Rocket Pharmaceuticals, Inc. — Q2 2020 Form 10-Q
Reporting period: Three and six months ended June 30, 2020. Financial figures below are in U.S. dollars; amounts are converted to millions unless otherwise noted. The company is a clinical-stage gene-therapy developer and had no product revenue.
Financial performance and position
| Metric | Q2 2020 / June 30, 2020 | Comparable period / prior year-end |
|---|---|---|
| Revenue | $0 | $0 in Q2 2019 and first half 2019 |
| Net loss | $25.0 million for Q2; $49.7 million for first half | $18.7 million for Q2 2019; $38.1 million for first half 2019 |
| Research and development expense | $16.7 million for Q2; $33.7 million for first half | $14.0 million for Q2 2019; $29.1 million for first half 2019 |
| General and administrative expense | $6.8 million for Q2; $14.0 million for first half | $4.4 million for Q2 2019; $8.2 million for first half 2019 |
| Operating cash flow | $(44.3) million for first half | $(34.1) million for first half 2019 |
| Cash, cash equivalents and investments | $249.8 million | $304.1 million at December 31, 2019 |
| Current assets / current liabilities | $255.4 million / $20.7 million | At June 30, 2020 |
| Convertible notes | $52.0 million principal outstanding: $5.15 million due 2021 and $46.85 million due 2022 | $46.2 million combined carrying value, net of discounts |
Operating margins are not meaningful because Rocket reported no revenue. Interest expense was $1.8 million in Q2 and $3.4 million for the first half. First-half investing activities provided $22.1 million, principally reflecting net investment maturities; financing activities provided approximately $0.03 million. Accumulated deficit was $232.8 million. The company reported $20.5 million of finance-lease liabilities, primarily associated with its Cranbury facility.
Material changes versus comparable periods
- Q2 net loss widened by $6.4 million year over year; first-half net loss widened by $11.6 million. First-half operating expenses increased $10.3 million, including higher R&D ($4.6 million) and G&A ($5.8 million).
- Management attributed higher R&D costs mainly to manufacturing and process development, increased personnel, clinical trials, laboratory supplies and Cranbury lease-related expense. A $1.6 million CIRM grant receivable offset LAD-I R&D expense.
- G&A rose in part because of $1.9 million in fees related to the convertible-note exchanges, higher stock-based compensation and increased headcount. Lower investment income also contributed to greater net other expense.
- Cash, cash equivalents and investments declined by $54.3 million from year-end 2019. First-half operating cash use increased $10.2 million year over year.
Outlook, programs and notable items
- Management said the $249.8 million of cash, cash equivalents and investments was expected to fund operating expenses and capital expenditures into the second quarter of 2022. It expects expenses and operating losses to increase as clinical development, manufacturing and other operations expand; additional financing may be required.
- Pipeline updates: FA Phase 2 Process B enrollment resumed in early Q3 after COVID-related interruptions, with further data expected in Q4 2020. LAD-I Phase 1 enrollment was complete; management expected to advance to the Phase 2 study in Q4 and report additional data then. Rocket reported treating the first PKD trial patient in July 2020. IMO’s IND was cleared in June, with a trial start anticipated in Q4. Three patients had been dosed in the low-dose Danon cohort; regulators and review committees cleared advancement to a higher dose, with preliminary data anticipated in Q4.
- COVID-19 had interrupted FA enrollment and limited follow-up for some patients. The filing warns that the pandemic could also disrupt trials, site operations, drug supply, research and regulatory timelines; the overall effects remained uncertain.
- Rocket exchanged $46.85 million of 2021 notes for 2022 notes, extending the maturity of most of the debt by a year and increasing the stated interest rate from 5.75% to 6.25%. The notes are convertible; conversion or future equity financing could dilute shareholders.
- The Cranbury facility lease commenced in March 2020. The company expected the facility build-out to be completed in Q3 2020 and disclosed up to $30 million in non-recurring 2020 build-out costs. The company had limited in-house manufacturing experience and identified manufacturing execution and regulatory compliance as risks.
- The principal financial officer resigned July 30, 2020; the company appointed John Militello as principal financial and accounting officer. The filing states the resignation was not related to a dispute or accounting matter.
- Management reported effective disclosure controls as of June 30, 2020 and no material changes in internal control over financial reporting during the first half. No material litigation was identified; ordinary-course claims and contingencies remain possible.
Most important facts for investors to verify
- Whether clinical results, enrollment and regulatory milestones progress on the timelines described, particularly FA, LAD-I and Danon updates anticipated in Q4 2020.
- Whether COVID-19, patient availability, manufacturing capacity or trial supply causes further delays or added expense.
- Whether the stated runway into Q2 2022 remains realistic as cash burn and facility costs evolve, and whether additional financing is needed.
- The terms, conversion and maturity implications of the 2021 and 2022 convertible notes, including potential shareholder dilution.
- Whether Cranbury build-out and internal manufacturing capabilities are completed on schedule and meet regulatory requirements.