What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-05-05 compared with 2020-11-10 · 106 added, 139 removed, 137 unchanged (64% of the section changed)

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

You should read the following discussion of our financial condition and results of operations in conjunction with our financial statements and the related notes and other financial information included elsewhere in this Quarterly Report on Form 10-Q.

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

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our financial statements and the related notes and other financial information included elsewhere in this Quarterly Report on Form 10-Q.

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

Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth in the section titled “Risk Factors” under Part II, Item 1A below.

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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 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.

Our vision is to finally fulfill the promise of gene therapy by developing groundbreaking therapies that transform the lives of patients with rare monogenic CNS diseases.

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.

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James Wilson, a leader in the genetic medicines field.

We leverage our close working relationship with the Orphan Disease Center, or the ODC, at Penn to develop historical and prospective external data for each disease for use in building comparable patient profiles of participants in interventional trials.

Through these collaborations we have assembled a deep portfolio of genetic medicine product candidates all of which we retain global rights to, the details of which are outlined in the below table:

We leverage our close working relationship with the Orphan Disease Center, or the ODC, at Penn to develop historical and prospective natural history studies for comparison to participants in interventional trials.

Through these collaborations we have assembled a deep portfolio of genetic medicine product candidates, including our three lead product candidates all of which we retain global rights to, the details of which are outlined in the below table:

1 10 additional new pipeline license options

2 Program includes ongoing natural history study of infantile and juvenile GM1 gangliosidosis patients

PBGM01 for the Treatment of GM1

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

We are currently developing PBGM01, which utilizes a proprietary, next-generation AAVhu68 capsid to deliver to the brain and peripheral tissues a functional GLB1 gene encoding β-gal for infantile GM1.

Infantile GM1 is the most common and severe form of GM1 gangliosidosis, or GM1, in which patients have mutations in the GLB1 gene that produce little or no residual β-gal enzyme activity.

β-gal is an enzyme that catalyzes the first step in the natural degradation of GM1 ganglioside.

Reduced β-gal activity results in the accumulation of toxic levels of GM1 ganglioside in neurons throughout the brain, causing rapidly progressive neurodegeneration, with a life expectancy of two to four years.

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

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

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

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

We believe PBGM01 could provide patients with significantly improved outcomes.

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

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

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

In 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.

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

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

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

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

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

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

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

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

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

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

As a result of the clinical hold, we now expect to initiate a multi-center, open-label, single-arm Phase 1/2 clinical trial of PBGM01 in patients with a diagnosis of early and late infantile GM1 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.

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

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

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

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

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

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

In NHP studies, we have observed meaningful transduction of both the CNS and peripheral organs critical for GM1 patients.

We are conducting clinical trials using an intra cisterna magna, or ICM, method of administration in combination with our next-generation AAVhu68 capsid, which involves an injection at the craniocervical junction.

In December 2020, the U.S.

Food and Drug Administration, or FDA, cleared our IND for PBGM01, which allows us to proceed with our Imagine-1 Trial, an international 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 December 2020, we received a clinical trial authorization, or CTA, for our Imagine-1 Trial for PBGM01 from the UK Medicines and Healthcare products Regulatory Agency, or MHRA.

In January 2021, we received a CTA for our Imagine-1 Trial for PBGM01 from Health Canada.

In March 2021, we dosed the first patient in our Imagine-1 Trial.

In April 2021, we received a CTA for our Imagine-1 Trial for PBGM01 in Brazil from Agência Nacional de Vigilância Sanitária, or ANVISA.

We expect to report initial safety and 30-day biomarker data from the initial cohort in the fourth quarter of 2021.

The FDA has granted Orphan Drug Designation, or ODD, Rare Pediatric Disease Designation, or RPDD, and Fast Track Designation, to PBGM01 for the treatment of GM1.

The European Commission has granted Orphan designation for PBGM01.

We have manufactured the PBGM01 clinical supply and have established a clinical supply chain to support the global clinical trial, including in the United States, the UK and Canada.

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

FTD-GRN is an inheritable form of FTD in which patients have mutations in the GRN gene, causing a deficiency in PGRN.

PGRN is a complex and highly conserved protein thought to have multiple roles in cell biology, development and inflammation.

