Forward-Looking Statements
This annual report on Form 10-K, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7, contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause the results of Geron Corporation (“Geron”) to differ materially from those expressed or implied by such forward-looking statements. All statements other than statements of historical fact are statements that could be deemed forward-looking statements. The risks and uncertainties referred to above include, without limitation, risks inherent in the development and commercialization of Geron’s potential products, dependence on collaborative partners, need for additional capital, need for regulatory approvals or clearances, the maintenance of Geron’s intellectual property rights and other risks that are described herein and that are otherwise described from time to time in Geron’s Securities and Exchange Commission reports including, but not limited to, the factors described in “Additional Factors That May Affect Future Results” set forth in Item 1 of this report. Geron assumes no obligation and does not intend to update these forward-looking statements.
PART I
Item 1. Business
Overview
We are a biopharmaceutical company focused on developing and commercializing therapeutic and diagnostic products for cancer based on our telomerase technology, and cell-based therapeutics using our human embryonic stem cell technology.
Telomerase is an enzyme that is expressed in nearly all cancer cells, but not in most normal cells. We hope to kill cancer cells by inhibiting or targeting telomerase, 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 of cells and tissues that we could use to replace those that are damaged in a wide range of chronic diseases.
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.
We make available free of charge on or through our Internet website our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports as soon as reasonably practicable after they are electronically filed with, or furnished to, the Securities and Exchange Commission. Our Internet website address is “www.geron.com”.
Major 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, most 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 the 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 replicative senescence or aging. Thus, this shortening of the telomeres effectively serves as a molecular “clock” for cellular aging. We and others have shown that when the enzyme telomerase is introduced into normal cells, it can restore telomere length — reset the “clock” — thereby increasing the functional lifespan of the cells. Importantly, it does this without altering the cells’ biology or causing them to become cancerous. Human telomerase, a complex enzyme, is composed of a ribonucleic acid (RNA) component, known as hTR, a protein component, known as hTERT, and other accessory proteins. In 1994, we cloned the gene for hTR, and in 1997, in collaboration with Dr. Thomas Cech, we cloned the gene for hTERT.
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Our work and that of others has shown that telomerase is not present in most normal cells and tissues, but that during cancer progression, telomerase is abnormally reactivated in all major cancer types. We have shown that while telomerase does not cause cancer (which is caused by mutations in oncogenes and tumor suppressor genes), the continued presence of telomerase enables cancer cells to maintain telomere length, providing them with indefinite replicative capacity. We and others have shown in various tumor models that inhibiting telomerase activity results in telomere shortening and causes aging or death of the cancer cell.
Although telomerase is expressed in nearly all cancer cells, it is not expressed in most normal cells. That gives telomerase the potential of being both a universal as well as a highly specific cancer target. This specificity means that drugs and biologics that attack cancer cells by targeting telomerase may leave other cells unaffected, and thus should have fewer side effects than conventional chemotherapeutic agents that typically attack both cancer and non-cancer cells.
We are working to develop anti-cancer therapies based on telomerase inhibitors, telomerase therapeutic vaccines and, through our licensees, telomerase-based oncolytic (cancer-killing) viruses. 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 (hESCs), which are derived from very early stage embryos called blastocysts, are unique because:
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they are pluripotent, that is they can develop into all cells and tissues in the body, and |
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they self-renew indefinitely in the undifferentiated state. |
The ability of hESCs 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. We have demonstrated that hESCs express telomerase continuously, a characteristic of immortal cells. 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. hESCs can be expanded in culture indefinitely and hence can be banked for scaled product manufacture.
We intend to use human embryonic stem cell technology to:
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enable the development of transplantation therapies by providing standard starting material for the manufacture of cells and tissues; |
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facilitate pharmaceutical research and development practices by providing cells for disease models and screening, and for assigning function to newly discovered genes; and |
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accelerate research in human developmental biology by identifying the genes that control human growth and development. |
Commercial Opportunities for Our Major 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 1.4 million new cancer cases are expected to
be diagnosed in 2005. Overall annual costs associated with cancer in 2004 were $189.8 billion in the United States alone. Because telomerase is
detectable in more than 30 human cancer types and in the great majority of cancer samples studied, we believe that telomerase-based drugs could
overcome the limitations of current cancer therapies and potentially be broadly applicable and highly specific drug treatments for
cancer.
We, our collaborators and our licensees are
developing a range of anti-cancer therapies, including, anti-cancer therapies based on telomerase inhibitors, telomerase therapeutic vaccines and
telomerase-based oncolytic (cancer-killing) viruses, and diagnostics based on telomerase detection. We believe telomerase is an ideal target for cancer
therapeutics and diagnostics because it appears to be both universal — it is expressed in all major types of cancers studied to date — and
specific — it is not expressed in most
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normal cells. We believe that we have the dominant patent position in the field of telomerase. Whether it is achieved by us or by our collaborators and licensees, we believe that progress in the development of any of these telomerase-based cancer therapeutics will further validate the importance of telomerase as a cancer target and therefore benefit all of our telomerase cancer programs.
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 aging and death of cancer cells. Recent data show that telomerase can protect tumor cells from genomic instability and other forms of
cellular stress, suggesting that inhibiting telomerase can cause a more rapid suppression of tumor growth than predicted by telomere loss alone.
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 toxic to normal cells.
We have designed and synthesized a special class of
short-chain nucleic acid molecules, known as oligonucleotides, that target the template region, or active site, of telomerase. Our work has focused on
two of these oligonucleotides, called GRN163 and GRN163L, and we have demonstrated that they have highly potent telomerase inhibitory activity at very
low concentrations in biochemical assays, various cellular systems, and animal studies.
Our compounds GRN163 and GRN163L are direct enzyme
inhibitors, not antisense compounds. They are smaller (lower molecular weight) than typical antisense compounds or other oligonucleotide drug
candidates, and we expect them to be administered either locally or systemically. They do not inhibit other critical nucleic acid-modifying enzymes and
do not appear to be toxic to normal cells at concentrations needed to inhibit telomerase in tumor cells. Both compounds use a special
thiophosphoramidate chemical backbone, for which we acquired key patents in March 2002 from Lynx Therapeutics.
We and our collaborators have so far tested GRN163
in vitro on 13 different cancer cells and demonstrated significant inhibition of telomerase activity in all of them. Research by our collaborators has
shown that these compounds inhibit the growth of malignant human glioblastoma (brain cancer) cells, prostate cancer cells, lymphoma, myeloma,
hepatocellular carcinoma (liver cancer), melanoma, ovarian and cervical cancer cells in animals.
Intratumoral administration of GRN163 in an animal
model of human glioblastoma resulted in complete tumor eradication in five of seven treated rats without any toxicity and significantly extended their
survival compared to untreated controls. Intravenous administration of GRN163 in a study of animals bearing disseminated human multiple myeloma
substantially reduced tumor growth and resulted in a 50% increase in survival compared to controls. GRN163L is identical in structure to GRN163 except
that it has a lipid attached to one end of the molecule, which increases potency and improves its pharmacokinetic and pharmacodynamic properties. The
improved pharmacokinetic and pharmacodynamic characteristics of GRN163L suggest that it should be effective in inhibiting telomerase in tumor cells
when administered intermittently (e.g. one injection every few days or once per week).
We are targeting completion of the animal toxicology
and efficacy preclinical studies on GRN163L by early 2005, after which we expect to prepare and file an Investigational New Drug (IND) application to
begin human clinical trials on GRN163L.
Telomerase Therapeutic Vaccine. Our second approach
to anti-cancer therapy is a telomerase therapeutic vaccine. The goal of therapeutic cancer vaccines is to “teach” the patient’s own
immune system to attack cancer cells while sparing other cells. This is done by exposing the immune system to a substance (antigen) that is specific to
cancer cells, inducing an immune response to any cells that present that antigen. We believe that telomerase’s characteristics make it an ideal
antigen for cancer vaccines.
We are conducting clinical research to confirm the
safety and efficacy of telomerase vaccine therapies. In collaboration with scientists at Duke University, we published studies 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. Phase 1-2 clinical trials in prostate cancer patients at Duke University Medical Center are currently underway
using this approach. The telomerase vaccine being tested at Duke University Medical Center generates cytotoxic T-cells that attack cancer cells
expressing telomerase. The Duke Phase 1-2 clinical trials use an ex vivo process. Dendritic cells (the most efficient antigen-presenting cells) are
isolated from the patient’s blood, pulsed with RNA for the telomerase protein component, and then returned to the patient’s body where they
instruct cytotoxic T-cells to kill tumor cells that express telomerase.
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The first clinical trial was designed to enroll up
to a total of 24 patients with metastatic prostate cancer, 12 of whom received three weekly vaccinations (low-dose group), and 12 of whom received six
weekly vaccinations (high-dose group). Twenty patients (all 12 of the low-dose group and eight of the high-dose group) have been enrolled and treated
so far. None of the patients in either group has shown treatment-related adverse effects to date. All but one of the patients in the low-dose group
showed a significant cellular immune response specific to telomerase. The eight patients thus far analyzed in the high-dose group all showed very
robust cellular immune responses to telomerase based on tests assessing the generation of telomerase-specific cytotoxic CD-8+ T-lymphocytes, as well as
CD-4+ lymphocytes. The immune responses in the high-dose group were strong as well as specific: peak responses were 1-2% of circulating CD-8+ T-cells
having anti-telomerase activity. Levels of circulating cancer cells were also analyzed. Ten subjects had elevated levels of circulating prostate cancer
cells before vaccination. Nine of these ten had their levels reduced or cleared transiently after vaccination.
Serum PSA was measured before, during and after
vaccination to calculate PSA doubling time as a surrogate marker for treatment response. No significant change in PSA doubling time was observed in the
low-dose group. A highly significant increase in PSA doubling time was observed in the high-dose group, suggestive of a clinical response to
vaccination.
We are currently supporting several small additional
Phase 1-2 trials, also in prostate cancer at Duke, in order to optimize the vaccination process. We are testing (i) the pre-vaccination administration
of an approved compound to potentially augment vaccine potency; (ii) the use of a second approved compound applied to the vaccine injection site to
potentially enable the use of dendritic cells produced by a simpler manufacturing process and; (iii) the use of boost vaccinations to potentially
enhance the durability of the anti-telomerase immune response. Additionally, we are bringing the vaccine manufacturing process in-house for further
optimization and will explore the utility of the vaccine in other cancer types. At the conclusion of these activities, we plan to file our IND with the
FDA for a Phase 2 clinical trial.
In 2004, we acquired rights from Argos Therapeutics,
Inc. (formerly Merix) to commercialize the ex vivo dendritic cell processing technology used in the Duke clinical trial for telomerase and any other
defined tumor-specific antigens. We own the rights to the telomerase antigen and its use in therapeutic vaccines. We have also granted a non-exclusive
license to Dendreon Corporation to develop an ex vivo telomerase vaccine using Dendreon’s antigen-presenting system.
In addition, we are pursuing the development of in
vivo telomerase cancer vaccines. Geron scientists have demonstrated that direct, in vivo vaccination in tumor-bearing mice elicits a
telomerase-specific immune response and causes reduced growth of the animals’ tumors. Direct vaccination would eliminate the need for manipulation
of dendritic cells in culture and potentially allow straightforward vaccination procedures to be available for all cancer patients in any oncology
clinic.
Oncolytic Virus. A third telomerase-based
anti-cancer therapeutic strategy utilizes viruses that have been manipulated or engineered to have oncolytic, or cancer-killing, properties, enabling
them to selectively target and destroy cancer cells that express telomerase. We have cloned the promoter region of the telomerase gene and have shown
that it can be used to switch on genes required for the virus to replicate within the cancer cell. Our data indicate that when tumor cells are infected
with the virus, the virus multiplies or replicates within the cancer cells and causes the rupture and death of the tumor cells. When these same
engineered viruses infect normal somatic cells, there is no killing effect and the virus dissipates. This selective lytic effect on cancer has been
demonstrated in vitro in seven different tumor types: prostate, liver, lung, pancreatic, colorectal, breast and ovarian cancers. These in vitro results
have been extended to animal models of liver and prostate cancer with similar effects against the animals’ tumors while sparing normal
cells.
We granted a non-exclusive license to Genetic
Therapy, Inc. (GTI), a subsidiary of Novartis AG, to use our telomerase promoter technology to develop an oncolytic virus product. In 2003, GTI’s
oncolytic virus business and our license to GTI were acquired by Cell Genesys, which also has its own oncolytic virus program.
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 the great majority 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.
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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.
Through Roche Diagnostics, we are participating in
the development of fluids-based telomerase detection tests for clinical in vitro diagnostics. The tests are based on telomerase detection assays that
we have already commercialized for the research-use-only market. Clinical research data generated by Roche indicates that an assay for telomerase is a
sensitive and specific test for detecting bladder cancer with potential utility in early detection screening and monitoring of patients for recurrence.
There is currently no similar diagnostic test for bladder cancer on the market, and patients who have had bladder cancer now periodically undergo
invasive cystoscopy to screen for recurrence.
Human Embryonic Stem Cell Therapies
We are developing cell-based therapeutics for
several diseases based on differentiated cells derived from hESCs, including neural cells for spinal cord injury and Parkinson’s disease,
cardiomyocytes for heart disease, pancreatic islet ß cells for diabetes, osteoblasts for osteoporosis, chondrocytes for osteoarthritis, and
hematopoietic cells for blood diseases and to prevent immune rejection of the other cell types. We have developed proprietary methods to grow, maintain
and scale up undifferentiated hESCs using feeder cell-free chemically defined culture medium, before differentiating them into therapeutically relevant
cells. We are now testing six different therapeutic cell types in animal models. In four of these cell types, we have preliminary results suggesting
efficacy as evidenced by durable engraftment or functional improvements of the treated animals. After completion of these studies, we expect to begin
one or more Phase 1 clinical trials, most likely including treatment for spinal cord injury. We own or have licenses to intellectual property covering
core inventions and critical enabling technology in this field.
Oligodendrocytes for Spinal Cord Injury and
Dopaminergic Neurons for Parkinson’s Disease. The major neural cells of the central 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. 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 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. In earlier work, researchers showed that mouse embryonic stem cells could be
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 significant
recovery of the animal’s ability to move and bear weight.
To apply those observations to humans, we have now
derived both oligodendrocytes and dopaminergic neurons from hESCs in culture and have begun testing them in animal models to determine whether they can
restore normal neural function. In our collaboration with researchers at the University of California, Irvine, we have shown proof-of-concept in spinal
cord-injured rats which showed significant functional improvement after receiving transplants of hESC-derived oligodendrocyte progenitors. Transplant
studies of dopamine-producing neurons in rodent models of Parkinson’s disease are ongoing.
Cardiomyocytes for Heart Disease. Heart muscle cells
(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
approximately 4.9 million people in the United States. This year, it is estimated that about 1.2 million people will have a heart attack, which is the
primary cause of heart muscle damage.
We can potentially treat heart disease by using
cardiomyocytes derived from hESCs. Researchers have demonstrated proof-of-concept of our approach in mice. Mouse embryonic stem cells have been used
to
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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. In human medicine, it is therefore possible 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 and response to cardiac drugs. We have transplanted these cells into animal models, and to date the cells appear to be engrafting and integrating with the myocardium in uninjured animals, as well as restoring cardiac function in animals with acutely or recently induced myocardial infarctions.
Islet Cells for Diabetes. It is estimated that there
are as many as one million Americans suffering from Type 1 Diabetes (Insulin Dependent Diabetes Mellitus). Normally, certain cells in the pancreas,
called the islet ß cells, produce insulin which promotes the uptake of the sugar glucose by cells in the human body. Degeneration of pancreatic
islet ß 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 ß cell transplantation.
However, poor availability of suitable sources for islet ß 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.
We have derived insulin-producing cells (i.e.
similar to pancreatic islet ß cells) from hESCs and are working to improve the yield of islet cells and characterize their secretion of insulin
in response to glucose. We began transplanting the islets to animal models of diabetes and early results show prolonged survival of engrafted animals
and the detection of human insulin in their blood.
Osteoblasts for Osteoporosis and Non-Union Bone
Fractures. Osteoporosis, or loss of bone density, is a common condition associated with aging and hormonal changes in post-menopausal women. In
addition to skeletal deformities, back pain and loss of height, the disease causes over 1.5 million fractures per year in the United States alone.
These fractures often occur after minimal trauma and if severe, as in hip fracture, carry average mortality rates as high as 24%. Nearly one in five
hip fracture patients ends up in a nursing home. Total health care costs for osteoporosis and its complications are estimated at $17 billion per year
in the United States.
The primary cause of the disease is metabolic bone
loss (mediated by osteoclasts — cells which resorb bone) that is incompletely compensated by new bone formation (mediated by osteoblasts —
cells which form new bone). Osteoblast activity declines over human lifespan and fails to keep pace with the increasing activity of osteoclasts,
resulting in progressive loss of bone density leading to fracture, pain and deformity.
We have made osteoblasts from hESCs and are now
conducting preclinical tests in animals. Upon successful preclinical testing, we plan to administer the cells to patients with non-union fractures
(fractures of the long bones of the leg or arm that do not heal). If these trials are successful, we plan to use these cells to treat patients with
severe refractory osteoporosis.
Chondrocytes for Osteoarthritis. Osteoarthritis, or
Degenerative Joint Disease, is an extremely common condition characterized by degradation of cartilage in joints, often accompanied by bone remodeling
and bone overgrowth at the affected joints. The disease affects an estimated 20.7 million adults in the United States, mostly after age 45.
Osteoarthritis is responsible for more than 7 million physician visits per year. The disease has many causes, but the end result is a structural
degradation of joint cartilage and a failure of chondrocytes (cartilage-forming cells) to repair the degraded cartilage collagen matrix. We plan to
derive chondrocytes from hESCs and after successful in vitro and animal testing, treat patients with osteoarthritis by injecting these chondrocytes
directly into their affected joints.
Hematopoietic Cells for Hematologic Diseases and to
Prevent Immune Rejection. The hematologic system (the circulating cells of blood) is one of the rare tissues of the human body that can replenish
itself throughout life. The critical importance of the blood cells and the many diseases that can affect those cells have caused the emergence of an
entire subspecialty in medicine: hematology — the study of blood and its diseases.
One of the most complex and impactful areas of
hematology is bone marrow transplantation, now used to treat patients with bone marrow failure, leukemia, lymphoma, myeloma and solid tumors such as
breast cancer. The most common indications for the procedure are: 1) failure of bone marrow stem cells to
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produce a particular blood cell type(s), such as aplastic anemia (a deficiency of mature circulating blood cells), 2) infiltration of bone marrow by tumor cells which displace the marrow and cause deficiencies of mature circulating blood cells, or 3) side effects of chemotherapy or radiotherapy used for cancer treatment which is toxic to bone marrow stem cells. Although complex and expensive, the use of bone marrow transplantation is increasing worldwide. A major unresolved problem in the procedure is the lack of availability of suitably matched marrow donors, which severely limits the numbers of patients who can undergo the transplant.
We have derived hematopoietic stem cells from hESCs,
and tests of these cells in animal models of bone marrow transplantation show engraftment of the cells. If these animal tests and other in vitro tests
continue to be positive, hematopoietic stem cells produced from hESCs may find use not only in hematopoietic transplantation therapies, but also in
procedures designed to prevent immune rejection of other hESC-derived transplanted cells. This approach could potentially eliminate the need for
immunosuppressive drugs in patients who receive transplants of hESC-based therapeutic cells.
Telomerase
Activation
We are also working to develop product candidates to
treat various degenerative diseases by the controlled activation of telomerase. Published evidence by us and others has demonstrated that cellular
aging caused by shortening telomeres, which occurs in numerous tissues throughout the human body, causes or contributes to chronic degenerative
diseases and conditions including anemia, 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. Controlled activation of telomerase in normal cells can
restore telomere length and thereby increase the lifespan of cells without altering their normal function or causing them to become
cancerous.
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 studied 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 has included both small molecule drug discovery and biological methods of
restoring telomerase in various skin cells. We have demonstrated that telomerase activation by gene therapy significantly improves wound healing in a
rabbit model of skin ulceration.
AIDS. Recent work by our collaborators has shown
that telomere loss in cytotoxic T-lymphocytes, the blood cells responsible for killing HIV-infected cells, is accelerated in AIDS patients, and
contributes to the loss of anti-HIV activity that occurs during disease progression. In March 2003, these same collaborators published data showing
that telomerase activation in T-lymphocytes both increased their lifespan and significantly enhanced their anti-HIV activity.
In November 2004, these results were extended in a
publication in the Journal of Immunology which showed that telomerase activation in bulk cultures of lymphocytes from HIV patients enhanced
HIV-suppressing activity and improved the production of antiviral cytokines in response to HIV-specific stimulation. These results show that telomere
shortening in HIV-specific lymphocytes plays a major role in the immune dysfunction seen in late stage HIV-1 disease and that telomerase activation, by
enhancing the anti-HIV effects of CD8+ lymphocytes, may find use in treating patients with HIV disease.
Our approach to the therapeutic use of telomerase
activation in AIDS and other chronic diseases is based upon small molecule telomerase activators we have identified. We are currently testing these
telomerase activating drugs for enhancement of antiviral activity in lymphocytes from HIV patients.
Products for Research and Development
Immortalized Cells for Research. Scientists study
specific cells from targeted tissues in order to understand their biological function. For 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
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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.
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 intend to make telomerase-immortalized cell lines
commercially available to the research market and to companies for basic research and for use in drug discovery and biologics production applications.
We have granted royalty-bearing licenses to the American Type Culture Collection and Cambrex BioSciences under which these organizations will produce
and sell telomerase-immortalized cells for both academic research and commercial drug discovery.
hESC-Derived Hepatocytes for Drug Screening 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 drug candidate 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.
There are no completely effective systems available
today to accurately predict 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 limited 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 are developing methods to derive standardized
functional hepatocytes (liver cells) from hESCs to address the significant unmet need for a reliable predictor of the metabolism, biodistribution and
toxicity of drug development candidates. If we are successful, these cells would provide a consistent source of normal human liver cells that can
reliably predict how a new drug will affect the livers of the people who take it. We believe that an unlimited supply of human hepatocytes which retain
normal drug-metabolizing enzyme activity would address the largest bottleneck in new drug research and accelerate the drug development process. In
addition, the availability of 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; where a compound’s activity would be correlated with an
individual’s genetic make-up. Geron scientists have succeeded in demonstrating that hepatocyte-like cells derived from hESCs express normal
markers of hepatocyte function, including Phase 1 and Phase 2 drug-metabolizing enzymes. On October 1, 2002, we were awarded a U.S. patent covering
human hepatocytes
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derived from hESCs and a second U.S. patent in January 2003 covering the use of hESC-derived hepatocytes for drug screening. In May 2004 we announced a three-way collaboration between Geron, the Roslin Institute in Edinburgh, Scotland, and CXR BioSciences in Dundee, Scotland, to develop and commercialize hESC-derived hepatocytes for drug screens.
Nuclear Transfer: Agriculture/Xenotransplantation/Biologics
Nuclear transfer is a method for producing animals
whose nuclear genetic material is derived solely from a donor cell from an individual animal (“clones”). In this process, the nucleus
containing the chromosomal DNA is removed from the animal egg cell and subsequently replaced with a nucleus from a donor somatic (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. Mitochondrial DNA, providing some of the genes for energy production, resides outside the nucleus and is provided by
the egg. After a brief culture period that enables the reconstituted egg cell to initiate embryonic development, the early embryo is implanted into the
uterus of a female animal, where it can fully develop and result in the live birth of a cloned offspring animal. The offspring is essentially a genetic
clone of (genetically identical to) the animal from which the donor nucleus was obtained.
In early 1997, Dr. Ian Wilmut and his colleagues at
the Roslin Institute were the first to demonstrate, 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, the portion of
the egg outside of the nucleus, to reprogram an adult somatic nucleus. Reprogramming enables the adult somatic cell nucleus to express all the genes
required for the full embryonic development of the animal. In addition to sheep, the technique has been used to clone mice, rats, goats, cattle,
rabbits, cats and pigs from donor cells and enucleated eggs from each respective animal species. In 1999, we acquired Roslin Bio-Med Ltd., a commercial
subsidiary of the Roslin Institute, and an exclusive license to the use of nuclear transfer technology for the creation of cloned
animals.
Agriculture. Our nuclear transfer technology 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, pork and poultry, to provide large numbers of animals
with superior characteristics of disease resistance, longevity, growth rate or product quality.
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.
Xenotransplantation. Our nuclear transfer technology
can be used for applications in xenotransplantation to create animals whose cells, tissues or organs could be used in human organ transplantation
settings. This approach could be used either as a bridge to human organ transplantation or as a long-term therapy.
We are licensing our nuclear transfer technology to
companies who are utilizing it for applications in agriculture and production of biologicals. As of December 31, 2004, we had granted seven licenses to
use this technology in cows, pigs, goats, horses and sheep. Among these, in April 2004, we granted a non-exclusive license to XenoTrans Ltd., to
produce transgenic pigs and in November 2004, we granted two non-exclusive licenses to Revivicor Inc., to produce animal organs for xenotransplantation
and human proteins from the blood of animals.
Patents and Proprietary Technology
A broad intellectual property portfolio of issued
patents and pending patent applications supports our product development and out-licensing activities. We currently own or have licensed over 135
issued or allowed United States patents, 175 granted or accepted foreign patents and 400 patent applications that are pending around the
world.
Our policy is to seek appropriate patent protection
for inventions in our principal technology platforms — telomerase, embryonic stem cells and nuclear transfer — as well as ancillary
technologies that support these platforms or otherwise provide a competitive advantage to us. We achieve this by filing patent applications for
discoveries made by our scientists, as well as those that we make in conjunction
10
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, where appropriate we try to obtain licenses from other organizations to patent filings that may be useful in advancing our scientific and product development programs.
Our human embryonic stem cell platform is protected
by patents rights that we either own or have licensed. The patents that we have licensed include foundational hESC patents that arose from work that we
funded at the University of Wisconsin-Madison. We have also filed patent applications to protect technologies developed by Geron scientists in our
ongoing efforts to develop products based on hESCs. By way of example, these patent applications cover technologies that we believe will facilitate the
commercial-scale production of hESCs, such as methods for growing the cells without the need for cell feeder layers. Patent applications that we own or
have licensed also cover cell types that can be made from hESCs, including hepatocytes (liver cells), cardiomyocytes (heart muscle cells), neural cells
(nerve cells, including dopaminergic neurons and oligodendrocytes), chondrocytes (cartilage cells), pancreatic islet cells, osteoblasts (bone cells)
and hematopoietic cells (blood-forming cells). Currently there are over 170 Geron-owned patent applications pending around the world covering various
aspects of our stem cell technology. Examples of granted stem cell patents that are owned by Geron include U.S. Patents Nos. 6,458,589 and 6,506,574
relating to hESC-derived hepatocytes; 6,800,480 relating to the feeder-free growth of hESCs; and 6,833,269 covering methods of producing neural cells
from hESCs.
