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MarketScreener Homepage  >  Equities  >  Nasdaq  >  Rocket Pharmaceuticals, Inc.    RCKT

ROCKET PHARMACEUTICALS, INC.

(RCKT)
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ROCKET PHARMACEUTICALS : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

11/06/2020 | 04:11pm EST
You should read the following discussion and analysis of our financial condition
and results of operations together with the condensed consolidated financial
statements and related notes that are included elsewhere in this Quarterly
Report on Form 10-Q and our Annual Report on Form 10-K for the fiscal year ended
December 31, 2019 filed with the U.S. Securities and Exchange Commission, or the
SEC, on March 6, 2020, or our 2019 Form 10-K. This discussion contains
forward-looking statements based upon current plans, expectations and beliefs
that involve risks and uncertainties. Our actual results may differ materially
from those anticipated in these forward-looking statements as a result of
various factors, including, but not limited to, those discussed in the section
entitled "Risk Factors" and elsewhere in this Quarterly Report on Form 10-Q. In
preparing this MD&A, we presume that readers have access to and have read the
MD&A in our 2019 Form 10-K, pursuant to Instruction 2 to paragraph of Item 303
of Regulation S-K. Unless stated otherwise, references in this Quarterly Report
on Form 10-Q to "us," "we," "our," or our "Company" and similar terms refer to
Rocket Pharmaceuticals, Inc.

We are a clinical-stage, multi-platform biotechnology company focused on the
development of first, only and best-in-class gene therapies, with direct
on-target mechanism of action and clear clinical endpoints, for rare and
devastating diseases. We have four clinical-stage ex vivo lentiviral vector
("LVV") programs currently enrolling patients in the United States ("U.S.") and
Europe for Fanconi Anemia ("FA"), a genetic defect in the bone marrow that
reduces production of blood cells or promotes the production of faulty blood
cells, Leukocyte Adhesion Deficiency-I ("LAD-I"), a genetic disorder that causes
the immune system to malfunction, Pyruvate Kinase Deficiency ("PKD"), a rare red
blood cell autosomal recessive disorder that results in chronic non-spherocytic
hemolytic anemia and Infantile Malignant Osteopetrosis ("IMO"), a genetic
disorder characterized by increased bone density and bone mass secondary to
impaired bone resorption. Of these, both the Phase 2 FA program and the Phase
1/2 LAD-I program are in registration-enabling studies in the US and Europe. In
addition, in the U.S. we have a clinical stage in vivo adeno-associated virus
("AAV") program for Danon disease, a multi-organ lysosomal-associated disorder
leading to early death due to heart failure. We have global commercialization
and development rights to all of these product candidates under royalty-bearing
license agreements. Additional work in the discovery stage for an FA CRISPR/CAS9
program as well as a gene therapy program for the less common FA subtypes C and
G is ongoing.

Recent Developments

On February 20, 2020, we entered into separate, privately negotiated exchange
agreements (the "Exchange Agreements") with certain holders of our outstanding
5.75% Convertible Senior Notes due 2021 (the "2021 Convertible Notes") to extend
the maturity date by one year. Pursuant to the Exchange Agreements, we exchanged
approximately $39.35 million aggregate principal amount of the 2021 Convertible
Notes (which represented approximately 76% of the aggregate outstanding
principal amount of the 2021 Convertible Notes) for (a) approximately $39.35
million aggregate principal amount of 6.25% Convertible Senior Notes due August
2022 (the "2022 Convertible Notes") (an exchange ratio equal to 1.00 2022
Convertible Note per exchanged 2021 Convertible Note) and (b) $119,416 in cash
to pay the accrued and unpaid interest on the exchanged 2021 Convertible Notes
from, and including, February 1, 2020 to February 20, 2020.

On June 12, 2020, we entered into an exchange agreement (substantially in the
form of the exchange agreement we entered into with holders in prior exchange
transactions for our 2021 Convertible Notes with holders of the 2021 Convertible
Notes, wherein we exchanged $7.5 million aggregate principal amount of the 2021
Convertible Notes for (a) $7.5 million aggregate principal amount of the 2022
Convertible Notes (an exchange ratio equal to 1.00 2022 Convertible Notes per
exchanged 2021 Convertible Note) and (b) approximately $11,000 to pay the
accrued and unpaid interest on the exchanged 2021 Convertible Notes from, and
including, February 1, 2020, to, but excluding, the closing date of the exchange
transaction, adjusted to take into account the unearned accrued interest on the
2022 Convertible Notes from, and including, February 20, 2020, to, but
excluding, the closing date of the exchange transaction. The 2022 Convertible
Notes were issued in a private placement exempt from registration in reliance on
Section 4(a)(2) of the Securities Act of 1933, as amended.

Gene Therapy Overview


Genes are composed of sequences of deoxyribonucleic acid ("DNA"), which code for
proteins that perform a broad range of physiologic functions in all living
organisms. Although genes are passed on from generation to generation, genetic
changes, also known as mutations, can occur in this process. These changes can
result in the lack of production of proteins or the production of altered
proteins with reduced or abnormal function, which can in turn result in disease.

Gene therapy is a therapeutic approach in which an isolated gene sequence or
segment of DNA is administered to a patient, most commonly for the purpose of
treating a genetic disease that is caused by genetic mutations. Currently
available therapies for many genetic diseases focus on administration of large
proteins or enzymes and typically address only the symptoms of the disease. Gene
therapy aims to address the disease-causing effects of absent or dysfunctional
genes by delivering functional copies of the gene sequence directly into the
patient's cells, offering the potential for curing the genetic disease, rather
than simply addressing symptoms.

We are using modified non-pathogenic viruses for the development of our gene
therapy treatments. Viruses are particularly well suited as delivery vehicles
because they are adept at penetrating cells and delivering genetic material
inside a cell. In creating our viral delivery vehicles, the viral (pathogenic)
genes are removed and are replaced with a functional form of the missing or
mutant gene that is the cause of the patient's genetic disease. The functional
form of a missing or mutant gene is called a therapeutic gene, or the
"transgene."
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 The process of inserting the transgene is called "transduction." Once a virus
is modified by replacement of the viral genes with a transgene, the modified
virus is called a "viral vector." The viral vector delivers the transgene into
the targeted tissue or organ (such as the cells inside a patient's bone marrow).
We have two types of viral vectors in development, LVV and AAV. We believe that
our LVV and AAV-based programs have the potential to offer a long-lasting and
significant therapeutic benefit to patients.

