By David Nierengarten
September 30, 2003

When biotech Geron (Nasdaq: GERN) shares spiked over 50% to nearly $15.00 a share last week, investors took notice of the good news: Geron's experimental cancer vaccine demonstrated effectiveness in a small phase 1-2 clinical trial with prostate cancer patients. Is it more false hope for investors interested in this speculative company, or a solid step toward a profitable future?

The company's cancer and allegedly life-extending stem cell research brought enormous hype during the 1999-2000 biotech bubble, with headlines about the Fountain of Youth and New York Times pictures of the elderly on pogo sticks. But like many other cash-burning biotechs slapped down by the big, bad, bear market of the past three years, Geron dropped into penny stock territory by this March before rebounding with the first hints of positive clinical trial news in April.

Last week, CEO Thomas Okarma reported in the UBS Global Life Sciences Conference that the patients in this high-dose trial generated very good immune responses -- comparable to the immune response generated by traditional mumps or measles vaccines, and the best that has ever been seen in a cancer vaccine trial. These results show better and longer-lived responses than the low-dose experiment reported this April that sent shares shooting up from around $2 to over $5. In that small trial, the company reported that they had nearly eliminated all circulating prostate cancer cells.

The vaccine is still years from any application for FDA approval, but it's welcome progress.

The telomerase connection
The vaccine showcases telomerase, a protein isolated by Geron's scientists that allows all cancer cells, not just prostate cancer cells, to keep dividing and growing. Researchers at Geron use this protein -- not found in most normal cells -- to stimulate specialized immune system cells with the hope that they will then destroy any cancer cell that escaped the surgeons' scalpels.

Because the telomerase protein is present in all cancer cells, investors are hoping that there is a universal application for Geron's cancer vaccine, increasing the market potential of it tremendously. While the prostate cancer market is not small, with nearly 200,000 men diagnosed with it annually and nearly 40,000 dying from it, a "universal" cancer vaccine has far more market potential.

Cancer vaccines: fact or fiction?
Cancer vaccines have been a Holy Grail quest for many biotechnology companies. The reasoning is attractive -- the really deadly aspect of most cancers is the propensity to metastasize to distant sites in the body. Because the cancer can spread to so many sites, surgery is impossible, and chemotherapy (the standard treatment to eliminate metastases) is toxic to the body's normal, non-cancerous cells. So, if researchers could recruit the body's own immune system to attack cancer cells, the colonizing cells would be destroyed, with no toxic side effects.

Of course, there are problems. Cancer cells resemble normal cells in many ways (after all, they are the body's own cells that have gone outlaw -- growing without regard to the body's regulations), and so the "trick" is to develop a vaccine that will stimulate a person's immune system to attack only cancer cells, and avoid normal cells.

A new direction
Cancer vaccines are a relatively new direction for Geron, which was founded to find another Holy Grail, or to mix metaphors, to find the Fountain of Youth. The same protein, telomerase, that distinguishes cancer cells also allows normal cells to continue dividing past their usual limits. The thinking went that by activating the protein in normal cells, the ravages of time would be reversed. The newly rejuvenated cells could divide again, replacing worn out old cells. In the same vein, the company has been conducting controversial research into using embryonic stem cells to repair damaged tissue and reverse the effects of aging.

However, Geron found its own time and cash running out as its anti-aging research foundered. So, at the beginning of the year, the company "refocused" (read: fired researchers) and concentrated at pushing their oncology products through clinical trials. Spending on oncology programs for the first half of the year totaled $8.5 million, while their regenerative medicine program received $6 million of the R&D pie at Geron. That latter figure is down from nearly $9 million in the year-ago period (oncology increased slightly from $8.3 million).

Competition
Naturally, Geron is not alone in trying to develop a cancer vaccine. Competitors abound, including some right in the prostate cancer arena, and many other drug candidates are farther along in the drug development pipeline than Geron's hopeful in phase 1-2 trials.

One rival is Dendreon (Nasdaq: DNDN) Dendreon's prostate cancer vaccine, Provenge, is on fast-track status with the FDA as they wrap up their phase 3 trial. Dendreon also has more money in the bank ($68 million), more products in the pipeline, and a lower market capitalization than Geron, along with ready collaborations to develop certain drugs with Genentech (NYSE: DNA). They're even developing a competing telomerase vaccine, using technology licensed from Geron.

Cell Genesys (Nasdaq: CEGE) has been working on a series of cancer vaccines that also use a more traditional route of isolating special proteins that are found in each different tumor type to immunize patients against a particular cancer. Their product, GVAX, is progressing through phase 2 trials for prostate, lung, and pancreatic cancers, along with leukemia.

Genzyme (Nasdaq: GENZ) is also developing a vaccine that uses a patient's own tumor cells to stimulate the immune system to reject tumors. The researcher creates a customized vaccine for each patient by isolating their own tumor cells and fusing them to specialized immune cells. This approach is still in the early stages, like Geron's, but Genzyme is one of the few biotechnology companies making money. Of course, you'll pay a premium of nearly 45 times earnings to buy a share of this company, but at least there are earnings to buy.

Too risky?
Like many biotech companies, Geron is not profitable. Heck, it hardly has any revenues -- only $1.25 million over the past year, mainly from licensing technologies. It has reduced its annual cash burn from $45 million to just under $34 million last year, and it has $53 million left in the bank and under $7.5 million in debt. With these financials, Geron will have to find a partner to help shoulder the expense (and take a piece of any future profits) to bring this vaccine through further trials.

But if things go right, there will be plenty of profits to share. So, if you invest in a company like Geron, you're essentially speculating that FDA approval will make the company and your investment profitable.

What could go wrong? First of all, this was a tiny trial -- only 12 patients, and it may be a statistical blip. Furthermore, there are normal cells that do use telomerase, including the tissues that make blood cells and those in the reproductive organs. Generating an immune response to a patient's own reproductive organs or bone marrow seems to me to be a real possibility with this kind of therapy, despite the promising safety data. Additionally, cancers mutate all the time, and it's possible that a strain of cancer cells could develop that evades the vaccination response.

I believe that Geron's technology is promising, but it's simply too risky to buy into a company valued at over $400 million for a single phase I product plus a handful of preclinical ones. For this kind of price, I would rather own a Dendreon with a phase 3 candidate, a different phase 2 hopeful, and several other earlier-stage drugs in development.

Like the quest for the Holy Grail that caused the demise of many a gallant knight, the quest for a cancer vaccine has littered the roadside with fallen biotechnology companies. Will Geron succeed? The complete results from this trial are scheduled to be released in December. I'll be watching, but from the sidelines -- unlike some folks on the Geron discussion board.