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 ) ​ 108 Balance Sheets ​ 109 Statements of Operations and Comprehensive Loss ​ 110 Statements of Stockholders’ Equity ​ 111 Statements of Cash Flows ​ 112 Notes to Financial Statements ​ 113 ​ ​ ​ 107 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, 2024 and 2023, 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, 2024 and 2023, 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, 2025 ​ ​ 108 Table of Contents Passage Bio, Inc. Balance Sheets ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, (in thousands, except share and per share data) 2024 2023 Assets ​ ​ Current assets: ​ ​ Cash and cash equivalents ​ $ 37,573 ​ $ 21,709 Marketable securities ​ ​ 39,183 ​ ​ 92,585 Prepaid expenses and other current assets ​ 838 ​ 923 Prepaid research and development ​ 1,221 ​ 2,742 Total current assets ​ 78,815 ​ 117,959 Property and equipment, net ​ 9,331 ​ 15,295 Right of use assets - operating leases ​ ​ 13,803 ​ 16,858 Other assets ​ 463 ​ 433 Total assets ​ $ 102,412 ​ $ 150,545 Liabilities and stockholders’ equity ​ ​ ​ Current liabilities: ​ ​ ​ Accounts payable ​ $ 742 ​ $ 1,298 Accrued expenses and other current liabilities ​ 6,707 ​ 11,670 Non-refundable sublicense and transition services payments received ​ ​ 8,226 ​ ​ — Operating lease liabilities ​ ​ 3,688 ​ 3,373 Total current liabilities ​ 19,363 ​ 16,341 Operating lease liabilities - noncurrent ​ 21,788 ​ 22,921 Total liabilities ​ 41,151 ​ 39,262 ​ ​ ​ ​ ​ ​ ​ 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, 2024 and December 31, 2023 ​ ​ — ​ ​ — Common stock, $ 0.0001 par value: 300,000,000 shares authorized; 62,061,774 shares issued and outstanding at December 31, 2024 and 54,944,130 shares issued and outstanding at December 31, 2023 ​ 6 ​ 5 Additional paid‑in capital ​ 720,482 ​ 705,789 Accumulated other comprehensive income (loss) ​ ​ 8 ​ ​ ( 43 ) Accumulated deficit ​ ( 659,235 ) ​ ( 594,468 ) Total stockholders’ equity ​ 61,261 ​ 111,283 Total liabilities and stockholders’ equity ​ $ 102,412 ​ $ 150,545 ​ See accompanying notes to financial statements. ​ 109 Table of Contents Passage Bio, Inc. Statements of Operations and Comprehensive Loss ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, (in thousands, except share and per share data) ​ 2024 2023 Operating expenses: ​ ​ ​ Research and development ​ $ 40,179 ​ $ 61,419 General and administrative ​ 24,988 ​ 41,580 Impairment of long-lived assets ​ ​ 5,233 ​ ​ 5,390 Loss from operations ​ ( 70,400 ) ​ ( 108,389 ) Other income (expense), net ​ 5,633 ​ 6,327 Net loss ​ $ ( 64,767 ) ​ $ ( 102,062 ) Per share information: ​ ​ Net loss per share of common stock, basic and diluted ​ $ ( 1.07 ) ​ $ ( 1.86 ) Weighted average common shares outstanding, basic and diluted ​ 60,405,036 ​ 54,743,490 Comprehensive loss: ​ ​ ​ ​ ​ ​ Net loss ​ $ ( 64,767 ) ​ $ ( 102,062 ) Unrealized gain (loss) on marketable securities ​ ​ 51 ​ ​ 923 Comprehensive loss ​ $ ( 64,716 ) ​ $ ( 101,139 ) ​ See accompanying notes to financial statements. ​ ​ 110 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, 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 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 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, 2024 54,944,130 ​ $ 5 $ 705,789 ​ $ ( 43 ) ​ $ ( 594,468 ) ​ $ 111,283 Issuance of common stock under the ATM Facility, net of offering costs ​ 6,000,000 ​ ​ 1 ​ 8,741 ​ ​ — ​ ​ — ​ ​ 8,742 Exercise of stock options and vesting of restricted stock units 912,924 ​ — 35 ​ — ​ — ​ 35 Issuance of shares in connection with employee stock purchase plan ​ 204,720 ​ ​ — ​ 97 ​ ​ — ​ ​ — ​ ​ 97 Unrealized gain (loss) on marketable securities — ​ — — ​ 51 ​ — ​ 51 Share‑based compensation expense — ​ — 5,820 ​ — ​ — ​ 5,820 Net loss — ​ — — ​ — ​ ( 64,767 ) ​ ( 64,767 ) Balance at December 31, 2024 62,061,774 ​ $ 6 $ 720,482 ​ $ 8 ​ $ ( 659,235 ) ​ $ 61,261 ​ See accompanying notes to financial statements. ​ ​ 111 Table of Contents Passage Bio, Inc. Statements of Cash Flows ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ December 31, (in thousands) 2024 2023 Cash flows used in operating activities: ​ ​ Net loss ​ $ ( 64,767 ) ​ $ ( 102,062 ) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: ​ ​ ​ Depreciation and amortization ​ 3,081 ​ 3,721 Share‑based compensation ​ 5,820 ​ 10,921 Amortization of premium and discount on marketable securities, net ​ ​ ( 1,527 ) ​ ​ ( 2,036 ) Loss on disposal of property and equipment ​ — ​ 463 Impairment of long-lived assets ​ ​ 5,233 ​ 5,390 Changes in operating assets and liabilities: ​ ​ ​ Prepaid expenses and other current assets, and other assets ​ 255 ​ 3,837 Prepaid research and development ​ 1,521 ​ 3,766 Non-refundable sublicense and transition services payments received ​ ​ 8,226 ​ ​ — Right of use assets and operating lease liabilities ​ ​ ( 279 ) ​ ​ ( 133 ) Accounts payable ​ ( 556 ) ​ ( 2,790 ) Accrued expenses and other current liabilities ​ ( 4,963 ) ​ 659 Net cash provided by (used in) operating activities ​ ( 47,956 ) ​ ( 78,264 ) Cash flows provided by (used in) investing activities: ​ ​ Purchases of marketable securities ​ ( 88,170 ) ​ ( 129,432 ) Sales or maturities of marketable securities ​ 143,150 ​ 194,815 Purchases of property and equipment ​ ( 34 ) ​ ( 146 ) Net cash provided by (used in) investing activities ​ 54,946 ​ 65,237 Cash flows provided by (used in) financing activities: ​ ​ Proceeds from issuance of common stock under the ATM Facility, net of offering costs ​ ​ 8,742 ​ ​ — Proceeds from the exercise of stock options ​ 35 ​ — Proceeds from the issuance of common stock under employee stock purchase plan ​ ​ 97 ​ ​ 135 Net cash provided by (used in) financing activities ​ 8,874 ​ 135 Net increase (decrease) in cash and cash equivalents ​ 15,864 ​ ( 12,892 ) Cash and cash equivalents at beginning of year ​ 21,709 ​ 34,601 Cash and cash equivalents at end of year ​ $ 37,573 ​ $ 21,709 Supplemental disclosure of non‑cash investing and financing activities: ​ ​ Unrealized gain (loss) on marketable securities ​ $ 51 ​ $ 923 Property and equipment in accounts payable and accrued expenses and other current liabilities ​ $ — ​ $ 23 Right of use assets recognized upon the commencement of sublease ​ $ ( 422 ) ​ $ — Operating lease liabilities recognized upon the commencement of sublease ​ $ 422 ​ $ — ​ See accompanying notes to financial statements. ​ ​ 112 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 critical underlying pathology in these conditions. The Company’s lead clinical product candidate is 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 $ 659.2 million as of December 31, 2024. 