Our telomerase platform is the mainstay of our
oncology program, as well as providing the basis for a number of other product opportunities. Our extensive development of telomerase technologies has
so far produced over 100 issued or allowed United States patents, 130 granted or accepted foreign patents and over 140 patent applications pending
around the world. Our issued United States patents include patents covering the cloned genes that encode the RNA component (hTR) and the catalytic
protein component (hTERT) of human telomerase, as well as cells that are immortalized by expression of recombinant hTERT. Aspects of our oncology
product development program covered by issued and pending patent applications include cancer diagnostics based on detecting the expression of
telomerase in cancer cells, the use of telomerase as a cancer vaccine, the use of the hTERT promoter to power cancer-killing genes and viruses, and
telomerase inhibitors for use as cancer therapeutics. We own issued patents that cover the sequences of GRN163 and GRN163L, as well as patents covering
the modified chemistry that is used to build these oligonucleotides.
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, which we now operate as Geron Bio-Med. Five
United States patents have now issued for this technology, and 33 foreign patents have been granted or accepted. In addition, we have more than 40
pending patent applications worldwide relating to nuclear transfer, arising both from the acquired patent rights and subsequent research that we funded
at the Roslin Institute. Intellectual property rights to 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 production of biologicals.
We endeavor to monitor worldwide patent filings by
third parties that are relevant to our business. Based on this monitoring, we may determine that an action is appropriate to protect our business
interests. Such actions may include the filing of oppositions against the grant of a patent in overseas jurisdictions, and the filing of a request for
the declaration of an interference with a U.S. patent application or issued patent. Similarly, third parties may take similar actions against our
patents. As examples, we are currently involved in interferences before the U.S. Patent and Trademark Office (USPTO) involving patents and patent
applications for nuclear transfer technology and oppositions before the European Patent Office (EPO) for patents relating to telomerase, telomerase
diagnostics and vaccines, and methods of growing neural cells derived from human tissue.
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 products are subject to rigorous preclinical and clinical testing and other approval procedures of
the U.S. Food and Drug Administration (FDA), and similar regulatory authorities
11
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, and there can be no guarantee that approvals will be granted.
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 candidate. The results of these studies are submitted to the FDA as a part of an IND 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 some cases, an initial trial is conducted in diseased patients to assess both preliminary efficacy
and preliminary safety and patterns of drug metabolism and distribution, in which case it is referred to as a Phase 1-2 trial.) 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. All adverse
events must be reported 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 (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 (BLA). In responding to a NDA or BLA, the FDA may grant marketing approval, request additional information or refuse to approve 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.
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 an approval, or may
require additional data before granting it, 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 (EU) 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 Consultants
We have consulting agreements with a number of
leading academic scientists and clinicians. These individuals serve as key consultants or as members of “clinical focus group panels” with
respect to our product development programs and strategies. They are distinguished scientists and clinicians with
12
expertise in numerous scientific fields, including embryonic stem cells, nuclear transfer and telomere and telomerase biology, as well as developmental biology, cellular biology and molecular biology.
We use consultants to provide us with expert advice
and consultation on our scientific programs and strategies, as well as on the ethical aspects of our work. They also serve as important contacts for us
throughout the broader scientific community.
We retain each consultant according to the terms of
a consulting agreement. Under such agreements, we pay them a consulting fee and reimburse them for out-of-pocket expenses incurred in performing their
services for us. In addition, some consultants hold options to purchase our common stock, subject to the vesting requirements contained in the
consulting agreements. Our consultants 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.
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. |
59 |
President, Chief Executive Officer and Director |
||||||||
David L.
Greenwood |
53 |
Executive Vice President, Chief Financial Officer, Treasurer and Secretary |
||||||||
David J. Earp,
Ph.D., J.D. |
40 |
Senior Vice President, Business Development and Chief Patent Counsel |
||||||||
Jane S.
Lebkowski, Ph.D. |
49 |
Senior Vice President, Regenerative Medicine |
||||||||
Calvin B.
Harley, Ph.D. |
52 |
Chief Scientific Officer |
||||||||
Melissa A.
Kelly |
41 |
Vice
President, Oncology |
||||||||
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 and
wholly-owned subsidiary of Geron. 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, Senior Vice President of
Corporate Development since August 1999 and Executive Vice President since January 2004. He is also a director of Geron Bio-Med Limited, a United
Kingdom company, and Clone International and XenoTrans, Ltd., both Australian companies. From 1979 until joining us, Mr. Greenwood held various
positions with J.P. Morgan & Co. Incorporated, an international banking firm. Mr. Greenwood holds a B.A. from Pacific Lutheran University and a
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 of Intellectual Property since October 1999 until May 2004 and Senior Vice President of Business Development
and Chief Patent Counsel since May 2004. 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/U.S.D.A. Plant Gene Expression Center. He received his J.D., magna cum laude from the Northwestern School of Law
of Lewis and Clark College in Portland, Oregon.
Jane S. Lebkowski, Ph.D., has served as our
Senior Vice President of Regenerative Medicine since January 2004 and Vice President of Regenerative Medicine from August 1999 until January 2004.
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 &
13
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.
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, a Ph.D. from McMaster University, and conducted postdoctoral work at the
University of Sussex and the University of California at San Francisco.
Melissa A. Kelly, has served as our Vice
President of Oncology since January 2003. From April 2002 to January 2003, Ms. Kelly was Vice President of Corporate Development and from April 2001 to
April 2002, she was General Manager of Research and Development Technologies. Ms. Kelly joined us in November 1998 as Director of Corporate
Development. From 1990 to 1998, Ms. Kelly worked at Genetics Institute, Inc., serving initially as Assistant Treasurer and then as Associate Director
of Preclinical Operations where she was responsible for all business development, regulatory, and project management activities for the Preclinical
Development function. From 1985 to 1990, Ms. Kelly held financial management positions at several companies in the high technology industry. Ms. Kelly
graduated summa cum laude with a B.S. in Accounting from Boston College and received an M.B.A. in finance with high distinction from Babson
College.
Employees
As of December 31, 2004, we had 66 full-time
employees of whom 25 hold Ph.D. degrees and 10 hold other advanced degrees. Of the total workforce, 53 were engaged in, or directly support, our
research and development activities and 13 were engaged in business development, finance and administration. We also 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.
Our business is at an early stage of development, in
that we do not yet have product candidates in late-stage clinical trials or on the market. Only one of our product candidates, a telomerase therapeutic
cancer vaccine, is in clinical trials. This product is being studied in a Phase 1-2 clinical trial being conducted by an academic institution. Our lead
anti-cancer drug compound GRN163L is in preclinical testing. Our ability to develop product candidates that progress to and through clinical trials is
subject to our ability to, among other things:
• have success with our research and
development efforts;
• select therapeutic compounds for
development;
• obtain the required regulatory
approvals; and
• |
manufacture and market resulting products. |
Potential lead drug compounds or product candidates
identified through our research programs will require significant preclinical and clinical testing prior to regulatory approval in the United States
and other countries. Our product candidates and compounds we have identified may prove to have undesirable and unintended side effects or other
characteristics adversely affecting their safety, efficacy or cost-effectiveness that could prevent or limit their commercial use. In addition, our
product candidates may not prove to be more effective for treating disease or injury than current therapies. Accordingly, we may have to delay or
abandon efforts to research, develop or obtain regulatory approval to market our product candidates. In addition, we will need to determine whether any
of our potential products can be manufactured in commercial quantities at an acceptable cost. Our research and development efforts may not result in a
product that can be approved by regulators or marketed successfully. Because of the significant scientific,
14
regulatory and commercial milestones that must be reached for any of our development programs to be successful, any program may be abandoned, even after we have expended significant resources on the program, such as our investments in telomerase technology and human embryonic stem cells, which could cause a sharp drop in our stock price.
The science and technology of telomere biology and
telomerase, human embryonic stem cells, and nuclear transfer are relatively new. There is no precedent for the successful commercialization of product
candidates based on our technologies. These development programs are therefore particularly risky.
We have a history of losses and anticipate future losses, and continued losses could impair our ability to sustain operations.
We have incurred operating losses every year since
our operations began in 1990. As of December 31, 2004, our accumulated net loss was approximately $336.1 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 and, as our development efforts and clinical testing activities continue, our operating losses may increase
in size. Substantially all of our revenues to date have been research support payments under collaboration agreements and revenues from our licensing
arrangements. We may be unsuccessful in entering into any new corporate collaboration that results in revenues. We do not expect that the revenues
generated from these arrangements will be sufficient alone to continue or expand our research or development activities and otherwise sustain our
operations.
We are unable to estimate at this time whether we
will ever receive substantial revenue from the sale of diagnostic product candidates and telomerase-immortalized cell lines, and do not currently
expect to receive sufficient revenues from the sale of these product candidates, if developed, to sustain our operations. 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 also expect to experience negative cash flow for
the foreseeable future as we fund our operating losses and capital expenditures. This will result in decreases in our working capital, total assets and
stockholders’ equity, which may not be offset by future financings. We will need to generate significant revenues to achieve profitability. We may
not be able to generate these revenues, and we may never achieve profitability. Our failure to achieve profitability could negatively impact the market
price of our common stock. Even if we do become profitable, we cannot assure you that we would be able to sustain or increase profitability on a
quarterly or annual basis.
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 candidates, and we cannot assure you that our existing capital resources, interest income and equipment
financing arrangements will be sufficient to fund our current and planned operations. 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 2005 and beyond;
• the magnitude and scope of our
research and development programs;
• the progress we make in our
research and development programs and in preclinical development and clinical trials;
• our ability to establish, enforce
and maintain strategic arrangements for research, development, clinical testing, manufacturing and marketing;
• the number and type of product
candidates that we pursue;
• the time and costs involved in
obtaining regulatory approvals; and
• the costs involved in preparing,
filing, prosecuting, maintaining, defending and enforcing patent claims.
We do not have any committed sources of capital.
Additional financing through strategic collaborations, public or private equity financings, capital lease transactions or other financing sources
may
15
not be available on acceptable terms, or at all. The receptivity of the public and private equity markets to proposed financings is substantially affected by the general economic, market and political climate and by other factors which are unpredictable and over which we have no control. Additional equity financings, if we obtain them, 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 and 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 programs, any of which could have a material adverse effect on our business.
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. Other pharmaceutical and biotechnology companies and research organizations currently engage in or have in the past engaged in
efforts related to the biological mechanisms that are the focus of our programs in oncology and human embryonic stem cell therapies, 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 product candidates 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 developing alternative therapies
to treat cancer and, in this regard, are competitors of ours. According to public data from the FDA and NIH, there are more than 100 approved
anti-cancer products on the market in the United States, and several hundred in clinical development. Many of the pharmaceutical companies developing
and marketing these competing products (including GlaxoSmithKline, Bristol-Myers Squibb Company and Novartis AG, among others) 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.
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.
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 we do. Most significantly,
competitive products may render any product candidates that we develop obsolete, which would negatively impact our business and ability to sustain
operations.
Restrictions on the use of human embryonic stem cells, and the ethical, legal and social implications of that research, could prevent us from developing or gaining acceptance for commercially viable products in these areas.
Some of our most important programs involve the use
of stem cells that are derived from human embryos. 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
16
becomes the subject of adverse commentary or publicity, the market price for our common stock could be significantly harmed.
Some political and religious groups have voiced
opposition to our technology and practices. We use stem cells derived from human embryos that have been created for in vitro fertilization procedures
but are no longer desired or suitable for that use and are donated with appropriate informed consent for research use. Many research institutions,
including some of our scientific collaborators, have adopted policies regarding the ethical use of human embryonic tissue. These policies may have the
effect of limiting the scope of research conducted using human embryonic stem cells, thereby impairing our ability to conduct research in this
field.
In addition, the United States government and its
agencies have until recently refused to fund research which involves the use of human embryonic tissue. President Bush announced on August 9, 2001 that
he would permit federal funding of research on human embryonic stem cells using the limited number of embryonic stem cell lines that had already been
created, but relatively few federal grants have been made so far. The President’s Council on Bioethics will monitor stem cell research, and the
guidelines and regulations it recommends may include restrictions on the scope of research using human embryonic or fetal tissue. The Council issued a
report in July 2002 that recommended “that the federal government undertake a thorough-going review of present and projected practices of human
embryo research, with the aim of establishing appropriate institutions to advise and shape federal policy in this arena.” Certain states are
considering, or have in place, legislation relating to stem cell research, including California whose voters approved Proposition 71 to provide state
funds for stem cell research in November 2004. It is not yet clear what, if any, effect such state actions may have on our ability to commercialize
stem cell products. In the United Kingdom and other countries, the use of embryonic or fetal tissue in research (including the derivation of human
embryonic stem cells) is regulated by the government, whether or not the research involves government funding.
Government-imposed restrictions with respect to use
of embryos or human embryonic stem cells in research and development could have a material adverse effect on us, by:
• harming our ability to establish
critical partnerships and collaborations;
• delaying or preventing progress in
our research and development; and
• causing a decrease in the price of
our stock.
Potential restrictions or a ban on nuclear transfer could prevent us from benefiting financially from our research in this area.
Our nuclear transfer technology could theoretically
be used to produce human embryos for the derivation of embryonic stem cells (sometimes referred to as “therapeutic cloning”) or cloned humans
(sometimes referred to as “reproductive cloning”). The U.S. Congress has recently considered legislation that would ban human therapeutic
cloning as well as reproductive cloning. Such a bill was passed by the House of Representatives, although not by the Senate. The July 2002 report of
the President’s Council on Bioethics recommended a four-year moratorium on therapeutic cloning. If human therapeutic cloning is restricted or
banned, we will not be able to benefit from the scientific knowledge that would be generated by research in that area. Finally, if regulatory bodies
were to restrict or ban the sale of food products from cloned animals, our financial participation in the business of our nuclear transfer licensees
could be significantly harmed.
We do not have experience as a company in the regulatory approval process, conducting large scale clinical trials, or other areas required for the successful commercialization and marketing of our product candidates.
All of our product candidates are currently in early
stages of product development. We will need to receive regulatory approval for any product candidates before they may be marketed and distributed. Such
approval will require, among other things, completing carefully controlled and well-designed clinical trials demonstrating the safety and efficacy of
each product candidate. This process is lengthy, expensive and uncertain. We currently have no experience as a company in conducting such trials. Such
trials would require either additional financial and management resources, or reliance on third-party clinical investigators or clinical research
organizations (CROs). Relying on third-party clinical investigators or CROs may force us to encounter delays that are outside of our
control.
17
We also do not currently have marketing and
distribution capabilities for our product candidates. Developing an internal sales and distribution capability would be an expensive and time-consuming
process. We may enter into agreements with third parties that would be responsible for marketing and distribution. However, these third parties may not
be capable of successfully selling any of our product candidates.
Entry into clinical trials with one or more product candidates may not result in any commercially viable products.
We may never generate revenues from product sales
because of a variety of risks inherent in our business, including the following risks:
• clinical trials may not
demonstrate the safety and efficacy of our product candidates;
• 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 product candidates economically on a commercial scale;
• we and our licensees may not be
able to successfully market our products;
• physicians may not prescribe our
product candidates, or patients may not accept such product candidates;
• others may have proprietary rights
which prevent us from marketing our products; and
• competitors may sell similar,
superior or lower-cost products.
Our only product candidate that is in clinical
testing is the telomerase cancer vaccine, for which we have only early and preliminary results. Early stage testing may not be indicative of successful
outcomes in later stage trials.
Impairment of our intellectual property rights may limit our ability to pursue the development of our intended technologies and products.
Protection of our proprietary 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. In particular, legal principles for biotechnology patents in the United States and in
other countries are evolving, and the extent to which we will be able to obtain patent coverage to protect our technology, or enforce issued patents,
is uncertain. For example, the European Patent Convention prohibits the granting of European patents for inventions that concern “uses of human
embryos for industrial or commercial purposes.” The European Patent Office is presently interpreting this prohibition broadly, and is applying it
to reject patent claims that pertain to human embryonic stem cells. However, this broad interpretation is being challenged through the European Patent
Office appeals system. As a result, we do not yet know whether or to what extent we will be able to obtain European patent protection for our human
embryonic stem cell technologies in Europe. Further, our patents may be challenged, invalidated or circumvented, and our 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.
Publication of discoveries in 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 the first to file patent applications for these inventions. As a result, we may not be able to obtain patents for
discoveries that we otherwise would consider patentable and that we consider to be extremely significant to our future success.
Where several parties seek patent protection for the
same technology, the U.S. Patent Office may declare an interference proceeding in order to ascertain the party to which the patent should be issued.
Patent interferences are typically complex, highly contested legal proceedings, subject to appeal. They are usually expensive and prolonged, and can
cause significant delay in the issuance of patents. Moreover,
18
parties that receive an adverse decision in an interference can lose important patent rights. Our pending patent applications, or our issued patents, may be drawn into interference proceedings which may delay or prevent the issuance of patents, or result in the loss of issued patent rights.
The interference process can also be used to
challenge a patent that has been issued to another party. For example, in 2004, we were involved with two interferences declared by the U.S. Patent
Office at our request and involving two of our pending applications relating to nuclear transfer and two issued patents, held by the University of
Massachusetts (U. Mass) and licensed to Advanced Cell Technology (ACT) of Worcester, Massachusetts. We requested these interferences in order to
clarify our patent rights in nuclear transfer technology. The Board of Patent Appeals and Interferences recently issued a final judgment in the first
of these cases, finding that all of the claims in the U. Mass patent in question were unpatentable, and entering judgment in Geron’s favor on
priority of invention. This judgment effectively invalidated the claims of the U. Mass patent, and the second interference is still ongoing. We have
also filed requests with other U. Mass patents in the same field. As in any legal proceeding, the outcome of these interferences is uncertain. In March
2002, an interference was declared involving a Geron nuclear transfer patent application and a patent application held by Infigen Inc. That
interference was resolved in 2004 with a final judgment in our favor; that judgment was not appealed.
Outside of the United States, certain jurisdictions,
such as Europe and Australia, permit oppositions to be filed against the granting of patents. Because our intent is to commercialize products
internationally, securing both proprietary protection and freedom to operate outside of the United States is important to our business. We are involved
in both opposing the grant of patents to others through such opposition proceedings and in defending against oppositions filed by others. For example,
we have filed an opposition to a European patent granted to GemVax AS, a Norwegian company, relating to the use of telomerase peptides for the
treatment and prophylaxis of cancer, and GemVax has filed an opposition to a European patent granted to us relating to telomerase, including the use of
telomerase in cancer vaccines. These are among a number of overseas patent oppositions in which we are currently engaged.
If interferences, oppositions or other challenges to
our patent rights are not resolved promptly in our favor, our existing business relationships may be jeopardized and we could be delayed or prevented
from entering into new collaborations or from commercializing certain products, which could materially harm our business.
Patent litigation may also be necessary to enforce
patents issued or licensed to us or to determine the scope and validity of our proprietary rights or the proprietary rights of others. We may not be
successful in any patent litigation. Patent litigation can be extremely expensive and time-consuming, even if the outcome is favorable to us. An
adverse outcome in a patent 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, any of which could
severely harm our business.
If we fail to meet our obligations under license agreements, we may lose our rights to key technologies on which our business depends.
Our business depends on several critical
technologies that are based in part on patents licensed from third parties. Those third-party license agreements impose obligations on us, such as
payment obligations and obligations to diligently pursue development of commercial products under the licensed patents. If a licensor believes that we
have failed to meet our obligations under a license agreement, the licensor could seek to limit or terminate our license rights, which could lead to
costly and time-consuming litigation and, potentially, a loss of the licensed rights. During the period of any such litigation our ability to carry out
the development and commercialization of potential products could be significantly and negatively affected. If our license rights were restricted or
ultimately lost, our ability to continue our business based on the affected technology platform would be severely adversely affected.
We may be subject to litigation that will be costly to defend or pursue and uncertain in its outcome.
Our business may bring us into conflict with our
licensees, licensors, or others with whom we have contractual or other business relationships, or with our competitors or others whose interests differ
from ours. If we are unable to resolve those conflicts on terms that are satisfactory to all parties, we may become involved in litigation brought by
or against us. That litigation is likely to be expensive and may require a significant amount of management’s time and attention, at the expense
of other aspects of our
19
business. The outcome of litigation is always uncertain, and in some cases could include judgments against us that require us to pay damages, enjoin us from certain activities, or otherwise affect our legal or contractual rights, which could have a significant adverse effect on our business.
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 the 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 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 those 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 failure to obtain alternative technologies or a license to any technology that we may require
to develop or commercialize our product candidates would significantly and negatively affect our business.
Much of the information and know-how that is critical to our business is not patentable and we may not be able to prevent others from obtaining this information and establishing competitive enterprises.
We sometimes rely on trade secrets to protect our
proprietary technology, especially in circumstances in which we believe patent protection is not appropriate or available. We attempt to protect our
proprietary technology in part by confidentiality agreements with our employees, consultants, collaborators and contractors. We cannot assure you that
these agreements will not be breached, that we would have adequate remedies for any breach, or that our trade secrets will not otherwise become known
or be independently discovered by competitors, any of which would harm our business significantly.
We depend on our collaborators to help us develop and test our product candidates, and our ability to develop and commercialize products may be impaired or delayed if collaborations are unsuccessful.
Our strategy for the development, clinical testing
and commercialization of our product candidates requires that we enter 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. For example, third parties are principally responsible for developing oncolytic virus therapeutics and cancer diagnostics using our
telomerase technology and an academic institution is conducting the current clinical trials of the telomerase therapeutic cancer vaccine. 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 and development 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.
Under agreements with collaborators, we may rely
significantly on such collaborators to, among other activities:
• 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
• market with us any commercial
products that result from our collaborations.
The development and commercialization of potential
products will be delayed if collaborators fail to conduct these activities in a timely manner or at all. In addition, our collaborators could terminate
their agreements with us and we may not receive any development or milestone payments. If we do not achieve milestones set forth in the agreements, or
if our collaborators breach or terminate their collaborative agreements with us, our business may be materially harmed.
20
Our reliance on the activities of our non-employee consultants, research institutions, and scientific contractors, whose activities are not wholly within our control, may lead to delays in development of our product candidates.
We rely extensively upon and have relationships with
scientific consultants at academic and other institutions, some of whom conduct research at our request, and other consultants with expertise in
clinical development strategy or other matters. These consultants 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 consultants 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.
In addition, we have formed research collaborations
with many academic and other research institutions throughout the world. 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.
We also rely on other companies for certain process
development or other technical scientific work, especially with respect to our telomerase inhibitor programs. We have contracts with these companies
that specify the work to be done and results to be achieved, but we do not have direct control over their personnel or operations.
If any of these third parties are unable or refuse
to contribute to projects on which we need their help, our ability to generate advances in our technologies and develop our product candidates could be
significantly harmed.
The loss of key personnel could slow our ability to conduct research and develop product candidates.
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 who assist
us in formulating our research and development and clinical 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 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 our business.
Because we or our collaborators must obtain regulatory approval to market our products in the United States and other countries, 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 or our collaborators develop are subject to extensive government regulation that may prevent us from creating
commercially viable product candidates from our discoveries. In addition,
21
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.
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 product candidates like ours, is uncertain, can take many years and requires the expenditure of substantial resources. Any product
candidate that we or our collaborative partners develop must receive all relevant regulatory agency approvals or clearances before it may be marketed
in the United States or other countries. Biological drugs and non-biological drugs are rigorously regulated. In particular, human pharmaceutical
therapeutic product candidates 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 other countries in order to demonstrate safety and efficacy. Because certain of our product
candidates involve the application of new technologies or are based upon a new therapeutic approach, they may be subject to substantial additional
review by various government regulatory authorities, and, as a result, the process of obtaining regulatory approvals for them may proceed more slowly
than for product candidates based upon more conventional technologies. We may never obtain regulatory approval to market our product
candidates.
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 as a result of 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 candidate. 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 collaborators may attain; or
• adversely affect our ability to
receive royalties and generate revenues and profits.
Even if we commit the necessary time and resources,
the required regulatory agency approvals or clearances may not be obtained for any product candidates developed by or in collaboration with us. If we
obtain regulatory agency approval or clearance for a new product, this approval or clearance may entail limitations on the indicated uses for which it
can 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 product candidates must be accepted by the health care community, which can be very slow to adopt or unreceptive to new technologies and products.
Our product candidates and those developed by our
collaborative partners, if approved for marketing, may not achieve market acceptance since hospitals, physicians, patients or the medical community in
general may decide not to accept and utilize these products. The product candidates that we are attempting
22
to develop represent substantial departures from established treatment methods and will compete with a number of more conventional 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.
If we fail to obtain acceptable prices or adequate reimbursement for our product candidates, the use of our potential products could be severely limited.
Our ability to successfully commercialize our
product candidates will depend significantly on our ability to obtain acceptable prices and the availability of reimbursement to the patient from
third-party payors. Significant uncertainty exists as to the reimbursement status of newly-approved health care products, including pharmaceuticals. If
our products are not considered cost-effective or 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 U.S. and other markets, sales of our
potential 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.
Both federal and state governments in the United
States and governments in other countries continue to propose and pass legislation designed to contain or reduce the cost of health care. Legislation
and regulations affecting the pricing of pharmaceuticals and other medical products may 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 candidate 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 may
ultimately not be considered cost-effective by these third parties. Any of these initiatives or developments could materially harm our
business.
Our products are likely to be expensive to manufacture, and they may not be profitable if we are unable to significantly reduce the costs to manufacture them.
Both our telomerase inhibitor compounds, GRN163 and
GRN163L, and our hESC-based products are likely to be significantly more expensive to manufacture than most other drugs currently on the market today.
Oligonucleotides are relatively large molecules with complex chemistry, and the cost of manufacturing even a short oligonucleotide like GRN163 or
GRN163L is considerably greater than the cost of making most small-molecule drugs. Our present manufacturing processes are conducted at a relatively
small scale and are at an early stage of development. We hope to substantially reduce manufacturing costs by process improvements, as well as through
scale increases. If we are not able to do so, however, and depending on the pricing of the product, the profit margin on the telomerase inhibitor may
be significantly less than that of most drugs on the market today. Similarly, we currently make differentiated cells from hESCs on a laboratory scale,
at a high cost per unit of measure. The cell-based therapies we are developing based on hESCs will probably require large quantities of cells. We
continue to develop processes to scale up production of the cells in a cost-effective way. We may not be able to charge a high enough price for any
cell therapy product we develop, even if they are safe and effective, to make a
23
profit. If we are unable to realize significant profits from our potential product candidates, our business would be materially harmed.
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, or to adequately restrict the discharge, 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. Any such 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 these laws and regulations 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 factors which may be unrelated to their businesses or results of
operations such as media coverage, legislative and regulatory measures and the activities of various interest 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 the return on your investment.
Historically, our stock price has been extremely
volatile. Between January 1998 and December 2004, our stock has traded as high as $75.88 per share and as low as $1.41 per share. Between December 1,
2002 and December 31, 2004, the price has ranged between a high of $16.80 per share and a low of $1.41 per share. The significant market price
fluctuations of our common stock are due to a variety of factors, including:
• the depth of the market for the
common stock;
• the experimental nature of our
product candidates;
• fluctuations in our operating
results;
• market conditions relating to the
biopharmaceutical and pharmaceutical industries;
• announcements of technological
innovations, new commercial products, or clinical progress or lack thereof by us, our collaborative partners or our competitors;
• announcements concerning
regulatory developments, developments with respect to proprietary rights and our collaborations;
• comments by securities
analysts;
• general market
conditions;
• public concern with respect to our
product candidates; or
• the issuance of common stock to
partners, vendors or to investors to raise additional capital.
