Geron Fans Make Mountain Out of GE Molehill

Geron(GERN Quote) shares rose sharply Tuesday after the company announced a pact with the health care unit of General Electric(GE Quote) to develop embryonic stem-cell test products.

As with most announcements that come out of Geron, investors overreacted Tuesday, sending shares up 18.4% to $7.92. This makes shorting the stock a tempting option. The agreement with GE Healthcare is relatively minor and isn't likely to have much of a financial benefit for Geron.

Nonetheless, it's probably still too early to put on a Geron short. The company is still gearing up to enroll the first paralyzed patient in the company's phase I spinal cord injury study with its stem-cell drug GRNOPC1.

That announcement could come as early as July, and when it does, expect a whole of lot of media coverage and another pop in Geron's stock price. This is exactly what happened in January when Geron announced the agreement with the U.S. Food and Drug Administration on the design and conduct of the study.

A better time to short Geron will be after the next leg up in the company's stock price. Don't be surprised to see Geron take advantage of its inflated stock price to raise money again. The spinal cord injury study probably won't be fully enrolled until well into 2010, with data not ready until 2011. That's a long time to wait for a study that, at best, will only demonstrate GRNOPC1's relative safety. Anyone hoping for the drug to be a miracle cure for paralyzed patients is probably going to be disappointed.

For purposes of full disclosure: I recommended a Geron short to readers of my newsletter in January. I closed out the Geron short in February for a 26% gain.

As I told my subscribers at that time, I'm not against stem-cell medicine, and I certainly hope one day that the field provides medical breakthroughs. I simply don't believe Geron is going to be the company to deliver on the promise of stem cells, based on its ignominious track record of drug development so far.

And as I reported in March, some stem-cell experts are also skeptical about Geron's chances for success with GRNOPC1.

Getting back to Tuesday's announcement, Geron is licensing some of its embryonic stem-cell intellectual property to GE Healthcare, which will then develop and market a line of embryonic stem-cell products for use in drug discovery. Think of this agreement as stem-cell infrastructure. The products that come out of the alliance will be used to develop stem-cell drugs, but are not drugs themselves.

Financial terms of the deal were not announced, but one analyst who covers Geron (with a buy rating and a $7 to $8 price target) said Tuesday that he expects Geron to receive a mid-single digit royalty on sales of products sold by GE Healthcare.

If Geron is lucky, the GE Healthcare deal will bring in six-figure revenue, which will not make a dent in the company's huge operating losses. (Geron lost more than $17 million in 2008.)

So far, Geron has been unable to get any company to sign on as a development and marketing partner for its stem-cell or cancer drugs.

Source: http://www.thestreet.com/story/10531440/1/...e-molehill.html