Passage BIO, Inc. 10-K

Item 8. Financial Statements and Supplementary Data PASSAGE BIO, INC. INDEX TO AUDITED FINANCIAL STATEMENTS ​ ​ ​ ​ Page ​ ​ ​ Report of Independent Registered Public Accounting Firm ( KPMG LLP , Philadelphia, PA , Auditor Firm ID: 185 ) ​ 107 Balance Sheets ​ 108 Statements of Operations and Comprehensive Loss ​ 109 Statements of Stockholders’ Equity ​ 110 Statements of Cash Flows ​ 111 Notes to Financial Statements ​ 112 ​ ​ ​ 106 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ​ To the Stockholders and Board of Directors Passage Bio, Inc.: Opinion on the Financial Statements We have audited the accompanying balance sheets of Passage Bio, Inc. (the Company) as of December 31, 2023 and 2022, the related statements of operations and comprehensive loss, stockholders’ equity, and cash flows for the years then ended, and the related notes (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ KPMG LLP We have served as the Company’s auditor since 2019. Philadelphia, Pennsylvania March 4, 2024 ​ ​ 107 Table of Contents Passage Bio, Inc. Balance Sheets ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, (in thousands, except share and per share data) ​ 2023 ​ 2022 Assets ​ ​ ​ ​ Current assets: ​ ​ ​ ​ Cash and cash equivalents ​ $ 21,709 ​ $ 34,601 Marketable securities ​ ​ 92,585 ​ ​ 155,009 Prepaid expenses and other current assets ​ 923 ​ 926 Prepaid research and development ​ 2,742 ​ 6,508 Total current assets ​ 117,959 ​ 197,044 Property and equipment, net ​ 15,295 ​ 22,515 Right of use assets - operating leases ​ ​ 16,858 ​ 19,723 Other assets ​ 433 ​ 4,267 Total assets ​ $ 150,545 ​ $ 243,549 Liabilities and stockholders’ equity ​ ​ ​ ​ Current liabilities: ​ ​ ​ ​ Accounts payable ​ $ 1,298 ​ $ 4,065 Accrued expenses and other current liabilities ​ 11,670 ​ 11,011 Operating lease liabilities ​ ​ 3,373 ​ 3,275 Total current liabilities ​ 16,341 ​ 18,351 Operating lease liabilities - noncurrent ​ 22,921 ​ 23,832 Total liabilities ​ 39,262 ​ 42,183 ​ ​ ​ ​ ​ ​ ​ Commitments and contingencies (note 10) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Stockholders’ equity: ​ ​ ​ ​ Preferred stock, $ 0.0001 par value: 10,000,000 shares authorized; no shares issued and outstanding at both December 31, 2023 and December 31, 2022 ​ ​ — ​ ​ — Common stock, $ 0.0001 par value: 300,000,000 shares authorized; 54,944,130 shares issued and outstanding at December 31, 2023 and 54,614,690 shares issued and outstanding at December 31, 2022 ​ 5 ​ 5 Additional paid‑in capital ​ 705,789 ​ 694,733 Accumulated other comprehensive income (loss) ​ ​ ( 43 ) ​ ​ ( 966 ) Accumulated deficit ​ ( 594,468 ) ​ ( 492,406 ) Total stockholders’ equity ​ 111,283 ​ 201,366 Total liabilities and stockholders’ equity ​ $ 150,545 ​ $ 243,549 ​ See accompanying notes to financial statements. ​ 108 Table of Contents Passage Bio, Inc. Statements of Operations and Comprehensive Loss ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, (in thousands, except share and per share data) ​ 2023 ​ 2022 Operating expenses: ​ ​ ​ ​ ​ Research and development ​ $ 61,419 ​ $ 86,053 Acquired in‑process research and development ​ — ​ 3,000 General and administrative ​ 41,580 ​ 49,341 Impairment of long-lived assets ​ ​ 5,390 ​ ​ — Loss from operations ​ ( 108,389 ) ​ ( 138,394 ) Other income (expense), net ​ 6,327 ​ 2,269 Net loss ​ $ ( 102,062 ) ​ $ ( 136,125 ) Per share information: ​ ​ ​ ​ Net loss per share of common stock, basic and diluted ​ $ ( 1.86 ) ​ $ ( 2.50 ) Weighted average common shares outstanding, basic and diluted ​ 54,743,490 ​ 54,429,023 Comprehensive loss: ​ ​ ​ ​ ​ ​ Net loss ​ $ ( 102,062 ) ​ $ ( 136,125 ) Unrealized gain (loss) on marketable securities ​ ​ 923 ​ ​ ( 553 ) Comprehensive loss ​ $ ( 101,139 ) ​ $ ( 136,678 ) ​ See accompanying notes to financial statements. ​ ​ 109 Table of Contents Passage Bio, Inc. Statements of Stockholders’ Equity (in thousands, except share data) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Common stock ​ Additional ​ ​ Accumulated other ​ ​ Accumulated ​ ​ ​ (in thousands, except share data) ​ Shares ​ Amount ​ paid ‑ in capital ​ ​ comprehensive income (loss) ​ ​ deficit ​ Total Balance at January 1, 2022 54,244,996 ​ $ 5 $ 675,346 ​ $ ( 413 ) ​ $ ( 356,281 ) ​ $ 318,657 Exercise of stock options and vesting of restricted stock units ​ 165,223 ​ ​ — ​ 129 ​ ​ — ​ ​ — ​ ​ 129 Issuance of shares in connection with employee stock purchase plan ​ 204,471 ​ ​ — ​ 304 ​ ​ — ​ ​ — ​ ​ 304 Unrealized gain (loss) on marketable securities ​ — ​ ​ — — ​ ​ ( 553 ) ​ ​ — ​ ​ ( 553 ) Share‑based compensation expense — ​ ​ — ​ 18,954 ​ ​ — ​ ​ — ​ ​ 18,954 Net loss — ​ ​ — ​ — ​ ​ — ​ ​ ( 136,125 ) ​ ​ ( 136,125 ) Balance at December 31, 2022 54,614,690 ​ $ 5 $ 694,733 ​ $ ( 966 ) ​ $ ( 492,406 ) ​ $ 201,366 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Common stock ​ Additional ​ ​ Accumulated other ​ ​ Accumulated ​ ​ ​ (in thousands, except share data) ​ Shares ​ Amount ​ paid ‑ in capital ​ ​ comprehensive income (loss) ​ ​ deficit ​ Total Balance at January 1, 2023 54,614,690 ​ $ 5 $ 694,733 ​ $ ( 966 ) ​ $ ( 492,406 ) ​ $ 201,366 Exercise of stock options and vesting of restricted stock units 141,534 ​ — — ​ — ​ — ​ — Issuance of shares in connection with employee stock purchase plan ​ 187,906 ​ ​ — ​ 135 ​ ​ — ​ ​ — ​ ​ 135 Unrealized gain (loss) on marketable securities — ​ — — ​ 923 ​ — ​ 923 Share‑based compensation expense — ​ — 10,921 ​ — ​ — ​ 10,921 Net loss — ​ — — ​ — ​ ( 102,062 ) ​ ( 102,062 ) Balance at December 31, 2023 54,944,130 ​ $ 5 $ 705,789 ​ $ ( 43 ) ​ $ ( 594,468 ) ​ $ 111,283 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ See accompanying notes to financial statements. ​ ​ 110 Table of Contents Passage Bio, Inc. Statements of Cash Flows ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ December 31, (in thousands) ​ 2023 ​ 2022 Cash flows used in operating activities: ​ ​ ​ ​ Net loss ​ $ ( 102,062 ) ​ $ ( 136,125 ) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: ​ ​ ​ ​ Depreciation and amortization ​ 3,721 ​ 3,679 Share‑based compensation ​ 10,921 ​ 18,954 Amortization of premium and discount on marketable securities, net ​ ​ ( 2,036 ) ​ ​ 773 Loss on disposal of property and equipment ​ 463 ​ — Impairment of long-lived assets ​ ​ 5,390 ​ — Acquired in‑process research and development ​ — ​ 3,000 Changes in operating assets and liabilities: ​ ​ ​ ​ Prepaid expenses and other current assets, and other assets ​ 3,837 ​ 2,737 Prepaid research and development ​ 3,766 ​ 1,059 Right of use assets and operating lease liabilities ​ ​ ( 133 ) ​ ​ 463 Accounts payable ​ ( 2,790 ) ​ ( 5,412 ) Accrued expenses and other current and noncurrent liabilities ​ 659 ​ ( 7,338 ) Net cash provided by (used in) operating activities ​ ( 78,264 ) ​ ( 118,210 ) Cash flows provided by (used in) investing activities: ​ ​ ​ ​ Purchases of marketable securities ​ ( 129,432 ) ​ ( 157,835 ) Sales or maturities of marketable securities ​ 194,815 ​ 188,308 Purchases of property and equipment ​ ( 146 ) ​ ( 2,274 ) Purchases of technology licenses ​ — ​ ( 3,000 ) Net cash provided by (used in) investing activities ​ 65,237 ​ 25,199 Cash flows provided by (used in) financing activities: ​ ​ ​ ​ Proceeds from the exercise of stock options ​ — ​ 129 Proceeds from the issuance of common stock under employee stock purchase plan ​ ​ 135 ​ ​ 304 Payments for insurance premium financing ​ ​ — ​ ​ ( 1,786 ) Net cash provided by (used in) financing activities ​ 135 ​ ( 1,353 ) Net increase (decrease) in cash and cash equivalents ​ ( 12,892 ) ​ ( 94,364 ) Cash and cash equivalents at beginning