Emerging evidence suggests that PGRN’s pathogenic contribution to FTD and other neurodegenerative disorders relates to a critical role in lysosomal function.

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 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.

In January 2021, we received FDA clearance of our IND for PBFT02, which allows us to proceed with our upliFT-D Trial, an international multi-center, open-label, single-arm Phase 1/2 clinical trial of PBFT02 in patients with a diagnosis of early symptomatic FTD-GRN.

In April 2021, we received a CTA for our upliFT-D Trial for PBFT02 from Health Canada.

We expect to initiate our upliFT-D Trial in the second or third quarter of 2021, and expect to report initial safety and 30-day biomarker data from the initial cohort in the first half of 2022.

The FDA has granted ODD and Fast Track Designation to PBFT02 for the treatment of FTD-GRN.

We have manufactured the PBFT02 clinical supply to support clinical trial initiation in the United States.

PBKR03 for the Treatment of Krabbe disease

We are currently developing PBKR03, which utilizes a proprietary, next-generation AAVhu68 capsid to deliver to the brain and peripheral tissues a functional GALC gene encoding the hydrolytic enzyme galactosylceramidase, for infantile Krabbe disease.

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

Krabbe disease is an autosomal recessive lysosomal storage disease caused by mutations in the GALC gene, which provides instructions for making an enzyme called galactosylceramidase, which breaks down certain fats, including galactosylceramide and psychosine.

This results in the accumulation of galactolipids and psychosine, resulting in widespread death of myelin-producing cells in the CNS and in the peripheral nervous system, or PNS.

Without myelin, nerves in the brain and other parts of the body cannot transmit signals properly, leading to the signs and symptoms of Krabbe disease.

We believe PBKR03 may provide patients with significantly improved outcomes.

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.

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

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

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

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

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

In February 2021, we received FDA clearance of our IND for PBKR03, which allows us to proceed with our GALax-C Trial, an international multi-center, open-label, single-arm Phase 1/2 clinical trial of PBKR03 in patients with a diagnosis of early infantile Krabbe disease .

In April 2021, we received CTA approvals from both UK MHRA and Health Canada for our GALax-C Trial.

We expect to initiate our GALax-C Trial in the third quarter of 2021, and expect to report initial safety and 30-day biomarker data from the initial cohort in the first half of 2022.

The FDA has granted ODD, RPDD, and Fast Track Designation to PKBR03, and in April 2021, the European Commission granted Orphan designation for PBKR03.

We have manufactured PBKR03 clinical supply to support trial initiation in the United States.

Research Programs

We also have four programs in the research stage under our license agreement with Penn:

PBML04 for MLD, PBAL05 for ALS, PBCM06 for CMT2A and an undisclosed program to treat an adult CNS indication.

PBML04 is targeting patients with MLD who have mutations in the ARSA gene, PBAL05 is targeting patients with ALS who have a gain-of-function mutation in the C9orf72 gene and PBCM06 is targeting patients with CMT2A who have a mutation in the MFN2 gene.

Beyond this portfolio, through our research collaboration with GTP, we also have the option to license programs for ten additional new indications in rare, monogenic CNS along with rights and licenses to new gene therapy technologies developed by Penn, such as novel capsids, toxicity reduction, delivery and formulation technologies.

Business Overview

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We have incurred recurring losses, the majority of which are attributable to research and development activities, and negative cash flows from operations.

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 $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.

Historically, we have funded our operations through the sale of convertible preferred stock and public offerings of common stock.

Our net loss was $38.9 million for the three months ended March 31, 2021.

As of March 31, 2021, we had an accumulated deficit of $209.8 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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In addition, if we obtain marketing approval for any of our product candidates, we expect to incur significant commercialization expenses related to product manufacturing, marketing, sales and distribution.

Furthermore, we expect to incur additional costs associated with operating as a public company, including significant legal, accounting, investor relations and other expenses that we did not incur as a private company.

Furthermore, we expect to incur additional costs associated with operating as a public company, including significant legal, accounting, investor

relations and other expenses that we did not incur as a private company.

Our net losses may fluctuate significantly from quarter-to-quarter and year-to-year, depending on the timing of our clinical trials and our expenditures on other research and development activities.

