ROCKET PHARMACEUTICALS, INC. 10-K

Item 9A. Controls and Procedures 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, 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 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; and • 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. 68 Table of Contents 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. 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. Item 9B. Other Information None. PART III. — OTHER INFORMATION Item 10. Directors, Executive Officers and Corporate Governance 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. Item 11. Executive Compensation 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. Item 12. 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. Item 13. 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. Item 14. Principal Accountant Fees and Services Information with respect to this item will be set forth in the Proxy Statement under the heading “Ratification of Appointment of Independent Registered Public Accounting Firm” 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. 69 Table of Contents PART IV Item 15. Exhibits, Financial Statements and Schedules (a) The following documents are filed as part of this Annual Report: (1) Financial Statements: Reports of Independent Registered Public Accounting Firm F-2 Consolidated Balance Sheets as of December 31, 2020 and 2019 F-5 Consolidated Statements of Operations for the Years Ended December 31, 2020, 2019 and 2018 F-6 Consolidated Statements of Comprehensive Loss for the Years Ended December 31, 2020, 2019 and 2018 F-7 Consolidated Statements of Changes in Stockholders’ Equity for the Years Ended December 31, 2020, 2019 and 2018 F-8 Consolidated Statements of Cash Flows for the Years Ended December 31, 2020, 2019 and 2018 F-9 Notes to Consolidated Financial Statements F-10 (2) Financial Statement Schedules: All financial statement schedules have been omitted because they are not applicable, not required or the information required is shown in the financial statements or the notes thereto. 70 Table of Contents (3) Exhibits: Exhibit Exhibit Index Number Description of Exhibit 2.1 Agreement and Plan of Merger and Reorganization, dated as of September 12, 2017, by and among Inotek Pharmaceuticals Corporation, Rocket Pharmaceuticals, Ltd. and Rome Merger Sub (1) 3.1 Seventh Amended and Restated Certificate of Incorporation of Rocket Pharmaceuticals, Inc., effective as of February 23, 2015 (2) 3.2 Certificate of Amendment (Reverse Stock Split) to the Seventh Amended and Restated Certificate of Incorporation of the Registrant, effective as of January 4, 2018 (3) 3.3 Certificate of Amendment (Name Change) to the Seventh Amended and Restated Certificate of Incorporation of the Registrant, effective January 4, 2018 (3) 3.4 Certificate of Amendment to the Seventh Amended and Restated Certificate of Incorporation of the Registrant, effective June 25, 2018 (4) 3.5 Amended and Restated By-Laws of Rocket Pharmaceuticals, Inc., effective as of January 4, 2018 (5) 4.1 Form of Common Stock Certificate of Rocket Pharmaceuticals, Inc. (3) 4.2 Base Indenture, dated as of August 5, 2016, by and between Inotek Pharmaceuticals Corporation and Wilmington Trust, National Association (6) 4.3 First Supplemental Indenture, dated as of August 5, 2016, by and between Inotek Pharmaceuticals Corporation and Wilmington Trust, National Association (6) 4.4 Form of 5.75% Convertible Senior Note due 2021 (6) 4.5 Second Supplemental Indenture, dated as of February 20, 2020, by and between Rocket Pharmaceuticals, Inc. and Wilmington Trust, National Association (7) 4.6 Form 6.25% Convertible Senior Note due 2022 (7) 4.7 Supplemental Indenture, dated as of June 12, 2020, between Rocket Pharmaceuticals, Inc. and Wilmington Trust, National Association, as trustee (8) 4.8* Description of Securities 10.1# 2004 Stock Option and Incentive Plan (9) 10.2# Rocket Pharmaceuticals, Inc. Second Amended and Restated 2014 Stock Option and Incentive Plan (10) 10.3# Form of Incentive Stock Option Agreement (Employees) (11) 10.4# Form of Non-Qualified Stock Option Agreement (Employees) (11) 10.5# Form of Non-Qualified Stock Option Agreement (Non-Employee Directors) (11) 10.6# Form of Non-Qualified Stock Option Agreement (Consultants) (11) 10.6.1# Form of Restricted Stock Unit Award Agreement 10.7# Rocket Pharmaceuticals, Ltd. 2015 Share Option Plan (12) 10.8# Letter Agreement, dated as of July 28, 2014, by and between the Registrant and David P. Southwell (9) 10.9# Amendment to Offer Letter, effective as of September 1, 2017, by and between Inotek and David Southwell (13) 10.10# Offer Letter, dated September 25, 2019, by and between the registrant and Kamran Alam. 10.11#* Offer Letter, dated November 25, 2020, by and between the registrant and Carlos Garcia-Parada. 