What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-03-03 compared with 2021-03-03 · 132 added, 136 removed, 124 unchanged (68% of the section changed)

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You should review the section titled “Risk Factors” in this Form 10-K for a discussion of important factors that could cause actual results to differ materially from the results described below.

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 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.

We are a clinical stage genetic medicines company focused on developing transformative therapies for CNS disorders.

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

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

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

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We also leverage our close working relationship with Penn’s Orphan Disease Center, or ODC, to develop historical and prospective comparable natural history patient profiles for comparison to participants in interventional trials.

Through this collaboration we have assembled a deep portfolio of genetic medicine product candidates, including our three lead product candidates, all of which we retain global rights.

Through this collaboration we have assembled a deep portfolio of genetic medicine product candidates, including our three clinical product candidates, all of which we retain global rights.

We were incorporated in July 2017 under the laws of the State of Delaware.

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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 $112.2 million and $45.6 million for the years ended December 31, 2020 and 2019, respectively.

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

Our net losses were $185.4 million and $112.2 million for the years ended December 31, 2021 and 2020, respectively.

As of December 31, 2021, we had an accumulated deficit of $356.3 million.

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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.

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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As of December 31, 2021, we had cash, cash equivalents and marketable securities of $315.8 million.

We expect our existing cash, cash equivalents and marketable securities, together with the net proceeds of $165.9 million from our

follow-on offering completed in January of 2021, will enable us to fund our operating expense and capital expenditures requirements for at least 24 months as of the date of this filing.

We expect our existing cash, cash equivalents and marketable securities, will enable us to fund our operating expense and capital expenditures requirements until the end of 2023.

COVID-19 Impact

We are continuing to proactively monitor and assess the current coronavirus disease 2019, or COVID-19, global pandemic.

Since early March 2020 we have activated a management team taskforce to assess and monitor 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.

To date, we and our collaborators, including Penn and Catalent, have continued to operate without material impact on our programs.

In addition, in response to the pandemic, we have implemented or are planning to implement various strategies to minimize any disruptions to our planned clinical studies, including remote clinical assessments, concierge services and structured video capture of participants in their home.

Since early March 2020, we have activated a management team task force 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.

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.

For example, the clinical initiation of our upliFT-D clinical study for PBFT02 and the GALax-C clinical study for PBKR03 were substantially impacted by COVID-19-related issues.

Our expected timelines for clinical trials could be further delayed 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 that 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 our seven licensed programs, 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 10 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 fee of $1.0 million per product indication.

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.

We have a research, collaboration and licensing agreement, as amended, 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, we have the obligation to fund certain research relating to the preclinical development of selected products in research programs as well as the new exploratory research program in non-rare and/or non-monogenic (or large) CNS indications, initially Alzheimer’s Disease, or AD, and Temporal Lobe Epilepsy, or TLE.

We also fund discovery research conducted by Penn through August 2026 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 discovery research funding commitment is $5.0 million a year for five years, with quarterly payments of $1.3 million through June 2026.

Under the Penn Agreement we have eight remaining options available to us to commence additional licensed programs for CNS indications until May 2026.

If we were to exercise any of these remaining options, we would owe Penn a non-refundable aggregate fee of $1.0 million, with $0.5 million per product indication paid immediately and another $0.5 million fee owned upon a further developmental milestone.

The Penn Agreement requires that we make payments of up to (i) $16.5 million per product candidate for rare, monogenic disorders in aggregate and (ii) $39.0 million per product candidate in the aggregate arising from the exploratory program for large CNS indications, initially AD and TLE and such other mutually agreed upon large CNS indications.

Each payment will be due 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.

In addition, on a product-by-product basis, we are obligated to make up to $55.0 million in sales milestone payments on each licensed product based on annual sales of the licensed product in excess of defined thresholds.

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In addition, we are obligated to pay to Penn a percentage of sublicensing income, ranging from the mid-single digits to low double digits, for sublicenses under the Penn Agreement.

We and Penn entered into an amendment, or the Amendment, to the Penn Agreement, on August 3, 2021.

