What changed in this filing

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Item 9A. Controls and Procedures

2021-03-01 compared with 2020-03-06 · 502 added, 642 removed, 519 unchanged (69% of the section changed)

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Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our principal executive and our principal financial and accounting officers, evaluated, as of the end of the period covered by this Annual Report, the effectiveness of our

disclosure controls and procedures.

Based on that evaluation of our disclosure controls and procedures as of December 31, 2019, our principal executive officer and principal financial and accountings officer concluded that our disclosure controls

and procedures as of such date are effective at the reasonable assurance level.

The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that

are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act are recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and

communicated to our management, including our principal executive officer and principal financial and accounting officers, as appropriate to allow timely decisions regarding required disclosure.

Management recognizes that any controls and

procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and our management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and

Based on that evaluation of our disclosure controls and procedures as of December 31, 2020, our principal executive officer and principal financial and accounting officers concluded that our disclosure controls and procedures as of such date are effective at the reasonable assurance level.

The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act are recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial and accounting officers, as appropriate to allow timely decisions regarding required disclosure.

Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and our management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Management’s Annual Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over our financial reporting.

Internal control over financial reporting is defined in Rules 13a-15(f)

and 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, our principal executive and principal financial and accounting officers and effected by our board of directors, management and other

personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S.

Our internal control over financial reporting includes

those policies and procedures that:

pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect our transactions and dispositions of our assets;

provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S.

GAAP, and that our receipts and expenditures are being made

only in accordance with authorizations of our management and directors;

provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements.

Our management, with the participation of our principal executive and principal financial and accounting officers, assessed the effectiveness of our internal control over financial reporting as of

December 31, 2019.

In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in its 2013 Internal Control — Integrated

Based on this assessment, our management has concluded that, as of December 31, 2019, our internal control over financial reporting is effective based on those criteria.

This Annual Report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting.

Management’s report was not

subject to attestation by our independent registered public accounting firm pursuant to an exemption under Section 989G of the Dodd-Frank Wall Street Reform and Consumer Protection Act made available to us under the JOBS Act.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting.

Internal control over financial reporting is defined in Rules 13(a)-15(f) and 15(d)-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, our principal executive and principal financial officers and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;

Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors;

Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

Under the supervision and with the participation of management, including our principal executive and financial officers, we assessed our internal control over financial reporting as of December 31, 2020, based on criteria for effective internal control over financial reporting established in Internal Control — Integrated Framework (2013), issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

Our management’s assessment of the effectiveness of our internal control over financial reporting included testing and evaluating the design and operating effectiveness of our internal controls.

In our management’s opinion, we have maintained effective internal control over financial reporting as of December 31, 2020, based on criteria established in the COSO 2013 framework.

The effectiveness of our internal control over financial reporting as of December 31, 2020 has been audited by EisnerAmper LLP, an independent registered public accounting firm, as stated in their report which is included herein.

Inherent Limitations of Internal Controls

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Therefore, even those systems determined to be effective can provide only

reasonable assurance with respect to financial statement preparation and presentation.

Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or

that the degree of compliance with the policies or procedures may deteriorate.

Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our

internal control over financial reporting.

There were no changes in our internal control over financial reporting during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Other Information

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Directors, Executive Officers and Corporate Governance

Information with respect to this item will be set forth in the Proxy Statement for the 2020 Annual Meeting of Stockholders (“Proxy Statement”) under the headings “Election of Directors,” “Executive Officers,”

“Delinquent Section 16(a) Reports” and “Corporate Governance” and is incorporated herein by reference.

Information with respect to this item will be set forth in the Proxy Statement for the 2021 Annual Meeting of Stockholders (“Proxy Statement”) under the headings “Election of Directors,” “Executive Officers,” “Delinquent Section 16(a) Reports” and “Corporate Governance” and is incorporated herein by reference.

The Proxy Statement will be filed with the SEC within 120 days after the end of the fiscal year covered by this Annual Report.

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Information with respect to this item will be set forth in the Proxy Statement under the headings “Executive Compensation” and “Director Compensation” and is incorporated herein by reference.

The Proxy Statement will

be filed with the SEC within 120 days after the end of the fiscal year covered by this Annual Report.

The Proxy Statement will be filed with the SEC within 120 days after the end of the fiscal year covered by this Annual Report.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Information with respect to this item will be set forth in the Proxy Statement under the headings “Security Ownership of Certain Beneficial Owners and Management” and “Securities Authorized for Issuance Under Equity

Compensation Plans” and is incorporated herein by reference.

The Proxy Statement will be filed with the SEC within 120 days after the end of the fiscal year covered by this Annual Report.

Certain Relationships and Related Party Transactions, and Director Independence

Information with respect to this item will be set forth in the Proxy Statement under the headings “Transactions with Related Persons” and “Information about the Board and Corporate Governance” and is incorporated

herein by reference.

The Proxy Statement will be filed with the SEC within 120 days after the end of the fiscal year covered by this Annual Report.

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Financial Statements:

Report of Independent Registered Public Accounting Firm

Reports of Independent Registered Public Accounting Firm

Consolidated Balance Sheets as of December 31, 2020 and 2019

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Form 6.25% Convertible Senior Note due 2022 (7)

Supplemental Indenture, dated as of June 12, 2020, between Rocket Pharmaceuticals, Inc.

and Wilmington Trust, National Association, as trustee (8)

Description of Securities

2004 Stock Option and Incentive Plan (9)

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Offer Letter, dated September 25, 2019, by and between the registrant and Kamran Alam.

Offer Letter, dated November 25, 2020, by and between the registrant and Carlos Garcia-Parada.

Amended and Restated Lease Agreement, dated as of June 26, 2019, by and between Rocket Pharmaceuticals, Inc.

and Cedar Brook 12 Corporate Center, L.P.

Rocket Pharmaceuticals, Inc.

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and REGENXBIO Inc.

Warrant to Purchase Shares of Common Stock dated as of December 21, 2020, by and between the Registrant and Neptune Consulting, LLC.

Warrant to Purchase Shares of Series Preferred Stock dated as of June 28, 2013, by and between Inotek Pharmaceuticals Corporation and Horizon Technology Finance Corporation (2)

Warrant to Purchase Shares of Series Preferred Stock dated as of June 28, 2013, by and between Inotek Pharmaceuticals Corporation and Fortress Credit Co LLC (2)

Amended and Restated Lease Agreement, dated as of June 26, 2019, by and between Rocket Pharmaceuticals, Inc.

and Cedar Brook 12 Corporate Center, L.P.

List of Subsidiaries

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XBRL Taxonomy Extension Presentation Link Document.

Cover Page Interactive Data File (formatted as inline XBRL and contained in exhibit 101)

Filed herewith.

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Filed as an Exhibit to the Company’s current report on Form 8-K (001-36829), filed with the SEC on February 20, 2020, and incorporated herein by reference.

Filed as an Exhibit to the Company’s current report on Form 8-K (001-36829), filed with the SEC on June 12, 2020, and incorporated herein by reference.

Filed as an Exhibit to the Company’s registration statement on Form S-1 (333-199859), filed with the SEC on November 5, 2014, as amended, and incorporated herein by reference.

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Pursuant to the requirements of the Section 13 or 15(d) of the Securities Exchange Act of 1934, Rocket Pharmaceuticals, Inc.

(the Registrant) has duly caused this report to be signed on its

behalf by the undersigned, thereunto duly authorized, in the City of New York, State of New York, on March 6, 2020.

(the Registrant) has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Cranbury, State of New Jersey, on March 1, 2021.

Rocket Pharmaceuticals, Inc.

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POWER OF ATTORNEY

Each person whose individual signature appears below hereby constitutes and appoints Gaurav Shah, MD and Kamran Alam, and each of them, with full power of substitution and resubstitution and full

power to act without the other, as his or her true and lawful attorney-in-fact and agent to act in his or her name, place and stead and to execute in the name and on behalf of each person, individually and in each capacity stated below, and to file

any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents,

and each of them, full power and authority to do and perform each and every act and thing, ratifying and confirming all that said attorneys-in-fact and agents or any of them or their or his substitute or substitutes may lawfully do or cause to be

done by virtue thereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates

Each person whose individual signature appears below hereby constitutes and appoints Gaurav Shah, MD and Carlos Garcia-Parada, and each of them, with full power of substitution and resubstitution and full power to act without the other, as his or her true and lawful attorney-in-fact and agent to act in his or her name, place and stead and to execute in the name and on behalf of each person, individually and in each capacity stated below, and to file any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing, ratifying and confirming all that said attorneys-in-fact and agents or any of them or their or his substitute or substitutes may lawfully do or cause to be done by virtue thereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

/s/ Gaurav Shah, MD

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(Principal Executive Officer)

/s/ Kamran Alam

Senior Vice President - Finance

/s/ Carlos Garcia-Parada, MBA

Chief Financial Officer

March 1, 2021

Carlos Garcia-Parada

(Principal Financial Officer)

/s/ John Militello

Senior Controller

VP, Finance, Senior Controller & Treasurer

March 1, 2021

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Naveen Yalamanchi, MD

/s/ Elisabeth Björk

March 1, 2021

Elisabeth Björk

Rocket Pharmaceuticals, Inc.

Index to Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm

Reports of Independent Registered Public Accounting Firm

Consolidated Balance Sheets as of December 31, 2020 and 2019

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We have audited the accompanying consolidated balance sheets of Rocket Pharmaceuticals, Inc.

and subsidiaries (the “Company”) as of December 31, 2019 and 2018, and the related consolidated statements of operations,

comprehensive loss, changes in stockholders’ equity, and cash flows for each of the years the ended and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all

material respects, the consolidated financial position of the Company as of December 31, 2019 and 2018, and the consolidated results of their operations and their cash flows for each of the years then ended, in conformity with accounting principles

generally accepted in the United States of America.

Change in Accounting Principle

As discussed in Note 13 to the consolidated financial statements, the Company has changed its method of accounting for leases for the year ended December 31, 2019, due to the adoption of Accounting Standard Update

2016-02, Leases.

and Subsidiaries (the “Company”) as of December 31, 2020 and 2019, and the related consolidated statements of operations, comprehensive loss, stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2020, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2020 and 2019, and the consolidated results of its their operations and their cash flows for each of the years in the three-year period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework ( 2013 ) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated March 1, 2021 expressed an unqualified opinion.

Basis for Opinion

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Our responsibility is to express an opinion on the Company’s financial statements based on our audits.

We are a public accounting firm

registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of

the Securities and Exchange Commission and the PCAOB.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of

material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits we are required to obtain an understanding

of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as

evaluating the overall presentation of the financial statements.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Accruals for research and development expenses

As disclosed in Note 3 to the consolidated financial statements, the Company estimates accrued research and development expenses for existing contracts, evaluates and identifies services that have been performed for the Company, estimates the level of service performed and the associated costs incurred for the services when not yet invoiced or otherwise notified of the actual costs, and evaluates contractual milestones reached.

The Company estimates costs on clinical trials in progress based on the services received and efforts expended pursuant to contacts with multiple contract research organizations (CROs), investigative sites in connection with clinical trials, and contract manufacturing organizations (CMOs).

The accrued research and development expenses as of December 31, 2020 were approximately $15 million.

We identified accruals related to research and development activities as a critical audit matter due to the complexity of the estimation of those accruals related to third party CROs, CMOs and investigative sites.

The complexity of the Company’s estimates for these accruals was primarily the determination of progress and direct and indirect costs incurred under these arrangements, where invoicing of costs and milestones may not match the timing of services provided to date.

As a result, auditor judgement was required to perform procedures and evaluate audit evidence related to the accruals for research and development expenses.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements.

We obtained an understanding, evaluated the design and tested the operating effectiveness of the Company’s controls over the determination of estimates of the research and development accruals, including controls over inputs used by management to make the estimates and the completeness and accuracy of the data used in the estimates.

Our audit procedures also included inspection of a sample of contracts, invoices and payments, confirmation of total payments made by the Company and the amount owed by the Company as of December 31, 2020 for a sample of third-party research and development vendors, comparing the Company’s estimates of progress to the contracts, statements of work, data confirmed by third party vendors, invoices and payments to the resulting accruals.

/s/ EisnerAmper LLP

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EISNERAMPER LLP

New York, New York

Philadelphia, Pennsylvania

March 1, 2021

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders

Rocket Pharmaceuticals, Inc.

Opinion on Internal Control over Financial Reporting

We have audited Rocket Pharmaceuticals, Inc.

and Subsidiaries (the “Company”) internal control over financial reporting as of December 31, 2020, based on criteria established in the Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020 based on criteria established in the Internal Control - Integrated Framework ( 2013 ) issued by COSO.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheets of the Company as of December 31, 2020 and 2019, and the related consolidated statements of operations, comprehensive loss, stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2020, and the related notes and our report dated March 1, 2021 expressed an unqualified opinion.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting.

Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.

Our audit also included performing such other procedures as we considered necessary in the circumstances.

We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control over Financial Reporting

An entity’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

An entity’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the entity;

(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the entity are being made only in accordance with authorizations of management and directors of the entity;

and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the entity’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ EisnerAmper LLP

EISNERAMPER LLP

Philadelphia, Pennsylvania

March 1, 2021

Rocket Pharmaceuticals, Inc.