Gene therapies can be delivered either (1) ex vivo (outside the body), in which
case the patient's cells are extracted and the vector is delivered to these
cells in a controlled, safe laboratory setting, with the modified cells then
being reinserted into the patient, or (2) in vivo (inside the body), in which
case the vector is injected directly into the patient, either intravenously
("IV") or directly into a specific tissue at a targeted site, with the aim of
the vector delivering the transgene to the targeted cells.

We believe that scientific advances, clinical progress, and the greater
regulatory acceptance of gene therapy have created a promising environment to
advance gene therapy products as these products are being designed to restore
cell function and improve clinical outcomes, which in many cases include
prevention of death at an early age.

Pipeline Overview

The chart below shows the current phases of development of Rocket's programs and product candidates:


                           [[Image Removed: graphic]]


LVV Programs. Rocket's LVV-based programs utilize third-generation, self-inactivating lentiviral vectors to target selected rare diseases. Currently, Rocket is developing LVV programs to treat FA, LAD-I, PKD, and IMO. AAV Program:


Danon Disease:

Danon disease is a multi-organ lysosomal-associated disorder leading to early
death due to heart failure. Danon disease is caused by mutations in the gene
encoding lysosome-associated membrane protein 2 ("LAMP-2"), a mediator of
autophagy. This mutation results in the accumulation of autophagic vacuoles,
predominantly in cardiac and skeletal muscle. Male patients often require heart
transplantation and typically die in their teens or twenties from progressive
heart failure. Along with severe cardiomyopathy, other Danon disease symptoms
can include skeletal muscle weakness, liver disease, and intellectual
impairment. There are no specific therapies available for the treatment of Danon
disease. Danon disease is estimated to have a prevalence of 15,000 to 30,000
patients in the U.S. and the EU, however new market research is being performed
and the prevalence of patients may be updated in the future.

In January 2019, we announced the clearance of our IND application by the FDA
for RP-A501 for the treatment of Danon disease, and in February 2019, we were
notified by the FDA that we were granted Fast Track designation for RP-A501.
University of California San Diego Health ("UCSD") is the initial and lead
center for our Phase 1 clinical trial.

In May 2, 2019, we presented additional preclinical data at the ASCGT annual
meeting, indicating that high VCN, in Danon disease-relevant organs in both mice
and non-human primates ("NHN's"), with high concentrations in heart and liver
tissue (for NHP, cardiac VCN was approximately 10 times higher on average than
in skeletal muscle and central nervous system), which is consistent with
reported results in several studies of heart tissue across different species.
There were no treatment-related adverse events or safety issues up to the
highest dose.
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In the third quarter of 2020, Danon disease received Rare Pediatric Disease
Designation. As of September 30, 2020, we have dosed four patients in the
RP-A501 Phase 1 clinical trial, and completed the first, low dose, cohort of the
study. Based on the preliminary safety and efficacy data review of this
completed cohort, the FDA, the Independent Data Safety Monitoring Committee
("IDSMC") and hospital Institutional Review Board ("IRB") have provided
clearance to advance to a higher dose cohort in the Phase 1 trial. The first
patient in this higher dose cohort was treated in the third quarter.

As Rocket moves into the next cohort in its clinical trial of RP-A501 for the
treatment of Danon Disease, the world-renowned Children's Hospital of
Philadelphia joined UCSD as a trial site.  With this addition, Rocket brings an
East Coast presence to the trial, facilitating broader patient access.

Fanconi Anemia Complementation Group A (FANCA):


FA, a rare and life-threatening DNA-repair disorder, generally arises from a
mutation in a single FA gene. An estimated 60 to 70% of cases arise from
mutations in the Fanconi-A ("FANCA") gene, which is the focus of our program. FA
results in bone marrow failure, developmental abnormalities, myeloid leukemia
and other malignancies, often during the early years and decades of life. Bone
marrow aplasia, which is bone marrow that no longer produces any or very few red
and white blood cells and platelets leading to infections and bleeding, is the
most frequent cause of early morbidity and mortality in FA, with a median onset
before 10 years of age. Leukemia is the next most common cause of mortality,
ultimately occurring in about 20% of patients later in life. Solid organ
malignancies, such as head and neck cancers, can also occur, although at lower
rates during the first two to three decades of life.

Although improvements in allogeneic (donor-mediated) hematopoietic stem cell
transplant ("HSCT"), currently the most frequently utilized therapy for FA, have
resulted in more frequent hematologic correction of the disorder, HSCT is
associated with both acute and long-term risks, including transplant-related
mortality, graft versus host disease ("GVHD"), a sometimes fatal side effect of
allogeneic transplant characterized by painful ulcers in the GI tract, liver
toxicity and skin rashes, as well as increased risk of subsequent cancers. Our
gene therapy program in FA is designed to enable a minimally toxic hematologic
correction using a patient's own stem cells during the early years of life. We
believe that the development of a broadly applicable autologous gene therapy can
be transformative for these patients.

Each of our LVV-based programs utilize third-generation, self-inactivating
lentiviral vectors to correct defects in patients' HSCs, which are the cells
found in bone marrow that are capable of generating blood cells over a patient's
lifetime. Defects in the genetic coding of HSCs can result in severe, and
potentially life-threatening anemia, which is when a patient's blood lacks
enough properly functioning red blood cells to carry oxygen throughout the body.
Stem cell defects can also result in severe and potentially life-threatening
decreases in white blood cells resulting in susceptibility to infections, and in
platelets responsible for blood clotting, which may result in severe and
potentially life-threatening bleeding episodes. Patients with FA have a genetic
defect that prevents the normal repair of genes and chromosomes within blood
cells in the bone marrow, which frequently results in the development of acute
myeloid leukemia ("AML"), a type of blood cancer, as well as bone marrow failure
and congenital defects. The average lifespan of an FA patient is estimated to be
30 to 40 years. The prevalence of FA in the US and EU is estimated to be about
4,000, and given the efficacy seen in non-conditioned patients, the addressable
annual market opportunity is now thought to be in the 400 to 500 range.