of year ​ 34,601 ​ 128,965 Cash and cash equivalents at end of year ​ $ 21,709 ​ $ 34,601 Supplemental disclosure of non‑cash investing and financing activities: ​ ​ ​ ​ Unrealized gain (loss) on marketable securities ​ $ 923 ​ $ ( 553 ) Property and equipment in accounts payable and accrued expenses and other current liabilities ​ $ 23 ​ $ 114 Right of use assets recognized upon the adoption of Topic 842 ​ $ — ​ $ ( 20,375 ) Operating lease liabilities recognized upon the adoption of Topic 842 ​ $ — ​ $ 27,296 ​ See accompanying notes to financial statements. ​ ​ 111 Table of Contents Passage Bio, Inc. Notes to Financial Statements 1. Nature of Operations Passage Bio, Inc., or the Company, a Delaware corporation incorporated in July 2017, is a clinical stage genetic medicines company on a mission to improve the lives of patients with neurodegenerative diseases. The Company’s primary focus is the development and advancement of cutting-edge, one-time therapies designed to target the underlying pathology of these conditions. The Company has a strategic research collaboration with the Trustees of the University of Pennsylvania’s, or Penn, Gene Therapy Program, or GTP. Through this collaboration, the Company has developed its lead clinical product candidate, PBFT02, for the treatment of frontotemporal dementia, or FTD, caused by progranulin deficiency, or FTD- GRN , which seeks to elevate progranulin levels to restore lysosomal function and slow disease progression. 2. Risks and Liquidity The Company has incurred recurring losses and negative cash flows from operations since inception and had an accumulated deficit of $ 594.5 million as of December 31, 2023. 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. The Company’s operations have consisted primarily of conducting preclinical studies, developing licensed technology, conducting clinical trials, and manufacturing clinical supply to support 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 and 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 revenue from product sales. The Company plans to seek additional funding through public or private equity offerings, debt financings, other collaborations, strategic alliances and licensing arrangements. The Company may 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 or prospects of funding are unfavorable, the Company could be required to further delay, reduce or eliminate research and development programs, product portfolio expansion or future commercialization efforts, which could adversely affect its business prospects. In accordance with Accounting Standards Update, or ASU, No. 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern , the Company has evaluated whether there are certain conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued. As of the issuance date of these financial statements, the Company expects that its cash, cash equivalents and marketable debt securities will be sufficient to fund its forecasted operating expenses and capital expenditure requirements for at least the next twelve months from the issuance date of these financial statements. 112 Table of Contents Passage Bio, Inc. Notes to Financial Statements (cont.) 3. Summary of Significant Accounting Policies Basis of Presentation The accompanying financial statements have been prepared in accordance with generally accepted accounting principles in the United States, or GAAP. Any reference in these notes to applicable guidance is meant to refer to GAAP as found in the Accounting Standards Codification, or ASC, and Accounting Standards Updates promulgated by the Financial Accounting Standards Board, or FASB. 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 and cash equivalents, and marketable securities. The Company maintains a deposit account in a federally insured financial institution in excess of federally insured limits. The Company also maintains a money market account in a federally insured financial institution 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 and cash equivalents beyond the normal credit risk associated with commercial banking relationships. The Company maintains a portfolio of marketable debt securities, which is diversified to limit exposure related to counterparty risk, industry risk, and security type risk. The Company maintains an investment policy which dictates the allocation of funds within its portfolio of marketable debt securities. The Company has not experienced any material losses in such portfolio. Segment Information Operating segments are defined as components of an enterprise about which separate discrete information is available for evaluation by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. The Company views its operations and manages its business in one segment. 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 December 31, 2023 consisted of money market funds, commercial paper, and corporate debt securities. Cash consists of cash deposits at banking institutions. 113 Table of Contents Passage Bio, Inc. Notes to Financial Statements (cont.) Marketable securities The Company classifies its marketable securities as available-for-sale, which include commercial paper, certificates of deposit, corporate debt securities, United States, or U.S., government debt securities and U.S. government agency 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 income (loss) within stockholders’ equity. Any premium or discount arising at purchase of debt securities is amortized and/or accreted over the term of the security to other income (expense), net. Gains or losses on marketable securities sold are recognized as a component of other income (expense), net in the statement of operations and comprehensive loss on the specific identification method. All marketable securities are available for use, as needed, to fund operations and therefore, the Company classifies all marketable securities as current assets within the balance sheet. Property and Equipment, net Property and equipment consists of laboratory equipment, office equipment, computer hardware and software, furniture and fixtures, and leasehold improvements and are recorded at cost. Maintenance and repairs that do not improve or extend the lives of the respective assets are expensed as incurred. Property and equipment are depreciated on a straight-line basis over their estimated useful lives. The Company estimates useful life on an asset by asset basis, which generally consists of three years for computer hardware and software, five years for office equipment, five years for laboratory equipment, and seven years for furniture and fixtures. Leasehold improvements are amortized over the shorter of the lease term or the estimated useful life of the asset. When property is retired or otherwise disposed of, the costs and accumulated depreciation are removed from the respective accounts, with any resulting gain or loss recognized concurrently. In the year ended December 31, 2023, the Company recognized losses on disposals of property and equipment of $ 0.5 million within research and development expenses, compared to none in the year ended December 31, 2022. The Company reviews long-lived assets, such as property and equipment, for impairment when events or changes in circumstances indicate the carrying amount of the assets may not be recoverable. During the year ended December 31, 2023, the Company recognized impairment expenses for property and equipment of $ 3.2 million, compared to none in the year ended December 31, 2022. These impairment expenses represent the proportional allocation of total impairments recognized for the asset groups