What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-08-13 compared with 2020-05-11 · 102 added, 55 removed, 169 unchanged (48% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

You should read the following discussion of our financial condition and results of operations in conjunction with our financial statements and the related notes and other financial information included elsewhere in this Quarterly Report on Form 10-Q and our final prospectus filed with the Securities and Exchange Commission pursuant to Rule 424(b)(4) under the Securities Act of 1933, as amended, dated February 28, 2020, or the Prospectus.

In addition to historical financial information, this discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties, such as statements of our plans, objectives, expectations, intentions and belief.

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PBGM01 for the Treatment of GM1

We are currently developing PBGM01 for the treatment of GM1 gangliosidosis, or GM1, which utilizes a proprietary, next-generation AAVhu68 capsid to deliver to the brain and peripheral tissues a functional GLB1 gene encoding

lysosomal acid beta-galactosidase, or b -gal, for infantile GM1.

Currently, there are no disease-modifying therapies approved for the treatment of GM1.

Infantile GM1, the population being studied, is the most severe and common form of the disease.

Early onset infantile GM1 is characterized by onset in the first 6 months of life, while late onset infantile GM1 is characterized by onset between 6-24 months.

We believe PBGM01 could provide patients with significantly improved outcomes.

In preclinical models, we have observed meaningful transduction of both the CNS and critical peripheral organs for GM1 patients using our ICM method of administration in combination with our next-generation AAVhu68 capsid.

ICM, or intra-cisterna magna injection, involves an injection at the craniocervical junction.

We expect to submit an IND in the second quarter of 2020, initiate a Phase 1/2 trial in the fourth quarter of 2020 and anticipate initial 30-day safety and biomarker data to be available late in the first half of 2021.

In preclinical models, we have observed meaningful transduction of both the CNS and critical peripheral organs for GM1 patients using the intra cisterna magna, or ICM, method of administration, which involves an injection at the craniocervical junction.

In June 2020, we submitted our investigational new drug application, or IND, to the U.

Food and Drug Administration, or FDA, for PBGM01 for the treatment of infantile GM1.

In July 2020, the FDA notified us that the IND was placed on clinical hold pending additional biocompatibility risk assessments and/or testing of the proposed ICM delivery device.

We are currently evaluating options for conducting additional biocompatibility risk assessments while we await official written feedback from the FDA.

While we await the official clinical hold letter from FDA, we are working with external medical device and regulatory experts to evaluate options for additional risk assessment and testing that could be conducted to further demonstrate the compatibility of the device with the ICM injection procedure.

Based on our own internal assessment, we are confident that we can respond rapidly to FDA regarding the biocompatibility risk of our ICM delivery device, and that our device will ultimately clear FDA’s biocompatibility requirements.

During the IND review, we addressed specific clinical and protocol questions raised by the FDA, and the agency confirmed that there are no further clinical information requests.

Based on the discussions with FDA, we have changed the design to specifically study early and late infantile patients in separate, smaller cohorts.

We will now be enrolling a total of four cohorts of 2 patients each, with separate dose-escalation cohorts for late onset infantile GM1 and early onset infantile GM1.

This will test a low dose that exceeds the minimum effective dose, or MED, as determined in our preclinical studies, and a 3-fold greater high dose.

The first cohort will be in patients diagnosed with late infantile GM1 with low dose treatment.

There will be a 60-day interval between subjects dosed within a cohort to allow review of biomarker and safety data before dosing the next subject.

Following the completion of this first cohort and review of safety outcomes, we will simultaneously commence recruitment for both the high dose late infantile GM1 and the low dose early infantile GM1 cohorts.

Upon completion of the low dose early infantile cohort, a high dose cohort will be enrolled.

Following these dose-escalation cohorts, each patient population will be enrolled into a confirmatory cohort.

Patients will be evaluated over two years for safety and efficacy, followed by an additional 36 months of long-term follow up.

We have manufactured the PBGM01 clinical supply and have established a global clinical supply chain to support clinical trial initiation.

As a result of the clinical hold, we now expect to initiate a multi-center, open-label, single-arm Phase 1/2 clinical trial of PBGM01 in patients with a diagnosis of early and late infantile GM1 beginning late in 2020 or early in 2021, and we reiterate our guidance to report initial 30-day safety and biomarker data late in the first half of 2021.

