Passage BIO, Inc. 10-Q

Item 1. Financial Statements. Passage Bio, Inc. Balance Sheets (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ (in thousands, except share data) March 31, 2021 December 31, 2020 Assets ​ ​ Current assets: ​ ​ Cash and cash equivalents ​ $ 249,521 ​ $ 135,002 Marketable securities ​ ​ 188,068 ​ ​ 169,815 Prepaid expenses ​ 3,374 ​ 1,405 Prepaid research and development ​ 9,986 ​ 10,961 Total current assets ​ 450,949 ​ 317,183 Property and equipment, net ​ 6,574 ​ 2,795 Other assets ​ 7,649 ​ 8,029 Total assets ​ $ 465,172 ​ $ 328,007 Liabilities and stockholders’ equity ​ ​ Current liabilities: ​ ​ Accounts payable ​ $ 6,248 ​ $ 5,265 Accrued expenses and other current liabilities ​ 13,221 ​ 15,910 Total current liabilities ​ 19,469 ​ 21,175 Deferred rent ​ 4,199 ​ 2,077 Other liabilities ​ — ​ 41 Total liabilities ​ 23,668 ​ 23,293 ​ ​ ​ ​ ​ ​ ​ Commitments and Contingencies (note 7) ​ ​ ​ ​ ​ ​ ​ ​ ​ Stockholders’ equity: ​ ​ Common stock, $0.0001 par value: 300,000,000 shares authorized; 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 ​ 5 ​ 4 Additional paid‑in capital ​ 651,283 ​ 475,617 Accumulated other comprehensive loss ​ ​ (7) ​ ​ (12) Accumulated deficit ​ (209,777) ​ (170,895) Total stockholders’ equity ​ 441,504 ​ 304,714 Total liabilities and stockholders’ equity ​ $ 465,172 ​ $ 328,007 ​ See accompanying notes to unaudited interim financial statements. ​ 4 Table of Contents Passage Bio, Inc. Statements of Operations and Comprehensive Loss (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended March 31, (in thousands, except share and per share data) ​ 2021 2020 Operating expenses: ​ ​ ​ Research and development ​ $ 24,970 ​ $ 13,117 Acquired in‑process research and development ​ 1,500 ​ — General and administrative ​ 12,464 ​ 4,795 Loss from operations ​ (38,934) ​ (17,912) Interest income, net ​ 52 ​ 327 Net loss ​ $ (38,882) ​ $ (17,585) Per share information: ​ ​ Net loss per share of common stock, basic and diluted ​ $ (0.76) ​ $ (1.00) Weighted average common shares outstanding, basic and diluted ​ 51,331,449 ​ 17,624,011 Comprehensive loss: ​ ​ ​ ​ ​ ​ Net loss ​ $ (38,882) ​ $ (17,585) Unrealized gain on marketable securities ​ ​ 5 ​ ​ — Comprehensive loss ​ $ (38,877) ​ $ (17,585) ​ See accompanying notes to unaudited interim financial statements. ​ ​ 5 Table of Contents Passage Bio, Inc. Statement of Stockholders’ Equity (in thousands, except share data) (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Stockholders’ equity ​ ​ Common stock ​ Additional ​ ​ Accumulated other ​ Accumulated ​ ​ ​ ​ Shares Amount paid ‑ in capital ​ comprehensive loss deficit ​ Total Balance at January 1, 2021 45,614,807 ​ $ 4 $ 475,617 ​ $ (12) $ (170,895) ​ $ 304,714 Vesting of early exercise option awards 173,117 ​ — 41 ​ — — ​ 41 Exercise of stock options 10,400 ​ — 81 ​ — — ​ 81 Sale of common stock, net of issuance costs of $669 8,050,000 ​ 1 165,804 ​ — — ​ 165,805 Unrealized gain on marketable securities — ​ — — ​ 5 — ​ 5 Share‑based compensation expense — ​ — 9,740 ​ — — ​ 9,740 Net loss — ​ — — ​ — (38,882) ​ (38,882) Balance at March 31, 2021 53,848,324 ​ $ 5 $ 651,283 ​ $ (7) $ (209,777) ​ $ 441,504 ​ ​ See accompanying notes to unaudited interim financial statements. ​ 6 Table of Contents Passage Bio, Inc. Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit) (in thousands, except share data) (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Convertible preferred stock ​ ​ Stockholders’ equity (deficit) ​ ​ Series A ‑ 1 ​ Series A ‑ 2 ​ Series B ​ ​ Common stock ​ Additional ​ Accumulated ​ ​ ​ ​ Shares Amount Shares Amount ​ Shares Amount Shares Amount paid ‑ in capital deficit Total Balance at January 1, 2020 63,023,258 ​ $ 63,099 22,209,301 ​ $ 46,311 ​ 33,592,907 ​ $ 109,897 ​ 4,293,039 ​ $ — ​ $ 2,410 ​ $ (58,663) ​ $ (56,253) Vesting of early exercise option awards — ​ — — ​ — ​ — ​ — ​ 454,971 ​ — ​ 32 ​ — ​ 32 Conversion of convertible preferred stock upon initial public offering (63,023,258) ​ (63,099) (22,209,301) ​ (46,311) ​ (33,592,907) ​ (109,897) ​ 26,803,777 ​ 3 ​ 230,602 ​ — ​ 230,605 Sale of common stock in initial public offering, net of issuance costs of $3,495 — ​ — — ​ — ​ — ​ — ​ 13,798,900 ​ 1 ​ 