Is Geron Stock a Buy Following Its First New Drug Approval? | The Motley Fool

Shares of Geron (GERN 18.00%) finished the week ended June 7 about 32% higher. The market was reacting to news the company’s investors had been waiting to hear for decades.

On June 6, the U.S. Food and Drug Administration (FDA) approved Geron’s first drug, imetelstat (brand name Rytelo), to treat 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 of Geron Corp to see if it’s a good stock to buy now.

Reasons to buy Geron Corp stock

Telomerase is a naturally occurring enzyme that lengthens the lifespan of frequently dividing cells. It’s also abused by cancer cells that want to divide uncontrollably. Rytelo is the first approved cancer therapy that inhibits telomerase activity. If it succeeds, Geron could tie up a significant market for many years. There aren’t any other telomerase inhibitors in late-stage clinical trials.

The FDA approved Rytelo for patients with low- to intermediate-risk myelodysplastic syndromes (MDS), which is a group of blood disorders caused by malignant stem cells in the bone marrow that produce abnormal blood cells. The condition affects about 60,000 Americans, with roughly 16,000 new reported cases annually.

Around 30% of MDS cases progress to acute myeloid leukemia. Even for patients who don’t progress to aggressive forms of blood cancer, chronic anemia is a serious problem. Rytelo was approved to reduce patients’ reliance on blood transfusions, which it did well. In the pivotal IMerge trial, 28% of patients treated with Rytelo achieved transfusion independence for 24 weeks or longer, compared to just 3% of the placebo group.

A clear benefit with regard to blood transfusion independence led analysts with their fingers on the pulse of cancer therapy markets to predict more than $1 billion in peak Rytelo sales.

Expectations for Rytelo aren’t entirely baked into Geron’s stock price yet. Biotech stocks tend to trade at mid-single-digit multiples of annual sales figures. Despite a big run-up, Geron’s market cap is still about $2.8 billion at recent prices.

Reasons to remain cautious

Independent drug launches don’t always meet pre-launch expectations, and there’s a significant chance that Rytelo’s initial sales figures will disappoint. The FDA didn’t slap any black box warnings on Rytelo’s label, but physicians need to think twice before prescribing it.

Rytelo boosts red blood cell counts, 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, serious enough to require an intervention. That was more than 10 times the rate of serious neutropenia events observed among patients randomized to receive a placebo.

The population of patients with MDS is small, and Rytelo’s addressable patient population is even smaller. This means Geron needs to slap a six-figure price tag on its drug to turn a profit.

Rytelo is approved to treat anemia caused by MDS for patients who don’t respond to drugs like Amgen‘s Epogen and other red blood cell boosters. Such a complex indication could make it relatively easy for health insurers to deny reimbursement for what will be a very expensive drug.

Finding physicians actively treating MDS patients who also have anemia that doesn’t respond to Epogen would be a challenge for any sales team. Until very recently, Geron had no approved products to sell. Investors expecting its newly minted sales team to overcome this challenge could be in for a big letdown.

While there’s a chance Geron can produce gains for investors who buy now, it’s too risky for most investors. It’s best to watch the Rytelo launch from a safe distance.