Under the Amendment, we and Penn expanded the scope of the collaboration to include certain non-rare and/or non-monogenic, or large, CNS indications, initially AD and TLE and such other mutually agreed upon large CNS indications;

included an exploratory research collaboration to identify targets and early product candidates in such large CNS indications;

and extended the term to August 3, 2026 by which product candidates for CNS indications may be selected for the entire

The exploratory research program is focused on discovering targets and novel gene therapy candidates for large CNS diseases, initially focused on AD and TLE, and that can be expanded to other large CNS diseases upon mutual agreement.

The initial term of the exploratory research program is 3 years, which term can be extended by mutual agreement.

During such term we will have an exclusive right of first negotiation to include additional targets to the exploratory research program in the agreed upon large CNS indications.

Under the exploratory research program, we will have the right to further develop and commercialize any gene therapy product candidates specific for those selected targets within AD and TLE (and any future large CNS indications that are mutually agreed upon) that arise from the exploratory research programs on substantially the same terms of the current Penn Agreement.

The election of any option to any such product candidates will count against our remaining eight options and will trigger the aggregate $1.0 million option fee.

As a result, we now will fund discovery research through August 3, 2026, and will now have until August 3, 2026 to exercise our remaining eight options.

We made an upfront payment of $5.0 million;

will reimburse Penn for expenses incurred in the exploratory research program;

and will pay Penn a tiered transaction fee ranging from 1-2% of the net proceeds upon certain change of control events.

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.

We have commenced manufacturing operations in the suite to support AAV production for our lead gene therapy product candidates for the treatment of rare monogenic CNS disorders.

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

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

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

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.

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.

The Collaboration Agreement also remains in effect.

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.

Under both the Catalent 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 the validation of the clean room suite, subject to certain inflationary adjustments.

The 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 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.

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 expenses include:

● expenses incurred to conduct the necessary preclinical studies and clinical trials required to obtain regulatory approval, including payments to Penn for preclinical development;

● costs incurred in obtaining technology licenses related to technology that has not reached technological feasibility and has no alternative future use;

● expenses incurred to conduct the necessary preclinical studies and clinical trials required to obtain regulatory approval, including payments to Penn for preclinical research and development;

● expenses incurred in obtaining technology licenses related to technology that has not reached technological feasibility and has no alternative future use;

● personnel expenses, including salaries, benefits and share-based compensation expense for employees engaged in research and development functions;

● costs of funding research performed by third parties, including pursuant to agreements with CROs, as well as investigative sites and consultants that conduct our preclinical studies and clinical trials;

● expenses related to funding research performed by third parties, including pursuant to agreements with CROs, as well as investigative sites and consultants that conduct our preclinical studies and clinical trials;

● expenses incurred under agreements with contract manufacturing organizations, or CMOs, including manufacturing scale-up expenses and the cost of acquiring and manufacturing preclinical study and clinical trial materials;

● fees paid to consultants who assist with research and development activities;

● expenses related to regulatory activities, including filing fees paid to regulatory agencies;

● allocated expenses for facility costs, including rent, utilities, depreciation and maintenance.

We track outsourced development costs and other external research and development costs to specific product candidates on a program-by-program basis, such as expenses incurred under our collaboration with Penn, fees paid to CROs, CMOs and research laboratories in connection with our preclinical development, process development, manufacturing and clinical development activities.

However, we do not track our internal research and development expenses on a program-by-program basis as they primarily relate to compensation, early research and other costs which are deployed across multiple projects under development.

● expenses and fees paid to consultants who assist with research and development activities;

● allocated expenses for facilities costs, including rent, utilities, depreciation and maintenance.

We track outsourced development expenses and other external research and development expenses to specific product candidates on a program-by-program basis, such as expenses incurred under our collaboration with Penn, fees paid to CROs, CMOs and research laboratories in connection with our preclinical development, process development, manufacturing and clinical development activities.

However, we do not track our internal research and development expenses on a program-by-program basis as they primarily relate to compensation, early research and other expenses which are deployed across multiple projects under development.

Research and development activities are central to our business model.

Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials.

We expect our research and development expenses to increase significantly over the next several years as we increase personnel costs, including share-based compensation, conduct our clinical trials, including later-stage clinical trials, for current and future product candidates and prepare regulatory filings for our product candidates.

