When you seriously get digging into any stock sector, you will find certain companies that draw fan bases. This is limited in large part to large corporation such as Tesla, who have products and market potential.
Biotech stocks are not removed from this, either. At any given time, you can find a proliferation of “cult” stocks, with inexplicably large, diehard followings. And over the past few years, I haven’t seen one with a bigger following than Geron Corp. GERN first made its big moves in the space of stem cell research, boasting the first ever trial in regenerative medicine. The story of TJ the survivor of the car accident is most likely indelibly burned into the minds of those who have been following GERN for a decade or more.
However, once the stem cell research hype died down, Geron transitioned away from regenerative medicine. Instead, they moved into oncology, where they began to develop the telomerase inhibitor imetelstat for a number of different forms of cancer. We’ve seen some controversy here. Imetelstat failed to make a big mark on solid tumors. Still, the myelotoxicity they saw spurred development in myeloid cancers.
That’s the short version of how Geron got where they are. They’re currently relying on the progress of two trials, IMerge and IMbark, to advance imetelstat. They were also relying on a collaboration with biotech giant Janssen to fund and push imetelstat forward. Almost every analysis you would read over the past year took a positive “continuation decision” into deep consideration. If you asked the solid Geron bulls, they would have said Geron, at any level below about $10 per share, was a ridiculous bargain.
But Janssen opted out. Geron shares have cratered in the wake of the decision. What can we learn?
Lesson #1: The hype for Geron, Janssen, and Imetelstat
Cue any number of optimistic predictions. A buyout is coming from Janssen soon. Imetelstat will be approved in myelodysplasia and myelofibrosis imminently. The short squeeze of short squeezes was always around the corner.
Geron investors and analysts became extremely sophisticated in their neck of the woods. They could delve impressively deeply into topics like myelodyspalstic syndrome and myelofibrosis, to the extent that they educated me in my own works on the company. Considering it’s my job to keep up with a broad range of oncology science, I was definitely humbled.
But that confidence has a crippling downside. You become unable to see the potential hazards in the road as you admire the blue sky. Geron shareholders, in lieu of actual news, took to reading the “tea leaves” on every matter relating to imetelstat and Janssen.
Janssen includes imetelstat on its corporate presentations? It’s obvious that a positive continuation decision is incoming.
Janssen issues a tweet about blood cancer? A positive continuation decision is imminent.
Janssen puts out a job listing for a scientist who will research hematology? A positive continuation decision is imminent.
Now, the takeaway here isn’t to ridicule the shareholders and analysts who follow GERN. Rather, we need to realize that the mistakes they made can happen to anyone. For my readers, you know that I am a great advocate of overcoming emotions in investing. But I never said it was easy. In fact, it’s going to be hard for just about everyone, and the case of Geron is no exception.
The lesson? Be wary of excessive hype. If the stock you’re interested in has a rabid following, then be aware that they often have a lot of emotions tied up into their investment.
Lesson #2: The Geron and imetelstat bashers “strengthened” the bull case
Over the past several years, there have been a number of analysts who relished in their status as “villain” to Geron stockholders. And I can see why. Being the villain gets you attention, even if it’s negative. This is traffic to your website. It’s subscriptions to your service. It makes you money.
But a lot of these critiques of GERN and imetelstat became borderline hysterical, if not outright fraudulent. I laid out in a response article to a pair of GERN opponents that safety and efficacy concerns of imetelstat were overblown, although not without merit.
Of course, there was no response from these opponents. On one hand, you had Adam Feuerstein, who is leaps and bounds beyond me in terms of size and importance. On the other hand, you had an anonymous Seeking Alpha poster, who refused all calls to defend his or her stance. Rather, this writer relied on proclaiming that he or she was being “attacked.”
Ultimately, neither of these analysts had that much of an impact on Geron stock, but individual shareholders seeking answers about their investments solidified their positions. The villains provided a rallying point for the diehard “longs,” whose only sin was hoping for a good outcome for cancer patients.
But this presents its own problem. When you feel attacked, you may retreat into a safe place. If you were a Geron shareholder, you were inclined to rush into the arms of people who were “certain” about the long-term outcomes of the company. Remember, that positive Janssen collaboration is coming very soon! And just like that, you trap yourself into not taking some kind of winnings off the table.
Lesson #3: Neutral analysis will be attacked
One of my primary goals in writing about biotech companies is to provide as much clear information as possible. I have no interest in pumping my own investments. Nor am I a short seller trying to undermine stock prices. I am just trying to help people learn how to keep a level head and give them a fighting shot in biotech.
But if you give people a rundown of the pros AND the cons of a stock, boy will you ever catch it. Every word you write will be scrutinized, every possible mistake amplified. There was a long train of discussion on whether my calling myelodysplasia a “niche” was appropriate, or whether I was being a troll.
My purpose here isn’t to air a major grievance with members of a cult stock. Rather, I want you to pay attention for the next stock you may find yourself in. The rule of the cult is to attack the voices of reason as if they were the voices of doom. Nobody invested in these companies wants to cope with the fact that there is inherent risk. Therefore, they deride you as a “fence sitter,” someone without a firm position.
They never take that step back and realize that the most dangerous position to have in investing is the firm position. Particularly when it comes to science, the more certain someone sounds about a topic, the more likely it is that they are overblowing their expertise. This is because actual experts in a given topic understand that there is inherent uncertainty that cannot be negotiated away.
That should be a key takeaway for everyone to approach every investing decision with an exit plan. Never be a “do or die” long.
None of this article is intended as a twist of the knife for anyone who lost money. I take no joy in seeing other people suffer, and I’ve been in the exact same position of watching a stock crumble under the weight of bad news. Geron could very well come back, since they have funds to continue operating for quite a while. I don’t know if it’s worth it to stay put or buy into the downturn hoping for some kind of recovery.
But what I do know is that this development continues to support one of my key investment tenets: be cautious. But also be ruthless. As long as we keep throwing Hail Marys, we’ll miss out on all the opportunities to make field goals. I can think of no surer way to lose the game than to let emotions take over, and unfortunately, Geron has become another case study in this philosophy.
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