UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-Q


QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2022

or


TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from           to

Commission File Number: 001-36829

Rocket Pharmaceuticals, Inc.
(Exact name of registrant as specified in its charter)

Delaware
 
04-3475813
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)

9 Cedarbrook Drive, Cranbury, NJ
 
08512
(Address of principal executive office)
 
(Zip Code)

(609) 659-8001
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, $0.01 par value per share
RCKT
Nasdaq Global Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer 
Accelerated filer
   
Non-accelerated filer
Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

As of November 1, 2022, there were 75,684,423 shares of common stock, $0.01 par value per share, outstanding.



 
 
Page
PART I - FINANCIAL INFORMATION
 
 
 
 
Item 1.
Financial Statements
 
 
4
 
 
 
 
5
 
 
 
 
6
 
 
 
 
7
 
 
 
 
8
 
 
 
 
9
Item 2.
20
Item 3.
32
Item 4.
32
PART II - OTHER INFORMATION
 
Item 1.
33
Item 1A.
33
Item 2.
34
Item 3.
34
Item 4.
34
Item 5.
34
Item 6.
35
 
36

Cautionary Statement Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q for the quarter ended September 30, 2022 contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. We make such forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and other federal securities laws. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q are forward-looking statements. In some cases, you can identify forward-looking statements by words such as “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “can,” “plan,” “potential,” “possible” “predict,” “project,” “seek,” “should,” “target,” “will,” “would,” or the negative of these words or other comparable terminology. These forward-looking statements include, but are not limited to, statements about:


federal, state, and non-U.S. regulatory requirements, including regulation of our current or any other future product candidates by the U.S. Food and Drug Administration (“FDA”);

the timing of and our ability to submit regulatory filings with the FDA and to obtain and maintain FDA or other regulatory authority approval of, or other action with respect to, our product candidates;

our competitors’ activities, including decisions as to the timing of competing product launches, pricing, and discounting;

whether safety and efficacy results of our clinical trials and other required tests for approval of our product candidates provide data to warrant progression of clinical trials, potential regulatory approval, or further development of any of our product candidates;

our ability to develop, acquire and advance product candidates into, enroll a sufficient number of patients into, and successfully complete, clinical studies, and our ability to apply for and obtain regulatory approval for such product candidates, within currently anticipated timeframes, or at all;

our ability to establish key collaborations and vendor relationships for our product candidates and any other future product candidates;

our ability to acquire additional businesses, form strategic alliances or create joint ventures and our ability to realize the benefit of such acquisitions, alliances, or joint ventures;

our ability to successfully develop and commercialize any technology that we may in-license or products we may acquire;

unanticipated delays due to manufacturing difficulties, including the development of our direct manufacturing capabilities for our AAV programs, and any supply constraints or changes in the regulatory environment; our ability to successfully operate in non-U.S. jurisdictions in which we currently or in the future do business, including compliance with applicable regulatory requirements and laws;

uncertainties associated with obtaining and enforcing patents to protect our product candidates, and our ability to successfully defend ourselves against unforeseen third-party infringement claims;

anticipated trends and challenges in our business and the markets in which we operate;

natural and manmade disasters, including pandemics such as COVID-19, including additional strains of COVID-19, or any other health epidemic, and other force majeures, which could impact our operations, and those of our partners and other participants in the health care industry, and which could adversely impact our clinical studies, preclinical research activities, drug supply and the global economy as a whole;

the impact of global economic and political developments on our business, including rising inflation and capital market disruptions, the current conflict in Ukraine, economic sanctions and economic slowdowns or recessions that may result from such developments which could harm our research and development efforts as well as the value of our common stock and our ability to access capital markets;

our ability to close the Renovacor acquisition and realize the anticipated benefits from the transaction;

our estimates regarding our capital requirements; and

our ability to obtain additional financing and raise capital as necessary to fund operations or pursue business opportunities.

We caution you that the foregoing list may not contain all of the forward-looking statements made in this Quarterly Report on Form 10-Q.

Any forward-looking statements in this Quarterly Report on Form 10-Q reflect our current views with respect to future events or to our future financial performance and involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance, or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. We have included important factors in the cautionary statements included in this Quarterly Report on Form 10-Q, particularly in the “Risk Factors” section incorporated by reference from our Annual Report for the year ended December 31, 2021, on Form 10-K, that could cause actual results or events to differ materially from the forward-looking statements that we make. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures, or investments we may make or enter into.