24
In addition, the stock market is subject to other
factors outside our control that can cause extreme price and volume fluctuations. Securities class action litigation has often been brought against
companies, including many biotechnology companies, which 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 may adversely affect the market price for our common stock.
Sale of a substantial number of shares of our common
stock in the public market, or the perception that such sales could occur, could significantly and negatively affect the market price for our common
stock. As of December 31, 2004, we had 52,220,332 shares of common stock outstanding. Of these shares, approximately 33,080,385 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.
Approximately 4,051,139 of the remaining shares may be resold pursuant to Rule 144 into the public markets.
In addition, we have issued common stock to certain
parties, such as vendors and service providers, as payment for products and services. Under these arrangements, we typically agree to register the
shares for resale soon after their issuance. We may continue to pay for certain goods and services in this manner, which would dilute your interest in
Geron. Also, sales of the shares issued in this manner could negatively affect the market price of our stock.
Our undesignated preferred stock may inhibit potential acquisition bids; this may adversely affect the market price for our common stock and the voting rights of the holders of our 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 10-K, 50,000 shares of preferred stock have
been designated Series A Junior Participating Preferred Stock and the Board of Directors still has authority to designate and issue up to 2,950,000
shares of preferred stock. 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.
In addition, if we issue preferred stock in the
future that has preference over our common stock with respect to the payment of dividends or upon our liquidation, dissolution or winding up, or if we
issue preferred stock with voting rights that dilute the voting power of our common stock, the rights of holders of our common stock or the market
price of our common stock could be adversely affected.
Provisions in our share purchase rights plan, 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 believe may be the positive aspects of acquisitions and takeovers.
Our Board of Directors has adopted a share purchase
rights plan, commonly referred to as a “poison pill.” This plan entitles existing stockholders to rights, including the right to purchase
shares of common stock, in the event of an acquisition of 15% or more of our outstanding common stock. Our share purchase rights plan could prevent
stockholders from profiting from an increase in the market value of their shares as a result of a change of control of Geron by delaying or preventing
a change of control. In addition, our Board of Directors has the authority, without further action by our stockholders, to issue additional shares of
common stock, and to fix the rights and preferences of one or more series of preferred stock.
In addition to our share purchase rights plan and
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
25
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.
In addition, we have severance agreements with
several employees and a change of control severance plan which could require an acquiror to pay a higher price.
We do not intend to pay cash dividends on our common stock in the foreseeable future.
We do not anticipate paying cash dividends on our
common stock in the foreseeable future. Any payment of cash dividends will depend upon our financial condition, results of operations, capital
requirements and other factors and will be at the discretion of the Board of Directors. Furthermore, we may incur additional indebtedness that may
severely restrict or prohibit the payment of dividends.
Item 2. Properties
We currently lease approximately 41,000 square feet
of office space at 200 and 230 Constitution Drive, Menlo Park, California. The leases for 200 and 230 Constitution Drive expire in July 2008. In March
2004, as payment of the total rent due for the premises at 200 and 230 Constitution Drive, we issued 363,039 shares of our common stock to the lessor
of those premises. As a result, we have no cash rental obligation from February 1, 2004 through July 31, 2008. Also in March 2004, we early terminated
our lease on the premises at 255 Constitution Drive in Menlo Park, California and paid the lessor of those premises 46,902 shares of our common stock.
The sublease for those premises was transferred to the lessor of those premises. 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 which we intend to renew in 2005. We
believe that our existing facilities are adequate to meet our requirements for the near term.
Item 3. Legal Proceedings
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
26
PART II
Item 5. Market for the Registrant’s Common Stock, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
Our common stock is quoted on the Nasdaq National
Market under the symbol GERN. The high and low closing sales prices (excluding retail markup, markdowns and commissions) of our stock for each of the
quarters in the years ended December 31, 2004 and 2003 are as follows:
| High |
Low |
|||||||||
|---|---|---|---|---|---|---|---|---|---|---|
Year ended
December 31, 2004 |
||||||||||
First
quarter |
$ | 11.700 | $ | 8.210 | ||||||
Second
quarter |
$ | 10.230 | $ | 7.020 | ||||||
Third
quarter |
$ | 7.850 | $ | 5.230 | ||||||
Fourth
quarter |
$ | 8.340 | $ | 6.000 | ||||||
Year ended
December 31, 2003 |
||||||||||
First
quarter |
$ | 5.290 | $ | 1.410 | ||||||
Second
quarter |
$ | 8.340 | $ | 4.100 | ||||||
Third
quarter |
$ | 14.803 | $ | 6.560 | ||||||
Fourth
quarter |
$ | 16.150 | $ | 9.650 | ||||||
As of February 18, 2005, there were approximately
915 stockholders of record. We are engaged in a highly dynamic industry, which often results in significant volatility of our common stock price. On
February 22, 2005, the closing price for our common stock was $7.38 per share.
Dividend Policy
We have never paid cash dividends on our capital
stock and do not anticipate paying cash dividends in the foreseeable future, but intend 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 our financial
condition, results of operations, capital requirements and other factors as the Board of Directors deems relevant.
Recent Sales of Unregistered Securities
In November 2004 as compensation for certain
services, we issued a warrant to purchase 25,000 shares of our common stock to a consultant. The warrant has an exercise price of $6.12 per share and
is exercisable through October 2009. As of December 31, 2004, the warrant remained outstanding.
Securities Authorized for Issuance Under Equity Compensation Plans
The information required by this Item concerning
Geron’s equity compensation plans is discussed in Note 11 to the Consolidated Financial Statements contained in Part I, Item 8 of this annual
report.
27
Item 6. Selected Financial Data
| Year Ended December 31, |
|||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2004 |
2003 |
2002 |
2001 |
2000 |
|||||||||||||||||||
| (In thousands, except shares and per share data) |
|||||||||||||||||||||||
Consolidated
Statement of Operations Data: |
|||||||||||||||||||||||
Revenues from
collaborative agreements |
$ | — | $ | 72 | $ | 566 | $ | 3,280 | $ | 6,500 | |||||||||||||
License fees
and royalties |
1,053 | 1,102 | 682 | 340 | 109 | ||||||||||||||||||
Total
revenues |
1,053 | 1,174 | 1,248 | 3,620 | 6,609 | ||||||||||||||||||
Operating
expenses: |
|||||||||||||||||||||||
Research and
development |
30,084 | 25,551 | 29,822 | 27,926 | 22,417 | ||||||||||||||||||
Acquired
in-process research technology (1) |
45,150 | — | — | — | — | ||||||||||||||||||
General and
administrative |
7,104 | 5,803 | 7,126 | 10,713 | 10,404 | ||||||||||||||||||
Total
operating expenses |
82,338 | 31,354 | 36,948 | 38,639 | 32,821 | ||||||||||||||||||
Loss from
operations |
(81,285 | ) | (30,180 | ) | (35,700 | ) | (35,019 | ) | (26,212 | ) | |||||||||||||
Interest and
other income |
1,552 | 1,810 | 2,548 | 5,860 | 5,922 | ||||||||||||||||||
Conversion
expense (2) |
— | (779 | ) | — | (11,910 | ) | — | ||||||||||||||||
Interest and
other expense |
(672 | ) | (734 | ) | (756 | ) | (1,004 | ) | (12,284 | ) | |||||||||||||
Loss before
cumulative effect of a change in accounting principle |
(80,405 | ) | (29,883 | ) | (33,908 | ) | (42,073 | ) | (32,574 | ) | |||||||||||||
Cumulative
effect of a change in accounting principle (3) |
— | — | — | — | (13,259 | ) | |||||||||||||||||
Net
loss |
$ | (80,405 | ) | $ | (29,883 | ) | $ | (33,908 | ) | $ | (42,073 | ) | $ | (45,833 | ) | ||||||||
Basic and
diluted net loss per share: |
|||||||||||||||||||||||
Loss per share
before cumulative effect of a change in accounting principle |
$ | (1.79 | ) | $ | (0.97 | ) | $ | (1.37 | ) | $ | (1.90 | ) | $ | (1.56 | ) | ||||||||
Cumulative
effect of a change in accounting principle |
— | — | — | — | (0.64 | ) | |||||||||||||||||
Net loss per
share |
$ | (1.79 | ) | $ | (0.97 | ) | $ | (1.37 | ) | $ | (1.90 | ) | $ | (2.20 | ) | ||||||||
Shares used in
computing net loss per share |
44,877,627 | 30,965,330 | 24,661,733 | 22,121,833 | 20,869,791 | ||||||||||||||||||
(1) In
March 2004, we recognized $45.2 million of in-process research technology expense in
conjunction with the acquisition of a co-exclusive right under patents controlled by
Merix Bioscience, Inc. (now Argos Therapeutics, Inc.) for the use of defined antigens in
therapeutic cancer vaccines.
(2) In November 2001, we amended the terms of the
series D convertible debentures and warrants and converted a portion of the outstanding
series D convertible debentures. We recognized $11.9 million as conversion expense
related to this amendment and conversion. In May 2003, we modified the terms of the
series D convertible debentures and warrants. We recognized $779,000 as conversion
expense related to this modification.
(3) In November 2000, we adopted a new
accounting principle which retroactively affected the calculation of the beneficial
conversion features associated with the series C convertible debentures issued in
September 1999 and the series D convertible debentures issued in June 2000. We
recognized an additional $13.3 million in imputed non-cash interest expense to reflect
the change in accounting principle.
28
| December 31, |
|||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2004 |
2003 |
2002 |
2001 |
2000 |
|||||||||||||||||||
| (Dollars in thousands) |
|||||||||||||||||||||||
Consolidated
Balance Sheet Data: |
|||||||||||||||||||||||
Cash,
restricted cash, cash equivalents and marketable securities |
$ | 120,494 | $ | 109,780 | $ | 47,517 | $ | 79,641 | $ | 95,785 | |||||||||||||
Working
capital |
116,319 | 101,840 | 41,128 | 71,395 | 89,230 | ||||||||||||||||||
Total
assets |
131,873 | 118,115 | 60,669 | 96,231 | 114,030 | ||||||||||||||||||
Long-term
obligations |
645 | 1,151 | 20,515 | 23,280 | 41,987 | ||||||||||||||||||
Accumulated
deficit |
(336,071 | ) | (255,666 | ) | (225,783 | ) | (191,875 | ) | (149,802 | ) | |||||||||||||
Total
stockholders’ equity |
122,063 | 106,324 | 29,741 | 61,542 | 63,918 | ||||||||||||||||||
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
This annual report 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 annual report 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 annual
report. 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 annual
report.
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 annual report.
We are a biopharmaceutical company focused on
developing and commercializing therapeutic and diagnostic products for cancer based on our telomerase technology, and cell-based therapeutics using our
human embryonic stem cell technology as discussed in more detail in Item 1 “Business” of this annual report on Form 10-K beginning on page
1.
Critical Accounting Policies and Estimates
Our consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements
requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Note 1 of Notes
to Consolidated Financial Statements describes the significant accounting policies used in the preparation of the consolidated financial statements.
Certain of these significant accounting policies are considered to be critical accounting policies, as defined below.
A critical accounting policy is defined as one that
is both material to the presentation of our financial statements and requires management to make difficult, subjective or complex judgments that could
have a material effect on our financial condition and results of operations. Specifically, critical accounting estimates have the following attributes:
1) we are required to make assumptions about matters that are highly uncertain at the time of the estimate; and 2) different estimates we could
reasonably have used, or changes in the estimate that are reasonably likely to occur, would have a material effect on our financial condition or
results of operations.
Estimates and assumptions about future events and
their effects cannot be determined with certainty. We base our estimates on historical experience and on various other assumptions believed to be
applicable and reasonable under the circumstances. These estimates may change as new events occur, as additional information is obtained and as our
operating environment changes. These changes have historically been minor and have been included in the consolidated financial statements as soon as
they became known. Based on a critical assessment of our accounting policies and the underlying judgments and uncertainties affecting the application
of those policies, management believes that our consolidated financial statements are fairly stated in accordance with accounting principles generally
accepted in the United States, and present a meaningful presentation of our financial condition and results of operations.
29
We believe the following critical accounting
policies reflect our more significant estimates and assumptions used in the preparation of our consolidated financial statements:
Revenue Recognition
Since our inception, a substantial portion or our
revenues has been generated from research and licensing agreements with collaborators. Revenue under such collaboration agreements typically includes
upfront signing or license fees, cost reimbursements, milestone payments and royalties on future product sales.
We recognize nonrefundable signing or license fees
that are not dependent on future performance under these agreements as revenue when received and over the term of the arrangement if we have continuing
performance obligations. We recognize option payments as revenue over the period of the option agreement. We recognize milestone payments upon
completion of specified milestones according to contract terms. We generally recognize royalties as revenue upon receipt.
We estimate the projected future life of license
agreements over which we recognize revenue. Our estimates are based on historical experience and general industry practice. Revisions in the estimated
lives have the effect of increasing or decreasing license fee revenue in the period of revision. As of December 31, 2004, no revisions to the estimated
future lives of license agreements have been made and we do not expect revisions in the future.
In the past, we recognized cost reimbursement
revenue under collaborative agreements as the related research and development costs were incurred. Deferred revenue represented the portion of
research payments received which had not been earned. As of December 31, 2004, we did not have any collaborative agreements with cost reimbursement
provisions.
Intangible Asset and Research Funding Obligation
In May 1999, we 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, we formed a
research collaboration with the Roslin Institute and committed approximately $20,000,000 in research funding over six years. Using an effective
interest rate of 6%, this research funding obligation had a net present value of $17,200,000 at the acquisition date and was capitalized as an
intangible asset that was being amortized as research and development expense over the six year funding period. In December 2004, we extended the
research funding period from June 30, 2005 to June 30, 2006 and we adjusted the amortization period of the intangible asset to coincide with the
extended research period. No additional funding was committed. Imputed interest is being accreted to the value of the research funding obligation and
is recognized as interest expense.
At the time of acquisition, we estimated the
effective interest rate and have been evaluating the spending rate under the collaboration as compared to the contractual funding period. Revisions in
the effective interest rate or amortization period would have the effect of increasing or decreasing research and development expense as well as the
balance of intangible assets and research funding obligation on the balance sheet. As of December 31, 2004, no revisions to the effective interest rate
have been made and we do not expect revisions in the future. Further adjustments to the amortization period may occur as we near the end of extended
research period and evaluate our continuing research support.
Valuation of Equity Instruments
As permitted by SFAS No. 123, “Accounting for
Stock-Based Compensation,” (SFAS 123), as amended by SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and
Disclosures” (SFAS 148), we elected to continue to apply the provisions of APB Opinion 25, “Accounting for Stock Issued to Employees,”
(APB Opinion 25) and related interpretations in accounting for our employee stock option and stock purchase plans. We are generally not required under
APB Opinion 25 and related interpretations to recognize compensation expense in connection with our employee stock option and stock purchase plans. To
comply with SFAS 148, we presented in the Notes to Consolidated Financial Statements, the pro forma effect on our net loss and loss per share as if we
had applied the fair value recognition provisions of SFAS 123, as amended, to options granted to employees under our stock-based employee compensation
plans.
30
In valuing our options using the Black Scholes
option-pricing model, we make assumptions about risk-free interest rates, dividend yields, volatility and weighted average expected lives of the
options. Risk-free interest rates are derived from United States zero-coupon treasury strip yields as of the option grant date. Dividend yields are
based on our historical dividend payments, which have been zero to date. Volatility is derived from the historical volatility of our common stock as
traded on Nasdaq. The weighted average expected lives of the options is based on historical experience of option exercises and the average vesting
option schedule. Each year, we have consistently applied the same methodology when deriving these assumptions. Revisions of any of these assumptions
would increase or decrease the value of the option and increase or decrease the pro forma effect on reported net income (loss) and earnings (loss) per
share if compensation expense had been recognized based on the fair value method. As of December 31, 2004, no revisions to the methods used in arriving
at the assumptions used in the Black Scholes option-pricing model have been made and revisions may occur in the future with the adoption of SFAS
123R.
In valuing our warrants using the Black Scholes
option-pricing model, we make assumptions about risk-free interest rates, dividend yields, volatility and weighted average expected lives of the
warrants. Risk-free interest rates are derived from United States zero-coupon treasury strip yields as of the warrant issue date. Dividend yields are
based on our historical dividend payments, which have been zero to date. Volatility is derived from the historical volatility of our common stock as
traded on Nasdaq. The weighted average expected lives of the warrants is based on the term of the warrants. Upon issuance of a warrant to consultants
or collaborators, we recognize an expense in our consolidated statements of operations. Upon issuance of warrants in connection with an equity
financing, we recognize issuance costs with an offset to additional paid-in capital in our consolidated balance sheets. Each year, we have consistently
applied the same methodology when deriving these assumptions. Revisions of any of these assumptions would increase or decrease the value of the warrant
and increase or decrease the expense or issuance cost recognized upon issuance of the warrant. As of December 31, 2004, no revisions to the assumptions
used in the Black Scholes option-pricing model have been made and revisions may occur in the future with the adoption of SFAS 123R.
Results of Operations
Our results of operations have fluctuated from
period to period and will continue to fluctuate in the future based upon the timing and composition of funding under 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 therapeutic
product to be commercialized based on our research, we and our collaborators must conduct preclinical tests and clinical trials that demonstrate its
efficacy and safety, 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.
Revenues
We recognized no revenues from collaborative
agreements in 2004 compared to $72,000 in 2003 and $566,000 in 2002. We recognize revenue under collaborative agreements as we incur the related
research and development costs. Revenues in 2003 primarily reflected cost reimbursements from consulting contracts. Revenues in 2002 primarily
reflected the final research support payment from our collaborative agreement with Kyowa Hakko. In 2002, Kyowa Hakko completed their research funding
to us as contractually agreed. We did not receive any funding payments from Kyowa Hakko in 2004 or 2003. In June 2004, Kyowa Hakko returned Asian
territory development and marketing rights for Geron’s telomerase inhibitors and terminated their research and license agreement with
us.
We have entered into license and option agreements
with companies involved with oncology, diagnostics, research tools, agriculture and biologics production. In each of these agreements, we have granted
certain rights to our technologies. In connection with the agreements, we are entitled to receive license fees, option fees, milestone payments and
royalties on future sales, or any combination thereof. We recognized license and option fee revenues of $944,000, $972,000 and $492,000 in 2004, 2003
and 2002,
31
respectively, related to our various agreements. Also, we received royalties of $109,000, $130,000 and $190,000 in 2004, 2003 and 2002, respectively, on product sales of telomerase detection and telomere measurement kits to the research-use-only market, cell-based research products and agricultural products. License and royalty revenues are dependent upon additional agreements being signed and future product sales. We expect to recognize revenue of $477,000 in 2005, $165,000 in 2006, $137,000 in 2007, $119,000 in 2008 and $286,000 thereafter related to our existing deferred revenue. Current revenues may not be predictive of future revenues.
Research and Development Expenses
Research and development expenses were $30.1
million, $25.6 million and $29.8 million for the years ended December 31, 2004, 2003 and 2002, respectively. The increase in 2004 from 2003 was
primarily due to an increase of $1.5 million for raw materials for the manufacture of GRN163L, $1.3 million for scientific supplies, $1.1 for animal
toxicology studies related to the clinical development of GRN163L and $514,000 for clinical consulting and sponsored research at other academic
laboratories. The decrease in 2003 from 2002 was primarily due to a reduction in personnel-related costs of approximately $3.8 million associated with
restructurings in January 2003 and a reduction in external research support costs of approximately $400,000. Overall, we expect research and
development expenses to increase in the next year as we incur expenses related to manufacturing and testing of GRN163L, continue clinical trials of our
telomerase cancer vaccine and continue development of our human embryonic stem cell (hESC) programs.
Our research and development activities can be
divided into two major categories of related programs, oncology and hESC therapies. The oncology programs focus on treating or diagnosing cancer by
targeting or detecting the presence of telomerase, either inhibiting activity of the telomerase enzyme, diagnosing cancer by detecting the presence of
telomerase, or using telomerase as a target for therapeutic vaccines. Our core knowledge base in telomerase and telomere biology supports all these
approaches, and our scientists may contribute to any or all of these programs in a given period. For our telomerase inhibition program, we are
targeting completion of the preclinical animal toxicology and efficacy studies by early 2005, after which we expect to prepare and file an IND
application on GRN163L. A telomerase therapeutic vaccine for patients with metastatic prostate cancer is currently in an investigator-sponsored Phase
1-2 clinical study at Duke University Medical Center. Study results thus far have shown no treatment-related adverse effects to date as well as
specific immune responses to telomerase. We are currently conducting several additional small Phase 1-2 trials, also in prostate cancer at Duke, in
order to optimize the vaccination process. We are also bringing the vaccine manufacturing process in-house for further optimization and exploration in
other cancer types. At the conclusion of these activities, we plan to file an IND for a Phase 2 clinical study for the telomerase therapeutic
vaccine.
Our hESC therapy programs focus on treating injuries
and degenerative diseases with cell therapies based on cells derived from hESCs. A core of knowledge of hESC biology, as well as a significant
continuing effort in deriving, growing, maintaining, and differentiating hESCs, underlies all aspects of this group of programs. Many of our
researchers are allocated to more than one hESC project, and the percentage allocations of time change as the resource needs of individual programs
vary. In our hESC therapy programs, we have concentrated our resources on several specific cell types. We have developed proprietary methods to derive,
maintain and scale up undifferentiated hESCs and differentiate them into therapeutically relevant cells. We are now testing six different therapeutic
cell types in animal models. In four of these cell types, we have preliminary results suggesting efficacy as evidenced by functional improvements or
durable engraftment of the treated animals. After completion of these studies, we expect to begin one or more Phase 1 clinical trials, most likely
including one for the treatment of spinal cord injury.
Research and development expenses allocated to
programs are as follows (in thousands):
| Year Ended December 31, |
|||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2004 |
2003 |
2002 |
|||||||||||||
Oncology |
$ | 17,139 | $ | 13,231 | $ | 12,717 | |||||||||
hESC
Therapies |
12,945 | 12,320 | 17,105 | ||||||||||||
Total |
$ | 30,084 | $ | 25,551 | $ | 29,822 | |||||||||
32
At this time, we cannot provide reliable estimates
of how much time or investment will be necessary to complete the programs currently in progress. Drug development in the U.S. is a process that
includes multiple steps defined by the FDA under applicable statutes, regulations and guidance documents. After the preclinical research process of
identifying, selecting and testing in animals a potential pharmaceutical compound, the clinical development process begins with the filing of an IND.
Clinical development typically involves three phases of study: Phase 1, 2, and 3. The most significant costs associated with clinical development are
incurred in Phase 3 trials, which tend to be the longest and largest studies conducted during the drug development process. After the completion of a
successful preclinical and clinical development program, a New Drug Application (NDA) must be filed with the FDA, which includes among other things
very large amounts of preclinical and clinical data and results and manufacturing-related information necessary to support requested approval of the
product. The NDA must be reviewed and approved by the FDA.
According to industry statistics, on average it
takes 10 to 15 years to research, develop and bring to market a new prescription medicine in the United States. In light of the steps and complexities
involved, the successful development of our product candidates is highly uncertain. Actual product timelines and costs are subject to enormous
variability and are very difficult to predict. Our clinical development programs are updated and changed periodically to reflect the most recent
preclinical and clinical data and other relevant information. In addition, various statutes and regulations also govern or influence the manufacturing,
safety reporting, labeling, storage, recordkeeping and marketing of each product. The lengthy process of seeking these regulatory reviews and
approvals, and the subsequent compliance with applicable statutes and regulations, require the expenditure of substantial resources. Any failure by us
to obtain, or any delay in obtaining, regulatory approvals could materially adversely affect our business. In responding to an NDA submission, the FDA
may grant marketing approval, may request additional information, may deny the application if it determines that the application does not provide an
adequate basis for approval, and may also refuse to review an application that has been submitted if it determines that the application does not
provide an adequate basis for filing and review. We cannot assure you that any approval required by the FDA will be obtained on a timely basis, if at
all.
For a more complete discussion of the risks and
uncertainties associated with completing development of potential products, see the sub-section titled “Because we or our collaborators must
obtain regulatory approval to market our products in the United States and other countries, we cannot predict whether or when we will be permitted to
commercialize our products” and “Entry into clinical trials with one or more product candidates may not result in any commercially viable
products” in the section of Item 1 entitled “Additional Factors That May Affect Future Results,” and elsewhere in this annual
report.
Acquired In-Process Research Technology
In March 2004, we entered into an agreement with
Merix Bioscience, Inc. (now Argos Therapeutics, Inc.) under which we acquired a co-exclusive right under patents controlled by Merix for the use of
defined antigens in therapeutic cancer vaccines. In conjunction with the agreement, we issued 5,000,000 shares of Geron common stock to
Merix.
We acquired rights to the Merix technology for
commercial development of our therapeutic cancer vaccine. Further development of the technology is required before we can enter into advanced clinical
trials for a potential commercial application. We have concluded that this technology has no alternative future use as defined in Statement of
Financial Accounting Standards No. 2, and accordingly, expensed the value of the acquired in-process research technology of $45.2 million at the time
of acquisition.
General and Administrative Expenses
General and administrative expenses were $7.1
million, $5.8 million and $7.1 million for the years ended December 31, 2004, 2003 and 2002, respectively. The increase in 2004 from 2003 primarily
reflects an increase in patent legal costs of $861,000 and an increase in corporate legal and accounting expenses of $454,000 for additional regulatory
compliance related to the Sarbanes-Oxley Act and various equity transactions with vendors. The decrease in 2003 from 2002 was the result of a reduction
in personnel-related costs of $563,000 as a result of the restructuring announced in January 2003, partially offset by increased external accounting
and legal costs of $43,000. We expect general and administrative expenses related to accounting to increase in order to comply with significant new
government imposed procedures, reporting and audit requirements.
33
Interest and Other Income
Interest income was $1.5 million, $968,000 and $1.8
million for the years ended December 31, 2004, 2003 and 2002, respectively. The increase in 2004 as compared to 2003 was due to higher cash and
investment balances as a result of proceeds received from equity financings in November 2003 and 2004. Also included in interest income for 2004 was a
realized loss of approximately $226,000 related to an other-than-temporary decline in value for one of our equity investments in a licensee. The
decrease in 2003 as compared to 2002 was the net result of lower interest rates partially offset by higher cash and investment balances in the fourth
quarter of 2003. We also received $74,000, $864,000 and $770,000 in research payments under government grants for the years ended December 31, 2004,
2003 and 2002, respectively, and recorded these amounts as other income in each year. We expect income from government grants to decrease in the future
with the final receipt of funding from our National Consortium Drug Discovery Group grant award from the National Cancer Institute in
2004.
Interest and Other Expense
Interest and other expense was $672,000, $734,000
and $756,000 for the years ended December 31, 2004, 2003 and 2002, respectively. The decrease in interest and other expense in 2004, 2003 and 2002 was
primarily the result of reduced equipment loan obligations.
Conversion Expense
On June 29, 2000, we sold $25,000,000 in series D
zero coupon convertible debentures and a warrant to purchase 834,836 shares of Geron common stock to an institutional investor. We recognized
$10,527,000 in interest expense with an offset to additional paid-in capital for the Black Scholes calculated value of the warrant issued with the
convertible debentures. In December 2000, we recognized an additional $10,527,000 in imputed non-cash interest expense related to the beneficial
conversion feature of the series D convertible debentures as a cumulative effect of a change in accounting principle, with an offset to additional
paid-in capital.