We are currently funding a GM1 natural history study being conducted by the ODC to collect prospective data on clinical disease progression in infantile and juvenile GM1.

This data will be used to construct natural history patient profiles for use as matched case controls for comparison to the profiles of treated participants in our planned Phase 1/2 clinical trial.

In April 2020, the U.S.

Food and Drug Administration, or the FDA, granted Orphan Drug Designation to PBGM01.

This designation represents an important recognition of the dire need for an effective treatment option for those suffering from GM1, while granting us financial incentives to support clinical development and the potential for up to seven years of market exclusivity in the U.S.

upon regulatory approval.

In April 2020, the FDA, granted Orphan Drug Designation, or ODD, and in May 2020, the FDA granted Rare Pediatric Disease Designation, RPDD, to PBGM01.

These designations represent an important recognition of the dire need for an effective treatment option for those suffering from GM1.

The ODD grants us financial incentives to support clinical development and the potential for up to seven years of market exclusivity in the U.S.

upon regulatory

approval, while the under the RPDD program, a sponsor who receives approval for a drug or biologic for a “rare pediatric disease” may qualify for a priority review voucher that may be sold or transferred.

PBFT02 for the Treatment of FTD-GRN

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In a non-human primate, or NHP model, we observed superior transduction results of the CNS using our ICM method of administration and an AAV1 capsid compared to other AAV capsids.

We expect to submit an IND in the second half of 2020 and initiate a Phase 1/2 trial in the first half of 2021 and anticipate clinical data to be available in the second half of 2021.

We expect to submit an IND in the fourth quarter of 2020 and initiate a Phase 1/2 trial in the first half of 2021 and anticipate clinical data to be available in the second half of 2021.

PBKR03 for the Treatment of Krabbe disease

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In preclinical models, we have observed meaningful transduction of both the CNS and critical peripheral organs for Krabbe patients using our ICM method of administration in combination with our next-generation AAVhu68 capsid.

We expect to submit an IND in the second half of 2020 and initiate a Phase 1/2 trial in the first half of 2021 and anticipate clinical data to be available in the second half of 2021.

We expect to submit an IND in the fourth quarter of 2020 and initiate a Phase 1/2 trial in the first half of 2021 and anticipate clinical data to be available in the second half of 2021.

Discovery Programs

We also have three programs in the discovery or candidate selection stage:

We have three programs in the discovery or candidate selection stage for which we have exercised our options under our license agreement with Penn:

PBML04 for metachromatic leukodystrophy, or MLD, PBAL05 for amyotrophic lateral sclerosis, or ALS, and PBCM06 for Charcot-Marie-Tooth Type 2A, or CMT2A.

We also have eleven options available to us to license programs for rare, monogenic CNS indications, along with rights and licenses to new gene therapy technologies developed by Penn.

We also have eleven additional options available to us to license programs for rare, monogenic CNS indications, along with rights and licenses to new gene therapy technologies developed by Penn.

Business Overview

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Historically, we have funded our operations through the sale of convertible preferred stock and then, in the first quarter of 2020, we closed our IPO and received net proceeds of $227.5 million.

Our net loss was $17.6 million for the three months ended March 31, 2020.

As of March 31, 2020, we had an accumulated deficit of $76.2 million.

Our primary use of cash is to fund operating expenses, which consist primarily of research and development expenditures,

and to a lesser extent, general and administrative expenditures.

Our net loss was $27.2 million and $44.8 million for the three and six months ended June 30, 2020, respectively.

As of June 30, 2020, we had an accumulated deficit of $103.4 million.

Our primary use of cash is to fund operating expenses, which consist primarily of research and development expenditures, and to a lesser extent, general and administrative expenditures.

Our ability to generate product revenue sufficient to achieve profitability will depend heavily on the successful development and eventual commercialization of one or more of our current or future product candidates.

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If we are unable to secure adequate additional funding, we may have to significantly delay, scale back or discontinue the development and commercialization of one or more product candidates or delay our pursuit of potential in-licenses or acquisitions.

As of March 31, 2020, we had cash and cash equivalents of $366.8 million.

As of June 30, 2020, we had cash and cash equivalents of $353.4 million.