We currently have one LVV-based program targeting FA, RP-L102. RP-L102 is our
lead lentiviral vector-based program that we in-licensed from Centro de
Investigaciones Energéticas, Medioambientales y Tecnológicas ("CIEMAT"), which
is a leading research institute in Madrid, Spain. RP-L102 is currently being
studied in our Phase 2 registration enabling clinical trials treating FA
patients at the Center for Definitive and Curative Medicine at Stanford
University School of Medicine ("Stanford") and Hospital Infantil de Nino Jesus
("HNJ") in Spain. The Phase 2 portion of the trial is expected to enroll ten
patients total from the U.S. and EU. Patients will receive a single IV infusion
of RP-L102 that utilizes fresh cells and "Process B" which incorporates a
modified stem cell enrichment process, transduction enhancers, as well as
commercial-grade vector and final drug product.

At the virtual 2020 American Society of Gene & Cellular Therapy ("ASGCT")
conference, on May 12, 2020, we presented longer-term data from the FANCOLEN-I
study of RP-L102 "Process A" for FA. Patients followed for a year or more after
treatment with RP-L102 "Process A" continued to demonstrate durable engraftment
and hematologic correction, without the use of pre-treatment conditioning
regimens. Data for the initial four treated patients is available through 33-36
months of follow-up, and indicates ongoing progressive increases in the
percentage of peripheral blood cells displaying gene-marking (evidence of a
corrected FA gene) over time, with concomitant increases in the percentages of
cells in blood and bone marrow resistant to DNA-damaging agents DEB and MMC,
including evidence of engraftment leading to bone marrow restoration exceeding
the 10% threshold agreed to by the FDA and EMA for the ongoing Phase 2 trial. In
patient 02002, who received adequate drug product, hemoglobin levels are now
similar to those in the first year after birth, suggesting hematologic
correction over the long term; increases in hemoglobin subsequent to 24 months
of follow-up were also identified in patient 02006, who also received adequate
drug product. Evidence of progressive engraftment (and hematologic stability)
have also been noted in some of the subsequent 5 patients treated and appear
related to the dose and level of genetic correction in the investigational
product administered.

Also at ASGCT, Rocket presented initial results from two pediatric patients
treated with "Process B" RP-L102, prior to development of severe bone marrow
failure, in our Phase 1 trial of RP-L102 for FA. No drug-related safety or
tolerability issues have been reported. At junctures during and through one year
following therapy, one patient had evidence of hematologic stability,
preliminary evidence of genetic correction in blood and bone marrow cells, and
evidence of increasing resistance of bone marrow cells to DNA-damaging agents.
The second patient had blood count stability during the initial 6 months
following therapy and then had decreased blood counts secondary to an Influenza
B infection requiring red blood cell transfusions with stabilization and
decreasing transfusion requirement at time of presentation. Comprehensive
follow-up has been limited due to the COVID-19 pandemic.
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Enrollment in EU and US Phase 2 "Process B" studies commenced in November 2019
with interruptions in enrollment due to COVID-19; additional Phase 2 enrollment
resumed in the early third quarter of 2020.

Rocket's global registrational trial of RP-L102 for FA will expand to the
University of Minnesota which has been open as an additional clinical trial
site. In addition, Great Ormond Street Hospital in London has opened as
additional clinical trial sites for FA and LAD-1.  GOSH, together with its
academic partner UCL GOS ICH forms the largest concentration of children's
health research in Europe. The LAD-I trial first opened at the University of
California, Los Angeles, and two patients have already been treated in the Phase
1 trial.

Leukocyte Adhesion Deficiency-I (LAD-I):


LAD-I is a rare autosomal recessive disorder of white blood cell adhesion and
migration, resulting from mutations in the ITGB2 gene encoding for the Beta-2
Integrin component, CD18. Deficiencies in CD18 result in an impaired ability for
neutrophils (a subset of infection-fighting white blood cells) to leave blood
vessels and enter into tissues where these cells are needed to combat
infections. As is the case with many rare diseases, true estimates of incidence
are difficult; however, several hundred cases have been reported to date.

Most LAD-I patients are believed to have the severe form of the disease. Severe
LAD-I is notable for recurrent, life-threatening infections and substantial
infant mortality in patients who do not receive an allogeneic HSCT. Mortality
for severe LAD-I has been reported as 60 to 75% by age two in the absence of
allogeneic HCST.

We currently have one program targeting LAD-I, RP-L201. RP-L201 is a clinical
program that we in-licensed from CIEMAT. We have partnered with UCLA for the
Phase 1 U.S. clinical development efforts for the LAD-I program and have dosed
two severe LAD-I patients in the U.S. in Phase 1, to assess the safety and
tolerability of RP-L201. The study is expected to enroll nine patients
globally.  This study has received $6.5 million CLIN2 grant award from the
California Institute for Regenerative Medicine ("CIRM") to support the clinical
development of gene therapy for LAD-I.

In the Phase 2 registration-enabling clinical study, UCLA and its Eli and Edythe
Broad Center of Regenerative Medicine and Stem Cell Research is serving as the
lead U.S. clinical research site, and Hospital Infantil Universitario Nino Jesus
is serving as the lead clinical site in Spain.  Great Ormond Street Hospital in
United Kingdom has also opened as a clinical site for LAD-I.

At the virtual 2020 ASGCT conference we announced two patients were treated in
our Phase 1 portion of the study. The first patient treated in our Phase 1/2
study of RP-L201 for the treatment of severe LAD-I, demonstrated an increase in
CD18 expression from less than 1% to 45%, sustained over six months. We believe
that these results lend further support to the applicability of "Process B"
across the lentiviral portfolio.

