UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
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:
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification No.) |
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(Address of principal executive office) |
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(Zip Code) |
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(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
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Trading Symbol(s) |
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Name of each exchange on which registered |
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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.
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).
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.
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Accelerated filer ☐ |
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Non-accelerated filer ☐ |
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Smaller reporting company |
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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 August 2, 2024, there were
4
Table of Contents
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Page |
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3 |
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4 |
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PART I - FINANCIAL INFORMATION |
6 |
Item 1. |
6 |
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Consolidated Balance Sheets as of June 30, 2024 (unaudited) and December 31, 2023 |
6 |
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7 |
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8 |
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9 |
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Consolidated Statements of Cash Flows for the six months ended June 30, 2024 and 2023 (unaudited) |
10 |
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11 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
24 |
Item 3. |
39 |
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Item 4. |
41 |
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PART II - OTHER INFORMATION |
42 |
Item 1. |
42 |
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Item 1A. |
42 |
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Item 2. |
Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities |
42 |
Item 3. |
42 |
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Item 4. |
42 |
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Item 5. |
42 |
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Item 6. |
43 |
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44 |
Summary of Abbreviated Terms
Rocket Pharmaceuticals, Inc. may be referred to as Rocket, the Company, we, our or us, in this Quarterly Report, unless the context otherwise indicates. Throughout this Quarterly Report, we have used terms which are defined below:
2023 Form 10-K |
Annual Report on Form 10-K for the fiscal year ended December 31, 2023 |
AAV |
Adeno-associated virus |
ACM |
Arrhythmogenic cardiomyopathy |
ASC |
Accounting Standard Codification |
ASGCT |
American Society of Gene & Cell Therapy |
BLA |
Biologics License Application |
BNP |
Brain natriuretic peptide |
cGMP |
Current Good Manufacturing Practice |
CIEMAT |
Centro de Investigaciones Energéticas, Medioambientales y Tecnológicas |
CIRM |
California Institute for Regenerative Medicine |
CMC |
Chemistry Manufacturing Controls |
CRL |
Complete Response Letter |
Cowen |
Cowen and Company, LLC |
DCM |
Dilated Cardiomyopathy |
DD |
Danon Disease |
DNA |
Deoxyrubonucleic acid |
EMA |
European Medicines Agency |
EU |
European Union |
Europe |
EU |
ESGCT |
European Society of Gene & Cell Therapy |
FA |
Fanconi Anemia |
FASB |
Financial Accounting Standards Board |
FDA |
U.S. Food and Drug Administration |
GOSH |
Great Ormond Street Hospital |
HNJ |
Hospital Infantil de Nino Jesus |
ICD |
Implantable cardiac defibrillator |
IND |
Investigational New Drug application |
IPR&D |
In process research and development |
KCCQ |
Kansas City Cardiovascular Questionnaire |
LAD-I |
Leukocyte Adhesion Deficiency-I |
LV |
Lentiviral vector |
MAA |
Marketing Authorization Application |
MHRA |
Medicines and Healthcare Products Regulatory Agency |
NYHA |
New York Heart Association |
PKD |
Pyruvate Kinase Deficiency |
PKP2-ACM |
Plakophilin-2 Arrhythmogenic Cardiomyopathy |
PSU |
Performance stock unit |
R&D |
Research and development |
Renovacor |
Renovacor, Inc. acquired by Rocket on December 1, 2022 |
RSU |
Restricted stock unit |
RTW |
RTW Investments, L.P |
SEC |
Securities and Exchange Commission |
Stanford |
Center for Definitive and Curative Medicine at Stanford University School of Medicine |
U.S. |
United States |
U.S. GAAP |
U.S. Generally Accepted Accounting Principles |
UCLA |
University of California, Los Angeles |
3
Cautionary Statement Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q for the quarter ended June 30, 2024 contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they do not 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 “aim,” “anticipate,” “believe,” “can,” “contemplate,” “continue,” “could,” “design,” “develop,” “estimate,” “expect,” “expand,” “future,” “hope,” “intend,” “likely,” “may,” “plan,” “potential,” “predict,” “project,” “pursue,” “seek,” “should,” “strategy,” “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:
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, 2023, 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.
4
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.
5
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
Rocket Pharmaceuticals, Inc.