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 the development and manufacturing of 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. On March 5, 2021, the Company entered into a Sales Agreement, or the Sales Agreement, with Cowen and Company, LLC, or Cowen, relating to the applicable terms of at-the-market equity offerings, or the ATM Facility, pursuant to which the Company may, but is not obligated to, offer and sell, from time to time, shares of its common stock with an aggregate offering price up to $ 125.0 million through Cowen, as sales agent in the ATM Facility. The Company issued 6,000,000 shares of common stock under the ATM Facility, resulting in net proceeds of $ 8.7 million, after deducting offering costs of $ 0.3 million in March 2024. As a result of the Company’s public float as of January 6, 2025, the Company is currently limited to $ 15.8 million in its capacity to offer and sell shares of its common stock under the Sales Agreement pursuant to its shelf registration statement on Form S-3, filed on March 4, 2024. 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 the Financial Accounting Standards Board’s, or FASB, 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 12 months from the issuance date of these financial statements. 113 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 ASU 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 revenue and expenses during the reporting period. Actual results could differ from those estimates. Estimates and assumptions are periodically reviewed, and the effects of the revisions are reflected in the accompanying financial statements in the period they are determined to be necessary. Fair Value of Financial Instruments Management believes that the carrying amounts of the Company’s financial instruments, including cash equivalents, prepaid expenses, and accounts payable, approximate fair value due to the short-term nature of those instruments. Concentration of Credit Risk Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash, cash equivalents, and marketable securities. The Company maintains 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. 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, 2024 consisted of various securities described in Note 4. Cash consists of cash deposits at banking institutions. Marketable Securities The Company classifies its marketable securities with original maturities of greater than three months as available-for-sale. Marketable securities as of December 31, 2024, consisted of various securities as described in Note 4. 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. 114 Table of Contents Passage Bio, Inc. Notes to Financial Statements (cont.) 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, net consists of laboratory equipment, office equipment, computer hardware and software, furniture and fixtures, and leasehold improvements and is 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 and equipment are retired or otherwise disposed of, the costs and accumulated depreciation and amortization are removed from the respective accounts, with any resulting gain or loss recognized concurrently. The Company did no t recognize any losses on disposals of property and equipment for the year ended December 31, 2024. The Company recognized losses on disposals of property and equipment of $ 0.5 million within research and development expenses in the year ended December 31, 2023. 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. The Company recognized impairment expenses for property and equipment of $ 2.7 million and $ 3.2 million in the years ended December 31, 2024 and 2023, respectively. These impairment expenses primarily relate to the proportional allocation of total impairments recognized for the asset groups subject to impairment testing 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, 2024, 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 12 months or less. The Company reviews long-lived assets, such as right of use assets, or ROU assets, for impairment when events or changes indicate the carrying amount of the ROU assets may not be recoverable. The Company recognized impairment expenses for ROU assets of $ 2.5 million and $ 2.2 million in the years ended December 31, 2024 and 2023, respectively. These impairment expenses include the proportional allocation of total impairments recognized for the asset groups subject to impairment testing as further described in Note 9. Research and Development Research and development costs are expensed as incurred and consist primarily of expenses incurred with the University of Pennsylvania’s Gene Therapy Program, or GTP, and Gemma Biotherapeutics, Inc., or Gemma, 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 115 Table of Contents Passage Bio, Inc. Notes to Financial Statements (cont.) 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. Other Income (Expense), Net Other income (expense), net consists of interest earned on cash equivalents and marketable securities, amortization of premium and discount on marketable securities, income from subleases, and the sale of certain tax credits. The Company recorded $ 5.6 million to other income (expense), net for the year ended December 31, 2024, which consisted of $ 4.3 million attributable to interest income and the amortization of premium and discount on the Company’s marketable securities, $ 1.0 million from sublease income, and $ 0.3 million 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. 