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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 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.

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

As of March 31, 2021, we had cash, cash equivalents and marketable securities of $437.6 million.

We expect our existing cash, cash equivalents and marketable securities will enable us to fund our operating expenses and capital expenditure requirements for at least the next 24 months from the date of this filing.

COVID-19 Impact

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Since early March 2020, we have activated a management team taskforce to assess the potential impact on our business that may result from this rapidly evolving crisis and to avoid any unnecessary potential delays to our programs.

At this time, our lead programs and research activities remain on track.

The safety and well-being of employees, patients and partners is our highest priority.

As we diligently work to activate sites for our clinical programs, we are experiencing some impacts to our site initiation activities related to COVID-19, such as, meeting delays with various investigational review bodies or ethics committees that have prioritized COVID-19 -related clinical trials and staffing levels at site hospitals.

Our expected timelines for clinical trials have been delayed primarily by these impacts.

Financial Operations Overview

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University of Pennsylvania

In May 2020, we entered into an amended and restated research, collaboration and licensing agreement, or the Penn 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, 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.

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

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

We have a 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 .

Under the Penn Agreement, in addition to the obligation to fund certain research relating to the preclinical development of selected products, we fund discovery research conducted by Penn through May 2025, and will receive exclusive rights, subject to certain limitations, to technologies resulting from the discovery program for products developed with GTP, such as novel capsids, toxicity reduction technologies and delivery and formulation improvements.

Our funding commitment is $5.0 million annually, with quarterly payments of $1.3 million through June 30, 2025.

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

If we were to exercise any of these remaining options, we 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 Penn Agreement requires that we make payments of up to $16.5 million per product candidate in aggregate upon the achievement of specific development milestone events by such licensed product for a first indication, reduced development milestone payments for the second and third indications and no development milestone payments for subsequent indications.

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Collaboration and Manufacturing and Supply Agreements

We have a collaboration agreement with Catalent Maryland, Inc.

or Catalent (formerly Paragon Bioservices, Inc.) , or the Catalent Collaboration Agreement.

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 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.

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

As part of the Catalent Collaboration Agreement, we paid Catalent an upfront fee for the commissioning, qualification, validation and equipping of the Clean Room Suite.

We 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, we entered into 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.

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 our 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 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 our option, for an additional five-year period.

In consideration for the use of the clean room suite, we have agreed to a minimum amount of purchase commitments for each year in the term, subject to adjustments for inflation.

We have 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 we terminate the Manufacturing and Supply Agreement, we will be obligated to pay an early termination fee to Catalent.

Under both the Collaboration Agreement and the Manufacturing and Supply Agreement, we have an annual minimum commitment of $10.6 million per year owed to Catalent for five years from November 2020, subject to certain inflationary adjustments

Components of Results of Operations

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These increases will likely include increased costs related to the hiring of additional personnel and fees to outside consultants, lawyers and accountants, among other expenses.

Additionally, we anticipate increased costs associated with being a public company, including expenses related to services associated with maintaining compliance with the requirements of The Nasdaq Stock Market, LLC and the SEC, insurance and investor relations costs.

Additionally, we anticipate continued costs associated with being a public company, including expenses related to services associated with maintaining compliance with the requirements of The Nasdaq Stock Market, LLC and the SEC, insurance and investor relations costs.

If any of our current or future product candidates obtains U.S.

regulatory approval, we expect that we would incur significantly increased expenses associated with building a sales and marketing team.

Change in Fair Value of Future Tranche Right Liability

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

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

Interest Income, net

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Results of Operations

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.

Comparison of the Three Months Ended March 31, 2021 and 2020

The following table sets forth our results of operations for the three months ended March 31, 2021 and 2020.

Three months ended

September 30,

(in thousands)

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Research and development

Acquired in‑process research and development

General and administrative

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Research and Development Expenses

Research and development expenses increased by $10.4 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.

Research and development expenses increased by $11.9 million to $25.0 million for the three months ended March 31, 2021 from $13.1 million for the three months ended March 31, 2020.

T he increase was primarily due to an increase of $5.1 million in clinical manufacturing costs, a $0.4 million increase in clinical development and professional services expense and an $0.6 million increase in facility and other costs.