Consolidated Balance Sheets
($ in thousands, except shares and per share amounts)
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June 30, 2024 |
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December 31, 2023 |
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(unaudited) |
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Assets |
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Current assets: |
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Cash and cash equivalents |
$ |
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$ |
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Investments |
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Prepaid expenses and other current assets |
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Total current assets |
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Property and equipment, net |
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Goodwill |
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Intangible assets |
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Restricted cash |
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Deposits |
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Investments |
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Operating lease right-of-use assets, net |
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Finance lease right-of-use asset, net |
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Total assets |
$ |
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$ |
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Liabilities and stockholders' equity |
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Current liabilities: |
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Accounts payable and accrued expenses |
$ |
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$ |
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Operating lease liabilities, current |
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Finance lease liability, current |
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Total current liabilities |
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Operating lease liabilities, non-current |
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Finance lease liability, non-current |
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Other liabilities |
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Total liabilities |
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(Note 13) |
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Stockholders' equity: |
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Preferred stock, $ |
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- |
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- |
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Series A convertible preferred stock; |
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Series B convertible preferred stock; |
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Common stock, $ |
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Additional paid-in capital |
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Accumulated other comprehensive income (loss) |
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( |
) |
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Accumulated deficit |
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( |
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( |
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Total stockholders' equity |
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Total liabilities and stockholders' equity |
$ |
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$ |
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The accompanying notes are an integral part of these consolidated financial statements.
6
Rocket Pharmaceuticals, Inc.
Consolidated Statements of Operations
($ in thousands, except shares and per share amounts)
(unaudited)
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Three Months Ended June 30, |
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Six Months Ended June 30, |
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2024 |
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2023 |
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2024 |
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2023 |
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Revenue |
$ |
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$ |
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$ |
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$ |
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Operating expenses: |
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Research and development |
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General and administrative |
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Total operating expenses |
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Loss from operations |
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( |
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( |
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( |
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( |
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Interest expense |
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( |
) |
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( |
) |
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( |
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( |
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Interest and other income, net |
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Accretion of discount on investments, net |
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Net loss |
$ |
( |
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$ |
( |
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$ |
( |
) |
$ |
( |
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Net loss per share - basic and diluted |
$ |
( |
) |
$ |
( |
) |
$ |
( |
) |
$ |
( |
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Weighted-average common shares outstanding - basic and diluted |
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The accompanying notes are an integral part of these consolidated financial statements.
7
Rocket Pharmaceuticals, Inc.
Consolidated Statements of Comprehensive Loss
($ in thousands)
(unaudited)
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Three Months Ended June 30, |
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Six Months Ended June 30, |
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2024 |
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2023 |
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2024 |
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2023 |
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Net loss |
$ |
( |
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$ |
( |
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$ |
( |
) |
$ |
( |
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Other comprehensive loss: |
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Net unrealized loss on investments |
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( |
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( |
) |
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( |
) |
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( |
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Total comprehensive loss |
$ |
( |
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$ |
( |
) |
$ |
( |
) |
$ |
( |
) |
The accompanying notes are an integral part of these consolidated financial statements.
8
Rocket Pharmaceuticals, Inc.