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. License and Other Revenue The Company may enter into license agreements and transition services agreements (see Note 8) under which it may license rights to research, develop, manufacture, and commercialize its product candidates to third parties, and provide 116 Table of Contents Passage Bio, Inc. Notes to Financial Statements (cont.) transition services for such licenses. Payments under these arrangements may include non-refundable, upfront fees, reimbursement of certain costs, payments upon the achievement of certain milestones, and royalties on product sales. The Company applies FASB ASC Topic 606,  Revenue from Contracts with Customers , or ASC 606, when all of the following criteria are met, to determine a valid contract exists: (i) the parties have approved the contract and are committed to perform their respective obligations; (ii) the Company can identify each party’s rights regarding the goods or services to be transferred; (iii) the Company can identify the payment terms for the goods or services to be transferred; (iv) the contract has commercial substance; and (v) the Company will collect substantially all of the consideration to which it will be entitled in exchange for the goods or services that will be transferred to the customer. Once it is determined that a valid contract exists, the Company performs the following steps: (i) identification of the promised goods or services in the contract; (ii) determination of whether the promised goods or services are performance obligations including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including consideration of the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations on a relative stand-alone selling price basis; and (v) recognition of revenue when (or as) the Company satisfies each performance obligation. As part of the accounting for these arrangements, the Company must use its judgment to determine the number of performance obligations, the transaction price, the stand-alone selling price for each performance obligation identified in the contract for the allocation of transaction price, the contract term and pattern of satisfaction of the performance obligations. The Company uses judgment to determine whether milestones or other variable consideration, except for certain sales-based milestone payments and royalties, should be included in the transaction price as described further below. At the inception of each arrangement that includes milestone payments, the Company evaluates whether the milestones are considered probable of being achieved and estimates the amount to be included in the transaction price using the most likely amount method set forth in ASC 606. If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price. Milestone payments that are not within the control of the Company or the licensee, such as those subject to regulatory approvals, are not considered probable of being achieved until those approvals are received. The Company evaluates factors such as the scientific, clinical, regulatory, commercial and other risks that must be overcome to achieve the particular milestone in making this assessment. There is considerable judgment involved in determining whether it is probable that a significant revenue reversal would not occur. At the end of each subsequent reporting period, the Company reevaluates the probability of achievement of all milestones subject to constraint and, if necessary, adjusts its estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis in the statements of operations in the period of adjustment. For customer contracts in the scope of ASC 606, amounts due to the Company are recorded as accounts receivable on the Company’s balance sheet when the Company’s right to consideration is unconditional. Amounts received prior to satisfying the related performance obligations are classified on the Company’s balance sheet as current deferred revenue if expected to be recognized as revenue within 12 months following the balance sheet date and as deferred revenue, net of current portion, if amounts are not expected to be recognized as revenue within the 12 months following the balance sheet date. The Company does not evaluate a contract for a significant financing component if payment is expected within one year or less from the transfer of promised items to the customer. Income Taxes Income taxes are accounted for under the asset-and-liability method as required by FASB ASC Topic 740, Income Taxes , or 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. 117 Table of Contents Passage Bio, Inc. Notes to Financial Statements (cont.) FASB ASC Subtopic 740-10, Accounting for Uncertainty of Income Taxes , or 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. 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, ​ ​ 2024 2023 Stock options ​ 11,554,173 9,290,308 Unvested restricted stock units ​ 141,834 ​ 927,000 Employee stock purchase plan ​ 52,729 ​ 33,520 ​ ​ 11,748,736 10,250,828 ​ Recently Issued Accounting Pronouncements Not Yet Adopted 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 its disclosures. In November 2024, the FASB issued ASU No. 2024-03, Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures (Subtopic 220-40), or ASU 2024-03: Disaggregation of Income Statement Expenses , or ASU 2024-03, which requires entities to provide disclosures to disaggregate operating expenses into specific categories, such as salaries and wages, depreciation, and amortization, to provide enhanced transparency into the nature and function of expenses. ASU 2024-03 is effective for the Company’s first fiscal year beginning after December 15, 2026, and for interim periods within the Company’s first fiscal year beginning after December 15, 2027, with early adoption permitted. ASU 2024-03 may be applied retrospectively or prospectively. The Company is currently evaluating the impact of this guidance on its disclosures. Recently Adopted Accounting Pronouncements 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 118 Table of Contents Passage Bio, Inc. Notes to Financial Statements (cont.) 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 Company adopted the new accounting pronouncement for the year beginning on January 1, 2024. See “Note 14 - Segment Reporting” for additional disclosures. 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, 2024: ​ ​ ​ ​ Cash accounts in banking institutions ​ $ 3,527 ​ $ - ​ $ - ​ $ 3,527 Money market funds ​ ​ 29,058 ​ ​ - ​ ​ - ​ ​ 29,058 Commercial paper ​ ​ 4,988 ​ ​ - ​ ​ - ​ ​ 4,988 Total ​ $ 37,573 ​ $ - ​ $ - ​ $ 37,573 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 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 ​ ​ 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, 2024: ​ ​ ​ ​ Certificates of deposit ​ $ 5,970 ​ $ 1 ​ $ - ​ $ 5,971 Commercial paper ​ ​ 25,433 ​ ​ 6 ​ ​ - ​ ​ 25,439 Corporate debt securities ​ ​ 1,864 ​ ​ 1 ​ ​ - ​ ​ 1,865 U.S. government securities ​ ​ 5,908 ​ ​ 1 ​ ​ ( 1 ) ​ ​ 5,908 Total ​ $ 39,175 ​ $ 9 ​ $ ( 1 ) ​ $ 39,183 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 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 ​ S ​ ​ ​ 119 Table of Contents Passage Bio, Inc. Notes to Financial Statements (cont.) The contractual maturities of the Company’s marketable securities as of December 31, 2024, are as follows: ​ ​ ​ ​ ​ ​ ​ ​ (in thousands) ​ Amortized Cost ​ Fair Value Due within one year ​ $ 39,175 ​ $ 39,183 Due after one year through five years ​ ​ - ​ ​ - Total ​ $ 39,175 ​ $ 39,183 ​ ​ 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). 