RCKT - Rocket Pharmaceuticals: Update On RP-A501 Strengthens Bullish Outlook

2023-09-21 07:30:00 ET

Summary

• Rocket Pharmaceuticals achieves a significant milestone in their RP-A501 therapy for Danon Disease, strengthening their position in the gene therapy industry.
• RP-A501 aims to restore normal cardiac function and offer a lifetime of benefit to patients with Danon Disease.
• Rocket and the FDA are in alignment on the pivotal study design for RP-A501, positioning RCKT as a pioneer in genetic disorders related to the heart.

Rocket Pharmaceuticals ( RCKT ) is a late-stage gene therapy company that has been a longstanding member of the Compounding Healthcare “Bio Boom” Portfolio due to their impressive platform technology and pipeline programs targeting rare disorders with substantial unmet needs. Although I am bullish on Rocket Pharmaceuticals, I've held my RCKT position without significant activity for an extended period due to the volatility in speculative healthcare tickers, particularly in the genomics industry. However, the company recently announced a significant milestone in their RP-A501 therapy for Danon Disease, which is expected to be a one-time, potentially curative infusion. This aims to restore normal cardiac function and offer a lifetime of benefit. It is anticipated to be a one-time, potentially curative infusion. This aims to restore normal cardiac function and offer a lifetime of benefit. Rocket and the FDA are in alignment on the pivotal study design for RP-A501, which if approved, could establish Rocket as a pioneer in genetic disorders related to the heart. This update has strengthened my bullish outlook for Rocket as the potential to be a leader in In Vivo gene therapies.

I intend to provide some background on Rocket Pharmaceuticals and their gene therapy platforms. Then, I will discuss Danon Disease and how RP-A501 has the potential to be a game-changer for both patients and providers. I will also point out some industry-related risks that Rocket will have to deal with. Finally, I reveal my plan for my dormant RCKT position.

Background On Rocket Pharmaceuticals

Rocket Pharmaceuticals is dedicated to advancing a comprehensive pipeline of gene therapies targeting complex and rare pediatric disorders. Their platform-agnostic approach allows for tailored therapies for each indication, providing potentially game-changing opportunities for patients with rare genetic diseases.

Their clinical programs employ LVV-based gene therapy for Fanconi Anemia, Pyruvate Kinase Deficiency Leukocyte, and Adhesion Deficiency-I. In addition, they are progressing with AAV-based gene therapies for Danon Disease, PKP2-arrhythmogenic cardiomyopathy, and a preclinical program for BAG3-associated dilated cardiomyopathy.

Background On Danon Disease

Danon Disease , an aggressive and uniformly lethal form of hypertrophic cardiomyopathy, has been a long battle for researchers and providers due to some significant challenges in terms of treatment and patient prognosis. With early mortality rates reaching shocking levels, a new breakthrough in therapeutic intervention could provide a ray of hope for patients and families impacted by this terrible disease.

Danon Disease is a monogenic, X-linked condition triggered by mutations found in the LAMP-2 gene and is categorized by the progression of severe hypertrophic cardiomyopathy at an early age. This results in massive left ventricular hypertrophy and ultimately leads to end-stage heart failure. Unfortunately, a Danon Disease diagnosis has been uniformly grey, with males facing an average lifespan of only 19 years and females 37 years.

Despite an estimated 15K to 30K Danon Disease patients in the U.S. and EU, there are no approved curative or disease-modifying treatments available the only definitive treatment for has been cardiac transplantation. However, this option is limited by availability and is associated with extensive short- and long-term morbidity and mortality, with less than 50% of patients surviving a decade post-transplantation.

In July of 2023, the US Department of Health and Human Services approved the ICD 10 Code for Danon Disease, E74.0, marking a significant step forward in recognizing and addressing this devastating condition.

RP-A501

RP-A501 is anticipated to be a singular, potentially remedial infusion aimed at reinstating regular cardiac function, providing a lifelong advantage for individuals with Danon Disease, a condition with limited available treatments. This progress in the Danon Disease initiative is viewed as a noteworthy stride in the direction of offering curative gene therapies to those grappling with severe cardiovascular disorders. RP-A501 addresses the underlying genetic mutation responsible for Danon Disease. By restoring the LAMP2B protein and enhancing autophagy, it counters the pathological processes leading to extreme left ventricular hypertrophy and cardiomyopathy.

