Rocket Pharmaceuticals, Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020; financial statements are unaudited. Rocket is a clinical-stage gene-therapy company with no approved products or product revenue.
Financial performance and liquidity
| Metric | Q1 2020 | Q1 2019 |
|---|---|---|
| Revenue | $0 | $0 |
| Research and development expense | $17.0 million | $15.1 million |
| General and administrative expense | $7.2 million | $3.8 million |
| Total operating expenses | $24.1 million | $18.9 million |
| Net loss | $24.7 million | $19.5 million |
| Basic and diluted loss per share | $0.45 | $0.43 |
| Cash used in operating activities | $22.2 million | $16.0 million |
With no revenue, gross margin is not applicable. R&D increased 12% year over year, primarily from higher headcount and clinical-trial costs, partly offset by lower research-agreement expense. G&A rose 88%, mainly reflecting $1.6 million of convertible-note exchange costs, higher compensation and increased stock-based compensation.
At March 31, cash and cash equivalents were $190.5 million and investments were $85.4 million, totaling $275.9 million; restricted cash was an additional $1.5 million. Management said these resources were expected to fund operating expenses and capital expenditures into 2022. Accumulated deficit was $207.8 million. Total liabilities were $86.7 million, including $45.8 million of convertible notes, net of discount, and $20.3 million of finance lease liabilities. The company reported $372.8 million in total assets.
Investing activities provided $27.5 million, principally from investment maturities, while financing activities used $0.1 million. Cash, cash equivalents and restricted cash increased $5.1 million during the quarter. No operating margin or profitability outlook was provided; management expects losses and expenses to rise as programs advance.
Material changes and unusual items
- In February, Rocket exchanged approximately $39.35 million principal amount of 5.75% notes due 2021 for an equal principal amount of 6.25% notes due August 2022, extending maturity for most of the notes. Approximately $12.65 million principal amount of 2021 notes remained outstanding. The exchange generated $1.6 million of expense; the notes’ stated interest rates are 5.75% and 6.25%, respectively.
- The Cranbury, New Jersey facility lease commenced in March. Rocket recognized a $47.7 million finance lease right-of-use asset and a corresponding $20.2 million lease liability; the asset includes previously capitalized construction costs and prepaid rent. Management cited up to $30 million of non-recurring facility buildout expense in 2020.
- Property and equipment, net, decreased to $11.1 million from $29.5 million, primarily reflecting reclassification of construction-in-progress costs into the finance lease right-of-use asset.
- Stock-based compensation was $4.0 million versus $3.2 million a year earlier.
Programs, outlook and risks
Rocket reported three clinical-stage ex vivo programs—Fanconi anemia (FA), LAD-I and pyruvate kinase deficiency (PKD)—and an in vivo Danon disease program; IMO remained preclinical. Management said FA and LAD-I were in registration-enabling studies. It anticipated the first PKD patient in Q3 2020 and planned to file an IMO IND and begin a clinical trial in Q4 2020. For Danon disease, three patients had been dosed in the first low-dose cohort; FDA and the independent monitoring committee cleared advancement to a higher-dose cohort. The company expected further enrollment and clinical data readouts in the second half of 2020. These are forward-looking plans, not assured outcomes.
COVID-19 had prompted remote work and reduced staffing in the research laboratory. The filing warned that the pandemic could disrupt trial enrollment, site operations, patient visits, manufacturing, regulatory reviews and research activities; the extent and duration of effects were uncertain. Other principal risks include clinical safety and efficacy, regulatory approval, rare-disease patient recruitment, manufacturing execution and supply, reliance on third parties and licensed intellectual property, competition, and the need for additional financing. Rocket said it would likely need future capital; equity or convertible financing could dilute shareholders. It reported no litigation expected to have a material adverse effect and no off-balance-sheet arrangements.
Key facts for investors to verify
- Progress, enrollment, safety and data timing for FA, LAD-I, PKD and Danon trials, and whether IMO entered clinical development as planned.
- Whether the $275.9 million cash-and-investment balance and stated runway into 2022 remain adequate as operating cash use and development spending increase.
- Facility buildout costs, manufacturing readiness and the impact of the new long-term finance lease.
- Convertible-note terms, remaining maturities, interest burden and any future refinancing or dilution.
- Actual effects of COVID-19 on clinical, research, regulatory and manufacturing milestones.