Costs incurred in obtaining technology licenses are charged to research and development expense as acquired in-process research and development if the technology licensed has not reached technological feasibility and has no alternative future use.

Product candidates in later stages of clinical development generally have higher development expenses than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials.

We expect our research and development expenses to increase over the next several years as we increase personnel costs, including share-based compensation, conduct our clinical trials, including later-stage clinical trials, for current and future product candidates and prepare regulatory filings for our product candidates.

Expenses incurred in obtaining technology licenses are expenses as acquired in-process research and development if the technology licensed has not reached technological feasibility and has no alternative future use.

General and Administrative Expenses

General and administrative expenses consist primarily of personnel expenses, including salaries, benefits and share-based compensation expense, for employees and consultants in executive, finance, accounting, legal, and human resource functions.

General and administrative expense also includes corporate facility costs, including rent, utilities, depreciation and maintenance, not otherwise included in research and development expense, as well as legal fees related to intellectual property and corporate matters and fees for accounting and consulting services.

We expect that our general and administrative expenses will increase in the future to support our continued research and development activities, potential commercialization efforts and continued increased costs of operating as a public company.

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.

General and administrative expense also includes corporate facility costs, including rent, utilities, depreciation and maintenance, not otherwise included in research and development expense, legal expenses related to intellectual property and corporate matters, insurance expense, and expenses for accounting and consulting services.

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

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.

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

Interest Income, net

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

Interest income, net consists of interest earned on our cash equivalents and marketable securities, offset by amortization of premium and discount on our marketable securities and fees paid to our external asset manager.

Results of Operations

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Loss from operations

Change in fair value of future tranche right liability

Interest income

Interest income, net

Research and Development Expenses

Research and development expenses increased by $35.9 million from $81.8 million for the year ended December 31, 2020 to $117.7 million for the year ended December 31, 2021.

The increase was primarily due to an increase of $24.7 million in clinical manufacturing costs, an increase of $6.6 million in pre-clinical research and development costs incurred in preparation for IND filings, a $4.4 million increase in clinical development costs and a $3.4 million increase in consulting expense as we prepare for our clinical trials to begin in early 2021.

We also had a $12.5 million increase in personnel-related costs, including share-based compensation, and a $0.5 million increase in facility and other costs due to an increase in employee headcount in the research and development function.

The increase was primarily due to increases of:

$19.7 million in personnel-related expenses, including share-based compensation, due to an increase in employee headcount in the research and development function and expenses related to the modification of stock options, which increased by $5.5 million;

$18.7 million in clinical manufacturing expenses related to manufacturing supply for our clinical product candidates and in preparation of an IND filing for a research program;

$10.9 million in clinical operations expenses to support the clinical trials of our clinical product candidates;

and, $3.7 million in facility and other expenses.

These increases were partially offset by decreases of:

$2.5 million in professional services and consulting expense;

and, $14.6 million in research and development expenses with Penn, which relates to expenses incurred for preclinical work performed in preparation for IND filings for our clinical programs.

We expect that expenses associated with Penn will continue to vary from period to period based on the status of our preclinical pipeline and the timing of preclinical work performed.

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

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(in thousands)

Internal costs, including personnel related

Program Specific Expenses

Other Programs and Discovery

Unallocated Internal Expenses

Personnel-related (including share-based compensation)

Acquired In-Process Research and Development Expenses

Acquired in-process research and development expenses were $8.0 million for the year ended December 31, 2021 compared to $1.0 million for the year ended December 31, 2020.

The increase in acquired in-process research and development expense was due to higher license fees incurred under the Penn Agreement.

We incurred $1.5 million in license fees, $1.5 million

in fees related to the achievement of a development milestone, and $5.0 million in fees related to the August 2021 amendment with Penn during the year ended December 31, 2021.

General and Administrative Expenses

General and administrative expenses increased by $30.0 million from $30.1 million for the year ended December 31, 2020 to $60.1 million for the year ended December 31, 2021.

The increase was primarily due to a $15.3 million increase in personnel related and share-based compensation expense due to increases in employee headcount.

Our professional fees and facility insurance and other costs increased by $3.3 million and $4.6 million, respectively, as we expanded our operations to support our research and development efforts.

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.