In November 2001, we modified the terms of
$10,000,000 of outstanding series D convertible debentures and converted the debentures into 1,011,122 shares of Geron common stock. The remaining
$15,000,000 of outstanding series D convertible debentures was modified to extend the maturity date to June 30, 2005, increase the yield on the
debenture to 2.5%, and fix the conversion price at $20.00 per share. The related warrant was split into two warrants. The series D-1 warrant to
purchase 333,935 shares of Geron common stock had an exercise price of $15.625 per share and an exercise period to June 30, 2003. The series D-2
warrant to purchase 500,901 shares of Geron common stock had an exercise price of $25.00 per share and an exercise period to December 31, 2006. As a
result of this modification, we recorded $11,910,000 in conversion expense on our consolidated statements of operations.
In May 2003, we modified the existing terms of the
outstanding $15,000,000 of series D convertible debentures to provide for an automatic conversion into equity on the maturity date, fixed the
conversion price at $5.00 per share and eliminated the interest accrual for the remainder of the term. In addition, we modified the terms of the
related outstanding warrants and changed the exercise prices to $7.50 per share. The expiration periods were unchanged. As a result of this second
modification, we recorded $779,000 in conversion expense on our consolidated statements of operations.
During May and June 2003, all of the remaining
$15,000,000 of series D convertible debentures plus accrued interest of $575,000 were converted into 3,115,068 shares of Geron common stock. As of
December 31, 2004 and 2003, no series D convertible debentures remained outstanding. Amended series D-1 warrants to purchase 333,935 shares of Geron
common stock expired on July 1, 2003 without having been exercised and amended series D-2 warrants to purchase 500,901 shares of Geron common stock
remained outstanding as of December 31, 2004.
Net Loss
Net loss was $80.4 million, $29.9 million and $33.9
million for the years ended December 31, 2004, 2003 and 2002, respectively. The overall increase in net loss in 2004 compared to 2003 was primarily the
result of the acquired in-process research technology expense of $45.2 million associated with the Merix transaction and increased research and
development expense associated with the clinical development of GRN163L. The decrease in net loss in 2003 compared to 2002 was the net result of
reduced revenues partially offset by decreased operating expenses.
34
Liquidity and Capital Resources
Cash, restricted cash, cash equivalents and
marketable securities at December 31, 2004 were $120.5 million compared to $109.8 million at December 31, 2003 and $47.5 million at December 31, 2002.
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, asset-backed securities and municipal securities. The increase in cash, restricted cash, cash equivalents and marketable
securities in 2004 was the result of an equity financing consummated in November 2004 which resulted in net cash proceeds of $39.9 million. The
increase in cash, restricted cash, cash equivalents and marketable securities in 2003 was the result of two equity financings in 2003 which resulted in
net cash proceeds of $83.3 million.
Cash Flows from Operating Activities. Net cash used
in operations was $25.9 million in 2004, $23.1 million in 2003 and $30.2 million in 2002. The increase in net cash used for operations in 2004 was
primarily the result of increased operating expenses related to the manufacturing and development of GRN163L. The decrease in net cash used in
operations in 2003 was due to reduced operating expenses, primarily the result of the restructuring announced in January 2003.
Cash Used In Investing Activities. Net cash used in
investing activities was $18.2 million in 2004 and $55.9 million in 2003 and reflected the purchase of marketable securities from proceeds received
through various equity financings as described below. Net cash provided by investing activities was $16.2 million in 2002 and was the result of
maturities of marketable securities.
Through December 31, 2004, we have invested
approximately $14.1 million in property and equipment, of which approximately $8.3 million was financed through an equipment financing arrangement.
Minimum annual payments due under the equipment financing facility are expected to total $146,000 and $55,000 in 2005 and 2006, respectively. As of
December 31, 2004, we had approximately $1.3 million available for borrowing under our equipment financing facilities. The drawdown period under the
equipment financing facilities expires on September 30, 2005. We intend to renew the commitment for new equipment financing facilities in 2005 to
further fund equipment purchases. If we are unable to renew the commitment, we will be obliged to use our own cash resources for capital
expenditures.
Cash Flows from Financing Activities. Net cash
provided by financing activities in 2004 of $41.1 million was primarily the result of the sale 6,557,377 shares of Geron common stock to institutional
investors at $6.10 per share, for net cash proceeds of approximately $39.9 million in November 2004. In connection with the sale, we also issued
warrants with a sixty-day exercise period to purchase 2,049,180 shares at $6.10 per share, and longer term warrants, exercisable after 180 days, to
purchase 2,295,082 shares at a premium. In January 2005, we received an additional $12.5 million in proceeds from the exercise of warrants issued to
these institutional investors. Net cash provided by financing activities in 2003 of $87.2 million reflected the receipt of net proceeds of
approximately $64.3 million from the completion of a public offering of 5,750,000 shares of common stock, which included the underwriters’
exercise of their over-allotment option and the sale of 4,400,000 shares of common stock to two investors at $4.60 per share for net proceeds of
approximately $19.0 million. Net cash used in financing activities in 2002 of $116,000 was primarily the result of principal payments under our capital
leases and equipment loans.
Our contractual obligations for the next five years,
and thereafter are as follows:
| Principal Payments Due by Period |
|||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Contractual Obligations (1) |
Total |
Less Than 1 Year |
1-3 Years |
4-5 Years |
After 5 Years |
||||||||||||||||||
| (Amounts in thousands) |
|||||||||||||||||||||||
Equipment
loans |
$ | 201 | $ | 146 | $ | 55 | — | — | |||||||||||||||
Operating
leases (2) |
— | — | — | — | — | ||||||||||||||||||
Research
funding (3) |
8,750 | 6,217 | 1,745 | $ | 394 | $ | 394 | ||||||||||||||||
Total
contractual cash obligations |
$ | 8,951 | $ | 6,363 | $ | 1,800 | $ | 394 | $ | 394 | |||||||||||||
(1) This table does not include any milestone payments under research collaborations or license agreements as the timing and
likelihood of such payments are not known.
(2) In March 2004, we issued 363,039 shares of our common stock to the lessor of our premises at 200 and 230 Constitution Drive in payment of our monthly rental obligation from February 1, 2004 through
(2) In March 2004, we issued 363,039 shares of our common stock to the lessor of our premises at 200 and 230 Constitution Drive in payment of our monthly rental obligation from February 1, 2004 through
35
July 31, 2008. The fair value of the common stock has been recorded as a prepaid
asset and will be amortized to rent expense on a straight-line basis over the lease period.
(3) Research funding is comprised of sponsored research commitments at various academic laboratories around the world, including
the Roslin Institute.
We estimate that our existing capital resources,
interest income and equipment financing facilities will be sufficient to fund our current level of operations through at least December 2006. Changes
in our research and development plans or other changes affecting our operating expenses or cash balances may 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, equipment loans or other financing sources that may be
available.
Recent Accounting Pronouncements
See Note 1 of Notes to Consolidated Financial
Statements for a description of new accounting pronouncements.
Off-Balance Sheet Arrangements
None.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The following discussion about our 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.
Credit Risk. We place our cash, restricted cash,
cash equivalents, and marketable securities with three financial institutions in the United States. Generally, these deposits may be redeemed upon
demand and therefore, bear minimal risk. Deposits with banks may exceed the amount of insurance provided on such deposits. Financial instruments that
potentially subject us to concentrations of credit risk consist primarily of marketable securities. Marketable securities consist of high-grade
corporate bonds, asset-backed securities and U.S. government agency securities. Our investment policy, approved by our Board of Directors, limits the
amount we may invest in any one type of investment issuer, thereby reducing credit risk concentrations.
Interest Rate Sensitivity. The fair value of our
cash equivalents and marketable securities at December 31, 2004 was $118.9 million. These investments include $8.8 million of cash and cash equivalents
which are due in less than 90 days, $2.8 million of asset-backed securities which have varying maturity dates, $81.9 million of short-term investments
which are due in less than one year and $25.4 million in long-term investments which are due in one to two years. Our investment policy is to manage
our marketable securities portfolio to preserve principal and liquidity while maximizing the return on the investment portfolio through the full
investment of available funds. We diversify the marketable securities portfolio by investing in multiple types of investment grade securities. We
primarily invest our marketable securities portfolio in short-term securities with at least an investment grade rating to minimize interest rate and
credit risk as well as to provide for an immediate source of funds. Although changes in interest rates may affect the fair value of the marketable
securities portfolio and cause unrealized gains or losses, such gains or losses would not be realized unless the investments are sold. Due to the
nature of our investments, which are primarily corporate notes, asset-backed securities 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 currency. For the 2004 year end, there was an immaterial currency exchange impact from our
intercompany transactions. However, our financial obligations to the Roslin Institute are stated in British pounds sterling over the next 18 months.
This obligation may become more expensive for us if the United States dollar becomes weaker against the British pounds sterling. As of December 31,
2004, we did not engage in foreign currency hedging activities.
36
Item 8. Consolidated Financial Statements and Supplementary Data
The following consolidated financial statements and
the related notes thereto, of Geron Corporation and the Reports of Independent Registered Public Accounting Firm, Ernst & Young LLP, are filed as a
part of this Form 10-K.
| Page |
||||||
|---|---|---|---|---|---|---|
Reports of
Independent Registered Public Accounting Firm, Ernst & Young LLP |
38 |
|||||
Consolidated
Balance Sheets |
40 |
|||||
Consolidated
Statements of Operations |
41 |
|||||
Consolidated
Statements of Stockholders’ Equity |
42 |
|||||
Consolidated
Statements of Cash Flows |
43 |
|||||
Notes to
Consolidated Financial Statements |
44 |
|||||
Supplemental
Data: Quarterly Financial Information |
63 |
|||||
37
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Geron Corporation
We have audited the accompanying consolidated balance sheets of Geron Corporation as of December 31, 2004 and 2003, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2004. 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 the standards of the Public Company Accounting Oversight Board (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 financial statements referred to above present fairly, in all material respects, the consolidated financial position of Geron Corporation at December 31, 2004 and 2003, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2004, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Geron Corporation’s internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 24, 2005 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Palo Alto, California
February 24, 2005
38
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Geron Corporation
We have audited management’s assessment, included in the accompanying Management Report on Internal Control Over Financial Reporting, that Geron Corporation maintained effective internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Geron Corporation’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, management’s assessment that Geron Corporation maintained effective internal control over financial reporting as of December 31, 2004, is fairly stated, in all material respects, based on the COSO criteria. Also, in our opinion, Geron Corporation maintained, in all material respects, effective internal control over financial reporting as of December 31, 2004, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Geron Corporation as of December 31, 2004 and 2003, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2004 and our report dated February 24, 2005 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Palo Alto, California
February 24, 2005
39
GERON
CORPORATION
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED BALANCE SHEETS
| December 31, |
|||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| 2004 |
2003 |
||||||||||
| (In thousands, except shares) |
|||||||||||
ASSETS |
|||||||||||
Current
assets: |
|||||||||||
Cash and cash
equivalents |
$ | 9,846 | $ | 12,823 | |||||||
Restricted
cash |
530 | 530 | |||||||||
Marketable
securities |
110,118 | 96,427 | |||||||||
Interest and
other receivables |
1,550 | 1,146 | |||||||||
Notes
receivable from related parties |
147 | 67 | |||||||||
Current
portion of prepaid assets |
2,586 | 672 | |||||||||
Total current
assets |
124,777 | 111,665 | |||||||||
Noncurrent
portion of prepaid assets |
3,212 | 143 | |||||||||
Equity
investments in licensees |
489 | 401 | |||||||||
Notes
receivable from related parties |
— | 172 | |||||||||
Property and
equipment, net |
2,089 | 1,684 | |||||||||
Deposits and
other assets |
175 | 231 | |||||||||
Intangible
assets, net |
1,131 | 3,819 | |||||||||
| $ | 131,873 | $ | 118,115 | ||||||||
LIABILITIES
AND STOCKHOLDERS’ EQUITY |
|||||||||||
Current
liabilities: |
|||||||||||
Accounts
payable |
$ | 2,535 | $ | 1,297 | |||||||
Accrued
compensation |
2,024 | 2,499 | |||||||||
Accrued
liabilities |
822 | 762 | |||||||||
Current
portion of deferred revenue |
477 | 227 | |||||||||
Current
portion of equipment loans |
146 | 176 | |||||||||
Current
portion of research funding obligation |
2,454 | 4,864 | |||||||||
Total current
liabilities |
8,458 | 9,825 | |||||||||
Noncurrent
portion of deferred revenue |
707 | 815 | |||||||||
Noncurrent
portion of equipment loans |
55 | 201 | |||||||||
Noncurrent
portion of research funding obligation |
590 | 950 | |||||||||
Commitments |
|||||||||||
Stockholders’ equity: |
|||||||||||
Preferred
stock, $0.001 par value; 3,000,000 shares authorized; no shares issued and outstanding at December 31, 2004 and 2003 |
— | — | |||||||||
Common stock,
$0.001 par value; 100,000,000 shares authorized; 52,220,332 and 39,316,742 shares issued and outstanding at December 31, 2004 and 2003,
respectively |
52 | 39 | |||||||||
Additional
paid-in capital |
458,965 | 362,695 | |||||||||
Deferred
compensation |
(260 | ) | (231 | ) | |||||||
Accumulated
deficit |
(336,071 | ) | (255,666 | ) | |||||||
Accumulated
other comprehensive loss |
(623 | ) | (513 | ) | |||||||
Total
stockholders’ equity |
122,063 | 106,324 | |||||||||
| $ | 131,873 | $ | 118,115 | ||||||||
See accompanying notes.
40
GERON CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
| Year Ended December 31, |
|||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2004 |
2003 |
2002 |
|||||||||||||
| (In thousands, except shares and per share
amounts) |
|||||||||||||||
Revenues from
collaborative agreements |
$ | — | $ | 72 | $ | 566 | |||||||||
License fees
and royalties |
1,053 | 1,102 | 682 | ||||||||||||
Total
revenues |
1,053 | 1,174 | 1,248 | ||||||||||||
Operating
expenses: |
|||||||||||||||
Research and
development |
30,084 | 25,551 | 29,822 | ||||||||||||
Acquired
in-process research technology |
45,150 | — | — | ||||||||||||
General and
administrative |
7,104 | 5,803 | 7,126 | ||||||||||||
Total
operating expenses |
82,338 | 31,354 | 36,948 | ||||||||||||
Loss from
operations |
(81,285 | ) | (30,180 | ) | (35,700 | ) | |||||||||
Interest and
other income |
1,552 | 1,810 | 2,548 | ||||||||||||
Conversion
expense |
— | (779 | ) | — | |||||||||||
Interest and
other expense |
(672 | ) | (734 | ) | (756 | ) | |||||||||
Net
loss |
$ | (80,405 | ) | $ | (29,883 | ) | $ | (33,908 | ) | ||||||
Basic and
diluted net loss per share: |
|||||||||||||||
Net loss per
share |
$ | (1.79 | ) | $ | (0.97 | ) | $ | (1.37 | ) | ||||||
Shares used in
computing net loss per share |
44,877,627 | 30,965,330 | 24,661,733 | ||||||||||||
See accompanying notes.
41
GERON
CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
| Common Stock |
|||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Shares |
Amount |
Additional Paid-In Capital |
Deferred Compensation |
Accumulated Deficit |
Accumulated Other Comprehensive Income (Loss) |
Total Stockholders’ Equity |
|||||||||||||||||||||||||
| (In thousands, except shares) |
|||||||||||||||||||||||||||||||
Balances at
December 31, 2001 |
24,481,774 | $ | 24 | $ | 253,595 | $ | (234 | ) | $ | (191,875 | ) | $ | 32 | $ | 61,542 | ||||||||||||||||
Net
loss |
— | — | — | — | (33,908 | ) | — | (33,908 | ) | ||||||||||||||||||||||
Net change in
unrealized gain (loss) on marketable securities and equity investments in licensees |
— | — | — | — | — | (437 | ) | (437 | ) | ||||||||||||||||||||||
Cumulative
translation adjustment |
— | — | — | — | — | 16 | 16 | ||||||||||||||||||||||||
Comprehensive
loss |
(34,329 | ) | |||||||||||||||||||||||||||||
Issuance of
common stock in acquisition of technology |
210,000 | 1 | 1,584 | — | — | — | 1,585 | ||||||||||||||||||||||||
Issuance of
warrants to purchase common stock in exchange for services |
— | — | 612 | — | — | — | 612 | ||||||||||||||||||||||||
Stock-based
compensation related to issuance of common stock and options in exchange for services |
2,601 | — | 42 | — | — | — | 42 | ||||||||||||||||||||||||
Issuance of
common stock under employee stock plans, net |
72,446 | — | 264 | — | — | — | 264 | ||||||||||||||||||||||||
Deferred
compensation related to 401(k) contributions |
— | — | — | (209 | ) | — | — | (209 | ) | ||||||||||||||||||||||
Amortization of
deferred compensation related to option exchange |
— | — | — | 234 | — | — | 234 | ||||||||||||||||||||||||
Balances at
December 31, 2002 |
24,766,821 | 25 | 256,097 | (209 | ) | (225,783 | ) | (389 | ) | 29,741 | |||||||||||||||||||||
Net
loss |
— | — | — | — | (29,883 | ) | — | (29,883 | ) | ||||||||||||||||||||||
Net change in
unrealized gain (loss) on marketable securities and equity investments in licensees |
— | — | — | — | — | (44 | ) | (44 | ) | ||||||||||||||||||||||
Cumulative
translation adjustment |
— | — | — | — | — | (80 | ) | (80 | ) | ||||||||||||||||||||||
Comprehensive
loss |
(30,007 | ) | |||||||||||||||||||||||||||||
Issuance of
common stock in connection with private financings, net of issuance costs of $1,260 |
4,710,000 | 5 | 20,541 | — | — | — | 20,546 | ||||||||||||||||||||||||
Issuance of
common stock in connection with public offering, net of issuance costs of $10,849 |
5,750,000 | 6 | 64,325 | — | — | — | 64,331 | ||||||||||||||||||||||||
Conversion of
convertible debentures |
3,115,068 | 3 | 17,089 | — | — | — | 17,092 | ||||||||||||||||||||||||
Stock-based
compensation related to issuance of common stock and options in exchange for services |
289,595 | — | 1,454 | — | — | — | 1,454 | ||||||||||||||||||||||||
Issuance of
common stock upon exercise of warrants |
150,000 | — | 570 | — | — | — | 570 | ||||||||||||||||||||||||
Issuance of
common stock under employee stock plans, net |
382,893 | — | 2,071 | — | — | — | 2,071 | ||||||||||||||||||||||||
401(k)
contribution |
152,365 | — | 548 | — | — | — | 548 | ||||||||||||||||||||||||
Deferred
compensation related to 401(k) contribution |
— | — | — | (105 | ) | — | — | (105 | ) | ||||||||||||||||||||||
Amortization of
deferred compensation related to 401(k) contribution |
— | — | — | 83 | — | — | 83 | ||||||||||||||||||||||||
Balances at
December 31, 2003 |
39,316,742 | 39 | 362,695 | (231 | ) | (255,666 | ) | (513 | ) | 106,324 | |||||||||||||||||||||
Net
loss |
— | — | — | — | (80,405 | ) | — | (80,405 | ) | ||||||||||||||||||||||
Net change in
unrealized gain (loss) on marketable securities and equity investments in licensees |
— | — | — | — | — | (133 | ) | (133 | ) | ||||||||||||||||||||||
Cumulative
translation adjustment |
— | — | — | — | — | 23 | 23 | ||||||||||||||||||||||||
Comprehensive
loss |
(80,515 | ) | |||||||||||||||||||||||||||||
Issuance of
common stock and warrants in connection with private financing, net of issuance costs of $12,792 |
6,557,377 | 7 | 39,912 | — | — | — | 39,919 | ||||||||||||||||||||||||
Issuance of
common stock in acquisition of technology |
5,000,000 | 5 | 45,145 | — | — | — | 45,150 | ||||||||||||||||||||||||
Stock-based
compensation related to issuance of common stock and options in exchange for services and prepaid facility rent |
966,666 | 1 | 8,865 | — | — | — | 8,866 | ||||||||||||||||||||||||
Issuance of
common stock upon exercise of warrants |
50,000 | — | 200 | — | — | — | 200 | ||||||||||||||||||||||||
Issuance of
common stock under employee stock plans, net |
290,051 | — | 1,749 | — | — | — | 1,749 | ||||||||||||||||||||||||
401(k)
contribution |
39,496 | — | 399 | — | — | — | 399 | ||||||||||||||||||||||||
Deferred
compensation related to 401(k) contribution |
— | — | — | (125 | ) | — | — | (125 | ) | ||||||||||||||||||||||
Amortization of
deferred compensation related to 401(k) contribution |
— | — | — | 96 | — | — | 96 | ||||||||||||||||||||||||
Balances at
December 31, 2004 |
52,220,332 | $ | 52 | $ | 458,965 | $ | (260 | ) | $ | (336,071 | ) | $ | (623 | ) | $ | 122,063 | |||||||||||||||
See accompanying notes.
42
GERON
CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
CONSOLIDATED STATEMENTS OF CASH FLOWS
| Year Ended December 31, |
|||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2004 |
2003 |
2002 |
|||||||||||||
| (In thousands) |
|||||||||||||||
Cash flows
from operating activities |
|||||||||||||||
Net
loss |
$ | (80,405 | ) | $ | (29,883 | ) | $ | (33,908 | ) | ||||||
Adjustments
to reconcile net loss to net cash used in operating activities: |
|||||||||||||||
Depreciation
and amortization |
1,121 | 1,174 | 1,492 | ||||||||||||
Accretion and
amortization on investments |
2,794 | 1,334 | 1,101 | ||||||||||||
Loss on
equity investments in licensees |
240 | 1 | 235 | ||||||||||||
Conversion
expense related to modification of series D convertible debentures and warrants |
— | 777 | — | ||||||||||||
Amortization
of intangible assets, principally research related |
2,688 | 2,865 | 2,864 | ||||||||||||
Interest
expense related to convertible debentures, net of premium amortization |
— | — | 21 | ||||||||||||
Issuance of
common stock in exchange for acquired in-process research technology |
45,150 | — | 1,585 | ||||||||||||
Accretion of
interest on research funding obligation |
491 | 491 | 491 | ||||||||||||
Expense
related to common stock issued for services rendered |
3,504 | 227 | 18 | ||||||||||||
Amortization
of deferred compensation |
96 | 83 | 234 | ||||||||||||
Changes in
assets and liabilities: |
|||||||||||||||
Interest and
other receivables |
(404 | ) | (442 | ) | 593 | ||||||||||
Prepaid
assets |
306 | 1,644 | (800 | ) | |||||||||||
Notes
receivable from related parties |
92 | 356 | (63 | ) | |||||||||||
Equity
investments in licensees |
(308 | ) | — | — | |||||||||||
Deposits and
other assets |
56 | 14 | (4 | ) | |||||||||||
Accounts
payable |
1,238 | (297 | ) | 256 | |||||||||||
Accrued
compensation |
378 | 2,153 | (692 | ) | |||||||||||
Accrued
liabilities |
134 | 696 | (742 | ) | |||||||||||
Deferred
revenue |
142 | (531 | ) | (291 | ) | ||||||||||
Research
funding payments |
(3,261 | ) | (3,640 | ) | (2,609 | ) | |||||||||
Translation
adjustment |
23 | (84 | ) | (23 | ) | ||||||||||
Net cash used
in operating activities |
(25,925 | ) | (23,062 | ) | (30,242 | ) | |||||||||
Cash flows
from investing activities |
|||||||||||||||
Capital
expenditures |
(1,526 | ) | (411 | ) | (328 | ) | |||||||||
Purchases of
marketable securities |
(110,210 | ) | (109,033 | ) | (32,659 | ) | |||||||||
Proceeds from
maturities of marketable securities |
93,371 | 53,574 | — | ||||||||||||
Proceeds from
sales/calls of marketable securities |
— | — | 49,176 | ||||||||||||
Proceeds from
sale of marketable equity investment in licensee |
201 | — | — | ||||||||||||
Net cash
(used in) provided by investing activities |
(18,164 | ) | (55,870 | ) | 16,189 | ||||||||||
Cash flows
from financing activities |
|||||||||||||||
Proceeds from
equipment loans |
— | — | 498 | ||||||||||||
Payments of
obligations under capital leases and equipment loans |
(176 | ) | (367 | ) | (878 | ) | |||||||||
Proceeds from
issuance of common stock, net of issuance costs |
41,288 | 87,518 | 264 | ||||||||||||
Net cash
provided by (used in) financing activities |
41,112 | 87,151 | (116 | ) | |||||||||||
Net
(decrease) increase in cash and cash equivalents |
(2,977 | ) | 8,219 | (14,169 | ) | ||||||||||
Cash and cash
equivalents, at beginning of year |
12,823 | 4,604 | 18,773 | ||||||||||||
Cash and cash
equivalents, at end of year |
$ | 9,846 | $ | 12,823 | $ | 4,604 | |||||||||
See accompanying notes.
43
GERON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
1. Organization and Summary of Significant Accounting Policies
Organization
Geron Corporation (“we” or
“Geron”) was incorporated in the State of Delaware on November 29, 1990. We are a biopharmaceutical company focused on developing and
commercializing therapeutic and diagnostic products for cancer based on our telomerase technology, and cell-based therapeutics using our human
embryonic stem cell technology. Principal activities to date have included obtaining financing, securing operating facilities and conducting research
and development. We have no therapeutic products currently available for sale and do not expect to have any therapeutic products commercially available
for sale for a period of years, if at all. These factors indicate that our ability to continue research and development activities is dependent upon
the ability of our management to obtain additional financing as required.
Principles of Consolidation
The consolidated financial statements include the
accounts of Geron Corporation and our one wholly-owned subsidiary, Geron Bio-Med Ltd., a United Kingdom company. We have eliminated intercompany
accounts and transactions. We measure the financial statements of Geron Bio-Med using the local currency as the functional currency. We translate the
assets and liabilities of this subsidiary at rates of exchange at the balance sheet date. We translate income and expense items at average monthly
rates of exchange. The resultant translation adjustments are included in accumulated other comprehensive income (loss), a separate component of
stockholders’ equity.
FASB Interpretation No. 46-R (FIN 46R),
“Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51,” as amended, provides guidance on the identification,
classification and accounting of variable interest entities. We have variable interests in VIEs through marketable and non-marketable equity
investments in various companies with whom we have executed licensing agreements. In accordance with FIN 46R, we have concluded that we are not the
primary beneficiary in any of these VIEs and, therefore, have not consolidated such entities in our consolidated financial statements.
Net Loss Per Share
Basic earnings (loss) per share is based on weighted
average shares outstanding and 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.
Had we 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 1,917,818, 1,432,238 and
822,545 shares for 2004, 2003 and 2002, respectively, related to outstanding options, warrants and convertible securities not included above (as
determined using the treasury stock method at the estimated average market value).
Use of Estimates
The preparation of financial statements in
conformity with accounting principles generally accepted in the United States requires us to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
Cash Equivalents and Marketable Debt Securities Available-For-Sale
We consider all highly liquid investments purchased
with an original maturity of three months or less to be cash equivalents. We are subject to credit risk related to our cash equivalents and
available-for-sale securities. We place our cash and cash equivalents in money market funds and commercial paper. Our investments include corporate
notes in United States corporations and asset-backed securities with original maturities ranging from two to 24 months.
