Passage BIO, Inc. [PASG] Filings

10-Q 1 pasg-20230630x10q.htm 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	For the quarterly period ended June 30, 2023

	OR

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to ________

Commission File Number: 001-39231

PASSAGE BIO, INC.

(Exact Name of Registrant as Specified in its Charter)


Delaware	82-2729751
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

One Commerce Square 2005 Market Street, 39^th Floor Philadelphia, PA	19103
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (267) 866-0311

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol

Name of each exchange on which registered

Common Stock

PASG

The Nasdaq Stock Market LLC

(Nasdaq Global Select Market)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ⌧ No ◻

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ⌧ No ◻

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	◻	Accelerated filer	◻
Non-accelerated filer	☒	Smaller reporting company	☒
Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of August 2, 2023, the registrant had 54,811,305 shares of common stock, $0.0001 par value per share, outstanding.

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements. All statements other than statements of historical facts contained in this Quarterly Report are forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “aim,” “may,” “will,” “should,” “expect,” “forecast,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential” or “continue” or the negative of these terms or other similar expressions, although not all forward-looking statements contain these words. All statements other than statements of historical fact contained in this Quarterly Report, including without limitation statements regarding our plans to develop and commercialize our product candidates, the timing and results of our ongoing or planned preclinical studies and clinical trials, risks associated with clinical trials, including our ability to adequately manage clinical activities, unexpected concerns that may arise from additional data or analysis obtained during clinical trials, the timing of and our ability to obtain and maintain regulatory approvals, the clinical utility of our product candidates, our commercialization, marketing and manufacturing capabilities and strategy, our expectations about the willingness of healthcare professionals to use our product candidates, the sufficiency of our cash and cash equivalents, general economic, industry and market conditions, including rising interest rates and inflation, and instability in the global banking system, our activities to evaluate and pursue strategic alternatives following our determination to discontinue the advancement of certain product candidates, and the plans and objectives of management for future operations and capital expenditures are forward-looking statements.

The forward-looking statements in this Quarterly Report are only predictions and are based largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. These forward-looking statements speak only as of the date of this Quarterly Report and are subject to a number of known and unknown risks, uncertainties and assumptions, including those described under the sections in this Quarterly Report entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Quarterly Report.

Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified and some of which are beyond our control, you should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. Moreover, we operate in an evolving environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors and uncertainties. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise. We intend the forward-looking statements contained in this Quarterly Report to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act.

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Table of Contents


		Page
PART I.	FINANCIAL INFORMATION	4
Item 1.	Interim Financial Statements (Unaudited)	4
	Balance Sheets	4
	Statements of Operations and Comprehensive Loss	5
	Statements of Stockholders’ Equity	6
	Statements of Cash Flows	8
	Notes to Unaudited Interim Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	36
Item 4.	Controls and Procedures	36
PART II.	OTHER INFORMATION	37
Item 1.	Legal Proceedings	37
Item 1A.	Risk Factors	37
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	88
Item 3.	Defaults Upon Senior Securities	88
Item 4.	Mine Safety Disclosures	88
Item 5.	Other Information	88
Item 6.	Exhibits	89
Signatures		91

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PART I-FINANCIAL INFORMATION

Item 1. Interim Financial Statements.

Passage Bio, Inc.

Balance Sheets


	(Unaudited)
(in thousands, except share and per share data)	June 30, 2023		December 31, 2022
Assets
Current assets:
Cash and cash equivalents	$	30,291	$	34,601
Marketable securities		121,189		155,009
Prepaid expenses and other current assets		1,230		926
Prepaid research and development		915		6,508
Total current assets		153,625		197,044
Property and equipment, net		20,225		22,515
Right of use assets - operating leases		19,413		19,723
Other assets		433		4,267
Total assets	$	193,696	$	243,549
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	3,383	$	4,065
Accrued expenses and other current liabilities		13,161		11,011
Operating lease liabilities		3,326		3,275
Total current liabilities		19,870		18,351
Operating lease liabilities - noncurrent		23,412		23,832
Total liabilities		43,282		42,183

Commitments and contingencies (note 9)

Stockholders’ equity:
Common stock, $0.0001 par value: 300,000,000 shares authorized; 54,745,680 shares issued and outstanding at June 30, 2023 and 54,614,690 shares issued and outstanding at December 31, 2022		5		5
Additional paid‑in capital		701,349		694,733
Accumulated other comprehensive income (loss)		(340)		(966)
Accumulated deficit		(550,600)		(492,406)
Total stockholders’ equity		150,414		201,366
Total liabilities and stockholders’ equity	$	193,696	$	243,549

See accompanying notes to unaudited interim financial statements.

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Passage Bio, Inc.

