What changed in this filing

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Item 1. Financial Statements

2021-05-05 compared with 2020-11-10 · 137 added, 165 removed, 301 unchanged (50% of the section changed)

3 unchanged sentences

(in thousands, except share data)

September 30, 2020

March 31, 2021

December 31, 2020

6 unchanged sentences

Property and equipment, net

Liabilities, convertible preferred stock and stockholders’ equity (deficit)

Liabilities and stockholders’ equity

Current liabilities:

5 unchanged sentences

Total liabilities

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

Series A‑2 convertible preferred stock:

22,209,301 shares authorized;

issued and outstanding at December 31, 2019

Series B convertible preferred stock:

33,592,907 shares authorized, issued and outstanding at December 31, 2019

Total convertible preferred stock

Commitments and Contingencies (note 7)

Stockholders’ equity (deficit):

Stockholders’ equity:

Common stock, $0.0001 par value:

300,000,000 shares authorized;

45,885,052 shares issued and 45,534,682 shares outstanding at September 30, 2020 and 5,194,518 shares issued and 4,293,039 shares outstanding at December 31, 2019

53,977,484 shares issued and 53,848,324 shares outstanding at March 31, 2021 and 45,917,084 shares issued and 45,614,807 shares outstanding at December 31, 2020

Additional paid‑in capital

1 unchanged sentence

Accumulated deficit

Total stockholders’ equity (deficit)

Total liabilities, convertible preferred stock and stockholders’ equity (deficit)

Total stockholders’ equity

Total liabilities and stockholders’ equity

See accompanying notes to unaudited interim financial statements.

1 unchanged sentence

Statements of Operations and Comprehensive Loss

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

(in thousands, except share and per share data)

4 unchanged sentences

Loss from operations

Change in fair value of future tranche right liability

Interest income, net

3 unchanged sentences

Comprehensive loss:

Unrealized loss on available-for-sale securities

Unrealized gain on marketable securities

Comprehensive loss

1 unchanged sentence

Passage Bio, Inc.

Statements of Convertible Preferred Stock and Stockholders’ Equity

Statement of Stockholders’ Equity

(in thousands, except share data)

Convertible preferred stock

Stockholders’ equity

2 unchanged sentences

comprehensive loss

Balance at July 1, 2020

Vesting of early exercise option awards

Exercise of stock options

Unrealized loss on available-for-sale investments

Share‑based compensation expense

Balance at September 30, 2020

Convertible preferred stock

Stockholders’ equity

Accumulated other

paid ‑ in capital

comprehensive loss

Balance at January 1, 2021

1 unchanged sentence

Exercise of stock options

Conversion of convertible preferred stock upon initial public offering

Sale of common stock in initial public offering, net of issuance costs of $3,495

Unrealized loss on available-for-sale investments

Sale of common stock, net of issuance costs of $669

Unrealized gain on marketable securities

Share‑based compensation expense

Balance at September 30, 2020

Balance at March 31, 2021

See accompanying notes to unaudited interim financial statements.

Passage Bio, Inc.

Statements of Convertible Preferred Stock and Stockholders’ Deficit

Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit)

(in thousands, except share data)

Convertible preferred stock

Stockholders’ deficit

paid ‑ in capital

Balance at July 1, 2019

Vesting of early exercise option awards

Sale of Series B convertible preferred stock, net of issuance costs of $102

Share‑based compensation expense

Balance at September 30, 2019

Convertible preferred stock

Stockholders’ deficit

Stockholders’ equity (deficit)

paid ‑ in capital

1 unchanged sentence

Vesting of early exercise option awards

Sale of Series A-1 convertible preferred stock, net of issuance costs of $19

Sale of Series A‑2 convertible preferred stock, net of issuance costs of $1,439

Sale of Series B convertible preferred stock, net of issuance costs of $102

Reclassification of future tranche right upon exercise

Conversion of convertible preferred stock upon initial public offering

Sale of common stock in initial public offering, net of issuance costs of $3,495

Share‑based compensation expense

Balance at September 30, 2019

Balance at March 31, 2020

See accompanying notes to unaudited interim financial statements.

