What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-11-10 compared with 2020-08-13 · 73 added, 68 removed, 203 unchanged (41% of the section changed)

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We are a genetic medicines company focused on developing transformative therapies for rare, monogenic central nervous system, or CNS, disorders with limited or no approved treatment options.

Our vision is to become the premier genetic medicines company by developing and ultimately commercializing therapies that dramatically and positively transform the lives of patients suffering from these life-threatening disorders.

Our vision is to finally fulfill the promise of gene therapy for patients with rare monogenic CNS diseases, by curing previously incurable disorders and transforming lives.

To achieve our vision, we have assembled a world-class team whose members have decades of collective experience in genetic medicines and rare disease drug development and commercialization.

The field of genetic medicine is rapidly expanding and we believe we have a differentiated approach to developing treatments for rare, monogenic CNS disorders that enables us to select and advance product candidates with a higher probability of technical and regulatory success.

We have a strategic research collaboration with the Trustees of the University of Pennsylvania’s, or Penn’s, Gene Therapy Program, or GTP, headed by Dr.

We have entered into a strategic research collaboration with the Trustees of the University of Pennsylvania’s, or Penn’s, Gene Therapy Program, or GTP, headed by Dr.

James Wilson, a leader in the genetic medicines field.

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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.

In August 2020, we received a letter from the FDA 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 conducting additional biocompatibility risk assessments.

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.

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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.

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 in the first quarter of 2021, and we expect to report our initial 30-day safety and biomarker data mid-year 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.

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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.

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.

In October 2020, the European Commission granted ODD to PBGM01.

PBFT02 for the Treatment of FTD-GRN

We are currently developing PBFT02 for the treatment of frontotemporal dementia, of FTD, which utilizes an AAV1 capsid to deliver to the brain a functional granulin, or GRN , gene encoding progranulin, for the treatment of FTD caused by a deficiency of progranulin, or FTD-GRN.

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

We are currently developing PBFT02 for the treatment of frontotemporal dementia, or FTD, which utilizes an AAV1 capsid to deliver to the brain a functional granulin, or GRN , gene encoding progranulin, for the treatment of FTD caused by a deficiency of progranulin, or FTD-GRN.

Currently, there are no disease-modifying therapies approved for the

treatment of FTD-GRN.

We believe PBFT02 may provide patients with significantly improved outcomes.

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 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.

We expect to submit an IND for PBFT02 shortly after clearance is received from the FDA on the IND for GM1.

We expect to 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 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.

In October 2020, the FDA granted RPDD and ODD to PBKR03 for the treatment of Krabbe disease.

We expect to submit an IND for PBKR03 shortly after clearance is received from the FDA on the IND for GM1.

We expect to 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

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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 $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 net loss was $28.5 million and $73.3 million for the three and nine months ended September 30, 2020, respectively.

As of September 30, 2020, we had an accumulated deficit of $132.0 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.

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Any failure to raise capital as and when needed could have a negative impact on our financial condition and on our ability to pursue our business plans and strategies.

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 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.

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 September 30, 2020, we had cash, cash equivalents and marketable securities of $335.7 million.

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

COVID-19 Impact

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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.

Under the Penn Agreement, in addition to the obligation to fund certain research relating to the preclinical development of selected products, 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.

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As part of the Catalent Collaboration Agreement, we paid Catalent an upfront fee for the commissioning, qualification, validation and equipping of a clean room suite.

Subject to validation of the clean room suite, which is expected to occur by the end of 2020, we will pay an annual fee for five years for the use of the clean room suite.

Subject to validation of the clean room

suite, which was completed in the fourth quarter of 2020, we will pay an annual fee for five years for the use of the clean room suite.

In April 2020, we 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 our gene therapy product candidates.

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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

Interest income consists of interest earned on our cash equivalents, which consists of a commercial money market account.

We expect our interest income to increase due to our investment of cash received from our IPO.

Interest Income, net

Interest income, net consists of interest earned on our cash equivalents and marketable securities, offset by amortization of premium and discount on our marketable securities.

Results of Operations

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.

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

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

Three months ended

September 30,

(in thousands)

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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

Interest income, net

Research and Development Expenses

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.

Research and development expenses increased by $10.4 million to $20.8 million for the three months ended September 30, 2020 from $10.4 million for the three months ended September 30, 2019.