227,498 ​ — ​ 227,499 Share‑based compensation expense — ​ — — ​ — ​ — ​ — ​ — ​ — ​ 2,368 ​ — ​ 2,368 Net loss — ​ — — ​ — ​ — ​ — ​ — ​ — ​ — ​ (17,585) ​ (17,585) Balance at March 31, 2020 — ​ $ — — ​ $ — ​ — ​ $ — ​ 45,350,687 ​ $ 4 ​ $ 462,910 ​ $ (76,248) ​ $ 386,666 ​ See accompanying notes to unaudited interim financial statements. ​ ​ 7 Table of Contents Passage Bio, Inc. Statements of Cash Flows (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ ​ March 31, (in thousands) 2021 2020 Cash flows used in operating activities: ​ ​ Net loss ​ $ (38,882) ​ $ (17,585) Adjustments to reconcile net loss to net cash used in operating activities: ​ ​ ​ Acquired in‑process research and development ​ 1,500 ​ — Depreciation and amortization ​ 211 ​ 49 Share‑based compensation ​ 9,740 ​ 2,368 Amortization of premium and discount on marketable securities, net ​ ​ 848 ​ ​ — Deferred rent ​ (647) ​ (15) Changes in operating assets and liabilities: ​ ​ Prepaid expenses and other assets ​ (1,366) ​ (978) Prepaid research and development ​ 975 ​ (5,595) Accounts payable ​ 592 ​ 331 Accrued expenses and other current liabilities ​ (3,689) ​ (426) Net cash used in operating activities ​ (30,718) ​ (21,851) Cash flows used in investing activities: ​ ​ Purchases of marketable securities ​ (60,325) ​ — Sale or maturity of marketable securities ​ 41,229 ​ — Purchase of technology license ​ (500) ​ — Purchases of property and equipment ​ (801) ​ (99) Net cash used in investing activities ​ (20,397) ​ (99) Cash flows provided by financing activities: ​ ​ Proceeds from issuance of common stock, net of offering costs ​ ​ 165,805 ​ ​ 229,904 Payment of offering costs ​ ​ (252) ​ ​ — Proceeds from the exercise of stock options ​ 81 ​ — Net cash provided by financing activities ​ 165,634 ​ 229,904 Net increase in cash and cash equivalents ​ 114,519 ​ 207,954 Cash and cash equivalents at beginning of period ​ 135,002 ​ 158,874 Cash and cash equivalents at end of period ​ $ 249,521 ​ $ 366,828 Supplemental disclosure of non‑cash investing and financing activities: ​ ​ Unrealized gain on marketable securities ​ $ 5 ​ $ — Property and equipment in deferred rent ​ $ 2,769 ​ $ — Property and equipment in accounts payable ​ $ 420 ​ $ — Acquired in-process research and development in accrued expenses and other current liabilities ​ $ 1,500 ​ $ — Offering costs in accrued expenses and other current liabilities ​ $ — ​ $ 70 Offering costs in accounts payable ​ $ 29 ​ $ 1,571 Reclassification of deferred offering costs paid in a prior period ​ $ — ​ $ 763 Vesting of early exercise option awards ​ $ 41 ​ $ 32 ​ See accompanying notes to unaudited interim financial statements. ​ 8 Table of Contents Passage Bio, Inc. Notes to Unaudited Interim Financial Statements 1. Nature of Operations Passage Bio, Inc. (the Company), a Delaware corporation incorporated in July 2017, is a genetic medicines company focused on advancing transformative therapies for rare monogenic central nervous system diseases. The Company has a strategic research collaboration with the Trustees of the University of Pennsylvania’s (Penn) 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 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) for clinical scale manufacturing requirements. 2. Risks and Liquidity The Company has incurred recurring losses and negative cash flows from operations since inception and had an accumulated deficit of $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 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’s operations have consisted primarily of organizing the Company, securing financing, developing licensed technology, performing research, conducting preclinical studies and clinical trials. The Company faces risks associated with early-stage biotechnology companies whose product candidates are in development. Product candidates currently under development will require significant additional research and development efforts, including extensive preclinical and clinical testing, establishing manufacturing capacity and regulatory approval prior to commercialization. These efforts require significant amounts of additional capital for the Company to complete its research and development, achieve its research and