We expect our existing cash and cash equivalents will enable us to fund our operating expenses and capital expenditure requirements into the first quarter of 2023.

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University of Pennsylvania

In May 2020, we entered into an amended and restated research, collaboration and licensing agreement, or the Penn Expansion Agreement, with Penn, for research and development collaborations and exclusive license rights to patents for certain products and technologies, which supersedes the Original Penn Agreement (as defined below).

Under the Penn Expansion Agreement, we will fund discovery research conducted by Penn for five years, beginning in May 2020, and will receive exclusive rights, subject to certain limitations, to technologies resulting from the discovery program for Passage Bio products developed with GTP, such as novel capsids, toxicity reduction technologies and delivery and formulation improvements.

In May 2020, we entered into an amended and restated research, collaboration and licensing agreement, or the Penn Agreement, with Penn, for research and development collaborations and exclusive license rights to patents for certain products and technologies, which superseded the sponsored research, collaboration and licensing agreement we entered into with Penn in September 2018 .

Under the Penn Agreement, we will fund discovery research conducted by Penn for five years, beginning in May 2020, and will receive exclusive rights, subject to certain limitations, to technologies resulting from the discovery program for Passage Bio products developed with GTP, such as novel capsids, toxicity reduction technologies and delivery and formulation improvements.

Our funding commitment is $5.0 million a year for five years, with quarterly payments of $1.3 million.

The Penn Expansion Agreement also increased the number of remaining options available to us to commence additional licensed programs for rare, monogenic CNS indications from six to eleven, and extended the option exercise window by three years.

Accordingly, the window to exercise the eleven remaining options extends to May 2025.

Under the Penn Agreement we have eleven options available to us to commence additional licensed programs for rare, monogenic CNS indications until May 2025.

If we were to exercise any of these eleven options, we would owe Penn a non-refundable upfront fee of $1.0 million per product indication.

In September 2018, we entered into a sponsored research, collaboration and licensing agreement, or the Original Penn Agreement, with the Trustees of the University of Pennsylvania, or Penn, for preclinical research and development

collaborations and exclusive license rights to patents for certain products and technologies.

As part of the Original Penn Agreement, we agreed to fund certain preclinical development activities as described therein.

The Original Penn Agreement allows us to exercise options to obtain exclusive intellectual property rights for certain current and future products in specified indications for non-refundable upfront fees of $1.0 million per product indication.

We have currently exercised options to license six product candidates from Penn.

The Original Penn Agreement requires that we make payments of up to $16.5 million per product candidate in aggregate 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.

The Penn Agreement requires that we make payments of up to $16.5 million per product candidate in aggregate 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 product basis, we are 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, we are 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, we are obligated to pay to Penn a percentage of sublicensing income, ranging from the mid-single digits to low double digits, for sublicenses under the Original Penn Agreement.

In addition, we are 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.

Collaboration and Manufacturing and Supply Agreements

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Our Series A-1 convertible preferred stock issued in September 2018 included a future tranche participation right permitting investors to purchase 22,209,301 shares of Series A-2 convertible preferred stock at a fixed purchase price of $2.15 per share through December 31, 2019.

The future tranche right was recorded at fair value using a Black-Scholes

option pricing model and was re-measured at each reporting period until the redemption feature was exercised in May 2019, at which time the then estimated fair value was reclassified to convertible preferred stock.

The future tranche right was recorded at fair value using a Black-Scholes option pricing model and was re-measured at each reporting period until the redemption feature was exercised in May 2019, at which time the then estimated fair value was reclassified to convertible preferred stock.

Interest Income

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Results of Operations

Comparison of the Three Months Ended March 31, 2020 and 2019

The following table sets forth our results of operations for the three months ended March 31, 2020 and 2019.

Comparison of the Three Months Ended June 30, 2020 and 2019

The following table sets forth our results of operations for the three months ended June 30, 2020 and 2019.

Three months ended

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Research and development

Acquired in‑process research and development

General and administrative

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Research and Development Expenses

Research and development expenses increased by $10.1 million to $13.1 million for the three months ended March 31, 2020 from $3.0 million for the three months ended March 31, 2019.

The increase was primarily due to an increase of $4.8 million in research and development costs incurred with Penn in preparation for several IND filings as well as an increase in other research costs of $2.9 million as we prepare for our clinical trials to begin in the second half of 2020 and early 2021.