120 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, 2024: ​ ​ ​ Assets ​ ​ ​ Cash equivalents: ​ ​ ​ ​ ​ ​ ​ ​ ​ Money market funds ​ $ 29,058 ​ $ - ​ $ - Commercial paper ​ ​ - ​ ​ 4,988 ​ ​ - Total cash equivalents ​ ​ 29,058 ​ ​ 4,988 ​ ​ - ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Marketable securities: ​ ​ ​ ​ ​ ​ ​ ​ ​ Certificates of deposit ​ ​ - ​ ​ 5,971 ​ ​ - Commercial paper ​ ​ - ​ ​ 25,439 ​ ​ - Corporate debt securities ​ ​ - ​ ​ 1,865 ​ ​ - U.S. government securities ​ ​ - ​ ​ 5,908 ​ ​ - Total marketable securities ​ ​ - ​ ​ 39,183 ​ ​ - Total financial assets ​ $ 29,058 ​ $ 44,171 ​ $ - ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 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 ​ $ - ​ ​ 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. ​ 121 Table of Contents Passage Bio, Inc. Notes to Financial Statements (cont.) The following long-lived assets were measured at fair value, on a nonrecurring basis, during the years ended December 31, 2024 and 2023. Assets remeasured in 2023 are not included in the fair values presented as of December 31, 2024. The significant assumptions utilized, which relate to future net cash flows, are further described in Note 9: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fair Value Measurements as of December 31, 2024 of assets remeasured during 2024 ​ Year ended December 31, 2024 (in thousands) ​ Level 1 ​ Level 2 ​ Level 3 ​ Impairment Losses Property and equipment, net $ - $ - $ 1,668 $ 2,279 Right of use assets ​ - ​ - ​ 1,642 ​ 2,516 Other assets ​ - ​ - ​ 200 ​ 438 Total $ - $ - $ 3,510 $ 5,233 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fair Value Measurements as of December 31, 2023 of assets remeasured during 2023 ​ Year ended December 31, 2023 (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, 2024 ​ December 31, 2023 Laboratory equipment $ 10,020 ​ $ 10,065 Office equipment ​ 119 ​ ​ 119 Computer hardware and software ​ 1,111 ​ ​ 1,077 Furniture and fixtures ​ 419 ​ ​ 419 Leasehold improvements ​ 7,386 ​ ​ 10,213 Construction in progress ​ - ​ ​ 638 Total property and equipment ​ 19,055 ​ ​ 22,531 Accumulated depreciation and amortization ​ ( 9,724 ) ​ ​ ( 7,236 ) ​ $ 9,331 ​ $ 15,295 ​ ​ ​ ​ Depreciation and amortization expense was $ 3.1 million and $ 3.7 million for the years ended December 31, 2024 and 2023, respectively. ​ ​ 122 Table of Contents Passage Bio, Inc. Notes to Financial Statements (cont.) 7. Accrued Expenses and Other Current Liabilities Accrued expenses and other current liabilities consisted of the following: ​ ​ ​ ​ ​ ​ ​ ​ (in thousands) December 31, 2024 December 31, 2023 Professional fees ​ $ 406 ​ $ 1,176 Compensation and related benefits ​ 4,405 ​ 6,636 Research and development ​ 1,896 ​ 1,858 Amount due to Catalent in connection with Amended Catalent Agreements ​ — ​ 2,000 ​ ​ $ 6,707 ​ $ 11,670 ​ ​ 8. Gemma License Agreement On July 31, 2024, the Company entered into a series of sublicense agreements with Gemma in connection with the outlicense of PBGM01 for the treatment of GM1 gangliosidosis, or GM1, PBKR03 for the treatment of Krabbe disease, and PBML04 for the treatment of metachromatic leukodystrophy, or MLD, collectively the Outlicensed Programs, and such agreements, the Gemma Sublicenses. Pursuant to the Gemma Sublicenses, the Company is entitled to receive (i) initial payments of $ 10.0 million for licenses and clinical product supply, $ 5.0 million of which was received in the three months ended September 30, 2024, and $ 5.0 million of which is due in December 2024; (ii) up to an additional $ 10.0 million contingent on the completion by Gemma of certain business milestones; (iii) up to an additional $ 114.0 million in development and commercial milestone payments; and (iv) single digit royalties as a percentage of annual worldwide net sales, in exchange for sublicenses to relevant intellectual property, transfer of regulatory dossiers and transfer of clinical trial materials and product supply related to the Outlicensed Programs. Gemma will be responsible for all payments due to the Trustees of the University of Pennsylvania, or Penn, under the Company’s research, collaboration and licensing agreement with Penn, or the Penn License Agreement, related to the Outlicensed Programs. On July 31, 2024 the Company also entered into a transition, services agreement with Gemma, or the Transition Services Agreement, as amended by the First Amendment to the Transition Services Agreement, dated January 31, 2025, pursuant to which, the Company will provide transitional services at cost to Gemma through May 31, 2025, unless terminated earlier, and be entitled to reimbursement for transitional services performed retroactively from March 1, 2024, related to the transfer of the Outlicensed Programs. As of December 31, 2024, the Company has collected $ 5.0 million in initial payments and $ 3.2 million in transition services payments under these agreements. As Gemma is a newly-formed company with a limited history of operations, the Company will not recognize revenue under ASC 606 until the Company either (i) has received payment and there are no remaining obligations to transfer goods and services under the Gemma Sublicenses and Transition Services Agreement (as payments received by Gemma are nonrefundable), or (ii) concludes that substantially all of the transaction price is collectible. As of December 31, 2024, the Company has received an initial payment of $ 5.0 million associated with the aggregate $ 10.0 million of payments to be made under the Gemma Sublicenses for licenses and clinical product supply and $ 3.2 million associated with the Transition Services Agreement. The Company recorded the $ 8.2 million received as non-refundable sublicense and transition services payments received on the balance sheet as of December 31, 2024, as the criteria set forth above has not yet been met. 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 123 Table of Contents Passage Bio, Inc. Notes to Financial Statements (cont.) 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 ROU asset and operating lease liability as of December 31, 2024. During 2023 the Company subleased all of the space at 2005 Market Street as further described in Sublease Agreement A and Sublease Agreement B below. 