Passage BIO, Inc. 10-Q

Item 1. Financial Statements. Passage Bio, Inc. Balance Sheets (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ (in thousands, except share data) June 30, 2020 December 31, 2019 Assets ​ ​ Current assets: ​ ​ Cash and cash equivalents ​ $ 353,423 ​ $ 158,874 Prepaid expenses ​ 2,176 ​ 156 Prepaid research and development ​ 12,631 ​ 6,745 Total current assets ​ 368,230 ​ 165,775 Property and equipment, net ​ 1,096 ​ 1,087 Other assets ​ 8,771 ​ 11,751 Total assets ​ $ 378,097 ​ $ 178,613 Liabilities, convertible preferred stock and stockholders’ equity (deficit) ​ ​ Current liabilities: ​ ​ Accounts payable ​ $ 7,214 ​ $ 629 Accrued expenses and other current liabilities ​ 6,920 ​ 3,052 Total current liabilities ​ 14,134 ​ 3,681 Deferred rent ​ 524 ​ 504 Other liabilities ​ 43 ​ 76 Total liabilities ​ 14,701 ​ 4,261 Convertible preferred stock, $0.0001 par value: ​ ​ Series A‑1 convertible preferred stock: 63,023,258 shares authorized, issued and outstanding at December 31, 2019 ​ — ​ 74,397 Series A‑2 convertible preferred stock: 22,209,301 shares authorized; issued and outstanding at December 31, 2019 ​ — ​ 46,311 Series B convertible preferred stock: 33,592,907 shares authorized, issued and outstanding at December 31, 2019 ​ — ​ 109,897 Total convertible preferred stock ​ — ​ 230,605 Commitments and Contingencies (note 6) ​ ​ Stockholders’ equity (deficit): ​ ​ Common stock, $0.0001 par value: 300,000,000 shares authorized; 45,841,971 shares issued and 45,443,541 shares outstanding at June 30, 2020 and 5,194,518 shares issued and 4,293,039 shares outstanding at December 31, 2019 ​ 4 ​ — Additional paid‑in capital ​ 466,812 ​ 2,410 Accumulated deficit ​ (103,420) ​ (58,663) Total stockholders’ equity (deficit) ​ 363,396 ​ (56,253) Total liabilities, convertible preferred stock and stockholders’ equity (deficit) ​ $ 378,097 ​ $ 178,613 ​ See accompanying notes to unaudited interim financial statements. ​ 4 Table of Contents Passage Bio, Inc. Statements of Operations (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended June 30, ​ ​ Six Months Ended June 30, (in thousands, except share and per share data) 2020 2019 ​ ​ 2020 2019 Operating expenses: ​ ​ ​ ​ ​ ​ Research and development ​ $ 19,902 ​ $ 6,299 ​ ​ $ 33,019 ​ $ 9,332 Acquired in‑process research and development ​ — ​ 500 ​ ​ — ​ 500 General and administrative ​ 7,402 ​ 968 ​ ​ 12,197 ​ 2,122 Loss from operations ​ (27,304) ​ (7,767) ​ ​ (45,216) ​ (11,954) Change in fair value of future tranche right liability ​ — ​ (5,659) ​ ​ — ​ (9,141) Interest income ​ 132 ​ — ​ ​ 459 ​ — Net loss ​ $ (27,172) ​ $ (13,426) ​ ​ $ (44,757) ​ $ (21,095) Per share information: ​ ​ ​ ​ ​ Net loss per share of common stock, basic and diluted ​ $ (0.60) ​ $ (3.19) ​ ​ $ (1.42) ​ $ (5.02) Weighted average common shares outstanding, basic and diluted ​ 45,386,308 ​ 4,209,716 ​ ​ 31,581,851 ​ 4,203,694 ​ See accompanying notes to unaudited interim financial statements. ​ ​ 5 Table of Contents Passage Bio, Inc. Statements of Convertible Preferred Stock and Stockholders’ Equity (in thousands, except share data) (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Convertible preferred stock ​ ​ Stockholders’ equity ​ ​ Series A ‑ 1 ​ Series A ‑ 2 ​ Series B ​ ​ Common stock ​ Additional ​ Accumulated ​ ​ ​ Shares Amount Shares Amount Shares Amount Shares Amount paid ‑ in capital deficit Total Balance at April 1, 2020 ​ — ​ ​ — ​ — ​ ​ — ​ — ​ ​ — ​ 45,350,687 ​ $ 4 ​ $ 462,910 ​ $ (76,248) ​ $ 386,666 Vesting of early exercise option awards ​ — ​ — ​ — ​ — — ​ — ​ ​ 48,078 ​ ​ — ​ ​ 1 ​ ​ — ​ ​ 1 Exercise of stock options ​ — ​ — ​ — ​ — — ​ — ​ ​ 44,776 ​ ​ — ​ ​ 46 ​ ​ — ​ ​ 46 Share‑based compensation expense ​ — ​ — ​ — ​ — — ​ — ​ ​ — ​ ​ — ​ ​ 3,855 ​ ​ — ​ ​ 3,855 Net loss ​ — ​ — ​ — ​ — — ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ (27,172) ​ ​ (27,172) Balance at June 30, 2020 — ​ $ — ​ — ​ $ — — ​ $ — ​ 45,443,541 ​ $ 4 ​ $ 466,812 ​ $ (103,420) ​ $ 363,396 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Convertible preferred stock ​ ​ Stockholders’ equity ​ ​ Series A ‑ 1 ​ Series A ‑ 2 ​ Series B ​ ​ Common stock ​ Additional ​ Accumulated ​ ​ ​ Shares Amount Shares Amount Shares Amount Shares Amount paid ‑ in capital deficit Total Balance at January 1, 2020 63,023,258 ​ $ 74,397 ​ 22,209,301 ​ $ 46,311 33,592,907 ​ $ 109,897 ​ ​ 4,293,039 ​ $ — ​ $ 2,410 ​ $ (58,663) ​ $ (56,253) Vesting of early exercise option awards — ​ — ​ — ​ — — ​ — ​ 503,049 ​ — ​ ​ 33 ​ ​ — ​ 33 Exercise of stock options ​ — ​ ​ — ​ — ​ ​ — ​ — ​ ​ — ​ ​ 44,776 ​ ​ — ​ ​ 46 ​ ​ — ​ ​ 46 Conversion of convertible preferred stock upon initial public offering (63,023,258) ​ (74,397) ​ (22,209,301) ​ (46,311) (33,592,907) ​ (109,897) ​ 26,803,777 ​ 3 ​ 230,602 ​ ​ — ​ 230,605 Sale of common stock in initial public offering, net of issuance costs of $3,495 — ​ — ​ — ​ — — ​ — ​ 13,798,900 ​ 1 ​ 227,498 ​ ​ — ​ 227,499 Share‑based compensation expense — ​ — ​ — ​ — — ​ — ​ — ​ — ​ 6,223 ​ ​ — ​ 6,223 Net loss — ​ — ​ — ​ — — ​ — ​ — ​ — ​ ​ — ​ ​ (44,757) ​ (44,757) Balance at June 30, 2020 ​ — ​ $ — ​ — ​ $ — ​ — ​ $ — ​ ​ 45,443,541 ​ $ 4 ​ $ 466,812 ​ $ (103,420) ​ $ 363,396 ​ See accompanying notes to unaudited interim financial statements. 6 Table of Contents Passage Bio, Inc. Statements of Convertible Preferred Stock and Stockholders’ Deficit (in thousands, except share data) (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Convertible preferred stock ​ ​ Stockholders’ deficit ​ ​ Series A ‑ 1 ​ Series A ‑ 2 ​ Series B ​ ​ Common stock ​ Additional ​ Accumulated ​ ​ ​ Shares Amount Shares Amount Shares Amount Shares Amount paid ‑ in capital deficit Total Balance at April 1, 2019 63,023,258 ​ $ 63,099 ​ — ​ $ — ​ — ​ $ — ​ 4,209,187 ​ $ — ​ $ 1,100 ​ $ (20,698) ​ $ (19,598) Vesting of early exercise option awards ​ — ​ ​ — ​ — ​ — ​ — ​ — ​ 1,128 ​ ​ — ​ ​ 1 ​ ​ — ​ ​ 1 Sale of Series A‑2 convertible preferred stock, net of issuance costs of $1,439 — ​ — ​ 22,209,301 ​ 46,311 ​ — ​ — ​ — ​ — ​ — ​ ​ — ​ ​ — Reclassification of future tranche right upon exercise ​ — ​ ​ 11,298 ​ — ​ ​ — ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Share‑based compensation expense — ​ — ​ — ​ — ​ — ​ — ​ — ​ — ​ 92 ​ ​ — ​ ​ 92 Net loss — ​ — ​ — ​ — ​ — ​ — ​ — ​ — ​ — ​ ​ (13,426) ​ ​ (13,426) Balance at June 30, 2019 ​ 63,023,258 ​ $ 74,397 ​ 22,209,301 ​ $ 46,311 ​ — ​ $ — ​ ​ 4,210,315 ​ $ — ​ $ 1,193 ​ $ (34,124) ​ $ (32,931) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Convertible preferred stock ​ ​ Stockholders’ deficit ​ ​ Series A ‑ 1 ​ Series A ‑ 2 ​ Series B ​ ​ Common stock ​ Additional ​ Accumulated ​ ​ ​ Shares Amount Shares Amount Shares Amount Shares Amount paid ‑ in capital deficit Total Balance at January 1, 2019 ​ 44,418,606 ​ $ 43,118 ​ — ​ $ — ​ — ​ $ — ​ 4,195,649 ​ $ — ​ $ 856 ​ $ (13,029) ​ $ (12,173) Vesting of early exercise option awards ​ — ​ ​ — ​ — ​ ​ — ​ — ​ ​ — ​ 14,666 ​ ​ — ​ ​ 14 ​ ​ — ​ ​ 14 Sale of Series A-1 convertible preferred stock, net of issuance costs of $19 ​ 18,604,652 ​ 19,981 ​ — ​ — ​ — ​ — ​ — ​ — ​ — ​ ​ — ​ ​ — Sale of Series A‑2 convertible preferred stock, net of issuance costs of $1,439 ​ — ​ — ​ 22,209,301 ​ 46,311 ​ — ​ — ​ — ​ — ​ — ​ ​ — ​ ​ — Reclassification of future tranche right upon exercise ​ — ​ ​ 11,298 ​ — ​ ​ — ​ — ​ ​ — ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Share‑based compensation expense ​ — ​ ​ — ​ — ​ ​ — ​ — ​ ​ — ​ — ​ ​ — ​ ​ 323 ​ ​ — ​ ​ 323 Net loss ​ — ​ ​ — ​ — ​ ​ — ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ (21,095) ​ ​ (21,095) Balance at June 30, 2019 63,023,258 ​ $ 74,397 ​ 22,209,301 ​ $ 46,311 ​ — ​ $ — ​ 4,210,315 ​ $ — ​ $ 1,193 ​ $ (34,124) ​ $ (32,931) ​ See accompanying notes to unaudited interim financial statements. ​ ​ 7 Table of Contents Passage Bio, Inc. Statements of Cash Flows (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ Six Months Ended ​ ​ June 30, (in thousands) 2020 2019 Cash flows used in operating activities: ​ ​ Net loss ​ $ (44,757) ​ $ (21,095) Adjustments to reconcile net loss to net cash used in operating activities: ​ ​ Change in fair value of future tranche right liability ​ — ​ 9,141 Acquired in‑process research and development ​ — ​ 500 Depreciation and amortization ​ 247 ​ 48 Share‑based compensation ​ 6,223 ​ 323 Deferred rent ​ 20 ​ 481 Changes in operating assets and liabilities: ​ ​ Prepaid expenses and other assets ​ 197 ​ 46 Prepaid research and development ​ (5,886) ​ (1,513) Accounts payable ​ 6,522 ​ (104) Accrued expenses and other current liabilities ​ 3,868 ​ 1,179 Net cash used in operating activities ​ (33,566) ​ (10,994) Cash flows used in investing activities: ​ ​ Purchase of technology licenses ​ — ​ (500) Purchases of property and equipment ​ (193) ​ (1,041) Net cash used in investing activities ​ (193) ​ (1,541) Cash flows provided by financing activities: ​ ​ Proceeds from issuance of common stock upon initial public offering, net of offering costs ​ ​ 228,262 ​ ​ — Proceeds from the sale of Series A‑1 convertible preferred stock and future tranche right, net of offering costs ​ — ​ 19,981 Proceeds from the sale of Series A‑2 convertible preferred stock, net of offering costs ​ — ​ 46,311 Deferred offering costs ​ ​ — ​ ​ (5) Proceeds from early exercise stock options ​ 46 ​ 176 Net cash provided by financing activities ​ 228,308 ​ 66,463 Net increase in cash and cash equivalents ​ 194,549 ​ 53,928 Cash and cash equivalents at beginning of period ​ 158,874 ​ 24,861 Cash and cash equivalents at end of period ​ $ 353,423 ​ $ 78,789 Supplemental disclosure of non‑cash investing and financing activities: ​ ​ Reclassification of deferred offering costs paid in a prior period ​ $ 763 ​ $ — Reclassification of the future tranche right liability upon exercise ​ $ — ​ $ 11,298 Property and equipment in accounts payable ​ $ 63 ​ $ 15 Vesting of early exercise option awards ​ $ 33 ​ $ 14 ​ See accompanying notes to unaudited interim financial statements. ​ 8 Table of Contents Passage Bio, Inc. Notes to Unaudited Interim Financial Statements 1. Nature of Operations Passage Bio, Inc. (the Company), a Delaware corporation incorporated in July 2017, is a genetic medicines company focused on advancing transformative therapies for rare monogenic central nervous system diseases. The Company has a strategic research collaboration with the Trustees of the University of Pennsylvania’s (Penn’s), Gene Therapy Program (GTP) that provides the Company with access to one of the premier research institutions in the world for the discovery and preclinical development of genetic medicine product candidates and exclusive rights to certain rare, monogenic central nervous system (CNS) indications. Under this collaboration, GTP conducts discovery and investigation new drug enabling preclinical activities and the Company conducts all clinical development, regulatory strategy, and commercialization activities under the agreement. The Company also has a collaboration agreement and a development services and clinical supply agreement with Catalent Maryland, Inc. (Catalent) (formerly Paragon Bioservices, Inc.) 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 $103.4 million as of June 30, 2020. 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. In March 2020, the Company closed its initial public offering (IPO) in which the Company issued and sold 13,798,900 shares of its common stock, which included shares sold pursuant to an option granted to the underwriters to purchase additional shares, at a public offering price of $18.00 per share for net proceeds of $227.5 million after deducting underwriting discounts, commissions and other offering expenses. The Company’s operations have consisted primarily of organizing the Company, securing financing, developing licensed technology, performing research and conducting preclinical studies. 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, including extensive preclinical and clinical testing 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 significant 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, the Company could be required to delay, reduce or eliminate research and development programs, product portfolio expansion or future commercialization efforts, which could adversely affect its business prospects. 