Shares of Geron (NASDAQ: GERN) ended the week ending June 7 about 32% higher. The market reacted to news that the company’s investors had been waiting for for decades.
On June 6, the U.S. Food and Drug Administration (FDA) approved Geron’s first drug, imetelstat (brand name Rytelo), for the treatment of a rare form of cancer.
Rytelo is a new treatment for an underserved population. That’s generally a recipe for success in the biotechnology industry, but independent companies launching their first commercial product tend to miss expectations.
Here’s a closer look at the road ahead for Geron Corp, to see if it’s a good stock to buy now.
Reasons to buy Geron Corp shares
Telomerase is a naturally occurring enzyme that extends the lifespan of frequently dividing cells. It is also abused by cancer cells that want to divide uncontrollably. Rytelo is the first approved cancer therapy that inhibits telomerase activity. If successful, Geron can capture a significant market for many years to come. There are no other telomerase inhibitors in late-stage clinical trials.
The FDA has approved Rytelo for patients with low- to intermediate-risk myelodysplastic syndromes (MDS), a group of blood disorders caused by malignant stem cells in the bone marrow that produce abnormal blood cells. The condition affects approximately 60,000 Americans, with approximately 16,000 new cases reported annually.
About 30% of MDS cases develop into acute myeloid leukemia. Even for patients who do not progress to aggressive forms of blood cancer, chronic anemia is a serious problem. Rytelo was approved to reduce patients’ dependence on blood transfusions, which it did well. In the pivotal IMerge study, 28% of patients treated with Rytelo achieved transfusion independence for 24 weeks or longer, compared to only 3% of the placebo group.
A clear advantage regarding independence from blood transfusions led analysts, keeping their finger on the pulse of the cancer therapy markets, to predict peak Rytelo sales of more than $1 billion.
The expectations for Rytelo have not yet been fully reflected in Geron’s share price. Biotech stocks typically trade at a mid-single-digit multiple of annual sales. Despite a big run-up, Geron’s market cap at recent prices is still around $2.8 billion.
Reasons to remain cautious
Independent drug launches don’t always meet pre-launch expectations, and there’s a good chance Rytelo’s initial sales numbers will disappoint. The FDA hasn’t placed any black box warnings on Rytelo’s label, but doctors should think twice before prescribing it.
Rytelo increases the number of red blood cells, but at the expense of other vital blood components. A frightening 72% of patients who received it experienced a loss of immune cells or neutrophils severe enough to require intervention. That was more than 10 times the number of serious neutropenia events observed in patients randomized to receive placebo.
The population of patients with MDS is small, and the reachable patient population of Rytelo is even smaller. This means Geron will have to put a six-figure price tag on his drug to make a profit.
Rytelo is approved for the treatment of anemia caused by MDS in patients who do not respond to medications such as Amgen‘s Epogen and other red blood cell boosters. Such a complex indication could make it relatively easy for health insurers to refuse reimbursement for a very expensive medicine.
Finding physicians who actively treat MDS patients who also have anemia unresponsive to Epogen would be a challenge for any sales team. Until recently, Geron had no approved products to sell. Investors expecting the new sales team to overcome this challenge may be in for a major disappointment.
While there is a chance that Geron could deliver profits for investors who buy now, it is too risky for most investors. It’s best to watch the Rytelo launch from a safe distance.
Should you invest $1,000 in Geron now?
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Cory Renauer has no positions in any of the stocks mentioned. The Motley Fool recommends Amgen. The Motley Fool has a disclosure policy.
Is Geron Stock a Buy After the Initial Approval of a New Drug? was originally published by The Motley Fool