You should read this Quarterly Report on Form 10-Q and the documents that we have filed as exhibits to this Quarterly Report on Form 10-Q completely and with the understanding that our actual future results, performance, or achievements may be materially different from what we expect. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future.

This Quarterly Report on Form 10-Q also contains estimates, projections and other information concerning our industry, our business, and the markets for certain diseases, including data regarding the estimated size of those markets, and the incidence and prevalence of certain medical conditions. Information that is based on estimates, forecasts, projections, market research or similar methodologies is inherently subject to uncertainties and actual events, or circumstances may differ materially from events and circumstances reflected in this information. Unless otherwise expressly stated, we obtained this industry, business, market and other data from reports, research surveys, studies and similar data prepared by market research firms and other third parties, industry, medical and general publications, government data and similar sources. This Quarterly Report contains summaries of certain provisions contained in some of the documents described herein, but reference is made to the actual documents for complete information. All of the summaries are qualified in their entirety by the actual documents.  Unless stated otherwise, references in this Quarterly Report to “us,” “we,” “our,” or our “Company” and similar terms refer to Rocket Pharmaceuticals, Inc.

3

PART I — FINANCIAL INFORMATION

Item 1.
Financial Statements
Rocket Pharmaceuticals, Inc.
Consolidated Balance Sheets
($ in thousands, except shares and per share amounts)

    September 30,     December 31,  
   
2022
   
2021
 
  (unaudited)        
Assets
           
Current assets:
           
Cash and cash equivalents
 
$
196,669
   
$
232,694
 
Investments
   
109,865
     
156,046
 
Prepaid expenses and other current assets
   
4,597
     
3,319
 
Total current assets
   
311,131
     
392,059
 
Property and equipment, net
   
25,613
     
22,299
 
Goodwill
   
30,815
     
30,815
 
Restricted cash
   
1,354
     
1,343
 
Deposits
   
455
     
455
 
Operating lease right-of-use assets
   
1,022
     
1,569
 
Finance lease right-of-use asset
   
46,875
     
48,480
 
Total assets
 
$
417,265
   
$
497,020
 
Liabilities and stockholders’ equity
               
Current liabilities:
               
Accounts payable and accrued expenses
 
$
27,823
   
$
19,615
 
Operating lease liabilities, current
   
634
     
863
 
Finance lease liability, current
   
1,724
     
1,689
 
Total current liabilities
   
30,181
     
22,167
 
Operating lease liabilities, non-current
   
492
     
905
 
Finance lease liability, non-current
   
19,242
     
19,144
 
Other liabilities
   
37
     
80
 
Total liabilities
   
49,952
     
42,296
 
Commitments and contingencies (Note 10)
           
                 
Stockholders’ equity:
               
Preferred stock, $0.01 par value, authorized 5,000,000 shares:
               
Series A convertible preferred stock; 300,000 shares designated as Series A; 0 shares issued and outstanding
   
-
     
-
 
Series B convertible preferred stock; 300,000 shares designated as Series B; 0 shares issued and outstanding
   
-
     
-
 
Common stock, $0.01 par value, 120,000,000 shares authorized; 67,838,803 and 64,505,889 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively
   
678
     
645
 
Additional paid-in capital
   
1,014,283
     
946,152
 
Accumulated other comprehensive loss
   
(596
)
   
(161
)
Accumulated deficit
   
(647,052
)
   
(491,912
)
Total stockholders’ equity
   
367,313
     
454,724
 
Total liabilities and stockholders’ equity
 
$
417,265
   
$
497,020
 

The accompanying notes are an integral part of these consolidated financial statements.