Phase I trials have demonstrated remarkable benefits across key clinical parameters. Early changes in LAMP2 protein expression, along with reductions in troponin-I and brain natriuretic peptide, have been linked with sustained clinical improvement. Notably, these enhancements were witnessed in both pediatric and adult patients, providing optimism across age groups.

When compared to recently approved therapies for various cardiovascular conditions, RP-A501 has shown comparable or superior effects on left ventricular mass and hypertrophy reduction.

Comparative analyses have highlighted the potential of RP-A501 as a transformative treatment.

In terms of regulatory designations, RP-A501 has garnered the FDA’s RMAT, Fast Track, and Orphan Drug Designations. In addition, the therapy has the PRIME and the rare pediatric medicines designations in the Europe.

Regulatory Path

Rocket initiated a Phase I study of RP-A501 back in September 2020, with the data being released in December 2020 showing that 2 out 7 patients exhibited greater than 50% of normal LAMP2B protein expression in cardiac tissue, even up to a year after treatment. Additionally, RP-A501 demonstrated consistent stabilization or advances in key clinical measures.

However, after a patient in the study receiving high-dose RP-A501 experienced progressive heart failure and required a transplant, the FDA put a clinical hold on the study. Thankfully, the hold was removed and Rocket discontinued their use of the stronger dose. Interim data revealed no unexpected severe adverse events. In addition, positive enhancements were observed across key efficacy measures. In January of this year, Rocket shared further positive updates.

The Phase II pivotal trial of RP-A501 for Danon Disease will involve a global, single-arm, multi-center study with 12 patients, including a pediatric safety run-in. The trial will also include a natural history comparator and a specific dose level. To expedite approval, the study will evaluate RP-A501's efficacy based on biomarker-based co-primary endpoints, including enhancements in LAMP2 protein expression and reductions in left ventricular mass. Key secondary endpoints will focus on changes in troponin levels, with additional secondary endpoints addressing various cardiac indicators.

The company also noted that they have made significant progress with their in-house manufacturing, ensuring a robust supply of high-quality drug products for the Phase II pivotal study.

Additionally, the filing of the Clinical Trial Application ‘CTA’ for RP-A501 to initiate EU study activities is projected in the third quarter of the current year.

Public Offering

Rocket also announced that they were executing a public offering of 7,812,500 shares of common stock available at $16.00 per share, and pre-funded warrants, offered exclusively to specific investors, enabling the purchase of 3,126,955 shares of common stock at a rate of $15.99 per pre-funded warrant. The estimated to yield approximately $175M in gross proceeds for Rocket before expenses.

As of the end of Q2, Rocket held a total of $307M in cash, cash equivalents, and investments. The company anticipates that these financial resources will adequately support its operational needs until the first half of 2025. This includes activities such as manufacturing AAV cGMP batches at their Cranbury, N.J. Research and Development, and manufacturing facility, as well as the ongoing advancement of its six clinical and/or preclinical programs.

So barring any changes in OpEx, the additional $175M should extend their cash runway past the first of 2025.

Industry Risks

Rocket has several downside risks that investors need to consider including cash burn and the risk of regulatory failure. However, I am going to point out some of the challenges that gene therapy companies are dealing with as they attempt to get their product through the FDA and into commercialization.

First, gene therapies pose a distinctive challenge against payers regarding their assessment, pricing, and reimbursement in the healthcare landscape. Designed to offer a lifelong cure or long-lasting disease-modifying benefits, they enter a healthcare system structured around yearly budgets. For payers, the projected one-time, front-loaded fee of cell and gene therapies is unprecedented. While emerging payment models offer potential solutions, a definitive resolution remains elusive. It is possible Rocket will get multiple therapies approved, but they still need support from payers if it is going to be a commercial success.

Another concern for gene therapies is getting the regulatory agencies to see eye-to-eye with trial designs and interpretation of the clinical data. The FDA is increasingly relying on accelerated approval, surrogate endpoints, and biomarkers to speed up the availability of gene therapies to patients. Since gene therapies often yield long-term impacts that may not be instantly quantifiable, surrogate endpoints, employed through the FDA's accelerated approval process, play a pivotal role in accelerating patient access. Take, for example, a gene therapy designed to correct a genetic anomaly. It might not produce instant outcomes but could potentially defer or forestall the onset of a disease, or even offer an enduring remedy. As developers and the scientific community uncover fresh alternative indicators and biological markers, there is a potential to outpace the present regulatory and reimbursement structure. Companies seeking endorsement can take proactive steps to satisfy this potential concern. While the FDA grapples with this issue, insurers may opt to wait for a more extensive comprehension of the science and clinical aspects. They may contend that products granted accelerated approval, based on surrogate markers, necessitate a more extensive body of real-world evidence to establish their long-term benefits for patients and the healthcare system. Gene therapies are at the forefront of introducing new indicators. For instance, in June of this year, Sarepta Therapeutics ( SRPT ) publicized the FDA's accelerated approval of ELEVIDYS, an innovative gene therapy for ambulatory DMD patients with an established DMD gene mutation, which utilized a distinctive surrogate marker of micro-dystrophin expression. Sarepta asserted that it is " reasonably likely " to predict clinical improvement. While micro-dystrophin signifies a truncated yet functional form of the protein, the regulatory acceptance of such innovative markers prompts questions about how payers will respond. To give attention to potential risks and disputes, Rocket will most likely have to enhance the technical and clinical substantiation of innovative indicators by gathering patient-reported outcome data and calculating various therapeutic and economic cost-saving factors in their supporting documentation. Yes, I am aware that Rocket appears to have addressed this issue with the FDA, but it will still be a concern until their programs get full approval.

So, not only does Rocket have to deal with some of the endemic issues facing clinical-stage companies, but they are also dealing with the hardships that other trailblazing gene therapies are going to deal with. As a result, I am assigning RCKT a conviction level of 2 out of 5 and the ticker will remain in the Compounding Healthcare “Bio Boom” Portfolio for the foreseeable future.

Strengthened Outlook

The approval and development of RP-A501 represent a significant leap forward in the treatment of Danon Disease. So far, the therapy is showcasing safety and efficacy in clinical studies, however, the data from the pivotal study may confirm that RP-A501 is able to cure Danon patients with its recombinant AAV9 capsid containing a full-length, wild-type version of the human LAMP2B transgene. If successful, RP-A501 will reinstate cardiac function in affected patients and will renew hope in individuals and families affected by this devastating condition.

Rocket's achievements in in vivo gene therapy for heart disease, along with FDA alignment, are significant milestones. While the market opportunity may not reach blockbuster status, the validation of Rocket's approach adds substantial value.

While three ex-vivo therapies in Rocket's pipeline show promise, RP-A501 appears to be the leading asset. We are going to have to wait over 12 months for pivotal Phase II data, which will allow the market to manipulate the share price. Nevertheless, obtaining an accelerated approval designation could expedite the route to market. If the 12-month results yield favorable outcomes, it may pave the way for potential approval by the conclusion of 2024.

If approved, the company would transition from a clinical to a commercial-stage company with multiple gene therapy programs moving towards the finish line including Fanconi Anemia and LAD-I. Furthermore, Rocket is looking to reveal additional Wave 2 assets at some point next year. Considering the company's bolstered cash position, we should expect the company to be at full-bore moving programs into and out of the clinic.

My Plan

Although I am still very bullish on RCKT and the company’s long-term prospects, I am going to remain patient and wait for the ticker to hit my Buy Targets. The market has been punishing small caps and speculative biotech has been under immense selling pressure. So, I am not looking to click the buy button out of excitement or FOMO.

On the other hand, RCKT has hit my Sell Target 1 of $20.94, but I am not looking to click the sell button anytime soon.

Although I would like to have another chance at loading up on RCKT, I have to accept it is possible the market will push the ticker higher in the coming months.

Despite RCKT being a Bio Boom ticker, my overall strategy for Rocket stock involves gradually accumulating for a long-term investment. Indeed, I will look to book profits when the ticker hits my Sell Targets; however, I am not steadfast in moving my position into a “house money” status as soon as possible. The approach is almost inverted… amass a position with little-to-no profit taking.

Why?

Well, I believe Rocket has the platform tech and the pipeline programs to be a legitimate contender in the gene therapy space and could be an industry leader if they can get multiple programs onto the market. Keep in mind, that the company could have more than one gene therapy approved and launched in the next couple of years. So, it is likely the company’s value could climb dramatically with no turning back. Additionally, I expect there could be some speculation Rocket will become an acquisition target.

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