Rocket Pharmaceuticals, Inc. — Q2 2019 Form 10-Q
Reporting period: Three and six months ended June 30, 2019. Amounts are in U.S. dollars; financial statement amounts are in millions unless otherwise noted.
Business context
Rocket is a clinical-stage gene therapy company developing treatments for rare diseases, with no approved products and no revenue. Its pipeline includes clinical-stage programs for Fanconi anemia (FA), Leukocyte Adhesion Deficiency-I (LAD-I), and Danon disease, plus preclinical programs for pyruvate kinase deficiency (PKD), infantile malignant osteopetrosis (IMO), and CRISPR/Cas9 gene editing for FA.
Financial performance and liquidity
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Research and development | $14.0 | $10.8 | $29.1 | $16.5 |
| General and administrative | $4.4 | $4.1 | $8.2 | $12.8 |
| Total operating expenses | $18.4 | $14.9 | $37.3 | $29.3 |
| Net loss | $18.7 | $15.8 | $38.1 | $31.1 |
| Net loss per share, basic and diluted | $0.38 | $0.40 | $0.81 | $0.82 |
Margins are not meaningful because the company reported no revenue. Q2 R&D growth reflected higher clinical-trial, licensing, and stock-compensation costs, partly offset by lower preclinical spending. For the first half, R&D increases were attributed mainly to manufacturing and process development, clinical trials, staffing, licensing, and stock compensation. First-half G&A fell year over year largely because 2018 included $5.3 million of merger-related and transition costs.
- Cash, cash equivalents, and investments: $257.8 million at June 30, 2019, versus $205.7 million at December 31, 2018. This comprised $64.8 million cash and equivalents and $193.0 million current investments; restricted cash was an additional $1.5 million.
- Cash flows, first half: $34.1 million used in operations, $97.7 million used in investing, and $85.4 million provided by financing. Operating cash use was higher than the $21.3 million used in the prior-year period. Investing outflow included $140.3 million of investment purchases, partly offset by maturities, and $7.3 million of property and equipment purchases.
- Equity financing: The April public offering of 5.175 million shares generated $86.1 million net proceeds. Shares outstanding were 50.3 million at June 30; the offering increased the share count.
- Debt: Convertible notes have $52.0 million principal and a $43.2 million carrying value after discount. They bear 5.75% stated interest, have a 15.3% effective interest rate, and mature August 1, 2021. The notes are unsecured.
- Balance sheet: Total assets were $308.7 million, total liabilities $60.2 million, and stockholders’ equity $248.5 million. The accumulated deficit was $144.0 million.
Material developments and outlook
- Management said available cash, cash equivalents, and investments were expected to fund operating expenses and capital expenditures into the first half of 2021. The company expects expenses and operating losses to rise as trials, manufacturing, and preclinical programs advance; additional financing may be needed thereafter.
- The first two U.S. FA patients received treatment in the Phase 1 trial of Process B RP-L102; preliminary data were expected in Q4 2019. Separately, updated results from four patients in the CIEMAT-sponsored FA trial showed increasing, durable engraftment and restored bone-marrow stem-cell function at follow-up of one to three years.
- The first patient’s cells were harvested for the RP-L201 LAD-I trial in Q2; preliminary data were expected in Q4 2019. CIRM awarded up to $6.5 million to support LAD-I development; $0.8 million of reimbursable costs was recorded by June 30, and the first cash advance arrived July 1.
- The first Danon disease patient was dosed in the Phase 1 trial in Q2 2019. Rocket reported preclinical data showing high vector copy numbers in relevant organs and no treatment-related safety issues up to the highest tested dose; these are preclinical findings, not clinical efficacy evidence.
- Rocket anticipated starting the RP-L301 PKD Phase 1 trial in Q4 2019. The company amended its New Jersey lease in June, increasing space to 102,000 square feet and setting a 15-year term beginning September 1, 2019; estimated total commitment was approximately $26.5 million.
Risks, contingencies, and unusual items
Key risks include clinical safety and efficacy uncertainty, slow enrollment in small rare-disease populations, manufacturing and supply challenges, evolving gene-therapy regulation, reliance on third-party research and manufacturers, intellectual-property and licensing risks, and the need for future capital. The company has not completed trials of its current candidates or obtained marketing approval. Management stated there were no off-balance-sheet arrangements and no litigation expected to have a material adverse effect. Disclosure controls were deemed effective at a reasonable-assurance level; no material changes in internal control were reported.
Other notable items include adoption of the lease accounting standard in January 2019, recognition of operating lease right-of-use assets and liabilities, and substantial construction in progress for the New Jersey research facility. The filing reports no clear company-wide guidance beyond the stated cash runway and program timing expectations.
Most important facts for investors to verify
- Whether clinical enrollment, dosing, safety, and efficacy data for FA, LAD-I, and Danon progress on the stated timelines, and whether early findings are durable and clinically meaningful.
- Whether the stated runway into the first half of 2021 remains achievable as R&D, manufacturing, and facility costs increase, and whether additional financing will be required.
- The terms, timing, and conditions for receiving and using the CIRM grant, including eligible LAD-I expenses.
- Manufacturing readiness and third-party capacity to supply clinical trials, plus the timing and cost of the New Jersey facility build-out and lease commitments.
- The dilution and potential conversion impact of equity awards and the 2021 convertible notes, as well as the notes’ 2021 maturity and effective interest cost.