4

Rocket Pharmaceuticals, Inc.
Consolidated Statements of Operations
($ in thousands, except shares and per share amounts)
(unaudited)

 
 
Three Months Ended September 30,
   
Nine Months Ended September 30,
 
 
 
2022
   
2021
   
2022
   
2021
 
 
                       
Revenue
 
$
-
   
$
-
   
$
-
   
$
-
 
 
                               
Operating expenses:
                               
Research and development
   
43,383
     
39,621
     
115,533
     
92,459
 
General and administrative
   
15,105
     
10,025
     
39,728
     
30,456
 
Total operating expenses
   
58,488
     
49,646
     
155,261
     
122,915
 
Loss from operations
   
(58,488
)
   
(49,646
)
   
(155,261
)
   
(122,915
)
Research and development incentives
   
-
     
-
     
-
     
500
 
Interest expense
   
(465
)
   
(534
)
   
(1,395
)
   
(2,514
)
Interest and other income, net
   
1,353
     
806
     
2,644
     
2,218
 
Amortization of premium on investments - net
   
(156
)
   
(744
)
   
(1,128
)
   
(2,111
)
Net loss
 
$
(57,756
)
 
$
(50,118
)
 
$
(155,140
)
 
$
(124,822
)
Net loss per share - basic and diluted
 
$
(0.87
)
 
$
(0.79
)
 
$
(2.37
)
 
$
(1.99
)
Weighted-average common shares outstanding - basic and diluted
   
66,215,535
     
63,825,429
     
65,406,844
     
62,828,601
 

The accompanying notes are an integral part of these consolidated financial statements.

5

Rocket Pharmaceuticals, Inc.
Consolidated Statements of Comprehensive Loss
(in thousands)
(unaudited)

 
 
Three Months Ended September 30,
   
Nine Months Ended September 30,
 
 
 
2022
   
2021
   
2022
   
2021
 
 
                       
Net loss
 
$
(57,756
)
 
$
(50,118
)
 
$
(155,140
)
 
$
(124,822
)
Other comprehensive loss
                               
Net unrealized gain (loss) on investments
   
169
   
(16
)
   
(435
)
   
(55
)
Total comprehensive loss
 
$
(57,587
)
 
$
(50,134
)
 
$
(155,575
)
 
$
(124,877
)

The accompanying notes are an integral part of these consolidated financial statements.

6

Rocket Pharmaceuticals, Inc.
Consolidated Statements of Stockholders’ Equity
For the Three and Nine Months Ended September 30, 2022 and 2021
(in thousands except share amounts)
(unaudited)

               
Accumulated
   
   
 
   
   
Additional
   
Other
   
   
Total
 

 
Common Stock
   
Paid-In
   
Comprehensive
   
Accumulated
   
Stockholders’
 
   
Shares
   
Amount
   
Capital
   
Income/(Loss)
   
Deficit
   
Equity
 
Balance at December 31, 2021
   
64,505,889
   
$
645
   
$
946,152
   
$
(161
)
 
$
(491,912
)
 
$
454,724
 
Issuance of common stock pursuant to exercise of stock options and restricted stock units
   
16,168
     
-
     
76
     
-
     
-
     
76
 
Unrealized comprehensive loss on investments
   
-
     
-
     
-
     
(468
)
   
-
     
(468
)
Stock-based compensation
   
-
     
-
     
6,270
     
-
     
-
     
6,270
 
Net loss
   
-
     
-
     
-
     
-
     
(42,982
)
   
(42,982
)
Balance at March 31, 2022
   
64,522,057
     
645
     
952,498
     
(629
)
   
(534,894
)
   
417,620
 
Issuance of common stock pursuant to exercise of stock options
   
2,387
     
-
     
3
     
-
     
-
     
3
 
Issuance of common stock pursuant to the at-the-market offering program, net of issuance costs
   
1,313,450
     
13
     
17,229
     
-
     
-
     
17,242
 
Unrealized comprehensive loss on marketable securities
   
-
     
-
     
-
     
(136
)
   
-
     
(136
)
Stock-based compensation
   
-
     
-
     
7,369
     
-
     
-
     
7,369
 
Net loss
   
-
     
-
     
-
     
-
     
(54,402
)
   
(54,402
)
Balance at June 30, 2022
   
65,837,894
     
658
     
977,099
     
(765
)
   
(589,296
)
   
387,696
 
Issuance of common stock pursuant to exercise of stock options
    22,437       -       229       -       -       229  
Issuance of common stock pursuant to the at-the-market offering program, net of issuance costs
    1,978,472       20       29,278       -       -       29,298  
Unrealized comprehensive gain on marketable securities
    -       -       -       169       -       169  
Stock-based compensation     -       -       7,677       -       -       7,677  
Net loss     -       -       -       -       (57,756 )     (57,756 )
Balance at September 30, 2022     67,838,803     $ 678     $ 1,014,283     $ (596 )   $ (647,052 )   $ 367,313  