development objectives, defend its intellectual property rights, and recruit and retain skilled personnel, and key members of management. Even if the Company’s product development efforts are successful, it is uncertain when, if ever, the Company will realize significant revenue from product sales. The Company 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. The terms of any financing may adversely affect the holdings or the rights of the Company’s stockholders. If the Company is unable to obtain funding, the Company could be required to delay, reduce or eliminate research and development programs, product portfolio expansion or future commercialization efforts, which could adversely affect its business prospects. 3. Summary of Significant Accounting Policies The Company’s complete summary of significant accounting policies can be found in “Note 3. Summary of Significant Accounting Policies” in the audited financial statements included in the Company’s Form 10-K filed with the U.S. Securities and Exchange Commission (SEC) on March 3, 2021. 9 Table of Contents Passage Bio, Inc. Notes to Unaudited Interim Financial Statements Basis of Presentation The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP). Any reference in these notes to applicable guidance is meant to refer to GAAP as found in the Accounting Standards Codification (ASC) and Accounting Standards Updates (ASU) promulgated by the Financial Accounting Standards Board (FASB). Interim Financial Statements The accompanying unaudited interim financial statements have been prepared from the books and records of the Company in accordance with GAAP for interim financial information and Rule 10-01 of Regulation S-X promulgated by the 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, and cash flows have been made. Although these interim financial statements do not include all of the information and footnotes required for complete annual financial statements, management believes the disclosures are adequate to make the information presented not misleading. Unaudited interim results of operations and cash flows are not necessarily indicative of the results that may be expected for the full year. Unaudited interim financial statements and footnotes should be read in conjunction with the December 31, 2020 financial statements and footnotes included in the Form 10-K as filed with the SEC on March 3, 2021. Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and contingent liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates. Estimates and assumptions are periodically reviewed and the effects of the revisions are reflected in the accompanying financial statements in the period they are determined to be necessary. 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. Concentration of credit risk Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash, cash equivalents, and marketable securities. The Company maintains deposits in federally insured financial institutions in excess of federally insured limits. 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. 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 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. 10 Table of Contents Passage Bio, Inc. Notes to Unaudited Interim Financial Statements Marketable securities The Company classifies its marketable securities as available-for-sale, which include commercial paper, certificates of deposit, corporate debt securities and U.S. government and non-U.S. government debt securities with original maturities of greater than three months. These securities are carried at fair market value, with unrealized gains and losses reported in comprehensive loss and accumulated other comprehensive loss within stockholders’ equity. 