1 unchanged sentence

Statements of Cash Flows

Nine Months Ended

September 30,

Three Months Ended

(in thousands)

1 unchanged sentence

Adjustments to reconcile net loss to net cash used in operating activities:

Change in fair value of future tranche right liability

Acquired in‑process research and development

11 unchanged sentences

Purchases of marketable securities

Purchase of technology licenses

Sale or maturity of marketable securities

Purchase of technology license

Purchases of property and equipment

1 unchanged sentence

Cash flows provided by financing activities:

Proceeds from issuance of common stock upon initial public offering, net of offering costs

Proceeds from the sale of Series A‑1 convertible preferred stock and future tranche right, net of offering costs

Proceeds from the sale of Series A‑2 convertible preferred stock, net of offering costs

Proceeds from the sale of Series B convertible preferred stock, net of offering costs

Deferred offering costs

Proceeds from early exercise stock options

Proceeds from issuance of common stock, net of offering costs

Payment of offering costs

Proceeds from the exercise of stock options

Net cash provided by financing activities

3 unchanged sentences

Supplemental disclosure of non‑cash investing and financing activities:

Reclassification of deferred offering costs paid in a prior period

Reclassification of the future tranche right liability upon exercise

Series B convertible preferred stock offering costs in accrued expenses

Unrealized loss on marketable securities

Unrealized gain on marketable securities

Property and equipment in deferred rent

Property and equipment in accounts payable

Acquired in-process research and development in accrued expenses and other current liabilities

Offering costs in accrued expenses and other current liabilities

Offering costs in accounts payable

Reclassification of deferred offering costs paid in a prior period

Vesting of early exercise option awards

6 unchanged sentences

The Company has a strategic research collaboration with the Trustees of the University of Pennsylvania’s (Penn) 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.

Under this collaboration, GTP conducts discovery and preclinical activities enabling Investigational New Drug (IND) applications 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.

(Catalent) for clinical scale manufacturing requirements.

Risks and Liquidity

The Company has incurred recurring losses and negative cash flows from operations since inception and had an accumulated deficit of $132.0 million as of September 30, 2020.

The Company has incurred recurring losses and negative cash flows from operations since inception and had an accumulated deficit of $209.8 million as of March 31, 2021.

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, conducting preclinical studies and preparing to commence clinical trials.

In January 2021, the Company closed a follow-on public offering in which the Company issued and sold 8,050,000 shares of its common stock at a public offering price of $22.00 per share for net proceeds of $165.8 million after deducting underwriting discounts, commissions and other offering expenses.

The Company faces risks associated with early-stage biotechnology companies whose product candidates are in development.

2 unchanged sentences

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 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.

1 unchanged sentence

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.

Passage Bio, Inc.

Notes to Unaudited Interim Financial Statements

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.

Summary of Significant Accounting Policies” in the audited financial statements included in the Company’s Form 10-K filed with the U.S.

Securities and Exchange Commission (SEC) on March 3, 2021.

Passage Bio, Inc.

Notes to Unaudited Interim Financial Statements

Basis of Presentation

2 unchanged sentences

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.

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 SEC, which permits reduced disclosures for interim periods.

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.

Unaudited interim financial statements and footnotes should be read in conjunction with the December 31, 2020 financial statements and footnotes included in the Form 10-K as filed with the SEC on March 3, 2021.

Use of Estimates

2 unchanged sentences

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.

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.

Concentration of credit risk

2 unchanged sentences

The Company has not experienced any losses in such accounts and believes it is not exposed to significant risk on its cash, cash equivalents, and marketable securities.

Passage Bio, Inc.

Notes to Unaudited Interim Financial Statements

Cash and cash equivalents

The Company considers all highly liquid investments that have maturities of three months or less when acquired to be cash equivalents.

Cash equivalents as of September 30, 2020 consisted of money market mutual funds invested in U.S.