Consolidated Balance Sheets

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Property and equipment, net

Internal use software

Restricted cash

Operating lease right-of-use assets

Finance lease right-of-use asset

Liabilities and stockholders’ equity

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Accounts payable and accrued expenses

Convertible notes, net of unamortized discount, current

Operating lease liabilities, current

Finance lease liabilities, current

Total current liabilities

Convertible notes, net of unamortized discount

Convertible notes, net of unamortized discount, non-current

Operating lease liabilities, non-current

Finance lease liabilities, non-current

Other liabilities

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0 shares issued and outstanding

Series B convertible preferred shares;

Series B convertible preferred stock;

300,000 shares designated as Series B;

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Common stock, $ 0.01 par value, 120,000,000 shares authorized;

54,773,061 and 45,194,736 shares issued and 54,769,030 and 45,144,736 shares outstanding at December 31, 2019 and 2018,

Treasury stock, at cost, 4,031 and 50,000 common shares at December 31, 2019 and 2018, respectively

60,996,367 and 54,773,061 shares issued and 60,996,367 and 54,769,030 shares outstanding at December 31, 2020 and December 31, 2019, respectively

Treasury stock, at cost, 0 and 4,031 common shares at December 31, 2020 and December 31, 2019, respectively

Additional paid-in capital

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Interest and other income net

Accretion of discount on investments

(Amortization of premium) accretion of discount on investments - net

Net loss per share attributable to common stockholders - basic and diluted

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Other comprehensive loss

Net unrealized gain (loss) on investments

Net unrealized (loss) gain on investments

Total comprehensive loss

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Balance at December 31, 2019

Issuance of common stock, net of issuance costs

Issuance of common stock pursuant to exercise of stock options

Issuance of common stock pursuant to exercise of warrant

Issuance of common stock pursuant to conversion of notes

Issuance of warrants

Stock repurchase

Sale of treasury stock

Issuance of treasury stock pursuant to exercise of stock options

Unrealized comprehensive loss on marketable securities

Share-based compensation

Balance at December 31, 2020

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

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Accretion of discount on convertible notes

Increase in lease liability

Depreciation expense

Depreciation and amortization expense

Write down of property and equipment

Stock-based compensation

Expense in connection with warrant issue

Loss on disposal of property and equipment

Accretion of discount on investments

Accretion of discount (amortization of premium) on investments, net

Changes in operating assets and liabilities:

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Operating lease liabilities

Finance lease liability

Other long term liabilities

Net cash used in operating activities

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Proceeds from maturities of investments

Payments made to acquire right of use asset

Proceeds from sale of property and equipment

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Financing activities:

Proceeds from issuance of common stock, net of issuance costs

Issuance of common stock, net of issuance costs

Issuance of common stock, pursuant to exercise of stock options

Common stock repurchase

Treasury stock repurchase

Proceeds from sale of treasury stock

Payment of witholding tax on option exercise

Payment of withholding tax on option exercise

Convertible notes refinancing costs to the lender

Net cash provided by financing activities

Net change in cash, cash equivalents and restricted cash

Cash, cash equivalents and restricted cash at beginning of year

Cash, cash equivalents and restricted cash at end of year

Cash, cash equivalents and restricted cash at beginning of period

Cash, cash equivalents and restricted cash at end of period

Supplemental disclosure of non-cash financing and investing activities:

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Conversion of convertible preferred stock into common stock

Unrealized gain (loss) on investments

Conversion of convertible notes into common stock

Unrealized (loss) gain on investments

Finance lease right of use asset and lease liability

Reclassification of construction in process to finance right of use asset

Supplemental cash flow information:

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Nature of Business and Basis of Presentation

We are a clinical-stage, multi-platform 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 pediatric diseases.

We currently have three clinical-stage ex vivo lentiviral vector (“LVV”) programs currently enrolling patients in the US and

EU for Fanconi Anemia (“FA”), a genetic defect in the bone marrow that reduces production of blood cells or promotes the production of faulty blood cells, Leukocyte Adhesion Deficiency-I (“LAD-I ” ), a genetic

disorder that causes the immune system to malfunction and Pyruvate Kinase Deficiency (“PKD”), a rare red blood cell autosomal recessive disorder that results in chronic non-spherocytic hemolytic anemia.

Of these, both the Phase 2 FA program and the

Phase 1/2 LAD-I program are in registration-enabling studies in the US and EU.

In addition, in the US we have a clinical stage in vivo adeno-associated virus (“AAV”) program for Danon disease, a

multi-organ lysosomal-associated disorder leading to early death due to heart failure.

Finally, we have a pre-clinical stage LVV program for Infantile Malignant Osteopetrosis (“IMO”), a genetic disorder characterized by increased bone density and

bone mass secondary to impaired bone resorption – this program is anticipated to enter the clinic in 2020.

We have global commercialization and development rights to all of these product candidates under royalty-bearing license agreements.

Additional work in the discovery stage for an FA CRISPR/CAS9 program as well as a gene therapy program for the less common FA subtypes C and G is ongoing.

Rocket Pharmaceuticals, Inc.

(“Rocket” or the “Company”) is a clinical-stage, multi-platform 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.

Rocket has four clinical-stage ex vivo lentiviral vector (“LVV”) programs.

These include programs for Fanconi Anemia (“FA”), a genetic defect in the bone marrow that reduces production of blood cells or promotes the production of faulty blood cells, Leukocyte Adhesion Deficiency-I (“LAD-I ” ), a genetic disorder that causes the immune system to malfunction, Pyruvate Kinase Deficiency (“PKD”), a rare red blood cell autosomal recessive disorder that results in chronic non-spherocytic hemolytic anemia and Infantile Malignant Osteopetrosis (“IMO”), a genetic disorder characterized by increased bone density and bone mass secondary to impaired bone resorption.

Of these, both the Phase 2 FA program and the Phase 1/2 LAD-I program are in registration-enabling studies in the United States (“U.S.”) and Europe (“EU”).

In addition, in the U.S., Rocket has a clinical stage in vivo adeno-associated virus (“AAV”) program for Danon disease, a multi-organ lysosomal-associated disorder leading to early death due to heart failure.

The Company has global commercialization and development rights to all of these product candidates under royalty-bearing license agreements.

Additional work on a gene therapy program for the less common FA subtypes C and G is ongoing .

Risks and Liquidity

The Company has not generated any revenue and has incurred losses since inception.

Operations of the Company are subject to certain risks and uncertainties, including, among others, uncertainty of drug candidate

development, technological uncertainty, uncertainty regarding patents and proprietary rights, having no commercial manufacturing experience, marketing or sales capability or experience, dependency on key personnel, compliance with government

regulations and the need to obtain additional financing.

Drug candidates currently under development will require significant additional research and development efforts, including extensive preclinical and clinical testing and regulatory approval,

prior to commercialization.

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.

There can be no assurance that the Company’s research and development will be successfully completed, that adequate protection for the Company’s intellectual property will be obtained, that any products developed will obtain necessary government approval or that any approved products will be commercially viable.

Even if the Company’s product development efforts are successful, it is uncertain when, if ever, the Company will generate significant revenue from product sales.

The Company operates in an environment of rapid change in technology and substantial competition from pharmaceutical and biotechnology companies.

The Company’s consolidated financial statements have been prepared on the basis of continuity of operations, realization of assets and the satisfaction of liabilities in the ordinary course of business.

The Company has

experienced negative cash flows from operations and had an accumulated deficit of $183.1 million as of December 31, 2019.

The Company has experienced negative cash flows from operations and had an accumulated deficit of $ 322.8 million as of December 31, 2020.

As of December 31, 2020, the Company has $ 482.7 million of cash, cash equivalents and investments.

During the year ended

December 31, 2019, the Company received net proceeds of $177.8 million from the completion on April 18, 2019, and December 10, 2019 of public offerings of 5,175,000 and 4,393,000 shares of common stock, respectively.

Rocket expects such resources

will be sufficient to fund its operating expenses and capital expenditure requirements into 2022.

During the year ended December 31, 2020, the Company received net proceeds of $ 280.8 million from a public offering of 5,339,286 shares of common stock.

Rocket expects such resources will be sufficient to fund its operating expenses and capital expenditure requirements into the second half of 2023.

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.

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.

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.

Regarding the Company’s 2021 and 2022 Convertible Notes, the Company’s stock price is currently above the conversion price and the convertible noteholders have the option to convert the Convertible Notes to common stock or the Company has the option to redeem the convertible notes.

If the noteholders either do not convert to common stock or the Company does not require conversion of the convertible notes and if the Company's share price were to go below the conversion price, as defined, (see Note 7), the Company would be required to repay the 2022 Convertible Notes payable upon maturity of the notes or refinance the convertibles notes upon maturity.

The Company has previously refinanced the convertible notes in fiscal 2020 prior to maturity.

Summary of Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements represent the consolidation of the accounts of the Company and its subsidiaries in conformity with accounting principles generally accepted in the United

States (“US GAAP”).

The consolidated financial statements represent the consolidation of the accounts of the Company and its subsidiaries in conformity with accounting principles generally accepted in the United States (“US GAAP”).

All intercompany accounts have been eliminated in consolidation.

Use of Estimates

The preparation of the consolidated financial statements in conformity with US 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 fair value under acquisition accounting, goodwill impairment, the accrual of research and development expenses, the valuation of equity transactions, lease liabilities and stock-based awards.

Changes in estimates and

assumptions are reflected in reported results in the period in which they become known.

The preparation of the consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period.

Significant estimates and assumptions reflected in these consolidated financial statements include but are not limited to goodwill impairment, the accrual of research and development expenses, the valuation of equity transactions, and stock-based awards.

Changes in estimates and assumptions are reflected in reported results in the period in which they become known.

Actual results could differ from those estimates.

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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.

Cash equivalents are carried at cost which approximates fair value due to their short-term nature and which the Company believes do not have a material exposure to credit risk.

The Company considers all highly liquid investments with maturities of three months or less from the date of purchase to be cash equivalents.

The Company’s cash and cash equivalent accounts, at times, may exceed federally insured limits.

The Company has not experienced any losses in such accounts.

Restricted cash consists of deposits collateralizing letters of credit issued by a bank in connection with the Company’s operating leases (see Note 13 “Commitments and Contingencies” for additional

disclosures) and a deposit collateralizing a letter of credit issued by a bank supporting the Company’s Corporate Credit Card.

Restricted cash consists of deposits collateralizing letters of credit issued by a bank in connection with the Company’s operating leases (see Note 12 “Commitments and Contingencies” for additional disclosures) and a deposit collateralizing a letter of credit issued by a bank supporting the Company’s Corporate Credit Card.

Cash, cash equivalents and restricted cash consist of the following:

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Government Grants

Research and development expense is presented net of reimbursements from the California Institute for Regenerative Medicine (“CIRM”) , which

are recognized over the period necessary to match the reimbursement with the related costs when it is probable that the Company has complied with the CIRM conditions and will receive the reimbursement.

During the year ended December 31, 2019, we

offset $1.2 million of grant funds against research and development (“R&D”) expenses (See Note 16 “CIRM Grant” for additional disclosure).

Research and development expense is presented net of reimbursements from the California Institute for Regenerative Medicine (“CIRM”), which are recognized over the period necessary to match the reimbursement with the related costs when it is probable that the Company has complied with the CIRM conditions and will receive the reimbursement.

During the years ended December 31, 2020, 2019, and 2018, the Company offset $ 3.6 million, $ 1.2 million and $ 0 of CIRM grant funds against research and development (“R&D”) expenses (See Note 15 “CIRM Grant” for additional disclosure) .

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 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, Government and

Municipal Bonds.

The Company has adopted an investment policy that 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+/Aa1 rated, thereby reducing credit risk

Investments consist of investments in United States Treasury securities and Corporate, Government and Municipal 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 Financial Accounting Standards Board

(“FASB”) Accounting Standard Codification (“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 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.

Treasury securities, and Corporate, Government Municipal and Agency Bonds.

Investments consist of investments in United States Treasury securities and Corporate, Municipal and Agency 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 Financial Accounting Standards Board (“FASB”) Accounting Standard Codification (“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.

There were no realized gains or losses on investments for the years ended December 31, 2020, 2019 and 2018.

There was $0.1 million of net unrealized gain and $0.1 million of net unrealized losses on investments for the

years ended December 31, 2019 and 2018, respectively.

For the years ended December 31, 2020, 2019 and 2018, there was $ 0.1 million of net unrealized loss, $ 0.1 million of net unrealized gains and $ 0.1 million of net unrealized losses on investments, respectively.

Business combinations are accounted for under the acquisition method.

The total cost of an acquisition is allocated to the underlying identifiable net assets, based on their respective estimated

fair values as of the acquisition date.

future cash inflows and outflows, discount rates, asset lives and market multiples, among other items.

The total cost of an acquisition is allocated to the underlying identifiable net assets, based on their respective estimated fair values as of the acquisition date.

Determining the fair value of assets acquired and liabilities assumed requires management’s judgment and often involves the use of significant estimates and assumptions, including assumptions with respect to future cash inflows and outflows, discount rates, asset lives and market multiples, among other items.

Assets acquired and liabilities assumed are recorded at their estimated fair values.

The excess of the purchase price over the estimated fair

values of the net assets acquired is recorded as goodwill.

The excess of the purchase price over the estimated fair values of the net assets acquired is recorded as goodwill.

Goodwill is tested for impairment annually as of December 31, or more frequently when events or changes in circumstances indicate that the asset might be impaired.

such events or circumstances include, but are not limited to, a significant adverse change in legal or business climate, an adverse regulatory action or unanticipated competition.

The Company has one segment and one reporting unit and as such

reviews goodwill for impairment at the consolidated level.

Examples of such events or circumstances include, but are not limited to, a significant adverse change in legal or business climate, an adverse regulatory action or unanticipated competition.

The Company has one segment and one reporting unit and as such review’s goodwill for impairment at the consolidated level.

When testing goodwill, the Company has the option to first assess qualitative factors for reporting units that carry goodwill.

The qualitative assessment includes assessing the totality of relevant

events and circumstances that affect the fair value or carrying value of the reporting unit.

These events and circumstances include macroeconomic conditions, industry and competitive environment conditions, overall financial performance, reporting

unit specific events and market considerations.

The Company also considers recent valuations of the reporting unit, including the magnitude of the difference between the most recent fair value estimate and the carrying value, as well as both

positive and adverse events and circumstances, and the extent to which each of the events and circumstances identified may affect the comparison of a reporting unit’s fair value with its carrying value.

If the qualitative assessment results in a

conclusion that it is more likely than not that the fair value of a reporting unit exceeds the carrying value, then no further testing is performed for that reporting unit.

In January 2017, the FASB issued ASU No.

The qualitative assessment includes assessing the totality of relevant events and circumstances that affect the fair value or carrying value of the reporting unit.

These events and circumstances include macroeconomic conditions, industry and competitive environment conditions, overall financial performance, reporting unit specific events and market considerations.