We classify our marketable debt securities as
available-for-sale. We record available-for-sale securities 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
44
GERON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
1. Organization and Summary of Significant Accounting Policies
(Continued)
available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments. Realized gains and losses are included in interest and other income and are derived using the specific identification method for determining the cost of securities sold and have been insignificant to date. We recognize an impairment charge when the declines in the fair values of our available-for-sale securities below the amortized cost basis are judged to be other-than-temporary. We consider various factors in determining whether to recognize an impairment charge, including the length of time and extent to which the fair value has been less than our cost basis, the financial condition and near-term prospects of the security issuer, and our intent and ability to hold the investment for a period of time sufficient to allow for any anticipated recovery in market value. Declines in market value judged other-than-temporary result in a charge to interest and other income. No impairment charges were recorded for our available-for-sale securities for the years ended December 31, 2004, 2003 and 2002. Dividend and interest income are recognized when earned. See Note 2 on Financial Instruments and Credit Risk.
Revenue Recognition
We recognize revenue related to license and research
agreements with collaborators, royalties, milestone payments and government grants. Our revenue arrangements with multiple deliverables are divided
into separate units of accounting if certain criteria are met, including whether the delivered item has stand-alone value to the end user and whether
there is objective and reliable evidence of the fair value of the undelivered items. The consideration we receive is allocated among the separate units
based on their respective fair values, and the applicable revenue recognition criteria are considered separately for each of the separate
units.
We also have several license, option and marketing
agreements with various oncology, diagnostics, research tools, agriculture and biologics production companies. With each of these agreements, we
receive nonrefundable license payments in cash or equity securities, option payments in cash or equity securities, royalties on future sales of
products, milestone payments, or any combination of these items. Nonrefundable signing or license fees that are not dependent on future performance
under these agreements are recognized as revenue when received and over the term of the arrangement if we have continuing performance obligations.
Option payments are recognized as revenue over the period of the option agreement. Milestone payments are recognized upon completion of specified
milestones according to contract terms. Royalties are generally recognized upon receipt.
In prior years, a substantial portion of our
revenues had been generated from license and research agreements with collaborators. We recognized revenue under those collaborative agreements as the
related research and development costs were incurred. Deferred revenue represented the portion of research payments received which had not been earned.
Milestone fees were recognized upon completion of specified milestones according to contract terms.
Through March 31, 2004, we received funding from
United States government grants that supported our research efforts in defined research projects. Those grants generally provided for reimbursement of
approved costs incurred as defined in the various grants. Funding associated with those grants was recognized as revenue upon receipt of reimbursement
and was included in interest and other income.
Restricted Cash
As of December 31, 2004 and 2003, we held $530,000
in a certificate of deposit as collateral on an unused line of credit.
Marketable and Non-Marketable Equity Investments in Licensees
Investments in non-marketable nonpublic companies
are carried at the lower of cost or net realizable value. Investments in marketable equity securities are carried at the market value as of the balance
sheet date. Unrealized gains and losses are reported in accumulated other comprehensive income (loss) in stockholders’ equity. Realized gains or
losses are included in interest and other income and are derived using the specific identification method.
We monitor our equity investments in licensees for
impairment on a quarterly basis and make appropriate reductions in carrying values when such impairments are determined to be
other-than-
45
GERON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
1. Organization and Summary of Significant Accounting Policies
(Continued)
temporary. Impairment charges are included in interest and other income. Factors used in determining an impairment include, but are not limited to, the current business environment including competition and uncertainty of financial condition; going concern considerations such as the rate at which the investee company utilizes cash, and the investee company’s ability to obtain additional private financing to fulfill its stated business plan; the need for changes to the investee company’s existing business model due to changing business environments and its ability to successfully implement necessary changes; and the general progress toward product development, including clinical trial results. If an investment is determined to be impaired, a determination is made as to whether such impairment is other-than-temporary. We recognized charges of $226,000 in 2004 and none in 2003 and 2002 related to other-than-temporary declines in the fair values of certain of our non-marketable equity investments. As of December 31, 2004 and 2003, the carrying values of our equity investments in non-marketable nonpublic companies were $448,000 and $206,000, respectively.
Derivative Financial Instruments
We own a warrant to purchase common stock in a
private company. In accordance with Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging
Activities,” as amended (SFAS 133), we account for the warrant as a derivative financial instrument. Accordingly, the warrant is recorded at fair
value as of the balance sheet date based on the Black Scholes valuation of such instruments in comparable companies and other indicators of the
investment’s value. Any gains or losses in fair value are recorded in interest and other income. We do not use derivative financial instruments
for trading or speculative purposes. See Note 3 on Marketable and Non-Marketable Equity Investments in Licensees.
Our exposure to currency exchange fluctuation risk
is insignificant. Geron Bio-Med, Ltd., our international subsidiary, satisfies its financial obligations almost exclusively in its local currency. For
2004 and 2003, there was an insignificant currency exchange impact from intercompany transactions. We do not engage in foreign currency hedging
activities.
Intangible Asset and Research Funding Obligation
In May 1999, we 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, we formed a
research collaboration with the Roslin Institute and committed approximately $20,000,000 in research funding over six years. Using an effective
interest rate of 6%, this research funding obligation had a net present value of $17,200,000 at the acquisition date and was capitalized as an
intangible asset that was being amortized as research and development expense over the six year funding period. In December 2004, we extended the
research funding period from June 30, 2005 to June 30, 2006 and we adjusted the amortization period of the intangible asset to coincide with the
extended research period. We recomputed the present value of the remaining funding commitment as of the date of the extension and no adjustment was
deemed necessary to the carrying value of the obligation at that date. No additional funding was committed. Imputed interest is also being accreted to
the value of the research funding obligation and is recognized as interest expense.
Research and Development Expenses
All research and development costs are expensed as
incurred. The value of acquired in-process research and development is charged to expense on the date of acquisition. Research and development expenses
include, but are not limited to, acquired in-process technology deemed to have no alternative future use, payroll and personnel expense, lab supplies,
preclinical studies, raw materials to manufacture clinical trial drugs, manufacturing costs, sponsored research at other labs, consulting and
research-related overhead. Accrued liabilities for raw materials to manufacture clinical trial drugs, manufacturing costs and sponsored research
reimbursement fees are included in accrued liabilities and research and development expenses.
Depreciation and Amortization
We record property and equipment at cost and
calculate depreciation using the straight-line method over the estimated useful lives of the assets, generally four years. Leasehold improvements are
amortized over the shorter of the estimated useful life or remaining term of the lease.
46
GERON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
1. Organization and Summary of Significant Accounting Policies
(Continued)
Employee Stock Plans
As permitted by SFAS No. 123, “Accounting for
Stock-Based Compensation,” (SFAS 123), as amended by SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and
Disclosures” (SFAS 148), we elected to continue to apply the provisions of APB Opinion No. 25, “Accounting for Stock Issued to
Employees,” (APB Opinion 25) and related interpretations in accounting for our employee stock option and stock purchase plans. We are generally
not required under APB Opinion 25 and related interpretations to recognize compensation expense in connection with our employee stock option and stock
purchase plans.
To comply with SFAS 148, we are presenting the
following table to illustrate the effect on our net loss and loss per share as if we had applied the fair value recognition provisions of SFAS 123, as
amended, to options granted under our stock-based employee compensation plans. For purposes of this pro forma disclosure, the estimated value of the
options is amortized to expense using the straight-line method over the options’ vesting period:
| Year Ended December 31, |
|||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2004 |
2003 |
2002 |
|||||||||||||
| (In thousands, except per share amounts) |
|||||||||||||||
Net
loss |
$ | (80,405 | ) | $ | (29,883 | ) | $ | (33,908 | ) | ||||||
Add back: |
|||||||||||||||
Deferred
compensation |
— | — | 241 | ||||||||||||
Deduct: |
|||||||||||||||
Stock-based
employee expense determined under SFAS 123 |
(6,793 | ) | (7,429 | ) | (10,380 | ) | |||||||||
Pro forma net
loss |
$ | (87,198 | ) | $ | (37,312 | ) | $ | (44,047 | ) | ||||||
Basic and
diluted net loss per share as reported |
$ | (1.79 | ) | $ | (0.97 | ) | $ | (1.37 | ) | ||||||
Basic and
diluted pro forma net loss per share |
$ | (1.94 | ) | $ | (1.20 | ) | $ | (1.79 | ) | ||||||
The fair value of options granted in fiscal years
2004, 2003 and 2002 reported below has been estimated at the date of grant using the Black Scholes option-pricing model with the following
assumptions:
| 2004 |
2003 |
2002 |
||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dividend
yield |
None |
None |
None |
|||||||||||
Expected
volatility range |
0.904 to
0.992 |
0.881 to
1.072 |
0.881 |
|||||||||||
Risk-free
interest rate range |
2.37% to
3.72% |
1.57% to
3.28% |
2.47% to
4.69% |
|||||||||||
Expected
life |
4
yrs |
4
yrs |
4
yrs |
|||||||||||
The fair value of employees’ purchase rights
has been estimated using the Black Scholes option-pricing model with the following assumptions:
| 2004 |
2003 |
2002 |
||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dividend
yield |
None |
None |
None |
|||||||||||
Expected
volatility range |
0.567 to
0.580 |
1.019 to
1.025 |
0.881 |
|||||||||||
Risk-free
interest rate range |
1.59% to
2.47% |
0.97% to
1.06% |
1.17% to
1.27% |
|||||||||||
Expected
life |
6
mos |
6
mos |
6
mos |
|||||||||||
The Black Scholes option-pricing valuation model was
developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option
valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because our employee stock options
and employee stock purchase plans have characteristics significantly different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair market value estimate, in our opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of our employee stock options, nor do they necessarily represent the effects of employee stock options on reported net
income (loss) for future years.
See Other Recent Accounting Pronouncements for a
discussion of SFAS 123R.
47
GERON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
1. Organization and Summary of Significant Accounting Policies
(Continued)
Comprehensive Income (Loss)
Comprehensive income (loss) is comprised of net loss
and other comprehensive income (loss). Other comprehensive income (loss) includes certain changes in equity that are excluded from net
loss.
The components of accumulated other comprehensive
loss are as follows:
| December 31, |
|||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| 2004 |
2003 |
||||||||||
| (In thousands) |
|||||||||||
Unrealized
holding loss on available-for-sale securities and marketable equity investments in licensees |
$ | (493 | ) | $ | (360 | ) | |||||
Foreign
currency translation adjustments |
(130 | ) | (153 | ) | |||||||
| $ | (623 | ) | $ | (513 | ) | ||||||
As of December 31, 2004, we recognized an
other-than-temporary impairment charge of $226,000 related to our equity investments in one of our licensees. As a result, $203,000 of previously
recognized unrealized loss was eliminated from accumulated other comprehensive loss. See Note 3 on Marketable and Non-Marketable Equity Investments in
Licensees.
Income Taxes
We apply the provisions of Statement of Financial
Accounting Standards No. 109 “Accounting for Income Taxes” (SFAS 109). Under SFAS 109, deferred tax liabilities or assets arise from
differences between the tax basis of liabilities or assets and their bases for financial reporting, and are subject to tests of recoverability in the
case of deferred tax assets. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years
in which those temporary differences are expected to be recovered or settled. A valuation allowance is provided for deferred tax assets to the extent
realization is not judged to be more likely than not.
In October 2004, the United States enacted The
American Jobs Creation Act of 2004 (the Act). The Act provides for a three year phase-out of current extraterritorial income tax (ETI) benefits and
replaces ETI with a phased-in nine percent domestic production activity deduction that will not be fully effective until 2010. The Act also includes a
deduction of 85% for certain foreign earnings that are repatriated, as defined in the Act. This provision of the Act will not have a material effect on
our results of operations or financial position in the period of implementation since our international subsidiary does not have any income subject to
tax.
Concentrations of Customers and Suppliers
The majority of our revenue was earned in the United
States. Three new customers accounted for 45% of our 2004 revenues. Seven existing customers accounted for 56% of our 2003 revenues. One customer,
Kyowa Hakko, accounted for 40% of our 2002 revenues. No revenues were earned from Kyowa Hakko in 2004 or 2003. In 2004, Kyowa Hakko returned Asian
territory development and marketing rights for Geron’s telomerase inhibitors and terminated their research and license agreement with
us.
We contract third-party manufacturers to produce
GMP-grade drugs for preclinical and clinical studies. We also contract for raw materials to supply those manufacturers. Should we be unable to obtain
sufficient quantities of raw materials or GMP-grade drugs from our third-party sources or other third-party sources, certain development and clinical
activities may be delayed.
Other Recent Accounting Pronouncements
In March 2004, the Financial Accounting Standards
Board (FASB) issued Emerging Issues Task Force Issue No. 03-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain
Investments” (EITF 03-1). EITF 03-1 provides new guidance for evaluating and recording impairment losses on debt and equity investments, as well
as new disclosure requirements for investments that are deemed to be temporarily impaired. In September 2004, the EITF delayed the effective date for
the measurement and recognition guidance; however, the disclosure requirements remain effective for annual
48
GERON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
1. Organization and Summary of Significant Accounting Policies
(Continued)
financial statements for fiscal years ending after December 15, 2003. Our adoption on January 1, 2004 of the disclosure provisions of EITF Issue No. 03-1 did not have any material effect on our financial position, results of operations, or cash flows. We are in the process of evaluating the effect of adopting EITF 03-1 when final guidance is released.
In December 2004, the FASB issued SFAS No. 123 (revised 2004), “Share-Based Payment” (SFAS 123R). SFAS 123R requires the compensation cost relating to stock-based payment transactions be recognized in financial statements. That cost will be measured based on the fair value of the equity or liability instruments issued on the grant date of such instruments, and will be recognized over the period during which an individual is required to provide service in exchange for the award (typically the vesting period). SFAS 123R covers a wide range of stock-based compensation arrangements including stock options, restricted stock plans, performance-based awards, stock appreciation rights, and employee stock purchase plans. SFAS 123R replaces SFAS 123 and supersedes APB Opinion 25. SFAS 123R must be adopted no later than July 1, 2005. Early adoption will be permitted in periods in which financial statements have not yet been issued. We expect to adopt SFAS 123R on July 1, 2005.
SFAS 123R permits public companies to adopt its requirement using one of two methods: 1) A “modified prospective” method in which compensation cost is recognized beginning with the effective date (a) based on the requirements of SFAS 123R for all share-based payments granted after the effective date and (b) based on the requirements of SFAS 123R for all awards granted to employees prior to the effective date of SFAS 123R that remain unvested on the effective date; or 2) A “modified retrospective” method which includes the requirements of the modified prospective method described above, but also permits entities to restate based on the amounts previously recognized under SFAS 123R for purposes of pro forma disclosures either (a) all prior periods presented or (b) prior interim periods of the year of adoption. The Company plans to adopt SFAS 123R using the modified prospective method.
As permitted by SFAS 123, we currently account for share-based payments to employees using APB Opinion 25’s intrinsic value method and, as such, generally recognize no compensation cost for employee stock options. Accordingly, the adoption of SFAS 123R’s fair value method will have a significant impact on our result of operations, although it will have no impact on our overall financial position. The impact of adoption of SFAS 123R cannot be predicted at this time because it will depend on levels of share-based payments granted in the future. However, had we adopted SFAS 123R in prior periods, the impact of that standard would have approximated the impact of SFAS 123 as described in the disclosure of pro forma net loss and loss per share in Note 1 to our consolidated financial statements. SFAS 123R also requires the benefits of tax deductions in excess of recognized compensation cost to be reported as a financing cash flow, rather than as an operating cash flow as required under current literature. This requirement will reduce net operating cash flows and increase net financing cash flows in periods after adoption. We cannot estimate what those amounts will be in the future (because they depend on, among other things, when employees exercise stock options, and whether we will be in a taxable position). There is no tax impact related to the prior periods since we are in a net loss position.
In December 2004, the FASB issued FASB Staff Position No. FAS 109-1, “Application of FASB Statement No. 109, Accounting for Income Taxes to the Tax Deduction on Qualified Production Activities Provided by the American Jobs Creation Act of 2004” (FSP 109-1) and FASB Staff Position No. FAS 109-2, “Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004” (FSP 109-2). FSP 109-1 clarifies the guidance in FASB Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes” (SFAS 109) that applies to the new deduction for qualified domestic production activities under The American Jobs Creation Act of 2004 (the Act). FSP 109-1 clarifies that the deduction should be accounted for as a special deduction under Statement 109, not as a tax-rate reduction, because the deduction is contingent on performing activities identified in the Act. As a result, companies qualifying for the special deduction will not have a one-time adjustment of deferred tax assets and liabilities in the period the Act is enacted. FSP 109-2 addresses the effect of the Act’s one-time deduction for qualifying repatriations of foreign earnings. FSP 109-2 allows additional time for companies to determine whether any foreign earnings will be repatriated under the Act’s one-time deduction for repatriated earnings and how the Act affects whether undistributed earnings continue to qualify for SFAS 109’s exception from recognizing deferred tax liabilities. FSP 109-1 and FSP 109-2 were both effective upon issuance. We adopted the provisions of FSP 109-1 and 109-2 as of
49
GERON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
1. Organization and Summary of Significant Accounting Policies
(Continued)
December 31, 2004 which resulted in no impact to our consolidated financial statements, as we currently do not have any income subject to tax.
Reclassifications
Certain reclassifications of prior year amounts have
been made to conform to current year presentation. The noncurrent portion of prepaid assets has been reclassified to noncurrent assets on the
consolidated balance sheets. Accretion and amortization on investments has been reclassified to operating activities in the consolidated statements of
cash flows. Patent legal expenses in prior years have been reclassified from research and development expense to general and administrative expense on
the consolidated statements of operations. Also, realized gains or losses in fair value on equity investments in licensees have been reclassified to
interest and other income from interest and other expense on the consolidated statements of operations.
2. Financial Instruments and Credit Risk
Cash Equivalents and Marketable Debt Securities Available-for-Sale
Marketable debt securities by security type at
December 31, 2004 were as follows:
| Cost |
Gross Unrealized Gains |
Gross Unrealized Losses |
Estimated Fair Value |
||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (In thousands) |
|||||||||||||||||||
Included in
cash and cash equivalents: |
|||||||||||||||||||
Money market
fund |
$ | 6,236 | $ | — | $ | — | $ | 6,236 | |||||||||||
Corporate
notes |
2,515 | — | (3 | ) | 2,512 | ||||||||||||||
| $ | 8,751 | $ | — | $ | (3 | ) | $ | 8,748 | |||||||||||
Restricted
cash: |
|||||||||||||||||||
Certificate
of deposit |
$ | 530 | $ | — | $ | — | $ | 530 | |||||||||||
Marketable
securities: |
|||||||||||||||||||
Asset-backed
securities |
$ | 2,807 | $ | 3 | $ | (2 | ) | $ | 2,808 | ||||||||||
Corporate
notes (due in less than 1 year) |
82,116 | 6 | (188 | ) | 81,934 | ||||||||||||||
Corporate
notes (due in 1–2 years) |
25,502 | — | (126 | ) | 25,376 | ||||||||||||||
| $ | 110,425 | $ | 9 | $ | (316 | ) | $ | 110,118 | |||||||||||
Marketable debt securities by security type at
December 31, 2003 were as follows:
| Cost |
Gross Unrealized Gains |
Gross Unrealized Losses |
Estimated Fair Value |
||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (In thousands) |
|||||||||||||||||||
Included in
cash and cash equivalents: |
|||||||||||||||||||
Money market
fund |
$ | 8,787 | $ | — | $ | — | $ | 8,787 | |||||||||||
Corporate
notes |
3,944 | — | (3 | ) | 3,941 | ||||||||||||||
| $ | 12,731 | $ | — | $ | (3 | ) | $ | 12,728 | |||||||||||
Restricted
cash: |
|||||||||||||||||||
Certificate
of deposit |
$ | 530 | $ | — | $ | — | $ | 530 | |||||||||||
Marketable
securities: |
|||||||||||||||||||
Asset-backed
securities |
$ | 3,790 | $ | 9 | $ | — | $ | 3,799 | |||||||||||
Corporate
notes (due in less than 1 year) |
60,623 | 21 | (49 | ) | 60,595 | ||||||||||||||
Corporate
notes (due in 1–2 years) |
31,966 | 67 | — | 32,033 | |||||||||||||||
| $ | 96,379 | $ | 97 | $ | (49 | ) | $ | 96,427 | |||||||||||
50
GERON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
2. Financial Instruments and Credit Risk (Continued)
Marketable debt and equity securities with unrealized losses at December 31, 2004 and 2003 were as follows:
| Less Than 12 Months |
12 Months or Greater |
Total |
|||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Estimated Fair Value |
Gross Unrealized Losses |
Estimated Fair Value |
Gross Unrealized Losses |
Estimated Fair Value |
Gross Unrealized Losses |
||||||||||||||||||||||||
| (In thousands) |
|||||||||||||||||||||||||||||
As of
December 31, 2004: |
|||||||||||||||||||||||||||||
Asset-backed
securities |
$ | 1,948 | $ | (2 | ) | $ | — | $ | — | $ | 1,948 | $ | (2 | ) | |||||||||||||||
Corporate
notes |
91,002 | (317 | ) | — | — | 91,002 | (317 | ) | |||||||||||||||||||||
Equity
investments in licensees |
— | — | 41 | (183 | ) | 41 | (183 | ) | |||||||||||||||||||||
| $ | 92,950 | $ | (319 | ) | $ | 41 | $ | (183 | ) | $ | 92,991 | $ | (502 | ) | |||||||||||||||
As of
December 31, 2003: |
|||||||||||||||||||||||||||||
Asset-backed
securities |
$ | 512 | $ | — | $ | — | $ | — | $ | 512 | $ | — | |||||||||||||||||
Corporate
notes |
48,096 | (52 | ) | — | — | 48,096 | (52 | ) | |||||||||||||||||||||
Equity
investments in licensees |
— | — | 195 | (405 | ) | 195 | (405 | ) | |||||||||||||||||||||
| $ | 48,608 | $ | (52 | ) | $ | 195 | $ | (405 | ) | $ | 48,803 | $ | (457 | ) | |||||||||||||||
The gross unrealized losses related to corporate notes and asset-backed securities were due to changes in interest rates. The gross unrealized losses related to equity investments in licensees were a result of declining valuation for those biotech companies. We have determined that the gross unrealized losses on our investment securities as of December 31, 2004 and 2003 are temporary in nature. We review our investments quarterly to identify and evaluate whether any investments have indications of possible impairment. Factors considered in determining whether a loss is temporary include the length of time and extent to which fair value has been less than the cost basis, the financial condition and near-term prospects of the investee, and our intent and ability to hold the investment for a period of time sufficient to allow for any anticipated recovery in market value. Substantially all of our corporate notes and asset-backed securities are rated investment grade. We recognized charges of $226,000 in 2004 and none in 2003 and 2002 related to other-than-temporary declines in the fair values of certain of our equity investments. As of December 31, 2004 and 2003, the carrying values of our equity investments in non-marketable nonpublic companies were $448,000 and $206,000, respectively. See Note 3 on Marketable and Non-Marketable Equity Investments in Licensees.
Notes Receivable from Related Parties
We presently hold notes receivable in the amount of
$147,000 from present or former employees generally related to the specific individuals’ housing costs incurred following relocation. For the
years ended December 31, 2004, 2003, and 2002, three, three and five employees, respectively, had notes receivable to us. These notes, which in general
bear no interest, are collateralized by certain real property assets of the employees. Imputed interest income on these loans has been forgiven and
this expense has been recognized as an operating expense. The three remaining notes are being paid in a series of installments with full payment due by
December 31, 2005.
Other Fair Value Disclosures
At December 31, 2004, the fair value of the notes
receivable from employees is $140,000 and approximates the carrying value due to the short maturities of the notes receivable. 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. We record the notes receivable from employees at its carrying value since there is an insignificant difference between the fair value and the
carrying value.
At December 31, 2004, the fair value of equipment
loans approximates the carrying value of $201,000. The fair value was estimated using discounted cash flow analyses, based on our current incremental
borrowing rates for similar types of borrowing arrangements.
51
GERON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
2. Financial Instruments and Credit Risk (Continued)
See discussion of Roslin research funding obligation in Note 9 on Intangible Asset and Research Funding Obligation.
Credit Risk
We place our cash, restricted cash, cash
equivalents, and marketable securities with three financial institutions in the United States. Generally, these deposits may be redeemed upon demand
and therefore, bear minimal risk. Deposits with banks may exceed the amount of insurance provided on such deposits. Financial instruments that
potentially subject us to concentrations of credit risk consist primarily of marketable securities. Marketable securities consist of high-grade
corporate bonds, asset-backed securities and U.S. government agency securities. Our investment policy, approved by the Board of Directors, limits the
amount we may invest in any one type of investment issuer, thereby reducing credit risk concentrations.
3. Marketable and Non-Marketable Equity Investments in Licensees
In connection with our license agreement with Clone
International Pty Ltd. signed in December 2000, we received equity equal to 33% of the outstanding stock of Clone International. As of December 31,
2004, our equity interest was 25%. As our share of Clone International’s operating losses exceeds the original carrying value of our investment,
we discontinued the application of the equity method until September 30, 2004. The carrying value of Clone International equity was $260 and zero at
December 31, 2004 and 2003, respectively. We do not have any funding obligations under this license.
In April 2004, we granted a non-exclusive license to
XenoTrans, Ltd. to use nuclear transfer technology to produce transgenic pigs. Under the terms of the agreement, we received equity equal to 25% of the
outstanding stock of XenoTrans. We will also receive royalties on future product sales. In accordance with the equity method of accounting, we increase
(decrease) the carrying value of the investment by a proportionate share of XenoTrans’ earnings (losses). Any increases (decreases) are included
in interest and other income. Since our share of XenoTrans’ net operating losses exceeds the original carrying value of the equity investment, we
have discontinued the application of the equity method of accounting since June 30, 2004. We do not have any funding obligations under this
license.
In February 2004, we sold our equity investment in
Dendreon Corporation. We received $201,000 in proceeds from the sale and realized a gain of $51,000 from the sale of common stock which is included in
interest and other income. In addition, we reversed $33,000 of previously recorded unrealized loss. As of December 31, 2004, we had no further equity
investment in Dendreon.
In March 2004, we granted a non-exclusive license to
Xcellsyz Ltd. for human telomerase reverse transcriptase (hTERT) technology for research applications and the development of research products. In
connection with the non-exclusive license, Xcellsyz paid Geron a license fee in cash and equity in Xcellsyz and will pay royalties on future product
sales. We estimated the fair market value based upon Xcellsyz’s financial statements and business plans. License fee revenue of $79,000 from the
cash fee and value of the equity was recognized in March 2004.
In June 2004, we received equity equal to 10% of the
outstanding stock of PanCel Corporation in connection with a non-exclusive license agreement for the use of telomerase to produce macroencapsulated
immortalized primary human pancreatic islet cells for the treatment of diabetes in humans. We estimated the fair market value based upon PanCel’s
financial statements and business plans. The value of the equity of $62,000 was recognized as license fee revenue in June 2004.
