Geron Shares Fall 8%;Investors Worried Over Rising Costs
DOW JONES NEWSWIRES
By Pat Maio
Of DOW JONES NEWSWIRES
LOS ANGELES -- Shares of Geron Corp. (GERN) hit another 52-week low Wednesday as investors remained jittery over how the biotechnology firm was treating a recent expense item on its balance sheet.
Geron stock has fallen as much as 22% over the past two days.
The expense issue emerged out of Geron's 2002 first-quarter report released Monday. The company said revenue fell 65% on a year-over-year basis, and losses had widened by 42%.
David Greenwood, Geron's chief financial officer, said investors were nervous over how it treated a $2.5 million expense to buy patents from Lynx Therapeutics Inc. (LYNX) in early March.
Geron has nearly $70 million in cash and other investments, and the patents were bought with $1 million in cash and $1.5 million worth of stock, Greenwood said in a phone interview with Dow Jones Newswires.
"Strategically, it makes all the sense in the world," said Greenwood. "What we did was opt for the most conservative accounting treatment possible, which is expense the whole thing."
The other option under consideration was to treat the patent purchase as a capitalized item, meaning that the purchase would have gone through a depreciation and amortization schedule over the next few years.
For sure, investors don't have an appetite for this kind of accounting treatment given recent disclosures in the Enron Corp. (ENRNQ) debacle and other corporate coverups in recent months.
"The expense option is more conservative because you run it through the P&L (profit and loss) line one time, so future quarters aren't burdened by depreciation and amortization," he said.
Geron, based in Menlo Park, Calif., is involved in the discovery and development of therapeutic and diagnostic products used to treat cancer and age-related degenerative diseases. It also maintains exclusive rights in the embryonic stem cell area to develop treatments for diabetes, heart disease and brain ailments and other central nervous system disorders.
After the market closed Monday, Geron reported a first-quarter loss of $10.5 million, or a loss of 43 cents a share, on revenue of $626,000. That compared with a loss of $7.4 million, or 34 cents, on revenue of $1.8 million.
Operating expenses grew on a year-over-year basis to $11.8 million in the first quarter from $10.6 million in the 2001 period.
Albert L. Rauch, analyst with Ladenburg, Thalmann & Co. Inc., explained that the growing expenes caused heartburn for some investors.
"In this environment, people are very concerned about the amount of cash you have," Rauch said. "If you're burning $10-$12 million a quarter, people get worried. But if you are burning $8 million, in reality, that's not as serious of a thing to worry about."
In accounting for the patent purchase from Lynx as an expense item, the company included the expense under its research and development line. This had the intended affect of causing the R&D line to jump to $10.16 million in its 2002 first quarter from $6.7 million in year ago period.
"People misinterpreted the jump in R&D," said Rauch, who also spoke with Greenwood on Wednesday to get clarification of the company's expenses. "It was just a one-time event that they wanted to be conservative about and expense right away."
Shares of Geron recently traded at $5.99, down 36 cents, or 5.7%, on volume of 438,600, compared with daily average volume of 147,000.
Geron stock traded at an intraday low Wednesday at $5.40, surpassing its previous 52-week low of $6.26 set Tueasday. The company hit a year high of $18.60 on Aug. 22.
-By Pat Maio, Dow Jones Newswires; 323-658-3776; patrick.maio@dowjones.com
Updated May 8, 2002 3:10 p.m. EDT |