The increase was primarily due to an

increase of $8.3 million in clinical manufacturing costs, a $1.0 million increase in clinical development costs and a $0.9 million increase in consulting expense as we prepare for our clinical trials to begin in early 2021.

We also had a $4.5 million increase in personnel- related costs, including share-based compensation, due to an increase in employee headcount in the research and development function.

These increases were offset by a $4.3 million decrease in pre-clinical research and development costs incurred as we finalized work associated with our lead indications in preparation for IND filings.

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

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Three months ended

September 30,

(in thousands)

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 $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

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 $0.1 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

General and administrative expenses increased by $6.6 million to $7.8 million for the three months ended September 30, 2020 from $1.2 million for the three months ended September 30, 2019.

The increase was primarily due to a $4.4 million increase in personnel-related and share-based compensation expense due to an increase in employee headcount.

Our professional fees and facility costs also increased by $0.6 million and $1.6 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.

Interest Income, net

Interest income, net was $0.1 million and $0.3 million for the three months ended September 30, 2020 and 2019, respectively.

Such income is primarily attributable to interest income earned on cash, cash equivalents and marketable securities.

Comparison of the Nine Months Ended September 30, 2020 and 2019

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

Nine months ended

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(in thousands)

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Change in fair value of future tranche right liability

Interest income

Interest income, net

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.

Research and development expenses increased by $34.1 million to $53.9 million for the nine months ended September 30, 2020 from $19.8 million for the nine months ended September 30, 2019.

The increase was primarily due to an increase of $5.0 million in research and development costs incurred in preparation for IND filings, an increase of $13.3 million in clinical manufacturing costs, a $4.0 million increase in clinical development costs and a $2.0 million increase in consulting expense as we prepare for our clinical trials to begin in late 2020 and early 2021.

We also had a $8.9 million increase in personnel-related costs, including share-based compensation, and a $0.9 million increase in facility and other costs due to an increase 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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Research and development expenses are summarized by program in the table below:

Six months ended

Nine months ended

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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.

The Company incurred a license fee of $0.5 million with Penn during the nine months ended September 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.

General and administrative expenses increased by $16.7 million to $20.0 million for the nine months ended September 30, 2020 from $3.3 million for the nine months ended September 30, 2019.

The increase was primarily due to a $11.6 million increase in personnel-related and share-based compensation expense due to increases in employee headcount.

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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.

Interest Income, net

Interest income, net was $0.6 million and $0.3 million for the three months ended September 30, 2020 and 2019, respectively.

Such income is primarily attributable to interest income earned on cash, cash equivalents and marketable securities.

Liquidity and Capital Resources

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

As of September 30, 2020, we had $335.7 million in cash, cash equivalents and marketable securities and had an accumulated deficit of $132.0 million.

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

Funding Requirements

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Because of the numerous risks and uncertainties associated with the development and commercialization of our product candidates, we are unable to estimate the amounts of increased capital outlays and operating expenditures associated with our current and anticipated clinical studies.

Until such time, if ever, as we can generate substantial product revenue, we expect to finance our operations through a combination of equity offerings, debt financings, collaborations, strategic alliances and marketing, distribution or licensing arrangements.

licensing arrangements.

To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a common stockholder.

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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:

Six months ended

Nine months ended

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Net Cash Used in Operating Activities

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

During the nine months ended September 30, 2020, we used $51.1 million of net cash in operating activities.

Cash used in operating activities reflected a net loss of $73.3 million.

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 was partially offset by non-cash charges of $11.0 million related to share-based compensation, depreciation, amortization of premium and discount, net and changes in deferred rent as well as a $11.2 million net increase in our operating assets and liabilities.

During the nine months ended September 30, 2019, we used $22.4 million of net cash in operating activities.

Cash used in operating activities reflected a net loss of $32.5 million as well as a $0.6 million net decrease in our operating assets and liabilities.

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Net Cash Used in Investing Activities

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.

During the nine months ended September 30, 2020, we purchased $135.2 million in marketable securities.

During the nine months ended September 30, 2020 and 2019, we used $0.3 million and $1.2 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 nine months ended September 30, 2019.

Net Cash Provided by Financing Activities

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.

During the nine months ended September 30, 2020 and 2019, financing activities provided $228.3 million and $176.2 million, respectively, from the sale of our common stock and convertible preferred stock, respectively.

During the nine months ended September 30, 2020 and 2019, we received $90,000 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 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.

During the nine months ended September 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