We also had a $8.9 million increase in personnel-related costs, including a one-time share-based compensation charge of $5.2 million associated with the modification of stock options associated with the departure of our Acting Head of Research and Development, who was also a member of our Board of Directors.

Absent this one-time charge, personnel cost would have increased by $3.7 million mainly due to an increase in employee headcount in the research and development function.

These increases were offset by a $3.1 million decrease in pre-clinical research and development costs incurred as we finalized work associated with our lead indications in preparation for IND filings.

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Three months ended

September 30,

(in thousands)

Internal costs, including personnel related

General and Administrative Expenses

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

September 30,

(in thousands)

Operating expenses:

Research and development

Acquired in‑process research and development

General and administrative

Loss from operations

Change in fair value of future tranche right liability

Interest income, net

Research and Development Expenses

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.

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

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

Nine months ended

September 30,

(in thousands)

Undisclosed program

Internal costs, including personnel related

Acquired In-Process Research and Development Expenses

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

The Company incurred a license fee with Penn of $1.5 million during the three months ended March 31, 2021 in connection with the achievement of a development milestone.

General and Administrative Expenses

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.

Our professional fees also increased by $1.9 million and our insurance and facility costs increased by $3.3 million as we expanded our operations to support our research and development efforts and incurred more costs associated with operating as a public company.

Change in Fair Value of Future Tranche Right Liability

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

The future tranche right liability was settled in May 2019.

General and administrative expenses increased by $7.7 million to $12.5 million for the three months ended March 31, 2021 from $4.8 million for the three months ended March 31, 2020.

The increase was primarily due to a $4.3 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 $3.2 million, 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 $0.6 million and $0.3 million for the three months ended September 30, 2020 and 2019, respectively.

Interest income, net was $52,000 and $0.3 million for the three months ended March 31, 2021 and 2020, respectively.

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

Liquidity and Capital Resources

From inception through December 31, 2019, we funded our operations through the sale of convertible preferred stock, receiving aggregate net proceeds of $222.1 million.

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

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.

In January 2021, we received $165.8 million in net proceeds from the sale of our common stock.

As of March 31, 2021, we had $437.6 million in cash, cash equivalents and marketable securities and had an accumulated deficit of $209.8 million.

We expect that our existing cash, cash equivalents and marketable securities will enable us to fund our operating expenses and capital expenditure requirements for at least 24 months as of the date of this filing.

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.

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

Nine months ended

September 30,

Three months ended

(in thousands)

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Net Cash Used 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.

During the three months ended March 31, 2021, we used $30.7 million of net cash in operating activities.

Cash used in operating activities reflected a net loss of $38.9 million and a $3.5 million net increase in our operating assets and liabilities.

which was partially offset by non-cash charges of $11.7 million related to share-based compensation, acquired in-process research and development, depreciation, amortization of premium and discount, net and changes in deferred rent.

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 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.

Cash used was partially offset by noncash charges of $10.6 million, consisting of $9.1 million for the loss on the change in fair value of our future tranche right liability, $0.5 million related to an acquired in-process research and development charge, $0.4 million in share-based compensation, and a $0.5 million change in our deferred rent balance.

During the three months ended March 31, 2020, we used $21.9 million of net cash in operating activities.

Cash used in operating activities reflected a net loss of $17.6 million and a $6.7 million net increase in our operating assets and liabilities.

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

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

Net Cash Used in Investing Activities

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.

During the three months ended March 31, 2021, we purchased $60.3 million in marketable securities, had sales and maturities of $41.2 million in marketable securities and paid $0.5 million for technology licenses.

During the three months ended March 31, 2021 and 2020, we used $0.8 million and $99,000, respectively, for the purchase of property and equipment.

Net Cash Provided by Financing Activities

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.

During the three months ended March 31, 2021, we received net proceeds of $165.8 million from the sale of our common stock and received $81,000 from the exercise of stock options.

We also paid $0.3 million in deferred offering costs.

During the three months ended March 31, 2020, we received $229.9 million from the sale of our common stock in our initial public offering.

Off-Balance Sheet Arrangements

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Critical Accounting Policies and Estimates

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.

During the three months ended March 31, 2021, 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