At the virtual European Society for Immunodeficiencies (ESID) 2020 Meeting in
October 2020, we provided a clinical update for the Company's LAD-I program. The
data presented in the oral presentation was longer-term follow-up data from the
Phase 1/2 clinical trial of RP-L201 for LAD-I, from two pediatric patients with
severe LAD-I, as defined by CD18 expression of less than 2%. Both patients were
treated with RP-L201, our ex-vivo lentiviral gene therapy candidate. Patient
L201-003-1001 was 9 years of age at treatment and has been followed for 12
months and Patient L201-003-1004 was 3 years of age at treatment and has been
followed for four months. Treatments in both cases were well tolerated, and no
safety issues were reported with infusion and post-treatment. Both subjects
achieved hematopoietic reconstitution in less than 4 weeks. Patient
L201-003-1001 demonstrated durable CD18 expression of 40%, peripheral blood VCN
levels of 1.3, visible signs of improvement in existing skin lesions and no new
infections reported 12 months post-treatment. Patient L201-003-1004 demonstrated
CD18 expression of 28% and early peripheral blood VCN trending similarly to
first patient, reported 4 months post-treatment. Preclinical data on IMO
indicate that a modest level of engraftment corrects the disease phenotype in
vivo, with increased long-term survival, tooth eruption, weight gain and
normalized bone resorption. Results support acceleration into clinical
development for RP-L401.

Enrollment is now complete in the Phase 1 portion of the study. The first patient was treated in the Phase 2 global registrational study for RP-L201 for LAD-I.

Pyruvate Kinase Deficiency (PKD):


Red blood cell PKD is a rare autosomal recessive disorder resulting from
mutations in the pyruvate kinase L/R ("PKLR") gene encoding for a component of
the red blood cell ("RBC") glycolytic pathway. PKD is characterized by chronic
non-spherocytic hemolytic anemia, a disorder in which RBCs do not assume a
normal spherical shape and are broken down, leading to decreased ability to
carry oxygen to cells, with anemia severity that can range from mild
(asymptomatic) to severe forms that may result in childhood mortality or a
requirement for frequent, lifelong RBC transfusions. The pediatric population is
the most commonly and severely affected subgroup of patients with PKD, and PKD
often results in splenomegaly (abnormal enlargement of the spleen), jaundice and
chronic iron overload which is likely the result of both chronic hemolysis and
the RBC transfusions used to treat the disease. The variability in anemia
severity is believed to arise in part from the large number of diverse mutations
that may affect the PKLR gene. Estimates of disease incidence have ranged
between 3.2 and 51 cases per million in the white U.S. and Europe population.
Industry estimates suggest at least 2,500 cases in the U.S. and Europe have
already been diagnosed despite the lack of FDA-approved molecularly targeted
therapies.
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We currently have one LVV-based program targeting PKD, RP-L301. RP-L301 is a
clinical stage program that we in-licensed from CIEMAT. The IND for RP-L301 to
initiate a global Phase 1 study was cleared by the FDA in October 2019. This
program has been granted EMA orphan drug disease designation and FDA orphan drug
disease designation ("ODD").

This global Phase 1 open-label, single-arm, clinical trial is expected to enroll
six adult and pediatric transfusion-dependent PKD patients in the U.S. and
Europe. The trial will be comprised of three cohorts to assess RP-L301 in young
pediatric (age 8-11), older pediatric (age 12-17) and adult populations. The
trial is designed to assess the safety, tolerability and preliminary activity of
RP-L301, and initial safety evaluation will occur in the adult cohort before
evaluation in pediatric patients. Lucile Packard Children's Hospital Stanford
will serve as the lead site in the U.S. for adult and pediatric patients,
Hospital Infantil Universitario Niño Jesús will serve as the lead site in Europe
for pediatrics, and Hospital Universitario Fundación Jiménez Díaz will serve as
the lead site in Europe for adult patients.  In July 2020, we treated the first
patient in our open-label, Phase 1 clinical trial of RP-L301.

Infantile Malignant Osteopetrosis (IMO):


IMO is a genetic disorder characterized by increased bone density and bone mass
secondary to impaired bone resorption. Normally, small areas of bone are
constantly being broken down by special cells called osteoclasts, then made
again by cells called osteoblasts. In IMO, the cells that break down bone
(osteoclasts) do not work properly, which leads to the bones becoming thicker
and not as healthy. Untreated IMO patients may suffer from a compression of the
bone-marrow space, which results in bone marrow failure, anemia and increased
infection risk due to the lack of production of white blood cells. Untreated IMO
patients may also suffer from a compression of cranial nerves, which transmit
signals between vital organs and the brain, resulting in blindness, hearing loss
and other neurologic deficits.

We currently have one LVV-based program targeting IMO, RP-L401. RP-L401 is a
preclinical program that we in-licensed from Lund University, Sweden. This
program has been granted ODD and Rare Pediatric Disease designation from the
FDA, as well as FDA Fast Track Designation. The FDA defines a "rare pediatric
disease" as a serious and life-threatening disease that affects less than
200,000 people in the U.S. that are aged between birth to 18 years. The Rare
Pediatric Disease designation program allows for a sponsor who receives an
approval for a product to potentially qualify for a voucher that can be redeemed
to receive a priority review of a subsequent marketing application for a
different product.

In October 2020, we presented pre-clinical data from our LVV-based program targeting IMO, RP-L401, at the ESID 2020 Meeting.


We have partnered with UCLA to lead U.S. clinical development efforts for the
IMO program and anticipate that UCLA will serve as the lead U.S. clinical site
for IMO. The IND for RP-L401 to initiate a global Phase 1 study was cleared by
the FDA in June 2020.  The non-randomized, open-label Phase 1 clinical trial
will enroll two pediatric patients, one month of age or older. The trial is
designed to assess safety and tolerability of RP-L401, as well as preliminary
efficacy, including potential improvements in bone abnormalities/density,
hematologic status, and endocrine abnormalities. Recruitment is currently open
for this clinical trial.