9 Table of Contents 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 prospectus filed with the SEC on February 27, 2020. Basis of Presentation The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP). Any reference in these notes to applicable guidance is meant to refer to GAAP as found in the Accounting Standards Codification (ASC) and Accounting Standards Updates (ASU) promulgated by the Financial Accounting Standards Board (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 Securities and Exchange Commission (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, convertible preferred stock and stockholders’ equity (deficit), 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 December 31, 2019 financial statements and footnotes included in the prospectus as filed with the SEC on February 27, 2020. 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. Prior to the IPO, significant areas that required management’s estimates included the fair value of the Company’s future tranche right liability and its common stock. After the IPO, the most significant judgements are used in estimates to determine the fair value of stock options issued. 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. The future tranche right liability was recorded at its estimated fair value. Share-based compensation 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. 10 Table of Contents Passage Bio, Inc. Notes to Unaudited Interim Financial Statements Estimating the fair value of share-based awards requires the input of subjective assumptions, including, prior to the IPO, the estimated fair value of the Company's common stock, and, for stock options, the expected life of the options and stock price volatility. The Company accounts for forfeitures for stock option awards as they occur. The Company uses the Black-Scholes option pricing model to value its stock option awards. 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 life 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 comparable public companies as a basis for its expected volatility to calculate the fair value of option grants. The risk-free rate is based on the U.S. Treasury yield curve commensurate with the expected life of the option. 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 convertible preferred stock, 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. 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, ​ ​ 2020 2019 Series A‑1 convertible preferred stock — 14,216,333 Series A‑2 convertible preferred stock — 5,009,808 Stock options (including shares subject to repurchase) 6,759,369 1,380,969 Stock options vested and exercised, but subject to settlement of nonrecourse promissory notes — 279,863 Employee stock purchase plan ​ 7,248 ​ — ​ 6,766,617 20,886,973 ​ Amounts in the above table reflect the common stock equivalents. Recently Issued Accounting Pronouncements In February 2016, the FASB issued ASU No. 2016-02, Leases , which requires a lessee to record a right-of-use asset and a corresponding lease liability on the balance sheet for all leases with terms longer than 12 months. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. As the Company has elected to use the extended transition period for complying with new or revised accounting standards as available under the Jobs Act, the standard is effective for the Company beginning January 1, 2022, with early adoption permitted. The Company is currently evaluating the expected impact that the standard could have on its financial statements and related disclosures. 11 Table of Contents Passage Bio, Inc. Notes to Unaudited Interim Financial Statements ​ 4. 