There’s a lot of political rhetoric these days about the federal government possibly cracking down on alleged pharmaceutical price gouging. Will these threats become a reality and hurt the profits of drug companies?

Take it from me: Fuhgeddaboudit. In Washington, talk is cheap. And lobbyists are powerful.

This year the political pressures on biotech are easing, as congressional committee hearings into biopharmaceutical scandals fade into memory and Donald Trump’s “populist” promises to crack down on drug pricing are supplanted by his accelerated moves toward deregulation.

After a dismal 2018, the biotechnology sector is bouncing back.

The benchmark SPDR S&P Biotech ETF (XBI) has gained 17.2% year to date, compared to a gain of 10.6% for the S&P 500. The XBI lost nearly 18% in 2018.

The volatile biotechnology sector relies on the goodwill of regulators, politicians and the public. This goodwill in 2018 was in scant supply, with many drug firms reeling under various scandals. Exacerbating the sector’s woes were the unexpected failures in clinical trials of several high-profile drug candidates. Drug stocks got punished.

However, President Trump and Congress this year are consumed with various other dramas, especially the Russia probe. Don’t expect Big Pharma executives to get hauled in front of congressional committees anytime soon. Lawmakers have bigger fish to fry.

More importantly from a long-term perspective, several innovative drug therapies that promise to revolutionize medical care are finally coming to fruition. As drug patents expire, biotech firms of all sizes are racing to be the first to market with novel treatments.

You can turbocharge the already outsized potential of biotech by focusing on the small newcomers that are working on breakthroughs to treat chronic diseases that defy conventional therapies.

Biotech stocks can soar on the strength of certain catalysts, such as a merger, regulatory decision, product approval, or earnings surprise. Of course, it’s a double-edged sword: Biotech stocks can plummet if the news is bad.

Small-cap biotech Geron (NSDQ: GERN) has been on Wall Street’s radar lately, as bullish sentiment over the company waxes and wanes. The stock enjoyed a huge spike in mid-February, although it has since cooled off.

Problem is, Geron is a clinical stage developer of cancer drugs. Competition from Big Pharma is ferocious and for any drug firm, the odds of surviving the regulatory gauntlet are daunting.

Is Geron a small-cap biotech that’s poised to take off? If its drugs make it through trials, investors will be richly rewarded. Or is the company destined to be another wreck on biotech’s boulevard of broken dreams?

Let’s examine Geron’s strengths and weaknesses as a company, to determine where the stock is probably heading in 2019.

What Is Geron?

With a market cap of $273.9 million, Geron is supporting through clinical trials the development of Imetelstat, a “telomerase inhibitor” for the treatment of hematologic myeloid malignancies (i.e., blood cancers).

Telomerase is a key component of most cancer cells, although this enzyme is rarely found in significant levels in normal cells. Therefore, the inhibition of telomerase has generated considerable attention as a potential anticancer approach.

Imetelstat received Fast Track designation from the U.S. Food and Drug Administration (FDA) for the treatment of patients with transfusion-dependent anemia.

Based in Menlo Park, California, Geron also has several embryonic stem cell treatments in the clinical and pre-clinical phase.

How Has Geron Stock Performed?

Geron stock has been volatile.

• Year to date, Geron has gained 47% whereas the S&P 500 has gained 10.6% (see chart).

• Over the past 12 months, Geron has lost 34.6% whereas the S&P 500 has gained 2.7%.
• Over the past two years, Geron has lost 31.6% whereas the S&P 500 has gained 17.2%.
• Over the past five years, Geron has lost 67.3%, the S&P 500 has gained 49.2%, and the XBI exchange-traded fund has gained 54%.

How Has Geron Performed In 2017/2018?

• In 2017, Geron lost 15.4% whereas the S&P 500 gained 19.4%.
• In 2018, Geron lost 44.7% whereas the S&P 500 lost 7.5%.

Who Are Geron’s Rivals?

Small-cap Geron faces mega-cap rivals. Here are the three biggest direct threats.

Johnson & Johnson (NYSE: JNJ)

With a market cap of $363.1 billion, Johnson & Johnson is a vast, diversified colossus that’s practically a mutual fund of the health services industry.

Johnson & Johnson’s consumer segment makes the products that are familiar to anyone who visits their local retail pharmacy, including over-the-counter drugs such as Tylenol, as well as non-medicinal items such as Listerine mouthwash and Neutrogena skin care lotion.

The company’s medical devices and diagnostics division produces a range of products that are mainly used by health care professionals in the fields of orthopedics, surgery, vision care, diabetes care, infection prevention, diagnostics, and more.

Through its Janssen Pharmaceuticals subsidiary, JNJ is testing a treatment that combines radiofrequency ablation with chemotherapy agent Doxil to reduce tumor growth in the liver. Geron suffered a serious blow when JNJ abandoned its Janssen-based collaboration with the company.

Bristol-Myers Squibb (NYSE: BMY)

This drug giant (market cap: $81.8 billion) makes a wide range of drug treatments for several diseases and ailments, including cancer, cardiovascular disease, diabetes, hepatitis, rheumatoid arthritis, and HIV/AIDS.