CRISPR/Cas9 gene editing in Fanconi Anemia:


In addition to our LVV and AAV programs, we also have a program evaluating
CRISPR/Cas9-based gene editing for FA. This program is currently in the
discovery phase. CRISPR/Cas9-based gene editing is a different method of
correcting the defective genes in a patient, where the editing is very specific
and targeted to a particular gene sequence. "CRISPR/Cas9" stands for Clustered,
Regularly Interspaced Short Palindromic Repeats ("CRISPR") Associated protein-9.
The CRISPR/Cas9 technology can be used to make "cuts" in DNA at specific sites
of targeted genes, making it potentially more precise in delivering gene
therapies than traditional vector-based delivery approaches. CRISPR/Cas9 can
also be adapted to regulate the activity of an existing gene without modifying
the actual DNA sequence, which is referred to as gene regulation.

Strategy


We seek to bring hope and relief to patients with devastating, undertreated,
rare pediatric diseases through the development and commercialization of
potentially curative first-in-class gene therapies. To achieve these objectives,
we intend to develop into a fully integrated biotechnology company. In the near-
and medium-term, we intend to develop our first-in-class product candidates,
which are targeting devastating diseases with substantial unmet need, develop
proprietary in-house analytics and manufacturing capabilities and continue to
commence registration trials for our currently planned programs. In the medium
and long-term, we expect to submit our first biologics license applications
("BLAs") and establish our gene therapy platform and expand our pipeline to
target additional indications that we believe to be potentially compatible with
our gene therapy technologies. In addition, during that time, we believe that
our currently planned programs will become eligible for priority review vouchers
from the FDA that provide for expedited review. We have assembled a leadership
and research team with expertise in cell and gene therapy, rare disease drug
development and commercialization.

We believe that our competitive advantage lies in our disease-based selection
approach, a rigorous process with defined criteria to identify target diseases.
We believe that this approach to asset development differentiates us as a gene
therapy company and potentially provides us with a first-mover advantage.

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Financial Overview


Since our inception, we have devoted substantially all of our resources to
organizing and staffing, business planning, raising capital, acquiring or
discovering product candidates and securing related intellectual property
rights, conducting discovery, research and development activities for the
programs and planning for potential commercialization. We do not have any
products approved for sale and have not generated revenue from product sales.
From inception through September 30, 2020, we raised net cash proceeds of
approximately $373.1 million from investors through both equity and convertible
debt financing to fund operating activities. As of September 30, 2020, we had
cash, cash equivalents and investments of $228.7 million.

Since inception, we have incurred significant operating losses. Our ability to
generate product revenue sufficient to achieve profitability will depend heavily
on the successful development and eventual commercialization of one or more of
the current or future product candidates and programs. We had net losses of
$78.8 million for the nine months ended September 30, 2020 and $77.3 million for
the year ended December 31, 2019. As of September 30, 2020, we had an
accumulated deficit of $261.9 million. We expect to continue to incur
significant expenses and higher operating losses for the foreseeable future as
we advance our current product candidates from discovery through preclinical
development and clinical trials and seek regulatory approval of our product
candidates. In addition, if we obtain marketing approval for any of our product
candidates, we expect to incur significant commercialization expenses related to
product manufacturing, marketing, sales and distribution. Furthermore, we expect
to incur additional costs as a public company as we transition out of emerging
growth company status. Accordingly, we will need additional financing to support
continuing operations and potential acquisitions of licensing or other rights
for product candidates.

Until such a time as we can generate significant revenue from product sales, if
ever, we will seek to fund our operations through public or private equity or
debt financings or other sources, which may include collaborations with third
parties and government programs or grants. Adequate additional financing may not
be available to us on acceptable terms, or at all. We can make no assurances
that we will be able to raise the cash needed to fund our operations and, if we
fail to raise capital when needed, we may have to significantly delay, scale
back or discontinue the development and commercialization of one or more product
candidates or delay pursuit of potential in-licenses or acquisitions.

Because of the numerous risks and uncertainties associated with product
development, we are unable to predict the timing or amount of increased expenses
or when or if we will be able to achieve or maintain profitability. Even if we
are able to generate product sales, we may not become profitable. If we fail to
become profitable or are unable to sustain profitability on a continuing basis,
then we may be unable to continue our operations at planned levels and be forced
to reduce or terminate our operations.

Revenue


To date, we have not generated any revenue from any sources, including from
product sales, and we do not expect to generate any revenue from the sale of
products in the near future. If our development efforts for product candidates
are successful and result in regulatory approval or license agreements with
third parties, we may generate revenue in the future from product sales.

Operating Expenses

Research and Development Expenses

Our research and development program ("R&D") expenses consist primarily of external costs incurred for the development of our product candidates. These expenses include:

• expenses incurred under agreements with research institutions that conduct

research and development activities including, process development,

preclinical, and clinical activities on our behalf;

• costs related to process development, production of preclinical and clinical

materials, including fees paid to contract manufacturers and manufacturing

input costs for use in internal manufacturing processes;

• consultants supporting process development and regulatory activities; and

• costs related to in-licensing of rights to develop and commercialize our

product candidate portfolio.




We recognize external development costs based on contractual payment schedules
aligned with program activities, invoices for work incurred, and milestones
which correspond with costs incurred by the third parties. Nonrefundable advance
payments for goods or services to be received in the future for use in research
and development activities are recorded as prepaid expenses.

Our direct research and development expenses are tracked on a program-by-program
basis for product candidates and consist primarily of external costs, such as
research collaborations and third-party manufacturing agreements associated with
our preclinical research, process development, manufacturing, and clinical
development activities. Our direct research and development expenses by program
also include fees incurred under license agreements. Our personnel, non-program
and unallocated program expenses include costs associated with activities
performed by our internal research and development organization and generally
benefit multiple programs. These costs are not separately allocated by product
candidate and consist primarily of:

• salaries and personnel-related costs, including benefits, travel and

stock-based compensation, for our scientific personnel performing research and

development activities;

• facilities and other expenses, which include expenses for rent and maintenance

of facilities, and depreciation and amortization expense and;

• laboratory supplies and equipment used for internal research and development

   activities.



