Rocket Pharmaceuticals, Inc. — Q3 2020 Form 10-Q
Reporting period: Three and nine months ended September 30, 2020. Unless otherwise noted, financial amounts are in millions of dollars. Rocket is a clinical-stage gene-therapy company with no approved products or product revenue.
Business context and pipeline
Rocket is developing gene therapies for rare diseases through ex vivo lentiviral-vector programs for Fanconi anemia (FA), LAD-I, pyruvate kinase deficiency (PKD) and infantile malignant osteopetrosis (IMO), and an in vivo AAV program for Danon disease. FA and LAD-I were in registration-enabling studies; PKD, IMO and Danon disease were in earlier clinical development. The company also reported discovery-stage FA programs. Its product candidates are licensed, and licenses generally carry royalty obligations.
Financial performance and position
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Research and development expense | $21.7 | $14.8 | $55.3 | $44.0 |
| General and administrative expense | $5.7 | $4.3 | $19.7 | $12.5 |
| Total operating expenses | $27.4 | $19.2 | $75.1 | $56.5 |
| Net loss | $29.1 | $19.3 | $78.8 | $57.4 |
| Basic and diluted loss per share | $0.53 | $0.38 | $1.43 | $1.19 |
| Cash used in operating activities | Not separately provided | Not separately provided | $61.5 | $44.9 |
As of September 30, 2020, cash and cash equivalents were $82.2 and investments were $146.5, for combined cash, cash equivalents and investments of $228.7. Current assets totaled $233.2 and current liabilities $32.0. Total assets were $335.5 and stockholders’ equity was $241.8. The company reported no product revenue, so a commercial gross margin is not applicable; the filing does not provide a meaningful operating margin.
Convertible notes had $52.0 principal outstanding: $5.15 million of 2021 notes and $46.85 million of 2022 notes. Their combined carrying value, net of discounts, was approximately $46.9 million. The notes are unsecured and bear stated rates of 5.75% and 6.25%, respectively; the company disclosed a 15.3% effective rate for each. Finance lease liabilities were $20.6 million, in addition to operating lease liabilities of $1.3 million.
Material changes versus prior comparable periods
- Q3 net loss increased $9.8 million year over year; nine-month net loss increased $21.4 million. Higher R&D spending reflected increased personnel, manufacturing and process development, license milestones, and clinical-trial activity.
- Nine-month G&A expense rose $7.2 million, including $2.0 million of costs associated with the 2020 convertible-note exchanges and higher compensation and stock-based compensation.
- Operating cash use increased $16.6 million year over year to $61.5 million for the first nine months. Financing provided only $0.5 million, versus $85.4 million in the comparable 2019 period, which included a substantial equity issuance.
- The company exchanged $46.85 million principal of 2021 notes for 2022 notes, extending that portion of the debt maturity by one year and increasing its stated coupon. The remaining $5.15 million of 2021 notes mature in August 2021.
- The Cranbury, New Jersey facility lease commenced in March 2020 and was accounted for as a finance lease. The balance sheet reflects a $52.5 million finance-lease right-of-use asset and $20.6 million lease liability.
Outlook, management commentary and key risks
- Management stated that available cash, cash equivalents and investments were expected to fund operating expenses and capital expenditure requirements into Q2 2022. It also expected R&D and G&A spending to increase as trials, manufacturing and staffing expand; no revenue or earnings guidance was provided.
- Clinical updates included four patients dosed in the Danon Phase 1 trial, completion of its low-dose cohort and clearance to advance to a higher dose; the first patient in that higher-dose cohort was treated in Q3. The first patient was also treated in the RP-L301 PKD Phase 1 trial in July. The filing reported that the first patient had been treated in the global Phase 2 LAD-I study.
- FA Phase 2 enrollment resumed in early Q3 after COVID-19-related interruptions. Management cited the pandemic as a source of potential delays to enrollment, site activity, data collection, manufacturing and regulatory timelines.
- The Cranbury facility was being prepared for cGMP manufacturing in 2021. Rocket had limited manufacturing experience as a company and identified facility completion, regulatory readiness, quality compliance and supply availability as risks.
- The company expects continuing losses and will likely need additional financing over time. Equity financing could dilute shareholders; debt or partnering could impose costs, restrictions or require relinquishing rights. Clinical efficacy and safety, regulatory approval, rare-disease patient recruitment, manufacturing, intellectual-property protection and competition remain material uncertainties.
- Management reported effective disclosure controls as of September 30, 2020 and no material change in internal control over financial reporting during the nine-month period. The company expected to cease being an emerging growth company and become a large accelerated filer at year-end 2020, increasing compliance obligations and costs.
Important facts for investors to verify
- Whether the stated cash runway into Q2 2022 remains achievable given trial expansion, manufacturing spending and the reported nine-month operating cash use.
- Upcoming clinical data, enrollment progress and safety findings across FA, LAD-I, PKD, IMO and Danon disease, including the effects of COVID-19 on trial timelines.
- Facility readiness for cGMP manufacturing in 2021 and the company’s ability to manufacture clinical and future commercial supplies reliably.
- Debt maturity and refinancing plans, interest burden, conversion terms and potential dilution; the filing reports 55,233,798 common shares outstanding as of November 2, 2020.
- Whether development and operating costs, including the Cranbury lease and public-company compliance costs, track management’s expectations, and whether additional capital or partnering will be required.