The Company also considers recent valuations of the reporting unit, including the magnitude of the difference between the most recent fair value estimate and the carrying value, as well as both positive and adverse events and circumstances, and the extent to which each of the events and circumstances identified may affect the comparison of a reporting unit’s fair value with its carrying value.

If the qualitative assessment results in a conclusion that it is more likely than not that the fair value of a reporting unit exceeds the carrying value, then no further testing is performed for that reporting unit.

As of January 1, 2018, the Company early adopted ASU No.

2017-04, “Intangibles- Goodwill and Other (Topic 350):

Simplifying the Test for Goodwill Impairment”, an amendment to simplify the subsequent quantitative

measurement of goodwill by eliminating step two from the goodwill impairment test.

We early adopted this guidance as of January 1, 2018.

An entity will recognize an impairment charge for the amount by which the carrying amount of a reporting unit

exceeds its fair value, not to exceed the total amount of goodwill allocated to the reporting unit.

Simplifying the Test for Goodwill Impairment”, an amendment to simplify the subsequent quantitative measurement of goodwill by eliminating step two from the goodwill impairment test.

An entity will recognize an impairment charge for the amount by which the carrying amount of a reporting unit exceeds its fair value, not to exceed the total amount of goodwill allocated to the reporting unit.

An entity still has the option to perform the qualitative test for a reporting unit to determine if the quantitative impairment test is necessary.

The Company performed the qualitative assessment of its goodwill and determined that it is more likely than not that the fair value of a reporting unit exceeds the carrying value of the reporting unit.

As a result, the Company has determined there

was no goodwill impairment for the years ended December 31, 2019, and 2018.

As a result, the Company has determined there was no goodwill impairment as of and for the years ended December 31, 2020, 2019 and 2018 .

Property and Equipment

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The estimated useful lives are three to fifteen years .

The Company capitalizes purchases of laboratory equipment and construction costs in relation to the facility at Cranbury, New Jersey, since it has been determined these assets have alternative

future uses to the Company.

The Company capitalizes purchases of laboratory equipment and construction costs in relation to the facility at Cranbury, New Jersey, since it has been determined these assets have alternative future uses to the Company.

Expenditures for repairs and maintenance of assets are charged to expense as incurred.

Upon retirement or sale, the cost and related accumulated depreciation of assets disposed of are removed from the accounts and any

resulting gain or loss is included in loss from operations.

Internal Use Software

The Company capitalizes certain external costs incurred to acquire and develop internal use software, principally related to our enterprise

resource planning (“ERP”) systems.

As of December 31, 2019, the ERP system has not been activated.

Upon retirement or sale, the cost and related accumulated depreciation of assets disposed of are removed from the accounts and any resulting gain or loss is included in loss from operations.

Costs incurred in connection with development or purchase of internal use software and cloud computing arrangements, including in-substance software licenses, are capitalized.

Amortization is computed on a straight-line basis over the estimated useful life of the asset, which is six years .

Capitalized software is included in property and equipment in the consolidated balance sheets.

Impairment of Long-Lived Assets

The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the asset’s carrying amount may not be recoverable.

conducted our long-lived asset impairment analyses in accordance with ASC 360-10-15, Impairment or Disposal of Long-Lived Assets.”ASC 360-10-15 requires us to group assets and liabilities at the lowest level for which identifiable cash flows are

largely independent of the cash flows of other assets and liabilities and evaluate the asset group against the sum of the undiscounted future cash flows.

If the undiscounted cash flows do not indicate the carrying amount of the asset is

recoverable, an impairment charge is measured as the amount by which the carrying amount of the asset group exceeds its fair value based on discounted cash flow analysis or appraisals.

Following this review, there is no impairment of long-lived

assets for the years ended December 31, 2019 and 2018.

The Company conducted our long-lived asset impairment analyses in accordance with ASC 360-10-15, Impairment or Disposal of Long-Lived Assets.”ASC 360-10-15 requires us to group assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities and evaluate the asset group against the sum of the undiscounted future cash flows.

If the undiscounted cash flows do not indicate the carrying amount of the asset is recoverable, an impairment charge is measured as the amount by which the carrying amount of the asset group exceeds its fair value based on discounted cash flow analysis or appraisals.

There is no impairment of long-lived assets as of and for the years ended December 31, 2020, 2019 and 2018.

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.

820, Fair Value Measurements and Disclosures (“ASC 820”), 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

FASB ASC 820, Fair Value Measurements and Disclosures (“ASC 820”) 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:

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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 these instruments.

The fair value of the 2021 Convertible Notes as of December 31, 2019 was approximately $54.5 million.

The Company’s assets and liabilities measured at fair value on a recurring basis include its short and long term

Research and Development

R&D costs, which include salaries and staff costs, license costs, regulatory and scientific consulting fees, as well as contract research, and stock-based compensation expense, are accounted

for in accordance with ASC Topic 730, Research and Development (“ASC 730”).

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.

Research and Development Expenses

R&D costs, which include salaries and staff costs, license costs, manufacturing and development costs, clinical trial expenses, regulatory and scientific consulting fees, as well as contract research, and stock-based compensation expense, are accounted for in accordance with ASC Topic 730, Research and Development (“ASC 730”).

The Company does not currently have any commercial biopharmaceutical products and does not expect to have any for several years, if at all.

Accordingly, R&D costs are

expensed as incurred.

While certain of the Company’s R&D costs may have future benefits, the policy of expensing all R&D expenditures is predicated on the fact that the Company has no history of successful commercialization of product

candidates to base any estimate of the number of future periods that would be benefited.

Accordingly, R&D costs are expensed as incurred.

Foreign Currency Transactions

Certain transactions during the years ended December 31, 2019 and 2018 are denominated in Euros.

Gains and losses on foreign currency transactions were not significant for the years ended December

31, 2019 and 2018.

Certain transactions during the years ended December 31, 2020, 2019 and 2018 are denominated in Euros and British pounds.

Gains and losses on foreign currency transactions were not significant for the years ended December 31, 2020, 2019 and 2018.

Treasury Stock

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Stock-Based Compensation

The Company issues stock-based awards to employees and non-employees, generally in the form of stock options and restricted stock units.

The Company accounts for its stock-based compensation awards in accordance with FASB ASC Topic 718, Compensation—Stock Compensation (“ASC 718”).

ASC 718 requires all stock-based payments, including grants of stock options and restricted stock units and modifications to existing stock options, to be recognized in the consolidated statements of operations and comprehensive loss based on their fair values.

The Company measures the compensation expense of employee and nonemployee services received in exchange for an award of equity instruments based on the fair value of the award on the grant date.

That cost is recognized on a straight-line basis over the period during which the employee and nonemployee is required to provide service in exchange for the award.

The fair value of options on the date of grant is calculated using the

Black-Scholes option pricing model based on key assumptions such as stock price, expected volatility and expected term.

The Company’s estimates of these assumptions are primarily based on the trading price of the Company’s stock, historical data,

peer company data and judgment regarding future trends and factors.

The Company classifies stock-based compensation expense in its statement 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.

The fair value of options on the date of grant is calculated using the Black-Scholes option pricing model based on key assumptions such as stock price, expected volatility and expected term.

The Company’s estimates of these assumptions are primarily based on the trading price of the Company’s stock, historical data, peer company data and judgment regarding future trends and factors.

The Company classifies stock-based compensation expense in its consolidated statement 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.

The Company recognizes compensation expense for at least the portion of awards that are vested.

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2018-07, Compensation—Stock Compensation (Topic 718):

Improvements to Nonemployee Share-Based Payment

Accounting (“ASU 2018-07”), which expands the scope of Topic 718 to include stock-based payment awards to nonemployees.

As a result, stock-based awards granted to consultants and non-employees are accounted for in the same manner as awards

granted to employees and directors as described above.

Prior to the adoption of ASU 2018-07, for stock-based awards granted to consultants and non-employees, the Company recognized compensation expense over the period during which services are

rendered by such consultants and non-employees until completed.

At the end of each financial reporting period prior to completion of the service, the estimated fair value of these awards was re-measured using the then-current fair value of our

common stock and updated assumption inputs in the Black-Scholes option-pricing model.

Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”), which expands the scope of Topic 718 to include stock-based payment awards to nonemployees.

As a result, stock-based awards granted to consultants and non-employees are accounted for in the same manner as awards granted to employees and directors as described above.

Prior to the adoption of ASU 2018-07, for stock-based awards granted to consultants and non-employees, the Company recognized compensation expense over the period during which services are rendered by such consultants and non-employees until completed.

At the end of each financial reporting period prior to completion of the service, the estimated fair value of these awards was re-measured using the then-current fair value of our common stock and updated assumption inputs in the Black-Scholes option-pricing model.

NYC Biotechnology Tax Credit Program

New York City allows investors and owners of emerging technology companies focused on biotechnology to claim a tax credit against the General Corporation Tax and Unincorporated Business Tax for

amounts paid or incurred for certain facilities, operations, and employee training in New York City.

The credit is recognized as research and development incentives when approved by New York City of the eligibility for the credit and the credit

New York City allowed investors and owners of emerging technology companies focused on biotechnology to claim a tax credit against the General Corporation Tax and Unincorporated Business Tax for amounts paid or incurred for certain facilities, operations, and employee training in New York City.

The credit was recognized as research and development incentives when approved by New York City of the eligibility for the credit and the credit amount.

During the years ended December 31, 2020, 2019 and 2018, the Company recorded research and development incentive income of $ 0 , $ 0.3 million, and $ 0.2 million, respectively.

This program was not renewed by NYC upon its expiration at the end of 2018.

The Company accounts for income taxes under the asset and liability method.

The Company recognizes deferred tax assets and liabilities for the future tax consequences attributable to differences

between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, as well as for operating loss and tax credit carry-forwards.

The Company measures deferred tax assets and liabilities using enacted

tax rates expected to apply to taxable income in the years in which the Company expects to recover or settle those temporary differences.

The Company recognizes the effect of a change in tax rates on deferred tax assets and liabilities in the

results of operations in the period that includes the enactment date.

The Company reduces the measurement of a deferred tax asset, if necessary, by a valuation allowance if it is more likely than not that the Company will not realize some or all of

the deferred tax asset.

The Company recognizes deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, as well as for operating loss and tax credit carry-forwards.

The Company measures deferred tax assets and liabilities using enacted tax rates expected to apply to taxable income in the years in which the Company expects to recover or settle those temporary differences.

The Company recognizes the effect of a change in tax rates on deferred tax assets and liabilities in the results of operations in the period that includes the enactment date.

The Company reduces the measurement of a deferred tax asset, if necessary, by a valuation allowance if it is more likely than not that the Company will not realize some or all of the deferred tax asset.

The Company’s deferred tax assets relate primarily to its net operating loss carryforwards and other balance sheet differences.

In accordance with ASC 740 “Income Taxes”, the Company recorded a

full valuation allowance to fully offset the net deferred tax asset because it is not more likely than not that the Company will realize future benefits associated with these deferred tax assets at December 31, 2019 and 2018.

In accordance with ASC 740 “Income Taxes”, the Company recorded a full valuation allowance to fully offset the net deferred tax asset because it is not more likely than not that the Company will realize future benefits associated with these deferred tax assets at December 31, 2020 and 2019.

The Company accounts for uncertainty in income taxes recognized in the financial statements by applying a two-step process to determine the amount of tax benefit to be recognized.

First, the tax

position must be evaluated to determine the likelihood that it will be sustained upon external examination by the taxing authorities.

If the tax position is deemed more-likely-than-not to be sustained, the tax position is then assessed to determine

the amount of benefit to recognize in the financial statements.

First, the tax position must be evaluated to determine the likelihood that it will be sustained upon external examination by the taxing authorities.

If the tax position is deemed more-likely-than-not to be sustained, the tax position is then assessed to determine the amount of benefit to recognize in the financial statements.

The amount of the benefit that may be recognized is the largest amount that has a greater than 50% likelihood of being realized upon ultimate settlement.

The provision for income taxes

includes the effects of any resulting tax reserves, or unrecognized tax benefits, that are considered appropriate as well as the related net interest and penalties.

The provision for income taxes includes the effects of any resulting tax reserves, or unrecognized tax benefits, that are considered appropriate as well as the related net interest and penalties.

Net Loss Per Share

The Company calculates net loss per share in accordance with FASB ASC 260, Earnings per Share.

Basic net loss per share attributable to common shareholders

is computed by dividing the net loss attributable to common shareholders by the weighted average number of common shares outstanding for the period.

Diluted net loss attributable to common shareholders is computed by adjusting net loss attributable

to common shareholders to reallocate undistributed earnings based on the potential impact of dilutive securities.

Diluted net loss per share attributable to common shareholders is computed by dividing the diluted net loss attributable to common

shareholders by the weighted average number of common shares outstanding for the period, including potential dilutive common shares.

Basic net loss per share attributable to common shareholders is computed by dividing the net loss attributable to common shareholders by the weighted average number of common shares outstanding for the period.

Diluted net loss attributable to common shareholders is computed by adjusting net loss attributable to common shareholders to reallocate undistributed earnings based on the potential impact of dilutive securities.

Diluted net loss per share attributable to common shareholders is computed by dividing the diluted net loss attributable to common shareholders by the weighted average number of common shares outstanding for the period, including potential dilutive common shares.

For purposes of this calculation, outstanding options are considered potential dilutive common shares .

Segment Reporting

Operating segments are defined as components of an enterprise about which separate discrete information is available for evaluation by the chief operating decision maker, or decision-making group,

in deciding how to allocate resources and in assessing performance.

Operating segments are defined as components of an enterprise about which separate discrete information is available for evaluation by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance.

The Company views its operations and manages its business in one operating segment.

Comprehensive Loss

Comprehensive loss is defined as the change in equity of a business enterprise during a period from transactions, and other events and circumstances from non-owner sources, and consists of net loss

and changes in unrealized gains and losses on investments.

Comprehensive loss is defined as the change in equity of a business enterprise during a period from transactions, and other events and circumstances from non-owner sources and consists of net loss and changes in unrealized gains and losses on investments.

Recent Accounting Pronouncements

Other than the adoption of ASU 2016-02 (see Note 13), there were no other recent accounting standards that impacted the Company for the year ended December 31, 2019.