Consolidated Statements of Stockholders’ Equity
For the Three and Six Months Ended June 30, 2024 and 2023
($ in thousands except share amounts)
(unaudited)
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Accumulated |
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Additional |
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Other |
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Total |
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Common Stock |
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Treasury |
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Paid-In |
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Comprehensive |
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Accumulated |
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Stockholders' |
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Shares |
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Amount |
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Stock |
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Capital |
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Income/(Loss) |
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Deficit |
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Equity |
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Balance at December 31, 2023 |
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$ |
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$ |
- |
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$ |
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$ |
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$ |
( |
) |
$ |
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Issuance of common stock pursuant to exercise of stock options |
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- |
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- |
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- |
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- |
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Issuance of common stock pursuant to vesting of restricted stock units |
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- |
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( |
) |
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- |
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- |
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- |
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Unrealized comprehensive loss on investments |
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- |
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- |
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- |
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- |
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( |
) |
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- |
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( |
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Stock-based compensation |
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- |
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- |
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- |
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- |
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- |
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Net loss |
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- |
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- |
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- |
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- |
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- |
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( |
) |
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( |
) |
Balance at March 31, 2024 |
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$ |
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$ |
- |
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$ |
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$ |
( |
) |
$ |
( |
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$ |
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Issuance of common stock pursuant to exercise of stock options |
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- |
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- |
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- |
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Issuance of common stock pursuant to vesting of restricted stock units |
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- |
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( |
) |
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- |
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- |
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- |
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Unrealized comprehensive loss on investments |
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- |
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- |
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- |
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- |
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( |
) |
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- |
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( |
) |
Stock-based compensation |
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- |
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- |
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- |
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- |
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- |
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Net loss |
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- |
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- |
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- |
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- |
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- |
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( |
) |
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( |
) |
Balance at June 30, 2024 |
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|
$ |
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$ |
- |
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$ |
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$ |
( |
) |
$ |
( |
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$ |
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Accumulated |
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Additional |
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Other |
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Total |
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Common Stock |
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Treasury |
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Paid-In |
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Comprehensive |
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Accumulated |
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Stockholders' |
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Shares |
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Amount |
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Stock |
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Capital |
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Income/(Loss) |
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Deficit |
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Equity |
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|||||||
Balance at December 31, 2022 |
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|
$ |
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$ |
( |
) |
$ |
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$ |
( |
) |
$ |
( |
) |
$ |
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Issuance of common stock pursuant to exercise of stock options |
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- |
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- |
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- |
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Issuance of common stock pursuant to vesting of restricted stock units |
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- |
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( |
) |
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- |
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- |
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- |
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Issuance of common stock pursuant to exercise of warrants |
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- |
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- |
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- |
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Issuance of common stock pursuant to the at-the-market offering program, net of issuance costs |
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- |
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- |
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- |
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Unrealized comprehensive gain on investments |
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- |
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- |
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- |
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- |
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- |
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Stock-based compensation |
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- |
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- |
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- |
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- |
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- |
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Net loss |
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- |
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- |
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- |
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- |
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|
- |
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|
( |
) |
|
( |
) |
Balance at March 31, 2023 |
|
|
$ |
|
$ |
( |
) |
$ |
|
$ |
( |
) |
$ |
( |
) |
$ |
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||||
Issuance of common stock pursuant to exercise of stock options |
|
|
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- |
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|
- |
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|
- |
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- |
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|||
Issuance of common stock pursuant to vesting of restricted stock units |
|
|
|
|
|
- |
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( |
) |
|
- |
|
|
- |
|
|
- |
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||
Unrealized comprehensive loss on investments |
|
- |
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|
- |
|
|
- |
|
|
|
|
( |
) |
|
|
|
( |
) |
||
Stock-based compensation |
|
- |
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|
- |
|
|
- |
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|
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|
- |
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|
- |
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||
Net loss |
|
- |
|
|
- |
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|
- |
|
|
- |
|
|
- |
|
|
( |
) |
|
( |
) |
Balance at June 30, 2023 |
|
|
$ |
|
$ |
( |
) |
$ |
|
$ |
( |
) |
$ |
( |
) |
$ |
|
The accompanying notes are an integral part of these consolidated financial statements.
9
Rocket Pharmaceuticals, Inc.
Consolidated Statements of Cash Flows
($ in thousands)
(unaudited)
|
Six Months Ended June 30, |
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||||
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2024 |
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2023 |
|
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Operating activities: |
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Net loss |
$ |
( |
) |
$ |
( |
) |
Adjustments to reconcile net loss to net cash used in operating activities: |
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Depreciation and amortization of property and equipment |
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Amortization of finance lease right of use asset |
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Stock-based compensation |
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Accretion of discount on investments, net |
|
( |
) |
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( |
) |
Changes in operating assets and liabilities: |
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Prepaid expenses and other assets |
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( |
) |
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Accounts payable and accrued expenses |
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( |
) |
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Operating lease liabilities and right of use assets, net |
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Finance lease liability |
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Other liabilities |
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( |
) |
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( |
) |
Net cash used in operating activities |
|
( |
) |
|
( |
) |
Investing activities: |
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Purchases of investments |
|
( |
) |
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( |
) |
Proceeds from maturities of investments |
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Payments made to acquire right of use asset |
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( |
) |
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Purchases of property and equipment |
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( |
) |
|
( |
) |
Net cash provided by (used in) investing activities |
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( |
) |
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Financing activities: |
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Issuance of common stock, pursuant to exercise of stock options |
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Issuance of common stock, pursuant to the at-the-market offering |
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Issuance of common stock, pursuant to exercise of warrants |
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Net cash provided by financing activities |
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Net change in cash, cash equivalents and restricted cash |
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( |
) |
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( |
) |
Cash, cash equivalents and restricted cash at beginning of period |
|
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Cash, cash equivalents and restricted cash at end of period |
$ |
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$ |
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Supplemental disclosure of non-cash financing and investing activities: |
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Accrued purchases of property and equipment, ending balance |
$ |
|
$ |
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||
Investment maturity receivables and purchase payables, ending balance |
|
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Operating lease liabilities |
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|
|
|
||
Unrealized loss on investments |
$ |
( |
) |
$ |
( |
) |
The accompanying notes are an integral part of these consolidated financial statements.