Statements of Operations and Comprehensive Loss

(Unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands, except share and per share data)	2023		2022		2023		2022
Operating expenses:
Research and development	$	17,324	$	26,821	$	34,160	$	53,034
Acquired in‑process research and development		—		—		—		1,500
General and administrative		8,064		12,991		27,111		28,090
Loss from operations		(25,388)		(39,812)		(61,271)		(82,624)
Other income (expense), net		1,532		270		3,077		271
Net loss	$	(23,856)	$	(39,542)	$	(58,194)	$	(82,353)
Per share information:
Net loss per share of common stock, basic and diluted	$	(0.44)	$	(0.73)	$	(1.06)	$	(1.52)
Weighted average common shares outstanding, basic and diluted		54,683,817		54,386,318		54,651,488		54,331,340
Comprehensive loss:
Net loss	$	(23,856)	$	(39,542)	$	(58,194)	$	(82,353)
Unrealized gain (loss) on marketable securities		87		(244)		626		(1,165)
Comprehensive loss	$	(23,769)	$	(39,786)	$	(57,568)	$	(83,518)

See accompanying notes to unaudited interim financial statements.

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Passage Bio, Inc.

Statements of Stockholders’ Equity

(Unaudited)


	Common stock				Additional		Accumulated other		Accumulated
(in thousands, except share data)	Shares	Amount			paid‑in capital		comprehensive income (loss)		deficit	Total
Balance at April 1, 2023	54,626,690	$	5	$	697,517	$	(427)	$	(526,744)	$	170,351
Exercise of stock options and vesting of restricted stock units	18,750		—		—		—		—		—
Issuance of shares in connection with employee stock purchase plan	100,240		—		89		—		—		89
Unrealized gain (loss) on marketable securities	—		—		—		87		—		87
Share‑based compensation expense	—		—		3,743		—		—		3,743
Net loss	—		—		—		—		(23,856)		(23,856)
Balance at June 30, 2023	54,745,680	$	5	$	701,349	$	(340)	$	(550,600)	$	150,414


	Common stock				Additional		Accumulated other		Accumulated
(in thousands, except share data)	Shares	Amount			paid‑in capital		comprehensive income (loss)		deficit	Total
Balance at January 1, 2023	54,614,690	$	5	$	694,733	$	(966)	$	(492,406)	$	201,366
Exercise of stock options and vesting of restricted stock units	30,750		—		—		—		—		—
Issuance of shares in connection with employee stock purchase plan	100,240		—		89		—		—		89
Unrealized gain (loss) on marketable securities	—		—		—		626		—		626
Share‑based compensation expense	—		—		6,527		—		—		6,527
Net loss	—		—		—		—		(58,194)		(58,194)
Balance at June 30, 2023	54,745,680	$	5	$	701,349	$	(340)	$	(550,600)	$	150,414

See accompanying notes to unaudited interim financial statements.

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Passage Bio, Inc.

Statements of Stockholders’ Equity

(Unaudited)


	Common stock				Additional		Accumulated other		Accumulated
(in thousands, except share data)	Shares	Amount			paid‑in capital		comprehensive income (loss)		deficit	Total
Balance at April 1, 2022	54,307,691	$	5	$	681,732	$	(1,334)	$	(399,092)	$	281,311
Issuance of shares in connection with employee stock purchase plan	155,544		—		243		—		—		243
Unrealized gain (loss) on marketable securities	—		—		—		(244)		—		(244)
Share‑based compensation expense	—		—		6,278		—		—		6,278
Net loss	—		—		—		—		(39,542)		(39,542)
Balance at June 30, 2022	54,463,235	$	5	$	688,253	$	(1,578)	$	(438,634)	$	248,046



	Common stock				Additional		Accumulated other		Accumulated
(in thousands, except share data)	Shares	Amount			paid‑in capital		comprehensive income (loss)		deficit	Total
Balance at January 1, 2022	54,244,996	$	5	$	675,346	$	(413)	$	(356,281)	$	318,657
Exercise of stock options and vesting of restricted stock units	62,695		—		49		—		—		49
Issuance of shares in connection with employee stock purchase plan	155,544		—		243		—		—		243
Unrealized gain (loss) on marketable securities	—		—		—		(1,165)		—		(1,165)
Share‑based compensation expense	—		—		12,615		—		—		12,615
Net loss	—		—		—		—		(82,353)		(82,353)
Balance at June 30, 2022	54,463,235	$	5	$	688,253	$	(1,578)	$	(438,634)	$	248,046

See accompanying notes to unaudited interim financial statements.

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Passage Bio, Inc.

Statements of Cash Flows

(Unaudited)