Notably, Bristol-Myers Squibb makes anti-cancer drug Taxol that’s under study for reducing tumor growth.

Taxol is a cancer chemotherapy medication that interferes with the growth of cancer cells and slows their growth and spread in the body.

In January 2019, Bristol-Meyers Squibb announced it would acquire Celgene (NSDQ: CELG) for $74 billion, in a deal that would be the largest pharmaceutical company acquisition in history.

AbbVie (NYSE: ABBV)

AbbVie is a discoverer, developer, manufacturer, and marketer of drugs. Humira is perhaps its best known product.

Humira is a blockbuster immunology drug, used in the treatment of rheumatoid arthritis, chronic plaque psoriasis, Crohn’s disease, and arthritis.

With a market cap of $118.4 billion, AbbVie is a Big Pharma player with a pipeline chock full of proven cancer therapies.

AbbVie is the result of a spinoff launched by Abbott Laboratories (NYSE: ABT) in January 2013.

The new AbbVie entity assumed control of brands such as Humira and Synthroid, a replacement for a hormone normally produced by the thyroid gland. Abbott retained diagnostics, medical devices, nutrition and branded generic pharmaceuticals.

Read This Story: Our Abbott Stock Prediction In 2019 (Buy or Sell?)

Will Geron Go Up In 2019 (Should You Buy)?

The bulls say Geron has been getting short shrift from Wall Street, despite the company’s great promise.

Geron shares spiked higher in mid-February 2019, after bullish assessments from analysts covering the company. However, the stock posted a dreadful 2018 largely due to one event: Johnson & Johnson abandoned Geron.

Geron formerly held a collaboration and licensing agreement with Johnson & Johnson subsidiary Janssen to develop and commercialize Imetelstat worldwide for cancer treatments. But JNJ pulled out, causing Geron shares to tumble.

Fact is, though, Imetelstat’s clinical trials have been largely positive to date and don’t warrant the drug giant’s pessimism, at least based on empirical trial data.

JNJ apparently jettisoned the four-year-old collaboration more for business reasons based on an expected return on investment, rather than for scientific ones. Geron gained the global rights to Imetelstat, which could prove a bonanza.

Telomerase inhibitors are a hot area of cancer research and development, as this video shows.

Geron stock’s forward 12-month price-to-earnings ratio (FPE) is -4.7, which means the company has been losing money. Indeed, for the last several quarters, Geron has generated little revenue but plenty of red ink. That could soon change. The average analyst expectation is that Geron will post a narrower loss in 2019, for year-over-year earnings growth of 11.1%.

Investors with an appetite for outsized gains — but a high tolerance for risk — could be rewarded by taking a chance on Geron and showing patience.

Will Geron Go Down In 2019 (Should You Sell)?

I just outlined the bull case, but the bear case is stronger.

Geron’s fundamentals, for the most recent reported quarter, are bleak:

• Return on assets: -12.1%
• Return on equity: -18.6%
• Operating cash flow: -$22.3 million

Meanwhile, the company is burning through cash. Clinical trials are expensive, but Geron only has total cash on hand of $166.3 million.

Geron has posted consistent losses. In the most recent reported quarter (third quarter 2018), Geron reported a net loss of $5.6 million, or $0.03 per share, compared to a loss of $6.9 million, or $0.04 per share, for the same period a year ago. The net loss for the first nine months of 2018 was $19.7 million, or $0.11 per share, compared to $20.5 million, or $0.13 per share, for the year-ago period.

Revenues for the three and nine months were $165,000 and $691,000, respectively, compared to $163,000 and $874,000 for the comparable 2017 periods. Revenues included royalties and fees under various non-Imetelstat license agreements.

These weak numbers don’t provide much fuel for future share price appreciation, especially when cash-rich competitors are dominating the oncology space.

Read This Story: Our AbbVie Stock Prediction in 2019 (Buy or Sell?)

Overall Geron Forecast And Prediction For 2019

As with most clinical-stage biotechs, Geron sports a theoretical value calculated by the market based on future profit expectations, relative to overall risk. Geron’s market cap appears wildly optimistic to me.

Clinical trials can take years and cost many millions of dollars. It’s possible that Geron will run out of cash before it hits the jackpot with its drug candidates.

Sure, Imetelstat has fast-track status from the FDA but the treatment is still years away from becoming commercially viable.

One ray of hope: Geron could get acquired by one of the huge rivals mentioned above, but the fact that Johnson & Johnson walked away from its partnership with Geron indicates that this scenario is unlikely.

Johnson & Johnson is a health service giant run by savvy managers. JNJ decided to bail on Geron; you should take its cue. Stay away from GERN. Now’s not the time to take a flier on a clinical-stage drug company, especially in a turbulent stock market that appears headed for further sell-offs in 2019.

As headline risk worsens and investors get jittery, small-cap clinical stage biotechs such as Geron will be among those stocks that get clobbered the worst during market dips. Headwinds are mounting; don’t buy stocks that are particularly vulnerable to panic selling.

John Persinos is the managing editor of Investing Daily.