In October 2004, we granted two non-exclusive
licenses to Revivicor, Inc. to use nuclear transfer technology for animal cloning. Under the terms of the agreement, we received equity equal to 15% of
the outstanding preferred stock of Revivicor. We will also receive royalties and share revenues on future product sales. Since there is no readily
available market value for Revivicor shares, we estimated the fair value based upon Revivicor’s financial statements, business plans and the value
of similar licenses. License fee revenue of $199,000 from the value of the equity was recognized in the fourth quarter of 2004.
In connection with our license agreement with
ProLinia, Inc., we received a warrant to purchase 1,500,000 shares of ProLinia common stock at an exercise price of $0.40 per share. In 2003,
ProLinia
52
GERON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
3. Marketable and Non-Marketable Equity Investments in Licensees
(Continued)
merged with Exeter Life Sciences, Inc. with Exeter being the surviving
corporation. As part of the merger, all of the ProLinia warrants were converted into warrants to purchase shares of Exeter’s Series P preferred
stock.
As of December 31, 2004, we held a warrant to purchase 225,000 shares of Exeter Series P preferred stock at an exercise price of $2.67 per share. The warrant, which contains a cashless exercise feature, has an expiration date of May 17, 2005. Statement of Financial Accounting Standards No. 133 (SFAS 133), “Accounting for Derivative Instruments and Hedging Activities,” requires derivative instruments to be recorded at fair value. Accordingly, the warrant is recorded at fair value as of the balance sheet date based on the Black Scholes valuation of such instruments in comparable companies and other known indicators of the investment’s value and is included in the balance sheet under equity investments in licensees. Any resulting change in fair value is considered a realized gain or loss and is included in interest and other income. As of December 31, 2004, the original carrying value of the Exeter warrants was $210,000 and the fair value was $141,000.
4. Property and Equipment
Property and equipment, stated at cost, is comprised
of the following:
| December 31, |
|||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| 2004 |
2003 |
||||||||||
| (In thousands) |
|||||||||||
Furniture and
computer equipment |
$ | 2,961 | $ | 3,041 | |||||||
Lab
equipment |
5,901 | 5,570 | |||||||||
Leasehold
improvements |
5,218 | 4,062 | |||||||||
| 14,080 | 12,673 | ||||||||||
Less
accumulated depreciation and amortization |
(11,991 | ) | (10,989 | ) | |||||||
| $ | 2,089 | $ | 1,684 | ||||||||
5. Equipment Loans
In 2004, we renewed our equipment financing
facilities and had approximately $1,300,000 available for borrowing as of December 31, 2004. The drawdown period under the equipment financing
facilities expires on September 30, 2005. The obligations under the previous equipment loans, which are secured by the equipment financed, bear
interest at fixed rates of approximately 9% per year and are due in monthly installments through June 2006.
Future minimum principal payments on equipment loans
are as follows:
| Equipment Loans |
||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| (In thousands) |
||||||||||
Year ending
December 31: |
||||||||||
2005 |
146 | |||||||||
2006 |
55 | |||||||||
Total minimum
principal payments |
$ | 201 | ||||||||
53
GERON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
6. Accrued Liabilities
Accrued liabilities consist of the
following:
| December 31, |
|||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| 2004 |
2003 |
||||||||||
| (In thousands) |
|||||||||||
Legal
expenses |
$ | 262 | $ | 265 | |||||||
Present value
of lease exit obligations |
— | 200 | |||||||||
Sponsored
research agreements |
259 | 96 | |||||||||
Annual
report |
80 | 33 | |||||||||
Sales
tax |
52 | 16 | |||||||||
Other |
169 | 152 | |||||||||
| $ | 822 | $ | 762 | ||||||||
7. Operating Lease Commitment
In March 2004, as payment of the total rent due for
our premises at 200 Constitution Drive and 230 Constitution Drive in Menlo Park, California for the period from February 1, 2004 through July 31, 2008,
we issued to the lessor of those premises, 363,039 shares of our common stock. The fair value of the common stock of $3,052,000 was recorded as a
prepaid asset and is being amortized to rent expense on a straight-line basis over the lease period. As consideration for the early termination of the
lease on the premises at 255 Constitution Drive in Menlo Park, California, we issued to the lessor of those premises, 46,902 shares of our common
stock. The lease termination was effective April 1, 2004. The fair value of the common stock of $394,000 was recorded as rent expense in March 2004.
The sublease agreement entered into in June 2003 between us and a third party was transferred to the lessor of the premises effective March 31, 2004.
The remaining liability associated with the sublease was fully accreted and no liability remains outstanding as of December 31, 2004.
Future minimum payments under non-cancelable
operating leases are zero through July 31, 2008 as a result of the prepayment of rent with our common stock. Rent expense under operating leases was
approximately $966,000, $1,296,000 and $994,000 for the years ended December 31, 2004, 2003 and 2002, respectively.
8. Convertible Debentures
On June 29, 2000, we sold $25,000,000 in series D
zero coupon convertible debentures and a warrant to purchase 834,836 shares of Geron common stock to an institutional investor. We recognized
$10,527,000 in interest expense with an offset to additional paid-in capital for the Black Scholes calculated value of the warrant issued with the
convertible debentures. In December 2000, we recognized an additional $10,527,000 in imputed non-cash interest expense related to the beneficial
conversion feature of the series D convertible debentures as a cumulative effect of a change in accounting principle, with an offset to additional
paid-in capital.
In November 2001, we modified the terms of
$10,000,000 of outstanding series D convertible debentures and converted the debentures into 1,011,122 shares of Geron common stock. The remaining
$15,000,000 of outstanding series D convertible debentures was modified to extend the maturity date to June 30, 2005, increase the yield on the
debenture to 2.5%, and fix the conversion price at $20.00 per share. The related warrant was split into two warrants. The series D-1 warrant to
purchase 333,935 shares of Geron common stock had an exercise price of $15.625 per share and an exercise period to June 30, 2003. The series D-2
warrant to purchase 500,901 shares of Geron common stock had an exercise price of $25.00 per share and an exercise period to December 31, 2006. As a
result of this modification, we recorded $11,910,000 in conversion expense on our consolidated statements of operations.
In May 2003, we modified the existing terms of the
outstanding $15,000,000 of series D convertible debentures to provide for an automatic conversion into equity on the maturity date, fixed the
conversion price at $5.00 per share and eliminated the interest accrual for the remainder of the term. In addition, we modified the terms of the
related outstanding warrants and changed the exercise prices to $7.50 per
54
GERON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
8. Convertible Debentures (Continued)
share. The expiration periods were unchanged. As a result of this second modification, we recorded $779,000 in conversion expense on our consolidated statements of operations.
During
May and June 2003, all of the remaining $15,000,000 of series D convertible debentures
plus accrued interest of $575,000 were converted into 3,115,068 shares of Geron common
stock. As of December 31, 2004 and 2003, no series D convertible debentures remained
outstanding. Amended series D-1 warrants to purchase 333,935 shares of Geron common
stock expired on July 1, 2003 without having been exercised and amended series D-2
warrants to purchase 500,901 shares of Geron common stock remained outstanding as of
December 31, 2004.
9. Intangible Asset and Research Funding Obligation
In May 1999, we 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, we formed a
research collaboration with the Roslin Institute and committed approximately $20,000,000 in research funding over six years. Using an effective
interest rate of 6%, this research funding obligation had a net present value of $17,200,000 at the acquisition date. As of December 31, 2004 and 2003,
the present value of our remaining commitment was $3,043,000 and $5,814,000, respectively. Payments totaling $3,261,000 and $3,640,000 were made to the
Roslin Institute under the research funding obligation in 2004 and 2003, respectively. Imputed interest of $491,000 each was accreted to the value of
the research funding obligation and was recognized as interest expense in 2004 and 2003, respectively.
The acquisition 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. At the time of acquisition the value of the nuclear
transfer technology of $23,400,000 was reflected as acquired in-process research technology expense and the value of the research agreement of
$17,200,000 was capitalized as an intangible asset that was being amortized over the six year funding period as research and development expense,
$2,687,000 in 2004, $2,865,000 in 2003 and $2,864,000 in 2002. In December 2004, we extended the research funding period from June 30, 2005 to June 30,
2006 and we adjusted the amortization period of the intangible asset to coincide with the extended research period. We recomputed the present value of
the remaining funding commitment as of the date of the extension and no adjustment was deemed necessary to the carrying value of the obligation at that
date. No additional funding was committed. Research and development expense related to the amortization of this intangible asset is expected to be
$754,000 in 2005 and $377,000 in 2006.
10. Acquisition of In-Process Research Technology
In March 2004, we entered into an agreement with
Merix Bioscience, Inc. (now Argos Therapeutics, Inc.) under which we acquired a co-exclusive right under patents controlled by Merix for the use of
defined antigens in therapeutic cancer vaccines. The technology covered by the Merix patents is currently being used in conjunction with Geron’s
proprietary telomerase technology in a Phase 1-2 clinical trial under way at Duke University Medical Center. In conjunction with the agreement, we
issued 5,000,000 shares of Geron common stock to Merix.
We acquired the use of the Merix technology solely
for developing our therapeutic cancer vaccine program. We must further the development of the technology before it can enter into advanced clinical
trials for a potential commercial application. We have concluded that this technology has no alternative future use, and accordingly, expensed the
value of the common stock issued to Merix of $45,150,000 as an acquired in-process research technology charge at the time of
acquisition.
55
GERON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
11. Stockholders’ Equity
Warrants
Warrants outstanding to purchase Geron common stock
as of December 31, 2004 are detailed as follows:
| Issuance Date |
Exercise Price |
Number of Shares |
Exercisable Date |
Expiration Date |
||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
October
2003 |
$ | 16.15 | 600,000 | October
2003 |
October
2006 |
|||||||||||||
April
2003 |
$ | 6.34 | 600,000 | April
2003 |
April 2006 |
|||||||||||||
November
2001 |
$ | 7.50 | 500,901 | November
2001 |
December
2006 |
|||||||||||||
September
2001 |
$ | 9.07 | 5,000 | September
2001 |
September
2011 |
|||||||||||||
August
2001 |
$ | 14.60 | 100,000 | August
2001 |
August 2011 |
|||||||||||||
August
2001 |
$ | 22.56 | 9,000 | August
2001 |
August 2006 |
|||||||||||||
August
2000 |
$ | 31.69 | 5,000 | August
2000 |
August 2010 |
|||||||||||||
July
2000 |
$ | 6.75 | 25,000 | July
2000 |
July 2010 |
|||||||||||||
March
2000 |
$ | 67.09 | 200,000 | March
2000 |
March 2010 |
|||||||||||||
March
2000 |
$ | 12.50 | 100,000 | March
2000 |
March 2010 |
|||||||||||||
October
1998 |
$ | 5.78 | 5,083 | October
1998 |
October
2008 |
|||||||||||||
August
1997 |
$ | 6.75 | 25,000 | August
1997 |
August 2007 |
|||||||||||||
November
2004 |
$ | 6.12 | 25,000 | November
2004 |
November
2009 |
|||||||||||||
November
2004 |
$ | 8.62 | 2,295,082 | May
2005 |
November
2008 |
|||||||||||||
November
2004 |
$ | 6.10 | 2,049,180 | November 2004 |
January 2005 |
|||||||||||||
| 6,544,246 | ||||||||||||||||||
1992 Stock Option Plan
The 1992 Stock Option Plan (1992 Plan) expired in
August 2002 and no further option grants can be made from the 1992 Plan. The options granted under the 1992 Plan were either incentive stock options or
nonstatutory stock options. Options granted under the 1992 Plan expired no later than ten years from the date of grant. For incentive stock options and
nonstatutory stock options, the option exercise price was at least 100% and 85%, respectively, of the fair market value of the underlying common stock
on the date of grant. Options to purchase shares of common stock generally vested 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.
On September 18, 1998, the Board of Directors
approved a resolution to offer all employees holding outstanding options to purchase our common stock under the 1992 Plan with exercise prices in
excess of the closing price of Geron’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. In connection with this option exchange program, options to purchase 1,148,224 shares of common stock were cancelled
and regranted. In addition, we recorded deferred compensation of approximately $1,300,000 in 1998. The remaining deferred compensation was amortized
over the remaining vesting term of the options. We recognized no compensation expense related to this option exchange in 2004 and 2003 and $234,000 in
2002.
2002 Equity Incentive Plan
In May 2002, Geron’s stockholders approved the
adoption of the 2002 Equity Incentive Plan (2002 Plan) to replace the 1992 Plan. Our Board of Directors administers the 2002 Plan. The 2002 Plan
provides for grants to our employees and of our parent or subsidiary (including officers and employee directors) of either incentive stock or
nonstatutory stock options and stock purchase rights to employees (including officers and employee directors) and our consultants (including
non-employee directors) or of our parent or subsidiary. As of December 31, 2004, we had reserved 7,579,603 shares of common stock for issuance under
the 2002 Plan. Options granted under the 2002 Plan expire no later than ten years from the date of grant. For incentive stock options, the option price
shall be equal to 100% of the fair market value of the underlying common stock on the date of grant. All other stock option prices are determined by
the administrator. If, at the time we grant an option, the optionee directly or by attribution owns stock possessing more than 10% of the total
combined voting power of all classes of our stock, the option price
56
GERON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
11. Stockholders’ Equity (Continued)
shall be at least 110% of the fair market value of the underlying common stock 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 years from the date of the option grant, with a portion vesting after six months and the remainder vesting ratably over the remaining period. Under certain circumstances, options may be exercised prior to vesting, subject to our right to repurchase shares subject to such option at the exercise price paid per share. Our repurchase rights would generally terminate on a vesting schedule identical to the vesting schedule of the exercised option. In 2004 and 2003, we did not repurchase any shares, in accordance with these repurchase rights. As of December 31, 2004, no shares outstanding were subject to repurchase.
In connection with the 2003 restructuring, we entered into employment agreements with our remaining executive officers and certain other employees, and adopted a Severance Plan applicable according to its terms to all remaining employees. In connection with the employment agreements and Severance Plan, we had a commitment to pay employees a retention bonus equal to 10% of their salary if the employee remained in employment with us until January 5, 2004. In January 2004, we awarded 57,309 shares of Geron common stock from the 2002 Plan to employees in payment of the retention bonus which fulfilled our 2003 accrued commitment of $574,000. As of December 31, 2004, we had no further obligation for this retention bonus and we do not have any new retention bonus obligations.
Directors’ Stock Option Plan
In July 1996, we adopted the 1996 Directors’
Stock Option Plan (Directors’ Option Plan) and reserved an aggregate of 250,000 shares of common stock for issuance thereunder. In May 1999, the
stockholders approved an amendment to increase the number of authorized shares to 500,000 shares of common stock. In May 2003, the stockholders
approved an amendment to increase the number of authorized shares to 1,000,000 shares of common stock. As of December 31, 2004, 762,500 options have
been granted under the Directors’ Option Plan. The Directors’ Option Plan provides that each person who becomes a non-employee director after
the effective date of the Directors’ Option Plan, whether by election by our stockholders or by appointment by the Board of Directors to fill a
vacancy, will automatically be granted an option to purchase 45,000 shares of common stock on the date on which such person first becomes a
non-employee director (First Option). In addition, non-employee directors (other than the Chairman of the Board of Directors) will automatically be
granted a subsequent option on the date of the Annual Meeting of Stockholders in each year during such director’s service on the Board (Subsequent
Option) to purchase 20,000 shares of common stock under the Directors’ Option Plan. In the case of the Chairman of the Board of Directors, the
Subsequent Option will be for 30,000 shares of common stock. Finally, we will grant an option to purchase 2,500 shares to each non-employee director
upon such director’s appointment to the Audit Committee or Compensation Committee of the Board of Directors, as well as on the date of each Annual
Meeting during the director’s service on such committee (Committee Service Option).
The Directors’ Option Plan provides that each
First Option granted thereunder becomes exercisable in installments cumulatively as to one-third of the shares subject to the First Option on each of
the first, second and third anniversaries of the date of grant of the First Option. Each Subsequent Option and Committee Service Option is fully vested
on the date of its grant. The options issued pursuant to the Directors’ Option Plan remain exercisable for up to 90 days following the
optionee’s termination of service as our director, unless such termination is a result of death or permanent and total disability, in which case
the options (both those already exercisable and those that would have become exercisable had the director remained on the board for an additional 36
months) remain exercisable for up to a 24 month period.
The exercise price of all stock options granted
under the Directors’ Option Plan is equal to 100% of the fair market value of the underlying common stock on the date of grant. Options granted
under the Directors’ Option Plan have a term of ten years.
57
GERON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
11. Stockholders’ Equity (Continued)
Aggregate option activity for the 1992 Plan, 2002 Plan and the Directors’ Stock Option Plan is as follows:
| Outstanding Options |
||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Shares Available For Grant |
Number of Shares |
Price Per Share |
Weighted Average Exercise Price |
|||||||||||||||
Balance at
December 31, 2001 |
282,085 | 5,028,689 | $ | 0.82 – $47.19 | $ | 10.97 | ||||||||||||
Additional
shares authorized |
5,000,000 | — | $ | — | $ | — | ||||||||||||
Options
granted |
(2,058,366 | ) | 2,058,366 | $ | 3.76 – $ 9.23 | $ | 4.73 | |||||||||||
Options
exercised |
— | (16,357 | ) | $ | 0.82 – $11.85 | $ | 4.89 | |||||||||||
Options
forfeited |
762,021 | (762,021 | ) | $ | 3.76 – $47.19 | $ | 12.04 | |||||||||||
1992 Plan
options expired |
(515,419 | ) | — | $ | — | $ | — | |||||||||||
Balance at
December 31, 2002 |
3,470,321 | 6,308,677 | $ | 0.82 – $41.13 | $ | 8.82 | ||||||||||||
Additional
shares authorized |
1,496,767 | — | $ | — | $ | — | ||||||||||||
Options
granted |
(977,470 | ) | 977,470 | $ | 1.83 – $10.01 | $ | 5.46 | |||||||||||
Options
exercised |
— | (356,864 | ) | $ | 0.82 – $14.32 | $ | 5.58 | |||||||||||
Options
forfeited |
809,803 | (809,803 | ) | $ | 3.76 – $30.63 | $ | 10.72 | |||||||||||
1992 Plan
options expired |
(519,883 | ) | — | $ | — | $ | — | |||||||||||
Balance at
December 31, 2003 |
4,279,538 | 6,119,480 | $ | .82 – $41.13 | $ | 8.22 | ||||||||||||
Additional
shares authorized |
1,582,836 | — | $ | — | $ | — | ||||||||||||
Options
granted |
(1,048,882 | ) | 1,048,882 | $ | 5.69 – $11.65 | $ | 7.51 | |||||||||||
Awards
granted |
(63,129 | ) | — | $ | — | $ | — | |||||||||||
Options
exercised |
— | (220,982 | ) | $ | 0.82 – $10.10 | $ | 4.99 | |||||||||||
Options
forfeited |
380,110 | (380,110 | ) | $ | 1.88 – $29.75 | $ | 9.25 | |||||||||||
1992 Plan
options expired |
(207,867 | ) | — | $ | — | $ | — | |||||||||||
Balance at
December 31, 2004 |
4,922,606 | 6,567,270 | $ | 0.82 – $41.13 | $ | 8.15 | ||||||||||||
Information about stock options outstanding as of December 31, 2004 is as follows:
| Options Outstanding |
|||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Exercise Price Range |
Number |
Weighted Average Exercise Price |
Weighted Average Remaining Contractual Life (in years) |
||||||||||||
| $ 0.82 – $ 4.56 | 1,372,205 | $ | 3.79 | 6.84 | |||||||||||
| $ 4.75 – $ 5.08 | 1,395,743 | $ | 4.93 | 6.23 | |||||||||||
| $ 5.69 – $ 8.23 | 1,888,852 | $ | 7.63 | 8.23 | |||||||||||
| $ 8.31 – $15.13 | 1,265,470 | $ | 11.43 | 5.26 | |||||||||||
| $16.31 – $41.13 | 645,000 | $ | 19.52 | 6.00 | |||||||||||
| $ 0.82 – $41.13 | 6,567,270 | $ | 8.15 | 6.72 | |||||||||||
As of December 31, 2004 and 2003, there were 4,612,346 and 3,769,875 exercisable options outstanding at a weighted average exercise price per share of
$8.91 and $9.05, respectively.
Stock Based Compensation
We have elected to apply APB Opinion 25 in
accounting for our stock option awards granted to employees and directors, rather than the alternative fair value accounting provided under SFAS 123.
Under APB Opinion 25, no compensation expense is recognized for grants of options to employees and directors at an exercise price equal to or greater
than the fair market value of the underlying common stock on the date of grant. Accordingly, based on our option grants in 2004, 2003, and 2002, no
compensation expense has been recognized related to employee and director stock options.
Pro forma information regarding net income and
earnings per share under the alternative fair value accounting required by SFAS 123, as amended by SFAS 148 is presented in Note 1. This information is
required to be determined as if we had accounted for our employee stock options granted subsequent to September 30, 1995, under the fair value method
of that Statement.
58
GERON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
11. Stockholders’ Equity (Continued)
There were no options granted with an exercise price below fair market value of our common stock on the date of grant for 2004, 2003 and 2002. The weighted average grant date fair value of options granted during 2004, 2003 and 2002 with an exercise price equal to the fair market value of our common stock on the date of grant was $7.51, $5.46 and $3.05, respectively. There were no options granted with an exercise price greater than the fair market value of our common stock in 2004, 2003 and 2002.
We grant options and warrants to consultants from time to time in exchange for services performed for us. In general, these options and warrants vest over the contractual period of the consulting arrangement. We granted options and warrants to consultants to purchase 31,791, 72,970 and 4,558 shares of our common stock in 2004, 2003 and 2002, respectively. The fair value of these options and warrants is being amortized to expense over the vesting term of the options and warrants. In addition, we will record any additional increase in the fair value of the option or warrant as the options and warrants vest. We recorded expense of $269,000, $163,000 and $18,000 for the fair value of these options and warrants in 2004, 2003 and 2002, respectively. As of December 31, 2004, unamortized fair value of options and warrants to consultants of $14,000 remained outstanding.
We also grant common stock to consultants, vendors, board members and research institutions in exchange for services performed for us. In 2004, 2003 and 2002, we issued 959,558, 281,793 and 2,601 shares of common stock, respectively, in exchange for goods or services. For these stock grants, we recognized an expense equal to the fair market value of the granted shares on the date of grant. In 2004, 2003 and 2002, we recognized approximately $6,167,000, $1,291,000 and $24,000, respectively, of expense in connection with stock grants to consultants, vendors, board members and research institutions. Also, we have prepaid our rental obligation for our facilities with common stock and as of December 31, 2004, have a prepaid balance of $2,430,000 which is being amortized to rent expense on a straight-line basis over the term of the lease to July 31, 2008.
Employee Stock Purchase Plan
In July 1996, we adopted the 1996 Employee Stock
Purchase Plan (Purchase Plan) and reserved an aggregate of 300,000 shares of common stock for issuance thereunder. In May 2003, the stockholders
approved an amendment to increase the number of authorized shares to 600,000 shares of common stock. Under the terms of the Purchase Plan, employees
can choose to have up to 10% of their annual salary withheld to purchase Geron 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 28% of the eligible employees have participated in the
Purchase Plan in 2004. Approximately 266,000, 247,000 and 213,000 shares have been issued under the Purchase Plan as of December 31, 2004, 2003 and
2002, respectively. As of December 31, 2004, 334,072 shares were available for issuance under the Purchase Plan.
We do not recognize compensation cost related to
employee purchase rights under the Purchase Plan. The pro forma compensation cost estimated for the fair value of the employees’ purchase rights
of approximately $47,000 for 2004, $57,000 for 2003 and $101,000 for 2002 has been included in the pro forma information included in Note
1.
Common Stock Reserved for Future Issuance
Common stock reserved for future issuance as of
December 31, 2004 is as follows:
Outstanding
stock options |
6,567,270 | |||||
Options
available for grant |
4,922,606 | |||||
Employee stock
purchase plan |
334,072 | |||||
Warrants
outstanding |
6,544,246 | |||||
Total |
18,368,194 |
Share Purchase Rights Plan
On July 20, 2001, our Board of Directors adopted a
share purchase rights plan and declared a dividend distribution of one right for each outstanding share of common stock to stockholders of record as of
July 31, 2001. Each right entitles the holder to purchase one unit consisting of one one-thousandth of a
59
GERON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
11. Stockholders’ Equity (Continued)
share of Series A Junior Participating Preferred Stock for $100 per unit. Under certain circumstances, if a person or group acquires 15% or more of Geron outstanding common stock, holders of the rights (other than the person or group triggering their exercise) will be able to purchase, in exchange for the $100 exercise price, shares of Geron’s common stock, par value $0.001 per share, or of any company into which Geron is merged having a value of $200. The rights expire on July 31, 2011 unless extended by our Board of Directors. As of December 31, 2004, no rights were exercisable into any shares of common stock.
401(k) Plan
We sponsor a defined-contribution savings plan under
Section 401(k) of the Internal Revenue Code covering all full-time U.S. employees (Geron 401K Plan). Participating employees may contribute up to the
annual Internal Revenue Service contribution limit. The Geron 401K Plan also permits us to provide discretionary matching and profit sharing
contributions. The Geron 401K Plan is intended to qualify under Section 401 of the Internal Revenue Code so that contributions by employees or by
Geron, and income earned on the contributions, are not taxable to employees until withdrawn from the Geron 401K Plan. Our contributions, if any, will
be deductible by us when made. At the direction of each participant, the assets of the Geron 401K Plan are invested in any of 14 different investment
options.
In December 2004, 2003 and 2002, our Board of
Directors approved a matching contribution equal to 100% of each employee’s 2004, 2003 and 2002 contributions, respectively. The matching
contributions are invested in Geron’s common stock and vest ratably over four years for each year of service completed by the employee, commencing
from the date of hire, until it is fully vested when the employee has completed four years of service. We provided the matching contribution in the
month following Board approval.
Our accrual for matching the 2004 employee
contributions under this plan was approximately $497,000, of which $371,000 was fully vested as of December 31, 2004 and $305,000 was recorded as
research and development expense and $66,000 was recorded as general and administrative expense. Our accrual for matching the 2003 employee
contributions under this plan was approximately $400,000, of which $296,000 was fully vested as of December 31, 2003 and $244,000 was recorded as
research and development expense and $52,000 was recorded as general and administrative expense. As of December 31, 2004, $125,000 had been recognized
as deferred compensation for the remaining unvested portion of the 2004 matching contribution and will be amortized as compensation expense over the
remaining vesting periods. As of December 31, 2004, the remaining deferred compensation for the 2003 match was $50,000 and $84,000 for the 2002
match.
Private Financings
In November 2004, we sold 6,557,377 shares of Geron
common stock to institutional investors at $6.10 per share resulting in net cash proceeds of approximately $39,919,000. The shares were offered through
a prospectus supplement to an effective universal registration statement. In connection with the sale, we also issued warrants to purchase 2,049,180
shares at $6.10 per share with an expiration date in January 2005. We also issued warrants to purchase 2,295,082 shares at $8.62 per share that are
exercisable beginning in May 2005 and expire in November 2008. The fair value of the warrants of $12,694,000 was determined using the Black Scholes
option-pricing model and was recognized as an issuance cost with an offset to additional paid-in capital. As of December 31, 2004, both warrants
remained outstanding. See Note 17 on Subsequent Events.