10.12** 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. (12) 10.13# Rocket Pharmaceuticals, Inc. Amended and Restated 2014 Employee Stock Purchase Plan (14) 10.14# Form of Indemnification Agreement, to be entered into between the Registrant and its directors (3) 10.15# Form of Indemnification Agreement, to be entered into between the Registrant and its officers (3) 10.16# Form of Severance and Change of Control Agreements, to be entered into between the Registrant and certain of its officers (18) 10.17 Lease, dated as of May 29, 2015, by and between Inotek Pharmaceuticals Corporation and 91 Hartwell Avenue Trust, as amended and currently in effect (15) 10.18 First Amendment to Lease, dated as of February 24, 2016, by and between Inotek Pharmaceuticals Corporation and 91 Hartwell Avenue Trust (16) 10.19 Lease Agreement, dated as of March 31, 2016, by and between Rocket Pharmaceuticals, Ltd. and ARE-East River Science Park, LLC. (12) 10.20 Agreement of Lease, dated as of June 6, 2018, by and between Rocket Pharmaceuticals, Inc. and ESRT Empire State Building, L.L.C. (11) 10.21 Amendment No. 1 to the Lease Agreement, dated as of June 28, 2018, by and between Rocket Pharmaceuticals, Ltd. and ARE-East River Science Park, LLC (11) 10.22† License Agreement, dated as of November 19, 2018, by and between Rocket Pharmaceuticals, Ltd. and REGENXBIO Inc. (17) 10.23* Warrant to Purchase Shares of Common Stock dated as of December 21, 2020, by and between the Registrant and Neptune Consulting, LLC. 10.24 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) 10.25 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) 71 Table of Contents 21.1* List of Subsidiaries 23.1* Consent of EisnerAmper LLP 24.1* Power of Attorney (included in the signature page) 31.1* Certification of Principal Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.2* Certification of Principal Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32.1* Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 101.INS XBRL Instance Document. 101.SCH XBRL Taxonomy Extension Schema Document. 101.CAL XBRL Taxonomy Extension Calculation Document. 101.DEF XBRL Taxonomy Extension Definition Linkbase Document. 101.LAB XBRL Taxonomy Extension Labels Linkbase Document. 101.PRE XBRL Taxonomy Extension Presentation Link Document. 104 Cover Page Interactive Data File (formatted as inline XBRL and contained in exhibit 101) * Filed herewith. # Indicates management contract or compensatory plan. † Confidential treatment has been granted with respect to certain portions of this exhibit. Omitted portions have been filed separately with the SEC. **Certain portions of this exhibit have been excluded because they are both not material and would likely cause competitive harm to the Company if publicly disclosed. (1) Filed as an Exhibit to the Company’s current report on Form 8-K (001-36829), filed with the SEC on September 13, 2017, and incorporated herein by reference. (2) Filed as an Exhibit to the Company’s annual report on Form 10-K (001-36829), filed with the SEC on March 31, 2015, and incorporated herein by reference. (3) Filed as an Exhibit to the Company’s current report on Form 8-K (001-36829), filed with the SEC on January 5, 2018, and incorporated herein by reference. (4) Filed as an Exhibit to the Company’s current report on Form 8-K (001-36829), filed with the SEC on June 25, 2018, and incorporated herein by reference. (5) Filed as an Exhibit to the Company’s registration statement on Form 8-A, as amended (001-36829), filed with the SEC on January 11, 2018, and incorporated herein by reference. (6) Filed as an Exhibit to the Company’s current report on Form 8-K (001-36829), filed with the SEC on August 5, 2016, and incorporated herein by reference. (7) 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. (8) 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. (9) 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. (10) Filed as an Exhibit to the Company’s proxy statement on Schedule 14A (001-36829), filed with the SEC on April 30, 2018, as amended, and incorporated herein by reference. (10) Filed as an Exhibit to the Company’s quarterly report on Form 10-Q (001-36829), filed with the SEC on August 14, 2018, as amended, and incorporated herein by reference. (11) Filed as an Exhibit to the Company’s annual report on Form 10-K (001-36829), filed with the SEC on March 7, 2018, and incorporated herein by reference. (12) Filed as an Exhibit to the Company’s current report on Form 8-K (001-36829), filed with the SEC on September 1, 2017, and incorporated herein by reference. (13) Filed as an Exhibit to the Company’s current report on Form 8-K (001-36829), filed with the SEC on August 8, 2017, and incorporated herein by reference. (14) Filed as an Exhibit to the Company’s current report on Form 8-K (001-36829), filed with the SEC on June 1, 2015, and incorporated herein by reference. (15) Filed as an Exhibit to the Company’s current report on Form 8-K (001-36829), filed with the SEC on February 26, 2016, and incorporated herein by reference. (16) Filed as an Exhibit to the Company’s annual report on Form 10-K (001-36829), filed with the SEC on March 8, 2019, and incorporated herein by reference. (17) Filed as Exhibit 10.1 to the Company’s quarterly report on Form 10-Q (001-36829), filed with the SEC on August 8, 2019, and incorporated herein by reference. Item 16. Form 10-K Summary None. 72 Table of Contents SIGNATURES 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 Cranbury, State of New Jersey, on March 1, 2021. Rocket Pharmaceuticals, Inc. By: /s/ Gaurav Shah, MD Gaurav Shah, MD President and Chief Executive