The increase was primarily due to increases of:

$21.8 million in personnel-related and share-based compensation expense due to increases in employee headcount;

and, $8.2 million in facility, professional services and other expense related to expanding our operations to support our research and development efforts.

Interest Income, net

Interest income, net was $0.7 million and $0.7 million for the year ended December 31, 2020 and 2019, respectively.

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

Interest income, net was $0.3 million and $0.7 million for the years ended December 31, 2021 and 2020, respectively.

Interest income is primarily attributable to interest income earned on our cash, cash equivalents and marketable securities, partially offset by amortization of premium and discount on our marketable securities and fees paid to our external asset manager.

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 $221.1 million.

Upon the completion of our IPO, we received net proceeds of $227.5 million and received another $165.9 million in net proceeds from our follow-on offering that was completed in January 2021.

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

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

As of December 31, 2021, we had $315.8 million in cash, cash equivalents and marketable securities and had an accumulated deficit of $356.3 million.

We expect our existing cash, cash equivalents and marketable securities, together with the net proceeds from the January 2021 follow-on offering, will enable us to fund our operating expense and capital expenditures for at least 24 months as of the date of this filing.

We expect our existing cash, cash equivalents and marketable securities will enable us to fund our operating expense and capital expenditures until the end of 2023.

Funding Requirements

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● the scope, timing, progress and results of discovery, preclinical development, laboratory testing and clinical trials for our product candidates;

● the costs of manufacturing our product candidates for clinical trials and in preparation for marketing approval and commercialization;

● the expenses of manufacturing our product candidates for clinical trials and in preparation for marketing approval and commercialization;

● the extent to which we enter into collaborations or other arrangements with additional third parties in order to further develop our product candidates;

● the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending intellectual property-related claims;

● the costs and fees associated with the discovery, acquisition or in-license of additional product candidates or technologies;

● the expenses of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending intellectual property-related claims;

● the expenses and fees associated with the discovery, acquisition or in-license of additional product candidates or technologies;

● our ability to establish additional collaborations on favorable terms, if at all;

● the costs required to scale up our clinical, regulatory and manufacturing capabilities;

● the costs of future commercialization activities, if any, including establishing sales, marketing, manufacturing and distribution capabilities, for any of our product candidates for which we receive marketing approval;

● the expenses required to scale up our clinical, regulatory and manufacturing capabilities;

● the expenses of future commercialization activities, if any, including establishing sales, marketing, manufacturing and distribution capabilities, for any of our product candidates for which we receive marketing approval;

● revenue, if any, received from commercial sales of our product candidates, should any of our product candidates receive marketing approval.

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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.

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

Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making acquisitions or capital expenditures or declaring dividends.

If we raise additional funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties,

we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or drug candidates, or grant licenses on terms that may not be favorable to us.

If we raise additional funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or drug candidates, or grant licenses on terms that may not be favorable to us.

If we are unable to raise additional funds through equity or debt financings or other arrangements when needed, we may be required to delay, limit, reduce or terminate our research, product development or future commercialization efforts, or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

On March 5, 2021, we entered into a Sales Agreement, or the Sales Agreement, with Cowen and Company, LLC, or Cowen, pursuant to which we may, but are not obligated to, offer and sell, from time to time, shares of our common stock with an aggregate offering price up to $125.0 million through Cowen, as sales agent.

No sales of common stock have been made pursuant to this Sales Agreement to date.

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

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Cash provided by financing activities

Net (decrease) increase in cash and cash equivalents

Net increase (decrease) in cash and cash equivalents

Net Cash Used in Operating Activities

During the year ended December 31, 2021, we used $126.9 million of net cash in operating activities, primarily to fund our operations related to the development of our product candidates and related general and administrative support activities.

Cash used in operating activities reflected our net loss of $185.4 million, which was partially offset by adjustments to reconcile net loss to net cash used in operating activities of $47.1 million related to acquired in-process research and development expense, share-based compensation, depreciation and amortization, amortization of premium and discount of marketable securities, net and changes in deferred rent as well as a $11.4 million net increase in cash flows resulting from changes in our operating assets and liabilities.

During the year ended December 31, 2020, we used $80.5 million of net cash in operating activities, primarily to fund our operations related to the development of our product candidates.