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Our research and development activities are central to our business model.
Product candidates in later stages of clinical development generally have higher
development costs than those in earlier stages of clinical development. As a
result, we expect that research and development expenses will increase
substantially over the next several years as we increase personnel costs,
including stock-based compensation, support ongoing clinical studies, seek to
achieve proof-of-concept in one or more product candidates, advance preclinical
programs to clinical programs, and prepare regulatory filings for product
candidates.

We cannot determine with certainty the duration and costs to complete current or
future clinical studies of product candidates or if, when, or to what extent we
will generate revenues from the commercialization and sale of any of our product
candidates that obtain regulatory approval. We may never succeed in achieving
regulatory approval for any of our product candidates. The duration, costs, and
timing of clinical studies and development of product candidates will depend on
a variety of factors, including:

• the scope, rate of progress, and expense of ongoing as well as any future

clinical studies and other research and development activities that we

undertake;

• future clinical trial results;

• uncertainties in clinical trial enrollment rates;

• changing standards for regulatory approval; and

• the timing and receipt of any regulatory approvals.




We expect research and development expenses to increase for the foreseeable
future as we continue to invest in research and development activities related
to developing product candidates, including investments in manufacturing, as our
programs advance into later stages of development and as we conduct additional
clinical trials. The process of conducting the necessary clinical research to
obtain regulatory approval is costly and time-consuming, and the successful
development of product candidates is highly uncertain. As a result, we are
unable to determine the duration and completion costs of research and
development projects or when and to what extent we will generate revenue from
the commercialization and sale of any of our product candidates.

Our future research and development expenses will depend on the clinical success
of our product candidates, as well as ongoing assessments of the commercial
potential of such product candidates. In addition, we cannot forecast with any
degree of certainty which product candidates may be subject to future
collaborations, when such arrangements will be secured, if at all, and to what
degree such arrangements would affect our development plans and capital
requirements. We expect our research and development expenses to increase in
future periods for the foreseeable future as we seek to complete development of
our product candidates.

The successful development and commercialization of our product candidates is
highly uncertain. This is due to the numerous risks and uncertainties associated
with product development and commercialization, including the uncertainty of:

• the scope, progress, outcome and costs of our clinical trials and other

research and development activities;

• the efficacy and potential advantages of our product candidates compared to

alternative treatments, including any standard of care;

• the market acceptance of our product candidates;

• obtaining, maintaining, defending and enforcing patent claims and other

intellectual property rights;

• significant and changing government regulation; and

• the timing, receipt and terms of any marketing approvals.




A change in the outcome of any of these variables with respect to the
development of our product candidates that we may develop could mean a
significant change in the costs and timing associated with the development of
our product candidates. For example, if the FDA or another regulatory authority
were to require us to conduct clinical trials or other testing beyond those that
we currently contemplate for the completion of clinical development of any of
our product candidates that we may develop or if we experience significant
delays in enrollment in any of our clinical trials, we could be required to
expend significant additional financial resources and time on the completion of
clinical development of that product candidate.

General and Administrative Expenses


General and administrative ("G&A") expenses consist primarily of salaries and
related benefit costs for personnel, including stock-based compensation and
travel expenses for our employees in executive, operational, finance, legal,
business development, and human resource functions. In addition, other
significant general and administrative expenses include professional fees for
legal, patents, consulting, investor and public relations, auditing and tax
services as well as other expenses for rent and maintenance of facilities,
insurance and other supplies used in general and administrative activities. We
expect general and administrative expenses to increase for the foreseeable
future due to anticipated increases in headcount to support the continued
advancement of our product candidates. We also anticipate that we will incur
increased accounting, audit, legal, regulatory, compliance and director and
officer insurance costs as well as investor and public relations expenses.

Interest Expense

Interest expense is related to the 2021 Convertible Notes, which mature in August 2021, and the 2022 Convertible Notes, which mature in August 2022, as well as the financing lease obligation for our Cranbury, NJ facility.

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Interest Income

Interest income is related to interest earned from investments.

Critical Accounting Policies and Significant Judgments and Estimates


Our consolidated financial statements are prepared in accordance with generally
accepted accounting principles in the U.S. The preparation of our financial
statements and related disclosures requires us to make estimates and judgments
that affect the reported amounts of assets, liabilities, costs and expenses, and
the disclosure of contingent assets and liabilities in our financial statements.
We base our estimates on historical experience, known trends and events and
various other factors that we believe are reasonable under the circumstances,
the results of which form the basis for making judgments about the carrying
values of assets and liabilities that are not readily apparent from other
sources. We evaluate estimates and assumptions on an ongoing basis. Actual
results may differ from these estimates under different assumptions or
conditions.

Our significant accounting policies are described in more detail in our 2019 Form 10-K.


Results of Operations

Comparison of the Three Months Ended September 30, 2020 and 2019

The following table summarizes the results of operations for the three months ended September 30, 2020 and 2019 ($ in thousands):

Three Months Ended September 30,

                                                                           2020             2019         Change
Operating expenses:
Research and development                                               $     21,657$  14,829$  6,828
General and administrative                                                    5,730           4,336        1,394
Total operating expenses                                                     27,387          19,165        8,222
Loss from operations                                                        (27,387 )       (19,165 )     (8,222 )
Interest expense                                                             (1,967 )        (1,466 )       (501 )
Interest and other income net                                                   518             979         (461 )

(Amortization of premium) accretion of discount on investments - net

   (244 )           368         (612 )
Total other expense, net                                                     (1,693 )          (119 )     (1,574 )
Net loss                                                               $    (29,080 )$ (19,284 )$ (9,796 )

Research and Development Expenses


R&D expenses increased $6.8 million to $21.7 million for the three months ended
September 30, 2020 compared to the three months ended September 30, 2019. The
increase was primarily due to increases in compensation and benefits of $1.3
million due to increased R&D headcount, an increase in non-cash stock
compensation expense of $0.9 million, an increase in manufacturing and
development costs of $1.9 million, an increase in license fees for $0.8 million
due to milestones achieved during the third quarter of 2020, and an increase in
clinical trial expenses of $2.4 million, offset by the CIRM grant receivable of
$1.1 million for LAD-I which was offset against Q-3, 2020 R&D expenses.