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, for stock options, the expected life of the options and stock price volatility. The Company accounts for forfeitures for stock option awards as they occur. The Company uses the Black-Scholes option pricing model to value its stock option awards. The assumptions used in estimating the fair value of share-based awards represent management's estimate and involve inherent uncertainties and the application of management's judgment. As a result, if factors change and management uses different assumptions, share-based compensation expense could be materially different for future awards. The expected 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. The simplified method is the midpoint between the vesting period and the contractual term of the option. For stock price volatility, the Company uses comparable public companies as a basis for its expected volatility to calculate the fair value of option grants. The risk-free rate is based on the U.S. Treasury yield curve commensurate with the expected life of the option. Net Loss Per Share Basic net loss per share of common stock is computed by dividing net loss by the weighted-average number of shares of common stock outstanding during each period. Diluted loss per share of common stock includes the effect, if any, from the potential exercise or conversion of securities, such as convertible preferred stock, which would result in the issuance of incremental shares of common stock. For diluted net loss per share, the weighted-average number of shares of common stock is the same for basic net loss per share due to the fact that when a net loss exists, dilutive securities are not included in the calculation as the impact is anti-dilutive. 11 Table of Contents Passage Bio, Inc. Notes to Unaudited Interim Financial Statements 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 Months Ended March 31, ​ ​ 2021 2020 Stock options (including shares subject to repurchase) ​ 8,708,503 6,359,947 Unvested restricted stock units ​ 170,000 ​ — Employee stock purchase plan ​ 32,821 ​ — ​ ​ 8,911,324 6,359,947 ​ Recently Issued Accounting Pronouncements In February 2016, the FASB issued ASU No. 2016-02, Leases , which requires a lessee to record a right-of-use asset and a corresponding lease liability on the balance sheet for all leases with terms longer than 12 months. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. As the Company has elected to use the extended transition period for complying with new or revised accounting standards as available under the Jobs Act, the standard is effective for the Company beginning January 1, 2022, with early adoption permitted. The Company is currently evaluating the expected impact that the standard could have on its financial statements and related disclosures. In June 2016, the FASB issued ASU No. 2016-13, “ Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments ” (ASU 2016-13), which replaces the incurred loss impairment methodology under current U.S. GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. ASU 2016-13 was subsequently updated by ASU No. 2019-04, “ Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments ”, to clarify that entities should include recoveries when estimating the allowance for credit losses. This guidance is effective for the Company for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022 and must be adopted using a modified retrospective approach, with certain exceptions. The Company is currently evaluating the impact of this standard on its financial statements and related disclosures. ​ 4. Cash, cash equivalents and marketable securities The following table provides details regarding the Company’s portfolio of cash and cash equivalents: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (in thousands) Amortized cost Unrealized gains Unrealized losses Fair value March 31, 2021: ​ ​ ​ ​ Cash accounts in banking institutions ​ $ 164,094 ​ $ — ​ $ — ​ $ 164,094 Money market funds ​ ​ 84,416 ​ ​ — ​ ​ — ​ ​ 84,416 Commercial paper ​ ​ 600 ​ ​ — ​ ​ — ​ ​ 600 Corporate debt securities ​ ​ 411 ​ ​ — ​ ​ — ​ ​ 411 Total ​ $ 249,521 ​ $ — ​ $ — ​ $ 249,521 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2020: ​ ​ ​ ​ Cash accounts in banking institutions ​ $ 46,660 ​ $ — ​ $ — ​ $ 46,660 Money market funds ​ ​ 84,409 ​ ​ — ​ ​ — ​ ​ 84,409 Commerical paper ​ ​ 3,933 ​ ​ — ​ ​ — ​ ​ 3,933 Total ​ $ 135,002 ​ $ — ​ $ — ​ $ 135,002 ​ 12 Table of Contents Passage Bio, Inc. Notes to Unaudited Interim Financial Statements The following table provides details regarding the Company’s portfolio of marketable securities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (in thousands) Amortized cost Unrealized gains Unrealized losses