2018 Reverse-Merger Acquisition Accounting

On January 4, 2018, Rome Merger Sub (“Merger Sub”), a wholly owned subsidiary of Inotek Pharmaceuticals Corporation (“Inotek”), completed its merger with and into Rocket Pharmaceuticals, Ltd.

(“Rocket Ltd”), with Rocket Ltd surviving as a wholly owned subsidiary of Inotek.

This transaction is referred to as the “Reverse Merger.” The Reverse Merger was effected pursuant to an Agreement and Plan of Merger and Reorganization (the “Merger

Agreement”), dated as of September 12, 2017, by and among Inotek, Rocket Ltd and Rome Merger Sub.

The Reverse Merger has been accounted for as a reverse acquisition under the acquisition method of accounting where Rocket Ltd is considered the accounting acquirer and Inotek is the acquired

company for financial reporting purposes.

Rocket Ltd was determined to be the accounting acquirer based on the terms of the Merger Agreement and other factors, such as relative voting rights and the composition of the combined company’s board of

directors and senior management.

The pre-acquisition financial statements of Rocket Ltd became the historical financial statements of Rocket following completion of the Reverse Merger.

The historical financial statements, outstanding shares and all

other historical share information have been adjusted by multiplying the respective share amount by the Exchange Ratio as if the Exchange Ratio had been in effect for all periods presented.

The identifiable assets and liabilities of Inotek are allocated in the Company’s consolidated financial statements at their fair values at the acquisition date, January 4, 2018.

calculated as the excess value of consideration paid over the fair value of assets acquired and liabilities assumed.

The acquisition-date fair value of the consideration transferred is as follows:

Number of shares of the combined company owned by Inotek shareholders

Number of shares issuable in connection with fully vested RSUs of Inotek immediately prior to the Reverse Merger

Inotek common stock on the acquisition date

Price per share of Inotek common stock on acquisition date

Total purchase price

The following table summarizes the fair value purchase price allocation of the assets acquired and liabilities assumed at the date of acquisition which is subject to adjustment as the Company

finalizes it valuation:

Cash and cash equivalents

Short term investments

Prepaid expense and other assets

Property and equipment

Accounts payable and accrued expenses

Convertible notes

Unfavorable lease liability

Net assets acquired

The goodwill of $30.8 million represents the premium over the purchase price.

Goodwill is mainly attributable to the value of cash and cash equivalents and short term investments acquired as of

the acquisition date and access to capital markets.

The allocation of the purchase price with the assistance of a third party valuation, is based on certain management assumptions (Level 3 inputs).

In August 2018, the FASB issued ASU 2018-13 (“ASU 2018-13”), Fair Value Measurement - Disclosure Framework (Topic 820).

The updated guidance improves the disclosure requirements on fair value measurements.

The updated guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019.

The Company adopted this guidance on January 1, 2020.

The adoption of ASU 2018-13 had no impact on the Company as the Company does not have Level 3 investments.

Accounting Standards Not Yet Adopted

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 362):

Measurement of Credit Losses on Financial Statements (“ASU 2016-13”).

The new standard requires that expected credit losses relating to financial assets measured on an amortized cost basis and available-for-sale debt securities be recorded through an allowance for credit losses.

It also limits the amount of credit losses to be recognized for available-for-sale debt securities to the amount by which carrying value exceeds fair value and also requires the reversal of previously recognized credit losses if fair value increases.

The targeted transition relief standard allows filers an option to irrevocably elect the fair value option of ASC 825-10, Financial Instruments-Overall, applied on an instrument-by-instrument basis for eligible instruments.

The new standard will be effective beginning January 1, 2021.

The Company is currently evaluating the potential impact ASU 2016-13, and related updates, will have on its financial position and results of operations upon adoption, however ASU 2016-13 is not expected to have a material impact.

Fair Value of Financial Instruments

Items measured at fair value on a recurring basis are the Company’s investments.

The following table sets forth the Company’s financial instruments that were measured at fair value on a recurring

basis by level within the fair value hierarchy:

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

December 31, 2020 Using:

Money market mutual funds (included in cash and cash equivalents)

Cash and cash equivalents:

Money market mutual funds

United States Treasury securities

Government Bonds

Corporate Bonds

United States Treasury securities

Corporate Bonds

Municipal Bonds

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December 31, 2019 Using:

Money market mutual funds (included in cash and cash equivalents)

Cash and cash equivalents:

Money market mutual funds

United States Treasury securities

Government Bonds

Corporate Bonds

Municipal Bonds

The Company classifies its money market mutual funds and U.S.

Treasury securities as Level 1 assets under the fair value hierarchy, as these assets have been valued using quoted market prices in

active markets without any valuation adjustment.

The company classifies its Government, Corporate and Municipal 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.

The fair value of the 2021 Convertible Notes as of December 31, 2019 was approximately $54.5 million.

Property and Equipment

Treasury securities as Level 1 assets under the fair value hierarchy, as these assets have been valued using quoted market prices in active markets without any valuation adjustment.

The company classifies its Government, Corporate, Municipal and Agency Bonds as Level 2 assets as these assets are not traded in an active market and have been valued through a third-party pricing service based on quoted prices for similar assets.

The fair value of the 2021 Convertible Notes and 2022 Convertible Notes as of December 31, 2020 was $ 9.5 million and $ 65.6 million, respectively (see Note 7).

Property and Equipment, Net

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

Laboratory equipment

Machinery and equipment

Computer equipment

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Leasehold improvements

Internal use software

Construction costs in progress

accumulated depreciation

Construction costs in progress comprise costs associated with the build out of the Company’s research, manufacturing and office facilities under an operating lease in Cranbury, NJ.

The costs are

deemed to be landlord improvement costs.

See Note 13 “Commitments and Contingencies” for additional disclosures.

During the years ended December 31, 2019 and 2018, the Company capitalized interest in relation to the construction costs of $0.7

million and $0, and recognized $0.4 million and $0.3 million of depreciation expense, respectively.

accumulated depreciation and amortization

Construction costs in progress as of December 31, 2019 was comprised of costs associated with the build out of the Company’s research, manufacturing and office facility in Cranbury, NJ.

See Note 12 “Commitments and Contingencies” for the treatment of construction costs as part of the right of use asset as of December 31, 2020.

Depreciation and amortization during the years ended December 31, 2020, 2019, and 2018 was $ 1.1 million, $ 0.4 million and $ 0.3 million, respectively.

Accounts Payable and Accrued Expenses

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Research and development

Construction costs in progress

Property and equipment

Employee compensation

Accrued interest

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Professional fees

Accrued vacation

Severance and benefits

Internal use software

Convertible Notes Payable

On January 4, 2018, in connection with the Reverse Merger, Inotek’s obligations under its outstanding convertible notes, with an aggregate principal value of $52.0 million, were assumed by the

Company (the “2021 Convertible Notes”).

The 2021 Convertible Notes were issued in 2016 and mature on August 1, 2021 (“Maturity Date”).

The 2021 Convertible Notes are unsecured, accrue interest at a rate of 5.75% per annum and interest is payable

semi-annually on February 1 and August 1 of each year.

Each holder of a 2021 Convertible Notes (the “Holder”) has the option until the close of business on the second business day immediately preceding the Maturity Date to convert all, or any

portion, of the 2021 Convertible Notes held by it at a conversion rate of 31.1876 shares of the Company’s common stock per $1 principal amount of 2021 Convertible Notes (the “Conversion Rate”) which is $32.08 per share.

The Conversion Rate is

subject to adjustment from time to time upon the occurrence of certain events, including the issuance of stock dividends and payment of cash dividends.

In addition, in certain circumstances, the Conversion Rate will be increased in respect of a Holder’s conversion of 2021 Convertible Notes in connection with the occurrence of one or more corporate

events specified in the indenture (as supplemented, the “Indenture”) governing the 2021 Convertible Notes (each such specified corporate event, a “Make-Whole Fundamental Change”) that occurs prior to the Maturity Date (a “Make-Whole Fundamental

Change Conversion”) or in respect of a Holder’s voluntary conversion of 2021 Convertible Notes other than in connection with a Make-Whole Fundamental Change (a “Voluntary Conversion”).

In connection with a Make-Whole Fundamental Change Conversion

or a Voluntary Conversion, the Company will increase the Conversion Rate for the 2021 Convertible Notes surrendered for conversion by a number of additional shares of the Company’s common stock set forth in the Additional Shares Make-Whole Table in

the Indenture, based on the applicable Stock Price (as defined in the Indenture) and Effective Date (as defined in the Indenture) for such conversion.

The additional shares potentially issuable in connection with a Make-Whole Fundamental Change

Conversion or a Voluntary Conversion range from 0 to 6.2375 per $1 principal amount of 2021 Convertible Notes, subject to adjustment.

If the Stock Price applicable to any conversion is greater than $160.00 per share, the Conversion Rate will not be

If the Stock Price applicable to any conversion is less than $26.72 per share, the Conversion Rate in connection with a Make-Whole Fundamental Change Conversion will not be increased but it will be increased by 6.2375 shares in

connection with a Voluntary Conversion.

Upon conversion, Holders of the 2021 Convertible Notes will receive shares of the Company’s common stock and cash in lieu of fractional shares.

Upon the occurrence of a Fundamental Change, the occurrence of certain change of control transactions or delisting events (as defined in the Indenture), each Holder may require the Company to

repurchase for cash all or any portion of the 2021 Convertible Notes held by such Holder at a repurchase price equal to 100% of the principal amount thereof, plus accrued and unpaid interest thereon.

The Company, at its option, may redeem for cash all or any portion of the 2021 Convertible Notes if the last reported sale price of a share of the Company’s common stock is equal to or greater than

200% of the conversion price for the 2021 Convertible Notes then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending within the five

trading days immediately preceding the date on which the Company provides notice of redemption, at a redemption price equal to 100% of the principal amount of the 2021 Convertible Notes to be redeemed, plus accrued and unpaid interest to, but

excluding, the redemption date.

If an Event of Default (as defined in the Indenture), other than certain events of bankruptcy, insolvency or reorganization involving the Company, occurs and is continuing, the trustee under the

Indenture or the Holders of at least 25% in principal amount of the outstanding 2021 Convertible Notes may declare 100% of the principal of and accrued and unpaid interest, if any, on all of the 2021 Convertible Notes to be due and payable

Upon the occurrence of an Event of Default relating to bankruptcy, insolvency or reorganization involving the Company, 100% of the principal of and accrued and unpaid interest, if any, on all of the 2021 Convertible Notes would become

due and payable automatically.

Notwithstanding the foregoing, the Indenture provides that, to the extent the Company elects, the sole remedy for an Event of Default relating to certain failures by the Company to comply with

certain reporting covenants in the Indenture, will (i) for the first 90 days after the occurrence of such an Event of Default, consist exclusively of the right to receive additional interest on the 2021 Convertible Notes at a rate equal to 0.25%

per annum of the principal amount of the 2021 Convertible Notes outstanding for each day during such 90-day period on which such an Event of Default is continuing and (ii) for the period from, and including, the 91st day after the occurrence of

such an Event of Default to, and including, the 180th day after the occurrence of such an Event of Default, consist exclusively of the right to receive additional interest on the 2021 Convertible Notes at a rate equal to 0.50% per annum of the

principal amount of the 2021 Convertible Notes outstanding for each day during such additional 90-day period on which such an Event of Default is continuing (such additional interest, “Additional Interest”).

After 180 days, if such Event of Default

is not cured or waived, the 2021 Convertible Notes would be subject to acceleration in accordance with the Indenture.

The 2021 Convertible Notes are considered a hybrid financial instrument consisting of a fixed interest rate “host” and various embedded features that required evaluation as potential embedded

derivatives under FASB ASC 815, Derivatives and Hedging (“ASC 815”).

Based on the nature of the host instrument and the embedded features, management concluded that none of the conversion, put and redemption

features required bifurcation and separate accounting from the host instrument.

2021 Convertible Notes

On January 4, 2018, in connection with its reverse merger with Inotek Pharmaceuticals, Corporation (“Inotek”), the Company assumed the obligations of Inotek under its outstanding convertible notes, with an aggregate principal amount of $ 52.0 million, (the “2021 Convertible Notes”).

The 2021 Convertible Notes were issued in 2016 and mature on August 1, 2021 (the “Maturity Date”).

The 2021 Convertible Notes are unsecured and accrue interest at a rate of 5.75 % per annum and interest is payable semi-annually on February 1 and August 1 of each year.

Each holder of the 2021 Convertible Notes (“Holder”) has the option until the close of business on the second business day immediately preceding the Maturity Date to convert all, or any portion, of the 2021 Convertible Notes held by it at a conversion rate of 31.1876 shares of the Company’s common stock per $ 1.00 principal amount of 2021 Convertible Notes (the “Conversion Rate”) which is $ 32.08 per share.

The Conversion Rate is subject to adjustment from time to time upon the occurrence of certain events, including the issuance of stock dividends and payment of cash dividends.

The Company, at its option, may redeem for cash all or any portion of the 2021 Convertible Notes if the last reported sale price of a share of the Company’s common stock is equal to or greater than 200 % of the Conversion Rate for the 2021 Convertible Notes then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending within the five trading days immediately preceding the date on which the Company provides notice of redemption, at a redemption price equal to 100 % of the principal amount of the 2021 Convertible Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date.

The 2021 Convertible Notes are considered a hybrid financial instrument consisting of a fixed interest rate “host” and various embedded features that required evaluation as potential embedded derivatives under FASB ASC 815, Derivatives and Hedging (“ASC 815”).

Based on the nature of the host instrument and the embedded features, management concluded that none of the conversion, put and redemption features required bifurcation and separate accounting from the host instrument.

The Company determined that the Additional Interest was an embedded derivative that contains non-credit related events of default.

As a result, the Additional Interest

feature required bifurcation and separate accounting under ASC 815.

Based on the amount of Additional Interest that would be owed and the likelihood of occurrence, Rocket estimated that the fair value of the Additional Interest feature to be

immaterial as of December 31, 2019 and 2018.