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). The following fair value hierarchy table presents information about the Company’s assets measured at fair value on a recurring basis: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 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, 2020: ​ ​ ​ Assets: ​ ​ ​ Cash equivalents (Money Market Fund) ​ $ 284,305 ​ $ — ​ $ — December 31, 2019: ​ ​ ​ Assets: ​ ​ ​ Cash equivalents (Money Market Fund) ​ $ 155,846 ​ $ — ​ $ — ​ ​ ​ The Company evaluated the future tranche right feature within the Series A-1 convertible preferred stock issued in 2018 and determined that the future tranche right was a freestanding financial instrument that was classified as a liability and was re-measured at each reporting period until the redemption feature was exercised in connection with the sale and issuance of the Series A-2 convertible preferred stock in May 2019. ​ ​ 12 Table of Contents Passage Bio, Inc. Notes to Unaudited Interim Financial Statements 5. Accrued Expenses and Other Current Liabilities Accrued expenses and other current liabilities consisted of the following: ​ ​ ​ ​ ​ ​ ​ (in thousands) June 30, 2020 December 31, 2019 Professional fees ​ $ 196 ​ $ 997 Compensation and related benefits ​ 2,103 ​ 1,502 Research and development ​ 4,556 ​ 507 Other ​ 65 ​ 46 ​ ​ $ 6,920 ​ $ 3,052 ​ ​ ​ ​ 6. Commitments and Contingencies Amended and Restated Research, Collaboration and License Arrangement with Penn In May 2020, the Company amended and restated its research, collaboration and licensing agreement with Penn (the Penn Agreement) for research and development collaborations and exclusive license rights to patents for certain products and technologies, which superseded the Company’s existing sponsored research, collaboration and licensing agreement with Penn, dated September 18, 2018, as amended. Under the Penn Agreement, the Company 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 research for the Company’s products developed with GTP, such as novel capsids, toxicity reduction technologies and delivery and formulation improvements. This funding commitment is $5.0 million annually, with quarterly payments of $1.3 million beginning in the third quarter of 2020. The Penn Agreement also increased the number of remaining options available to the Company 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 all eleven remaining options extends to May 2025. 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. Catalent Agreements In June 2019, the Company entered into a collaboration agreement (the Catalent Collaboration Agreement) with Catalent . As part of the Catalent Collaboration Agreement, the Company paid Catalent an upfront fee for the commissioning, qualification, validation and equipping of a clean room suite (the Clean Room Suite). Subject to validation of the Clean Room Suite, which is expected to occur by the end of 2020, the Company will pay an annual fee for five years for the use of the Clean Room Suite and is also committed to minimum annual purchase commitments. In April 2020, the Company entered into a development services and clinical supply agreement (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 Catalent Collaboration Agreement. The Catalent Collaboration Agreement continues to be in effect pursuant to its terms. Under the terms of the Manufacturing and Supply Agreement, Catalent has 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 Catalent Collaboration Agreement. The Manufacturing and Supply Agreement provides for a term of five years which period may be extended once, at the Company’s option, for an additional five year-period. 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. 13 Table of Contents Passage Bio, Inc. Notes to Unaudited Interim Financial Statements Under both the Collaboration Agreement and the Manufacturing and Supply Agreement, the Company has an annual minimum commitment of $10.6 million per year owed to Catalent for five years from the validation of the Clean Room, subject to certain inflationary adjustments. Operating Leases The Company leases office space in Philadelphia, Pennsylvania under a noncancelable lease (Existing Lease Agreement), as amended. The lease is classified as an operating lease and the Company recognizes rent expense on a straight-line basis over the lease term. In April 2020, the Company entered into a new lease agreement (New Lease Agreement) for larger office space in Philadelphia to accommodate the Company’s continued growth and serve as the