	Six Months Ended
	June 30,
(in thousands)	2023		2022
Cash flows used in operating activities:
Net loss	$	(58,194)	$	(82,353)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Acquired in‑process research and development		—		1,500
Depreciation and amortization		1,956		1,804
Share‑based compensation		6,527		12,615
Amortization of premium and discount on marketable securities, net		(869)		1,151
Loss on disposal of property and equipment		463		—
Changes in operating assets and liabilities:
Prepaid expenses and other current assets, and other assets		3,530		394
Prepaid research and development		5,593		(1,444)
Right of use assets and operating lease liabilities		(59)		493
Accounts payable		(682)		(1,237)
Accrued expenses and other current and noncurrent liabilities		2,150		(3,717)
Net cash provided by (used in) operating activities		(39,585)		(70,794)
Cash flows provided by (used in) investing activities:
Purchases of marketable securities		(73,528)		(58,876)
Sales or maturities of marketable securities		108,843		95,247
Purchases of technology licenses		—		(1,500)
Purchases of property and equipment		(129)		(1,556)
Net cash provided by (used in) investing activities		35,186		33,315
Cash flows provided by (used in) financing activities:
Proceeds from the exercise of stock options		—		49
Proceeds from the issuance of common stock under employee stock purchase plan		89		243
Payments for insurance premium financing		—		(649)
Net cash provided by (used in) financing activities		89		(357)
Net increase (decrease) in cash and cash equivalents		(4,310)		(37,836)
Cash and cash equivalents at beginning of period		34,601		128,965
Cash and cash equivalents at end of period	$	30,291	$	91,129
Supplemental disclosure of non‑cash investing and financing activities:
Unrealized gain (loss) on marketable securities	$	626	$	(1,165)
Property and equipment in accounts payable and accrued expenses and other current liabilities	$	—	$	8
Right of use assets recognized upon the adoption of Topic 842	$	—	$	(20,375)
Operating lease liabilities recognized upon the adoption of Topic 842	$	—	$	27,296

See accompanying notes to unaudited interim financial statements.

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Passage Bio, Inc.

Notes to Unaudited Interim Financial Statements

1. Nature of Operations

Passage Bio, Inc., or the Company, a Delaware corporation incorporated in July 2017, is a clinical stage genetic medicines company focused on developing transformative therapies for central nervous system, or CNS, disorders, with limited or no approved treatment options. The Company has a strategic research collaboration with the Trustees of the University of Pennsylvania’s, or Penn, Gene Therapy Program, or GTP. Under this collaboration, GTP conducts discovery and preclinical activities enabling Investigational New Drug, or IND, applications and the Company conducts all clinical development, manufacturing, regulatory strategy, and commercialization activities under the agreement.

Through this collaboration, the Company has assembled a strong portfolio of genetic medicine product candidates, including two lead clinical product candidates: PBGM01 for the treatment of GM1 gangliosidosis, or GM1, and PBFT02 for the treatment of frontotemporal dementia, or FTD. The Company also has a collaboration agreement and a development services and clinical supply agreement with Catalent Maryland, Inc., or Catalent, for clinical scale manufacturing requirements.

2. Risks and Liquidity

The Company has incurred recurring losses and negative cash flows from operations since inception and had an accumulated deficit of $550.6 million as of June 30, 2023. The Company anticipates incurring additional losses until such time, if ever, that it can generate significant sales of its product candidates currently in development. Substantial additional capital will be needed by the Company to fund its operations and to develop its product candidates.

The Company’s operations have consisted primarily of conducting preclinical studies, developing licensed technology, conducting clinical trials, and manufacturing clinical supply to support clinical trials. The Company faces risks associated with early-stage biotechnology companies whose product candidates are in development. Product candidates currently under development will require significant additional research and development efforts and establishing manufacturing capacity and regulatory approval prior to commercialization. These efforts require significant amounts of additional capital for the Company to complete its research and development, achieve its research and development objectives, defend its intellectual property rights, and recruit and retain skilled personnel, and key members of management. Even if the Company’s product development efforts are successful, it is uncertain when, if ever, the Company will realize revenue from product sales.

The Company plans to seek additional funding through public or private equity offerings, debt financings, other collaborations, strategic alliances and licensing arrangements. The Company may not be able to obtain financing on acceptable terms, or at all, and the Company may not be able to enter into strategic alliances or other arrangements on favorable terms, or at all. The terms of any financing may adversely affect the holdings or the rights of the Company’s stockholders. If the Company is unable to obtain funding or prospects of funding are unfavorable, the Company could be required to further delay, reduce or eliminate research and development programs, product portfolio expansion or future commercialization efforts, which could adversely affect its business prospects.

In July 2023, the Company announced a 26 percent reduction to its workforce, which will further extend its cash runway.

In accordance with Accounting Standards Update, or ASU, No. 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, the Company has evaluated whether there are certain conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued. As of the issuance date of these financial statements, the Company expects that its cash, cash equivalents and marketable debt securities will be sufficient to fund its forecasted operating expenses and capital expenditure requirements for at least the next twelve months from the issuance date of these financial statements.

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Passage Bio, Inc.

Notes to Unaudited Interim Financial Statements

3. Summary of Significant Accounting Policies

The Company’s complete summary of significant accounting policies can be found in “Note 3. Summary of Significant Accounting Policies” in the audited financial statements included in the Company’s Annual Report filed on Form 10-K for the year ended December 31, 2022.

Basis of Presentation

The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles in the United States, or GAAP. Any reference in these notes to applicable guidance is meant to refer to GAAP as found in the Accounting Standards Codification, or ASC, and Accounting Standards Updates promulgated by the Financial Accounting Standards Board, or FASB.