We also had a $2.3 million increase in personnel-related costs and a $0.2 million increase in facility and other costs due to increases in employee headcount in the research and development function.

Research and development expenses increased by $13.6 million to $19.9 million for the three months ended June 30, 2020 from $6.3 million for the three months ended June 30, 2019.

The increase was primarily due to an increase of $4.5 million in research and development costs incurred with Penn in preparation for several IND filings, an increase of $4.0 million in clinical manufacturing costs, a $1.4 million increase in clinical development costs and a $0.5 million increase in consulting expense as we prepare for our clinical trials to begin in the second half of 2020 and early 2021.

We also had a $3.1 million increase in personnel-related costs, including share-based compensation, and a $0.1 million increase in facility and other costs due to increases in employee headcount in the research and development function.

We track outsourced development, outsourced personnel costs and other external research and development costs of specific programs.

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Internal costs, including personnel related

Acquired In-Process Research and Development Expenses

The Company incurred a license fee with Penn of $0.5 million during the three months ended June 30, 2019.

General and Administrative Expenses

General and administrative expenses increased by $3.6 million to $4.8 million for the three months ended March 31, 2020 from $1.2 million for the three months ended March 31, 2019.

The increase was primarily due to a $2.2 million

increase in personnel-related and share-based compensation expense due to increases in employee headcount.

Our professional fees and facility costs also increased by $0.6 million and $0.8 million, respectively, as we expanded our operations to support our research and development efforts.

General and administrative expenses increased by $6.4 million to $7.4 million for the three months ended June 30, 2020 from $1.0 million for the three months ended June 30, 2019.

The increase was primarily due to a $4.7 million increase in personnel-related and share-based compensation expense due to increases in employee headcount.

Our professional fees

and facility costs also increased by $0.7 million and $1.0 million, respectively, as we expanded our operations to support our research and development efforts and incurred more costs associated with operating as a public company.

Change in Fair Value of Future Tranche Right Liability

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Interest Income

We recognized interest income of $0.3 million during the three months ended March 31, 2020, primarily due to the investment of cash proceeds.

We recognized interest income of $0.1 million during the three months ended June 30, 2020, primarily due to the investment of cash proceeds from the IPO.

Comparison of the Six Months Ended June 30, 2020 and 2019

The following table sets forth our results of operations for the six months ended June 30, 2020 and 2019.

Six months ended

(in thousands)

Operating expenses:

Research and development

Acquired in‑process research and development

General and administrative

Loss from operations

Change in fair value of future tranche right liability

Interest income

Research and Development Expenses

Research and development expenses increased by $23.7 million to $33.0 million for the six months ended June 30, 2020 from $9.3 million for the six months ended June 30, 2019.

The increase was primarily due to an increase of $9.3 million in research and development costs incurred with Penn in preparation for several IND filings, an increase of $4.9 million in clinical manufacturing costs, a $2.9 million increase in clinical development costs and a $1.0 million increase in consulting expense as we prepare for our clinical trials to begin in the second half of 2020 and early 2021.

We also had a $5.4 million increase in personnel-related costs, including share-based compensation, and a $0.2 million increase in facility and other costs due to increases in employee headcount in the research and development function.

We track outsourced development, outsourced personnel costs and other external research and development costs of specific programs.

We do not track our internal research and development costs on a program-by-program basis.

Research and development expenses are summarized by program in the table below:

Six months ended

(in thousands)

Internal costs, including personnel related

Acquired In-Process Research and Development Expenses

The Company incurred a license fee of $0.5 million with Penn during the six months ended June 30, 2019.

General and Administrative Expenses

General and administrative expenses increased by $10.1 million to $12.2 million for the six months ended June 30, 2020 from $2.1 million for the six months ended June 30, 2019.

The increase was primarily due to a $6.9 million increase in personnel-related and share-based compensation expense due to increases in employee headcount.

Our professional fees also increased by $1.3 million and our insurance and facility costs increased by $1.9 million as we expanded our operations to support our research and development efforts and incurred more costs associated with operating as a public company.

Change in Fair Value of Future Tranche Right Liability

The change in fair value of our future tranche right liability related to our Series A-1 preferred stock was primarily due to the increase in the estimated fair value of our Series A-2 convertible preferred stock.