         
    Accumulated
             
          Additional
    Other
          Total
 
    Common Stock
    Paid-In
    Comprehensive
    Accumulated
    Stockholders’
 
    Shares
    Amount
    Capital
    Income/(Loss)
    Deficit
    Equity
 
Balance at December 31, 2020
   
60,996,367
   
$
610
   
$
825,794
   
$
(42
)
 
$
(322,843
)
 
$
503,519
 
Issuance of common stock pursuant to exercise of stock options
   
991,432
     
9
     
8,783
     
-
     
-
     
8,792
 
Unrealized comprehensive loss on investments
   
-
     
-
     
-
     
(33
)
   
-
     
(33
)
Stock-based compensation
   
-
     
-
     
7,900
     
-
     
-
     
7,900
 
Net loss
   
-
     
-
     
-
     
-
     
(40,179
)
   
(40,179
)
Balance at March 31, 2021
   
61,987,799
     
619
     
842,477
     
(75
)
   
(363,022
)
   
479,999
 
Issuance of common stock pursuant to exercise of stock options
   
133,838
     
2
     
1,113
     
-
     
-
     
1,115
 
Issuance of common stock pursuant to conversion of notes
   
1,326,432
     
13
     
35,530
     
-
     
-
     
35,543
 
Unrealized comprehensive loss on investments
   
-
     
-
     
-
     
(6
)
   
-
     
(6
)
Stock-based compensation
   
-
     
-
     
7,311
     
-
     
-
     
7,311
 
Net loss
   
-
     
-
     
-
     
-
     
(34,525
)
   
(34,525
)
Balance at June 30, 2021
   
63,448,069
     
634
     
886,431
     
(81
)
   
(397,547
)
   
489,437
 
Issuance of common stock pursuant to exercise of stock options
    21,402       -       284       -       -       284  
Issuance of common stock pursuant to conversion of notes
    160,614       2       5,148       -       -       5,150  
Issuance of common stock, net of issuance costs
    812,516       8       26,346       -       -       26,354  
Warrant Issuance
    -       -       7,578       -       -       7,578  
Unrealized comprehensive loss on investments
    -       -       -       (16 )     -       (16 )
Stock-based compensation     -       -       6,989       -       -       6,989  
Net loss     -       -       -       -       (50,118 )     (50,118 )
Balance at September 30, 2021     64,442,601     $ 644     $ 932,776     $ (97 )   $ (447,665 )   $ 485,658  

The accompanying notes are an integral part of these consolidated financial statements.

7

Rocket Pharmaceuticals, Inc.
Consolidated Statements of  Cash Flows
(in thousands)
(unaudited)

 
Nine Months Ended September 30,
 
   
2022
   
2021
 
Operating Activities:
           
Net loss
 
$
(155,140
)
 
$
(124,822
)
Adjustments to reconcile net loss to net cash used in operating activities:
               
Accretion of discount on convertible notes
   
-
     
752
 
Depreciation and amortization of property and equipment
   
2,883
     
2,188
 
Write down of property and equipment, net
    177       -  
Right of use asset
   
1,605
      -  
Stock-based compensation
   
21,316
     
22,200
 
Accretion of discount on investments, net
    1,132       2,089  
Expense in connection with warrant issuance
    -       7,578  
Changes in operating assets and liabilities:
               
Prepaid expenses and other assets
   
(1,278
)
   
1,016
 
Accounts payable and accrued expenses
   
7,189
     
(2,842
)
Operating lease liabilities
   
(96
)
   
17
 
Finance lease liability
   
134
     
1,644
 
Other liabilities
   
(43
)
   
(42
)
Net cash used in operating activities
   
(122,121
)
   
(90,222
)
Investing activities:
               
Purchases of investments
   
(177,460
)
   
(226,484
)
Proceeds from maturities of investments
   
222,074
     
234,146
 
Payments made to acquire right of use asset
    -       (18 )
Purchases of property and equipment
   
(5,355
)
   
(5,655
)
Net cash provided by investing activities
   
39,259
     
1,989
 
Financing activities:
               