In April 2003, we sold 4,400,000 shares of Geron
common stock to two investors at $4.60 per share resulting in net cash proceeds of approximately $18,980,000. The shares were offered through a
prospectus supplement to an effective universal shelf registration statement. We also issued to the investors warrants to purchase an additional
600,000 shares of Geron common stock at an exercise price of $6.34 per share. The warrants expire in April 2006. The value of the warrants of
$2,040,000 was determined using the Black Scholes option-pricing model and was recognized as an issuance cost with an offset to additional paid-in
capital. As of December 31, 2004, the warrants remained outstanding.
In June 2003, we entered into a license agreement
with Transgenomic, Inc. covering the manufacture of phosphoramidate and thio-phosphoramidate oligonucleotides. In connection with the
agreement,
60
GERON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
11. Stockholders’ Equity (Continued)
Transgenomic purchased 310,000 shares of Geron common stock at $5.05 per share in addition to paying a non-refundable cash license fee. In a separate collaboration research agreement between the two companies, a research fee was paid to Transgenomic, Inc.
Public Offering
In November 2003, we completed a public offering of
5,750,000 shares of common stock, which included the underwriters’ exercise of their over-allotment option, resulting in net cash proceeds of
approximately $64,330,000. In connection with the offering, we issued warrants to purchase 600,000 shares of Geron common stock to two investors at an
exercise price of $16.15 per share. The warrants are exercisable for a period beginning 90 days from the date of issuance and ending three years
thereafter. The value of the warrants of $6,179,000 was determined using the Black Scholes option-pricing model and was recognized as an issuance cost
with an offset to additional paid-in capital. As of December 31, 2004, the warrants remained outstanding.
12. Collaborative Agreements
In April 1995, we entered into a License and
Research Collaboration Agreement with Kyowa Hakko (the Kyowa Hakko Agreement). Under the Kyowa Hakko Agreement, Kyowa Hakko provided $20,000,000 of
research funding over six years to support our program to discover and develop in certain Asian countries a telomerase inhibitor for the treatment of
cancer. All of this research funding had been received as of December 31, 2001. Kyowa Hakko also purchased $2,500,000 of Geron common stock in
connection with our initial public offering in 1996. In June 2004, Kyowa Hakko returned the Asian territory development and marketing rights for
Geron’s telomerase inhibitors and terminated their research and license agreement with us.
Costs associated with research and development
activities attributable to the Kyowa Hakko Agreement approximated revenue recognized. Under this agreement, no revenues were recognized in 2004 and
2003 and approximately $500,000 in 2002. No milestone payments were earned.
In December 1997, we entered into a License, Product
and Marketing Agreement with Boehringer Mannheim (the Boehringer Mannheim Agreement) to develop and commercialize certain 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. We are
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, we have 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 were transferred to
Roche Diagnostics. In accordance with the Boehringer Mannheim Agreement, we received royalty payments from Roche of approximately $41,000, $42,000 and
$30,000 in 2004, 2003 and 2002, respectively.
In December 2004, we entered into a worldwide
non-exclusive license agreement with Cambrex Bio Science Walkersville, Inc. under which the Cambrex subsidiary will develop and distribute cell lines
that have been immortalized using Geron’s proprietary telomerase technology. Under the terms of the agreement, we will receive an upfront license
fee payment and royalties on product sales. As of December 31, 2004, the license fee was recorded in interest and other receivables and deferred
revenue since we were entitled to the fee at the execution of the arrangement. The technology transfer had not been completed as of the end of the
year.
In May 2004, we entered into a collaboration
agreement with CXR Biosciences Ltd. to develop and commercialize human embryonic stem cell (hESC)-derived hepatocytes for use in in vitro assays of
drug metabolism and toxicity. In connection with the collaboration, Geron and CXR will fund certain research and development costs and share in profits
of future product sales. As of December 31, 2004, Geron had provided approximately $164,000 in funding to CXR for this collaboration.
61
GERON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
13. Income Taxes
Deferred income taxes reflect the net tax effects of
temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax
purposes. Significant components of our deferred tax assets as of December 31 are as follows:
| 2004 |
2003 |
||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| (In thousands) |
|||||||||||
Net operating
loss carryforwards |
$ | 95,100 | $ | 72,100 | |||||||
Purchased
technology |
17,100 | — | |||||||||
Research
credits |
13,200 | 10,500 | |||||||||
Capitalized
research and development |
8,400 | 8,000 | |||||||||
License
fees |
2,700 | 2,900 | |||||||||
Other —
net |
4,400 | 4,700 | |||||||||
Total
deferred tax assets |
140,900 | 98,200 | |||||||||
Valuation
allowance for deferred tax assets |
(140,900 | ) | (98,200 | ) | |||||||
Net deferred
tax assets |
$ | — | $ | — | |||||||
Because of our history of losses, the net deferred
tax asset has been fully offset by a valuation allowance. The valuation allowance increased by $42,700,000, $17,300,000 and $24,100,000 during the
years ended December 31, 2004, 2003 and 2002, respectively.
As of December 31, 2004, we had domestic federal net
operating loss carryforwards of approximately $245,000,000 expiring at various dates beginning 2006 through 2024, and state net operating loss
carryforwards of approximately $86,000,000 expiring at various dates beginning 2005 through 2014, if not utilized. Our foreign net operating loss
carryforwards of approximately $22,800,000 carry forward indefinitely. We also had federal research and development tax credit carryforwards of
approximately $8,140,000 expiring at various dates beginning in 2007 through 2024, if not utilized. Our state research and development tax credit
carryforwards of approximately $7,700,000 carry forward indefinitely.
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.
Approximately $3,770,000 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
Statement of Financial Accounting Standards No. 131,
“Disclosures about Segments of an Enterprise and Related Information” (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. Our chief decision maker, as
defined under SFAS 131, is the Chief Executive Officer. To date, we have viewed our operations as principally one segment, the discovery and
development of therapeutic and diagnostic products for oncology and human embryonic stem cell therapies. As a result, the financial information
disclosed herein materially represents all of the financial information related to our principal operating segment.
62
GERON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
15. Statement of Cash Flows Data
| Years Ended December 31, |
|||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2004 |
2003 |
2002 |
|||||||||||||
| (In thousands) |
|||||||||||||||
Supplementary
information: |
|||||||||||||||
Interest
paid |
$ | 26 | $ | 53 | $ | 87 | |||||||||
Supplementary
investing and financing activities: |
|||||||||||||||
Conversion of
convertible debentures |
$ | — | $ | 16,510 | $ | — | |||||||||
Issuance of
warrants to purchase common stock and common stock issued for prior year services |
$ | 1,917 | $ | 1,227 | $ | 636 | |||||||||
Issuance of
common stock for prepaid facility rent |
$ | 3,446 | $ | — | $ | — | |||||||||
Unrealized
gain (loss) on equity investments |
$ | 221 | $ | 37 | $ | (322 | ) | ||||||||
Net
unrealized gain (loss) on available-for-sale securities |
$ | (354 | ) | $ | (81 | ) | $ | (338 | ) | ||||||
Issuance of
common stock for 401(k) contribution and retention bonus |
$ | 978 | $ | 548 | $ | — | |||||||||
Deferred
compensation on 401(k) contribution |
$ | 125 | $ | 105 | $ | 209 | |||||||||
Interest expense for the year ended December 31,
2004, 2003 and 2002 was $518,000, $544,000 and $600,000, respectively.
16. Quarterly Results (Unaudited)
| First Quarter |
Second Quarter |
Third Quarter |
Fourth Quarter |
||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (In thousands, except per share amounts) |
|||||||||||||||||||
Year Ended
December 31, 2004 |
|||||||||||||||||||
Revenues |
$ | 248 | $ | 366 | $ | 101 | $ | 338 | |||||||||||
Operating
expenses |
52,259 | 9,534 | 10,576 | 9,969 | |||||||||||||||
Net
loss |
(51,683 | ) | (8,945 | ) | (10,302 | ) | (9,475 | ) | |||||||||||
Basic and
diluted net loss per share |
$ | (1.28 | ) | $ | (0.20 | ) | $ | (0.23 | ) | $ | (0.20 | ) | |||||||
Year Ended
December 31, 2003 |
|||||||||||||||||||
Revenues |
$ | 262 | $ | 285 | $ | 472 | $ | 155 | |||||||||||
Operating
expenses |
8,306 | 8,938 | 5,709 | 8,401 | |||||||||||||||
Net
loss |
(7,932 | ) | (9,288 | ) | (5,107 | ) | (7,556 | ) | |||||||||||
Basic and
diluted net loss per share |
$ | (0.32 | ) | $ | (0.32 | ) | $ | (0.15 | ) | $ | (0.21 | ) | |||||||
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
In January 2005, we received cash proceeds of
$12,500,000 upon the exercise of warrants to purchase 2,049,180 shares of common stock. The warrants were issued to institutional investors in
connection with the financing announced in November 2004 and had an expiration date of January 11, 2005.
In January 2005, we awarded 148,137 shares of common
stock to employees in lieu of cash for 2004 year end performance bonuses. The shares were granted from the 2002 Equity Incentive Plan. Compensation
expense related to this award was included in accrued compensation as of December 31, 2004.
63
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Not Applicable.
Item 9A. Controls and Procedures
Based on their evaluation as of a date within 90
days of the filing date of this annual report on Form 10-K, Geron’s principal executive officer and principal financial officer have concluded
that Geron’s disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the
Exchange Act) are effective to ensure that information required to be disclosed by Geron in reports that it files or submits under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.
There were no significant changes in Geron’s
internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation and up to the filing
date of this annual report on Form 10-K. We have not identified any significant deficiencies or material weaknesses, and therefore there were no
corrective actions taken.
Management Report on Internal Control Over Financial Reporting
Internal control over financial reporting refers to
the process designed by, or under the supervision of, our Chief Executive Officer and Chief Financial Officer, and effected by our board of directors,
management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles, and includes those policies and procedures
that:
(1) Pertain to the maintenance of records
that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company;
(2) Provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and
that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company;
and
(3) Provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect
on the financial statements.
Management is responsible for establishing and
maintaining an adequate internal control over financial reporting. Internal control over financial reporting cannot provide absolute assurance of
achieving financial reporting objectives because of its inherent limitations. Internal control over financial reporting is a process that involves
human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial
reporting also can be circumvented by collusion or improper management override. Because of such limitations, there is a risk that material
misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are
known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate,
this risk. Management is responsible for establishing and maintaining adequate internal control over financial reporting for the
Company.
Management has used the framework set forth in the
report entitled “Internal Control — Integrated Framework” published by the Committee of Sponsoring Organizations (“COSO”) of
the Treadway Commission to evaluate the effectiveness of the Company’s internal control over financial reporting. Management has concluded that
the Company’s internal control over financial reporting was effective as of the end of the most recent fiscal year. The Company’s independent
registered public accounting firm has issued an attestation report on management’s assessment of the Company’s internal control over
financial reporting.
Thomas B.
Okarma |
David L.
Greenwood |
|||||
President and Chief Executive
Officer |
Executive Vice
President Chief Financial Officer |
|||||
64
PART III
Item 10. Directors and Executive Officers of the
Registrant
Identification of Directors
The information required by this Item concerning
Geron’s directors is incorporated by reference from the section captioned “Proposal 1: Election of Directors” contained in Geron’s
Definitive Proxy Statement related to the Annual Meeting of Stockholders to be held May 6, 2005, to be filed with the Securities and Exchange
Commission (the Proxy Statement).
Identification of Executive Officers
The information required by this Item concerning
Geron’s executive officers is set forth in Part I of this Report.
Code of Ethics
Geron has adopted a Code of Conduct with which every
person who works for Geron is expected to comply. The Code of Conduct is publicly available on Geron’s website under the Investor Relations
section at www.geron.com. This website address is intended to be an inactive, textual reference only; none of the material on this website is part of
this report. If any substantive amendments are made to the Code of Conduct or any waiver granted, including any implicit waiver, from a provision of
the code to Geron’s Chief Executive Officer, Chief Financial Officer or Corporate Controller, Geron will disclose the nature of such amendment or
waiver on that website or in a report on Form 8-K.
Copies of the Code of Conduct will be furnished
without charge to any person who submits a written request directed to the attention of the Geron Secretary, at Geron’s offices located at 230
Constitution Drive, Menlo Park, California, 94025.
Item 11. Executive Compensation
The information required by this Item is
incorporated by reference from the section captioned “Executive Compensation” contained in the Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this Item is
incorporated by reference from the section captioned “Security Ownership of Certain Beneficial Owners and Management” contained in the Proxy
Statement.
Item 13. Certain Relationships and Related Transactions
The information required by this Item is
incorporated by reference from the sections captioned “Certain Transactions” and “Executive Compensation” contained in the Proxy
Statement.
Item 14. Principal Accounting Fees and Services
The information required by this Item is
incorporated by reference from the section captioned “Principal Accountant Fees and Services” contained in the Proxy
Statement.
65
PART IV
Item 15. Exhibits, Financial Statement Schedules
(a) (1) Consolidated Financial Statements
Included in Part II, Item 8 of this
Report:
| Page |
||||||
|---|---|---|---|---|---|---|
Reports of
Independent Registered Public Accounting Firm |
38 |
|||||
Consolidated
Balance Sheets — December 31, 2004 and 2003 |
40 |
|||||
Consolidated
Statements of Operations — Years ended December 31, 2004, 2003 and 2002 |
41 |
|||||
Consolidated
Statement of Stockholders’ Equity — Years ended December 31, 2004, 2003 and 2002 |
42 |
|||||
Consolidated
Statements of Cash Flows — Years ended December 31, 2004, 2003 and 2002 |
43 |
|||||
Notes to
Consolidated Financial Statements |
44 |
|||||
| (2) Financial Statement Schedules |
Financial statement schedules are omitted because
they are not required or the information is disclosed in the financial statements listed in Item 15(a)(1) above.
| (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(3) | Certificate of Amendment of Restated Certificate of Incorporation of Geron Corporation |
|||||
| 3.3(3) | Bylaws of Registrant |
|||||
| 4.1(2) | Form
of Common Stock Certificate |
|||||
| 4.4(4) | Registration Rights Agreement, dated April 30, 1999, by and among the Registrant and each of the Shareholders of Roslin |
|||||
| 4.6(5) | Rights Agreement, dated as of July 20, 2001, by and between Geron Corporation and U.S. Stock Transfer Corporation, as Rights Agent, which
includes the form of Certification of Designations of the Series A Junior Participating Preferred Stock of Geron Corporation as Exhibit A, the form of
Right Certificate as Exhibit B and the Summary of Rights to Purchase Preferred Shares as Exhibit C |
|||||
| 4.11(6) | Form
of Indenture |
|||||
| 4.12(7) | Common Stock Purchase Agreement dated March 5, 2002, by and between Registrant and Lynx Therapeutics, Inc. |
|||||
| 4.14(8) | Warrant No. 1 to purchase 300,000 shares of common stock issued by Registrant to the Purchaser, dated as of April 7, 2003 |
|||||
| 4.15(9) | Warrant No. 2 to purchase 300,000 shares of common stock issued by Registrant to the Purchaser, dated as of April 7, 2003 |
|||||
| 4.16(10) | Amended and Restated Common Stock Purchase Agreement dated as of April 8, 2003, by and between the Registrant and certain
investors |
|||||
| 4.17(11) | Stock Purchase Agreement dated March 21, 2003, by and between Registrant and Finnegan, Henderson, Farabow, Garrett & Dunner,
LLP |
|||||
| 4.18(12) | Equity Payment Agreement dated March 21, 2003, by and between Registrant and Finnegan, Henderson, Farabow, Garrett & Dunner,
LLP |
|||||
| 4.19(13) | Amendment No. 2 to Registration Rights Agreement dated as of May 23, 2003, by and between Registrant and RGC International Investors,
LDC |
|||||
| 4.20(14) | Series D Second Amended and Restated Convertible Debentures dated as of May 23, 2003 |
|||||
| 4.21(15) | Amended and Restated Series D-1 Stock Purchase Warrant, dated as of May 23, 2003 |
|||||
66
| Exhibit Number |
|
Description | ||||
|---|---|---|---|---|---|---|
| 4.22(16) | Amended and Restated Series D-2 Stock Purchase Warrant, dated as of May 23, 2003 |
|||||
| 4.28(17) | Agreement dated October 14, 2003, by and between Registrant and Mainfield Enterprises, Inc. |
|||||
| 4.29(18) | Agreement dated October 14, 2003, by and between Registrant and The Riverview Group, LLC |
|||||
| 4.30(19) | Common Stock Purchase Agreement dated as of January 21, 2004, by and between Registrant and Transgenomic, Inc. |
|||||
| 4.31(20) | Common Stock Purchase Agreement dated as of January 27, 2004, by and between Registrant and Transgenomic, Inc. |
|||||
| 4.32(21) | Common Stock Purchase Agreement dated as of March 6, 2004, by and between Registrant and Merix Bioscience, Inc. |
|||||
| 4.33(22) | Common Stock Purchase Agreement dated as of March 18, 2004, by and between Registrant and Transgenomic, Inc. |
|||||
| 4.34(23) | Common Stock Purchase Agreement dated as of March 23, 2004, by and between Registrant and David D. Bohannon Organization |
|||||
| 4.35(24) | Common Stock Purchase Agreement dated as of March 23, 2004, by and between Registrant and Bohannon Development Company |
|||||
| 4.36(25) | Common Stock Purchase Agreement dated as of April 23, 2004, by and between Registrant and Transgenomic, Inc. |
|||||
| 4.37(26) | Common Stock Purchase Agreement dated as of April 23, 2004, by and between Registrant and Transgenomic, Inc. |
|||||
| 4.38(27) | Form
of Indenture |
|||||
| 4.39(28) | Form
of Subordinated Indenture, between Geron Corporation and one or more trustees to be named |
|||||
| 4.40(29) | Common Stock Purchase Agreement dated as of July 1, 2004, by and between Registrant and Transgenomic, Inc. |
|||||
| 4.41(30) | Common Stock Purchase Agreement dated as of September 28, 2004, by and between Registrant and Transgenomic, Inc. |
|||||
| 4.42(31) | Form
of A Warrant, dated November 12, 2004, issued by the Registrant to certain purchasers |
|||||
| 4.43(32) | Form
of B Warrant, dated November 12, 2004, issued by the Registrant to certain purchasers |
|||||
| 4.44(33) | Form
of C Warrant, dated November 12, 2004, issued by the Registrant to certain purchasers |
|||||
| 10.1(34) | Form
of Indemnification Agreement |
|||||
| 10.2(35) | 1992
Stock Option Plan, as amended |
|||||
| 10.3(34) | 1996
Employee Stock Purchase Plan, as amended |
|||||
| 10.4(36) | 1996
Directors’ Stock Option Plan, as amended |
|||||
| 10.5(37) | 2002
Equity Incentive Plan |
|||||
| 10.6(2)† | 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(2)† | Patent License Agreement dated September 8, 1992 between Registrant and University of Texas Southwestern Medical Center at
Dallas |
|||||
| 10.8(2)† | Sponsored Research Agreement dated as of September 8, 1992 between the Registrant and University of Texas Southwestern Medical Center at
Dallas |
|||||
| 10.9(2)† | Exclusive License Agreement dated February 2, 1994 between the Registrant and the Regents of the University of California |
|||||
| 10.10(2)† | 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 |
|||||
| 10.14(2) | Equipment Financing Agreement dated January 5, 1992 between the Registrant and Lease Management Services, Inc. |
|||||
| 10.15(2) | Master Lease Agreement dated January 5, 1993 between the Registrant and Lease Management Services, Inc. |
|||||
| 10.23(2) | Common Stock Warrant dated May 4, 1994, issued by the Registrant to Cold Spring Harbor Laboratory |
|||||
| 10.27(39)† | 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 |
|||||
| 10.30(39) | Intellectual Property License Agreement dated December 9, 1996 between Registrant and University Technology Corporation |
|||||
| 10.35(40)† | License Agreement dated August 1, 1997 between Registrant and The Johns Hopkins University |
|||||
67
| Exhibit Number |
|
Description | ||||
|---|---|---|---|---|---|---|
| 10.36(40)† | Research Agreement dated August 1, 1997 between Registrant and The Johns Hopkins University |
|||||
| 10.37(41)† | License, Product Development, and Marketing Agreement dated as of December 19, 1997, by and between Registrant and Boehringer Mannheim,
GmbH |
|||||
| 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 |
|||||
| 10.52(42) | 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(43) | Securities Purchase Agreement by and between Registrant and private investor dated March 9, 2000 |
|||||
| 10.54(44) | Warrant to purchase 100,000 shares of common stock issued by Registrant to private investor dated March 9, 2000 |
|||||
| 10.55(45) | Warrant to purchase 200,000 shares of common stock issued by Registrant to private investor dated March 9, 2000 |
|||||
| 10.61(46) | First Amendment to Intellectual Property License Agreement dated July 23, 2001, by and among Registrant and University Technology
Corporation |
|||||
| 10.62(47) | Common Stock Purchase Agreement dated as of August 30, 2001, by and among Registrant and University Technology Corporation |
|||||
| 10.63(48) | Common Stock Warrant Agreement issued by Registrant to University Technology Corporation, dated as of August 30, 2001 |
|||||
| 10.66(49) | License Agreement dated as of January 8, 2002, by and between Registrant and Wisconsin Alumni Research Foundation |
|||||
| 10.67(50)† | Purchase Agreement dated as of March 5, 2002, by and between Registrant and Lynx Therapeutics, Inc. |
|||||
| 10.68(51) | Employment agreement between Registrant and Thomas Okarma, dated January 21, 2003 |
|||||
| 10.69(52) | Employment agreement between Registrant and David Greenwood, dated January 21, 2003 |
|||||
| 10.70(53) | Employment agreement between Registrant and David Earp, dated January 21, 2003 |
|||||
| 10.71(54) | Employment agreement between Registrant and Calvin Harley, dated January 21, 2003 |
|||||
| 10.72(55) | Employment agreement between Registrant and Melissa Kelly, dated January 21, 2003 |
|||||
| 10.73(56) | Employment agreement between Registrant and Jane Lebkowski, dated January 21, 2003 |
|||||
| 10.74(57) | Employment agreement between Registrant and William Stempel, dated January 21, 2003 |
|||||
| 10.75(58) | Severance Plan, effective January 21, 2003 |
|||||
| 10.76(59)† | License Agreement Amendment between Geron Corporation and Transgenomic, Inc., dated June 2, 2003 |
|||||
| 10.77(60) | Restructuring Agreement dated as of May 23, 2003, by and between Registrant and RGC International Investors, LDC |
|||||
| 10.78(61)† | License Agreement dated as of March 6, 2004 by and between Registrant and Merix Bioscience, Inc. |
|||||
| 10.79(62) | Lease Termination and Advance Payment Agreement by and between Registrant and David D. Bohannon Organization and Bohannon Development Company,
dated March 23, 2004 |
|||||
| 10.80(63) | Fourth Amendment to Lease by and between Registrant and David D. Bohannon Organization, dated March 23, 2004 |
|||||
| 10.81(64) | Amendment to Lease by and between Registrant and David D. Bohannon Organization, dated March 23, 2004 |
|||||
| 14.1(70) | Code
of Conduct |
|||||
| 21.1(80) | List
of Subsidiaries |
|||||
| 23.1 | Consent of Independent Registered Public Accounting Firm |
|||||
| 24.1 | Power of Attorney (see signature page) |
|||||
| 31.1 | Certification of Chief Executive Officer pursuant to Form of Rule 13a-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002, dated February 25, 2005 |
|||||
| 31.2 | Certification of Chief Financial Officer pursuant to Form of Rule 13a-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002, dated February 25, 2005 |
|||||
| 32.1 | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, dated February 25, 2005 |
|||||
| 32.2 | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, dated February 25, 2005 |
|||||
68
| † | Certain portions of this Exhibit have been omitted for which confidential treatment has been requested and filed separately with the
Securities and Exchange Commission. |
|||||
| (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 identically numbered exhibits filed with the Registrant’s Registration Statement on Form S-1 filed on June
12, 1996. |
|||||
| (3) | Incorporated by reference to Exhibit 3.1 filed with the Registrant’s Annual Report on Form 10-K filed on March 3, 2003. |
|||||
| (4) | Incorporated by reference to Exhibit 4.1 of the Registrant’s Current Report on Form 8-K filed on May 18, 1999. |
|||||
| (5) | Incorporated by reference to Exhibit 4.1 of the Registrant’s Current Report on Form 8-K filed on July 23, 2001. |
|||||
| (6) | Incorporated by reference to Exhibit 4.1 of the Registrant’s Registration Statement on Form S-3 filed on January 29,
2002. |
|||||
| (7) | Incorporated by reference to Exhibit 4.1 of the Registrant’s Registration Statement on Form S-3 filed on March 7, 2002. |
|||||
| (8) | Incorporated by reference to Exhibit 10.2 of the Registrant’s Current Report on Form 8-K filed on April 8, 2003. |
|||||
| (9) | Incorporated by reference to Exhibit 10.3 of the Registrant’s Current Report on Form 8-K filed on April 8, 2003. |
|||||
| (10) | Incorporated by reference to Exhibit 10.4 of the Registrant’s Current Report on Form 8-K filed on April 9, 2003. |
|||||
| (11) | Incorporated by reference to Exhibit 4.1 of the Registrant’s Registration Statement on Form S-3 filed on April 25,
2003. |
|||||
| (12) | Incorporated by reference to Exhibit 4.2 of the Registrant’s Registration Statement on Form S-3 filed on April 25,
2003. |
|||||
| (13) | Incorporated by reference to Exhibit 4.1 of the Registrant’s Current Report on Form 8-K filed on May 27, 2003. |
|||||
| (14) | Incorporated by reference to Exhibit 4.2 of the Registrant’s Current Report on Form 8-K filed on May 27, 2003. |
|||||
| (15) | Incorporated by reference to Exhibit 4.3 of the Registrant’s Current Report on Form 8-K filed on May 27, 2003. |
|||||
| (16) | Incorporated by reference to Exhibit 4.4 of the Registrant’s Current Report on Form 8-K filed on May 27, 2003. |
|||||
| (17) | Incorporated by reference to Exhibit 4.1 of the Registrant’s Current Report on Form 8-K filed on October 15, 2003. |
|||||
| (18) | Incorporated by reference to Exhibit 4.2 of the Registrant’s Current Report on Form 8-K filed on October 15, 2003. |
|||||
| (19) | Incorporated by reference to Exhibit 4.1 of the Registrant’s Registration Statement on Form S-3 filed on January 30,
2004. |
|||||
| (20) | Incorporated by reference to Exhibit 4.2 of the Registrant’s Registration Statement on Form S-3 filed on January 30,
2004. |
|||||
| (21) | Incorporated by reference to Exhibit 4.1 of the Registrant’s Registration Statement on Form S-3 filed on March 22,
2004. |
|||||
| (22) | Incorporated by reference to Exhibit 4.1 of the Registrant’s Registration Statement on Form S-3 filed on March 29,
2004. |
|||||
| (23) | Incorporated by reference to Exhibit 4.2 of the Registrant’s Registration Statement on Form S-3 filed on March 29,
2004. |
|||||
| (24) | Incorporated by reference to Exhibit 4.3 of the Registrant’s Registration Statement on Form S-3 filed on March 29,
2004. |
|||||
| (25) | Incorporated by reference to Exhibit 4.1 of the Registrant’s Registration Statement on Form S-3 filed on May 5, 2004. |
|||||
| (26) | Incorporated by reference to Exhibit 4.2 of the Registrant’s Registration Statement on Form S-3 filed on May 5, 2004. |
|||||
| (27) | Incorporated by reference to Exhibit 4.5 of the Registrant’s Registration Statement on Form S-3 filed on May 5, 2004. |
|||||
| (28) | Incorporated by reference to Exhibit 4.6 of the Registrant’s Registration Statement on Form S-3 filed on May 5, 2004. |
|||||
| (29) | Incorporated by reference to Exhibit 4.1 of the Registrant’s Registration Statement on Form S-3 filed on July 16, 2004. |
|||||
| (30) | Incorporated by reference to Exhibit 4.1 of the Registrant’s Registration Statement on Form S-3 filed on October 7,
2004. |
|||||
| (31) | Incorporated by reference to Exhibit 4.1 of the Registrant’s Current Report on 8-K filed on November 12, 2004. |
|||||
| (32) | Incorporated by reference to Exhibit 4.2 of the Registrant’s Current Report on 8-K filed on November 12, 2004. |
|||||
| (33) | Incorporated by reference to Exhibit 4.3 of the Registrant’s Current Report on 8-K filed on November 12, 2004. |
|||||
| (34) | Incorporated by reference to Appendix C of the Registrant’s Definitive Proxy Statement filed on April 7, 2003. |
|||||
| (35) | Incorporated by reference to Exhibit 99.1 of the Registrant’s Registration Statement on Form S-8 filed on December 23,
1999. |
|||||
| (36) | Incorporated by reference to Appendix B of the Registrant’s Definitive Proxy Statement filed on April 15, 2003. |
|||||
| (37) | Incorporated by reference to Appendix 2 of the Registrant’s Definitive Proxy Statement filed on April 2, 2002. |
|||||
69
| (38) | Not
used |
|||||
| (39) | Incorporated by reference to identically numbered exhibits filed with Registrant’s Quarterly Report on Form 10-Q filed on May 13,
1997. |
|||||
| (40) | Incorporated by reference to identically numbered exhibits filed with Registrant’s Quarterly Report on Form 10-Q filed on November 14,
1997. |
|||||
| (41) | Incorporated by reference to identically numbered exhibits filed with Registrant’s Annual Report on Form 10-K filed on March 31,
1998. |
|||||
| (42) | Incorporated by reference to Exhibit 10.52 of the Registrant’s Annual Report on Form 10-K filed on March 17, 2000. |
|||||
| (43) | Incorporated by reference to Exhibit 4.7 of the Registrant’s Quarterly Report on Form 10-Q filed on May 15, 2000. |
|||||
| (44) | Incorporated by reference to Exhibit 4.8 of the Registrant’s Quarterly Report on Form 10-Q filed on May 15, 2000. |
|||||
| (45) | Incorporated by reference to Exhibit 4.9 of the Registrant’s Quarterly Report on Form 10-Q filed on May 15, 2000. |
|||||
| (46) | Incorporated by reference to Exhibit 4.1 of the Registrant’s Registration Statement on Form S-3 filed on September 27,
2001. |
|||||
| (47) | Incorporated by reference to Exhibit 4.2 of the Registrant’s Registration Statement on Form S-3 filed on September 27,
2001. |
|||||
| (48) | Incorporated by reference to Exhibit 4.3 of the Registrant’s Registration Statement on Form S-3 filed on September 27,
2001. |
|||||
| (49) | Incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed on January 18, 2002. |
|||||
| (50) | Incorporated by reference to Exhibit 10.1 of the Registrant’s Registration Statement on Form S-3 filed on March 7,
2002. |
|||||
| (51) | Incorporated by reference to Exhibit 10.1 filed with Registrant’s Quarterly Report on Form 10-Q filed on April 30,
2003. |
|||||
| (52) | Incorporated by reference to Exhibit 10.2 filed with Registrant’s Quarterly Report on Form 10-Q filed on April 30,
2003. |
|||||
| (53) | Incorporated by reference to Exhibit 10.3 filed with Registrant’s Quarterly Report on Form 10-Q filed on April 30,
2003. |
|||||
| (54) | Incorporated by reference to Exhibit 10.4 filed with Registrant’s Quarterly Report on Form 10-Q filed on April 30,
2003. |
|||||
| (55) | Incorporated by reference to Exhibit 10.5 filed with Registrant’s Quarterly Report on Form 10-Q filed on April 30,
2003. |
|||||
| (56) | Incorporated by reference to Exhibit 10.6 filed with Registrant’s Quarterly Report on Form 10-Q filed on April 30,
2003. |
|||||
| (57) | Incorporated by reference to Exhibit 10.7 filed with Registrant’s Quarterly Report on Form 10-Q filed on April 30,
2003. |
|||||
| (58) | Incorporated by reference to Exhibit 10.8 filed with Registrant’s Quarterly Report on Form 10-Q filed on April 30,
2003. |
|||||
| (59) | Incorporated by reference to Exhibit 10.1 filed with Registrant’s Quarterly Report on Form 10-Q filed on July 30, 2003. |
|||||
| (60) | Incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed on May 27, 2003. |
|||||
| (61) | Incorporated by reference to Exhibit 10.1 of the Registrant’s Registration Statement on Form S-3 filed on March 22, 2004 and on Form
S-3/A filed on June 24, 2004. |
|||||
| (62) | Incorporated by reference to Exhibit 10.1 of the Registrant’s Registration Statement on Form S-3 filed on March 29,
2004. |
|||||
| (63) | Incorporated by reference to Exhibit 10.2 of the Registrant’s Registration Statement on Form S-3 filed on March 29,
2004. |
|||||
| (64) | Incorporated by reference to Exhibit 10.3 of the Registrant’s Registration Statement on Form S-3 filed on March 29,
2004. |
|||||
| (70) | Incorporated by reference to Exhibit 14.1 of the Registrant’s Annual Report on Form 10-K filed on February 27, 2004. |
|||||
| (80) | Incorporated by reference to identically numbered exhibit filed with Registrant’s Annual Report on Form 10-K filed on March 13,
2000. |
|||||
70
(b) Reports on Form 8-K
The Registrant filed the following current report on
Form 8-K with the SEC:
• |
On November 12, 2004, with respect to a press release dated November 11, 2004 announcing the Registrant’s completion of an offering of common stock and warrants to institutional investors. |
(c) Index to Exhibits
See Exhibits listed under Item 15(a)(3)
above.