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 $ 0.1 million per year 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 Topic 842, Leases , or 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, in 2023 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 ROU 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. The impairment charge was recorded as of the sublease execution date. 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 $ 0.9 million per year 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, in 2023 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 ROU assets, leasehold improvements, and other property and equipment allocable to Sublease Agreement B. The Company 124 Table of Contents Passage Bio, Inc. Notes to Financial Statements (cont.) 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. The impairment charge was recorded as of the sublease execution date. 1835 Market Street Sublease Agreement On February 20, 2024, the Company entered into a sublease agreement with a counterparty, or the 1835 Market Street Sublease Agreement. Under the 1835 Market Street Sublease Agreement, the Company subleased approximately 16,000 square feet of office space in Philadelphia, Pennsylvania. The sublease term began on March 26, 2024 and expires on September 30, 2025. The Company has the option to extend the term of the sublease agreement through February 28, 2029. The base sublease rent is $ 0.3 million per year for the original 18-month term of the sublease. Additionally, the Company is required to pay utility costs associated with the subleased premises. The optional extension was not recognized as part of the Company’s measurement of the ROU asset and operating lease liability as of December 31, 2024. 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, 2024. Hopewell Sublease Agreement On September 4, 2024, the Company entered into a sublease agreement with a counterparty, or Sublessee C, to sublease approximately 3,200 square feet, or 5 % of its approximately 62,000 square feet of leased laboratory space under the Laboratory Lease Agreement, or Hopewell Sublease Agreement. This sublease term began on September 11, 2024 and expires on December 31, 2029. Sublessee C has the option to extend the term of the sublease through December 2032. The base sublease rent is $ 0.1 million per year and increases by 2.5 % annually through the expiration of the Hopewell Sublease Agreement. Additionally, Sublessee C is required to pay the portion of the common area maintenance expenses, operating expenses, and use and occupancy taxes that the Company is required to pay under the Laboratory 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 Laboratory Lease Agreement. The Company continues to account for the Laboratory Lease Agreement as a lessee and in the same manner as prior to the execution of the Hopewell Sublease Agreement. The Company accounted for the Hopewell Sublease Agreement 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 actions in connection with previous announcements in (i) July of 2023, for an organizational redesign, and (ii) August of 2024, for the outlicense of PBGM01 for the treatment of GM1 gangliosidosis, PBKR03 for the treatment of Krabbe disease, and PBML04 for the treatment of metachromatic leukodystrophy, and the execution of the Hopewell Sublease Agreement, the Company determined triggering events were present, primarily related to changes in how underlying assets were being used in operations. As a result, the Company reassessed the asset groups related to its laboratory space under the Laboratory Lease Agreement, which resulted in changes to the Company’s identified asset groups. The Company determined whether an impairment indicator was present for each of the new asset groups. Where an impairment indicator was present, the Company compared the estimated undiscounted cash flows to the carrying 125 Table of Contents Passage Bio, Inc. Notes to Financial Statements (cont.) value, which includes ROU assets, leasehold improvements, and other property and equipment allocable to the laboratory space for those asset groups. The Company concluded the carrying values of certain asset groups were not recoverable as it exceeded the estimated undiscounted cash flows. The Company calculated the amount of impairment on those asset groups 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 the Hopewell Sublease Agreement, including an estimate for cash flows in the residual period, and an estimated borrowing rate of a market participant subtenant. As a result, certain asset groups were impaired and the Company recognized impairment expense of $ 4.8 million, including $ 2.5 million for the ROU assets and $ 2.3 million for the property and equipment during the year ended December 31, 2024. The following table summarizes future minimum lease payments for the Company’s lessee operating leases, which comprises of the 2005 Market Street Lease Agreement, 1835 Market Street Sublease Agreement, and the Laboratory Lease Agreement. The below table does not include expected cash inflows related to Sublease Agreement A, Sublease Agreement B, and the Hopewell Sublease Agreement as the Company was not relieved of its primary obligation under the 2005 Market Street Lease Agreement and Laboratory Lease Agreement: ​ ​ ​ ​ ​ (in thousands) ​ 2025 ​ $ 3,883 2026 ​ 3,757 2027 ​ 3,863 2028 ​ 3,973 2029 ​ 4,085 Thereafter ​ 21,621 Total undiscounted lease payments ​ ​ 41,182 Less: imputed interest ​ ​ ( 15,706 ) Total lease liabilities ​ $ 25,476 ​ ​ ​ The following table summarizes lease expense by lease type that was recognized during the years ended December 31, 2024 and 2023: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ($ in thousands) ​ December 31, 2024 ​ December 31, 2023 Operating lease cost ​ $ 3,505 ​ $ 3,322 Variable lease cost ​ ​ 2,127 ​ ​ 2,053 ​ ​ $ 5,632 ​ $ 5,375 ​ ​ ​ ​ ​ The following table shows the weighted average discount rate and weighted average remaining lease term of the operating leases: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ($ in thousands) ​ December 31, 2024 ​ December 31, 2023 Weighted-average discount rate ​ ​ 9.7 % ​ ​ 9.7 % Weighted-average remaining lease term (years) ​ ​ 10.2 ​ ​ 11.2 ​ The cash paid for amounts included in the measurement of our operating lease liabilities for the years ended December 31, 2024 and 2023 were $ 3.8 million and $ 3.5 million, respectively, in operating cash flows. ​ 126 Table of Contents Passage Bio, Inc. Notes to Financial Statements (cont.) The following table summarizes sublease income that was recognized in other income (expense), net