subject to impairment testing in connection with the Company’s sublease agreements, as further described in Note 9. Leasing The Company evaluates leases at their inception to determine if they are an operating lease or a finance lease. As of December 31, 2023, the Company has classified all leases with terms greater than one year, as operating leases. The Company recognizes assets and liabilities for operating leases at their inception, based on the present value of all payments due under the lease agreement. The Company uses its incremental borrowing rate to determine the present value of operating leases, which is determined by referencing collateralized borrowing rates for debt instruments with terms similar to the respective lease. The Company utilizes the accounting policy election to not separate lease and non-lease components and the accounting policy election to not apply the recognition requirement to leases with a term of twelve months or less. The Company reviews long-lived assets, such as right of use assets, for impairment when events or changes indicate the carrying amount of the right of use assets may not be recoverable. During the year ended December 31, 2023, the Company recognized impairment expenses for right of use assets of $ 2.2 million, compared to none in the year ended December 31, 2022. These impairment expenses represent the proportional allocation of total impairments recognized 114 Table of Contents Passage Bio, Inc. Notes to Financial Statements (cont.) for the asset groups subject to impairment testing in connection with the Company’s sublease agreements, as further described in Note 9. Share-based compensation The Company measures share-based awards at grant-date fair value and records compensation expense on a straight-line basis over the vesting period of the awards. The Company’s share-based compensation consists of restricted stock units, or RSUs, and options to purchase common stock, or stock option awards. The Company uses the Black-Scholes option pricing model to value its stock option awards. Estimating the fair value of stock option awards requires the input of assumptions, including, the expected term of stock options, and stock price volatility. 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 a composite of comparable public company data as a basis for its expected volatility to calculate the fair value of option grants. The selection of comparable public company data requires the application of management’s judgement. The Company accounts for forfeitures of RSUs and stock option awards as they occur. Research and Development Research and development costs are expensed as incurred and consist primarily of expenses incurred with GTP, contract research organizations, contract manufacturing organizations, internal analytical and testing activities, and employee-related expenses, including salaries, benefits, and share-based compensation. Management makes estimates of the Company’s external accrued research and development expenses, which primarily relates to contract research organizations and contract manufacturing organizations, as of each balance sheet date in the Company’s financial statements based on an estimate of progress to completion of specific tasks using facts and circumstances known to the Company at that time. The Company determines the estimates by reviewing contracts, vendor agreements, change orders, and through discussions with the Company’s internal clinical personnel and external service providers as to the progress to completion of services and the agreed-upon fee to be paid for such services. If the actual timing of the performance of services or the level of effort varies from the estimate, the Company will adjust the accrual and related expenses accordingly. Acquired In-Process Research and Development Fees paid to obtain research and development technology licenses are recognized as acquired in-process research and development expense if the research and development technology licensed has not reached technological feasibility and has no alternative future use. For the year ended December 31, 2022, all fees paid to obtain technology licenses were recognized as acquired in-process research and development expense. No fees were paid during the year ended December 31, 2023. 115 Table of Contents Passage Bio, Inc. Notes to Financial Statements (cont.) Other Income (Expense), net Other income (expense), net consists of interest earned on the Company’s cash equivalents and marketable securities, and amortization of premium and discount on our marketable securities. Additionally, in the year ended December 31, 2023, the Company recognized other income related to the sale of certain tax credits. The Company recorded $ 6.3 million to other income (expense), net for the year ended December 31, 2023, which consisted of $ 5.6 million attributable to interest income and the amortization of premium and discount on the Company’s marketable securities, and $ 0.7 million related to the sale of certain tax credits. The Company recorded $ 2.3 million to other income (expense), net for the year ended December 31, 2022, which consisted of $ 2.3 million attributable to interest income and the amortization of premium and discount on the Company’s marketable securities.. Income Taxes Income taxes are accounted for under the asset-and-liability method as required by FASB ASC Topic 740, Income Taxes (ASC 740). Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period corresponding to the enactment date. Under ASC 740, a valuation allowance is required when it is more likely than not all or some portion of the deferred tax assets will not be realized through generating sufficient future taxable income. FASB ASC Subtopic 740-10, Accounting for Uncertainty of Income Taxes , (ASC 740-10) defines the criterion an individual tax position must meet for any part of the benefit of the tax position to be recognized in financial statements prepared in conformity with GAAP. The Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not such tax position will be sustained on examination by the taxing authorities, based solely on the technical merits of the respective tax position. The tax benefits recognized in the financial statements from such a tax position should be measured based on the largest benefit having a greater than 50% likelihood of being realized upon ultimate settlement with the tax authority. In accordance with the disclosure requirements of ASC 740-10, the Company’s policy on statement of operations classification of interest and penalties related to income tax obligations is to include such items as part of total interest income, net, within other income (expense), net. 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 stock options, 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. 116 Table of Contents Passage Bio, Inc. Notes to Financial Statements (cont.) 