Treasury obligations, certificates of deposit, commercial paper, and corporate debt securities with original maturities of three months or less.

Cash equivalents as of March 31, 2021 consisted of money market mutual funds invested in U.S.

Treasury obligations, commercial paper and corporate debt securities with original maturities of three months or less.

Passage Bio, Inc.

Notes to Unaudited Interim Financial Statements

Marketable securities

4 unchanged sentences

Gains or losses on marketable securities sold are based on the specific identification method.

Offering costs

The Company capitalizes costs directly associated with equity financings until such financings are consummated, at which time such costs are recorded in additional paid-in capital against the gross proceeds of the equity financings.

Costs associated with the shelf registration statement on Form S-3, filed with the SEC on March 5, 2021 have been capitalized and will be reclassified to additional paid in capital on a pro rata basis when the Company completes offerings under the shelf registration.

At the end of the three-year term of the shelf registration, the remaining deferred offering costs, if any, will be charged to operations.

As of March 31, 2021, $0.3 million of such deferred costs are included in other assets on the balance sheet.

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.

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.

Estimating the fair value of share-based awards requires the input of subjective assumptions, including, 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.

2 unchanged sentences

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,"

The expected term of the stock options is estimated using the "simplified method,"

as the Company has limited historical information from which to develop reasonable expectations about future exercise patterns and post-vesting employment termination behavior for its stock option grants.

10 unchanged sentences

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:

Three and Nine Months Ended September 30,

Series A‑1 convertible preferred stock

Series A‑2 convertible preferred stock

Series B convertible preferred stock

Three Months Ended March 31,

Stock options (including shares subject to repurchase)

Stock options vested and exercised, but subject to settlement of nonrecourse promissory notes

Unvested restricted stock units

Employee stock purchase plan

Amounts in the above table reflect the common stock equivalents.

Recently Issued Accounting Pronouncements

12 unchanged sentences

The Company is currently evaluating the impact of this standard on its financial statements and related disclosures.

Passage Bio, Inc.

Notes to Unaudited Interim Financial Statements

Cash, cash equivalents and marketable securities

4 unchanged sentences

Unrealized losses

September 30, 2020:

March 31, 2021:

Cash accounts in banking institutions

Money market funds

Certificates of deposit

Commercial paper

3 unchanged sentences

Money market funds

Commerical paper

Passage Bio, Inc.

Notes to Unaudited Interim Financial Statements

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

3 unchanged sentences

Unrealized losses

September 30, 2020:

March 31, 2021:

Certificates of deposit

3 unchanged sentences

government securities

The Company did not have marketable securities as of December 31, 2019.

December 31, 2020:

Certificates of deposit

Commercial paper

Corporate debt securities

government securities

Fair Value of Financial Instruments

7 unchanged sentences

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

Passage Bio, Inc.

Notes to Unaudited Interim Financial Statements

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.

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).

Passage Bio, Inc.

Notes to Unaudited Interim Financial Statements

The following fair value hierarchy table presents information about the Company’s assets measured at fair value on a recurring basis:

3 unchanged sentences

(in thousands)

September 30, 2020:

March 31, 2021:

Cash and cash equivalents:

Money market fund

Certificates of deposit

Commercial paper

12 unchanged sentences

Money market fund

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.

Commercial paper

Total cash and cash equivalents

Marketable securities:

Certificates of deposit

Commercial paper

Corporate debt securities

government securities

Total marketable securities

Total financial assets

Passage Bio, Inc.

3 unchanged sentences

(in thousands)

September 30, 2020

March 31, 2021

December 31, 2020

4 unchanged sentences

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

The Company has a 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.

Under the Penn Agreement, in addition to the obligation to fund certain research relating to the preclinical development of selected products, the Company funds discovery research conducted by Penn through May 2025 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 through June 30, 2025.

Under the Penn Agreement, the Company has ten remaining options available to commence additional licensed programs for rare, monogenic CNS indications and has until May 2025 to exercise these options.

