Rocket Pharmaceuticals, Inc. — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019. Dollar amounts below are in millions unless noted. Rocket is a clinical-stage gene-therapy company focused on rare diseases; it had no approved products and generated no revenue.
Financial results and liquidity
| Metric | Q1 2019 | Q1 2018 |
|---|---|---|
| Revenue | $0 | $0 |
| Research and development expense | $15.1 | $5.7 |
| General and administrative expense | $3.8 | $8.7 |
| Total operating expenses / operating loss | $18.9 / $(18.9) | $14.4 / $(14.4) |
| Net loss | $(19.5) | $(15.3) |
| Basic and diluted loss per share | $(0.43) | $(0.42) |
| Cash used in operating activities | $(16.0) | $(11.6) |
Operating margins are not meaningful because the company had no revenue. At March 31, cash and cash equivalents were $124.5 million and investments were $72.1 million, totaling $196.6 million; current assets were $199.6 million and current liabilities $20.6 million. Accumulated deficit was $125.3 million.
Convertible notes had $52.0 million principal outstanding and a $42.3 million carrying value, net of discount. The notes are unsecured, mature August 2021, bear 5.75% stated interest and had a 15.3% effective interest rate. Operating lease liabilities totaled $3.1 million; the company adopted the new lease accounting standard in January 2019 and recognized right-of-use assets and lease liabilities.
Changes versus the prior comparable period
- Net loss increased $4.1 million, while operating expenses rose $4.5 million. R&D expense increased $9.4 million, primarily reflecting manufacturing and process development, research agreements (including a $1.4 million Stanford milestone), and higher R&D headcount.
- G&A expense declined $4.9 million, largely because Q1 2018 included merger-related compensation, severance and share-based compensation.
- Operating cash use increased $4.4 million. The 2018 comparison included substantial one-time cash from the reverse merger and an equity offering; Q1 2019 had no financing cash inflow.
Outlook, developments and risks
- After quarter-end, Rocket completed an April 18 public offering of 5.175 million shares at $17.50 per share, receiving $86.0 million net. Cash, cash equivalents and investments were reported at $273.1 million as of April 30. Management expected available resources, including offering proceeds, to fund operating and capital needs into the first half of 2021.
- On April 30, Rocket announced a $6.5 million CIRM grant to support LAD-I clinical development. The grant and offering occurred after March 31 and are not included in quarter-end balances.
- Pipeline milestones described by management included the first patient dosed in the U.S. RP-L102 Fanconi anemia trial in March, with preliminary data expected by year-end; initial RP-L201 LAD-I data anticipated in the second half of 2019; a planned RP-L301 PKD Phase 1 trial in the second half of 2019; and a planned RP-A501 Danon disease Phase 1 study in Q2 2019. These were forward-looking expectations, not reported outcomes.
- Rocket expects R&D and G&A spending and operating losses to increase as programs advance. It stated that additional capital may be needed; financing may be unavailable or dilutive, and failure to obtain funding could force delays, reductions or discontinuation of programs.
- Key risks include clinical and regulatory uncertainty, small patient populations and enrollment challenges, gene-therapy safety and manufacturing risks, reliance on third parties, intellectual-property and licensing exposure, and competition. The filing reported no litigation expected to have a material adverse effect and no off-balance-sheet arrangements. Management concluded disclosure controls were effective as of March 31, 2019.
Important facts for investors to verify
- Whether clinical trials meet enrollment, safety, efficacy and timing expectations, especially the stated 2019 milestones.
- Whether the post-quarter offering proceeds and grant support the stated runway, considering anticipated spending and capital requirements.
- The convertible notes’ repayment or conversion implications and the effect of equity issuance and outstanding options on dilution.
- Manufacturing readiness, regulatory requirements, license and patent rights, and any changes in material risks or contingencies.