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: ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ ​ 2023 ​ 2022 Stock options ​ 9,290,308 11,411,390 Unvested restricted stock units ​ 927,000 ​ 1,229,166 Employee stock purchase plan ​ 33,520 ​ 26,680 ​ ​ 10,250,828 12,667,236 ​ Recently Adopted Accounting Pronouncements In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments , or 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 was effective for the Company starting in fiscal year 2023. The Company adopted ASU 2016-13 as of January 1, 2023, which did not have a material impact on its financial statements. In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures , or ASU 2023-07, which expands segment disclosures by requiring disclosure of significant segment expenses that are regularly provided to the chief operating decision maker and included within each reported measure of segment profit or loss, an amount and description of its composition for other segment items, and interim disclosures of a reportable segment’s profit or loss and assets. The disclosures required under ASU 2023-07 are also required for public entities with a single reportable segment. ASU 2023-07 is effective for the Company’s first fiscal year beginning after December 15, 2023 and for interim periods within the Company’s first fiscal year beginning after December 15, 2024, with early adoption permitted. The Company does not expect the adoption of ASU 2023-07 to have a material impact on its financial statements or disclosures. In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures , or ASU 2023-09, which requires that an entity, on an annual basis, disclose additional income tax information, primarily related to the rate reconciliation and income taxes paid. The amendments in ASU 2023-09 are intended to enhance the transparency and decision usefulness of income tax disclosures. The amendments in this ASU are effective for annual periods beginning after December 15, 2024 with early adoption permitted. The Company is currently evaluating the impact of this guidance on disclosures. ​ 117 Table of Contents Passage Bio, Inc. Notes to Financial Statements (cont.) 4. Cash, Cash Equivalents and Marketable Securities The following table provides details regarding the Company’s portfolio of cash and cash equivalents: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cost or ​ ​ ​ ​ ​ ​ ​ ​ ​ (in thousands) ​ Amortized cost ​ Unrealized gains ​ Unrealized losses ​ Fair value December 31, 2023: ​ ​ ​ ​ ​ ​ ​ ​ Cash accounts in banking institutions ​ $ 3,596 ​ $ - ​ $ - ​ $ 3,596 Money market funds ​ ​ 13,763 ​ ​ - ​ ​ - ​ ​ 13,763 Commercial paper ​ ​ 2,670 ​ ​ - ​ ​ - ​ ​ 2,670 Corporate debt securities ​ ​ 1,680 ​ ​ - ​ ​ - ​ ​ 1,680 Total ​ $ 21,709 ​ $ - ​ $ - ​ $ 21,709 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2022: ​ ​ ​ ​ ​ ​ ​ ​ Cash accounts in banking institutions ​ $ 7,532 ​ $ - ​ $ - ​ $ 7,532 Money market funds ​ ​ 24,578 ​ ​ - ​ ​ - ​ ​ 24,578 Commercial paper ​ ​ 2,491 ​ ​ - ​ ​ - ​ ​ 2,491 Total ​ $ 34,601 ​ $ - ​ $ - ​ $ 34,601 ​ ​ The following table provides details regarding the Company’s portfolio of marketable securities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (in thousands) ​ Amortized cost ​ Unrealized gains ​ Unrealized losses ​ Fair value December 31, 2023: ​ ​ ​ ​ ​ ​ ​ ​ Certificates of deposit ​ $ 10,950 ​ $ 6 ​ $ - ​ $ 10,956 Commercial paper ​ ​ 34,601 ​ ​ 9 ​ ​ ( 4 ) ​ ​ 34,606 Corporate debt securities ​ ​ 22,940 ​ ​ 8 ​ ​ ( 8 ) ​ ​ 22,940 U.S. government securities ​ ​ 16,049 ​ ​ 0 ​ ​ ( 44 ) ​ ​ 16,005 U.S. government agency securities ​ ​ 8,088 ​ ​ - ​ ​ ( 10 ) ​ ​ 8,078 Total ​ $ 92,628 ​ $ 23 ​ $ ( 66 ) ​ $ 92,585 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2022: ​ ​ ​ ​ ​ ​ ​ ​ Certificates of deposit ​ $ 28,197 ​ $ 6 ​ $ ( 92 ) ​ $ 28,111 Commercial paper ​ ​ 58,572 ​ ​ 12 ​ ​ ( 72 ) ​ ​ 58,512 Corporate debt securities ​ ​ 67,206 ​ ​ 1 ​ ​ ( 786 ) ​ ​ 66,421 U.S. government securities ​ ​ 2,000 ​ ​ - ​ ​ ( 35 ) ​ ​ 1,965 Total ​ $ 155,975 ​ $ 19 ​ $ ( 985 ) ​ $ 155,009 ​ S ​ ​ The contractual maturities of the Company’s marketable securities as of December 31, 2023, are as follows: ​ ​ ​ ​ ​ ​ ​ ​ (in thousands) ​ Amortized Cost ​ Fair Value Due within one year ​ $ 85,292 ​ $ 85,285 Due after one year through five years ​ ​ 7,336 ​ ​ 7,300 Total ​ $ 92,628 ​ $ 92,585 ​ ​ ​ ​ 118 Table of Contents 5. Fair Value of Financial Instruments and Non-Financial Instruments 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). 119 Table of Contents Passage Bio, Inc. Notes to Financial Statements (cont.) The following fair value hierarchy table presents information about the Company’s assets measured at fair value on a recurring basis. Included within cash and cash equivalents on the balance sheet, but excluded from the fair value hierarchy table, are cash deposits held at financial institutions: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 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) December 31, 2023: ​ ​ ​ ​ ​ ​ Assets ​ ​ ​ ​ ​ ​ Cash equivalents: ​ ​ ​ ​ ​ ​ ​ ​ ​ Money market funds ​ $ 13,763 ​ $ - ​ $ - Commercial paper ​ ​ - ​ ​ 2,670 ​ ​ - Corporate debt securities ​ ​ - ​ ​ 1,680 ​ ​ - Total cash equivalents ​ ​ 13,763 ​ ​ 4,350 ​ ​ - ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Marketable securities: ​ ​ ​ ​ ​ ​ ​ ​ ​ Certificates of deposit ​ ​ - ​ ​ 10,956 ​ ​ - Commercial paper ​ ​ - ​ ​ 34,606 ​ ​ - Corporate debt securities ​ ​ - ​ ​ 22,940 ​ ​ - U.S. government securities ​ ​ - ​ ​ 16,005 ​ ​ - U.S. government agency securities ​ ​ - ​ ​ 8,078 ​ ​ - Total marketable securities ​ ​ - ​ ​ 92,585 ​ ​ - Total financial assets ​ $ 13,763 ​ $ 96,935 ​ $ - ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2022: ​ ​ ​ ​ ​ ​ ​ ​ ​ Assets ​ ​ ​ ​ ​ ​ Cash equivalents: ​ ​ ​ ​ ​ ​ ​ ​ ​ Money market funds ​ $ 24,578 ​ $ - ​ $ - Commercial paper ​ ​ - ​ ​ 2,491 ​ ​ - Total cash equivalents ​ ​ 24,578 ​ ​ 2,491 ​ ​ - ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Marketable securities: ​ ​ ​ ​ ​ ​ ​ ​ ​ Certificates of deposit ​ ​ - ​ ​ 28,111 ​ ​ - Commercial paper ​ ​ - ​ ​ 58,512 ​ ​ - Corporate debt securities ​ ​ - ​ ​ 66,421 ​ ​ - U.S. government securities ​ ​ - ​ ​ 1,965 ​ ​ - Total marketable securities ​ ​ - ​ ​ 155,009 ​ ​ - Total financial assets ​ $ 24,578 ​ $ 157,500 ​ $ - ​ ​ Non-Financial Instruments ​ Long-lived non-financial assets are measured at fair value on a nonrecurring basis for purposes of calculating impairment using Level 3 inputs as defined in the fair value hierarchy. The fair value of long-lived assets using Level 3 inputs is determined by estimating the amount and timing of net future cash flows (which are unobservable inputs) and discounting them using a risk-adjusted rate of interest. Significant increases or decreases in actual cash flows may result in valuation changes. ​ 120 Table of Contents Passage Bio, Inc. Notes to Financial Statements (cont.) The following non-financial instruments were measured at fair value, on a nonrecurring basis, during the year ended December 31, 2023. The significant assumptions utilized, which relate to future net cash flows, are further described in Note 9: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (in thousands) ​ Level 1 ​ Level 2 ​ Level 3 ​ Impairment Losses Property and equipment, net $ - $ - $ 1,306 $ 3,205 Right of use assets ​ - ​ - ​ 903 ​ 2,185 Total $ - $ - $ 2,209 $ 5,390 ​ ​ ​ ​ 6. Property and Equipment, net Property and equipment, net, consist of the following: ​ ​ ​ ​ ​ ​ ​ (in thousands) ​ December 31, 2023 ​ December 31, 2022 Laboratory equipment $ 10,065 ​ $ 9,972 Office equipment ​ 119 ​ ​ 601 Computer hardware and software ​ 1,077 ​ ​ 1,090 Furniture and fixtures ​ 419 ​ ​ 1,208 Leasehold improvements ​ 10,213 ​ ​ 13,506 Construction in progress ​ 638 ​ ​ 1,291 Total property and equipment ​ 22,531 ​ ​ 27,668 Accumulated depreciation and amortization ​ ( 7,236 ) ​ ​ ( 5,153 ) ​ $ 15,295 ​ $ 22,515 ​ ​ ​ ​ Depreciation expense was $ 3.7 million for both of the years ended December 31, 2023 and 2022. ​ ​ 7. Accrued Expenses and Other Current Liabilities Accrued expenses and other current liabilities consisted of the following: ​ ​ ​ ​ ​ ​ ​ ​ (in thousands) ​ December 31, 2023 ​ December 31, 2022 Professional fees ​ $ 1,176 ​ $ 602 Compensation and related benefits ​ 6,636 ​ 8,446 Research and development ​ 1,858 ​ 1,878 Property and equipment ​ ​ — ​ ​ 85 Amount due to Catalent in connection with Amended Catalent Agreements ​ 2,000 ​ — ​ ​ $ 11,670 ​ $ 11,011 ​ ​ 8. Severance In July 2023, the Company announced a workforce reduction to reduce operating expenses and to extend its cash runway. In connection with the announcement, the Company reduced headcount by approximately 26 %. In accordance with ASC 420, Exit and Disposal Activities, the Company recorded severance and termination-related costs of $ 1.0 million in general and administrative expenses and $ 1.4 million in research and development expenses for the year ended December 31, 2023. 