If the Company were to exercise any of these options, it would owe Penn a non-refundable upfront fee of $0.5 million per product indication, with another $0.5 million fee owed upon a further developmental milestone.

The Company incurred research and development expenses of $4.5 million and $7.7 million during the three months ended March 31, 2021 and 2020, respectively, under the Penn Agreement.

During the three months ended March 31, 2021, the Company paid Penn $0.5 million for a technology license fee that was accrued at December 31, 2020 and accrued an additional $1.5 million related to a development milestone that was recognized as in-process research and development expense, which the Company expects to pay in the second quarter of 2021.

Catalent Agreements

In June 2019, the Company entered into a collaboration agreement (the Catalent Collaboration Agreement) with Catalent .

In June 2019, the Company entered into a collaboration agreement (the Catalent Collaboration Agreement) with Catalent Maryland, Inc.

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 was completed in the fourth quarter 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.

The Company will pay an annual fee for five years for the use of the Clean Room Suite, which commenced in November 2020 upon its validation .

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.

1 unchanged sentence

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.

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 provided for in the Catalent Collaboration Agreement.

There is a minimum annual purchase commitment owed to Catalent for five years beginning

Passage Bio, Inc.

Notes to Unaudited Interim Financial Statements

in November 2020, subject to certain inflationary adjustments.

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.

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.

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 November 2020, subject to certain inflationary adjustments

Operating Leases

2 unchanged sentences

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 New Lease Agreement commenced in February 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:

Upon signing the New Lease Agreement, the Company amended the Existing Lease Agreement such that the Existing Lease Agreement terminated five days after the commencement of the New Lease Agreement with no further payments due under the Existing Lease Agreement.

The landlord provided the Company with a tenant improvement allowance of $2.8 million in connection with the New Lease Agreement.

In December 2020, the Company entered into a lease agreement for laboratory space (Laboratory Lease Agreement) in Hopewell, New Jersey.

The laboratory will initially focus on state-of-the-art analytical capabilities, clinical assay development and validation, biomarker assay validation and clinical product testing to support both viral vector manufacturing and clinical development.

The Laboratory Lease Agreement commenced in March 2021 and is expected to expire in 2036.

The Company has an option to extend the term of the Laboratory Lease Agreement by up to two five-year terms.

The landlord will provide the Company with a tenant improvement allowance of $1.3 million in connection with the Laboratory Lease Agreement.

The future minimum lease payments under the Company’s lease arrangements as of March 31, 2021 are as follows:

(in thousands)

The estimated future minimum lease payments under the Company’s Existing Lease Agreement as of September 30, 2020 is $0.1 million.

The Company recognized rent expense of $0.2 million and $50,000 during the three months ended September 30, 2020 and 2019, respectively, and $0.3 million and $0.1 million during the nine months ended September 30, 2020 and 2019, respectively, related to its operating leases.

The Company recognized rent expense of $0.8 million and $36,000 during the three months ended March 31, 2021 and 2020, respectively.

Employment Agreements

8 unchanged sentences

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.

Regenx also requested information regarding the Company’s relationship with Dr.

Wilson while he was serving as an advisor to Regenx.

4 unchanged sentences

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.

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.

Share-Based Compensation

3 unchanged sentences

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 September 30, 2020 was 5,362,823.

Of this amount, 3,654,629 shares were available for future grants as of September 30, 2020.

The total number of shares authorized under the Plan as of March 31, 2021 was 7,643,563.

Of this amount, 3,640,677 shares were available for future grants as of March 31, 2021.

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.

As a result, on January 1, 2021, the number of shares reserved for issuance under the Plan increased by 2,295,854 shares.

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.

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 September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

(in thousands)

1 unchanged sentence

General and administrative

During the nine months ended September 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 nine months ended September 30, 2020:

During the three months ended March 31, 2021, the Company modified certain awards and recognized an additional $5.2 million related to the modifications in research and development expense.

Passage Bio, Inc.