new corporate headquarters. The New Lease Agreement is expected to commence in March 2021 and is expected to expire in January 2031. The Company has an option to extend the term of the New Lease Agreement by up to two five-year terms. Upon signing the New Lease Agreement, the Company amended the Existing Lease Agreement such that the Existing Lease Agreement will terminate five days after the commencement of the New Lease Agreement with no further payments due under the Existing Lease Agreement. The landlord also will provide the Company with a tenant improvement allowance of up to $2.8 million. The future minimum lease payments under the Company’s New Lease Agreement are as follows: ​ ​ ​ ​ (in thousands) ​ 2021 ​ $ — 2022 ​ 889 2023 ​ 1,098 2024 ​ 1,131 2025 ​ 1,165 Thereafter ​ 7,763 ​ ​ $ 12,046 The estimated future minimum lease payments under the Company’s Existing Lease Agreement as of June 30, 2020 is $0.1 million. The Company recognized rent expense of $0.1 million and $36,000 during the three months ended June 30, 2020 and 2019, respectively, and $0.1 million and $87,000 during the six months ended June 30, 2020 and 2019, respectively, related to its operating leases. Employment Agreements The Company has entered into employment agreements with key personnel providing for compensation and severance in certain circumstances, as described in the respective employment agreements. 14 Table of Contents Passage Bio, Inc. Notes to Unaudited Interim Financial Statements Patent Infringement Claim On February 18, 2020, the Company received a letter from Regenxbio Inc. (Regenx), which stated its view that the use of the Company’s AAVhu68 capsid infringes patent claims to which Regenx has an exclusive license and which expire in 2024. Regenx also stated that it has exclusive licenses to various pending patent applications regarding the use of AAV vectors administered via instar-cisterna magna injection, and that these applications may lead to issued claims that Regenx believes may, if issued, cover the Company’s planned method of administration for the Company’s lead product candidates. The Company believes it has valid defenses to the issued claims set forth by Regenx relating to AAVhu68. Further, the prosecution of pending patent applications is highly uncertain, and it is unclear whether any patents will be issued from these pending Regenx patent applications at all, much less with claims that are relevant to the administration of the Company’s product candidates. Regenx also asked for information regarding the Company’s relationship with Dr. Wilson while he was serving as an advisor to Regenx. Regenx's letter also offers to discuss licensing the applicable patent portfolios from them. In April 2020, the Company responded to Regenx indicating that it does not believe it requires a license to any of the specified Regenx patents or patent applications at this time, and that it found that Dr. Wilson’s relationship with the Company was consistent with his obligations to Regenx. The Company will continue to monitor the situation and, if necessary, take appropriate actions, which may include responding to further correspondence from Regenx, and engaging in discussions with Regenx regarding their claims. If any such patents were enforceable and such claims were ultimately successful, the Company might require a license to continue to use and sell any product candidates using such AAV vector. 7. Convertible Preferred Stock and Common Stock Initial Public Offering In March 2020, the Company completed its IPO in which the Company sold 13,798,900 shares of its common stock, which included shares sold pursuant to an option granted to the underwriters to purchase additional shares, at a public offering price of $18.00 per share. The Company received net proceeds of $227.5 million after deducting underwriting discounts, commissions, and other offering expenses paid by the Company. In addition, immediately prior to the initial closing of the IPO on March 3, 2020, (i) all of the Company’s outstanding shares of convertible preferred stock converted into an aggregate of 26,803,777 shares of common stock and (ii) the Company filed an amended and restated certificate of incorporation to, among other things, increase the number of authorized shares of common stock to 300.0 million. 