Interim Financial Statements

The accompanying unaudited interim financial statements have been prepared from the books and records of the Company in accordance with GAAP for interim financial information and Rule 10-01 of Regulation S-X promulgated by the United States Securities and Exchange Commission, or SEC, which permits reduced disclosures for interim periods. All adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the accompanying balance sheets, statements of operations and comprehensive loss, stockholders’ equity, and cash flows have been made. Although these interim financial statements do not include all of the information and footnotes required for complete annual financial statements, management believes the disclosures are adequate to make the information presented not misleading. Unaudited interim results of operations and cash flows are not necessarily indicative of the results that may be expected for the full year. Unaudited interim financial statements and footnotes should be read in conjunction with the audited financial statements and footnotes included in the Company’s 2022 Annual Report filed on Form 10-K.

Use of Estimates

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

Estimates and assumptions are periodically reviewed and the effects of the revisions are reflected in the accompanying financial statements in the period they are determined to be necessary.

Fair Value of Financial Instruments

Management believes that the carrying amounts of the Company’s financial instruments, including cash equivalents, prepaid expenses, and accounts payable, approximate fair value due to the short-term nature of those instruments.

Concentration of credit risk

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents, and marketable securities. The Company maintains a deposit account in a federally insured financial institution in excess of federally insured limits. The Company maintains a money market account in a federally insured financial institution in excess of federally insured limits. The Company has not experienced any losses in such accounts and believes it is not exposed to significant risk on its cash and cash equivalents beyond the normal credit risk associated with commercial banking relationships.

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Passage Bio, Inc.

Notes to Unaudited Interim Financial Statements

The Company maintains a portfolio of marketable debt securities, which is diversified to limit exposure related to counterparty risk, industry risk and security type risk. The Company maintains an investment policy which dictates the allocation of funds within its portfolio of marketable debt securities. The Company has not experienced any material losses in such portfolio.

Cash and cash equivalents

The Company considers all highly-liquid investments that have maturities of three months or less when acquired to be cash equivalents. Cash equivalents as of June 30, 2023 consisted of only money market funds and certificates of deposit. Cash consists of cash deposits at banking institutions.

Marketable securities

The Company classifies its marketable securities as available-for-sale, which include commercial paper, certificates of deposit, corporate debt securities, United States, or U.S., government debt securities and U.S. government agency securities with original maturities of greater than three months. These securities are carried at fair market value, with unrealized gains and losses reported in comprehensive loss and accumulated other comprehensive income (loss) within stockholders’ equity. Gains or losses on marketable securities sold are recognized as a component of other income, net in the statement of operations and comprehensive loss on the specific identification method. All marketable securities are available for use, as needed, to fund operations and therefore, the Company classifies all marketable securities as current assets within the balance sheet.

Property and Equipment, net

Property and equipment consists of laboratory equipment, office equipment, computer hardware and software, furniture and leasehold improvements and are recorded at cost. Maintenance and repairs that do not improve or extend the lives of the respective assets are expensed as incurred. Property and equipment are depreciated on a straight-line basis over their estimated useful lives. The Company estimates useful life on an asset by asset basis, which generally consists of three years for computer hardware and software, five years for office equipment, five years for laboratory equipment and seven years for furniture and fixtures. Leasehold improvements are amortized over the shorter of the lease term or the estimated useful life of the asset.

When property is retired or otherwise disposed of, the costs and accumulated depreciation are removed from the respective accounts, with any resulting gain or loss recognized concurrently. In the three and six months ended June 30, 2023, the Company recognized losses on disposals of property and equipment of $0.5 million within research and development expenses, compared to $0 in the three and six months ended June 30, 2022.

The Company reviews long-lived assets, such as property and equipment, for impairment when events or changes in circumstances indicate the carrying amount of the assets may not be recoverable. For the three months ended June 30, 2023 and 2022, no impairment expenses were recognized.

Leasing

The Company evaluates leases at their inception to determine if they are an operating lease or a finance lease. As of June 30, 2023, the Company has classified all leases with terms greater than one year, as operating leases.

The Company recognizes assets and liabilities for operating leases at their inception, based on the present value of all payments due under the lease agreement. The Company uses its incremental borrowing rate to determine the present value of operating leases, which is determined by referencing collateralized borrowing rates for debt instruments with terms similar to the respective lease. The Company utilizes the accounting policy election to not separate lease and non-

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Passage Bio, Inc.

Notes to Unaudited Interim Financial Statements

lease components and the accounting policy election to not apply the recognition requirement to leases with a term of twelve months or less.

Share-based compensation

The Company measures share-based awards at grant-date fair value and records compensation expense on a straight-line basis over the vesting period of the awards. The Company’s share-based compensation consists of restricted stock units, or RSUs, and options to purchase common stock, or stock option awards.

The Company uses the Black-Scholes option pricing model to value its stock option awards.

Estimating the fair value of stock option awards requires the input of assumptions, including, the expected term of stock options, and stock price volatility. The assumptions used in estimating the fair value of share-based awards represent management's estimate and involve inherent uncertainties and the application of management's judgment. As a result, if factors change and management uses different assumptions, share-based compensation expense could be materially different for future awards.

The expected term of the stock options is estimated using the “simplified method,” as the Company has limited historical information from which to develop reasonable expectations about future exercise patterns and post-vesting employment termination behavior for its stock option grants. The simplified method is the midpoint between the vesting period and the contractual term of the option. For stock price volatility, the Company uses a composite of comparable public company data as a basis for its expected volatility to calculate the fair value of option grants. The selection of comparable public company data requires the application of management’s judgement.