As a result, the Additional Interest feature required bifurcation and separate accounting under ASC 815.

Based on the amount of Additional Interest that would be owed and the likelihood of occurrence, the Company estimated the fair value of the Additional Interest feature to be insignificant upon issuance and as of December 30, 2020 and 2019.

As of December 31, 2020, the stated interest rate was 5.75 %, and the effective interest rate was 15.3 %.

The table below summarizes the carrying value of the 2021 Convertible Notes:

2022 Convertible Notes

On February 20, 2020 and June 5, 2020, the Company entered into separate, privately negotiated exchange agreements (the “Exchange Agreements”) with certain holders of the 2021 Convertible Notes.

Pursuant to the Exchange Agreements, on February 20, 2020, the Company exchanged approximately $ 39.35 million aggregate principal amount of the 2021 Convertible Notes (representing approximately 76 % of the aggregate outstanding principal amount of the 2021 Convertible Notes) for (a) approximately $ 39.35 million aggregate principal amount of 6.25 % Convertible Senior Notes due August 2022 (the “2022 Convertible Notes”) (an exchange ratio equal to 1.00 2022 Convertible Note per exchanged 2021 Convertible Note) and (b) $ 0.1 million to pay the accrued and unpaid interest on the exchanged 2021 Convertible Notes from February 1, 2020, to February 20, 2020, the closing date of the February 20, 2020 exchange transactions.

Additionally, the Company repurchased 3,000 shares of its common stock that have been retired for an aggregate amount of $ 72 from certain holders of the 2021 Convertible Notes participating in the exchange transactions in privately negotiated, private transactions.

Also pursuant to the Exchange Agreements, on June 12, 2020, the Company exchanged $ 7.5 million aggregate principal amount of the 2021 Convertible Notes for (a) $ 7.5 million aggregate principal amount of its newly issued 6.25 % Convertible Senior Notes due 2022 (an exchange ratio equal to 1.00 2022 Convertible Notes per exchanged 2021 Convertible Notes) and (b) approximately $ 11 to pay the accrued and unpaid interest on the exchanged 2021 Convertible Notes from, and including, February 1, 2020, to, but excluding, the closing date of the exchange transaction, adjusted to take into account the unearned accrued interest on the 2022 Convertible Notes from, and including, February 20, 2020, to the closing date of the exchange transaction.

The 2022 Convertible Notes were issued in a private placement exempt from registration in reliance on Section 4(a)(2) of the Securities Act of 1933, as amended.

The 2022 Convertible Notes issued in the exchange transaction were issued as additional notes pursuant to the Indenture, dated as of August 5, 2016, between the Company and Wilmington Trust, National Association, as trustee, as supplemented by the Second Supplemental Indenture, dated as of February 20, 2020, governing the 2022 Convertible Notes.

The conversion rate for the 2022 Convertible Notes is initially 31.1876 shares of the Company’s common stock per 1.00 principal amount of 2022 Convertible Notes, which is equivalent to an initial conversion price of approximately $ 32.06 per share of common stock and is subject to adjustment under the terms of the 2022 Convertible Notes.

The Company may redeem for cash all or any portion of the 2022 Convertible Notes, at its option, if the last reported sale price of its common stock is equal to or greater than 130 % of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending within the five trading days immediately preceding the date on which the Company provides written notice of redemption.

The 2022 Convertible Notes Indenture contains customary terms and covenants and events of default.

As of December 31, 2020, the stated interest rate was 6.25 %, and the effective interest rate was 15.3 %.

The exchange transactions were accounted for as a modification of the 2021 Convertibles Notes and have been accounted for based on ASC 470-50 Modifications and Extinguishments.

The remaining outstanding principal of the 2021 Convertible Notes will be accounted for consistent with the original accounting assessment.

The Company incurred $ 1.6 million of costs in connection with the February 2020 exchange and $ 0.3 million of costs in connection with the June 2020 exchange transaction which have been included in G&A expenses in the consolidated statement of operations for the year ended December 31, 2020.

Costs incurred of $ 0.1 million in connection with the February exchange transaction and $ 0.1 million in connection with the June exchange transaction that were paid directly to the creditors have been included as a debt discount and are being amortized over the life of the 2022 Convertible Notes.

In December, 2020, $ 8.5 million principal amount, representing a carrying value of $ 7.6 million of the 2022 Convertible Notes were converted into 298,562 shares of common stock.

The table below summarizes the carrying value of the 2021 Convertible Notes as of December 31, 2020:

Principal amount

Carrying value

Accretion of the 2021 Convertible Notes discount was $3.6 million and $3.1 million for the years ended December 31, 2019 and 2018, respectively.

On February 10, 2020, the Company entered into separate, privately negotiated exchange agreements (the “Exchange Agreements”) with certain holders of the 2021 Convertible Notes (see Note 19).

Carrying value as of December 31, 2020

Accretion of the 2021 Convertible Notes discount was $ 1.3 million, $ 3.6 million, and $ 3.1 million for the years ended December 31, 2020, 2019, and 2018, respectively.

The table below summarizes the carrying value of the 2022 Convertible Notes as of December 31, 2020:

Principal amount

Carrying value as of December 31, 2020

Accretion of the 2022 Convertible Notes discount was $ 1.5 million for the year ended December 31, 2020.

Stockholders’ Equity

The Company is currently authorized to issue up to 120,000,000 shares of $ 0.01 par value common stock.

All issued shares of common stock are entitled to vote on a 1 share/ 1 vote basis.

Second Amended and Restated 2014 Stock Option and Incentive Plan

In March 2018, Rocket’s board of directors approved the Second Amended and Restated 2014 Stock Option and Incentive Plan (the “Revised 2014 Plan”) which was approved by the Company’s shareholders at the Annual Meeting held on June 25, 2018.

Treasury Stock

On December 27 and 28, 2018, the Company repurchased 100,000 shares of its common stock for aggregate consideration of approximately $1.4 million.

The repurchases were made on the Nasdaq Stock

Market at prevailing market prices in accordance with SEC Rule 10b-18.

50,000 of the shares repurchased at an average price of $13.36 by the Company settled on December 31, 2018 and was recorded as treasury stock.

The remaining 50,000 shares

repurchased at an average price of $14.50 resulting in $0.7 million, was recorded as a prepaid expense as of December 31, 2018.

On January 2, 2019, these shares were settled and the $0.7 million was recorded as treasury stock.

In January 2019, the

total of 100,000 of treasury stock shares were retired and the total of $1.3 million was reclassified to additional paid in capital.

The Company sold 100,000 shares of common stock (the “Shares”) for $1.4 million to RTW Innovation Master Fund, Ltd.

(“RTW Innovation”), which is an affiliate of the Company and is managed by RTW.

RTW Innovation purchased the shares for a per-Share price of $13.93, plus an amount equal to the Company’s expenses incurred in connection with the Repurchases (including broker’s commissions) and the issuance of the Shares.

The offering and sale

of the Shares was completed as a private placement under Section 4(a) (2) of the Securities Act of 1933, as amended and included in the common shares outstanding as of December 31, 2018.

On June 25, 2019, the Company recorded treasury stock of $0.3 million for shares withheld to pay the payroll tax liability of an option exercise.

These shares were sold in November 2019 for $0.3

As of December 31, 2019, the Company recorded treasury stock of $0.1 million for the shares withheld to pay the payroll tax liability of an option exercise.

The related payroll tax liability is

included in the consolidated balance sheets as of December 31, 2019 within accounts payable and accrued expenses.

In January 2019, the total of 100,000 of treasury stock shares were retired and the total of $ 1.3 million was reclassified to additional paid in capital.

On December 12, 2019, the Company recorded treasury stock of $ 0.1 million for shares withheld to pay the payroll tax liability of an option exercise which was remitted in January 2020 .

The related payroll tax liability is included in the consolidated balance sheets as of December 31, 2019 within accounts payable and accrued expenses.

During fiscal 2020, the Company recorded treasury stock for shares withheld to pay the payroll tax liability of option exercises which were remitted prior to December 31, 2020.

Public Offerings

On January 26, 2018, the Company completed a public offering of 6,325,000 shares of common stock, which included the full exercise of the underwriters’ options to purchase 825,000 additional shares

of its common stock at a public offering price of $13.25 per share.

The gross proceeds to Rocket from the January 2018 public offering were approximately $83.8 million, net of $5.3 million of offering costs, commission and legal and other expenses

for net proceeds from the offering of $78.5 million.

On November 30, 2018, the Company completed a public offering of 4,082,500 shares of its common stock, which includes the full exercise of the underwriters’ option to purchase 532,500 additional

shares of its common stock, at a public offering price of $15.50 per share.

The gross proceeds to Rocket from the November 2018 public offering were approximately $63.3 million, net of $4.0 million of offering costs, commissions, legal and other

expenses for a net proceeds from the offering of $59.3 million.

In addition to the shares sold in the November 2018 public offering, on November 30, 2018 Rocket completed a concurrent sale of 967,742 shares of common stock at a price of $15.50 per share, for

gross proceeds of $15.0 million, net of offering costs of $0.2 million for net proceeds of $14.8 million, in a private placement to RTW Investments, LP, (“RTW”) an existing stockholder of the Company and an affiliate of Roderick Wong, the chairman

of Rocket’s board of directors.

The sale of these shares was not registered under the Securities Act of 1933, as amended, and such shares are subject to customary resale restrictions.

Additionally, RTW signed a 90-day lock-up with respect to all

shares of Rocket beneficially held by RTW.

On April 18, 2019, the Company completed a public offering of 5,175,000 shares of common stock, which includes the full exercise of the underwriters’ option to purchase an

additional 675,000 shares of our common stock, at a public offering price of $17.50 per share.

The gross proceeds to Rocket from the April 2019 public offering were approximately $90.6 million, after deducting $4.5 million of offering costs,

commissions, legal and other expenses for a net proceeds from the offering of $86.1 million.

On December 10, 2019, the Company completed a public offering of 4,393,000 shares of common stock, which includes the full exercise of the underwriters’ option to purchase an

additional 573,000 shares of our common stock, at a public offering price of $22.25 per share.

The gross proceeds to Rocket from the December 2019 public offering were approximately $99.7 million, net of $6.1 million of offering costs, commissions,

legal and other expenses for a net proceeds from the offering of $91.7 million.

On April 18, 2019, the Company completed a public offering of 5,175,000 shares of common stock, which includes the full exercise of the underwriters’ option to purchase an additional 675,000 shares of our common stock, at a public offering price of $ 17.50 per share.

The gross proceeds to Rocket from the April 2019 public offering were approximately $ 90.6 million, after deducting $ 4.5 million of offering costs, commissions, legal and other expenses for net proceeds from the offering of $ 86.1 million.

On December 10, 2019, the Company completed a public offering of 4,393,000 shares of common stock, which includes the full exercise of the underwriters’ option to purchase an additional 573,000 shares of our common stock, at a public offering price of $ 22.25 per share.

The gross proceeds to Rocket from the December 2019 public offering were approximately $ 99.7 million, net of $ 6.1 million of offering costs, commissions, legal and other expenses for net proceeds from the offering of $ 91.7 million.

On December 14, 2020, the Company completed a public offering of 5,339,286 shares of common stock, which includes the full exercise of the underwriters’ option to purchase an additional 696,428 shares of our common stock, at a public offering price of $ 56.00 per share.

The gross proceeds to Rocket from the public offering were approximately $ 299.0 million, net of $ 18.2 million of offering costs, commissions, legal and other expenses for net proceeds from the offering of $ 280.8 million.

Stock-Based Awards

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2018-07, Compensation—Stock Compensation (Topic 718):

Improvements to Nonemployee Share-Based Payment

Accounting (“ASU 2018-07”).

Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”).

The table below for the years ended December 31, 2020, 2019 and 2018 is post adoption of ASU 2018-07.

The weighted average assumptions that the Company used in the Black-Scholes pricing model to

determine the fair value of the stock options granted to employees, non-employees and directors were as follows:

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

Years Ended December 31,

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Outstanding as of December 31, 2018

Assumed as part of merger with Inotek

Outstanding as of December 31, 2019

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Stock-Based Compensation

Year Ended December 31,

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

Years Ended December 31,

Stock options

Restricted stock units

Total share based compensation expense

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

Years Ended December 31,

Research and development

General and administrative

As of December 31, 2019, the Company had an aggregate of $19.3 million of unrecognized stock-based compensation expense, which is expected to be recognized over the weighted average period of 1.74

Total share based compensation expense

In addition, the Company issued warrants to a related party for $ 26.6 million (see Note 16- Related Party Transactions).

As of December 31, 2020, the Company had an aggregate of $ 30.4 million of unrecognized stock-based compensation expense, which is expected to be recognized over the weighted average period of 2.1 year s.

Restricted Stock Units (“RSU”)

The following table summarizes our RSU activity for the year ended December 31, 2020:

Unvested as of December 31, 2019

Unvested as of December 31, 2020

The intrinsic value of RSU’s vested during the years ended December 31, 2020 and 2019 was $ 0.5 million and $ 0 .

As of December 31, 2020, there was approximately $ 0.5 million of unrecognized compensation cost related to RSU’s granted.

This amount is expected to be recognized over a weighted average period of 2.8 years.

During the year ended December 31, 2020, 7,051 of warrants were exercised into 1,601 shares of common stock.

The Company has warrants outstanding as of December 31, 2020, convertible into 7,051 and 603,386 of common shares at an exercise price of $ 24.82 and $ 57.11 per share, which expire on June 28, 2023 and December 21, 2030 , respectively.

Net Loss Per Share

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Net loss per share attributable to common stockholders - basic and diluted

The Company excluded the following potential shares of common stock, presented based on amounts outstanding at each period end, from the computation of diluted net loss per share attributable to

common stockholders for the periods indicated because including them would have had an anti-dilutive effect:

The Company excluded the following potential shares of common stock, presented based on amounts outstanding at each period end, from the computation of diluted net loss per share attributable to common stockholders for the periods indicated because including them would have had an anti-dilutive effect:

For the Years Ended December 31,

Shares issuable upon conversion of the 2021 Convertible Notes

Shares issuable upon conversion of the 2022 Convertible Notes

Warrants exercisable for common shares

Options to purchase common shares

The Company has warrants outstanding as of December 31, 2019 and 2018, convertible into 14,102 of common shares at an exercise price of $24.82 per share which expire on June 28, 2023.