Cash used in operating activities reflected our net loss of $112.2 million, which was partially offset by non-cash charges of $17.3 million related to acquired in-process research and development expense, share-based compensation, depreciation, amortization of premium and discount, net and changes in deferred rent as well as a $14.4 million net increase in cash flows resulting from changes in our operating assets and liabilities.

During the year ended December 31, 2019, we used $39.9 million of net cash in operating activities.

Cash used in operating activities reflected our net loss of $45.6 million and a $5.9 million net decrease in cash flows resulting from changes in our operating assets and liabilities.

Cash used was offset by noncash charges of $9.1 million for the loss on the change in fair value of our future tranche right liability, $1.5 million in share-based compensation, $0.5 million related to an acquired in-process research and development charge, $0.1 million in depreciation expense and a $0.5 million change in our deferred rent balance.

Cash used in operating activities reflected our net loss of $112.2 million, which was partially offset by non-cash charges of $17.3 million related to acquired in-process

research and development expense, share-based compensation, depreciation and amortization, amortization of premium and discount, net and changes in deferred rent as well as a $14.4 million net increase in cash flows resulting from changes in our operating assets and liabilities.

Net Cash Used in Investing Activities

During the year ended December 31, 2021, we purchased $202.5 million in marketable securities and had sales and maturities of $182.4 million in marketable securities.

During the years ended December 31, 2020 and 2019, we used $1.1 million and $1.2 million, respectively, for the purchase of property and equipment.

We also used $0.5 million in each of the years ended December 31, 2020 and 2019 to purchase technology rights from Penn.

Additionally, we used $17.6 million for the purchase of property and equipment and we used $8.0 million to purchase technology rights from Penn.

During the year ended December 31, 2020, we purchased $266.1 million in marketable securities and had sales and maturities of $95.6 million in marketable securities.

Additionally, we used $1.1 million for the purchase of property and equipment and we used $0.5 million to purchase technology rights from Penn.

Net Cash Provided by Financing Activities

During the years ended December 31, 2020 and 2019, financing activities provided $228.3 million and $176.2 million, respectively, from the sale of our common and convertible preferred stock.

During 2020, we received $0.3 million from the issuance of common stock under our employee stock purchase plan and received $0.2 million from the exercise of stock options.

During 2019, we received $0.2 million from the exercise of stock options and paid $0.8 million in deferred offering costs.

During the year ended December 31, 2021, financing activities provided $165.8 million from the sale of our common stock, we received $0.9 million from the issuance of common stock under our employee stock purchase plan, we received $0.3 million from the exercise of stock options, partially offset by payments for offering costs of $0.3 million.

During the year ended December 31, 2020, financing activities provided $228.3 million from the sale of our common stock, we received $0.2 million from the issuance of common stock under our employee stock purchase plan, and we received $0.3 million from the exercise of stock options.

Contractual obligations and other commitments

The following table summarizes our contractual obligations and commitments at December 31, 2020:

(in thousands)

Operating leases

Amounts owed to Catalent(1)

(1) Clean room validated in Q4 2020

In September 2018, we entered into an agreement to lease 8,887 square feet of office space in Philadelphia, Pennsylvania, for a term of seven years.

The lease includes a renewal option for an additional five years.

The initial rent commenced at $0.2 million per year, with 2.5% annual base rent increases plus operating expenses, real estate taxes, utilities and janitorial fees.

We occupied this space in early 2019.

In April 2020, we entered into an amendment to this lease, which provided that so long as we are not in breach of the initial lease agreement, the initial lease agreement shall terminate five business days after the One Commerce Commencement Date, as defined below.

In April 2020, we entered into an agreement to lease for approximately 37,000 square feet of office space in Philadelphia, Pennsylvania, or One Commerce Lease, with an expected commencement date of January 1, 2021, or the One Commerce Commencement Date, and expected expiration date of November 1, 2031.

We have an option to extend the term of the One Commerce Lease by up to two five-year terms.

The aggregate estimated rent payments due over the initial term of the One Commerce Lease is $20.4 million.

We will post a security deposit in the amount of $34,000.

The landlord of One Commerce Lease also will provide us with a tenant improvement allowance of up to $2.8 million.