Officer POWER OF ATTORNEY 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. Name Title Date /s/ Gaurav Shah, MD President, Chief Executive Officer and Director March 1, 2021 Gaurav Shah, MD (Principal Executive Officer) /s/ Carlos Garcia-Parada, MBA Chief Financial Officer March 1, 2021 Carlos Garcia-Parada (Principal Financial Officer) /s/ John C. Militello VP, Finance, Senior Controller & Treasurer March 1, 2021 John Militello (Principal Accounting Officer) /s/ Carsten Boess Director March 1, 2021 Carsten Boess /s/ Pedro Granadillo Director March 1, 2021 Pedro Granadillo /s/ Gotham Makker, MD Director March 1, 2021 Gotham Makker, MD /s/ David P. Southwell Director March 1, 2021 David P. Southwell /s/ Roderick Wong, MD Director March 1, 2021 Roderick Wong, MD /s/ Naveen Yalamanchi, MD Director March 1, 2021 Naveen Yalamanchi, MD /s/ Elisabeth Björk Director March 1, 2021 Elisabeth Björk 73 Table of Contents Rocket Pharmaceuticals, Inc. Index to Consolidated Financial Statements Contents Reports of Independent Registered Public Accounting Firm F-2 Consolidated Balance Sheets as of December 31, 2020 and 2019 F-5 Consolidated Statements of Operations for the Years Ended December 31, 2020, 2019 and 2018 F-6 Consolidated Statements of Comprehensive Loss for the Years Ended December 31, 2020, 2019 and 2018 F-7 Consolidated Statements of Changes in Stockholders’ Equity for the Years Ended December 31, 2020, 2019 and 2018 F-8 Consolidated Statements of Cash Flows for the Years Ended December 31, 2020, 2019 and 2018 F-9 Notes to Consolidated Financial Statements F-10 F- 1 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of Rocket Pharmaceuticals, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Rocket Pharmaceuticals, Inc. 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 These financial statements are the responsibility of the Company’s management. 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 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. 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. 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. F- 2 Table of Contents 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 We have served as the Company’s auditor since 2016. EISNERAMPER LLP Philadelphia, Pennsylvania March 1, 2021 F- 3 Table of Contents 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 F- 4 Table of Contents Rocket Pharmaceuticals, Inc. Consolidated Balance Sheets (in thousands, except share and per share amounts) December 31, 2020 December 31, 2019 Assets Current assets: Cash and cash equivalents $ 297,098 $ 185,383 Investments 185,621 118,732 Prepaid expenses and other assets 4,626 3,639 Total current assets 487,345 307,754 Property and equipment, net 19,206 29,521 Goodwill 30,815 30,815 Restricted cash 1,568 1,525 Deposits 455 455 Operating lease right-of-use assets 914 2,051 Finance lease right-of-use asset 50,521 - Total assets $ 590,824 $ 372,121 Liabilities and stockholders’ equity Current liabilities: Accounts payable and accrued expenses $ 25,472 $ 17,352 Convertible notes, net of unamortized discount, current 4,875 - Operating lease liabilities, current 626 957 Finance lease liabilities, current 1,644 - Total current liabilities 32,617 18,309 Convertible notes, net of unamortized discount, non-current 35,066 45,049 Operating lease liabilities, non-current 498 1,443 Finance lease liabilities, non-current 18,988 - Other liabilities 136 23 Total liabilities 87,305 64,824 Commitments and contingencies (Note 12) Stockholders’ equity: Preferred stock, $ 0.01 par value, authorized 5,000,000 shares: Series A convertible preferred stock; 300,000 shares designated as Series A; 0 shares issued and outstanding - - Series B convertible preferred stock; 300,000 shares designated as Series B; 0 shares issued and outstanding - - Common stock, $ 0.01 par value, 120,000,000 shares authorized; 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 610 548 Treasury stock, at cost, 0 and 4,031 common shares at December 31, 2020 and December 31, 2019, respectively - ( 53 ) Additional paid-in capital 825,794 489,925 Accumulated other comprehensive income (loss) ( 42 ) 20 Accumulated deficit ( 322,843 ) ( 183,143 ) Total stockholders’ equity 503,519 307,297 Total liabilities and stockholders’ equity $ 590,824 $ 372,121 The accompanying notes are an integral part of these consolidated financial statements. F- 5 Table of Contents Rocket Pharmaceuticals, Inc. Consolidated Statements of Operations (in thousands, except share and per share amounts) For the Years Ended December 31, 2020 2019 2018 Revenue $ - $ - $ - Operating expenses: Research and development 106,382 58,623 53,270 General and administrative 27,921 17,528 17,886 Total operating expenses 134,303 76,151 71,156 Loss from operations ( 134,303 ) ( 76,151 ) ( 71,156 ) Research and development incentives - 250 186 Interest expense ( 6,967 ) ( 5,958 ) ( 6,039 ) Interest and other income net 2,150 3,414 1,690 (Amortization of premium) accretion of discount on investments - net ( 580 ) 1,175 801 Net loss $ ( 139,700 ) $ ( 77,270 ) $ ( 74,518 ) Net loss per share attributable to common stockholders - basic and diluted $ ( 2.52 ) $ ( 1.58 ) $ ( 1.89 ) Weighted-average common shares outstanding - basic and diluted 55,380,740 49,010,358 39,377,666 The accompanying notes are an integral part of these consolidated financial statements. F- 6 Table of Contents Rocket Pharmaceuticals, Inc. Consolidated Statements of Comprehensive Loss (in thousands) For the Years Ended December 31, 2020 2019 2018 Net loss $ ( 139,700 ) $ ( 77,270 ) $ ( 74,518 ) Other comprehensive loss Net unrealized (loss) gain on investments ( 62 ) 147 ( 127 ) Total comprehensive loss $ ( 139,762 ) $ ( 77,123 ) $ ( 74,645 ) The accompanying notes are an integral part of these consolidated financial statements. F- 7 Table of Contents Rocket Pharmaceuticals, Inc. Consolidated Statements of Changes in Stockholders’ Equity (in thousands, except share amounts) Series A Convertible Preferred Shares Series B Convertible Preferred Shares Common Stock Additional Accumulated Other Total Shares Amount Shares Amount Shares Amount Treasury Stock Paid-In Capital Comprehensive Income/(Loss) Accumulated Deficit Stockholders’ Equity Balance at December 31, 2017 128,738 $ 16,060 126,909 $ 25,406 6,795,627 $ 68 $ - $ 5,340 $ - $ ( 31,355 ) $ 15,519 Conversion of convertible preferred shares into common shares ( 128,738 ) ( 16,060 ) ( 126,909 ) ( 25,406 ) 19,475,788 194 - 41,272 - - - Exchange of common shares in connection with the Reverse Merger - - - - 6,805,608 68 - 85,992 - - 86,060 Issuance of common stock, net of issuance costs of $ 9.3 million - - - - 11,475,242 115 - 153,907 - - 154,022 Issuance of common stock pursuant to settlement of restricted stock units - - - - 271,718 3 - ( 3 ) - - - Issuance of common stock pursuant to exercise of stock options - - - - 370,753 4 - 144 - - 148 Stock repurchase - - - - - - ( 668 ) - - - ( 668 ) Unrealized loss on investments - - - - - - - - ( 127 ) - ( 127 ) Stock-based compensation - - - - - - - 13,601 - - 13,601 Net loss - - - - - - - - - ( 74,518 ) ( 74,518 ) Balance at December 31, 2018 - - - - 45,194,736 452 ( 668 ) 300,253 ( 127 ) ( 105,873 ) 194,037 Issuance of common stock, net of issuance costs - - - - 9,568,000 96 - 177,664 - - 177,760 Issuance of common stock pursuant to exercise of stock options - - - - 110,325 1 - 30 - - 31 Treasury stock purchases - - - - - - ( 725 ) ( 1 ) - - ( 726 ) Issuance of treasury stock pursuant to exercise of stock options - - - - - - ( 397 ) - - - ( 397 ) Retirement of treasury stock - - - - ( 100,000 ) ( 1 ) 1,393 ( 1,392 ) - - - Sale of treasury stock - - - - - - 344 - - - 344 Unrealized comprehensive gain on investments - - - - - - - - 147 - 147 Stock-based compensation - - - - - - - 13,371 - - 13,371 Net loss - - - - - - - - - ( 77,270 ) ( 77,270 ) Balance at December 31, 2019 - - - - 54,773,061 548 ( 53 ) 489,925 20 ( 183,143 ) 307,297 Issuance of common stock, net of issuance costs - - - - 5,339,286 53 - 280,710 - - 280,763 Issuance of common stock pursuant to exercise of stock options - - - - 586,857 6 - 2,552 - - 2,558 Issuance of common stock pursuant to exercise of warrant - - - - 1,601 - - - - - - Issuance of common stock pursuant to conversion of notes - - - - 298,562 3 - 7,626 - - 7,629 Issuance of warrants - - - - - - - 26,562 - - 26,562 Stock repurchase - - - - ( 3,000 ) - - ( 72 ) - - ( 72 ) Sale of treasury stock - - - - - - 667 ( 76 ) - - 591 Issuance of treasury stock pursuant to exercise of stock options - - - - - - ( 614 ) - - - ( 614 ) Unrealized comprehensive loss on marketable securities - - - - - - - - ( 62 ) - ( 62 ) Share-based compensation - - - - - - - 18,567 - - 18,567 Net loss - - - - - - - - - ( 139,700 ) ( 139,700 ) Balance at December 31, 2020 - $ - - $ - 60,996,367 $ 610 $ - $ 825,794 $ ( 42 ) $ ( 322,843 ) $ 503,519 The accompanying notes are an integral part of these consolidated financial statements. F- 8 Table of Contents Rocket Pharmaceuticals, Inc. Consolidated Statements of Cash Flows (in thousands) For the Years Ended December 31, 2020 2019 2018 Operating Activities: Net loss $ ( 139,700 ) $ ( 77,270 ) $ ( 74,518 ) Adjustments to reconcile net loss to net cash used in operating activities: Accretion of discount on convertible notes 2,758 3,602 3,059 Depreciation and amortization expense 1,145 426 330 Write down of property and equipment 419 - - Stock-based compensation 18,567 13,371 13,601 Expense in connection with warrant issue 26,562 - - Loss on disposal of property and equipment - - 317 Accretion of discount (amortization of premium) on investments, net 580 ( 1,066 ) ( 801 ) Changes in operating assets and liabilities: Prepaid expenses and other assets ( 1,517 ) ( 917 ) ( 1,505 ) Accounts payable and accrued expenses 11,015 ( 2,722 ) 5,890 Operating lease liabilities ( 139 ) ( 87 ) ( 161 ) Finance lease liability 5,557 - - Other long term liabilities 113 - - Net cash used in operating activities ( 74,640 ) ( 64,663 ) ( 53,788 ) Investing activities: Cash acquired in connection with the Reverse Merger - - 76,348 Purchases of investments ( 209,343 ) ( 184,298 ) ( 141,087 ) Proceeds from maturities of investments 141,811 168,556 61,276 Payments made to acquire right of use asset ( 8,452 ) - - Proceeds from sale of property and equipment - - 20 Purchases of property and equipment ( 20,607 ) ( 23,269 ) ( 1,453 ) Payment of security deposit - - ( 376 ) Net cash used in investing activities ( 96,591 ) ( 39,011 ) ( 5,272 ) Financing activities: Issuance of common stock, net of issuance costs 280,763 177,760 154,022 Issuance of common stock, pursuant to exercise of stock options 2,558 31 148 Common stock repurchase ( 72 ) - - Treasury stock repurchase - - ( 668 ) Proceeds from sale of treasury stock 591 344 - Payment of withholding tax on option exercise ( 614 ) ( 344 ) - Convertible notes refinancing costs to the lender ( 237 ) - - Net cash provided by financing activities 282,989 177,791 153,502 Net change in cash, cash equivalents and restricted cash 111,758 74,117 94,442 Cash, cash equivalents and restricted cash at beginning of period 186,908 112,791 18,349 Cash, cash equivalents and restricted cash at end of period $ 298,666 $ 186,908 $ 112,791 Supplemental disclosure of non-cash financing and investing activities: Accrued purchases of property and equipment $ 1,456 $ 4,424 $ - Accrued purchases of internal use software $ 300 $ 226 $ - Treasury stock purchases paid in prior year $ - $ 726 $ - Retirement of treasury stock $ - $ 1,393 $ - Witholding tax payable on shares witheld in treasury stock $ - $ 53 $ - Conversion of convertible preferred stock into common stock $ - $ - $ 41,466 Conversion of convertible notes into common stock $ 7,629 $ - $ - Unrealized (loss) gain on investments $ ( 62 ) $ 147 $ ( 127 ) Finance lease right of use asset and lease liability $ 20,179 $ - $ - Reclassification of construction in process to finance right of use asset $ 26,465 $ - $ - Supplemental cash flow information: Cash paid for interest $ 2,960 $ 2,990 $ 4,485 Cash paid for income taxes $ - $ 26 $ 2 The accompanying notes are an integral part of these consolidated financial statements. F- 9 Table of Contents Rocket Pharmaceuticals, Inc. Notes to Consolidated Financial Statements (in thousands, except share and per share amounts) 1. Nature of Business and Basis of Presentation 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 . 2. 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. These efforts require significant amounts of additional capital, adequate personnel infrastructure and extensive compliance-reporting capabilities. The Company’s product candidates are in the development and clinical stage. There can be no assurance that the Company’s research and development will be successfully completed, that adequate protection for the Company’s intellectual property will be obtained, that any products developed will obtain necessary government approval or that any approved products will be commercially viable. Even if the Company’s product development efforts are successful, it is uncertain when, if ever, the Company will generate significant revenue from product sales. The Company operates in an environment of rapid change in technology and substantial competition from pharmaceutical and biotechnology companies. 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 $ 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, 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. 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. 3. 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”). 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 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. F- 10 Table of Contents Cash, Cash Equivalents and Restricted Cash Cash, cash equivalents and restricted cash consists of bank deposits, certificates of deposit and money market accounts with financial institutions. Cash equivalents are carried at cost which approximates fair value due to their short-term nature and which the Company believes do not have a material exposure to credit risk. The Company considers all highly liquid investments with maturities of three months or less from the date of purchase to be cash equivalents. The Company’s cash and cash equivalent accounts, at times, 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 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: December 31, 2020 December 31, 2019 Cash and cash equivalents $ 297,098 $ 185,383 Restricted cash 1,568 1,525 $ 298,666 $ 186,908 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 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’s marketable securities consist of U.S. Treasury securities, and Corporate, Government Municipal and Agency 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 exposure. Investments 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. 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. Goodwill 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. 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. 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. 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. F- 11 Table of Contents 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. 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. 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 as of and for the years ended December 31, 2020, 2019 and 2018 . Property and Equipment Property and equipment are stated at cost less accumulated depreciation. Depreciation expense is recognized using the straight-line method over the useful life of the asset. 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. 