Issuance of common stock, pursuant to exercise of stock options
   
308
     
10,191
 
Issuance of common stock, net of issuance costs
    -       26,354  
Issuance of common stock pursuant to the at-the-market offering program, net of issuance costs
    46,540       -  
Net cash provided by financing activities
   
46,848
     
36,545
 
Net change in cash, cash equivalents and restricted cash
   
(36,014
)
   
(51,688
)
Cash, cash equivalents and restricted cash at beginning of period
   
234,037
     
298,666
 
Cash, cash equivalents and restricted cash at end of period
 
$
198,023
   
$
246,978
 
                 
Supplemental disclosure of non-cash financing and investing activities:
               
Accrued purchases of property and equipment
 
$
1,747
   
$
1,132
 
Unrealized loss on investments
 
$
(435
)
 
$
(55
)
Conversion of convertible notes into common stock
  $ -     $ (40,693 )
Reclassification of construction in process from finance right of use asset
 
$
-
   
$
39
 
Supplemental cash flow information:
               
Cash paid for interest
 
$
-
   
$
148
 

The accompanying notes are an integral part of these consolidated financial statements.

8

ROCKET PHARMACEUTICALS, INC.
Notes to Consolidated Financial Statements
($ in thousands, except share and per share data)
(Unaudited)

1.
Nature of Business


Rocket Pharmaceuticals, Inc. (“Rocket” or the “Company”) is a clinical-stage, multi-platform biotechnology company focused on the development of gene therapies, with direct on-target mechanism of action and clear clinical endpoints, for rare and devastating diseases. Rocket has three clinical-stage ex vivo lentiviral vector (“LVV”) programs. These include programs 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 and Pyruvate Kinase Deficiency (“PKD”), a rare red blood cell autosomal recessive disorder that results in chronic non-spherocytic hemolytic anemia. Of these, both the Phase 2 FA program and the Phase 1/2 LAD-I program are in registration-enabling studies in the United States (“U.S.”) and Europe (“EU”). In addition, in the U.S., Rocket has 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. The Danon program is currently in an ongoing Phase 1 trial. Additional work on a gene therapy program for the less common FA subtypes C and G is ongoing. The Company has global commercialization and development rights to all of these product candidates under royalty-bearing license agreements.

 

Effective December 2021, the Company made a decision to no longer pursue Rocket-sponsored clinical evaluation of RP-L401; this program was returned to academic innovators. The Company has opted to focus available resources towards advancement of RP-A501, RP-L102, RP-L201 and RP-L301, based on the clinical data to date and potential for therapeutic advancement in these severe disorders of childhood and young adulthood.

2.
Risks and Liquidity


The Company has not generated any revenue and has incurred losses since inception. Operations of the Company are subject to certain risks and uncertainties, including, among others, uncertainty of drug candidate development, technological uncertainty, uncertainty regarding patents and proprietary rights, having no commercial manufacturing experience, marketing or sales capability or experience, dependency on key personnel, compliance with government regulations and the need to obtain additional financing. Drug candidates currently under development will require significant additional research and development efforts, including extensive preclinical and clinical testing and regulatory approval, prior to commercialization. These efforts require significant amounts of additional capital, adequate personnel infrastructure, and extensive compliance-reporting capabilities.
 

The Company’s product candidates are in the development and clinical stage. There can be no assurance that the Company’s research and development will be successfully completed, that adequate protection for the Company’s intellectual property will be obtained, that any products developed will obtain necessary government approval or that any approved products will be commercially viable. Even if the Company’s product development efforts are successful, it is uncertain when, if ever, the Company will generate significant revenue from product sales. The Company operates in an environment of rapid change in technology and substantial competition from pharmaceutical and biotechnology companies.
 

The Company’s consolidated financial statements have been prepared on the basis of continuity of operations, realization of assets and the satisfaction of liabilities in the ordinary course of business. The Company has experienced negative cash flows from operations and had an accumulated deficit of $647.1 million as of September 30, 2022.
 