No provision for federal or state income taxes was recorded during the years ended December 31, 2019 and 2018, as the Company incurred operating losses and maintains a full valuation allowance

against its net deferred tax assets.

No provision for federal or state income taxes was recorded during the years ended December 31, 2020, 2019 and 2018, as the Company incurred operating losses and maintains a full valuation allowance against its net deferred tax assets.

A reconciliation of income tax benefit computed at the statutory federal income tax rate to income taxes as reflected in the financial statements is as follows:

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The significant components of the Company’s deferred income tax assets and liabilities after applying the enacted corporate tax rates are as follows:

For the years ended December 31,

At December 31,

Deferred income tax assets (liabilities)

Net operating losses (“NOL”) and credit carryforwards

Net operating losses (“NOL”)

Capitalized research and development costs

3 unchanged sentences

Net deferred income tax asset

As of December 31, 2019, the Company had federal and state net operating loss carryforwards of approximately $62.4 million and $2.2 million, respectively, which begin to expire in 2025.

Additionally, $28.3 million of

the Federal NOLs can be carried forward indefinitely.

As required by ASC 740, Income Taxes , management of Rocket has evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets, which are

comprised principally of NOL carryforwards and capitalized research and development costs.

As a result of the fact that Rocket has incurred tax losses from inception, management has determined that it is more likely than not that Rocket will not

recognize the benefits of federal and state net deferred tax assets and, as a result, a full valuation allowance has been established against its net deferred tax assets as of December 31, 2019 and 2018.

Rocket has offset certain deferred tax

liabilities with deferred tax assets that are expected to generate offsetting deductions within the same period.

As of December 31, 2020, the Company had federal and state net operating loss carryforwards of approximately $ 194.3 million and $ 26.0 million, respectively, which begin to expire in 2025 and 2035 , respectively.

Additionally, $ 160.2 million of the Federal NOLs can be carried forward indefinitely.

The Company has federal R&D credits of $ 21.4 million which will begin to expire in 2038 .

As required by ASC 740, Income Taxes , management of Rocket has evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets, which are comprised principally of NOL carryforwards and capitalized research and development costs.

As a result of the fact that Rocket has incurred tax losses from inception, management has determined that it is more likely than not that Rocket will not recognize the benefits of federal and state net deferred tax assets and, as a result, a full valuation allowance has been established against its net deferred tax assets as of December 31, 2020 and 2019.

Rocket has offset certain deferred tax liabilities with deferred tax assets that are expected to generate offsetting deductions within the same period.

During the years ended December 31, 2020 and 2019, the valuation allowance increased by $ 48.9 million and $ 3.9 million, respectively.

Realization of deferred tax assets is dependent upon the generation of future taxable income.

Under Internal Revenue Code Section 382, if a corporation undergoes an “ownership change,” the corporation’s ability to use its pre-change NOL carryforwards and other pre-change tax attributes to offset its post-change

income may be limited.

The Company has completed a study to assess whether an ownership change has occurred or whether there have been multiple ownership changes since the Company became a “loss corporation” as defined in Section 382.

experienced multiple ownership changes occurring in 2005, 2007, 2015, and 2018.

The ownership change has and will continue to subject our pre-ownership change net operating loss carryforwards to an annual limitation, which will significantly

restrict our ability to use them to offset taxable income in periods following the ownership change.

In general, the annual use limitation equals the aggregate value of our stock at the time of the ownership change multiplied by a specified

tax-exempt interest rate.

The Company experienced multiple ownership changes occurring in 2005, 2007, 2015, and 2018.

The ownership change has and will continue to subject our pre-ownership change net operating loss carryforwards to an annual limitation, which will significantly restrict our ability to use them to offset taxable income in periods following the ownership change.

In general, the annual use limitation equals the aggregate value of our stock at the time of the ownership change multiplied by a specified tax-exempt interest rate.

As a result of the ownership change, the Company is limited to an approximate $ 1.7 million annual limitation on our ability to utilize our pre-merger NOL’s and R&D Credits.

Due to this limitation, approximately $93.0

million of the $127.1 million pre-merger Federal NOL will expire unutilized as the cumulative limitation amount over a 20 year carryforward period is $34.1 million.

Due to this limitation, approximately $ 93.0 million of the $ 127.1 million pre-merger Federal NOL will expire unutilized as the cumulative limitation amount over a 20-year carryforward period is $ 34.1 million.

Additionally, $ 4.9 million of Federal R&D Credits will expire unutilized.

result, in 2019, the Company has reduced its deferred tax assets related to the Federal NOL and Federal R&D Credits by an aggregate of $4.9 million which is offset by the corresponding decrease in the valuation allowance.

As a result, the Company has reduced its deferred tax assets related to the Federal NOL and Federal R&D Credits by an aggregate of $ 4.9 million which is offset by the corresponding decrease in the valuation allowance.

The company is currently analyzing their intercompany transfer pricing agreements which could have an impact on the net operating losses available in the United States .

The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations for both federal taxes and the many states in which Rocket operates or does business in.

ASC 740 states that a tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, on the

basis of the technical merits.

The Company recorded uncertain tax positions as liabilities in accordance with ASC 740 and adjust these liabilities when our judgment changes as a result of the evaluation of new information not previously available.

The Company records uncertain tax positions as liabilities in accordance with ASC 740 and adjusts these liabilities when our judgment changes as a result of the evaluation of new information not previously available.

Because of the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from our current estimate of the unrecognized tax benefit liabilities.

These differences will be reflected as

increases or decreases to income tax expense in the period in which new information is available.

As of December 31, 2019 the Company has not recorded any uncertain tax positions in its financial statements.

These differences will be reflected as increases or decreases to income tax expense in the period in which new information is available.

As of December 31, 2020 and 2019 the Company has no t recorded any uncertain tax positions in its financial statements.

The Company recognizes interest and penalties related to unrecognized tax benefits on the income tax expense line in the accompanying consolidated statement of operations.

As of December 31, 2019 and 2018, no accrued

interest or penalties are included on the related tax liability line in the consolidated balance sheets.

As of December 31, 2020, 2019 and 2018, no accrued interest or penalties are included on the related tax liability line in the consolidated balance sheets.

This Company in currently being audited by New York City for the 2017 tax year.

There are no proposed adjustments at this time.

Commitments and Contingencies

The Company adopted ASU 2016-02, Leases (“ASU 2016-02”), as amended, on January 1, 2019, which supersedes the prior leasing guidance and upon adoption,

requires lessees to recognize right-of-use assets and lease liabilities on the balance sheet for all leases with terms longer than 12 months.

Leases are classified as either finance or operating, with classification affecting the pattern of expense

recognition in the income statement.

The Company adopted ASU 2016-02, Leases (“ASU 2016-02”), as amended, on January 1, 2019, which supersedes the prior leasing guidance and upon adoption, requires lessees to recognize right-of-use assets and lease liabilities on the balance sheet for all leases with terms longer than 12 months.

Leases are classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement.

Upon the adoption of the guidance, operating leases were capitalized on the balance sheet at the present value of lease payments.

The balance sheet amount recorded for existing leases at the date of adoption of

ASU 2016-02 was calculated using an estimate of the Company’s collateralized borrowing rate for debt with a similar term.

In adopting ASU 2016-02, the Company elected the available package of practical expedients which allows the Company to not reassess previous accounting conclusions around whether arrangements are

or contain leases, the classification of leases, and the treatment of initial direct costs.

The Company also made an accounting policy election to utilize the short-term lease exemption, whereby leases with a term of 12 months or less will not

follow the recognition and measurement requirements of the new standard.

Upon adoption, the Company recognized total right-of-use assets of $2.6 million, with corresponding liabilities of $3.1 million on the 2019 consolidated balance sheets,

including the reclassification of $0.5 million from deferred rent to right-of-use assets.

The balance sheet amount recorded for existing leases at the date of adoption of ASU 2016-02 was calculated using an estimate of the Company’s collateralized borrowing rate for debt with a similar term.

In adopting ASU 2016-02, the Company elected the available package of practical expedients which allows the Company to not reassess previous accounting conclusions around whether arrangements are or contain leases, the classification of leases, and the treatment of initial direct costs.

The Company also made an accounting policy election to utilize the short-term lease exemption, whereby leases with a term of 12 months or less will not follow the recognition and measurement requirements of the new standard.

Upon adoption, the Company recognized total right-of-use assets of $ 2.6 million, with corresponding liabilities of $ 3.1 million on the 2019 consolidated balance sheets, including the reclassification of $ 0.5 million from deferred rent to right-of-use assets.

The Company determines if an arrangement is a lease at inception.

Operating leases are included in our balance sheet as right-of-use assets from operating leases, current operating lease

liabilities and long-term operating lease liabilities.

Operating leases are included in our balance sheet as right-of-use assets from operating leases, current operating lease liabilities and long-term operating lease liabilities.

Certain of the Company’s lease agreements contain renewal options;

however, the Company does not recognize right-of-use assets or lease liabilities for renewal periods unless it is determined

that the Company is reasonably certain of renewing the lease at inception or when a triggering event occurs.

As the Company’s leases do not provide an implicit rate, the Company estimated the incremental borrowing rate in calculating the present

value of the lease payments.

however, the Company does not recognize right-of-use assets or lease liabilities for renewal periods unless it is determined that the Company is reasonably certain of renewing the lease at inception or when a triggering event occurs.

As the Company’s leases do not provide an implicit rate, the Company estimated the incremental borrowing rate in calculating the present value of the lease payments.

The Company has utilized its incremental borrowing rate based on the long -term borrowing costs of comparable companies in the biotechnology industry.

Since the Company elected to account for each lease component and

its associated non-lease components as a single combined lease component, all contract consideration was allocated to the combined lease component.

Some of the Company’s lease agreements contain rent escalation clauses (including index-based

escalations).

Since the Company elected to account for each lease component and its associated non-lease components as a single combined lease component, all contract consideration was allocated to the combined lease component.

Some of the Company’s lease agreements contain rent escalation clauses (including index-based escalations).

The Company recognizes the minimum rental expense on a straight-line basis based on the fixed components of a lease arrangement.

The Company will amortize this expense over the term of the lease beginning with the lease commencement

The Company will amortize this expense over the term of the lease beginning with the lease commencement date.

Variable lease components represent amounts that are not fixed in nature and are not tied to an index or rate and are recognized as incurred.

Operating Leases

Rocket has entered into a lease for a facility in Cranbury, New Jersey, consisting of 103,720 square feet of space including areas for offices, process development, research and

development laboratories and 50,000 square feet will be dedicated to AAV Current Good Manufacturing Practice (cGMP) manufacturing to support the Company’s pipeline, which has not yet commenced.

smaller area within this facility was originally leased in August 2018, and the lease was amended in June 2019 to include the full building (such lease, as amended, the “NJ Lease Agreement”).

We began to pay rent on September 1, 2019, and the NJ

Lease Agreement has a term of 15 years from this date, with an option to renew for two consecutive five-year renewal terms.

The NJ Lease Agreement commencement had not yet occurred at December 31, 2019, since the construction of all landlord

owned improvements had not been completed, therefore as of December 31, 2019, the right of use asset and lease liability have not been recorded for this lease.

These construction costs in progress will be included as part of the right of use

asset upon the lease commencement date.

Estimated rent payments for the NJ Lease Agreement are $1.2 million per annum, payable in monthly installments, depending upon the nature of the leased space, and subject to annual base rent

increases of 3%.

Finance Lease

Rocket has entered into a lease for a facility in Cranbury, New Jersey, consisting of 103,720 square feet of space including areas for offices, process development, research and development laboratories and 50,000 square feet dedicated to AAV Current Good Manufacturing Practice (cGMP) manufacturing to support the Company’s pipeline, to commence later in 2021.

A smaller area within this facility was originally leased in August 2018, and the lease was amended in June 2019 to include the full building (such lease, as amended, the “NJ Lease Agreement”).

The Company began making lease payments on September 1, 2019.

At that time and as of December 31, 2019, the Company determined the lease commencement date had not occurred since the landlord improvements had not been completed.

Prior to the lease commencement date, the lease payments were recorded as prepaid rent.

The Company determined the lease commencement date was reached on March 15, 2020 when the construction of all landlord owned improvements had been substantially completed and when the Company began including its leasehold improvements on the balance sheet and move equipment into the space.

Upon commencement of the NJ Lease Agreement, the Company recognized total right-of-use assets of $ 47.7 million, with a corresponding lease liability of $ 20.2 million.

The Company reclassified $ 26.5 million of construction costs in progress and $ 1.1 million of prepaid rent as part of the right of use asset upon the lease commencement date of March 15, 2020.

Since the lease commencement date, the Company reclassified an additional $ 4.5 million bringing the aggregate reclassification to $ 32.1 million of construction costs in progress as part of the right of use asset.

Estimated rent payments for the NJ Lease Agreement are $ 1.2 million per annum, payable in monthly installments, depending upon the nature of the leased space, and subject to annual base rent increases of 3 %.

The total commitment under the lease is estimated to be approximately $ 29.3 million over the 15 -year term of the lease.

The Company paid a cash security deposit of $0.3 million to the landlord in connection with the NJ Lease

Agreement which has been reflected in deposits in the consolidated balance sheets as of December 31, 2019 and 2018.

The Company paid a cash security deposit of $ 0.3 million to the landlord in connection with the NJ Lease Agreement which has been reflected in deposits in the consolidated balance sheets as of December 31, 2020 and 2019.

The Company entered into the lease prior to the building being available for use as the building construction was not complete.

The total restricted cash balance for the Company’s operating leases at December 31, 2019 and 2018 was $1.0 million and $0.9 million, respectively.

On March 31, 2016, the Company entered into a lease agreement for its office and laboratory space at the Alexandria Center for Life Sciences in New York, New York with an initial term ending on

July 31, 2022 (the “NY Lease Agreement”).

In connection with the NY Lease Agreement, the Company established an irrevocable standby letter of credit (“ARE LOC”) with a bank.