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. 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. 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. 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: Level 1—Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. Level 2—Valuations based on quoted prices for similar assets or liabilities in markets that are not active or for which all significant inputs are observable, either directly or indirectly. Level 3—Valuations that require inputs that reflect the Company’s own assumptions that are both significant to the fair value measurement and unobservable. F- 12 Table of Contents 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. 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. Foreign Currency Transactions 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 The Company records treasury stock at cost. 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 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. Forfeitures are accounted for as they occur. Effective July 1, 2018, the Company adopted ASU No. 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. NYC Biotechnology Tax Credit Program 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. F- 13 Table of Contents Income Taxes 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’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, 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. 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. 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. 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. 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. Recent Accounting Pronouncements 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. F- 14 Table of Contents 4. 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: Fair Value Measurements as of December 31, 2020 Using: Level 1 Level 2 Level 3 Total Assets: Cash and cash equivalents: Money market mutual funds $ 193,312 $ - $ - $ 193,312 United States Treasury securities 62,497 - - 62,497 Corporate Bonds - 501 - 501 Agency Bonds - 8,015 - 8,015 255,809 8,516 - 264,325 Investments: United States Treasury securities 112,328 - - 112,328 Corporate Bonds - 63,710 - 63,710 Municipal Bonds - 6,000 - 6,000 Agency Bonds - 3,583 - 3,583 112,328 73,293 - 185,621 $ 368,137 $ 81,809 $ - $ 449,946 Fair Value Measurements as of December 31, 2019 Using: Level 1 Level 2 Level 3 Total Assets: Cash and cash equivalents: Money market mutual funds $ 72,114 $ - $ - $ 72,114 Cash 7,542 - - 7,542 79,656 - - 79,656 Investments: United States Treasury securities 75,464 - - 75,464 Government Bonds - 8,000 - 8,000 Corporate Bonds - 29,268 - 29,268 Municipal Bonds - 6,000 - 6,000 75,464 43,268 - 118,732 $ 155,120 $ 43,268 $ - $ 198,388 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, 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). F- 15 Table of Contents 5. Property and Equipment, Net The Company’s property and equipment consisted of the following: December 31, 2020 December 31, 2019 Laboratory equipment $ 7,807 $ 1,910 Machinery and equipment 9,933 - Computer equipment 218 179 Furniture and fixtures 1,880 273 Leasehold improvements 29 29 Internal use software 1,385 226 Construction costs in progress - 27,809 21,252 30,426 Less: accumulated depreciation and amortization ( 2,046 ) ( 905 ) $ 19,206 $ 29,521 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. 6. Accounts Payable and Accrued Expenses At December 31, 2020 and 2019, the Company’s accounts payable and accrued expenses consisted of the following: December 31, 2020 December 31, 2019 Research and development $ 14,962 $ 7,418 Property and equipment 1,456 4,424 Employee compensation 4,875 2,588 Accrued interest 1,122 1,241 Government grant payable 590 562 Professional fees 1,332 553 Internal use software 300 226 Other 835 340 $ 25,472 $ 17,352 7. Convertible Notes Payable 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. F- 16 Table of Contents 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, 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 %. 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. F- 17 Table of Contents The table below summarizes the carrying value of the 2021 Convertible Notes as of December 31, 2020: December 31, 2020 December 31, 2019 Principal amount $ 5,150 $ 52,000 Discount ( 275 ) ( 6,951 ) Carrying value as of December 31, 2020 $ 4,875 $ 45,049 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: December 31, 2020 Principal amount $ 38,350 Discount ( 3,284 ) Carrying value as of December 31, 2020 $ 35,066 Accretion of the 2022 Convertible Notes discount was $ 1.5 million for the year ended December 31, 2020. 