The Company accounts for forfeitures of RSUs and stock option awards as they occur.

Research and Development

Research and development costs are expensed as incurred and consist primarily of expenses incurred with Penn, contract research organizations, contract manufacturing organizations, internal analytical and testing activities, and employee-related expenses, including salaries, benefits, and share-based compensation. Management makes estimates of the Company’s external accrued research and development expenses, which primarily relates to contract research organizations and contract manufacturing organizations, as of each balance sheet date in the Company’s financial statements based on an estimate of progress to completion of specific tasks using facts and circumstances known to the Company at that time. The Company determines the estimates by reviewing contracts, vendor agreements and change orders, and through discussions with our internal clinical personnel and external service providers as to the progress to completion of services and the agreed-upon fee to be paid for such services. If the actual timing of the performance of services or the level of effort varies from the estimate, the Company will adjust the accrual and related expenses accordingly.

Net Loss Per Share

Basic net loss per share of common stock is computed by dividing net loss by the weighted average number of shares of common stock outstanding during each period. Diluted loss per share of common stock includes the effect, if any, from the potential exercise or conversion of securities, such as stock options, which would result in the issuance of incremental shares of common stock. For diluted net loss per share, the weighted average number of shares of common stock is the same for basic net loss per share due to the fact that when a net loss exists, dilutive securities are not included in the calculation as the impact is anti-dilutive.

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Passage Bio, Inc.

Notes to Unaudited Interim Financial Statements

The following potentially dilutive securities have been excluded from the computation of diluted weighted average shares of common stock outstanding, as they would be anti-dilutive:


	Six Months Ended June 30,
	2023	2022
Stock options	13,552,008	11,982,048
Unvested restricted stock units	1,159,916	447,500
Employee stock purchase plan	34,523	13,936
	14,746,447	12,443,484

Recently Adopted Accounting Pronouncements

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments, or ASU 2016-13, which replaces the incurred loss impairment methodology under current U.S. GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. ASU 2016-13 was subsequently updated by ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, to clarify that entities should include recoveries when estimating the allowance for credit losses. This guidance was effective for the Company starting in fiscal year 2023. The Company adopted ASU 2016-13 as of January 1, 2023, which did not have a material impact on its financial statements.

4. Cash, Cash Equivalents and Marketable Securities

The following table provides details regarding the Company’s portfolio of cash and cash equivalents:


	Cost or
(in thousands)	Amortized cost		Unrealized gains		Unrealized losses		Fair value
June 30, 2023:
Cash accounts in banking institutions	$	5,638	$	-	$	-	$	5,638
Money market funds		23,624		-		-		23,624
Certificates of deposit		1,029		-		-		1,029
Total	$	30,291	$	-	$	-	$	30,291

December 31, 2022:
Cash accounts in banking institutions	$	7,532	$	-	$	-	$	7,532
Money market funds		24,578		-		-		24,578
Commercial paper		2,491		-		-		2,491
Total	$	34,601	$	-	$	-	$	34,601

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Passage Bio, Inc.

Notes to Unaudited Interim Financial Statements

The following table provides details regarding the Company’s portfolio of marketable securities:


(in thousands)	Amortized cost		Unrealized gains		Unrealized losses		Fair value
June 30, 2023:
Certificates of deposit	$	21,616	$	2	$	(28)	$	21,590
Commercial paper		45,131		-		(38)		45,093
Corporate debt securities		26,322		1		(130)		26,193
U.S. government securities		17,544		1		(132)		17,413
U.S. government agency securities		10,916		3		(19)		10,900
Total	$	121,529	$	7	$	(347)	$	121,189

December 31, 2022:
Certificates of deposit	$	28,197	$	6	$	(92)	$	28,111
Commercial paper		58,572		12		(72)		58,512
Corporate debt securities		67,206		1		(786)		66,421
U.S. government securities		2,000		-		(35)		1,965
Total	$	155,975	$	19	$	(985)	$	155,009

The contractual maturities of the Company’s marketable securities as of June 30, 2023, are as follows:


(in thousands)	Amortized Cost		Fair Value
Due within one year	$	107,684	$	107,488
Due after one year through five years		13,845		13,701
Total	$	121,529	$	121,189

5. Fair Value of Financial Instruments

Fair value is the price that could be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Fair value determination in accordance with applicable accounting guidance requires that a number of significant judgments be made. Additionally, fair value is used on a nonrecurring basis to evaluate assets for impairment or as required for disclosure purposes by applicable accounting guidance on disclosures about fair value of financial instruments. Depending on the nature of the assets and liabilities, various valuation techniques and assumptions are used when estimating fair value. The carrying amounts of certain of the Company’s financial instruments, including prepaid expense and accounts payable are shown at cost, which approximates fair value due to the short-term nature of these instruments. The Company follows the provisions of FASB ASC Topic 820, Fair Value Measurement, for financial assets and liabilities measured on a recurring basis. The guidance requires fair value measurements be classified and disclosed in one of the following three categories:

●

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

●

Level 2: Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liabilities.

