993
between the Registrant and Calvin B. Harley
10.23(3) Common Stock Warrant dated May 4, 1994, issued by the
Registrant to Cold Spring Harbor Laboratory
10.25(12) Common Stock Purchase Agreement dated December 20, 1996
between the Registrant and Pharmacia & Upjohn S.p.A.
70
72
EXHIBIT
NUMBER DESCRIPTION
- ---------- -----------
10.26(13)+ License and Research Collaboration Agreement dated March 23,
1997 between Registrant and Pharmacia & Upjohn S.p.A.
10.27(13)+ Amendment No. 2 to License and Research Collaboration
Agreement dated April 24, 1995 between the Registrant and
Kyowa Hakko Kogyo Co., Ltd. dated March 23, 1997
10.28(13)+ Three Party Agreement dated March 23, 1997 by and among
Registrant, Kyowa Hakko Kogyo Co., Ltd. and Pharmacia &
Upjohn S.p.A.
10.29(13)+ Common Stock Purchase Agreement dated March 23, 1997 between
Registrant and Pharmacia & Upjohn S.p.A.
10.30(13)+ Intellectual Property License Agreement dated December 9,
1996 between Registrant and University Technology
Corporation
10.33 (13) First Amendment to Note Secured by Deed of Trust with Harley
10.35(14)+ License Agreement dated August 1, 1997 between Registrant
and The Johns Hopkins University
10.36(14)+ Research Agreement dated August 1, 1997 between Registrant
and The Johns Hopkins University
10.37(15)+ License, Product Development, and Marketing Agreement by and
between Registrant and Boehringer Mannheim, GmbH
10.38(16) Securities Purchase Agreement dated as of March 27, 1998
between Registrant and Certain Investors
10.40(17) Securities Purchase Agreement dated as of December 10, 1998
among the Registrant and certain investors
10.42(1)+ Research and License Agreement dated May 3, 1999 by and
between the Registrant, Roslin, and the Institute
10.43(1)+ License Agreement dated May 3, 1999, among the Registrant,
Roslin and the Institute.
10.44(18) Amendment No. 1 to the Securities and Purchase Agreement,
dated as of June 17, 1999, by and among the Registrant and
certain investors
10.45(18) Amendment No. 1 to the Registration Rights Agreement, dated
as of June 17, 1999, by and among the Registrant and certain
investors
10.46(19) Securities Purchase Agreement dated as of September 30, 1999
between Registrant and RGC International Investors, LDC
10.47(20) License Agreement with Wisconsin Alumni Research Foundation
10.48(21) Option Agreement with Wisconsin Alumni Research Foundation
10.49(22) Amendment to the License Agreement with Wisconsin Alumni
Research Foundation
10.50(23) Secured Loan Agreement, dated as of August 10, 1999, by and
between David J. Earp and Andrea L. Earp and the Registrant
10.51(24) Letter to Thomas Okarma, dated as of October 7, 1999,
extending License and Research Collaboration Agreement
between Pharmacia & Upjohn and the Registrant
10.52(25) Amendment No. 3 to the License and Research Collaboration
Agreement, dated as of January 24, 2000, by and between the
Registrant and Kyowa Hakko Kogyo Co., Ltd.
10.53(26) Securities Purchase Agreement by and between Registrant and
private investor dated March 9, 2000
10.54(27) Warrant to purchase 100,000 shares of common stock issued by
Registrant to private investor dated March 9, 2000
10.55(28) Warrant to purchase 200,000 shares of common stock issued by
Registrant to private investor dated March 9, 2000
10.53(29) Securities Purchase Agreement dated as of June 29, 2000, by
and between Registrant and the Purchaser
10.54(30) Registration Rights Agreement dated as of June 29, 2000, by
and between Registrant and the Purchaser
10.55(31) Series D Zero Coupon Convertible Debenture
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EXHIBIT
NUMBER DESCRIPTION
- ---------- -----------
10.56(32) Warrant to purchase 834,836 shares of common stock issued by
Registrant to the Purchaser, dated as of June 29, 2000
10.56(33) Common Stock Purchase Agreement, dated as of September 6,
2000, by and between the Registrant and Acqua Wellington
21.1* List of Subsidiaries
23.1 Consent of Ernst & Young LLP, Independent Auditors
24.1 Power of Attorney (see signature page)
- ---------------
+ 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 identically numbered exhibits filed with the
Registrant's Annual Report on Form 10-K filed on March 13, 2000.