10
Rocket Pharmaceuticals, Inc.
Notes to Consolidated Financial Statements
($ in thousands, except share and per share data) (Unaudited)
Rocket Pharmaceuticals, Inc. is a fully integrated, late-stage 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. The Company has
In September 2023, the FDA accepted the BLA and granted priority review for RP-L201 for the treatment of severe LAD-I. On June 28, 2024 we announced that the FDA had issued a CRL in response to the BLA wherein the FDA requested limited additional CMC information to complete its review. We are in the process of submitting the additional requested information. Treatments in the FA Phase 2 studies were completed in 2023 with regulatory filing in the U.S. anticipated in 2024. In April 2024, the EMA accepted our MAA for RP-L102. Additional work on a gene therapy program for the less common FA subtypes C and G is ongoing.
The Company also has
The Company has global commercialization and development rights to all of these product candidates under royalty-bearing license agreements.
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.
11
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 $
On February 28, 2022, the Company entered into a sales agreement (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 of its common stock, par value $
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.
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, 2023 included in the Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 27, 2024. 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 June 30, 2024 and the results of its operations and its cash flows for the six months ended June 30, 2024. The financial data and other information disclosed in these consolidated notes related to the three and six months ended June 30, 2024 and 2023 are unaudited. The results for the three and six months ended June 30, 2024 are not necessarily indicative of results to be expected for the year ending December 31, 2024 and any other interim periods or any future year or period.
Significant Accounting Policies
The significant accounting policies used in the preparation of these consolidated financial statements for the three and six months ended are consistent with those disclosed in Note 3 to the consolidated financial statements in the 2023 Form 10-K with the most significant policies also being listed here.
Principles of Consolidation
The consolidated financial statements represent the consolidation of the accounts of the Company and its subsidiaries in conformity with 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 and intangible asset impairments, the accrual of R&D expenses, and 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.
12
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, 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 12 “Leases” for additional disclosures) and a deposit collateralizing a letter of credit issued by a bank supporting the Company’s corporate credit cards. Cash, cash equivalents and restricted cash consist of the following:
|
June 30, 2024 |
|
December 31, 2023 |
|
||
Cash and cash equivalents |
$ |
|
$ |
|
||
Restricted cash |
|
|
|
|
||
Total cash, cash equivalents and restricted cash |
$ |
|
$ |
|
Concentrations of credit risk and off-balance sheet risk
Financial instruments that subject the Company to credit risk primarily consist of cash and cash equivalents and available-for-sale securities. The Company maintains its cash and cash equivalent balances with high quality financial institutions and, consequently, the Company believes that such funds are subject to minimal credit risk. The Company’s marketable securities consist of U.S. Treasury Securities and Corporate Bonds. The Company’s investment policy limits the amounts the Company may invest in any one type of investment and requires all investments held by the Company to be at least AA-/Aa3 rated, thereby reducing credit risk exposure.