On February 28, 2022, the Company entered into a sales agreement (the “Sales Agreement”), with Cowen and Company, LLC (“Cowen”), with respect to an at-the-market offering program pursuant to which the Company may offer and sell, from time to time at its sole discretion, shares of its common stock, par value $0.01 per share, having an aggregate offering price of up to $200,000,000 (the “Shares”) through Cowen as its sales agent. As of September 30, 2022, the Company sold 3.3 million shares of common stock for net proceeds of $46.6 million pursuant to the at-the-market offering program (see Note 7). As of September 30, 2022, the Company had $306.5 million of cash, cash equivalents and investments.

  

On October 6, 2022, the Company completed a follow-on offering (the “Offering”) pursuant to which it sold 7,820,000 shares of common stock for net proceeds of $108.2 million. With the proceeds from the Offering and the at-the-market offering program, the Company expects such resources will be sufficient to fund its operating expenses and capital expenditure requirements into the second half of 2024.
 

In the longer term, the future viability of the Company is dependent on its ability to generate cash from operating activities or to raise additional capital to finance its operations. The Company’s failure to raise capital as and when needed could have a negative impact on its financial condition and ability to pursue its business strategies.
 
3.
Basis of Presentation, Principles of Consolidation and Summary of Significant Accounting Policies


Basis of Presentation


The accompanying unaudited interim consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements for the year ended December 31, 2021 included in the Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on February 28, 2022 (“2021 Form 10-K”). The unaudited interim consolidated financial statements have been prepared on the same basis as the audited annual financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for the fair statement of the Company’s consolidated financial position as of September 30, 2022 and the results of its operations and its cash flows for the three and nine months ended September 30, 2022. The financial data and other information disclosed in these consolidated notes related to the three and nine months ended September 30, 2022 and 2021 are unaudited. The results for the three and nine months ended September 30, 2022 are not necessarily indicative of results to be expected for the year ending December 31, 2022 and any other interim periods or any future year or period.

9


Principles of Consolidation


The consolidated financial statements represent the consolidation of the accounts of the Company and its subsidiaries in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”). All intercompany accounts have been eliminated in consolidation.


Use of Estimates


The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Significant estimates and assumptions reflected in these consolidated financial statements include but are not limited to goodwill impairment, the accrual of research and development (“R&D”) expenses, the valuation of equity transactions and stock-based awards. Changes in estimates and assumptions are reflected in reported results in the period in which they become known. Actual results could differ from those estimates.


Cash, Cash Equivalents and Restricted Cash


Cash, cash equivalents and restricted cash consists of bank deposits, certificates of deposit and money market accounts with financial institutions. Cash equivalents are carried at cost which approximates fair value due to their short-term nature and which the Company believes do not have a material exposure to credit risk. The Company considers all highly liquid investments with maturities of three months or less from the date of purchase to be cash equivalents. The Company’s cash and cash equivalent accounts, at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts.


Restricted cash consists of deposits collateralizing letters of credit issued by a bank in connection with the Company’s operating leases (see Note 10 “Commitments and Contingencies” for additional disclosures) and a deposit collateralizing a letter of credit issued by a bank supporting the Company’s corporate credit card. Cash, cash equivalents and restricted cash consist of the following:

    September 30,     December 31,  
   
2022
   
2021
 
 
           
Cash and cash equivalents
 
$
196,669
   
$
232,694
 
Restricted cash
   
1,354
     
1,343
 
 
 
$
198,023
   
$
234,037
 


Income Taxes


In May 2022, the Company received a notice from the New York City Department of Finance regarding an audit of the  NYC Biotechnology Credit for the tax periods ended December 31, 2018 through December 31, 2020, which is ongoing as of September 30, 2022.


Reclassifications


Certain reclassifications have been made to the prior year financial statements in order to conform to the current year’s presentation.


Significant Accounting Policies


The significant accounting policies used in the preparation of these consolidated financial statements for the three and nine months ended September 30, 2022 are consistent with those disclosed in Note 3 to the consolidated financial statements in the 2021 Form 10-K.


Recent Accounting Pronouncements
 

There were no recent accounting pronouncements that impacted the Company, or which had a significant effect on the consolidated financial statements.