The ARE LOC, in which the landlord is the beneficiary, serves as the

Company’s security deposit on the lease.

The Company has a certificate of deposit with a bank as collateral for the ARE LOC which is classified as restricted cash in the consolidated balance sheets.

On June 28, 2018, the Company entered into

Amendment No.1 to the NY Lease Agreement, whereby the landlord agreed to relieve the Company of its obligations under the lease for a portion of the leased space upon the takeover of the space by a replacement tenant.

The Company agreed to extend

the lease for the remaining laboratory space by one additional year until July 2022.

The Company recorded an additional rent expense of $0.1 million related to the early exit from the lease during the year end December 31, 2018.

A replacement

tenant has executed a new lease for the office space and as of September 7, 2018, the Company was relieved of its obligations for rent and security deposit for the office space.

In October 2018, the Company provided a new letter of credit for $0.08

million (the “New ARE LOC”) relating to the remaining lab space and the existing ARE LOC of $0.2 million was released back to the Company.

The New ARE LOC expires and is automatically renewed April 8 of each succeeding calendar year until October

29, 2020, unless written notice is provided no later than 90 days before the then existing expiration date.

The Company continues to maintain laboratory space at the Alexandria Center for Life Science facility as its hub for research and

development activities.

The total restricted cash balance for the Company’s operating and finance leases at December 31, 2020 and 2019 was $ 1.1 million and $ 1.0 million, respectively.

Operating Leases

On March 31, 2016 , the Company entered into a lease agreement for its office and laboratory space at the Alexandria Center for Life Sciences in New York, New York with an initial term ending on July 31, 2022 (the “NY Lease Agreement”).

Effective May 31, 2020 , the Company terminated the lease and recorded a loss on lease termination of $ 76 for the year ended December 31, 2020 .

On June 7, 2018, the Company entered into a three-year lease agreement for office space in the Empire State Building (the “ESB Lease Agreement”).

In connection with the ESB Lease Agreement, the

Company established an irrevocable standby letter of credit (the “Empire LOC”) with a bank for $0.9 million which expires on June 30, 2020 and is renewed automatically for a one year period until its expiration date of July 31, 2021.

The Empire LOC

serves as the Company’s security deposit on the lease in which the landlord is the beneficiary.

The Company has a certificate of deposit of $0.9 million with a bank as collateral for the Empire LOC which is classified as part of restricted cash in

the consolidated balance sheets as of December 31, 2019.

In connection with the ESB Lease Agreement, the Company established an irrevocable standby letter of credit (the “Empire LOC”) with a bank for $ 0.9 million which expires on June 30, 2020 and is renewed automatically for a one-year period until its expiration date of July 31, 2021 .

The Empire LOC serves as the Company’s security deposit on the lease in which the landlord is the beneficiary.

The Company has a certificate of deposit of $ 0.9 million with a bank as collateral for the Empire LOC which is classified as part of restricted cash in the consolidated balance sheets as of December 31, 2020.

On January 4, 2018, in connection with the Reverse Merger, the Company assumed an operating lease for Inotek’s former headquarters in Lexington, Massachusetts, with a term ending in February 2023 .

In July 2018, the Company signed an agreement to sublease a portion of the Lexington, Massachusetts space and in September 2018, the Company signed an agreement to sublease the remaining portion of the Lexington, Massachusetts space.

Rental income

received under the sublease agreement totaled $0.3 million and $0.1 million for the years ended December 31, 2019 and 2018, respectively.

Rent expense was $0.9 million and $0.8 million for the years ended December 31, 2019 and 2018, respectively.

Rental income received under the sublease agreement totaled $ 0.4 million, $ 0.3 million, and $ 0.1 million for the years ended December 31, 2020, 2019 and 2018, respectively.

These amounts are netted against rent expense in the consolidated statement of operations for the years ended December 31, 2020, 2019 and 2018.

Rent expense was $ 1.1 million, $ 0.9 million, and $ 0.8 million for the years ended December 31, 2020, 2019 and 2018, respectively.

December 31, 2020

Operating lease cost

Finance lease cost

Amortization of right of use assets

Interest on lease liablities

Total lease cost

The following table summarizes the maturity of the Company’s lease liabilities on an undiscounted cash flow basis and a reconciliation to the operating lease liabilities recognized on the Company’s

balance sheet as of December 31, 2019:

Maturity of lease liabilities

Maturity of operating lease liabilities

December 31, 2020

1 unchanged sentence

Total operating lease liabilities

The following disclosure is provided for periods prior to adoption of ASU 2016-02.

Future annual minimum lease payment commitments, including the NJ Lease Agreement, as of December 31, 2019 were

Maturity of finance lease liability

December 31, 2020

Total lease payments

Total finance lease liability

December 31, 2020

Operating right-of-use assets

2 unchanged sentences

Total operating lease liabilities

Finance right-of-use assets

Finance current lease liability

Finance noncurrent lease liability

Total finance lease liability

Other information

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Operating cash flows from operating leases

Cash flows from finance lease

Weighted-average remaining lease term - operating leases

Weighted-average remaining lease term - finance lease

Weighted-average discount rate - operating leases

Weighted-average discount rate - finance lease

From time to time, the Company may be subject to various legal proceedings and claims that arise in the ordinary course of its business activities.

Although the results of litigation and claims

cannot be predicted with certainty, the Company does not believe it is party to any other claim or litigation the outcome of which, if determined adversely to the Company, would individually or in the aggregate be reasonably expected to have a

material adverse effect on its business.

Although the results of litigation and claims cannot be predicted with certainty, the Company does not believe it is party to any other claim or litigation the outcome of which, if determined adversely to the Company, would individually or in the aggregate be reasonably expected to have a material adverse effect on its business.

Regardless of the outcome, litigation can have an adverse impact on the Company because of defense and settlement costs, diversion of management resources and other factors.

Indemnification Arrangements

Pursuant to its bylaws and as permitted under Delaware law, the Company has indemnification obligations to directors, officers, employees or agents of the Company or anyone serving in these

Pursuant to its bylaws and as permitted under Delaware law, the Company has indemnification obligations to directors, officers, employees or agents of the Company or anyone serving in these capacities.

The maximum potential amount of future payments the Company could be required to pay is unlimited.

The Company has insurance that reduces its monetary exposure and would enable it to recover a portion of any future amounts paid.

result, the Company believes that the estimated fair value of these indemnification commitments is minimal.

As a result, the Company believes that the estimated fair value of these indemnification commitments is minimal.

Throughout the normal course of business, the Company has agreements with vendors that provide goods and services required by the Company to run its business.

In some instances, vendor agreements

include language that requires the Company to indemnify the vendor from certain damages caused by the Company’s use of the vendor’s goods and/or services.

The Company has insurance that would allow it to recover a portion of any future amounts that

could arise from these indemnifications.

In some instances, vendor agreements include language that requires the Company to indemnify the vendor from certain damages caused by the Company’s use of the vendor’s goods and/or services.

The Company has insurance that would allow it to recover a portion of any future amounts that could arise from these indemnifications.

As a result, the Company believes that the estimated fair value of these indemnification commitments is minimal.

Agreements Related to Intellectual Property

The Company, directly and through its subsidiary Rocket Pharmaceuticals, Ltd.

has various license and research and collaboration arrangements.

The transactions principally resulted in the

acquisition of rights to intellectual property which is in the preclinical phase and has not been tested for safety or feasibility.

The Company, directly and through its subsidiary Spacecraft Seven , LLC, has various license and research and collaboration arrangements.

The transactions principally resulted in the acquisition of rights to intellectual property which is in the preclinical phase and has not been tested for safety or feasibility.

In all cases, the Company did not acquire tangible assets, processes, protocols or operating systems.

expenses the acquired intellectual property rights as of the acquisition date on the basis that the cost of intangible assets purchased from others for use in research and development activities, has no alternative future uses.

The Company expenses the acquired intellectual property rights as of the acquisition date on the basis that the cost of intangible assets purchased from others for use in research and development activities, has no alternative future uses.

Contract Research and Collaboration Agreement with Lund University and J.

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under which Dr.

Richter grants to Rocket an exclusive, perpetual,

sublicensable, worldwide license to certain intellectual property rights of Dr.

Richter grants to Rocket an exclusive, perpetual, sublicensable, worldwide license to certain intellectual property rights of Dr.

Richter relating to lentiviral-mediated gene transfer to treat IMO.

In exchange for the license, Rocket is obligated to make an up-front payment, certain clinical and

commercial milestone payments, royalty payments (on net sales of products covered by a valid claim within the licensed intellectual property) and sublicense revenue payments to Dr.

In exchange for the license, Rocket is obligated to make an up-front payment, certain clinical and commercial milestone payments, royalty payments (on net sales of products covered by a valid claim within the licensed intellectual property) and sublicense revenue payments to Dr.

Under the terms of the agreement, Lund University and Dr.

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Intellectual property resulting from the contract research created by Dr.

Richter is included in the license

described above and also subject to an option for Rocket to purchase ownership of such rights.

Intellectual property created by Lund University in conducting such research is non-exclusively licensed to Rocket for non-commercial use and also

subject to an option for Rocket to purchase or license such intellectual property under commercially reasonable terms.

Richter is included in the license described above and also subject to an option for Rocket to purchase ownership of such rights.

Intellectual property created by Lund University in conducting such research is non-exclusively licensed to Rocket for non-commercial use and also subject to an option for Rocket to purchase or license such intellectual property under commercially reasonable terms.

Rocket is obligated to pay for the contract research according to an agreed budget in quarterly installments in advance.

As consideration for an option to acquire rights from Lund University on commercially reasonable terms and conditions, Rocket paid Lund University an upfront license fee of €0.02 million

(approximately $0.02 million), which was expensed as research and development costs.

As consideration for an option to acquire rights from Lund University on commercially reasonable terms and conditions, Rocket paid Lund University an upfront license fee of € 0.02 million (approximately $ 0.02 million), which was expensed as research and development costs.

Rocket is obligated to make aggregate milestone payments of up to € 0.1 million (approximately $ 0.1 million) to Lund University and Dr.

Richter upon the achievement

of specified development and regulatory milestones.

With respect to any commercialized products covered by the Lund University agreement, Rocket is obligated to pay a low single digit percentage royalty on net sales, subject to specified

adjustments, by Rocket or its sublicensees or affiliates.

In the event that Rocket enters into a sublicense agreement with a sublicensee, Rocket will be obligated to pay a portion of any consideration received from such sublicensees in specified

circumstances.

The research agreement had an initial term of 24 months.

In August 2018, the research and collaboration agreement was amended for an additional year expiring August 2019 and amended in August 2019,

renewing for an additional year expiring August 2020.

Richter upon the achievement of specified development and regulatory milestones.

With respect to any commercialized products covered by the Lund University agreement, Rocket is obligated to pay a low single digit percentage royalty on net sales, subject to specified adjustments, by Rocket or its sublicensees or affiliates.

In the event that Rocket enters into a sublicense agreement with a sublicensee, Rocket will be obligated to pay a portion of any consideration received from such sublicensees in specified circumstances.

The research and collaboration agreement had an initial term of 24 months and was amended to extend the term multiple times.

In January 2021, the research and collaboration agreement was extended until July 31, 2021 .

License Agreement for Danon Disease with UCSD

In February 2017, the Company entered into a License Agreement with The Regents of the University of California, represented by its San Diego campus (“UCSD”), under which UCSD granted us an

exclusive, sublicensable, worldwide license to certain intellectual property rights for the treatment of lysosomal storage diseases, including Danon disease.

In exchange for the license, the Company became obligated to make an up-front payment,

certain clinical and commercial milestone payments, royalty payments (on net sales of products covered by a valid claim within the licensed intellectual property), maintenance fees and sublicense revenue payments.

In February 2017, the Company entered into a License Agreement with The Regents of the University of California, represented by its San Diego campus (“UCSD”), under which UCSD granted us an exclusive, sublicensable, worldwide license to certain intellectual property rights for the treatment of lysosomal storage diseases, including Danon disease.

In exchange for the license, the Company became obligated to make an up-front payment, certain clinical and commercial milestone payments, royalty payments (on net sales of products covered by a valid claim within the licensed intellectual property), maintenance fees and sublicense revenue payments.

The upfront license fee of $ 0.05 million was expensed as research and development costs.

The Company is obligated to make aggregate milestone payments of up to $1.5 million to UCSD upon the

achievement of specified development and regulatory milestones for the treatment of Danon disease.

The Company is obligated to make aggregate milestone payments of up to $ 1.5 million to UCSD upon the achievement of specified development and regulatory milestones for the treatment of Danon disease.

A reduced schedule of milestone payments applies to achieving the same milestones for additional indications.

With respect to any commercialized

products covered by the agreement, we are obligated to pay a low single digit percentage royalty on net sales, subject to specified adjustments.

If it enters into a sublicense agreement with a sublicensee, it will be obligated to pay a portion of

any consideration received from such sublicensees in specified circumstances.

With respect to any commercialized products covered by the agreement, the Company is obligated to pay a low single digit percentage royalty on net sales, subject to specified adjustments.

If it enters into a sublicense agreement with a sublicensee, it will be obligated to pay a portion of any consideration received from such sublicensees in specified circumstances.

The Company is also subject to certain diligence milestones for development of a product using the intellectual property licensed from UCSD under this agreement.

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(“RGNX”), pursuant to which the Company obtained an exclusive license for all U.S.

patents and patent

applications related to RGNX’s NAV AAV-9 vector for the treatment of Danon disease in humans by in vivo gene therapy using AAV-9 to deliver any known LAMP2 transgene isoforms and all possible combinations of

LAMP2 transgene isoforms (the “Field”), as well as an exclusive option to license (the “Option Right”) all U.S.

patents and patent applications for two additional NAV AAV vectors in the Field (each, a “Licensed Patent” and collectively, the

“Licensed Patents”).

Under the terms of the license agreement, the Company is obligated to use commercially reasonable efforts to develop, commercialize, market, promote and sell products incorporating the Licensed

Patents (“Licensed Products”).

last to expire of the last valid claim of the applicable Licensed Patent or ten years after the first commercial sale of a Licensed Product in such country.