Investments
Investments consist of U.S. Treasury Securities and Corporate Bonds. Management determines the appropriate classification of these securities at the time they are acquired and evaluates the appropriateness of such classifications at each balance sheet date. The Company classifies its investments as available-for-sale pursuant to FASB ASC 320, Investments-Debt and Equity Securities. Investments are recorded at fair value, with unrealized gains and losses included as a component of accumulated other comprehensive income (loss) in stockholders’ equity and a component of total comprehensive loss in the consolidated statements of comprehensive loss, until realized. Realized gains and losses are included in investment income on a specific-identification basis. The Company estimates expected credit losses for investments when unrealized losses exist. Unrealized losses that are credit related are recognized in the Company’s Consolidated Statements of Operations and unrealized losses that are not credit related are recognized in accumulated other comprehensive income (loss). For the three and six months ended June 30, 2024 and 2023, there were
Intangible Assets
Intangible assets related to in process research and development projects are considered to be indefinite-lived until the completion or abandonment of the associated R&D efforts. If and when development is complete, which generally occurs if and when regulatory approval to market a product is obtained, the associated assets would be deemed finite-lived and would then be amortized based on their respective estimated useful lives at that point in time. IPR&D intangible assets which are determined to have had a decrease in their fair value are adjusted downward and an expense is recognized in R&D expenses in the Consolidated Statements of Operations. These IPR&D intangible assets are tested at least annually or when a triggering event occurs that could indicate a potential impairment based on indicators including progress of R&D activities, changes in projected development of assets, and changes in regulatory environment and future commercial markets. If a triggering event occurs that would indicate a potential impairment, the Company will perform a quantitative analysis to determine whether it is more likely than not that the fair value is below carrying amount.
13
Fair Value Measurements
The Company is required to disclose information on all assets and liabilities reported at fair value that enables an assessment of the inputs used in determining the reported fair values. FASB ASC 820, Fair Value Measurements and Disclosures, establishes a hierarchy of inputs used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the inputs that market participants would use in pricing the asset or liability and are developed based on the best information available in the circumstances. The fair value hierarchy applies only to the valuation inputs used in determining the reported fair value of the investments and is not a measure of the investment credit quality. The three levels of the fair value hierarchy are described below:
To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. The fair value of the Company’s financial instruments, including cash and cash equivalents, restricted cash, deposits, accounts payable and accrued expenses approximate their respective carrying values due to the short-term nature of most of these instruments.
Warrants
The Company accounts for stock warrants as either equity instruments, liabilities or derivative liabilities in accordance with FASB ASC 480, Distinguishing Liabilities from Equity and/or FASB ASC 815, Derivatives and Hedging, depending on the specific terms of the warrant agreement. Liability-classified warrants are recorded at their estimated fair values at each reporting period until they are exercised, terminated, reclassified or otherwise settled. Changes in the estimated fair value of liability-classified warrants are included in interest and other income in the Company’s Consolidated Statements of Operations.
Stock-Based Compensation
The Company issues stock-based awards to employees and non-employees, generally in the form of stock options, RSUs and PSUs.
The Company measures the compensation expense of employee and non-employee services received in exchange for an award of equity instruments based on the fair value of the award on the grant date. That cost of stock options and RSUs is recognized over the requisite service period of the awards on a straight-line basis with forfeitures recognized as they occur. The vesting condition for PSUs is performance based and the cost of PSUs is recognized when it is likely that the performance goals associated with the PSUs will be achieved and the awards will vest.
The Company classifies stock-based compensation expense in its Consolidated Statements of Operations in the same manner in which the award recipient’s payroll costs and services are classified or in which the award recipient’s service payments are classified.
Recent Accounting Pronouncements
Accounting Pronouncements Not Adopted as of June 30, 2024
ASU 2023-09: Income Taxes Topic 740 - Improvements to Income Tax Disclosures. This update standardizes categories for the effective tax rate reconciliation, requires disaggregation of income taxes and additional income tax-related disclosures. This update is required to be effective for the Company for fiscal periods beginning after December 15, 2024. As this accounting standard is not expected to change the Company’s accounting, it is not expected to have a material impact on the Company's consolidated financial statements.
14
ASU 2023-07: Segment Reporting Topic 280 - Improvements to Reportable Segment Disclosures. This update requires expanded annual and interim disclosures for significant segment expenses that are regularly provided to the chief operating decision maker and included within each reported measure of segment profit or loss. This update will be effective for fiscal years beginning after December 15, 2023, and is to be applied retrospectively to all periods presented in the financial statements. Early adoption is permitted. As this accounting standard is not expected to change the Company’s accounting, it is not expected to have a material impact on the Company’s consolidated financial statements.
Items measured at fair value on a recurring basis are the Company’s investments and warrant liability. 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 June 30, 2024 Using: |
|
|||||||||||||
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Money market mutual funds |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
U.S. Treasury securities |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Corporate bonds |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total assets |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Warrant liability |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Total liabilities |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
Fair Value Measurements as of December 31, 2023 Using: |
|
|||||||||||||
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Money market mutual funds |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
U.S. Treasury securities |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
U.S. Treasury securities |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Corporate bonds |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total assets |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Warrant liability |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Total liabilities |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
The Company classifies its money market mutual funds 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 U.S. Treasury Securities and Corporate 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.