●

Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).

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Passage Bio, Inc.

Notes to Unaudited Interim Financial Statements

The following fair value hierarchy table presents information about the Company’s assets measured at fair value on a recurring basis. Included within cash and cash equivalents on the balance sheet, but excluded from the fair value hierarchy table, are cash deposits held at financial institutions:


	Fair value measurement at
	reporting date using
	Quoted prices
	in active		Significant
		markets for	other		Significant
	identical		observable			unobservable
	assets		inputs		inputs
(in thousands)	(Level 1)		(Level 2)		(Level 3)
June 30, 2023:
Assets
Cash equivalents:
Money market funds	$	23,624	$	-	$	-
Certificates of deposit		-		1,029		-
Total cash equivalents		23,624		1,029		-

Marketable securities:
Certificates of deposit		-		21,590		-
Commercial paper		-		45,093		-
Corporate debt securities		-		26,193		-
U.S. government securities		-		17,413		-
U.S. government agency securities		-		10,900		-
Total marketable securities		-		121,189		-
Total financial assets	$	23,624	$	122,218	$	-

December 31, 2022:
Assets
Cash equivalents:
Money market funds	$	24,578	$	-	$	-
Commercial paper		-		2,491		-
Total cash equivalents		24,578		2,491		-

Marketable securities:
Certificates of deposit		-		28,111		-
Commercial paper		-		58,512		-
Corporate debt securities		-		66,421		-
U.S. government securities		-		1,965		-
Total marketable securities		-		155,009		-
Total financial assets	$	24,578	$	157,500	$	-

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Passage Bio, Inc.

Notes to Unaudited Interim Financial Statements

6. Property and Equipment, net

Property and equipment, net, consist of the following:


(in thousands)		June 30, 2023	December 31, 2022
Laboratory equipment	$	10,042	$	9,972
Office equipment		601		601
Computer hardware and software		1,275		1,090
Furniture and fixtures		1,137		1,208
Leasehold improvements		13,506		13,506
Construction in progress		638		1,291
Total property and equipment		27,199		27,668
Accumulated depreciation and amortization		(6,974)		(5,153)
	$	20,225	$	22,515

Depreciation expense was $1.0 million and $0.9 million for the three months ended June 30, 2023 and 2022, respectively.

Depreciation expense was $2.0 million and $1.8 million for the six months ended June 30, 2023 and 2022, respectively.

7. Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following:


(in thousands)	June 30, 2023		December 31, 2022
Professional fees	$	585	$	602
Compensation and related benefits		5,780		8,446
Research and development		1,796		1,878
Property and equipment		—		85
Amount due to Catalent in connection with Letter Agreements		5,000		—
	$	13,161	$	11,011

8. Leases

The Company is party to a lease agreement for office space, or the Lease Agreement, in Philadelphia, Pennsylvania. The Lease Agreement commenced in February 2021 and is expected to expire in December 2031. The Company has an option to extend the term of the Lease Agreement by up to two five-year terms. This option to extend was not recognized as part of the Company's measurement of the right of use, or ROU, asset and operating lease liability as of June 30, 2023.

The Company is also party to a lease agreement for laboratory space, or the Laboratory Lease Agreement, in Hopewell, New Jersey. The laboratory is focused on state-of-the-art analytical capabilities, assay development and validation, and clinical product testing to support both viral vector manufacturing and clinical development. The Laboratory Lease Agreement commenced in March 2021 and is expected to expire in February 2036. The Company has an option to extend the term of the Laboratory Lease Agreement by up to two five-year terms. This option to extend was not recognized as part of the Company's measurement of the ROU asset and operating lease liability as of June 30, 2023.

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Passage Bio, Inc.

Notes to Unaudited Interim Financial Statements

The following table summarizes future minimum lease payments under the Company’s operating leases:


(in thousands)
2023	$	1,736
2024		3,553
2025		3,654
2026		3,757
2027		3,863
Thereafter		29,679
Total undiscounted lease payments		46,242
Less: imputed interest		(19,504)
Total lease liabilities	$	26,738

Operating lease expense was $0.8 million for both of the three months ended June 30, 2023 and 2022.

Operating lease expense was $1.7 million for both of the six months ended June 30, 2023 and 2022.

9. Commitments and Contingencies

Amended and Restated Research, Collaboration and License Arrangement with Penn

The Company has a research, collaboration and licensing agreement with Penn, as amended, or the Penn Agreement, for research and development collaborations and exclusive license rights to patents for certain products and technologies. Under the Penn Agreement, the Company has obligations to fund certain research relating to the preclinical development of selected products in research programs as well as exploratory research programs in non-rare and/or non-monogenic, or large CNS indications. In addition, the Company will fund discovery research conducted by Penn through August 3, 2026 and will receive exclusive rights, subject to certain limitations, to technologies resulting from the discovery research for the Company’s products developed with GTP, such as novel capsids, toxicity reduction technologies and delivery and formulation improvements. This funding commitment for the discovery research is $5.0 million annually, paid in quarterly increments of $1.3 million through June, 2026.