8. Share-Based Compensation Equity Incentive Plan The Company has two equity incentive plans: the 2018 Equity Incentive Plan, as amended, and the 2020 Equity Incentive Plan. New awards can only be granted under the 2020 Equity Incentive Plan (the Plan). The total number of shares authorized under the Plan as of June 30, 2020 was 5,362,823. Of this amount, 3,942,905 shares were available for future grants as of June 30, 2020. The number of shares of the Company’s common stock that may be issued pursuant to rights granted under the 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. The 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 Company’s board of directors. The Company’s stock options vest based on the terms in each award agreement, generally over four-year periods, and have a term of ten years. 15 Table of Contents Passage Bio, Inc. Notes to Unaudited Interim Financial Statements 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) 2020 2019 ​ 2020 2019 Research and development ​ $ 1,309 ​ $ 22 ​ $ 2,356 ​ $ 26 General and administrative ​ 2,546 ​ 70 ​ 3,867 ​ 297 ​ ​ $ 3,855 ​ $ 92 ​ $ 6,223 ​ $ 323 ​ During the six months ended June 30, 2020, the Company modified certain awards and recognized an additional $0.7 million related to the modifications, $0.6 million of which was recognized in research and development expense and $0.1 million was recognized in general and administrative expense. The following table summarizes stock option activity for the six months ended June 30, 2020: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted ​ ​ ​ ​ Weighted ​ average ​ ​ ​ ​ average ​ remaining ​ ​ Number of ​ exercise price ​ contractual ​ ​ shares ​ per share ​ term (years) Outstanding at January 1, 2020 2,577,719 $ 5.90 9.3 Granted 3,962,327 ​ ​ 14.61 Exercised (44,776) ​ ​ 1.02 Forfeited (134,331) ​ ​ 1.02 Outstanding at June 30, 2020 6,360,939 ​ $ 11.46 9.5 Exercisable at June 30, 2020 397,421 ​ $ 5.26 9.0 Vested or expected to vest at June 30, 2020 6,360,939 ​ $ 11.46 9.5 ​ The weighted-average grant date fair value of options granted was $11.09 and $0.76 for the six months ended June 30, 2020 and 2019, respectively. As of June 30, 2020, the total unrecognized compensation expense related to unvested stock option awards was $47.4 million, which the Company expects to recognize over a weighted-average period of 3.4 years. The fair value of each option was estimated on the date of grant using the weighted average assumptions in the table below: ​ ​ ​ ​ ​ ​ ​ ​ ​ Six Months Ended June 30, ​ ​ 2020 ​ 2019 Expected volatility ​ 95.2% ​ 87.1% Risk‑free interest rate ​ 1.3% ​ 2.4% Expected term ​ 6.06 years ​ 5.57 years Expected dividend yield ​ — ​ — ​ The Plan provides certain holders of stock options an election to early exercise prior to vesting. The Company has the right to repurchase early exercised options without transferring any appreciation in the value of the underlying shares to the employee if the employee terminates employment before the end of the original vesting period. The repurchase price is the lesser of the original exercise price or the then fair value of the Company’s common stock. At June 30, 2020, $43,000 of proceeds from unvested early exercised options were recognized as a non-current liability in other liabilities in the accompanying balance sheet. 