(d) Financial Statements and Schedules
The financial statement schedules required by this
Item are listed under Item 15(a)(1) and (2) above.
71
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 25th day of February, 2005.
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 annual 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 Thomas B. Okarma |
President,
Chief Executive Officer and Director (Principal Executive Officer) |
February 25,
2005 |
||||||||
/s/
DAVID L. GREENWOOD David L. Greenwood |
Executive Vice
President, Chief Financial Officer, Treasurer and Secretary (Principal Financial and Accounting Officer) |
February 25,
2005 |
||||||||
/s/
ALEXANDER E. BARKAS Alexander E. Barkas |
Director |
February 25,
2005 |
||||||||
/s/
EDWARD V. FRITZKY Edward V. Fritzky |
Director |
February 25,
2005 |
||||||||
/s/
THOMAS D. KILEY Thomas D. Kiley |
Director |
February 25,
2005 |
||||||||
/s/
JOHN P. WALKER John P. Walker |
Director |
February 25,
2005 |
||||||||
/s/
PATRICK J. ZENNER Patrick J. Zenner |
Director |
February 25,
2005 |
||||||||
72
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(3) | Certificate of Amendment of Restated Certificate of Incorporation of Geron Corporation |
|||||
| 3.3(3) | Bylaws of Registrant |
|||||
| 4.1(2) | Form
of Common Stock Certificate |
|||||
| 4.4(4) | Registration Rights Agreement, dated April 30, 1999, by and among the Registrant and each of the Shareholders of Roslin |
|||||
| 4.6(5) | Rights Agreement, dated as of July 20, 2001, by and between Geron Corporation and U.S. Stock Transfer Corporation, as Rights Agent, which
includes the form of Certification of Designations of the Series A Junior Participating Preferred Stock of Geron Corporation as Exhibit A, the form of
Right Certificate as Exhibit B and the Summary of Rights to Purchase Preferred Shares as Exhibit C |
|||||
| 4.11(6) | Form
of Indenture |
|||||
| 4.12(7) | Common Stock Purchase Agreement dated March 5, 2002, by and between Registrant and Lynx Therapeutics, Inc. |
|||||
| 4.14(8) | Warrant No. 1 to purchase 300,000 shares of common stock issued by Registrant to the Purchaser, dated as of April 7, 2003 |
|||||
| 4.15(9) | Warrant No. 2 to purchase 300,000 shares of common stock issued by Registrant to the Purchaser, dated as of April 7, 2003 |
|||||
| 4.16(10) | Amended and Restated Common Stock Purchase Agreement dated as of April 8, 2003, by and between the Registrant and certain
investors |
|||||
| 4.17(11) | Stock Purchase Agreement dated March 21, 2003, by and between Registrant and Finnegan, Henderson, Farabow, Garrett & Dunner,
LLP |
|||||
| 4.18(12) | Equity Payment Agreement dated March 21, 2003, by and between Registrant and Finnegan, Henderson, Farabow, Garrett & Dunner,
LLP |
|||||
| 4.19(13) | Amendment No. 2 to Registration Rights Agreement dated as of May 23, 2003, by and between Registrant and RGC International Investors,
LDC |
|||||
| 4.20(14) | Series D Second Amended and Restated Convertible Debentures dated as of May 23, 2003 |
|||||
| 4.21(15) | Amended and Restated Series D-1 Stock Purchase Warrant, dated as of May 23, 2003 |
|||||
| 4.22(16) | Amended and Restated Series D-2 Stock Purchase Warrant, dated as of May 23, 2003 |
|||||
| 4.28(17) | Agreement dated October 14, 2003, by and between Registrant and Mainfield Enterprises, Inc. |
|||||
| 4.29(18) | Agreement dated October 14, 2003, by and between Registrant and The Riverview Group, LLC |
|||||
| 4.30(19) | Common Stock Purchase Agreement dated as of January 21, 2004, by and between Registrant and Transgenomic, Inc. |
|||||
| 4.31(20) | Common Stock Purchase Agreement dated as of January 27, 2004, by and between Registrant and Transgenomic, Inc. |
|||||
| 4.32(21) | Common Stock Purchase Agreement dated as of March 6, 2004, by and between Registrant and Merix Bioscience, Inc. |
|||||
| 4.33(22) | Common Stock Purchase Agreement dated as of March 18, 2004, by and between Registrant and Transgenomic, Inc. |
|||||
| 4.34(23) | Common Stock Purchase Agreement dated as of March 23, 2004, by and between Registrant and David D. Bohannon Organization |
|||||
| 4.35(24) | Common Stock Purchase Agreement dated as of March 23, 2004, by and between Registrant and Bohannon Development Company |
|||||
| 4.36(25) | Common Stock Purchase Agreement dated as of April 23, 2004, by and between Registrant and Transgenomic, Inc. |
|||||
| 4.37(26) | Common Stock Purchase Agreement dated as of April 23, 2004, by and between Registrant and Transgenomic, Inc. |
|||||
73
| Exhibit Number |
|
Description | ||||
|---|---|---|---|---|---|---|
| 4.38(27) | Form
of Indenture |
|||||
| 4.39(28) | Form
of Subordinated Indenture, between Geron Corporation and one or more trustees to be named |
|||||
| 4.40(29) | Common Stock Purchase Agreement dated as of July 1, 2004, by and between Registrant and Transgenomic, Inc. |
|||||
| 4.41(30) | Common Stock Purchase Agreement dated as of September 28, 2004, by and between Registrant and Transgenomic, Inc. |
|||||
| 4.42(31) | Form
of A Warrant, dated November 12, 2004, issued by the Registrant to certain purchasers. |
|||||
| 4.43(32) | Form
of B Warrant, dated November 12, 2004, issued by the Registrant to certain purchasers. |
|||||
| 4.44(33) | Form
of C Warrant, dated November 12, 2004, issued by the Registrant to certain purchasers. |
|||||
| 10.1(34) | Form
of Indemnification Agreement |
|||||
| 10.2(35) | 1992
Stock Option Plan, as amended |
|||||
| 10.3(34) | 1996
Employee Stock Purchase Plan, as amended |
|||||
| 10.4(36) | 1996
Directors’ Stock Option Plan, as amended |
|||||
| 10.5(37) | 2002
Equity Incentive Plan |
|||||
| 10.6(2)† | 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(2)† | Patent License Agreement dated September 8, 1992 between Registrant and University of Texas Southwestern Medical Center at
Dallas |
|||||
| 10.8(2)† | Sponsored Research Agreement dated as of September 8, 1992 between the Registrant and University of Texas Southwestern Medical Center at
Dallas |
|||||
| 10.9(2)† | Exclusive License Agreement dated February 2, 1994 between the Registrant and the Regents of the University of California |
|||||
| 10.10(2)† | 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 |
|||||
| 10.14(2) | Equipment Financing Agreement dated January 5, 1992 between the Registrant and Lease Management Services, Inc. |
|||||
| 10.15(2) | Master Lease Agreement dated January 5, 1993 between the Registrant and Lease Management Services, Inc. |
|||||
| 10.23(2) | Common Stock Warrant dated May 4, 1994, issued by the Registrant to Cold Spring Harbor Laboratory |
|||||
| 10.27(39)† | 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 |
|||||
| 10.30(39) | Intellectual Property License Agreement dated December 9, 1996 between Registrant and University Technology Corporation |
|||||
| 10.35(40)† | License Agreement dated August 1, 1997 between Registrant and The Johns Hopkins University |
|||||
| 10.36(40)† | Research Agreement dated August 1, 1997 between Registrant and The Johns Hopkins University |
|||||
| 10.37(41)† | License, Product Development, and Marketing Agreement dated as of December 19, 1997, by and between Registrant and Boehringer Mannheim,
GmbH |
|||||
| 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 |
|||||
| 10.52(42) | 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(43) | Securities Purchase Agreement by and between Registrant and private investor dated March 9, 2000 |
|||||
| 10.54(44) | Warrant to purchase 100,000 shares of common stock issued by Registrant to private investor dated March 9, 2000 |
|||||
| 10.55(45) | Warrant to purchase 200,000 shares of common stock issued by Registrant to private investor dated March 9, 2000 |
|||||
| 10.61(46) | First Amendment to Intellectual Property License Agreement dated July 23, 2001, by and among Registrant and University Technology
Corporation |
|||||
| 10.62(47) | Common Stock Purchase Agreement dated as of August 30, 2001, by and among Registrant and University Technology Corporation |
|||||
74
| Exhibit Number |
|
Description | ||||
|---|---|---|---|---|---|---|
| 10.63(48) | Common Stock Warrant Agreement issued by Registrant to University Technology Corporation, dated as of August 30, 2001 |
|||||
| 10.66(49) | License Agreement dated as of January 8, 2002, by and between Registrant and Wisconsin Alumni Research Foundation |
|||||
| 10.67(50)† | Purchase Agreement dated as of March 5, 2002, by and between Registrant and Lynx Therapeutics, Inc. |
|||||
| 10.68(51) | Employment agreement between Registrant and Thomas Okarma, dated January 21, 2003 |
|||||
| 10.69(52) | Employment agreement between Registrant and David Greenwood, dated January 21, 2003 |
|||||
| 10.70(53) | Employment agreement between Registrant and David Earp, dated January 21, 2003 |
|||||
| 10.71(54) | Employment agreement between Registrant and Calvin Harley, dated January 21, 2003 |
|||||
| 10.72(55) | Employment agreement between Registrant and Melissa Kelly, dated January 21, 2003 |
|||||
| 10.73(56) | Employment agreement between Registrant and Jane Lebkowski, dated January 21, 2003 |
|||||
| 10.74(57) | Employment agreement between Registrant and William Stempel, dated January 21, 2003 |
|||||
| 10.75(58) | Severance Plan, effective January 21, 2003 |
|||||
| 10.76(59)† | License Agreement Amendment between Geron Corporation and Transgenomic, Inc., dated June 2, 2003 |
|||||
| 10.77(60) | Restructuring Agreement dated as of May 23, 2003, by and between Registrant and RGC International Investors, LDC |
|||||
| 10.78(61)† | License Agreement dated as of March 6, 2004 by and between Registrant and Merix Bioscience, Inc. |
|||||
| 10.79(62) | Lease Termination and Advance Payment Agreement by and between Registrant and David D. Bohannon Organization and Bohannon Development Company,
dated March 23, 2004 |
|||||
| 10.80(63) | Fourth Amendment to Lease by and between Registrant and David D. Bohannon Organization, dated March 23, 2004 |
|||||
| 10.81(64) | Amendment to Lease by and between Registrant and David D. Bohannon Organization, dated March 23, 2004 |
|||||
| 14.1(70) | Code
of Conduct |
|||||
| 21.1(80) | List
of Subsidiaries |
|||||
| 23.1 | Consent of Independent Registered Public Accounting Firm |
|||||
| 24.1 | Power of Attorney (see signature page) |
|||||
| 31.1 | Certification of Chief Executive Officer pursuant to Form of Rule 13a-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002, dated February 25, 2005 |
|||||
| 31.2 | Certification of Chief Financial Officer pursuant to Form of Rule 13a-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002, dated February 25, 2005 |
|||||
| 32.1 | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, dated February 25, 2005 |
|||||
| 32.2 | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, dated February 25, 2005 |
|||||
| † | Certain portions of this Exhibit have been omitted for which confidential treatment has been requested and filed separately with the
Securities and Exchange Commission. |
|||||
| (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 identically numbered exhibits filed with the Registrant’s Registration Statement on Form S-1 filed on June
12, 1996. |
|||||
| (3) | Incorporated by reference to Exhibit 3.1 filed with the Registrant’s Annual Report on Form 10-K filed on March 3, 2003. |
|||||
| (4) | Incorporated by reference to Exhibit 4.1 of the Registrant’s Current Report on Form 8-K filed on May 18, 1999. |
|||||
| (5) | Incorporated by reference to Exhibit 4.1 of the Registrant’s Current Report on Form 8-K filed on July 23, 2001. |
|||||
| (6) | Incorporated by reference to Exhibit 4.1 of the Registrant’s Registration Statement on Form S-3 filed on January 29,
2002. |
|||||
| (7) | Incorporated by reference to Exhibit 4.1 of the Registrant’s Registration Statement on Form S-3 filed on March 7, 2002. |
|||||
| (8) | Incorporated by reference to Exhibit 10.2 of the Registrant’s Current Report on Form 8-K filed on April 8, 2003. |
|||||
| (9) | Incorporated by reference to Exhibit 10.3 of the Registrant’s Current Report on Form 8-K filed on April 8, 2003. |
|||||
| (10) | Incorporated by reference to Exhibit 10.4 of the Registrant’s Current Report on Form 8-K filed on April 9, 2003. |
|||||
| (11) | Incorporated by reference to Exhibit 4.1 of the Registrant’s Registration Statement on Form S-3 filed on April 25,
2003. |
|||||
75
| (12) | Incorporated by reference to Exhibit 4.2 of the Registrant’s Registration Statement on Form S-3 filed on April 25,
2003. |
|||||
| (13) | Incorporated by reference to Exhibit 4.1 of the Registrant’s Current Report on Form 8-K filed on May 27, 2003. |
|||||
| (14) | Incorporated by reference to Exhibit 4.2 of the Registrant’s Current Report on Form 8-K filed on May 27, 2003. |
|||||
| (15) | Incorporated by reference to Exhibit 4.3 of the Registrant’s Current Report on Form 8-K filed on May 27, 2003. |
|||||
| (16) | Incorporated by reference to Exhibit 4.4 of the Registrant’s Current Report on Form 8-K filed on May 27, 2003. |
|||||
| (17) | Incorporated by reference to Exhibit 4.1 of the Registrant’s Current Report on Form 8-K filed on October 15, 2003. |
|||||
| (18) | Incorporated by reference to Exhibit 4.2 of the Registrant’s Current Report on Form 8-K filed on October 15, 2003. |
|||||
| (19) | Incorporated by reference to Exhibit 4.1 of the Registrant’s Registration Statement on Form S-3 filed on January 30,
2004. |
|||||
| (20) | Incorporated by reference to Exhibit 4.2 of the Registrant’s Registration Statement on Form S-3 filed on January 30,
2004. |
|||||
| (21) | Incorporated by reference to Exhibit 4.1 of the Registrant’s Registration Statement on Form S-3 filed on March 22,
2004. |
|||||
| (22) | Incorporated by reference to Exhibit 4.1 of the Registrant’s Registration Statement on Form S-3 filed on March 29,
2004. |
|||||
| (23) | Incorporated by reference to Exhibit 4.2 of the Registrant’s Registration Statement on Form S-3 filed on March 29,
2004. |
|||||
| (24) | Incorporated by reference to Exhibit 4.3 of the Registrant’s Registration Statement on Form S-3 filed on March 29,
2004. |
|||||
| (25) | Incorporated by reference to Exhibit 4.1 of the Registrant’s Registration Statement on Form S-3 filed on May 5, 2004. |
|||||
| (26) | Incorporated by reference to Exhibit 4.2 of the Registrant’s Registration Statement on Form S-3 filed on May 5, 2004. |
|||||
| (27) | Incorporated by reference to Exhibit 4.5 of the Registrant’s Registration Statement on Form S-3 filed on May 5, 2004. |
|||||
| (28) | Incorporated by reference to Exhibit 4.6 of the Registrant’s Registration Statement on Form S-3 filed on May 5, 2004. |
|||||
| (29) | Incorporated by reference to Exhibit 4.1 of the Registrant’s Registration Statement on Form S-3 filed on July 16, 2004. |
|||||
| (30) | Incorporated by reference to Exhibit 4.1 of the Registrant’s Registration Statement on Form S-3 filed on October 7,
2004. |
|||||
| (31) | Incorporated by reference to Exhibit 4.1 of the Registrant’s Current Report on 8-K filed on November 12, 2004. |
|||||
| (32) | Incorporated by reference to Exhibit 4.2 of the Registrant’s Current Report on 8-K filed on November 12, 2004. |
|||||
| (33) | Incorporated by reference to Exhibit 4.3 of the Registrant’s Current Report on 8-K filed on November 12, 2004. |
|||||
| (34) | Incorporated by reference to Appendix C of the Registrant’s Definitive Proxy Statement filed on April 7, 2003. |
|||||
| (35) | Incorporated by reference to Exhibit 99.1 of the Registrant’s Registration Statement on Form S-8 filed on December 23,
1999. |
|||||
| (36) | Incorporated by reference to Appendix B of the Registrant’s Definitive Proxy Statement filed on April 15, 2003. |
|||||
| (37) | Incorporated by reference to Appendix 2 of the Registrant’s Definitive Proxy Statement filed on April 2, 2002. |
|||||
| (38) | Not
used |
|||||
| (39) | Incorporated by reference to identically numbered exhibits filed with Registrant’s Quarterly Report on Form 10-Q filed on May 13,
1997. |
|||||
| (40) | Incorporated by reference to identically numbered exhibits filed with Registrant’s Quarterly Report on Form 10-Q filed on November 14,
1997. |
|||||
| (41) | Incorporated by reference to identically numbered exhibits filed with Registrant’s Annual Report on Form 10-K filed on March 31,
1998. |
|||||
| (42) | Incorporated by reference to Exhibit 10.52 of the Registrant’s Annual Report on Form 10-K filed on March 17, 2000. |
|||||
| (43) | Incorporated by reference to Exhibit 4.7 of the Registrant’s Quarterly Report on Form 10-Q filed on May 15, 2000. |
|||||
| (44) | Incorporated by reference to Exhibit 4.8 of the Registrant’s Quarterly Report on Form 10-Q filed on May 15, 2000. |
|||||
| (45) | Incorporated by reference to Exhibit 4.9 of the Registrant’s Quarterly Report on Form 10-Q filed on May 15, 2000. |
|||||
| (46) | Incorporated by reference to Exhibit 4.1 of the Registrant’s Registration Statement on Form S-3 filed on September 27,
2001. |
|||||
| (47) | Incorporated by reference to Exhibit 4.2 of the Registrant’s Registration Statement on Form S-3 filed on September 27,
2001. |
|||||
| (48) | Incorporated by reference to Exhibit 4.3 of the Registrant’s Registration Statement on Form S-3 filed on September 27,
2001. |
|||||
76
| (49) | Incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed on January 18, 2002. |
|||||
| (50) | Incorporated by reference to Exhibit 10.1 of the Registrant’s Registration Statement on Form S-3 filed on March 7,
2002. |
|||||
| (51) | Incorporated by reference to Exhibit 10.1 filed with Registrant’s Quarterly Report on Form 10-Q filed on April 30,
2003. |
|||||
| (52) | Incorporated by reference to Exhibit 10.2 filed with Registrant’s Quarterly Report on Form 10-Q filed on April 30,
2003. |
|||||
| (53) | Incorporated by reference to Exhibit 10.3 filed with Registrant’s Quarterly Report on Form 10-Q filed on April 30,
2003. |
|||||
| (54) | Incorporated by reference to Exhibit 10.4 filed with Registrant’s Quarterly Report on Form 10-Q filed on April 30,
2003. |
|||||
| (55) | Incorporated by reference to Exhibit 10.5 filed with Registrant’s Quarterly Report on Form 10-Q filed on April 30,
2003. |
|||||
| (56) | Incorporated by reference to Exhibit 10.6 filed with Registrant’s Quarterly Report on Form 10-Q filed on April 30,
2003. |
|||||
| (57) | Incorporated by reference to Exhibit 10.7 filed with Registrant’s Quarterly Report on Form 10-Q filed on April 30,
2003. |
|||||
| (58) | Incorporated by reference to Exhibit 10.8 filed with Registrant’s Quarterly Report on Form 10-Q filed on April 30,
2003. |
|||||
| (59) | Incorporated by reference to Exhibit 10.1 filed with Registrant’s Quarterly Report on Form 10-Q filed on July 30, 2003. |
|||||
| (60) | Incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed on May 27, 2003. |
|||||
| (61) | Incorporated by reference to Exhibit 10.1 of the Registrant’s Registration Statement on Form S-3 filed on March 22, 2004 and on Form
S-3/A filed on June 24, 2004. |
|||||
| (62) | Incorporated by reference to Exhibit 10.1 of the Registrant’s Registration Statement on Form S-3 filed on March 29,
2004. |
|||||
| (63) | Incorporated by reference to Exhibit 10.2 of the Registrant’s Registration Statement on Form S-3 filed on March 29,
2004. |
|||||
| (64) | Incorporated by reference to Exhibit 10.3 of the Registrant’s Registration Statement on Form S-3 filed on March 29,
2004. |
|||||
| (70) | Incorporated by reference to Exhibit 14.1 of the Registrant’s Annual Report on Form 10-K filed on February 27, 2004. |
|||||
| (80) | Incorporated by reference to identically numbered exhibit filed with Registrant’s Annual Report on Form 10-K filed on March 13,
2000. |
|||||
77