General and Administrative Expenses


G&A expenses increased $1.4 million to $5.7 million for the three months ended
September 30, 2020 compared to the three months ended September 30, 2019. The
increases in G&A expenses were primarily driven by an increase in non-cash stock
compensation expense of $0.5 million, an increase in compensation and benefits
of $0.3 million due to increased G&A headcount, an increase in office and
administrative costs of $0.2 million, and an increase in legal expenses of $0.2
million.

Other Expense, Net

Other expense, net was $1.7 million for the three months ended September 30,
2020 compared to $0.1 million for the three months ended September 30, 2019. The
change was primarily due to a decrease in interest and accretion income related
to our investments of $1.1 million due to lower interest rates and an increase
in interest expense of $0.5 million.


Comparison of the Nine Months Ended September 30, 2020 and 2019

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The following table summarizes the results of operations for the nine months ended September 30, 2020 and 2019 ($ in thousands):

Nine Months Ended September 30,

                                                                          2020            2019         Change
Operating expenses:
Research and development                                               $    55,345$  43,955$  11,390
General and administrative                                                  19,720         12,547         7,173
Total operating expenses                                                    75,065         56,502        18,563
Loss from operations                                                       (75,065 )      (56,502 )     (18,563 )
Interest expense                                                            (5,326 )       (4,615 )        (711 )
Interest and other income net                                                1,913          2,522          (609 )
(Amortization of premium) accretion of discount on investments - net          (306 )          930        (1,236 )
Total other expense, net                                                    (3,719 )         (913 )      (2,806 )
Net loss                                                               $   (78,784 )$ (57,415 )$ (21,369 )

Research and Development Expenses


R&D expenses increased $11.4 million to $55.3 million for the nine months ended
September 30, 2020 compared to the nine months ended September 30, 2019. The
increase was primarily a result of an increase in manufacturing and process
development expenses of $0.9 million; an increase in manufacturing consumables
of $1.9 million, an increase in compensation expense of $4.0 million due to
increased R&D headcount; an increase in clinical trials expense of $3.7 million,
an increase in amortization expense related to the Cranbury lease of $1.2
million, an increase in lab supplies of $1.1 million, offset by the CIRM grant
receivable of $1.1 million which was offset against LAD-I R&D expenses, and a
decrease in research agreements of $1.4 million primarily due to the $1.4
million license payment for the LCGM facility made in 2019.

General and Administrative Expenses


G&A expenses increased $7.2 million to $19.7 million for the nine months ended
September 30, 2020 compared to the nine months ended September 30, 2019. The
increase in G&A expenses was primarily driven by fees incurred in connection
with the February and June 2020 convertible notes exchange of an aggregate of
$2.0 million, an increase in non-cash stock compensation expense of $2.2
million, an increase in compensation and benefits of $1.7 million due to
increased G&A headcount and an increase in office and administrative expense of
$0.8 million due primarily to increased insurance expense for the nine months
ended September 30, 2020 as compared to the same period in 2019.

Other Expense, Net


Other expense, net was $3.7 million for the nine months ended September 30, 2020
compared to $0.9 million for the nine months ended September 30, 2019. The
change was primarily due to a decrease in interest income related to our
investments of $1.8 million due to lower interest rates, an increase in interest
expense of $0.7 million, and a decrease in research and development incentives
due to the receipt of the NYC biotech tax credit in 2019, which was phased out
by NYC and did not reoccur in 2020.

Liquidity, Capital Resources and Plan of Operations


Since inception, we have not generated any revenue from any sources, including
from product sales, and have incurred significant operating losses and negative
cash flows from our operations. We have funded operations to date primarily with
proceeds from the sale of preferred shares, common stock and the issuance of
convertible notes.

Cash Flows
The following table summarizes our cash flows for each of the periods presented:
                                                               Nine Months Ended September 30,
                                                                 2020                   2019
Cash used in operating activities                          $         (61,531 )     $       (44,930 )
Cash used in investing activities                                    (42,129 )             (62,525 )
Cash provided by financing activities                                    546                85,384

Net change in cash, cash equivalents and restricted cash $ (103,114 )$ (22,071 )




Operating Activities

During the nine months ended September 30, 2020, operating activities used $61.5
million of cash, primarily resulting from our net loss of $78.8 million offset
by net non-cash charges of $15.5 million, including non-cash stock-based
compensation expense of $12.5 million and accretion of the discount on
convertible notes of $2.1 million. Changes in our operating assets and
liabilities for the nine months ended September 30, 2020 consisted of an
increase in prepaid expenses and other assets of $1.4 million, and a decrease in
accounts payable and accrued expenses of $1.8 million.

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During the nine months ended September 30, 2019, operating activities used $44.9
million of cash, primarily resulting from our net loss of $57.4 million offset
by net non-cash charges of $12.2 million, including stock-based compensation
expense of $10.0 million and accretion of discount on convertible notes of $2.7
million. Changes in Rocket's operating assets and liabilities for the nine
months ended September 30, 2019 consisted of an increase in prepaid expenses and
other assets of $1.6 million and a decrease in accounts payable and accrued
expenses of $2.0 million.

Investing Activities


During the nine months ended September 30, 2020, net cash used by investing
activities was $42.1 million, consisting of proceeds of $104.1 million from the
maturities of investments, offset by purchases of investments of $132.1 million,
purchases of property and equipment of $7.0 million, payments made to acquire
right of use asset of $6.5 million, and purchases of internal use software of
$0.6 million.

During the nine months ended September 30, 2019, net cash used in investing activities was $62.5 million, consisting of purchases of investments of $150.2 million and purchases of property and equipment of $14.0 million, offset by proceeds of $101.7 million from the maturities of investments.

Financing Activities


During the nine months ended September 30, 2020, net cash provided by financing
activities was $0.5 million, consisting primarily of issuance of common stock of
$0.9 million, offset by payments of withholding tax on option exercises.