121 Table of Contents Passage Bio, Inc. Notes to Financial Statements (cont.) In March 2022 and November 2022, the Company announced workforce reductions and that it has prioritized certain research and development programs to reduce operating expenses and to extend its cash runway. In connection with these announcements, the Company reduced headcount by approximately 13 % and 23 % in March 2022 and November 2022, respectively. In accordance with ASC 420, Exit and Disposal Activities , the Company recorded severance and termination-related costs of $ 3.8 million in general and administrative expenses and $ 2.3 million in research and development expenses for the year ended December 31, 2022. As of December 31, 2023, no severance or termination-related costs were unpaid and recognized in the balance sheet within accrued expenses and other current liabilities. 9. Leases 2005 Market Street Lease Agreement The Company is party to a lease agreement for office space, or the 2005 Market Street Lease Agreement, in Philadelphia, Pennsylvania. Under the 2005 Market Street Lease Agreement, the Company leased approximately 37,000 square feet. The 2005 Market Street Lease Agreement commenced in February 2021 and is expected to expire in December 2031. The Company has an option to extend the term of the 2005 Market Street Lease Agreement by two additional terms of five years each. The Company has an option to early terminate the 2005 Market Street Lease Agreement as of April 2029, given notice is provided to the landlord no less than fifteen months prior to April 2029. The optional extension and termination terms were not recognized as part of the Company’s measurement of the right of use, or ROU, asset and operating lease liability as of December 31, 2023. Sublease Agreement A On August 7, 2023, the Company entered into a sublease agreement with a counterparty, or Sublessee A, to sublease approximately 8,000 square feet of the 2005 Market Street Lease Agreement, or Sublease Agreement A. This sublease term began on November 1, 2023, and continues through March 31, 2029. In the event the Company does not elect its early termination option under the 2005 Market Street Lease Agreement, Sublessee A has an option to extend the sublease agreement through November 30, 2031. The base sublease rent is $ 12,426 per month and increases by 2.75 % annually through the expiration of the agreement. Additionally, Sublessee A is required to pay the portion of the common area maintenance expenses, operating expenses and use and occupancy taxes which the Company is required to pay under the 2005 Market Street Lease Agreement. Pursuant to ASC 842, the Company concluded the sublease is a separate lease, as the Company was not relieved of the primary obligation under the 2005 Market Street Lease Agreement. The Company continues to account for the 2005 Market Street Lease Agreement as a lessee and in the same manner as prior to the execution of Sublease Agreement A. The Company accounted for Sublease Agreement A as the lessor, and concluded the lease qualified as an operating lease, as it did not meet the criteria of a sales-type or direct financing lease. As a result of Sublease Agreement A, the Company determined an impairment indicator was present. The Company compared the estimated undiscounted cash flows to the carrying value of the asset group, which includes right of use assets, leasehold improvements, and other property and equipment allocable to Sublease Agreement A. The Company concluded the carrying value of the asset group was not recoverable as it exceeded the estimated undiscounted cash flows. The Company calculated the amount of impairment using a discounted cash flow model to calculate the fair value of the asset group which incorporated the net identifiable cash flows for the term of Sublease Agreement A, including an estimate for cash flows in the residual period, and an estimated borrowing rate of a market participant subtenant. ​ 122 Table of Contents Passage Bio, Inc. Notes to Financial Statements (cont.) Sublease Agreement B On September 29, 2023, the Company entered into a sublease agreement with a counterparty, or Sublessee B, to sublease approximately 29,000 square feet of the 2005 Market Street Lease Agreement, or Sublease Agreement B. This sublease term began on March 1, 2024, and continues through August 2026. Sublessee B has an option to extend the term of the sublease agreement through March 31, 2029. The base sublease rent is $ 75,000 per month for the entire term of the sublease. Additionally, Sublessee B is required to pay applicable use and occupancy taxes but is not obligated to make payments for operating expenses and common area maintenance expenses which the Company is required to pay under the 2005 Market Street Lease Agreement. Pursuant to ASC 842, the Company concluded the sublease is a separate lease, as the Company was not relieved of the primary obligation under the 2005 Market Street Lease Agreement. The Company continues to account for the 2005 Market Street Lease Agreement as a lessee and in the same manner as prior to the execution of the Sublease Agreement B. The Company accounted for Sublease Agreement B as the lessor, and concluded the lease qualified as an operating lease, as it did not meet the criteria of a sales-type or direct financing lease. As a result of Sublease Agreement B, the Company determined an impairment indicator was present. The Company compared the estimated undiscounted cash flows to the carrying value of the asset group, which includes right of use assets, leasehold improvements, and other property and equipment allocable to Sublease Agreement B. The Company concluded the carrying value of the asset group was not recoverable as it exceeded the estimated undiscounted cash flows. The Company calculated the amount of impairment using a discounted cash flow model to calculate the fair value of the asset group which incorporated the net identifiable cash flows for the term of Sublease Agreement B, including an estimate for cash flows in the residual period, and an estimated borrowing rate of a market participant subtenant. Based on the analyses for Sublease Agreement A and Sublease Agreement B, the Company recognized impairment expense of $ 5.4 million, including $ 2.2 million for the right of use assets and $ 3.2 million for the property and equipment during the year ended December 31, 2023. Laboratory Lease Agreement The Company is also party to a lease agreement for laboratory space, or the Laboratory Lease Agreement, in Hopewell, New Jersey. The laboratory is focused on state-of-the-art analytical capabilities, assay development and 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 March 2036. The Company has an option to extend the term of the Laboratory Lease Agreement by up to two five-year terms. This option to extend was not recognized as part of the Company's measurement of the ROU asset and operating lease liability