(1) Incorporated by reference to identically numbered exhibits filed on the
Registrant's Form 8-K filed on May 18, 1999.
(2) Incorporated by reference to Exhibit 3.3 filed with the Registrant's
Registration Statement on Form S-1 which became effective on July 30, 1996.
(3) 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.
(4) Incorporated by reference to Exhibit 10.39 of the Registrant's Current
Report on Form 8-K filed on April 2, 1998.
(5) Incorporated by reference to Exhibit 10.41 of the Registrant's Current
Report on Form 8-K filed on December 17, 1998.
(6) Incorporated by reference to Exhibit 4.1 of the Registrant's Current Report
on Form 8-K filed on May 18, 1999.
(7) Incorporated by reference to Exhibit 99.2 of the Registrant's Current
Report on Form 8-K filed on October 7, 1999.
(8) Incorporated by reference to Exhibit 4.2 of the Registrant's Current Report
on Form 8-K filed on December 17, 1998.
(9) Incorporated by reference to Exhibit 4.1 of the Registrant's Current Report
on Form 8-K filed on December 17, 1998.
(10) Incorporated by reference to Exhibit 99.1 of the Registrant's Registration
Statement on Form S-8 filed on December 23, 1999.
(11) Incorporated by reference to Exhibit 99.2 of the Registrant's Registration
Statement on Form S-8 filed on December 23, 1999.
(12) Incorporated by reference to Exhibit 10.1 of the Registrant's Current
Report on Form 8-K filed on January 24, 1997.
(13) Incorporated by reference to identically numbered exhibits filed with
Registrant's Quarterly Report on Form 10-Q for the period ended March 31,
1997.
(14) Incorporated by reference to identically numbered exhibits filed with
Registrant's Quarterly Report on Form 10-Q for the period ended September
30, 1997.
(16) Incorporated by reference to identically numbered exhibits filed with
Registrant's Annual Report on Form 10-K filed on March 31, 1998.
(16) Incorporated by reference to Exhibit 10.39 of the Registrant's Current
Report on Form 8-K filed on April 2, 1998.
(17) Incorporated by reference to Exhibit 10.40 of the Registrant's Current
Report on Form 8-K filed on December 17, 1998.
72
74
(19) Incorporated by reference to identically numbered exhibits filed with
Registrant's Registration Statement on Form S-3 filed on April 2, 1998.
(19) Incorporated by reference to Exhibit 99.1 of the Registrant's Current
Report on Form 8-K filed on October 5, 1999.
(20) Incorporated by reference to Exhibit 10.1 filed with Registrant's Quarterly
Report on Form 10-Q for the period ended September 30, 1999.
(21) Incorporated by reference to Exhibit 10.2 filed with Registrant's Quarterly
Report on Form 10-Q for the period ended September 30, 1999.
(22) Incorporated by reference to Exhibit 10.3 filed with Registrant's Quarterly
Report on Form 10-Q for the period ended September 30, 1999.
(23) Incorporated by reference to Exhibit 10.11 of the Registrant's Annual
Report on Form 10-K filed on March 13, 2000.
(24) Incorporated by reference to Exhibit 10.12 of the Registrant's Annual
Report on Form 10-K filed on March 13, 2000.
(25) Incorporated by reference to Exhibit 10.13 of the Registrant's Annual
Report on Form 10-K filed on March 13, 2000.
(26) Incorporated by reference to Exhibit 4.7 of the Registrant's Quarterly
Report on Form 10-Q filed on May 15, 2000.
(27) Incorporated by reference to Exhibit 4.8 of the Registrant's Quarterly
Report on Form 10-Q filed on May 15, 2000.
(28) Incorporated by reference to Exhibit 4.9 of the Registrant's Quarterly
Report on Form 10-Q filed on May 15, 2000.
(29) Incorporated by reference to Exhibit 4.1 of the Registrant's Current Report
on Form 8-K filed on July 6, 2000.
(30) Incorporated by reference to Exhibit 4.2 of the Registrant's Current Report
on Form 8-K filed on July 6, 2000.
(31) Incorporated by reference to Exhibit 4.3 of the Registrant's Current Report
on Form 8-K filed on July 6, 2000.
(32) Incorporated by reference to Exhibit 4.4 of the Registrant's Current Report
on Form 8-K filed on July 6, 2000.
(33) Incorporated by reference to Exhibit 10.1 of the Registrant's Current
Report on Form 8-K filed on September 26, 2000.
73