In December 2020, we entered into an agreement lease for approximately 62,000 square feet of laboratory space in Hopewell, NJ.

The initial annual rent under the lease is approximately $1.5 million (after partial rent abatement for the first year).

The aggregate estimated rent payments due over the initial term of the lease is approximately $40.3 million.

In April 2020, we entered 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 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 lease approximately 37,000 square feet of office space in Philadelphia, Pennsylvania.

The lease will expire in December 2031.

We have an option to extend the term of the lease by up to two additional five-year terms.

The aggregate estimated rent payments due over the initial term of the lease is $11.8 million, with rent payments beginning in 2022.

The landlord provided us with a tenant improvement allowance of up to $2.8 million.

We lease approximately 62,000 square feet of laboratory space in Hopewell, NJ.

The lease will expire in March 2036.

The aggregate estimated rent payments due over the initial term of the lease is approximately $40.3 million, with rent payments beginning in 2021.

The landlord provided us with a tenant improvement allowance of up to $1.3 million.

Under both the Collaboration Agreement and the Manufacturing and Supply Agreement with Catalent, we have an annual minimum commitment of $10.6 million per year owed to Catalent through November 2025, subject to certain inflationary adjustments.

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.

Either we or Catalent may terminate the Manufacturing and Supply Agreement upon an uncured material breach by the other party, upon the bankruptcy or insolvency of the other party or if the other party is suspended or debarred by the FDA or the U.S.

If we terminate the Manufacturing and Supply Agreement for convenience and certain other specified events, we are obligated to pay an early termination fee to Catalent.

Under the Collaboration Agreement, upon 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.

Further, as part of amending and restating the Penn Agreement in May 2020, we agreed to fund discovery research conducted by Penn for five years, beginning in May 2020.

Our funding commitment is $5.0 million a year for five years.

The commitment amounts in the table above are associated with contracts that are enforceable and legally binding and that specify all significant terms, including fixed or minimum services to be used, fixed, minimum or variable price provisions, and the approximate timing of the actions under the contracts.

Payments due upon cancellation consisting only of payments for services provided or expenses incurred, including noncancelable obligations of our service

providers, up to the date of cancellation are not included in the preceding table as the amount and timing of such payments are not known.

The contractual obligations table does not include any potential milestone or royalty payments that we may be required to make under our license and collaboration agreement with Penn.

We excluded these royalty payments given that the timing of any such payments cannot be reasonably estimated at this time.

We also did not include any amounts committed to fund research and development with Penn due to certain provisions for early cancellation of such committed amounts.

Off-Balance Sheet Arrangements

During the periods presented, we did not have, nor do we currently have, any relationships with unconsolidated entities or financial partnerships, including entities sometimes referred to as structured finance or special purpose entities that were established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

We do not engage in off-balance sheet financing arrangements.

In addition, we do not engage in trading activities involving non-exchange traded contracts.

We therefore believe that we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in these relationships.

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

Under the Penn Agreement, we agreed to fund discovery research conducted by Penn for five years, beginning in May 2020.

Our funding commitment is $5.0 million a year through June 2026.

The contractual obligations and commitments above are associated with contracts that are enforceable and legally binding and that specify all significant terms, including fixed or minimum services to be used, fixed, minimum or variable price provisions, and the approximate timing of the actions under the contracts.

Payments due upon cancellation consisting only of payments for services provided or expenses incurred, including noncancelable obligations of our service providers, up to the date of cancellation are not included in the preceding table as the amount and timing of such payments are not known.

The contractual obligations and commitments above do not include any potential milestone or royalty payments that we may be required to make under the Penn Agreement.

Critical Accounting Policies and Estimates

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We expense research and development costs as incurred.

We accrue an expense for preclinical studies and clinical trial activities performed by Penn and other vendors based upon estimates of the proportion of work completed.

We determine the estimates by reviewing contracts, vendor agreements and purchase orders, and through discussions with our internal clinical personnel and external service providers as to the progress or stage of completion of trials or services and the agreed-upon fee to be paid for such services.

We accrue an expense for preclinical studies and clinical trial activities performed by Penn and other vendors based on an estimate of progress to completion of specific tasks using facts and circumstances known to us at that time.