Fair value March 31, 2021: ​ ​ ​ ​ Certificates of deposit ​ $ 10,412 ​ $ 6 ​ $ — ​ $ 10,418 Commercial paper ​ ​ 40,796 ​ ​ 15 ​ ​ — ​ ​ 40,811 Corporate debt securities ​ ​ 98,854 ​ ​ 9 ​ ​ (38) ​ ​ 98,825 U.S. government securities ​ ​ 22,216 ​ ​ 4 ​ ​ — ​ ​ 22,220 Non-U.S. government securities ​ ​ 15,797 ​ ​ 2 ​ ​ (5) ​ ​ 15,794 Total ​ $ 188,075 ​ $ 36 ​ $ (43) ​ $ 188,068 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2020: ​ ​ ​ ​ Certificates of deposit ​ $ 6,115 ​ $ — ​ $ — ​ $ 6,115 Commercial paper ​ ​ 47,872 ​ ​ 7 ​ ​ (2) ​ ​ 47,877 Corporate debt securities ​ ​ 85,593 ​ ​ 9 ​ ​ (25) ​ ​ 85,577 U.S. government securities ​ ​ 24,345 ​ ​ 1 ​ ​ (2) ​ ​ 24,344 Non-U.S. government securities ​ ​ 5,902 ​ ​ — ​ ​ — ​ ​ 5,902 Total ​ $ 169,827 ​ $ 17 ​ $ (29) ​ $ 169,815 ​ ​ 5. Fair Value of Financial Instruments Fair value is the price that could be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Fair value determination in accordance with applicable accounting guidance requires that a number of significant judgments be made. Additionally, fair value is used on a nonrecurring basis to evaluate assets for impairment or as required for disclosure purposes by applicable accounting guidance on disclosures about fair value of financial instruments. Depending on the nature of the assets and liabilities, various valuation techniques and assumptions are used when estimating fair value. The carrying amounts of certain of the Company’s financial instruments, including prepaid expense and accounts payable are shown at cost, which approximates fair value due to the short-term nature of these instruments. The Company follows the provisions of FASB ASC Topic 820, Fair Value Measurement , for financial assets and liabilities measured on a recurring basis. The guidance requires fair value measurements be classified and disclosed in one of the following three categories: ● Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. ● Level 2: Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liabilities. ● Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity). 13 Table of Contents 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: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fair value measurement at ​ ​ reporting date using ​ ​ Quoted prices ​ ​ ​ ​ ​ ​ ​ in active Significant ​ ​ ​ ​ markets for other Significant ​ identical observable ​ unobservable ​ assets inputs ​ inputs (in thousands) (Level 1) (Level 2) (Level 3) March 31, 2021: ​ ​ ​ Assets ​ ​ ​ Cash and cash equivalents: ​ ​ ​ ​ ​ ​ ​ ​ ​ Money market fund ​ $ 84,416 ​ $ — ​ $ — Commercial paper ​ ​ — ​ ​ 600 ​ ​ — Corporate debt securities ​ ​ — ​ ​ 411 ​ ​ — Total cash and cash equivalents ​ ​ 84,416 ​ ​ 1,011 ​ ​ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Marketable securities: ​ ​ ​ ​ ​ ​ ​ ​ ​ Certificates of deposit ​ ​ — ​ ​ 10,418 ​ ​ — Commercial paper ​ ​ — ​ ​ 40,811 ​ ​ — Corporate debt securities ​ ​ — ​ ​ 98,825 ​ ​ — U.S. government securities ​ ​ — ​ ​ 22,220 ​ ​ — Non-U.S. government securities ​ ​ — ​ ​ 15,794 ​ ​ — Total marketable securities ​ ​ — ​ ​ 188,068 ​ ​ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total financial assets ​ $ 84,416 ​ $ 189,079 ​ $ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2020: ​ ​ ​ ​ ​ ​ ​ ​ ​ Assets ​ ​ ​ Cash and cash equivalents: ​ ​ ​ ​ ​ ​ ​ ​ ​ Money market fund ​ $ 84,409 ​ $ — ​ $ — Commercial paper ​ ​ — ​ ​ 3,933 ​ ​ — Total cash and cash equivalents ​ ​ 84,409 ​ ​ 3,933 ​ ​ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Marketable securities: ​ ​ ​ ​ ​ ​ ​ ​ ​ Certificates of deposit ​ ​ — ​ ​ 6,115 ​ ​ — Commercial paper ​ ​ — ​ ​ 47,877 ​ ​ — Corporate debt securities ​ ​ — ​ ​ 85,577 ​ ​ — U.S. government securities ​ ​ — ​ ​ 24,344 ​ ​ — Non-U.S. government securities ​ ​ — ​ ​ 5,902 ​ ​ — Total marketable securities ​ ​ — ​ ​ 169,815 ​ ​ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total financial assets ​ $ 84,409 ​ $ 173,748 ​ $ — ​ ​ 14 Table of Contents Passage Bio, Inc. Notes to Unaudited Interim Financial Statements 6. Accrued Expenses and Other Current Liabilities Accrued expenses and other current liabilities consisted of the following: ​ ​ ​ ​ ​ ​ ​ (in thousands) March 31, 2021 December 31, 2020 Professional fees ​ $ 1,521 ​ $ 720 Compensation and related benefits ​ 2,824 ​ 5,183 Research and development ​ 6,876 ​ 9,466 Other ​ 2,000 ​ 541 ​ ​ $ 13,221 ​ $ 15,910 ​ ​ ​ ​ 7. Commitments and Contingencies Amended and Restated Research, Collaboration and License Arrangement with Penn 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 Maryland, Inc. (Catalent) . As part of the Catalent Collaboration Agreement, the Company paid Catalent an upfront fee for the commissioning, qualification, validation and equipping of a clean room suite (the Clean Room Suite). 