The future tranche right liability was settled in May 2019.

Interest Income

We recognized interest income of $0.5 million during the six months ended June 30, 2020, primarily due to the investment of cash proceeds from the IPO.

Liquidity and Capital Resources

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Upon the completion of our IPO, we received net proceeds of $227.5 million.

As of March 31, 2020, we had $366.8 million in cash and cash equivalents and had an accumulated deficit of $76.2 million.

As of June 30, 2020, we had $353.4 million in cash and cash equivalents and had an accumulated deficit of $103.4 million.

We expect our existing cash and cash equivalents will enable us to fund our operating expenses and capital expenditure requirements into the first quarter of 2023.

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If we raise additional funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or drug candidates, or grant licenses on terms that may not be favorable to us.

If we are unable to raise additional funds through equity or debt financings or other arrangements when needed, we may be required to delay, limit, reduce or terminate our research, product development or future commercialization efforts, or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

If we are unable to raise additional funds through equity or debt financings or other arrangements when needed, we may be required to delay, limit, reduce or terminate

our research, product development or future commercialization efforts, or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

The following table shows a summary of our cash flows for the periods indicated:

Three months ended

Six months ended

(in thousands)

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Net Cash Used in Operating Activities

During the three months ended March 31, 2020, we used $21.1 million of net cash in operating activities.

Cash used in operating activities reflected a net loss of $17.6 million and a $5.9 million net increase in our operating assets and liabilities.

The primary use of cash was to fund our operations related to the development of our product candidates.

Cash used in these activities was partially offset by noncash charges of $2.4 million related to share-based compensation, deprecation and changes in deferred rent.

During the three months ended March 31, 2019, we used $0.2 million of net cash in operating activities.

During the six months ended June 30, 2020, we used $33.6 million of net cash in operating activities.

Cash used in operating activities reflected a net loss of $44.8 million.

Cash used was partially offset by net decrease in our operating assets and liabilities of $3.3 million, noncash charges of $4.2 million, consisting of $3.5 million for the loss on the change in fair value of our future tranche right liability, $0.2 million in share-based compensation, and a $0.5 million change in our deferred rent balance.

The primary use of cash was to fund our operations related to the development of our product candidates.

Cash used in operating activities was partially offset by noncash charges of $6.5 million related to share-based compensation, depreciation, and changes in deferred rent as well as a $4.7 million net increase in our operating assets and liabilities.

During the six months ended June 30, 2019, we used $11.0 million of net cash in operating activities.

Cash used in operating activities reflected a net loss of $21.1 million as well as a $0.4 million net decrease in our operating assets and liabilities.

Cash used was partially offset by noncash charges of $10.5 million, consisting of $9.1 million for the loss on the change in fair value of our future tranche right liability, $0.5 million related to an acquired in-process research and development charge, $0.3 million in share-based compensation, and a $0.5 million change in our deferred rent balance.

Net Cash Used in Investing Activities

During the three months ended March 31, 2020 and 2019, we used $0.1 million and $0.9 million, respectively, for the purchase of property and equipment.

During the six months ended June 30, 2020 and 2019, we used $0.2 million and $1.0 million, respectively, for the purchase of property and equipment.

We also acquired an in-process research and development technology license from Penn for $0.5 million during the six months ended June 30, 2019.

Net Cash Provided by Financing Activities

During the three months ended March 31, 2020 and 2019, financing activities provided $229.9 million and $20.0 million, respectively, from the sale of our common stock and convertible preferred stock, respectively.

During the three months ended March 31, 2019, we received $0.2 million from the exercise of stock options.

During the six months ended June 30, 2020 and 2019, financing activities provided $228.3 million and $66.3 million, respectively, from the sale of our common stock and convertible preferred stock, respectively.

During the six months ended June 30, 2020 and 2019, we received $46,000 and $0.2 million from the exercise of stock options, respectively.

Off-Balance Sheet Arrangements

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Critical Accounting Policies and Estimates

During the three months ended March 31, 2020, there were no material changes to our critical accounting policies and estimates from those described under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” in the Prospectus.

During the six months ended June 30, 2020, there were no material changes to our critical accounting policies and estimates from those described under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” in the Prospectus.

JOBS Act Accounting Election

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis