Summary
- Rocket Pharmaceuticals stock trades at ~$19.5 today - back in December 2021 it had hit highs of >$60.
- The highs were achieved when Rocket's in vivo gene therapy showed promise treating patients with a rare genetic heart condition known as Danon Disease.
- The FDA placed a clinical hold on this study owing to slight safety concerns - Rocket's stock price slipped as the company opted to abandon use of the higher dose.
- Today the FDA clinical hold is lifted and RP-A501 is ready to enter a potentially pivotal Phase 2 clinical study, having received RMAT designation from the FDA.
- There are two ex vivo gene therapies that could additionally be approved this year and next year. Rocket's solid recent progress does not seem to have been picked up by the market, resulting in an investment opportunity.
Investment Overview
2 Ex Vivo Gene Therapies Close To Approval - But Real Value May Lie In In Vivo Program
Rocket Pharmaceuticals ( RCKT ) achieved its Nasdaq listing via a reverse merger with failing eye disease focused biotech Inotek back in 2017.
The deal was completed and Rocket stock began to trade in early 2018, at ~$19 per share. Fast forward five years and the Cranbury, New Jersey,-based gene therapy specialist's shares are currently valued at $19.6.
If that makes it sound as though Rocket stock has been treading water for all of those years, it's worth noting that it briefly traded >$60 toward the end of 2021.
Rocket's clinical stage pipeline includes three ex vivo lentiviral vector ("LVV") programs targeting three different rare genetic diseases, defined as follows in the company's 2021 10K submission.
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.
Both LV RP-L102 - indicated for FA - and RP-L201 - indicated for LAD-I - have shown strong enough data in late stage, pivotal studies for Rocket to have decided to make a Biologics Licence Application ('BLA") to the FDA for permission to commercialise each therapy.
As impressive as these achievements are - some online research indicates addressable markets for FA and LAD-I could be worth ~$800m , and >$10bn by the end of the decade (although such estimates often prove overblown), it's Rocket's in vivo program targeting Danon Disease ("DD") that seems to be most responsible for the significant swings in the company's valuation.
Whilst several ex vivo gene therapy programs have made it to market - from CAR-T therapies like Bristol-Myers Squibb's ( BMY ) Abecma or Gilead Sciences ( GILD ) Yescarta, to rare disease assets such as Novartis' ( NVS ) Zolgensma, or Orchard Therapeutics ( ORTX ) Libmeldy - approved in the EU only and thought to be the world's most expensive drug - in vivo therapies are a long way behind.
When Intellia Therapeutics ( NTLA ) demonstrated in June 2021 that its lead in vivo candidate NTLA-2001 had reduced TTR Serum levels in six patients with the disease Transthyretin (ATTR) Amyloidosis using an intravenous injection, its share price more than doubled overnight as the market celebrated the proof of concept for an in vivo therapy. Intellia was briefly valued at >$10bn market cap, although today its valuation has slipped <$4bn.
Something similar seems to have happened with Rocket. Back in December 2020, the company released data from an open label (no placebo arm), Phase 1 study of its candidate RP-A501 - an adeno-associated viral vector (AAV)-based gene therapy candidate expressing LAMP2B - in patients with Danon Disease.
In its press release Rocket describes DD as:
a rare X-linked inherited disorder caused by genetic mutations in the LAMP2 gene resulting in accumulation of autophagosomes and glycogen, particularly in cardiac muscle and other tissues, which ultimately leads to severe and frequently fatal cardiomyopathy.
It is estimated to have a prevalence of 15,000 to 30,000 patients in the U.S. and the European Union. The disease is often fatal in male patients in the second or third decade of life due to rapidly progressive heart failure.
The press release goes on to say that:
Preliminary data from patients in the low dose RP-A501 cohort showed that the gene therapy was generally well tolerated and provided early evidence of clinical benefit.
Specifically, Cardiac LAMP2B protein expression by immunohistochemical staining was greater than 50% of normal LAMP2B in two patients with follow-up data of up to one year, and 2 of 3 low dose patients showed "high levels of cardiac LAMP2B expression along with clinical biomarker improvements."
Rocket's share price leapt from $32, to $60 overnight - a gain of 87.5% and had reached a value of $64 by early February 2020. Unfortunately, however, in May 2021 the FDA placed a clinical hold on the study owing to Rocket's reporting that one patient in the Phase 1 study receiving the higher dose of RP-A501 had to be treated with Alexion Pharmaceuticals' Soliris after experiencing an adverse treatment effect.
The FDA's decision came as a surprise to Rocket, who were about to begin treating a new cohort of patients when the agency requested that it put new risk mitigation measures in place, including enrolling younger patients with less advanced disease, and to "refine and enhance" its overall study safety measures.
Although the clinical hold was lifted in August 2021 , the market's enthusiasm for viral vector gene therapies had been further impacted by a clinical hold imposed on a study being run by bluebird bio ( BLUE ) in patients with cerebral adrenoleukodystrophy ("CALD") - this ex vivo drug is now approved for commercial use. When Rocket revealed it would no longer include a high dose cohort in its Phase 1 study in November 2021, its share price continued to lose value and had fallen >$10 by May last year.
Rocket Brings FDA Back On Side, Plan Pivotal Study of RP-A501
This month, Rocket reported that RP-A501 had received a Regenerative Medicine Advanced Therapy ("RMAT") designation from the FDA based on the Phase 1 study results, which led Rocket's founder and CEO Gaurav Shah, M.D. to comment:
We look forward to the FDA’s added guidance and support on the most efficient development and approval pathway for RP-A501, including on our anticipated Phase 2 pivotal trial with the opportunity for accelerated approval. RP-A501 is the first cardiac gene therapy to receive RMAT designation from the FDA.
We remain on track to initiate our Phase 2 trial in the second quarter and are thankful to the FDA for their continued collaboration
Rocket's press release additionally reveals that the company will be:
pursuing a single arm, open-label trial with a biomarker-based composite endpoint and a natural history comparator.
As we can see above (from a slide presented at January's JPMorgan Healthcare conference) Rocket plans to use the same low dose as it did in the Phase 1 study, and will produce drug product from its 100,000 square foot manufacturing facility in Cranbury.
Despite the apparent progress being made, however, Rocket's share price still trades at a huge discount of nearly 70% to its late 2021 highs - despite the fact the company will soon be conducting a potentially pivotal Phase study of an in vivo gene therapy, with an accelerated approval shot in play.
That may be due to analysts' and scientists' belief that the lower dose may not be able to achieve the required levels of efficacy, even in spite of some encouraging clinical data, or it could be to do with ongoing concerns about safety. It could even be to do with the market's preference for CRISPR gene editing approaches that use non-viral delivery technology such as lipid nanoparticles ("LNPs").
Nevertheless, to the best of my knowledge at least, there are very few - if any - rival gene therapy companies with an in-vivo gene therapy at such an advanced stage of development.
Danon disease may be a small market opportunity - Rocket estimates a prevalence of 15k - 30k individuals, with an annual incidence of 800 - 1,200 individuals, but given the high prices of gene therapies, if we consider a scenario where RP-A501 costs $1m for a course of therapy, and treats 1k patients per annum, or where RP-A501 costs $2m, and is used to treat 500 patients - we could be looking at a blockbuster (>$1bn per annum) revenue opportunity.
Highlights To Look Out For In 2023
As we can see above Rocket appears to have several potentially value enhancing catalysts upcoming in 2023. The initiation of the pivotal Phase 2 in Q223 is the most important.
Although Rocket remains in talks with the FDA over study length and exact endpoints, the accelerated approval option gives Rocket the chance to push for an approval as soon as data becomes available, and given the company already has 36-month safety data from the Phase 1 study (no further adverse safety events have occurred either at the high dose or low dose) and caused its initial stir with 12 month data, it's possible that Rocket could have the data it needs by mid-to-late 2024.
Rocket expects to have its LAD-I filing complete in 1H23. Its pivotal study of RP-L201 showed that 9/9 patients "sustained stable CD18 expression (median: 56%) with no therapy-related serious adverse events," with a significant reduction in hospital visits and 100% overall survival after two years.
The therapy has RMAT designation, as well as Orphan Drug designation and Rare Pediatric Disease Designation, Fast Track status and even eligibility for a Priority Review Voucher ("PRV"), which can be used by Rocket to speed up a product approval process, or traded to another pharma - current market value of a PRV is close to $100m. Theoretically at least, RP-L201 could be approved before the end of 2023.