The Penn Agreement includes an exploratory research program focused on discovering targets and novel gene therapy candidates for certain large CNS indications and can be expanded to other large CNS diseases upon mutual agreement. The initial term of the exploratory research program is until August 2024, which term can be extended by mutual agreement. Under the exploratory research program, the Company will have the right to further develop and commercialize any gene therapy product candidates specific for those selected targets (and any future large CNS diseases that are mutually agreed upon) that may arise from the exploratory research programs on substantially the same terms of the current Penn Agreement.

Under the Penn Agreement, the Company has eight remaining options available to commence additional licensed programs for CNS indications and has until August 3, 2026, to exercise these options. If the Company were to exercise any of these options, it would owe Penn a non-refundable upfront fee of $1.0 million per product indication, with $0.5 million due upfront and another $0.5 million fee owed upon a further developmental milestone. The Company has the obligation to fund certain research relating to the preclinical development of each licensed program.

The Penn Agreement requires that the Company make payments of up to (i) $16.5 million per product candidate for rare, monogenic disorders in the aggregate and (ii) $39.0 million per product candidate in the aggregate arising from the exploratory program for large CNS indications. Each payment will be due upon the achievement of specific development milestone events by such licensed product for a first indication, reduced development milestone payments for the second and third indications and no development milestone payments for subsequent indications. In addition, on a product-by-

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Passage Bio, Inc.

Notes to Unaudited Interim Financial Statements

product basis, the Company is obligated to make up to $55.0 million in sales milestone payments on each licensed product based on annual sales of the licensed product in excess of defined thresholds.

Upon successful commercialization of a product using the licensed technology, the Company is obligated to pay to Penn, on a licensed product-by-licensed product and country-by-country basis, tiered royalties (subject to customary reductions) in the mid-single digits on annual worldwide net sales of such licensed product. In addition, the Company is obligated to pay to Penn a percentage of sublicensing income, ranging from the mid-single digits to low double digits, for sublicenses under the Penn Agreement. The agreement will expire on a licensed product-by-licensed product and country-by-country basis upon the later of (i) the expiration of the last valid claim of the licensed patent rights that covers the exploitation of such licensed product in such country, and (ii) the expiration of the royalty period. In addition, the Company will pay a tiered transaction fee of 1-2% of the net proceeds upon certain change of control events.

During the three months ended June 30, 2023 and 2022, the Company did not make any payments for acquired in-process research and development.

During the six months ended June 30, 2023, the Company did not make any payments for acquired in-process research and development. During the six months ended June 30, 2022, the Company made payments under the Penn Agreement for acquired in-process research and development of $1.5 million related to the achievement of a development milestone.

Catalent Agreements

In June 2019, the Company entered into a collaboration agreement, or the Collaboration Agreement, with Catalent. As part of the Collaboration Agreement, the Company was required to pay an annual fee for five years ending in 2025 for the exclusive use of a dedicated clean room suite, or the Clean Room Suite.

In April 2020, the Company entered into a development services and clinical supply agreement, or the Manufacturing and Supply Agreement, with Catalent to secure clinical scale manufacturing capacity for batches of active pharmaceutical ingredients for the Company’s gene therapy product candidates. The Manufacturing and Supply Agreement confirms the terms contemplated by the Collaboration Agreement and the Collaboration Agreement continues to be in effect pursuant to its terms. Under the terms of the Manufacturing and Supply Agreement, Catalent agreed to manufacture batches of drug product for the Company’s gene therapy product candidates at the Clean Room Suite at a Catalent facility provided for in the Collaboration Agreement. The Manufacturing and Supply Agreement provided for a term of five years. The Manufacturing and Supply Agreement also included minimum annual purchase commitments. The Company has the right to terminate the Manufacturing and Supply Agreement for convenience or other reasons specified in the Manufacturing and Supply Agreement upon prior written notice. If the Company terminates the Manufacturing and Supply Agreement, it will be obligated to pay an early termination fee to Catalent.

Under both the Collaboration Agreement and the Manufacturing and Supply Agreement, the Company had an annual minimum commitment of $10.6 million per year owed to Catalent for five years from the validation of the Clean Room Suite, subject to certain inflationary adjustments.

On March 31, 2023, the Company entered into certain letter agreements amending each of (i) the Collaboration Agreement and (ii) the Manufacturing and Supply Agreement, together with the Collaboration Agreement, the Existing Agreements.

Letter agreement I, or Agreement I, eliminated the minimum annual purchase obligation and the obligation to pay an annual fee for use of the Clean Room Suite, thereby eliminating the annual minimum commitment of $10.6 million per year owed to Catalent through November 2025 under the Existing Agreements. In consideration of Agreement I, the Company will make aggregate payments to Catalent of $6.0 million between June 30, 2023 and May 1, 2024.

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Passage Bio, Inc.