16 Table of Contents Passage Bio, Inc. Notes to Unaudited Interim Financial Statements The 2018 Equity Incentive Plan allowed for the exercise of options to be financed with nonrecourse notes. For accounting purposes, payment of principal and interest are viewed as the exercise price of the option. Therefore, no interest income was recognized. The following table summarizes activity relating to early exercises of stock options during the six months ended June 30, 2020: ​ ​ ​ ​ Number of shares Unvested balance at January 1, 2020 494,603 Vested (96,173) Unvested balance at June 30, 2020 398,430 ​ Nonrecourse Promissory Notes with Related Parties In February 2019, the Company’s interim chief executive officer and chief operating officer elected to early exercise 688,875 and 309,994 stock options, respectively, in exchange for cash proceeds of $0.2 million and nonrecourse promissory notes (the Notes) of $0.8 million. The Notes bore interest at 2.91% and were secured by the underlying shares of common stock that were issued. In January 2020, the Company forgave the Notes and associated interest related to the early exercise of stock options by the interim chief executive officer and chief operating officer. An aggregate of 406,894 shares that were previously not considered outstanding for accounting purposes due to being secured by the Notes became outstanding upon the forgiveness of the Notes in January 2020. Employee Stock Purchase Plan The Company’s 2020 Employee Stock Purchase Plan (the ESPP) became effective on February 28, 2020. The ESPP authorizes the issuance of up to 434,000 shares of the Company’s common stock. The number of shares of the Company’s common stock that may be issued pursuant to rights granted under the ESPP shall automatically increase on January 1st of each year, commencing on January 1, 2021 and continuing for ten years, in an amount equal to one 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. Under the ESPP, eligible employees can purchase the Company’s common stock through accumulated payroll deductions at such times as are established by the compensation committee. Eligible employees may purchase the Company’s common stock at 85% of the lower of the fair market value of the Company’s common stock on the first day of the offering period or on the last day of the offering period. Eligible employees may contribute up to 15% of their eligible compensation. Under the ESPP, a participant may not accrue rights to purchase more than $25,000 worth of the Company’s common stock for each calendar year in which such right is outstanding. Effective March 3, 2020, employees who elected to participate in the ESPP commenced payroll withholdings that accumulate through November 15, 2020. In accordance with the guidance in ASC 718-50 – Compensation – Stock Compensation , the ability to purchase shares of the Company’s common stock at 85% of the lower of the price on the first day of the offering period or the last day of the offering period (i.e. the purchase date) represents an option and , therefore, the ESPP is a compensatory plan under this guidance. Accordingly, share-based compensation expense is determined based on the option’s grant-date fair value as estimated by applying the Black Scholes option-pricing model and is recognized over the withholding period. The Company recognized share-based compensation expense of $62,000 and $85,000 during the three and six months ended June 30, 2020 related to the ESPP. 17 Table of Contents Passage Bio, Inc. Notes to Unaudited Interim Financial Statements 9. Related-Party Transactions Penn Agreement Penn is a stockholder of the Company. Research and development expenses with Penn during the three months ended June 30, 2020 and 2019 were $10.2 million and $6.2 million, respectively. Research and development expenses with Penn during the six months ended June 30, 2020 and 2019 were $17.9 million and $9.1 million, respectively. The Company made $16.3 million in cash payments to Penn during the six months ended June 30, 2020, and had a prepaid research and development asset of $10.5 million and $5.7 million as of June 30, 2020 and December 31, 2019, respectively, in the accompanying balance sheets. Consulting Agreement James M. Wilson, M.D., Ph.D., an employee of Penn and a stockholder of the Company, serves as the Company’s chief scientific advisor pursuant to a consulting agreement. The Company recognized $31,000 and $62,000 of expense related to these services during the three and six months ended June 30, 2020, including $6,000 and $12,000, respectively, of share-based compensation expense. ​ 10. Subsequent Events None. ​ ​ 18 Table of Contents