The license agreement provides that RGNX may terminate the agreement upon a material breach

by the Company if the Company does not cure such breach within a specified notice period, if the Company commences a challenge against RGNX or certain of its licensors to declare or render invalid or unenforceable the licensed patents or upon the

Company’s bankruptcy or insolvency.

patents and patent applications related to RGNX’s NAV AAV-9 vector for the treatment of Danon disease in humans by in vivo gene therapy using AAV-9 to deliver any known LAMP2 transgene isoforms and all possible combinations of LAMP2 transgene isoforms (the “Field”), as well as an exclusive option to license (the “Option Right”) all U.S.

patents and patent applications for two additional NAV AAV vectors in the Field (each, a “Licensed Patent” and collectively, the “Licensed Patents”).

Under the terms of the license agreement, the Company is obligated to use commercially reasonable efforts to develop, commercialize, market, promote and sell products incorporating the Licensed Patents (“Licensed Products”).

Unless the license agreement is terminated earlier as provided below, the license from RGNX expires on a country-by-country, Licensed Product-by-Licensed Product basis until the later of the expiration date of the last to expire of the last valid claim of the applicable Licensed Patent or ten years after the first commercial sale of a Licensed Product in such country.

The license agreement provides that RGNX may terminate the agreement upon a material breach by the Company if the Company does not cure such breach within a specified notice period if the Company commences a challenge against RGNX or certain of its licensors to declare or render invalid or unenforceable the licensed patents or upon the Company’s bankruptcy or insolvency.

The Company may terminate the agreement in its entirety or terminate one or more of the licensed vectors at any time upon six months ’ notice.

The Company’s Option Right expires four years from the date of the

license agreement.

The Company’s Option Right expires four years from the date of the license agreement.

In consideration for the rights granted to the Company under the license agreement, the Company made an upfront payment to RGNX of $ 7.0 million included as research and development expenses.

of $2.0 million per additional vector would be due if the Company exercises its Option Right to purchase additional vectors.

The license agreement provides for royalties payable to RGNX in the high-single digits to low-teens on net sales levels of

Licensed Products during the royalty term.

If successful, the Company will be required to make milestone payments to RGNX of up to $13.0 million for each Licensed Product upon the achievement of specified clinical development and regulatory

milestones in the U.S.

A fee of $ 2.0 million per additional vector would be due if the Company exercises its Option Right to purchase additional vectors.

The license agreement provides for royalties payable to RGNX in the high-single digits to low-teens on net sales levels of Licensed Products during the royalty term.

If successful, the Company will be required to make milestone payments to RGNX of up to $ 13.0 million for each Licensed Product upon the achievement of specified clinical development and regulatory milestones in the U.S.

and European Union.

In addition, the Company shall pay RGNX 20 % of the payment fees received from a priority review voucher issued in connection with or otherwise related to a Licensed Product.

These royalty obligations are

subject to specified reductions if additional licenses from third parties are required.

These royalty obligations are subject to specified reductions if additional licenses from third parties are required.

The Company must also pay RGNX a portion of all non-royalty sublicense income (if any) received from sublicensees.

The Company paid a $1.0 million license fee

payment under the RGNX agreement upon the dosing of the first Danon patient in 2019.

The Company paid a $ 1.0 million license fee payment under the RGNX agreement upon the dosing of the first Danon patient in 2019.

No additional milestones were achieved and related payments made during the year ended December 31, 2020.

Strategic Research Collaboration

On May 16, 2018, Rocket and the Stanford University School of Medicine (“Stanford University”) entered into a strategic collaboration to support the advancement of FA and PKD gene therapy research.

Under the terms of the collaboration agreement, Stanford University will serve as the lead clinical trial research center in the U.S.

for the planned FA registrational trial and would also be the lead U.S.

On May 16, 2018, the Company, and the Stanford University School of Medicine (“Stanford University”) entered into a strategic collaboration agreement to support the advancement of FA and PKD gene therapy research.

Under the terms of the collaboration agreement, Stanford University is the lead clinical trial research center in the U.S.

for the FA registrational trial and the lead U.S.

site for PKD clinical trials.

will also separately evaluate the potential for non-myeloablative, non-genotoxic antibody-based conditioning regimens as a future development possibility that may be applied across bone marrow-derived disorders.

In addition, Rocket agreed to

support expansion of Stanford University’s Laboratory for Cell and Gene Therapy (“LCGM”) in efforts to further enhance the development of Rocket’s internal pipeline.

Rocket agreed to fund up to $3.5 million for the LCGM expansion upon which 40% or

$1.4 million was due upon execution of the agreement and the balance is due upon the achievement of certain milestones.

$1.4 million of the $3.5 million milestone payments was paid during the year ended December 31, 2019.

In January 2019, the

Company and Stanford signed a Clinical Trial Agreement for the treatment of FA.

Upon the signing of the January 2019 Stanford Clinical Trial Agreement, the second milestone of $1.4 million for the LGCM became due and was expensed in January 2019,

when the milestone was met.

As of December 31, 2019, none of the remaining milestones were met with regard to the LCGM.

On April 30, 2019, the CIRM awarded Rocket up to $6.5 million under a CLIN2 grant award to support the clinical development of gene therapy for LAD-I.

Proceeds from the grant will help fund

clinical trial costs as well as manufactured drug product for Phase I/II patients enrolled at the U.S.

clinical site, University of California, Los Angeles (“UCLA”) Mattel Children’s Hospital, led by principal investigator Donald Kohn, M.D., UCLA

Professor of Microbiology, Immunology and Molecular Genetics, Pediatrics (Hematology/Oncology), Molecular and Medical Pharmacology and member of the Eli and Edythe Broad Center of Regenerative Medicine and Stem Cell Research at UCLA.

2019, we received the first grant from CIRM of $0.8 million and on October 15, 2019, we received the second grant of $0.4 million, based on eligible costs incurred under the grant.

The CIRM grant reimbursements are accrued as an offset against

R&D expenses as reimbursable expenses are incurred.

The project will also separately evaluate the potential for non-myeloablative, non-genotoxic antibody-based conditioning regimens as a future development possibility that may be applied across bone marrow-derived disorders.

In addition, the Company agreed to support expansion of Stanford University’s Laboratory for Cell and Gene Therapy (“LCGM”) in order to further enhance the development of the Company’s internal pipeline.

The Company agreed to contribute up to $ 3.5 million for the LCGM expansion of which $ 1.4 million was due upon execution of the collaboration agreement and the remaining $ 2.1 million balance is due upon the achievement of certain milestones.

In January 2019, the Company and Stanford University signed a Clinical Trial Agreement for the treatment of FA and upon signing of the Clinical Trial Agreement, the second milestone of $ 1.4 million for the LGCM became due and was expensed and paid.

During the year ended December 31, 2020, the remaining milestone under this collaboration agreement was met and the Company expensed and paid the final milestone payment of $ 0.7 million .

On April 30, 2019, the California Institute for Regenerative Medicine (“CIRM”) awarded the Company up to $ 6.5 million under a CLIN2 grant award to support the clinical development of gene therapy for LAD-I.

Proceeds from the grant will help fund clinical trial costs as well as manufactured drug product for Phase I/II patients enrolled at the U.S.

clinical site, University of California, Los Angeles (“UCLA”) Mattel Children’s Hospital, led by principal investigator Donald Kohn, M.D., UCLA Professor of Microbiology, Immunology and Molecular Genetics, Pediatrics (Hematology/Oncology), Molecular and Medical Pharmacology and member of the Eli and Edythe Broad Center of Regenerative Medicine and Stem Cell Research at UCLA.

In 2019, the Company received the first two grants from CIRM in the aggregate of $ 1.2 million, based on eligible costs incurred under the grant.

The CIRM grant reimbursements are accrued as an offset against R&D expenses as reimbursable expenses are incurred.

During the year ended December 31, 2020, the Company met the next CIRM milestone and recorded a receivable, included in prepaid and other assets in the consolidated balance sheet, and a reduction of research and development expenses of $ 1.1 million.

The Company received the $ 1.1 million cash advance on January 4, 2021.

On November 12, 2020, the CIRM awarded Rocket up to $ 3.7 million under a CLIN2 grant award to support the clinical development of its lentiviral vector (LVV)-based gene therapy, RP-L401, for the treatment of IMO.

The Company received a $ 1.1 million cash advance on January 4, 2021 related to the CIRM IMO award and recorded a receivable, included in prepaid and other assets in the consolidated balance sheet, and a reduction of research and development expenses of $ 0.9 million .

Related Party Transactions

During March 2018, the Company entered into a consulting agreement with a member of the Board of Directors for strategic and finance consulting services to be provided to the Company.

incurred expenses of $3,600 and $0.2 million in connection with this consulting agreement for the years ended December 31, 2019 and 2018, respectively.

During April 2018, the Company entered into a consulting agreement with a different member of the Board of Directors for business development consulting services.

The Company incurred expenses of

$0.1 million in connection with this consulting agreement for both of the years ended December 31, 2019 and 2018.

During April 2018, the Company entered into an agreement with a member of the Board of Directors for business development consulting services.

Payments for the services under the agreement are $ 28 per quarter, and the Company may terminate the agreement with 14 days’ notice.

The Company incurred expenses of $ 0.1 million for all of the years ended December 31, 2020, 2019 and 2018, relating to services provided under this agreement.

In June 2020, the Company entered into a consulting agreement with a member of the Board of Directors for pipeline development, new asset evaluation, and corporate strategy.

In lieu of cash for services to be provided under the consulting agreement during its one-year term, the Company granted the board member option to purchase 9,784 shares of the Company’s common stock with a fair value of $ 0.1 million.

In October 2020, the Company entered into a consulting agreement with the spouse of one of the Company’s executive officers for information technology advisory services.

In exchange for the services provided under the agreement, the Company granted 10,000 restricted stock units which vest over a three-year period.

On December 21, 2020, the Company entered into a consulting agreement with a related party.

Pursuant to the consulting agreement, the related party provides certain business development and asset identification consulting services to the Company.

The term of the consulting agreement is three years and may be terminated with 60 days’ notice by either party.

In exchange for the business development services to be provided under the agreement, the Company issued a warrant exercisable for 603,386 shares of Common Stock.

Pursuant to the consulting agreement, the related party is entitled to receive additional warrants exercisable for common stock upon identification of new assets for the Company to in-license.

The Company recorded a non-cash R&D expense of $ 26.6 million in 2020 related to the issuance of the Common Stock warrant.

The fair value of the warrant was calculated using the Black-Scholes fair value pricing model with the following inputs:

December 31, 2020

Risk-free interest rate

Expected term (in years)

Expected volatility

Expected dividend yield

Exercise price

Fair value of common stock

401(k) Savings Plan

The Company has a defined contribution savings plan (the “Plan”) under Section 401(k) of the Internal Revenue Code of 1986.

This Plan covers substantially all employees who meet minimum age and

service requirements and allows participants to defer a portion of their annual compensation on a pre-tax basis.

This Plan covers substantially all employees who meet minimum age and service requirements and allows participants to defer a portion of their annual compensation on a pre-tax basis.

Company contributions to the Plan may be made at the discretion of the Company’s board of directors.

The Company has elected to match

4% of employee contributions to the Plan, subject to certain limitations.

The Company’s matching contribution for the years ended December 31, 2019 and 2018, was $0.2 million and $0.1 million, respectively.

Subsequent Events

Convertible Notes Exchange Agreement

On February 10, 2020, the Company entered into separate, privately negotiated exchange agreements (the “Exchange Agreements”) with certain holders of its outstanding 5.75% Convertible Senior Notes

due 2021 (the “Old Notes”) (see Note 8).

Pursuant to the Exchange Agreements, we exchanged approximately $39.4 million aggregate principal amount of the Old Notes (which represents approximately 76% of the aggregate outstanding principal amount of

the Old Notes) for (a) approximately $39.4 million aggregate principal amount of 6.25% Convertible Senior Notes due 2022 (the “New Notes”) (an exchange ratio equal to 1.00 New Notes per exchanged Old Note) and (b) $119,416 in cash to pay the

accrued and unpaid interest on the exchanged Old Notes from, and including, February 1, 2020, to, but excluding, the closing date of the exchange transactions.

The New Notes were issued in private placements exempt from registration in reliance on

Section 4(a) (2) of the Securities Act of 1933, as amended (the “Securities Act”).

Upon completion of the exchange transactions, approximately $12.7 million aggregate principal amount of Old Notes remained outstanding.

The exchange transactions

closed on February 20, 2020.

The conversion rate for the New Notes will initially be 31.1876 shares of the Company’s common stock per $1,000 principal amount of 2022 Notes, which is equivalent to an initial conversion price of

approximately $32.06 per share of common stock, and is subject to adjustment under the terms of the New Notes.

The Company may redeem for cash all or any portion of the 2022 Notes, at its option, if the last reported sale price of its common stock

is equal to or greater than 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending within the five

trading days immediately preceding the date on which the Company provides written notice of redemption.

The 2022 Notes Indenture contains customary terms and covenants and events of default.

We are currently reviewing the accounting for this

Additionally, the Company repurchased 3,000 shares of its common stock at an aggregate amount of $71,670 from certain holders of the Old Notes participating in the exchange transactions in

privately negotiated, private transactions.

The Company has elected to match 4 % of employee contributions to the Plan, subject to certain limitations.

The Company’s matching contribution for the years ended December 31, 2020, 2019, and 2018 was $ 0.3 million, $ 0.2 million, and $ 0.1 million, respectively.

Selected Quarterly Financial Information (Unaudited)

The following table presents selected consolidated statements of operations data for each quarter for the fiscal years ended December 31, 2020 and 2019 (unaudited, in thousand s, except for per share data) :

First quarter

Second quarter

Third quarter

Fourth quarter

Total revenues

Total operating expenses

Loss from operations

Net loss per share attributable to common stockholders - basic and diluted

First quarter

Second quarter

Third quarter

Fourth quarter

Total revenues

Total operating expenses

Loss from operations

Net loss per share attributable to common stockholders - basic and diluted

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 9A. Controls and Procedures