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. The Manufacturing and Supply Agreement confirms the terms contemplated by the Catalent Collaboration Agreement. The Catalent Collaboration Agreement continues to be in effect pursuant to its terms. Under the terms of the Manufacturing and Supply Agreement, Catalent has agreed to manufacture batches of drug product for the Company’s gene therapy product candidates at the Clean Room Suite provided for in the Catalent Collaboration Agreement. There is a minimum annual purchase commitment owed to Catalent for five years beginning 15 Table of Contents 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 November 2020, subject to certain inflationary adjustments Operating Leases The Company leases office space in Philadelphia, Pennsylvania under a noncancelable lease (Existing Lease Agreement), as amended. The lease is classified as an operating lease and the Company recognizes rent expense on a straight-line basis over the lease term. In April 2020, the Company entered into a new lease agreement (New Lease Agreement) for larger office space in Philadelphia to accommodate the Company’s continued growth and serve as the new corporate headquarters. The New Lease Agreement 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 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) ​ 2021 ​ $ 658 2022 ​ 2,612 2023 ​ 3,431 2024 ​ 3,528 2025 ​ 3,628 Thereafter ​ 38,123 ​ ​ $ 51,980 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 The Company has entered into employment agreements with key personnel providing for compensation and severance in certain circumstances, as described in the respective employment agreements. 16 Table of Contents Passage Bio, Inc. Notes to Unaudited Interim Financial Statements Patent Infringement Claim On February 18, 2020, the Company received a letter from REGENXBIO Inc. (Regenx), which stated its view that the use of the Company’s AAVhu68 capsid infringes patent claims to which Regenx has an exclusive license and which expire in 2024. Regenx also stated that it has exclusive licenses to various pending patent applications regarding the use of AAV vectors administered via instar-cisterna magna injection, and that these applications may lead to issued claims that Regenx believes may, if issued, cover the Company’s planned method of administration for the Company’s lead product candidates. The Company believes it has valid defenses to the issued claims set forth by Regenx relating to AAVhu68. Further, the prosecution of pending patent applications is highly uncertain, and it is unclear whether any patents will be issued from these pending Regenx patent applications at all, much less with claims that are relevant to the administration of the Company’s product candidates. Regenx also requested information regarding the Company’s relationship with Dr. Wilson while he was serving as an advisor to Regenx. Regenx's letter also offers to discuss licensing the applicable patent portfolios from them. In April 2020, the Company responded to Regenx indicating that it does not believe it requires a license to any of the specified Regenx patents or patent applications at this time, and that it found that Dr. Wilson’s relationship with the Company was consistent with his obligations to Regenx. The Company will continue to monitor the situation and, if necessary, take appropriate actions, which may include responding to further correspondence from Regenx, and engaging in discussions with Regenx regarding their claims. If any such patents were enforceable and such claims were ultimately successful, the Company might require a license to continue to use and sell any product candidates using such AAV vector. ​ 8. Share-Based Compensation Equity Incentive Plan The Company has two equity incentive plans: the 2018 Equity Incentive Plan, as amended (the 2018 Plan), and the 2020 Equity Incentive Plan. New awards can only be granted under the 2020 Equity Incentive Plan (the Plan). The total number of shares authorized under the Plan as of 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. 