We recently posted about Geron's embryonic stem cell application for spinal trauma receiving the first FDA approval and the effect the announcement had on Geron's market capitalization and that of the other members of our stem cell sector.
Geron closed yesterday at $7.77 a share and opened this morning at $6.68, to which we say, "Welcome to the world of Biotech, stem cells and the NASDAQ." Today's closing price was $6.38. This Thursday closing vs Friday opening value represented a market value decrease of over $86 million, a decrease that occurred while the markets were closed.
To put this in perspective, on February 6, following a run up in stock price that began with the FDA approval of its first phase trial, Geron's share price closed at $8.05 having increased from a closing price of $5.21 the day before the FDA announcement.
You might think that if Geron were going to expand its capital base by issuing additional stock to the public this would be a good time to do it. And you'd be right. Yesterday, the company went to the market with 7.25 million shares on top of the 79 million plus shares it already had outstanding. Adam Feurerstein writing for TheStreet.com reported that all 7.25 million shares were sold after closing on Thursday at a price of $6.60 per share, not very surprisingly close to the $6.68 the company's stock price opened at on Friday morning.
Feurerstein proceeded to take Geron to task for taking advantage of it's recent higher stock price to raise new capital, which of course is the life blood of the cash burning research and development firms in this entirely new arena called regenerative medicine. And we would argue that anyone running Geron would have been remiss in doing anything else. We're not sure whether Mr. Feurerstein is upset because management didn't wait for its stock price to fall before issuing stock or whether he's just tired of cash-burning stem cell research companies raising money time after time without getting the pharmaceutical equivalent of a block-buster drug.
The problem is that stem cell research is not only complex but it is so new the paint still hasn't been scratched. In fact, the product hasn't come out of the paint booth to get scratched. In some cases, the product hasn't even entered the booth. But do stem cells and regenerative medicine have a future? That, dear reader, is becoming clearer with every day that passes.
Geron raised approximately $43 million which they will use during the clinical trial. Feurerstein argues that past failures in attempting to use embryonic stem cells for cancer cures had tainted the company's business plan. But what is Geron's business plan? It is to produce a viable therapeutic stem cell product that can be injected into the human body safely with the result that cures or repairs take place that could not have been dreamed of even ten years ago. A reasonable argument can be made that stem cell research, like every new field that has become a possibility before it, will have to learn from mistakes. It is the responsibility of the FDA and the various companies, especially those in embryonic research, to make sure that mistakes are not made at the clinical trial level. Geron provided 22,000 pages of previous documentation in order to obtain FDA approval. We would argue that they should have learned a great deal from the starts and stops of their past.
What should the market value be? How much should the FDA trial approval have benefited Geron's market capitalization? Today Geron learned that the European Patent Office had upheld an earlier decision to reject a patent application regarding the use of stem cells filed by the Wisconsin Alumni Research Foundation in 1995. Geron holds its worldwide license under this patent family. How much should this have hurt Geron's capitalization? We would argue that the first FDA approved embryonic test supersedes a patent debate that will perhaps at some point be an issue but is not one yet. Over a sufficient length of time for it to become rational, the market will tell us whether we're right or wrong.