as of December 31, 2023. ​ 123 Table of Contents Passage Bio, Inc. Notes to Financial Statements (cont.) The following table summarizes future minimum lease payments for the Company’s lessee operating leases, which comprises of the 2005 Market Street Lease Agreement and the Laboratory Lease Agreement. The below table does not include expected cash inflows related to Sublease Agreement A and Sublease Agreement B, as the Company was not relieved of its primarily obligation under the 2005 Market Street Lease Agreement: ​ ​ ​ ​ ​ (in thousands) ​ ​ ​ 2024 ​ $ 3,553 2025 ​ 3,654 2026 ​ 3,757 2027 ​ 3,863 2028 ​ 3,973 Thereafter ​ 25,706 Total undiscounted lease payments ​ ​ 44,506 Less: imputed interest ​ ​ ( 18,212 ) Total lease liabilities ​ $ 26,294 ​ ​ ​ The following table summarizes lease expense by lease type that was recognized during the years ended December 31, 2023 and 2022: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ Year Ended ($ in thousands) ​ December 31, 2023 ​ December 31, 2022 Operating lease cost ​ $ 3,322 ​ $ 3,316 Variable lease cost ​ ​ 2,053 ​ ​ 1,791 ​ ​ $ 5,375 ​ $ 5,107 ​ ​ ​ ​ ​ The following table shows the weighted average discount rate and weighted average remaining lease term of the operating leases: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ Year Ended ($ in thousands) ​ December 31, 2023 ​ December 31, 2022 Weighted-average discount rate ​ ​ 9.7 % ​ ​ 9.7 % Weighted-average remaining lease term (years) ​ ​ 11.2 ​ ​ 12.2 ​ The cash paid for amounts included in the measurement of our operating lease liabilities for the years ended December 31, 2023 and 2022 were $ 3.5 million and $ 2.9 million, respectively, in operating cash flows. ​ 124 Table of Contents Passage Bio, Inc. Notes to Financial Statements (cont.) 10. Commitments and Contingencies Amended and Restated Research, Collaboration and License Arrangement with Penn The Company has a research, collaboration and licensing agreement with Penn, as amended, or the Penn Agreement, for research and development collaborations and exclusive license rights to patents for certain products and technologies. Under the Penn Agreement, the Company has the option to obtain exclusive licenses to, and to fund, certain research relating to the preclinical development of selected products in research programs in rare monogenic central nervous system, or CNS indications. The Company has eight remaining options available to commence additional licensed programs for CNS indications until August 3, 2026. The Penn Agreement includes an exploratory research program to identify targets and early product candidates in certain agreed upon non-monogenic, non-rare, or large, CNS indications. The initial term of the exploratory research program is three years, or until August 2024, 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, the Company will have the right to further develop and commercialize any gene therapy product candidates specific for those selected targets that arise from the exploratory research programs by exercising one of its remaining eight options. The Company currently does not have any active exploratory research programs. If the Company were to exercise any of the remaining options, it would owe Penn a non-refundable aggregate fee of $ 1.0 million per product indication, with $ 0.5 million due upfront and another $ 0.5 million fee owed upon a further developmental milestone. The Company also funds discovery research conducted by Penn through August 3, 2026 and will receive exclusive rights, subject to certain limitations, to platform 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 for the discovery research is $ 5.0 million annually, paid in quarterly increments of $ 1.3 million through June 2026. The Penn Agreement requires that the Company make payments of up to (i) $ 16.5 million per product candidate for rare, monogenic disorders in the aggregate and (ii) $ 39.0 million per product candidate in the aggregate arising from the exploratory program for 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, the Company is 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. Upon successful commercialization of a product using the licensed technology, the Company is obligated to pay to Penn, on a licensed product-by-licensed product and country-by-country basis, tiered royalties (subject to customary reductions) in the mid-single digits on annual worldwide net sales of such licensed product. In addition, the Company is 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. The agreement will expire on a licensed product-by-licensed product and country-by-country basis upon the later of (i) the expiration of the last valid claim of the licensed patent rights that covers the exploitation of such licensed product in such country, and (ii) the expiration of the royalty period. In addition, the Company will pay a tiered transaction fee of 1 - 2 % of the net proceeds upon certain change of control events. During the year ended December 31, 2023, the Company did not make any payments for acquired in-process research and development. During the year ended December 31, 2022, the Company made payments under the Penn Agreement for acquired in-process research and development of $ 3.0 million related to the achievement of a development milestone. 125 Table of Contents Passage Bio, Inc. Notes to Financial Statements (cont.) Catalent Agreements In June 2019, the Company entered into a collaboration agreement, or the Collaboration Agreement, with Catalent Maryland, a unit of Catalent, Inc., or Catalent. As part of the Collaboration Agreement, the Company was required to pay an annual fee for five years ending in 2025 for the exclusive use of a dedicated clean room suite, or the Clean Room Suite. In April 2020, the Company 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 the Company’s gene therapy product candidates. Under the terms of the Manufacturing and Supply Agreement, Catalent agreed to manufacture batches of drug product for the Company’s gene therapy product candidates at the Clean Room Suite at a Catalent facility provided for in the Collaboration Agreement. The Manufacturing and Supply Agreement provided for a term of five years . The Manufacturing and Supply Agreement also included minimum annual purchase commitments. Under both the Collaboration Agreement and the Manufacturing and Supply Agreement, the Company had 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. On March 31, 2023, the Company entered into certain letter agreements, the Letter Agreements, amending each of (i) the Collaboration Agreement and (ii) the Manufacturing and Supply Agreement, together with the Collaboration Agreement, the Original Catalent Agreements. On November 9, 2023, to supersede and implement the terms of the Letter Agreements, the Company entered into an amended and restated collaboration agreement and an amended and restated manufacturing and supply agreement, together the Amended Catalent Agreements. The Amended Catalent Agreements eliminate the minimum annual purchase obligation and the obligation to pay an annual fee for use of the Clean Room Suite, thereby eliminating the annual minimum commitment of $ 10.6 million per year owed to Catalent through November 2025 under the Original Catalent Agreements. In consideration of this, the Company has an obligation to make aggregate payments to Catalent of $ 6.0 million between June 30, 2023 and May 1, 2024. The Amended Catalent Agreements extend the term of the Original Catalent Agreements until November 6, 2030, and establish a limited exclusive relationship between the Company and Catalent for