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 March 31, (in thousands) ​ 2021 2020 Research and development ​ $ 6,591 ​ $ 1,046 General and administrative ​ 3,149 ​ 1,322 ​ ​ $ 9,740 ​ $ 2,368 ​ 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. 17 Table of Contents Passage Bio, Inc. Notes to Unaudited Interim Financial Statements The following table summarizes stock option activity for the three months ended March 31, 2021: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted ​ ​ ​ ​ Weighted ​ average ​ ​ ​ ​ average ​ remaining ​ ​ Number of ​ exercise price ​ contractual ​ ​ shares ​ per share ​ term (years) Outstanding at January 1, 2021 6,928,111 $ 12.36 9.0 Granted 1,895,917 ​ ​ 21.50 Exercised (10,400) ​ ​ 7.80 Forfeited (105,125) ​ ​ 24.21 Outstanding at March 31, 2021 8,708,503 ​ $ 14.21 9.0 Exercisable at March 31, 2021 2,258,962 ​ $ 10.41 8.7 Vested or expected to vest at March 31, 2021 8,708,503 ​ $ 14.21 9.0 ​ 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: ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended March 31, ​ ​ ​ 2021 ​ 2020 ​ Expected volatility ​ 99.1 % 92.6 % Risk‑free interest rate ​ 0.8 % 1.4 % Expected term ​ 6.07 years ​ 6.07 years ​ Expected dividend yield ​ — ​ — ​ ​ The 2018 Plan provides certain holders of stock options an election to early exercise prior to vesting. The Company has the right to repurchase early exercised options without transferring any appreciation in the value of the underlying shares to the employee if the employee terminates employment before the end of the original vesting period. The repurchase price is the lesser of the original exercise price or the then fair value of the Company’s common stock. 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 302,277 Vested (173,117) Unvested balance at March 31, 2021 129,160 ​ 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. 18 Table of Contents Passage Bio, Inc. Notes to Unaudited Interim Financial Statements The following table summarizes activity related to RSU awards: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted average ​ ​ Number of shares ​ grant date fair value Unvested balance at January 1, 2021 ​ — $ — Granted ​ 180,000 $ 20.18 Forfeited ​ (10,000) $ 21.85 Unvested balance at March 31, 2021 ​ 170,000 $ 20.09 ​ 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 The Company’s 2020 Employee Stock Purchase Plan (the ESPP) became effective on February 28, 2020. The ESPP authorizes the issuance of up to 890,148 shares of the Company’s common stock. 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. Eligible employees may purchase the Company’s common stock at 85% of the lower of the fair market value of the Company’s common stock on the first day of the offering period or on the last day of the offering period. Eligible employees may contribute up to 15% of their eligible compensation. Under the ESPP, a participant may not accrue rights to purchase more than $25,000 worth of the Company’s common stock for each calendar year in which such right is outstanding. In accordance with the guidance in ASC 718-50 – Compensation – Stock Compensation , the ability to purchase shares of the Company’s common stock at 85% of the lower of the price on the first day of the offering period or the last day of the offering period (i.e. the purchase date) represents an option and , therefore, the ESPP is a compensatory plan under this guidance. Accordingly, share-based compensation expense is determined based on the option’s grant-date fair value as estimated by applying the Black Scholes option-pricing model and is recognized over the withholding period. The Company recognized share-based compensation expense of $0.1 million during the three months ended March 31, 2021 related to the ESPP. 9. Subsequent Events None. ​ ​ 19 Table of Contents