The filing of the RP-L102 BLA will come a little later in the year, but again the data appears to be persuasive, with a good safety profile - only one patient of 10 experiencing a Grade 2 or above adverse reaction - and five "experiencing MMC resistance ranging from 51% to 94% at 18 to 24 months post RP-L102 administration."
FA and LAD-I are similar market opportunities, management believes, with a patient population of 5.5k - 7k patients, vs. 4k-8k in LAD-I. Either will do well to generate triple-digit-figure revenues in its early years after approval (if approved), but in theory at least, either could top >$500m per annum if their treatment effect is demonstrated in a real-world setting.
Finally, as we can see above, Rocket is pursuing several other opportunities within both the hematology and cardiovascular fields, with one already in the clinic - RPL301 in Pyruvate Kinase Deficiency. Based on improvements in hemoglobin demonstrated in two patients in a Phase 1 study, management hopes to move this asset into a pivotal Phase 2 study before the end of the year.
It's unclear at this stage whether the BAG-3 and PKP2 opportunities are in-vivo or ex-vivo, but the disease targets - dilated cardiomyopathy and arrhythmic cardiomyopathy - represents much larger patient populations, and should Rocket validate its approach with a couple of FDA approvals in the next year or two, the value of these two projects will only increase.
Conclusion - An Overlooked Gene Therapy Contender With Potential To Deliver On 3 Fronts Commercially In Near Term
The FDA has now approved over 25 gene therapies, and although some are niche medicines and all are ex-vivo, it's fair to say that some of the concerns around gene therapies being unsafe, ineffective, or lacking durability are slowly being overcome.
That's not to say Rocket Pharmaceuticals is a riskless investment - there are many areas in which the company could underperform. The twin ex-vivo therapies RP-L102 and RP-L201, although seemingly on track for approval, may not be favored by physicians and could end up being used only very sparingly, restricting their revenue earning potential to a few million dollars per annum.
There's no guarantee that Rocket and the FDA will even be able to agree on appropriate protocols for a pivotal study of RP-A501, and even if it does investors will be waiting a year at least for full data, that may end up showing the low dose is ineffective or that even the low dose represents a safety risk.
Rocket is reasonably well funded, reporting a cash position of >$400m in its JPM Healthcare presentation , but net loss to Q322 in 2022 was >$155m, so the need for fresh funding is imminent. Although Rocket will want to raise at a higher price, if it suffers any setbacks in the clinic and the share price dips again it could end up significantly diluting investors to secure fresh funding, creating a downwardly spiraling share price.
These risk aside, however, I would rate Rocket as one of the more interesting opportunities in the gene therapy space. Unlike the CRISPR gene editing companies i.e. Crispr Therapeutics ( CRSP ), Intellia and Beam Therapeutics ( BEAM ) Rocket's market cap is not inflated by any hype, with the company preferring to pursue an older technology and means of administration. That should not necessarily count against Rocket however - Bluebird Bio uses a viral vector approach and has two FDA approved products, with a third possibly set for approval this year.
Unlike Bluebird, Rocket's financial position is reasonably strong by biotech standards (while still a slight cause for concern), but most important is the future of RP-A501. Rocket has managed to advance this therapy nearly to the rolling approval stage, and there are still no therapies approved to treat Danon Disease. As such, it's arguably strange to see that its share price has yet to recapture its late 2021 highs.
If Rocket were to recapture only 60% of that former high, its share price would be worth more than double today's price, and that ought to be an intriguing proposition for prospective investors, given the milestones the company can achieve in 2023.
I'm slightly surprised that Rocket has no big pharma partners - that's a potential red flag in itself - but if a deep pocketed partner were to be secured, it would only add to Rocket's momentum, and raise the prospect of a buyout at a significant premium to today's share price, and inject fresh funds to develop the Wave 2 assets targeting larger patient populations.
If Rocket has 2 assets on the market this time next year then it's hard to see how the company's share price could fall in the intervening period, and that seems a likely outcome. If one of those approved assets were to be RP-A501 it would not only be a historic moment in the history of gene therapy, it ought to be a significantly share price accretive outcome.
For further details see:
Rocket Pharmaceuticals: Promising Gene Therapy Play With Discounted Entry Point