We determine the estimates by reviewing contracts, vendor agreements and change orders, and through discussions with our internal clinical personnel and external service providers as to the progress to completion of trials or services and the agreed-upon fee to be paid for such services.

However, actual costs and timing of clinical trials are highly uncertain, subject to risks and may change depending upon a number of factors, including our clinical development plan.

We make estimates of our accrued expenses as of each balance sheet date in our financial statements based on facts and circumstances known at that time.

We make estimates of our accrued research and development expenses as of each balance sheet date in our financial statements based on facts and circumstances known at that time.

If the actual timing of the performance of services or the level of effort varies from the estimate, we will adjust the accrual accordingly.

Nonrefundable advance payments for goods and services, including fees for process development or manufacturing and distribution of clinical supplies that will be used in future research and development activities, are deferred and recognized as expense in the period that the related goods are consumed or services are performed.

Nonrefundable advance payments for goods and services, including fees for process development or manufacturing and distribution of clinical supplies that will be used in future research and development activities, are deferred and recognized as expenses in the period that the related goods are consumed or services are performed.

Share-Based Compensation

We recognize compensation costs related to share-based awards granted to employees and directors, including stock options and vesting restricted stock, based on the estimated fair value of the awards on the date of grant.

We estimate the grant date fair value, and the resulting stock-based compensation, using the Black-Scholes option-pricing model.

We recognize compensation costs related to share-based awards granted to employees and directors, including stock options and restricted stock units, based on the estimated fair value of the awards on the date of grant.

We estimate the grant date fair value, and the resulting share-based compensation, using the Black-Scholes option-pricing model.

The grant date fair value of the stock-based awards is recognized on a straight-line basis over the requisite service period, which is generally the vesting period of the respective awards.

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Certain assumptions used in our Black-Scholes option-pricing model represent management’s best estimates and involve a number of variables, uncertainties, and assumptions and the application of management’s judgment, as they are inherently subjective.

If any assumptions change, our stock-based compensation expense could be materially different in the future.

These subjective assumptions are estimated as follows:

Fair value of common stock — Historically, for all periods prior to our IPO, the fair value of the shares of common stock underlying our share-based awards was estimated on each grant date by our board of directors.

To determine the fair value of our common stock underlying option grants, our board of directors considered, among other things, valuations of our common stock prepared by an unrelated third-party valuation firm in accordance with the guidance provided by the American Institute of Certified Public Accountants Practice Guide, Valuation of Privately-Held-Company Equity Securities Issued as Compensation, or the Practice Aid.

Since becoming a public company we have used our stock price to determine fair value of our common stock

Expected volatility —As a privately held company we did not have any trading history for our common stock;

accordingly the expected volatility was estimated based on the average volatility for comparable publicly traded biotechnology companies over a period equal to the expected term of the stock option grants.

The comparable companies were chosen based on their similar size, stage in the life cycle or area of specialty.

As a public company we have and will continue to use the average volatility for comparable publicly traded biotechnology companies until we have ample trading history of our own stock commensurate with the estimated expected term of our options.

If any assumptions change, our share-based compensation expense could be materially different in the future.

The subjective assumptions is estimated as follows:

Expected volatility —We do not have sufficient historical trading history based on the length of time we have been a public company.

Therefore, the expected volatility is estimated based on the average volatility for a composite of comparable publicly traded biotechnology companies over a period equal to the expected term of the stock option grants.

The comparable companies are chosen based on their similar size, stage in the life cycle or area of specialty.

As a public company we have and will continue to use the average volatility for comparable publicly traded biotechnology companies until we have sufficient trading history of our own stock commensurate with the estimated expected term of our options.

Recent Accounting Pronouncements

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As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.

June 30th, (2) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period and (3) December 31, 2025.

We will remain an emerging growth company until the earliest of (1) the last day of our first fiscal year (a) in which we have total annual gross revenues of at least $1.07 billion, or (b) in which we are deemed to be a “large accelerated filer”, which means the market value of our common stock that is held by non-affiliates exceeds $700.0 million as of the prior June 30th, (2) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period and (3) December 31, 2025.

In addition, the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards.

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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-K

Item 7. Management’s Discussion and Analysis