during the years ended December 31, 2024 and 2023: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ($ in thousands) ​ December 31, 2024 ​ December 31, 2023 Sublease rental income ​ $ 987 ​ $ — ​ ​ $ 987 ​ $ — ​ 10. Commitments and Contingencies Amended and Restated Research, Collaboration and License Arrangement with Penn In connection with the transfer of the Outlicensed Programs (GM1, Krabbe, and MLD), the Company restructured its research, collaboration and license agreement with Penn, as amended, previously the Penn Agreement and now referred to as the Penn License Agreement. Pursuant to the Penn License Agreement, as of July 31, 2024, the Company (i) terminated the funding of discovery research programs; (ii) terminated the research and exploratory research programs; (iii) terminated the remaining eight options it had for future central nervous system, or CNS, indications; (iv) terminated the transaction fee payable to Penn in the event of certain corporate transactions; and (v) retained its current exclusive and non-exclusive licenses to its programs in FTD, GM1, Krabbe and MLD and certain platform technologies resulting from the discovery programs that it funded. For the Company’s licensed programs in FTD, GM1, Krabbe and MLD, the Penn License Agreement requires that it make payments of up to $ 16.5 million per product candidate. 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 worldwide net sales of the licensed product in excess of defined thresholds. Pursuant to the Gemma Sublicenses, Gemma is responsible for the payments to Penn related to the Outlicensed Programs. 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 percentage on annual worldwide net sales of such licensed product. In addition, other than the Gemma Sublicenses, 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 License 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. Pursuant to the Gemma Sublicenses, Gemma is responsible for the payments to Penn related to the Outlicensed Programs. Gemma - Research, Collaboration and License Agreement In connection with the transfer of the Outlicensed Programs, on July 31, 2024, the Company entered into a research, collaboration and license agreement with Gemma, or the Gemma Collaboration Agreement. Pursuant to the Gemma Collaboration Agreement, (i) Gemma will conduct certain preclinical and IND-enabling work for the Company’s active research program in Huntington’s disease and a currently paused research program in Temporal Lobe Epilepsy, or TLE, which were previously being conducted by Penn under the Penn Agreement and (ii) Gemma will grant the Company options to conduct mutually-agreed research programs in four new CNS indications. The Gemma Collaboration Agreement requires the Company to make payments of up to (i) $ 16.5 million per product candidate in the aggregate for Huntington’s disease and any future CNS indications available to the Company under its four options and (ii) $ 39.0 million per product candidate in the aggregate arising from the research program for TLE. 127 Table of Contents Passage Bio, Inc. Notes to Financial Statements (cont.) 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 worldwide net 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 Gemma, on a licensed product-by-licensed product and country-by-country basis, tiered royalties (subject to customary reductions) in the mid-single digits percentage on annual worldwide net sales of such licensed product. In addition, the Company is obligated to pay to Gemma a percentage of sublicensing income, ranging from the mid-single digits to low double digits, for sublicenses under the Gemma Collaboration 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. If the Company was to exercise any of the four options under the Gemma Collaboration Agreement, it would owe Gemma 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 has also entered into the Gemma Sublicenses and Transition Services Agreement as described in Note 8. The Gemma Sublicenses, the Transition Services Agreement, and the Gemma Collaboration Agreement are collectively referred to as the Outlicense Transaction Agreements. Catalent Agreements In June 2019, the Company entered into a collaboration agreement, or the Collaboration Agreement, with Catalent Maryland, a unit of Catalent, Inc. acquired by Novo Holdings A/S, 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 November 2020 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 128 Table of Contents Passage Bio, Inc. Notes to Financial Statements (cont.) year owed to Catalent through November 2025 under the Original Catalent Agreements. In consideration of this, the Company had an obligation to make aggregate payments to Catalent of $ 6.0 million between June 30, 2023 and May 1, 2024. As of December 31, 2024, the Company has made all payments related to this obligation under the Amended Catalent Agreements. 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 frontotemporal dementia, or 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. The outlicense of GM1 to Gemma under the Outlicense Transaction Agreements, and subsequent business decisions implemented by Gemma in their sole discretion, could be considered an event related to the divesture of GM1 under the Amended Catalent Agreements and require us to make payment of certain fees to Catalent, which fees are immaterial. 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. 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 no t recorded any amounts for loss contingencies as of December 31, 2024. The Company is a defendant in litigation with a former employee, who filed a lawsuit in the Court of Common Pleas of Philadelphia County asserting claims for breach of contract and violation of the Pennsylvania Wage Payment and Collection Law. The plaintiff, who was terminated from his employment in 2019, contended that the Company entered into a binding settlement agreement in February 2020 under which he was to receive shares of company stock and additional compensation. Specifically, he contended that before the announcement of the Company’s initial public offering in February 2020, he was promised 150,000 shares of stock as part of the settlement, and that those shares were not subject to the reverse stock split that was implemented for all shareholders. The Company responded that the shares offered in settlement negotiations in 2020 were to be subject to the reverse split, and that had the settlement been finalized, the plaintiff would have been entitled to 33,836 shares. A trial in this case was held in October 2024. The jury found that an agreement was reached, but it agreed with the Company that any shares to be awarded to the plaintiff were subject to the reverse split. The jury awarded damages in an amount that was roughly equal to what the Company contended had been offered to the plaintiff before the initial public offering. Both sides then challenged the verdict, and on December 12, 2024, the judge who presided over the trial delivered a judgment in the Company’s favor, finding that no binding agreement was reached and that the plaintiff was not entitled to recover any damages. On December 23, 2024, the plaintiff filed an appeal with the Superior Court of Pennsylvania, which is currently pending. The Company intends to continue to defend against this claim. 