Notes to Unaudited Interim Financial Statements

The following table summarizes stock option activity for the three months ended March 31, 2021:

exercise price

Outstanding at January 1, 2021

Outstanding at September 30, 2020

Exercisable at September 30, 2020

Vested or expected to vest at September 30, 2020

The weighted-average grant date fair value of options granted was $11.27 and $0.76 for the nine months ended September 30, 2020 and 2019, respectively.

As of September 30, 2020, the total unrecognized compensation expense related to unvested stock option awards was $48.3 million, which the Company expects to recognize over a weighted-average period of 3.2 years.

Outstanding at March 31, 2021

Exercisable at March 31, 2021

Vested or expected to vest at March 31, 2021

The weighted-average grant date fair value of options granted was $17.18 and $9.93 for the three months ended March 31, 2021 and 2020, respectively.

As of March 31, 2021, the total unrecognized compensation expense related to unvested stock option awards was $71.4 million, which the Company expects to recognize over a weighted-average period of 3.2 years.

The fair value of each option was estimated on the date of grant using the weighted average assumptions in the table below:

Nine Months Ended September 30,

Three Months Ended March 31,

Expected volatility

5 unchanged sentences

The repurchase price is the lesser of the original exercise price or the then fair value of the Company’s common stock.

At September 30, 2020, $42,000 of proceeds from unvested early exercised options were recognized as a non-current liability in other liabilities in the accompanying balance sheet.

The following table summarizes activity relating to early exercises of stock options during the three months ended March 31, 2021:

Number of shares

Unvested balance at January 1, 2021

Unvested balance at March 31, 2021

Restricted Stock Units

The Company issues restricted stock units (RSU) to employees that vest over periods as determined by the board of directors.

Any unvested shares are forfeited upon termination of services.

The fair value of the RSUs is equal to the fair market value price of the Company’s common stock on the date of grant.

Compensation expense is recognized straight-line over the vesting period of the RSUs.

Passage Bio, Inc.

Notes to Unaudited Interim Financial Statements

The 2018 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 nine months ended September 30, 2020:

The following table summarizes activity related to RSU awards:

Weighted average

Number of shares

grant date fair value

Unvested balance at January 1, 2021

Unvested balance at September 30, 2020

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 406,897 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.

Unvested balance at March 31, 2021

As of March 31, 2021, the total unrecognized expense related to all RSUs was $3.3 million, which the Company expects to recognize over a weighted-average period of 1.7 years.

Employee Stock Purchase Plan

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The ESPP authorizes the issuance of up to 890,148 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.

Of this amount, 870,039 were available for future grants as of March 31, 2021.

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 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.

As a result, on January 1, 2021, the number of shares reserved for issuance under the ESPP increased by 459,170 shares.

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.

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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.

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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 $63,000 and $0.1 million during the three and nine months ended September 30, 2020 related to the ESPP.

Passage Bio, Inc.

Notes to Unaudited Interim Financial Statements

Related-Party Transactions

Penn Agreement

As part of the Penn Agreement, Penn was issued shares of the Company’s common stock in 2018.

Research and development expenses with Penn during the three months ended September 30, 2020 and 2019 were $5.4 million and $9.2 million, respectively.

Research and development expenses with Penn during the nine months ended September 30, 2020 and 2019 were $23.3 million and $18.8 million, respectively.

The Company made $19.3 million in cash payments to Penn during the nine months ended September 30, 2020, and had a prepaid research and development asset of $9.9 million and $5.7 million as of September 30, 2020 and December 31, 2019, respectively, in the accompanying balance sheets.

Consulting Agreement

Wilson, M.D., Ph.D., an employee of Penn and one of the co-founders of the Company who was issued shares of the Company’s common stock in 2018, serves as the Company’s chief scientific advisor pursuant to a consulting agreement.

The Company recognized $31,000 and $93,000 of expense related to these services during the three and nine months ended September 30, 2020, including $6,000 and $18,000, respectively, of share-based compensation expense.

The Company recognized share-based compensation expense of $0.1 million during the three months ended March 31, 2021 related to the ESPP.

Subsequent Events

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 1. Financial Statements