8. Stockholders’ Equity Common Stock 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 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 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. F- 18 Table of Contents 9. Stock-Based Awards Stock Option Valuation Effective July 1, 2018, the Company adopted ASU No. 2018-07, Compensation—Stock Compensation (Topic 718): 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: Years Ended December 31, 2020 2019 2018 Risk-free interest rate 1.00 % 2.26 % 2.64 % Expected term (in years) 5.84 5.81 5.85 Expected volatility 76.98 % 75.71 % 87.70 % Expected dividend yield 0.00 % 0.00 % 0.00 % Exercise price $ 22.96 $ 14.47 $ 17.82 Fair value of common stock $ 22.96 $ 14.47 $ 17.98 The following table summarizes stock option activity for the years ended December 31, 2020 and 2019, under the Revised 2014 Plan: Number of Shares Weighted Average Exercise Price Weighted Average Contractual Term (Years) Aggregate Intrinsic Value Outstanding as of December 31, 2018 8,615,997 $ 4.48 7.51 $ 94,474 Granted 1,706,116 14.47 9.29 Exercised ( 110,325 ) 2.31 1,429 Cancelled ( 448,247 ) 10.83 Outstanding as of December 31, 2019 9,763,541 $ 5.95 6.96 $ 164,021 Granted 2,193,546 22.96 8.97 Exercised ( 586,857 ) 4.82 13,494 Cancelled ( 319,299 ) 15.82 Outstanding as of December 31, 2020 11,050,931 $ 9.10 6.55 $ 504,079 Options vested and exercisable as of December 31, 2020 8,244,686 $ 4.98 5.70 $ 409,530 Options unvested as of December 31, 2020 2,806,245 $ 21.15 9.04 The weighted average grant-date fair value per share of stock options granted during the years ended December 31, 2020, 2019 and 2018 was $ 15.10 , $ 9.58 , and $ 13.21 , respectively. The total fair value of options vested during the years ended December 31, 2020 and 2019 was $ 15.6 million and $ 63.1 million, respectively. Stock-Based Compensation Stock-based compensation expense recognized by award type is as follows: Years Ended December 31, 2020 2019 2018 Stock options $ 18,527 $ 13,371 $ 13,601 Restricted stock units 40 - - Total share based compensation expense $ 18,567 $ 13,371 $ 13,601 F- 19 Table of Contents Stock-based compensation expense by classification included within the consolidated statements of operations and comprehensive loss was as follows: Years Ended December 31, 2020 2019 2018 Research and development $ 7,355 $ 6,153 $ 7,375 General and administrative 11,211 7,218 6,226 Total share based compensation expense $ 18,567 $ 13,371 $ 13,601 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: Number of Shares Weighted Average Grant Date Fair Value Unvested as of December 31, 2019 - - Granted 20,000 $ 25.06 Unvested as of December 31, 2020 20,000 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. Warrants 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. F- 20 Table of Contents 10. Net Loss Per Share Basic and diluted net loss per share attributable to common stockholders was calculated as follows: For the Years Ended December 31, 2020 2019 2018 Numerator: Net loss attributable to common stockholders $ ( 139,700 ) $ ( 77,270 ) $ ( 74,518 ) Denominator: Weighted-average common shares outstanding - basic and diluted 55,380,740 49,010,358 39,377,666 Net loss per share attributable to common stockholders - basic and diluted $ ( 2.52 ) $ ( 1.58 ) $ ( 1.89 ) 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, 2020 2019 2018 Shares issuable upon conversion of the 2021 Convertible Notes 160,536 1,620,948 1,620,948 Shares issuable upon conversion of the 2022 Convertible Notes 1,195,449 - - Warrants exercisable for common shares 610,437 14,102 14,102 Options to purchase common shares 11,050,931 9,608,537 8,615,997 13,017,353 11,243,587 10,251,047 11. Income Taxes 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: For the years ended December 31, 2020 2019 2018 U.S. federal tax at statutory rate 21.0 % 21.0 % 21.0 % Change in state tax apportionment 0.1 % ( 17.4 )% 15.8 % Stock compensation 0.9 % ( 0.7 )% 0.0 % Section 382 limitation 0.0 % 0.0 % ( 38.7 )% Valuation allowance ( 35.0 )% ( 5.1 )% 3.5 % Tax credits 13.5 % 0.0 % 0.0 % Other ( 0.5 )% 2.1 % ( 1.6 )% Effective tax rate 0 % 0 % 0 % F- 21 Table of Contents The significant components of the Company’s deferred income tax assets and liabilities after applying the enacted corporate tax rates are as follows: At December 31, 2020 2019 2018 Deferred income tax assets (liabilities) Net operating losses (“NOL”) $ 42,613 $ 18,471 $ 27,825 R&D Credits 21,359 2,517 575 Capitalized research and development costs 23,179 27,652 17,098 Other 1,189 643 1,385 Stock-based compensation 7,406 3,896 4,563 Debt discount ( 748 ) ( 1,460 ) ( 3,652 ) Warrants 5,585 - - Valuation allowance ( 100,583 ) ( 51,719 ) ( 47,794 ) Net deferred income tax asset $ - $ - $ - 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. 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. Additionally, $ 4.9 million of Federal R&D Credits will expire unutilized. 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 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, 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, 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. F- 22 Table of Contents 12. 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. 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 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. 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. 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). 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 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. 