129 Table of Contents Passage Bio, Inc. Notes to Financial Statements (cont.) The Company recorded $ 1.0 million for loss contingencies within general and administrative expenses in the quarter ended September 30, 2024 in connection with this matter, which was reversed in the quarter ended December 31, 2024, as it is no longer deemed probable the Company will pay any such amounts. Other than the above, we are not presently a party to any legal proceedings that, in the opinion of management, would, if decided against us, have a material adverse effect on our business. Regardless of outcome, litigation can have an adverse impact on us due to defense and settlement costs, diversion of management resources, negative publicity and reputational harm, and other factors. 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, relating to the applicable terms of at-the-market equity offerings, or the ATM Facility, pursuant to which the Company may, but is not obligated to, offer and sell, from time to time, shares of its common stock with an aggregate offering price up to $ 125.0 million through Cowen, as sales agent in the ATM Facility. The Company issued 6,000,000 shares of common stock under the ATM Facility, resulting in net proceeds of $ 8.7 million, after deducting offering costs of $ 0.3 million in March 2024. As a result of the Company’s public float as of January 6, 2025, the Company is currently limited to $ 15.8 million in its capacity to offer and sell shares of its common stock under the Sales Agreement pursuant to its shelf registration statement on Form S-3, filed on March 4, 2024. ​ 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, 2024 was 15,848,867 . 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, 2024, 8,604,096 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 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 3,103,089 and 2,747,206 shares in January 2025 and 2024, 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, 2024 was 2,500,000 . Of this amount, 1,528,313 shares were 130 Table of Contents Passage Bio, Inc. Notes to Financial Statements (cont.) available for future grants as of December 31, 2024. 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) ​ 2024 2023 Research and development ​ $ 2,529 ​ $ 5,554 General and administrative ​ 3,291 ​ 5,367 ​ ​ $ 5,820 ​ $ 10,921 ​ The following table summarizes stock option activity for the year ended December 31, 2024: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted ​ ​ ​ ​ Weighted ​ average ​ ​ ​ ​ average ​ remaining ​ ​ Number of ​ exercise price ​ contractual ​ ​ shares ​ per share ​ term (years) Outstanding at January 1, 2024 9,290,308 $ 5.63 8.0 Granted 4,937,146 ​ ​ 1.34 Exercised ( 31,925 ) ​ ​ 1.08 Forfeited ( 2,571,789 ) ​ ​ 5.43 Expired ​ ( 69,567 ) ​ ​ 2.02 ​ ​ Outstanding at December 31, 2024 11,554,173 ​ $ 3.88 7.5 Vested and exercisable at December 31, 2024 6,001,722 ​ $ 6.10 6.3 Vested or expected to vest at December 31, 2024 11,554,173 ​ $ 3.88 7.5 ​ The weighted-average grant date fair value of options granted was $ 1.01 and $ 0.81 for the years ended December 31, 2024 and 2023, respectively. The aggregate intrinsic value of options exercised, options outstanding, and options exercisable were each de minimus during the years ended December 31, 2024 and 2023. As of December 31, 2024, the total unrecognized compensation expense related to unvested stock option awards was $ 5.7 million, which the Company expects to recognize over a weighted-average period of 2.3 years. 131 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, ​ ​ 2024 ​ 2023 Expected volatility ​ 88.4 % ​ 92.6 % Risk‑free interest rate ​ 4.2 % ​ 3.6 % Expected term ​ 6.0 years ​ 6.0 years Expected dividend yield ​ — ​ ​ — ​ ​ Restricted Stock Units The Company issues restricted stock units, or RSUs, to employees that vest over periods of time as determined by the board of directors. Any unvested shares are forfeited upon termination of services. The fair value of the RSUs is equal to the fair market value 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, 2024: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted average ​ ​ Number of shares ​ grant date fair value Unvested balance at January 1, 2024 ​ 927,000 $ 2.37 Granted ​ 147,500 ​ 1.29 Vested ​ ​ ( 880,999 ) ​ ​ 2.18 Forfeited ​ ( 51,667 ) ​ 2.87 Unvested balance at December 31, 2024 ​ 141,834 $ 2.24 ​ As of December 31, 2024, the total unrecognized expense related to all RSUs was $ 0.1 million, which the Company expects to recognize over a weighted-average period of 0.6 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, 1,273,435 were available for future grants as of December 31, 2024. 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, 2025, 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 board of director’s 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. 132 Table of Contents Passage Bio, Inc. Notes to Financial Statements (cont.) In accordance with the guidance in ASC Topic 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) 2024 2023 Deferred tax assets: ​ ​ Net operating loss carryforwards ​ $ 94,923 ​ $ 76,362 Research and development credits ​ 50,842 ​ 45,320 Collaboration and license agreement ​ 3,422 ​ 3,748 Capitalized research and development ​ ​ 59,803 ​ ​ 65,170 Share-based compensation ​ 5,863 ​ 6,773 Accrued expenses and other ​ 1,404 ​ 1,430 Operating lease liabilities ​ ​ 7,560 ​ ​ 7,803 Depreciation and amortization ​ ​ 461 ​ ​ — Total gross deferred tax assets before valuation allowance ​ 224,278 ​ 206,606 Valuation allowance ​ ( 219,833 ) ​ ( 200,774 ) Net deferred tax assets ​ ​ 4,445 ​ ​ 5,832 Deferred tax liabilities: ​ ​ ​ ​ ​ ​ Right of use assets - operating leases ​ ​ ( 4,445 ) ​ ​ ( 5,496 ) Depreciation and amortization ​ ​ — ​ ​ ( 336 ) Total deferred tax liabilities ​ ( 4,445 ) ​ ( 5,832 ) 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 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, 2024 and 2023. The valuation allowance increased by $ 19.1 million and $ 20.9 million during the years ended December 31, 2024 and 2023, respectively. 