the manufacture of bulk drug substance and drug product for the Company’s adeno-associated virus delivery therapeutic product candidates for the treatment of FTD and GM1. The limited exclusive relationship under the Amended Catalent Agreements converts to a non-exclusive relationship (i) in the event Catalent fails to meet certain performance standards and (ii) following certain conditional events related to the divestiture by the Company of either FTD or GM1, in which case, if such events occur, the Company would pay Catalent certain fees. In addition, in the event of certain transactions, the Company may terminate the Amended Catalent Agreements for convenience with respect to such products, in which case, the Company would pay to Catalent a certain termination fee. Immediately prior to the execution of the Letter Agreements, the Company had a $ 5.3 million prepaid asset related to upfront payments made to secure the Clean Room Suite. In connection with the Letter Agreements, the Company no longer has exclusive access to the Clean Room Suite at Catalent and, as a result, the Company recognized an expense of $ 5.3 million related to the elimination of the prepaid asset during the year ended December 31, 2023. The Company classified the $ 11.3 million of expenses, which comprises of $ 6.0 million in aggregate payments due to Catalent and the $ 5.3 million elimination of the prepaid asset, as general and administrative expense within the statement of operations for the year ended December 31, 2023, as both amounts do not directly relate to the future advancement of the Company’s research and development programs. 126 Table of Contents Passage Bio, Inc. Notes to Financial Statements (cont.) As of December 31, 2023, the Company made payments of $ 4.0 million under the Amended Catalent Agreements. The remaining $ 2.0 million of aggregate payments due to Catalent under the Amended Catalent Agreements are included in accrued expenses and other current liabilities. Litigation In the normal course of business, the Company from time to time is named as a party to legal claims and actions. The Company records a loss contingency reserve for a legal proceeding when the potential loss is considered probable and can be reasonably estimated. The Company has not recorded any amounts for loss contingencies as of December 31, 2023. The Company is currently a defendant in litigation with a former employee in the Court of Common Pleas of Philadelphia County (Commerce Division), or the Court, relating to a claim of breach of contract and violation of the Pennsylvania Wage Payment and Collection Law. The plaintiff claims that, pursuant to an alleged settlement agreement reached on February 3, 2020, the Company agreed to issue plaintiff 150,000 shares of its common stock and that such shares would not be subject to the reverse stock split implemented by the Company in connection with its initial public offering on February 14, 2020. The plaintiff’s claim is for an amount in the mid-single digit millions of dollars. The Company disagrees with the allegations that there was ever a binding settlement agreement or that any shares would not be subject to the reverse stock split, and the Company believes the plaintiff’s claim is without merit. In October 2023, the Court denied both the Company’s and the plaintiff’s motions for summary judgement and therefore the Company anticipates that this matter will go to trial in 2024. The Company intends to vigorously defend against these claims, and believes it has strong arguments to prevail in the litigation. There can be no assurance that the Company will prevail on its claims. Employment Agreements The Company has entered into employment agreements with certain key personnel providing for up to 18 months of salary continuation, up to 150 % of target annual bonus amounts, and acceleration of vesting in stock-based compensation awards in certain circumstances. 11. Common Stock On March 5, 2021, the Company entered into a Sales Agreement, or the Sales Agreement, with Cowen and Company, LLC, or Cowen, pursuant to which the Company may, but is not obligated to, offer and sell, from time to time, shares of the Company’s 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. ​ 12. Share-Based Compensation Equity Incentive Plan The Company has three equity incentive plans: the 2018 Equity Incentive Plan, as amended, or the 2018 Plan, the 2020 Equity Incentive Plan, or the Incentive Plan, and the 2021 Equity Inducement Plan, or the Inducement Plan. New awards can only be granted under the Incentive Plan and the Inducement Plan. The total number of shares authorized under the Incentive Plan as of December 31, 2023 was 13,101,661 . Additionally, 3,635,337 shares previously issued under the 2018 Plan which were forfeited are available for issuance under the Incentive Plan. As of December 31, 2023, 8,666,526 shares were available for future grants under the Incentive Plan. The number of shares of the Company’s common stock that may be issued pursuant to rights granted under the Incentive 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 127 Table of Contents Passage Bio, Inc. Notes to Financial Statements (cont.) on December 31st of the preceding calendar year, subject to the discretion of the board of directors to determine a lesser number of shares shall be added for such year. As a result, the number of shares reserved for issuance under the Incentive Plan increased by 2,747,206 and 2,730,735 shares in January 2024 and 2023, respectively. The Incentive 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 awarded to date under the Incentive Plan vest based on a requisite service period, generally over four-year periods, and have a term of ten years . The Inducement Plan was approved by the Company’s board of directors in July 2021. The total number of shares authorized under the Inducement Plan as of December 31, 2023 was 2,500,000 , as a result of an increase to the shares authorized for issuance in February 2023. Of this amount, 1,110,300 shares were available for future grants as of December 31, 2023. The Inducement Plan provides for the granting of nonqualified stock options and restricted stock awards to employees hired by the Company, as determined by the Company’s board of directors. The Company’s stock options awarded to date under the Inducement Plan vest based on requisite service period and have a term of ten years . The Company’s restricted stock units awarded to date under the Inducement Plan vest based on requisite service period and have a term based on each award agreement. 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: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, (in thousands) ​ 2023 ​ 2022 Research and development ​ $ 5,554 ​ $ 8,278 General and administrative ​ 5,367 ​ 10,676 ​ ​ $ 10,921 ​ $ 18,954 ​ The following table summarizes stock option activity for the year ended December 31, 2023: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted ​ ​ ​ ​ Weighted ​ average ​ ​ ​ ​ average ​ remaining ​ ​ Number of ​ exercise price ​ contractual ​ ​ shares ​ per share ​ term (years) Outstanding at January 1, 2023 11,411,390 $ 9.01 7.1 Granted 3,409,382 ​ ​ 1.06 Exercised — ​ ​ — Forfeitures ( 3,157,751 ) ​ ​ 7.82 Expirations ​ ( 2,372,713 ) ​ ​ 12.40 ​ ​ Outstanding at December 31, 2023 9,290,308 ​ $ 5.63 8.0 Vested and exercisable at December 31, 2023 5,246,975 ​ $ 7.78 7.5 Vested or expected to vest at December 31, 2023 9,290,308 ​ $ 5.63 8.0 ​ The weighted-average grant date fair value of options granted was $ 0.81 and $ 2.33 for the years ended December 31, 2023 and 2022, respectively. As of December 31, 2023, the total unrecognized compensation expense related to unvested stock option awards was $ 8.4 million, which the Company expects to recognize over a weighted-average period of 1.7 years. 