When Giving Up Is a Good Move in Biotech

Brian Orelli, The Motley Fool
Updated

Geron (NAS: GERN) is giving up on stem cells. That's like Krispy Kreme Doughnuts without glazed treats, or Apple without Macintosh.

That is, if doughnuts and computers lost money and weren't for sale yet, and there was no guarantee that they'd ever be on the market.

I don't see this as the worst news ever for Geron. Anyone who's read my articles over the past few years knows that I think companies developing stem-cell products are more appropriate for a watchlist than the buy button.

Geron still has an oncology pipeline including imetelstat, which is in four phase 2 clinical trials for different types of cancer, and GRN1005, which will enter two phase 2 studies this year. Shutting down the stem-cell program and cutting about 38% of its workforce will help conserve cash to help fund those studies. Geron expects to end the year with $150 million, so it's not poor, but it's not exactly rich, either. Phase 2 trials aren't cheap.

Plus. there's always the possibility Geron could sell the program to a company with a longer time horizon and fewer cash-flow issues. Big pharma names including GlaxoSmithKline (NYS: GSK) and Pfizer (NYS: PFE) have dabbled in the stuff. And Teva Pharmaceuticals (NAS: TEVA) now has a program with Australian stem-cell company Mesoblast through its purchase of Cephalon.

Though it might be a good move for Geron -- we'll know after the imetelstat studies start reading out at the end of next year -- when the name synonymous with stem cells decides they're not worth continuing development on, investors should take notice. Companies such as Cytori Therapeutics (NAS: CYTX) , StemCells (NAS: STEM) , and Advanced Cell Technology, which trades OTC, should remain as watchlist candidates until they've proved that their treatments work and there's demand for them.

Good thing we have a free watchlist service that we're not giving up on:

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At the time thisarticle was published Fool contributorBrian Orelliholds no position in any company mentioned. Check out hisholdings and a short bio. The Motley Fool owns shares of Teva Pharmaceutical Industries and Apple.Motley Fool newsletter serviceshave recommended buying shares of Apple, GlaxoSmithKline, Pfizer, and Teva Pharmaceutical Industries and creating a bull call spread position in Apple. Try any of our Foolish newsletter servicesfree for 30 days. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.

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