15
The reconciliation of the Company’s warrant liability, which is recorded as part of other liabilities in the Consolidated Balance Sheets, measured at fair value on a recurring basis using unobservable inputs (Level 3) is as follows:
|
|
Warrant Liability |
|
|
Balance, December 31, 2023 |
|
$ |
|
|
Fair value adjustments |
|
|
( |
) |
Balance, June 30, 2024 |
|
$ |
|
The Company utilizes a Black-Scholes model to value the warrant liability (see Note 10 “Warrants”) at each reporting period, with changes in fair value recognized in the Consolidated Statements of Operations. The estimated fair value of the warrant liability is determined using Level 3 inputs. Inherent in an options pricing model are assumptions related to expected share-price volatility, expected life, risk-free interest rate and dividend yield. The Company estimates the expected volatility of its common stock based on historical volatility of the Company and of a peer group, considering the expected remaining life of the warrants. The risk-free interest rate is based on the U.S. Treasury zero-coupon yield curve on the valuation date for a maturity similar to the expected remaining life of the warrants. The expected life of the warrants is assumed to be equivalent to their remaining contractual term. The dividend rate is based on the historical rate, which the Company anticipates will remain at zero.
The fair value of the warrant liability has been estimated with the following assumptions:
|
June 30, 2024 |
|
|
December 31, 2023 |
|
||
Stock price |
$ |
|
|
$ |
|
||
Exercise price |
$ |
|
|
$ |
|
||
Expected volatility |
|
% |
|
|
% |
||
Risk-free interest rate |
|
% |
|
|
% |
||
Expected dividend yield |
|
|
|
|
|
||
Expected life (years) |
|
|
|
|
|
||
Fair value per warrant |
$ |
|
|
$ |
|
The Company’s property and equipment consisted of the following:
|
June 30, 2024 |
|
December 31, 2023 |
|
||
Laboratory equipment |
$ |
|
$ |
|
||
Machinery and equipment |
|
|
|
|
||
Computer equipment |
|
|
|
|
||
Furniture and fixtures |
|
|
|
|
||
Leasehold improvements |
|
|
|
|
||
Internal use software |
|
|
|
|
||
|
|
|
|
|
||
Less: accumulated depreciation and amortization |
|
( |
) |
|
( |
) |
Total property and equipment, net |
$ |
|
$ |
|
During the three and six months ended June 30, 2024, the Company recognized $
The Company’s indefinite lived intangible assets consist of an acquired IPR&D asset received in the acquisition of Renovacor on December 1, 2022.
|
June 30, 2024 |
|
December 31, 2023 |
|
||
Gross carrying value |
$ |
|
$ |
|
||
Accumulated amortization |
|
- |
|
|
- |
|
Total intangible assets |
$ |
|
$ |
|
The carrying value of Goodwill as of June 30, 2024 and December 31, 2023 was $
16
The Company’s accounts payable and accrued expenses consisted of the following:
|
June 30, 2024 |
|
December 31, 2023 |
|
||
Research and development |
$ |
|
$ |
|
||
Investment payable |
|
|
|
|
||
Employee compensation |
|
|
|
|
||
Property and equipment |
|
|
|
|
||
Professional fees |
|
|
|
|
||
Other |
|
|
|
|
||
Total accounts payable and accrued expenses |
$ |
|
$ |
|
The $
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
Stock Option Valuation
The weighted average assumptions that the Company used in a Black-Scholes pricing model to determine the fair value of stock options granted to employees, non-employees and directors were as follows:
|
Six Months Ended June 30, |
|
||||
|
2024 |
|
2023 |
|
||
Risk-free interest rate |
|
% |
|
% |
||
Expected term (in years) |
|
|
|
|
||
Expected volatility |
|
% |
|
% |
||
Expected dividend yield |
|
% |
|
% |
||
Exercise price |
$ |
|
$ |
|
||
Fair value of common stock |
$ |
|
$ |
|
17
The following table summarizes stock option activity for the six months ended June 30, 2024:
|
|
|
Weighted |
|
Weighted |
|