128 Table of Contents Passage Bio, Inc. Notes to Financial Statements (cont.) The fair value of each option was estimated on the date of grant using the weighted average assumptions in the table below: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ ​ 2023 ​ 2022 Expected volatility ​ 92.6 % ​ 92.5 % Risk‑free interest rate ​ 3.6 % ​ 2.8 % Expected term ​ 6.0 years ​ 5.9 years Expected dividend yield ​ — ​ ​ — ​ ​ Restricted Stock Units The Company issues restricted stock units, or RSUs, 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 price of the RSUs is equal to the fair market value of the Company’s common stock on the date of grant. Compensation expense is recognized on a straight-line basis over the vesting period of the RSUs. ​ The following table summarizes activity related to RSU awards during the year ended December 31, 2023: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted average ​ ​ Number of shares ​ grant date fair value Unvested balance at January 1, 2022 ​ 1,229,166 $ 2.98 Granted ​ 195,000 ​ 1.01 Vested ​ ​ ( 141,534 ) ​ ​ 5.23 Forfeited ​ ( 355,632 ) ​ 2.60 Unvested balance at December 31, 2023 ​ 927,000 $ 2.37 ​ As of December 31, 2023, the total unrecognized expense related to all RSUs was $ 0.9 million, which the Company expects to recognize over a weighted-average period of 1.1 years. ​ Employee Stock Purchase Plan The Company’s 2020 Employee Stock Purchase Plan, or the ESPP, became effective on February 28, 2020. The ESPP authorizes the issuance of up to 1,981,766 shares of the Company’s common stock. Of this amount, 1,478,155 were available for future grants as of December 31, 2023. 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 to determine a lesser number of shares shall be added for such year. As a result, on January 1, 2024, subject to the discretion of the board of directors, the shares authorized for issuance under the ESPP was not increased. 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. The offering periods under the ESPP have a duration of six months, with periods ending in May and November of each calendar year. 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 or purchase more than 4,000 shares of the Company’s common stock in any single offering period. 129 Table of Contents Passage Bio, Inc. Notes to Financial Statements (cont.) 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. 13. Income Taxes The tax effects of temporary differences that gave rise to significant portions of the deferred tax assets and liabilities were as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, (in thousands) 2023 2022 Deferred tax assets: ​ ​ Net operating loss carryforwards ​ $ 76,362 ​ $ 64,547 Research and development credits ​ 45,320 ​ 32,068 Collaboration and license agreement ​ 3,748 ​ 4,504 Capitalized research and development ​ ​ 65,170 ​ ​ 65,012 Share-based compensation ​ 6,773 ​ 11,312 Accrued expenses and other ​ 1,430 ​ 1,922 Operating lease liabilities ​ ​ 7,803 ​ ​ 8,900 Total gross deferred tax assets before valuation allowance ​ 206,606 ​ 188,265 Valuation allowance ​ ( 200,774 ) ​ ( 179,843 ) Net deferred tax assets ​ ​ 5,832 ​ ​ 8,422 Deferred tax liabilities: ​ ​ ​ ​ ​ ​ Right of use assets - operating leases ​ ​ ( 5,496 ) ​ ​ ( 7,609 ) Depreciation ​ ​ ( 336 ) ​ ​ ( 813 ) Total deferred tax liabilities ​ ( 5,832 ) ​ ( 8,422 ) Net deferred taxes ​ $ — ​ $ — ​ In assessing the need for a valuation allowance, management must determine that there will be sufficient taxable income to allow for the realization of deferred tax assets. Based upon the historical and anticipated future losses, management has determined that the deferred tax assets do not meet the more-likely-than-not threshold for realizability. Accordingly, a full valuation allowance has been recorded against the Company’s net deferred tax assets as of December 31, 2023 and 2022. The valuation allowance increased by $ 20.9 million and $ 44.8 million during the years ended December 31, 2023 and 2022, respectively. A reconciliation of the federal income tax rate to the Company’s effective tax rate is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended ​ ​ December 31, ​ 2023 ​ 2022 Federal tax benefit at statutory rate 21.0 % ​ 21.0 % State tax, net of federal benefit 5.2 ​ 7.5 ​ Change in state tax rates ​ ( 14.0 ) ​ ​ — ​ Permanent differences ( 1.2 ) ​ ( 2.5 ) ​ Research and development and orphan tax credits 9.5 ​ 6.9 ​ Change in valuation allowance ( 20.5 ) ​ ( 32.9 ) ​ ​ — % ​ — % ​ 130 Table of Contents Passage Bio, Inc. Notes to Financial Statements (cont.) The following table summarizes carryforwards of federal, state and local net operating losses, or NOL, and research and development and orphan drug tax credits: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, (in thousands) 2023 2022 Federal ​ $ 265,458 ​ $ 199,233 State ​ 265,454 ​ 199,230 Local ​ 214,518 ​ 180,859 Research tax credits ​ 45,320 ​ 32,068 ​ For federal income tax purposes, $ 0.3 million of NOL carryforwards expire in 2037. The remaining federal NOL carryforwards were generated subsequent to January 1, 2018, and therefore, are able to be carried forward indefinitely. For state income tax purposes, NOL carryforwards begin expiring in 2037, and expire through 2043. For local income tax purposes related to the city of Philadelphia, NOL carryforwards begin expiring in 2024, and expire through 2043. NOL carryforwards generated prior to 2022 expire after three years, whereas NOL carryforwards generated in 2022 and after expire after 20 years. As of December 31, 2023, the Company also had $ 10.9 million of federal research and development and $ 34.5 million orphan drug tax credit carryforwards that will begin to expire in 2038 and 2040, respectively, unless previously utilized. The NOL and tax credit carryforwards are subject to review and possible adjustment by the Internal Revenue Service and state tax authorities. NOL and tax credit carryforwards may become subject to an annual limitation in the event of certain cumulative changes in the ownership interest of significant stockholders over a three-year period in excess of 50 percent, as defined under Sections 382 and 383 of the Internal Revenue Code, respectively, as well as similar state provisions. This could limit the amount of tax attributes that can be utilized annually to offset future taxable income or tax liabilities. The amount of the annual limitation is determined based on the value of the Company immediately prior to the ownership change. Subsequent ownership changes may further affect the limitation in future years. The Company has not done an analysis to determine whether or not ownership changes have occurred since inception. Certain state NOL carryforwards may also be limited, including Pennsylvania, which limits NOL utilization as a percentage of apportioned taxable income. The Company will recognize interest and penalties related to uncertain tax positions as a component of interest income, net. As of December 31, 2023, the Company had no accrued interest or penalties related to uncertain tax positions and no amounts have been recognized in the Company’s statement of operations. Tax years from 2020 and after remain subject to examination by the taxing jurisdictions. The NOL and tax credit carryforwards remain subject to review until utilized. 14. Subsequent Events None. ​ 131 Table of Contents Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.