During the nine months ended September 30, 2019, net cash provided by financing
activities was $85.4 million, consisting of proceeds from the issuance of common
stock of $86.1 million, offset by share repurchases of $0.7 million.

Funding Requirements


We expect expenses to increase substantially in connection with our ongoing
activities, particularly as we advance our preclinical activities, and initiate
additional clinical trials and manufacturing of our product candidates. In
addition, we expect to incur additional costs associated with operating as a
public company as we transition from being an emerging growth company. Our
expenses will also increase as we:

• leverage our programs to advance other product candidates into preclinical and

clinical development;

• seek regulatory agreements to initiate clinical trials in the Europe, US and

ROW;

• establish a sales, marketing, medical affairs and distribution infrastructure

to commercialize any product candidates for which Rocket may obtain marketing

approval and intend to commercialize on its own or jointly;

• hire additional preclinical, clinical, regulatory, quality and scientific

personnel;

• expand our operational, financial and management systems and increase

personnel, including personnel to support our clinical development,

manufacturing and commercialization efforts and our operations as a public

company;

• maintain, expand and protect our intellectual property portfolio; and

• acquire or in-license other product candidates and technologies.

As of September 30, 2020, we had cash, cash equivalents and investments of $228.7 million. We expect such resources would be sufficient to fund our operating expenses and capital expenditure requirements into the second quarter of 2022.


Because of the numerous risks and uncertainties associated with research,
development and commercialization of pharmaceutical product candidates, we are
unable to estimate the exact amount of working capital requirements. Our future
funding requirements will depend on, and could increase significantly as a
result of, many factors, including:

• the scope, progress, results and costs of researching and developing our

product candidates, and conducting preclinical studies and clinical trials;

• the costs, timing and outcome of regulatory review of our product candidates;

• the costs of future activities, including product sales, medical affairs,

marketing, manufacturing and distribution, for any of our product candidates

for which we receive marketing approval;

• the costs of manufacturing commercial-grade product to support commercial

launch;

• the ability to receive additional non-dilutive funding, including grants from

organizations and foundations;

• the revenue, if any, received from commercial sale of its products, should any

of its product candidates receive marketing approval;

• the costs of preparing, filing and prosecuting patent applications, maintaining

and enforcing our intellectual property rights and defending intellectual

property-related claims;

• our ability to establish and maintain collaborations on favorable terms, if at

all;

• the extent to which we acquire or in-license other product candidates and

technologies; and

• the timing, receipt and amount of sales of, or milestone payments related to

   our royalties on, current or future product candidates, if any.



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Until such time, if ever, as we can generate substantial product revenue, we
expect to finance our cash needs through a combination of public or private
equity offerings, debt financings, collaborations, strategic partnerships or
marketing, distribution or licensing arrangements with third parties. To the
extent that we raise additional capital through the sale of equity or
convertible debt securities, our ownership interest may be materially diluted,
and the terms of such securities could include liquidation or other preferences
that adversely affect the rights of our common stockholders. Debt financing and
preferred equity financing, if available, may involve agreements that include
restrictive covenants that limit our ability to take specified actions, such as
incurring additional debt, making capital expenditures or declaring dividends.
In addition, additional debt financing would result in increased fixed payment
obligations.

If we raise funds through governmental funding, collaborations, strategic
partnerships or marketing, distribution or licensing arrangements with third
parties, we may have to relinquish valuable rights to our technologies, future
revenue streams, research programs or product candidates or grant licenses on
terms that may not be favorable to us. If we are unable to raise additional
funds through equity or debt financings when needed, we may be required to
delay, reduce or eliminate our product development or future commercialization
efforts or grant rights to develop and market product candidates that it would
otherwise prefer to develop and market themselves.

Contractual Obligations and Commitments


There were no material changes outside the ordinary course of our business to
the contractual obligations specified in the table of contractual obligations
included in "Management's Discussion and Analysis of Financial Condition and
Results of Operations" in our 2019 Form 10-K. Information regarding contractual
obligations and commitments may be found in Note 11 of our Consolidated
Unaudited Financial Statements in this Form 10-Q.

Off-Balance Sheet Arrangements


We did not have during the periods presented, and do not currently have, any
off-balance sheet arrangements, as defined in the rules and regulations of the
Securities and Exchange Commission.

JOBS Act


Under Section 107(b) of the Jumpstart Our Business Startups Act of 2012 (the
"JOBS Act"), an "emerging growth company" can delay the adoption of new or
revised accounting standards until such time as those standards would apply to
private companies. We have irrevocably elected not to avail ourselves of this
exemption and, as a result, we will adopt new or revised accounting standards at
the same time as other public companies that are not emerging growth companies.
There are other exemptions and reduced reporting requirements provided by the
JOBS Act that we are currently evaluating. For example, as an emerging growth
company, we are exempt from Sections 14A(a) and (b) of the Securities Exchange
Act of 1934 (the "Exchange Act"), which would otherwise require us to (i) submit
certain executive compensation matters to stockholder advisory votes, such as
"say-on-pay," "say-on-frequency" and "golden parachutes" and (ii) disclose
certain executive compensation related items such as the correlation between
executive compensation and performance and comparisons of our Chief Executive
Officer's compensation to our median employee compensation. We rely on an
exemption from the rule requiring us to provide an auditor's attestation report
on our internal controls over financial reporting pursuant to Section 404(b) of
the Sarbanes-Oxley Act and the rule requiring us to comply with any requirement
that may be adopted by the Public Company Accounting Oversight Board ("PCAOB")
regarding mandatory audit firm rotation or a supplement to the auditor's report
providing additional information about the audit and the financial statements as
the auditor discussion and analysis. We will continue to remain an "emerging
growth company" until December 31, 2020.

Recently Issued Accounting Pronouncements


A description of recently issued accounting pronouncements that may potentially
impact our financial position and results of operations is disclosed in Note 3
of our "Consolidated Unaudited Financial Statements," in this Quarterly Report
on Form 10-Q.

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