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, 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 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 . F- 23 Table of Contents 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, 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 $ 0.4 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. Lease cost December 31, 2020 Operating lease cost $ 813 Finance lease cost Amortization of right of use assets 1,711 Interest on lease liablities 1,522 Total lease cost $ 4,046 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, 2020: Maturity of operating lease liabilities December 31, 2020 2021 682 2022 445 2023 75 Total lease payments $ 1,202 Less: interest ( 78 ) Total operating lease liabilities $ 1,124 Maturity of finance lease liability December 31, 2020 2021 1,644 2022 1,689 2023 1,736 2024 1,791 Thereafter 48,768 Total lease payments $ 55,628 Less: interest ( 34,996 ) Total finance lease liability $ 20,632 F- 24 Table of Contents Leases December 31, 2020 Operating right-of-use assets $ 914 Operating current lease liabilities 626 Operating noncurrent lease liabilities 498 Total operating lease liabilities $ 1,124 Finance right-of-use assets $ 50,521 Finance current lease liability 1,644 Finance noncurrent lease liability 18,988 Total finance lease liability $ 20,632 Other information Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 898 Cash flows from finance lease $ 1,070 Weighted-average remaining lease term - operating leases 1.8 years Weighted-average remaining lease term - finance lease 23.7 years Weighted-average discount rate - operating leases 7.77 % Weighted-average discount rate - finance lease 8.96 % Litigation 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. 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 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. 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. As a result, the Company believes that the estimated fair value of these indemnification commitments is minimal. 13. Agreements Related to Intellectual Property 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. 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. F- 25 Table of Contents Contract Research and Collaboration Agreement with Lund University and J. Richter In August 2016, Rocket entered into a research and collaboration agreement with Lund University and Johan Richter, M.D., Ph.D. under which 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. Richter. Under the terms of the agreement, Lund University and Dr. Richter are obligated to perform contract research for Rocket regarding the use of lentiviral-mediated gene transfer to treat IMO. 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. 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. 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 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. 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. 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, 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. The term of the license agreement with UCSD is through the expiration of the licensed patents, some of which are still in the pending application phase. REGENXBIO, Inc. License On November 19, 2018, the Company entered into a license agreement with REGENXBIO Inc. (“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”). 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. F- 26 Table of Contents 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. 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. 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. No additional milestones were achieved and related payments made during the year ended December 31, 2020. 14. Strategic Research Collaboration 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. 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 . 15. CIRM Grant 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 . 16. Related Party Transactions 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. F- 27 Table of Contents 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: Year Ended December 31, 2020 Risk-free interest rate 0.95 % Expected term (in years) 10.00 Expected volatility 74.20 % Expected dividend yield 0.00 % Exercise price $ 57.11 Fair value of common stock $ 57.11 17. 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. 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, 2020, 2019, and 2018 was $ 0.3 million, $ 0.2 million, and $ 0.1 million, respectively. 18. 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) : 2020 First quarter Second quarter Third quarter Fourth quarter Total Total revenues $ - $ - $ - $ - $ - Total operating expenses 24,120 23,559 27,387 59,237 134,303 Loss from operations ( 24,120 ) ( 23,559 ) ( 27,387 ) ( 59,237 ) ( 134,303 ) Net loss ( 24,664 ) ( 25,040 ) ( 29,080 ) ( 60,916 ) ( 139,700 ) Net loss per share attributable to common stockholders - basic and diluted $ ( 0.45 ) $ ( 0.45 ) $ ( 0.53 ) $ ( 1.09 ) $ ( 2.52 ) 2019 First quarter Second quarter Third quarter Fourth quarter Total Total revenues $ - $ - $ - $ - $ - Total operating expenses 18,945 18,392 19,165 19,649 76,151 Loss from operations ( 18,945 ) ( 18,392 ) ( 19,165 ) ( 19,649 ) ( 76,151 ) Net loss ( 19,451 ) ( 18,680 ) ( 19,284 ) ( 19,855 ) ( 77,270 ) Net loss per share attributable to common stockholders - basic and diluted $ ( 0.43 ) $ ( 0.38 ) $ ( 0.38 ) $ ( 0.39 ) $ ( 1.58 ) F- 28