About Rocket Pharmaceuticals
You know, as time has continued dribbling by, we have become increasingly annoyed by the term “clinical-stage” within the context of stock analysis articles on specialty pharmaceutical and biotechnology companies.
Heck, we are just being honest, and it sounds sort of messed up because these are companies that are in the process of and have already exhausted a great deal of effort in discovering, manufacturing and selling drugs and other treatments that would help people who need them, and while we most certainly have no gripes with that being the case, we just maintain a sort of negative predisposition pretty much whenever we begin a preliminary analysis on a pharmaceutical company only to find that while the company is certainly engaged in some very interesting, important and compelling research and development (R&D), it is still, let us say, without revenues, which doesn’t make us instantly lose hope, but it, of course, opens up a great degree of uncertainty that we usually aren’t accustomed to, being that well over 98% of the company stock analysis reports we have performed in the past have some form of revenue(s) to report.
Let’s just view this as an opportunity and have some fun with it, while, of course, keeping an open mind, as Rocket very well might actually have some revenue(s) to report, and if not, all the more interesting, right?
Eh, sort of.
At any rate, headquartered in Cranbury, New Jersey, Rocket Pharmaceuticals is a biotechnology company that is focused on genes.
No, not those kinds of jeans, but the types of genes in the biology and medical contexts in which they are essentially the scientific make-up of you through your parents, their parents, and, well, you get the point.
More specifically, Rocket is a company that is seemingly intent on helping those that suffer or perhaps have high probabilistic chances of suffering from genetic disorders and other diseases thereof, treating it through the gene therapies the company and its team(s) are presently in the process of developing.
Gene-related diseases and disorders can be incredibly difficult to treat given just how embedded they are in an individual and how largely out of their control it is, as one does not many viable way of personally blocking or inhibiting the impacts of disorders or diseases passed down from previous generations, making even this clinical-stage biopharmaceutical company that probably has no revenues to report somewhat intriguing, as the reward could be quite high if this company successfully gets successful and effective treatments out into the market and maybe even down the line gets buyout interest from some of the larger pharmaceutical companies that have recently been on acquisition tears, such as Eli Lilly and Pfizer, however, with high reward usually also follows the potential for high risk, perhaps, if this company struggles getting its treatments and therapeutics approved and continues burning through research and development funds, not offsetting the cash burn with any revenues.
This is like drinking water from a firehose, however, this is the state of Rocket Pharmaceuticals and we think now is an excellent time to take a look at this company’s prevailing financial picture so as to assist us in determining whether or not this company’s stock (NASDAQ: RCKT) is worth buying, holding and not selling.
Rocket’s stock financials
According to its current market capitalization, Rocket Pharmaceuticals is a $2.55 billion company with an associated share price of $28.26 along with a nonexistent price-to-earnings (P/E) ratio nor an annual dividend to be found, all of which initially makes complete sense, given that the company more than likely doesn’t have a single drop of earnings to actually report and it would simply be financially negligent if this company’s board of directors decided to begin issuing an annual dividend to its shareholders at this juncture, as this company needs to retain as much cash as humanly possible so as to continue aggressively investing and reinvesting in its platforms, treatments and other crucial initiatives that get this company to a point that it can consistently turn out annualized revenues.
This company probably already spends enough in research and development as is.
With respect to the company’s balance sheet, Rocket’s executive team is tasked with taking care and stewarding $552 million in terms of total assets along with $62 million in terms of total liabilities, leaving this company in the good state of having a great deal of cash on hand and it maintaining (a few times over) a substantially higher amount of total assets than total liabilities, which simply must be the case, especially if this company is burning through a lot of cash, otherwise, the company would have a markedly higher chance of making like some good origami and folding.
This income statement portion is going to be pretty short and not as sweet, but it is indeed what we expected to be the case, with Rocket having no annual revenues to report at all, specifically referencing since 2018.
Clinical-stage and whatnot.
Moving right along to the condition of the company’s cash flow statement, Rocket’s cash burn (on a net income basis) has been all too real and accelerating, at that, with, for instance, its net income in 2018 standing at -$74.5 million, -$77.2 million in 2019, -$139.7 million in 2020, -$169 million in 2021, leading all the way towards its most recently reported net income figure of almost -$222 million, as reported in 2022.
Yes, technically, according to the company’s balance sheet, Rocket Pharmaceuticals’ executives can afford to sustain these losses for the time being, however, given their acceleratory state, we still worry quite a bit, as there is seemingly not a cash flow burn end in sight, and if the burn does continue rising deeper and deeper southbound, it could find itself in a very, very financially stressed position, not maintaining its current total asset-heavy status, not to mention that during the same year-over-year (YOY) time period that the company’s total cash from operations have become increasingly negative as well, which is common, for sure, but there needs to be some sort of end in sight to allay prospective investors such as ourselves that it won’t just bleed too much and run itself out of business.
We concede this is somewhat unlikely given the financial backing this company has and continues to develop, however, the numbers don’t lie (unless you’re Enron, of course) and these cash flow figures make us far from comfortable, and at some point, revenues need to be generated in order to merely begin the journey of adequately offsetting the bleed.
Rocket’s stock fundamentals
With this company losing cash hand over fist, it is far from likely that the firm has a trailing twelve month (TTM) net profit margin to write home about, however, we will still certainly stick to our usual due diligence and check whether or not this is actually the case, specifically as it stands up against the competition.
According to the figures displayed on TD Ameritrade’s platform, well, one might’ve been able to already guess that Rocket doesn’t even have a TTM net profit margin to display to begin with, given that it has generated no revenues and therefore it is impossible to have any sort of profit margin (gross, operating or net) displayed.
So don’t write home, for sure.
However, on the bases of the company’s comparable TTM returns on assets and investments, Rocket does have some figures, albeit they are far from attractive, competitive or encouraging, with, for example, the company’s TTM return on assets pegged at -49.73% to the industry’s much healthier average of -7.82%, and although the industry’s average is negative, this makes sense given the intense investment and concentrated asset allocation known within the younger, biotechnology and biopharmaceutical categories.
Regarding the company’s TTM return on investment, it lags well behind the industry’s respective average as well, which I don’t think surprises anybody, certainly not us.
Should you buy Rocket Pharmaceuticals stock?
Right now, we view this as a pure risk-reward balancing act, as it is hardly anything else at this point given all of the present question marks but also opportunities surrounding Rocket Pharmaceuticals and the genetic treatments space as a whole.
If this company were generating some revenues and ramping it up even over a shorter three-year period, we would probably be all over this company’s stock (NASDAQ: RCKT) given its rising in demand within its genetic niche and focus(es) and the relatively high likelihood that major pharmaceutical companies and brands would be swarming this company for its intellectual properties (IP), however, with not an ounce of revenues and some presently untamed, substantial cash burn, the risks feel as though they outweigh the rewards, and while this very well could become a multi-billion-dollar biopharmaceutical company and a massive success, from our vantage point, we simply aren’t willing to consider assuming the present risks, thus, the “hold” rating.
Wait, why the “hold” rating and not a “sell” rating?
Frankly, as opposed to other clinical-stage pharmaceutical companies we have previously analyzed, given the research we’ve done we think Rocket has a more than solid foundation and base, not one merely built upon hopes and dreams but rather one built upon quite a promising pipeline and thus some more potential with its prospective products and treatments.
DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our opinions regarding a publicly traded entity.
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