10

4.
Fair Value of Financial Instruments
 

Items measured at fair value on a recurring basis are the Company’s investments. The following table sets forth the Company’s financial instruments that were measured at fair value on a recurring basis by level within the fair value hierarchy:

   
Fair Value Measurements as of
 
 
September 30, 2022 Using:
 
 
 
Level 1
   
Level 2
   
Level 3
   
Total
 
Assets:
                       
Cash equivalents:
                       
Money market mutual funds
 
$
152,398
   
$
-
   
$
-
   
$
152,398
 
     
152,398
     
-
     
-
     
152,398
 
 
                               
Investments:
                               
United States Treasury securities
   
75,329
     
-
     
-
     
75,329
 
Corporate Bonds
   
-
     
34,536
     
-
     
34,536
 
     
75,329
     
34,536
     
-
     
109,865
 
 
                               
 
 
$
227,727
   
$
34,536
   
$
-
   
$
262,263
 

   
Fair Value Measurements as of
 
 
December 31, 2021 Using:
 
 
 
Level 1
   
Level 2
   
Level 3
   
Total
 
Assets:
                       
Cash equivalents:
                       
Money market mutual funds
 
$
179,900
   
$
-
   
$
-
   
$
179,900
 
 
   
179,900
     
-
     
-
     
179,900
 
 
                               
Investments:
                               
United States Treasury securities
   
44,045
     
-
     
-
     
44,045
 
Corporate Bonds
   
-
     
96,696
     
-
     
96,696
 
Municipal Bonds
   
-
     
6,000
     
-
     
6,000
 
Agency Bonds
   
-
     
9,305
     
-
     
9,305
 
     
44,045
     
112,001
     
-
     
156,046
 
                                 
 
 
$
223,945
   
$
112,001
   
$
-
   
$
335,946
 


The Company classifies its money market mutual funds and U.S. Treasury securities as Level 1 assets under the fair value hierarchy, as these assets have been valued using quoted market prices in active markets without any valuation adjustment. The Company classifies its corporate, municipal and agency bonds as Level 2 assets as these assets are not traded in an active market and have been valued through a third-party pricing service based on quoted prices for similar assets.

5.
Property and Equipment, Net


The Company’s property and equipment consisted of the following:


    September 30,     December 31,  
    2022    
2021
 
Laboratory equipment
 
$
17,968
   
$
12,600
 
Machinery and equipment
   
10,807
     
10,432
 
Computer equipment
   
244
     
218
 
Furniture and fixtures
   
2,125
     
1,963
 
Leasehold improvements
   
568
     
407
 
Internal use software
   
1,903
     
1,902
 
 
   
33,615
     
27,522
 
Less: accumulated depreciation and amortization
   
(8,002
)
   
(5,223
)
 
 
$
25,613
   
$
22,299
 



During the three and nine months ended September 30, 2022 the Company recognized $1.1 million and $2.9 million of depreciation and amortization expense, respectively. During the three and nine months ended September 30, 2021 the Company recognized $0.8 million and $2.2 million of depreciation and amortization expense, respectively.

11

6.
Accounts Payable and Accrued Expenses


As of September 30, 2022 and December 31, 2021, the Company’s accounts payable and accrued expenses consisted of the following:

    September 30,     December 31,  
   
2022
   
2021
 
Research and development
 
$
17,027
   
$
12,082
 
Property and equipment
   
1,747
     
728
 
Employee compensation
   
4,793
     
4,533
 
Government grant payable
   
597
     
597
 
Professional fees
   
1,779
     
1,196
 
Other
   
1,880
     
479
 
 
 
$
27,823
   
$
19,615
 

7.
Stockholders’ Equity


At-the-Market Offering Program


On February 28, 2022, the Company entered into the Sales Agreement with Cowen with respect to an at-the-market offering program pursuant to which the Company may offer and sell, from time to time at its sole discretion, shares through Cowen as its sales agent. The shares to be offered and sold under the Sales Agreement, if any, will be offered and sold pursuant to the Company’s shelf registration statement on Form S-3. The Company filed a prospectus supplement with the SEC on February 28, 2022 in connection with the offer and sale of the shares pursuant to the Sales Agreement.


The Company will pay Cowen a cash commission of 3.0% of gross proceeds from the sale of the shares pursuant to the Sales Agreement. The Company has provided Cowen with customary indemnification and contribution rights. The Company reimbursed Cowen for certain expenses incurred in connection with the Sales Agreement. Through September 30, 2022, the Company sold 3.3 million shares under the at-the-market offering program for gross proceeds of $48.0 million, less commissions of $1.4 million for net proceeds of $46.6 million.