133 Table of Contents Passage Bio, Inc. Notes to Financial Statements (cont.) A reconciliation of the federal income tax rate to the Company’s effective tax rate is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended ​ ​ December 31, ​ 2024 ​ 2023 Federal tax benefit at statutory rate 21.0 % ​ 21.0 % State tax, net of federal benefit 2.5 ​ 5.2 ​ Change in state tax rates ​ - ​ ​ ( 14.0 ) ​ Permanent differences ( 0.8 ) ​ 2.8 ​ Equity compensation ​ ( 1.9 ) ​ ​ ( 4.0 ) ​ Research and development and orphan tax credits 8.6 ​ 9.5 ​ Change in valuation allowance ( 29.4 ) ​ ( 20.5 ) ​ ​ — % ​ — % ​ 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) 2024 2023 Federal ​ $ 339,055 ​ $ 265,458 State ​ 339,051 ​ 265,454 Local ​ 218,844 ​ 214,518 Research tax credits ​ 50,842 ​ 45,320 ​ 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 2044. For local income tax purposes related to the city of Philadelphia, NOL carryforwards begin expiring in 2024, and expire through 2044. 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, 2024, the Company also had $ 11.4 million of federal research and development and $ 39.4 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, 2024, 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 2021 and after remain subject to examination by the taxing jurisdictions. The NOL and tax credit carryforwards remain subject to review until utilized. 134 Table of Contents Passage Bio, Inc. Notes to Financial Statements (cont.) 14. Segment Reporting Operating segments are defined as components of an enterprise which engages in business activities from which it may recognize revenues and incur expenses about which separate discrete information is available for evaluation by the chief operating decision maker, or CODM, in deciding how to allocate resources and in assessing performance. The Company operates in a single reportable segment, developing and advancing genetic medicines designed to target critical underlying pathology of neurodegenerative diseases. The accounting policies of the single segment are the same as those described in the summary of significant accounting policies. The Company’s CODM is its chief executive officer. The measure of segment assets is reported on the balance sheet as total assets. All assets are located within the United States. The CODM uses net loss as reported on our statement of operations to assess the Company’s performance. Our CODM also uses cash forecast in deciding where to invest or expand operations within the business. In these cash forecasts, research and development expenses and general and administrative expenses exclude certain non-cash items such as share based compensation and depreciation and amortization expenses. ​ The following table summarizes significant segment expenses: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, (in thousands) ​ 2024 2023 Research and development ​ ​ ​ ​ ​ ​ Wages, benefits and other payroll ​ $ 12,265 ​ $ 16,762 Third-party costs ​ ​ 22,691 ​ ​ 36,304 Share-based compensation ​ ​ 2,529 ​ ​ 5,554 Depreciation and amortization ​ ​ 2,694 ​ ​ 2,799 Total research and development expenses ​ ​ 40,179 ​ ​ 61,419 General and administrative ​ ​ ​ ​ ​ ​ Wages, benefits and other payroll ​ ​ 9,255 ​ ​ 11,606 Third-party costs ​ ​ 12,055 ​ ​ 12,352 Amended Catalent agreements expense ​ ​ — ​ ​ 11,333 Share-based compensation ​ ​ 3,291 ​ ​ 5,367 Depreciation and amortization ​ ​ 387 ​ ​ 922 Total general and administrative expenses ​ ​ 24,988 ​ ​ 41,580 Impairment of long-lived assets ​ ​ 5,233 ​ ​ 5,390 Loss from operations ​ ​ 70,400 ​ ​ 108,389 Other (income) expense, net ​ ​ ( 5,633 ) ​ ​ ( 6,327 ) Net loss ​ $ 64,767 ​ $ 102,062 ​ The components of Other (income) expense, net are futher described in note 3 to the financial statements. ​ 135 Table of Contents Passage Bio, Inc. Notes to Financial Statements (cont.) 15. Subsequent Events On January 8, 2025, the board of directors of the Company approved, and management began to implement, a restructuring plan, or the Restructuring Plan, to (i) cease its lab operations at its leased laboratory space in Hopewell, New Jersey and (ii) reduce operating costs and better align its workforce with the needs of its strategic research and development strategy. The implementation of the Restructuring Plan should be substantially complete by the end of the first quarter 2025. Under the Restructuring Plan, the Company is reducing its overall workforce by approximately 55 % . Impacted employees are eligible to receive severance benefits which the Company estimates will approximate $ 1.7 million. These severance benefits are contingent upon an impacted employee’s execution (and non-revocation) of a severance agreement, which includes a general release of claims against the Company. Following the Restructuring Plan, as of January 31, 2024, the Company had 27 full-time employees. In connection with the Restructuring Plan, the Company is pursuing opportunities to sublease the remaining space leased under the Laboratory Lease Agreement to offset portions of its financial obligations and is pursuing opportunities to sell the laboratory equipment. As a result, the Company reassessed asset groups and evaluated such asset groups for impairment under FASB ASC Topic 360, Long-lived assets: Impairment or disposal of long-lived assets , for all long-lived assets related to the leased laboratory space, which comprises primarily of ROU assets, leasehold improvements and laboratory equipment. As a result, the Company expects to recognize impairment expenses for its laboratory equipment of approximately $ 1.0 million to $ 3.0 million in the three-month period ending March 31, 2025. This range is preliminary and may change subject to management’s finalization of assumptions used in impairment testing. On January 31, 2025 the Company amended its Transition Services Agreement with Gemma Biotherapeutics, pursuant to the First Amendment to the Transition Services Agreement, dated January 31, 2025, which extended the agreement through May 31, 2025, unless terminated earlier. ​ ​ ​ 136 Table of Contents Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.