Biotech Stock Mailbag: Geron Gambit

Coverage of Geron's spot financing strikes a nerve among readers.
Publish date:

This week's Biotech Mailbag is a few days late, with apologies, but the delay does let me post and respond to the barrage of email that came my way after I

broke the story Thursday night

(and followed with a more

detailed column Friday

) about


(GERN) - Get Report

raising money in a spot financing deal.

To borrow a phrase from my good friend and former colleague Herb Greenberg, the Hostile React-o-Meter was most certainly spinning out of control. Before I get to some of the email, mostly negative but some positive, let me respond to a few general questions that came my way:

No, I've never met Bernie Madoff, but thanks for pointing out in rather unflattering terms that we share the same religion.

No, I'm not flexible enough to put that in there, but clearly you have a vivid and creative sexual imagination.

Yes, I do sleep very well at night.

Alright, with that out of the way, Don P. lambasts me for the way I broke the news of the Geron financing on Thursday night.

"You released information regarding Geron before it was public and you have been very biased in your assessments," he writes.

It's my job as a journalist to break news. I received information on the Geron financing shortly after the market closed for trading Thursday. The initial tip was confirmed by two other sources. The fact that Geron was raising money in a spot financing deal was significant news, especially considering Geron CEO Tom Okarma had recently made public comments essentially calling the company's stock price undervalued.

We have a free and unfettered press in this country, which means I don't need to seek permission to break news. And without question, the Geron financing was news. I had the facts confirmed by multiple sources, so I wrote about it. I didn't have to wait for Geron to publicly disclose the financing. That's not what journalists do in this country.

My negative opinion of Geron was a sore spot for a lot of readers. Don S. mentioned it above, as did Dennis S, who writes, "I hope the Securities and Exchange Commission hangs both you and Cramer for this obvious attempt at stock manipulation."

Miriam H. writes, "Your selfish article about Geron being a fake was irresponsible since you have a SHORT position in the stock. That's manipulation to the hilt."

Dinn F. sounded the same alarm with his email. "I want to inform you that the Federal Bureau of Investigation is currently interrogating some people in connection to your 'deliberately false comments'... to sell short and disrupt the market."

Everyone is a bit confused about what constitutes stock manipulation. For starters, since I don't own or short any actual Geron shares, nor do I direct others who do, it's a bit difficult for me to have any direct impact on the company's stock price.

As a columnist for


, my job is to write about biotech stocks and offer my opinion on whether they're good investments. In regard to Geron, the answer, in my opinion, is no, which is why I recommended Geron as a short in the model portfolio I manage as part of the Biotech Select investment newsletter.

When I broke the news of Geron's financing Thursday night, I disclosed clearly my short recommendation. When I followed up on that brief posting with a full column Friday morning, I repeated the disclosure about my short recommendation. In fact, it was the second sentence of the column.

Clearly, I wasn't trying to hide my negative opinion of Geron, so the cries of stock manipulation and making deliberately false comments ring untrue.

What I find most amusing about this row is that there appears to be way more anger being directed at me than Geron, which caused its own stock price to fall by raising money at a discount after saying publicly that the stock price was undervalued, thereby implying that no such financing would be done.

I've been following Geron for years, and I've never been a fan, in part because the company always seems to pull stunts like this when the stock price gets a little bump.

Drug development is a very capital-intensive endeavor, so companies need to be opportunistic when it comes to raising cash. Geron, however, takes opportunism to extreme levels, which hurts shareholders and the credibility of management.

If you want to be angry, be angry at Geron, not me simply for being the guy who first reports something the company is doing and then offers an opinion (albeit a negative one) about it.

Some readers got it. Bill F. writes, "That was a great article and really illustrated the risks to investors based on media hype and traders taking advantage of the less-educated investor."

From Ted K.: "Of course you are so right. You are kind to make it sound like they're

Geron the exception. Just a note that Geron has an accumulated deficit of $500 million with plenty more spending to go!"

Tim L. comments, "Your commentary on the secondary offering is right on. It is disgusting that after Okarma makes comments in recent investor presentations that they have plenty of cash and have no interest in offering shares at these levels that they push through an offering at a huge discount at the first opportunity."

In the same email, Tim stresses his support for stem-cell research and notes that Geron should be applauded for the work accomplished so far.

"If you believe in the therapeutic potential that human embryonic stem cells offer, what other company is there to invest in? Do you know of any other company that is closer to the clinic than Geron is or has the intellectual property to support human embryonic stem cell therapies? If not, how can you mock Geron for what little progress they have made over the past decade?"

I'm fully supportive of stem-cell research, but I believe the field is too young, too uncertain, to be investable today for most investors. Geron has been a public company for 13 years (and was a private concern for many year before that) but look at how little has been actually been done there to get real drugs into clinical trials. And don't blame a lack of cash or federal opposition to stem-cell research over the past eight years, for as a Ted pointed out above, Geron has had no problem raising money or burning through that money at an awesome rate.

Stem-cell medicine will one day, hopefully, yield important medical breakthroughs, but before that day arrives, there will be plenty of failures. That's how it goes with all drug development, and stem-cell companies will not be immune. As an investor, I don't see the point in pouring money today into a field where there isn't any good way of picking the winners from the losers.

With that in mind, Pat P. asks me for my opinion of

Advanced Cell Technology


. "After doing my due diligence for about a year, they impress me. Please let me know if I'm right," he asks.

As part of your research, I hope you read

this article

on Advanced Cell Technology published last summer in the

Boston Globe

. I fear that this company is as bad as, or worse than, even Geron.

Reader G.T.B. wonders whether

Sangamo BioSciences


should be considered a stem-cell stock given its work with HIV patients.

I believe Sangamo is working on an early-stage HIV drug that uses the company's zinc-finger technology to manipulate a patient's DNA to make it less susceptible to HIV infection. So far, Sangamo's drugs have not shown much promise against other diseases, so I'd be cautious here.

Brian T. asks, "How do you think Obama lifting the ban on stem cell research will affect the Geron's stock in the near/mid term?"

President Obama is widely expected to lift the federal funding ban on stem-cell research. I don't think there's anyone who will be surprised when that happens, considering it was a pledge he made during the campaign.

Could Geron's stock price get some kind of emotional lift when the White House announces and end to the federal research ban? Absolutely. Will it matter fundamentally to Geron? I don't believe so. As I said above, access to money hasn't been a problem for Geron. Neither has access to stem-cell lines, I'd add.

If Geron's stock price does rise on such news, I'd expect short interest in the stock to simply rise as a well.

Scott P. asks my opinion of

Osiris Therapeutics

(OSIR) - Get Report





I don't like either company for all the reasons stated above. Osiris isn't involved in embryonic stem cells. Instead, the company's drugs are made from a cocktail of adult-derived, mesenchymal stem cells. I've recommended a short position in Osiris because I believe the company's ongoing phase III studies in patients with graft-versus-host-disease will fail to show any benefit. (There I go again, offering full disclosure along with my opinion.)

David S. asks, "Did you short Hair Club for Men as well, Adam?"

Original thinking is clearly not David's strong suit.

Last, I'll leave the final words to Angus B.:

"What a mindless schmuck you are."

At the time of publication, Feuerstein's Biotech Select model portfolio was short Geron and Osiris.

Adam Feuerstein writes regularly for In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in He also doesn't invest in hedge funds or other private investment partnerships. Feuerstein appreciates your feedback;

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