8.
Stock Based Compensation


Stock Option Valuation


The weighted average assumptions that the Company used in the Black-Scholes pricing model to determine the fair value of the stock options granted to employees, non-employees and directors were as follows:

 
Nine Months Ended September 30,
 
 
 
2022
   
2021
 
 
     
Risk-free interest rate
   
2.40
%
   
0.78
%
Expected term (in years)
   
5.82
     
5.84
 
Expected volatility
   
73.21
%
   
69.31
%
Expected dividend yield
   
0.00
%
   
0.00
%
Exercise price
 
$
15.79
   
$
53.98
 
Fair value of common stock
 
$
15.79
   
$
53.98
 

12


The following table summarizes stock option activity for the nine months ended September 30, 2022, under the Second Amended and Restated 2014 Stock Option and Incentive Plan:

          Weighted     Weighted        
          Average     Average     Aggregate  
    Number of     Exercise     Contractual     Intrinsic  
    Shares     Price    
Term (Years)
    Value  
 
                       
Outstanding as of December 31, 2021
   
11,143,761
   
$
14.51
     
5.95
   
$
128,817
 
Granted
   
2,192,166
     
15.79
     
6.30
         
Exercised
   
(30,824
)
   
9.99
             
167
 
Cancelled
   
(574,109
)
   
33.07
                 
Outstanding as of September 30, 2022
   
12,730,994
   
$
13.91
     
5.68
   
$
88,457
 
 
                               
Options vested and exercisable as of September 30, 2022
   
9,715,600
   
$
10.92
     
4.60
   
$
85,081
 
Options unvested as of September 30, 2022
   
3,015,394
   
$
23.48
     
9.15
    $
3,376  


The weighted average grant-date fair value per share of stock options granted during the nine months ended September 30, 2022, and 2021 was $15.79 and $53.98, respectively.


The total fair value of options vested during the nine months ended September 30, 2022 and 2021 was $26.9 million and $18.2 million, respectively.


Restricted Stock Units (“RSU”)
 

 The following table summarizes the Company’s RSU activity for the nine months ended September 30, 2022:

          Weighted  
          Average  
   
Number of
   
Grant Date
 
   
Shares
   
Fair Value
 
Unvested as of December 31, 2021
   
23,500
   
$
30.61
 
Granted
   
939,122
     
16.10
 
Vested
    (10,168 )    
62.32  
Forfeited
    (56,585 )    
16.10  
Unvested as of September 30, 2022
   
895,869
    $
16.23
 


Stock-based Compensation


Stock-based compensation expense recognized by award type was as follows:

 
Three Months Ended September 30,
   
Nine Months Ended September 30,
 
 
 
2022
   
2021
   
2022
   
2021
 
                         
Stock options
 
$
6,694
   
$
6,831
   
$
19,332
   
$
21,872
 
Restricted stock units
   
983
     
158
     
1,984
     
328
 
Total share based compensation expense
 
$
7,677
   
$
6,989
   
$
21,316
   
$
22,200
 


Stock-based compensation expense by classification included within the consolidated statements of operations and comprehensive loss was as follows:

 
Three Months Ended September 30,
   
Nine Months Ended September 30,
 
 
 
2022
   
2021
   
2022
   
2021
 
 
           
Research and development
 
$
3,040
   
$
3,084
   
$
8,247
   
$
9,148
 
General and administrative
   
4,637
     
3,905
     
13,069
     
13,052
 
Total share based compensation expense
 
$
7,677
   
$
6,989
   
$
21,316
   
$
22,200
 


As of September 30, 2022, the Company had an aggregate of $50.1 million of unrecognized stock-based compensation expense related to both stock options and RSU grants, which is expected to be recognized over the weighted average period of 2.05 years.


13


Warrants



A summary of the warrants outstanding as of September 30, 2022 is as follows:


Exercise Price
     
Outstanding
 
Grant Date
Expiration Date
24.42
       
7,051
 
June 28, 2013
June 28, 2023
57.11
       
603,386
 
December 21, 2020
December 21, 2030
33.63
       
301,291
 
August 9, 2021
August 9, 2031
22.51
       
153,155
 
December 17, 2021
December 17, 2031
22.51
       
153,155