Notes to Unaudited Interim Financial Statements

Letter agreement II, or Agreement II, and together with Agreement I, the Letter Agreements, extended the term of the Existing Agreements until November 6, 2030, and established a limited exclusive relationship between the Company and Catalent for the manufacture of bulk drug substance and drug product for the Company’s adeno-associated virus delivery therapeutic product candidates for the treatment of FTD and GM1. The limited exclusive relationship under Agreement II converts to a non-exclusive relationship (i) in the event Catalent fails to meet certain performance standards and (ii) following certain conditional events related to the divestiture by the Company of either FTD or GM1, in which case, if such events occur, the Company would pay Catalent certain fees. In addition, in the event of certain transactions, the Company may terminate the Existing Agreements for convenience with respect to such products, in which case, the Company would pay to Catalent a certain termination fee.

Immediately prior to the execution of the Letter Agreements, the Company had a $5.3 million prepaid asset related to upfront payments made to secure the Clean Room Suite. In connection with the Letter Agreements, the Company no longer has exclusive access to the Clean Room Suite at Catalent and, as a result, the Company recognized an expense of $5.3 million related to the elimination of the prepaid asset during the six months ended June 30, 2023.

The Company classified the $11.3 million of expenses, which comprises of $6.0 million in aggregate payments due to Catalent and the $5.3 million elimination of the prepaid asset, as general and administrative expense within the statement of operations for the six months ended June 30, 2023, as both amounts do not directly relate to the future advancement of the Company’s research and development programs.

As of June 30, 2023, the Company made payments of $1.0 million under the Letter Agreements. The remaining $5.0 million of aggregate payments due to Catalent under the Letter Agreements are included in accrued expenses and other current liabilities.

Employment Agreements

The Company has entered into employment agreements with key personnel providing for compensation and, in certain circumstances, severance and acceleration of vesting in stock-based compensation awards, as described in the respective employment agreements.

10. Share-Based Compensation

Equity Incentive Plan

The Company has three equity incentive plans: the 2018 Equity Incentive Plan, as amended, or the 2018 Plan, the 2020 Equity Incentive Plan, or the Incentive Plan, and the 2021 Equity Inducement Plan, as amended, or the Inducement Plan. New awards can only be granted under the Incentive Plan and the Inducement Plan.

The total number of shares authorized under the Incentive Plan as of June 30, 2023 was 13,101,661. Additionally, any awards previously issued under the 2018 Plan which are forfeited become available for issuance under the Incentive Plan. As of June 30, 2023, 4,594,027 shares were available for future grants under the Incentive Plan. The number of shares of the Company’s common stock that may be issued pursuant to rights granted under the Incentive Plan shall automatically increase on January 1st of each year, commencing on January 1, 2021 and continuing for ten years, in an amount equal to five percent of the total number of shares of the Company’s common stock outstanding on December 31st of the preceding calendar year, subject to the discretion of the board of directors or compensation committee to determine a lesser number of shares shall be added for such year. As a result, the number of shares reserved for issuance under the Incentive Plan increased by 2,730,735 and 2,712,249 shares in January 2023 and 2022, respectively.

The Incentive Plan provides for the granting of common stock, incentive stock options, nonqualified stock options, restricted stock awards, and/or stock appreciation rights to employees, directors, and other persons, as determined by the

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Passage Bio, Inc.

Notes to Unaudited Interim Financial Statements

Company’s board of directors. The Company’s stock options awarded to date under the Incentive Plan vest based on a requisite service period, generally over four-year periods, and have a term of ten years.

The Inducement Plan was approved by the Company’s board of directors in July 2021 and subsequently amended in February 2022 and February 2023. The total number of shares authorized under the Inducement Plan as of June 30, 2023 was 2,500,000. Of this amount, 798,967 shares were available for future grants as of June 30, 2023. The Inducement Plan provides for the granting of nonqualified stock options and restricted stock awards to employees hired by the Company, as determined by the Company’s board of directors. The Company’s stock options awarded to date under the Inducement Plan vest based on requisite service period and have a term of ten years. The Company’s restricted stock units awarded to date under the Inducement Plan vest based on requisite service period and have a term based on each award agreement.

The Company measures share-based awards at their grant date fair value and records compensation expense on a straight-line basis over the vesting period of the awards. The Company recorded share-based compensation expense in the following expense categories in its accompanying statements of operations for the period presented:


	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands)	2023		2022		2023		2022
Research and development	$	1,731	$	2,964	$	3,359	$	5,960
General and administrative		2,012		3,314		3,168		6,655
	$	3,743	$	6,278	$	6,527	$	12,615

The following table summarizes stock option activity for the six months ended June 30, 2023:


				Weighted
		Weighted		average
		average		remaining
	Number of	exercise price		contractual
	shares	per share		term (years)
Outstanding at January 1, 2023	11,411,390	$	9.01	7.1
Granted	3,198,482		1.08
Exercised	—

Passage BIO, Inc. [PASG] Filings
10-Q	[2023-08-07]
10-Q	[2023-05-11]
10-K	[2023-03-06]
10-Q	[2022-11-10]
10-Q	[2022-08-04]
10-Q	[2022-05-16]
10-K	[2022-03-03]
10-Q	[2021-11-04]
10-Q	[2021-08-05]
10-Q	[2021-05-05]
10-K	[2021-03-03]
S-1	[2021-01-19]
10-Q	[2020-11-10]
10-Q	[2020-08-13]
10-Q	[2020-05-11]
S-1	[2020-02-03]