By Mary Welch

Staff Writer

Geron Corp. will sell $12.5 million in convertible debentures to one of its largest existing institutional investors, and if the investor opts to purchase up to 1.1 million warrants the deal could reach $25 million.

The unnamed investor has agreed to purchase 1.2 million shares of convertible debentures at a price of $10.25 per share. The debentures convert at the company's option when the common stock has traded at a certain premium to the fixed conversion price for five consecutive trading days.

In addition, the investor will receive warrants to purchase another 1.1 million shares of common stock at a significant premium to the current market price. The warrants expire about 18 months following the closing.

"If the investor does everything - the debentures and the warrants - the size of the deal would double from the original $12.5 million," said Olivia Bloom, comptroller for the Menlo Park, Calif.-based company. "It becomes a $25 million deal."

The company currently has 16.7 million shares outstanding.

"This round of financing is very similar to the round we did late last year when we raised $15 million," Bloom said. "We sold convertible debentures to institutional investors, and this is just like that."

In the previous round, the debentures were purchased by investment funds managed by Brown Simpson Asset Management LLC, of New York, and Rose Glen Capital Management LC, of Bala Cynwyd, Pa. Rose Glen had also participated in a March private placement of convertible stock, which also totaled $15 million. (See BioWorld Today, Dec. 14, 1998, p. 1.)

"We are not releasing the name of the institutional investor but it is one of our largest investors - a significant player," she said.

Geron, now with cash totaling $51 million, will be able to honor its commitment to provide funding for nuclear transfer technology at the Roslin Institute and further support its stem cell and telomerase programs, both of which are now in preclinical development.

In May, Geron acquired Roslin Bio-Med, of Midlothian, Scotland, for 2.1 million shares of Geron stock. Roslin Bio-Med is a company formed by the Roslin Institute, whose researchers produced Dolly, the sheep clone. Geron has promised research funding totaling $21 million over the next six years to Roslin Bio-Med, which is now a wholly owned subsidiary of Geron. (See BioWorld Today, May 5, 1999, p. 1.)

Late last year, Geron collaborators at the University of Wisconsin-Madison reported they successfully derived and maintained in culture human embryonic stem cells, which are capable of forming all the different cell types and tissues in the body. (See BioWorld Today, Nov. 6, 1998, p. 1.)

Telomerase is an "immortalizing" enzyme that bestows infinite replicative capacity to reproductive and cancer cells. Cancer cells almost always have inappropriate telomerase activity.

Geron said that being able to generate an unlimited supply of normal human cells will create new opportunities to study basic mechanisms of cell growth and differentiation and, as a result, provide a reproducible source of young healthy cells for drug screening and testing, as well as cell and gene therapy.

It is collaborating on telomerase inhibitors for cancer indications with Pharmacia and Upjohn, of Bridgewater, N.J., and Kyowa Hakko Kogyo Co., of Tokyo, in deals worth up to $58 million and $30 million, respectively.

The company reported second-quarter operating revenue of $1.3 million and operating expenses of $29.3 million, compared with $1.5 million and $4.8 million for the second quarter of 1998. Net loss for the second quarter of 1999 was $28 million, compared to $4 million for the second quarter of 1998. For the first half of 1999, the company reported a net loss of $31.4 million.

Geron's stock (NASDAQ:GERN) closed unchanged Friday at $10.50.