Rocket Pharmaceuticals: struggling company with a long-term advantage (NASDAQ: RCKT)

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Rocket Pharmaceuticals (NASDAQ: RCKT) is a biotechnology company headquartered in New York. They specialize in leading the charge in the development of one-of-a-kind genetic therapies. These gene therapies are targeted and designed to target rare pediatric diseases. The most notable of these diseases is Fanconi anemia. Fanconi anemia is a genetic abnormality that affects the bone marrow. This disorder reduces the production of healthy red blood cells, increasing the amount of defective red blood cells in the body, which leads to serious complications. Rocket has taken significant steps to bring an effective product to market that treats this condition.

In this article, I’ll show that despite a steep drop in share price, Rocket’s progress toward a breakthrough treatment is worth a closer look. The results of Rocket’s trials have been encouraging; the fact that this treatment targets a narrow market, resulting in fewer competitors and more exclusivity, makes it an attractive candidate for investors.

pharmaceutical rocket stock price chart

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Promising clinical trial and pipeline developments

The Company’s manufacturing products include RP-L102 for Fanconi anemia, RP-A501 for Danon’s disease, RP-L201 for leukocyte adhesion, RP-L401 for childhood malignant osteopetrosis and RP-L301 for pyruvate kinase deficiency. The most significant update to come out of Rocket last year was the positive update regarding the RP-L102 Fanconi Anemia and RP-L201 Leukocyte Adhesion Deficiency – I (LADI) programs. Additionally, Rocket Pharmaceuticals’ pipeline and operational updates indicate that the company has announced positive preliminary clinical data of RP-A502 for Danon’s disease.

Rocket Pharmaceuticals Clinical Pipeline

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The company has received Accelerated Designation for Infantile Malignant Osteopetrosis (MOO) and Rare Pediatric Designation for Danon Disease Programs from the FDA. FDA Fast Track programs support the development of products intended to address serious health conditions that may address unmet medical needs. It allows greater access for the FDA to develop products, potential approval, and review. It offers rare pediatric disease designation for life-threatening conditions that affect children 18 years of age or younger. Fast-track designation is coveted by biotechs who can use it as an opportunity to speed drugs through the lengthy FDA approval process, which is especially important when high R&D costs may remain a liability on their balance sheet while the drugs wait to reach the market.

Additionally, the California Institute of Regenerative Medicine awarded Rocket a $3.7 million CLIN2 grant to support the clinical development of RP-L401 for IMO. This will further help the company cover trial costs and provide manufactured pharmaceuticals to patients enrolled in the Phase 1 clinical trial site at UCLA. The company continued construction of a new research, development and manufacturing facility. Rocket Pharmaceuticals announced plans in January for a new R&D as well as a Chemistry, Manufacturing and Controls (CMC) operation, which will also be its new headquarters, located in Cranbury, New Jersey. It will support the clinical development of the growing pipeline of AVV gene and lentiviral therapies. It will also support quality control labs to support CMC development for process and analysis. The company has expanded its trials (FA), Danon, LAD-I and IMO, adding to global excellence – the newly added sites will increase accessibility for patients to enroll in Rocket clinical trials around the world.

How Rocket’s Unique Products Inspire Optimism

The general rule, even in biotechnology, when it comes to the market value of a product, it’s supply and demand. Many large companies divide their assets by targeting the most in-demand sub-sectors. Covid was a good example. Other examples would be other well-known incurable diseases, such as cancer or Alzheimer’s disease. The advantage of breaking into the market for the treatment of one of these diseases is weighed against the cost of R&D. This formula makes it possible to predict future valuations.

While most other pharmaceutical companies spend their time researching gene therapy treatments using a single delivery system (either LLV (lentivirus programs) or AAV (adeno-associated virus programs)), Rocket has embraced the unusual approach of studying both. This carries both risks and rewards. The risk is that two separate delivery systems require two different R&D processes, which is both costly and time-consuming. The payoff is that it gives the company the best chance of developing a successful treatment option, with two possible paths to a viable product in case someone fails during development or testing.

Rocket President and COO Kinnari Patel has bold visions for the company. In a press statement, he revealed that “Rocket’s ambition is to become the ‘Genentech’ of gene therapy.” Considering that Genentech is the biggest name on the market in cancer drug development, that’s a bold statement. Despite the potential to bite off more than they can chew, Rocket has actually performed better than most of its independent counterparts on the market. Even though its target market is small, it brings value in its exclusivity. Given this exclusivity with Rocket’s research into gene delivery systems that could open doors to treating many other disorders, it’s clear that their potential market pipeline is extremely broad.

Potential risk and outlook

The risk factors plaguing Rocket Pharmaceuticals are twofold. The first is the fact that they currently don’t have a viable product on the market. This means that they have no new sources of income. The second major risk factor is the very cost of research and development when it comes to breakthrough medical treatments. Due to the nature of the work and the likelihood of potential delays, obstacles and failures, the cost includes both time and money. This means that potential investors investing in Rocket should prepare for possible long-term holding in order to earn attractive profits. This can be a potential pitfall in the market, as a scientific breakthrough is anything but certain.

Rocket is currently trading at nearly $16 per share. This is a substantial drop of 59% from just 6 months ago when it was trading at $39. Although their (EPS) is an abysmal -3.04, this can be negated due to the fact that Rocket does not have any products in the market yet. Despite the lack of tangible revenue streams, the company has managed contracts and financing well enough to hold only $22.48 million in debt, making the long-term outlook brighter.

    Rocket Pharmaceuticals Excess Capital

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A large increase in excess capital could be another cause for concern when considering an investment. In the fourth quarter of 2019, the company’s financial statements showed a capital excess of $489.9 million, while the fourth quarter 2020 financial report showed a capital excess of $825.7 million. dollars. However, if the company turns this excess into capital gains, it could result in higher dividend payouts, which would prove beneficial to long-term investors. That being said, a substantial jump in this metric is usually a red flag for potential investors. However, a rise in capital gains is not always a bad thing. Often companies issue additional shares in order to earn more capital for the growth of the business. Given Rocket’s aggressive approach, it’s reasonable to conclude that they’re doing just that and preparing for increased R&D spending.

RCKT Price vs Net Income

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Digging deeper into Rocket’s finances doesn’t paint an attractive picture. In September 2021, the company posted a negative net income growth rate of -72.35%. However, there is a reason why many investors often overlook this statistic. While one of the root causes is that the business has made a loss on its books or maybe losing money on its operations, another equally plausible reason is that the business is in the growth phase. This requires a period of reinvestment which appears on the balance sheet as a negative. Although there is never certainty as to what factor caused the negative rate, in the case of RCKT, there is a valid reason to believe that it is due to reinvestment. This is due to the evolution of technology in the field of biotechnology, which leads to operational changes and often requires the reallocation of company resources.

Conclusion

Despite being plagued by the rigors of the scientific process and having no tangible product to market, Rocket is still in a favorable position. As with any independent biotechnology company, there is always a degree of risk involved. When investing in the development of proprietary medical technology, there are many things to consider. A lengthy development process, R&D costs and the possibility of unexpected negative results during trials could delay or even prevent the bringing to market of a new product.

Despite these risks, Rocket remains an attractive long-term investment. The company’s trial results have been encouraging – if they can deliver a viable product to a niche market and open up a whole new pipeline of opportunity, then the rewards may prove to outweigh the risks. The fact that this treatment appeals to a niche market with more exclusivity is also encouraging, and the company is unlikely to succumb to excessive competition. Growth-oriented investors with a long-term focus may want to keep an eye on this company in the near future to establish a position.

About Virginia Ahn

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