Quarterly Report (10-q)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	For the quarterly period ended March 31, 2022

	OR

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to ________

Commission File Number: 001-39231

PASSAGE BIO, INC.

(Exact Name of Registrant as Specified in its Charter)


Delaware	82-2729751
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

One Commerce Square 2005 Market Street, 39^th Floor Philadelphia, PA	19103
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (267) 866-0311

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol

Name of each exchange on which registered

Common Stock

PASG

The Nasdaq Stock Market LLC

(Nasdaq Select Global Market)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ⌧ No ◻

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ⌧ No ◻

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	◻	Accelerated filer	◻
Non-accelerated filer	☒	Smaller reporting company	☒
Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of May 12, 2022, the registrant had 54,307,691 shares of common stock, $0.0001 par value per share, outstanding.

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements. All statements other than statements of historical facts contained in this Quarterly Report are forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential” or “continue” or the negative of these terms or other similar expressions, although not all forward-looking statements contain these words. All statements other than statements of historical fact contained in this Quarterly Report, including without limitation statements regarding our plans to develop and commercialize our product candidates, the timing of our ongoing or planned clinical trials, the timing of and our ability to obtain and maintain regulatory approvals, the clinical utility of our product candidates, our commercialization, marketing and manufacturing capabilities and strategy, our expectations about the willingness of healthcare professionals to use our product candidates, the sufficiency of our cash and cash equivalents, the expected impact of the COVID-19 pandemic on our operations, and the plans and objectives of management for future operations and capital expenditures are forward-looking statements.

The forward-looking statements in this Quarterly Report are only predictions and are based largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. These forward-looking statements speak only as of the date of this Quarterly Report and are subject to a number of known and unknown risks, uncertainties and assumptions, including those described under the sections in this Quarterly Report entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Quarterly Report.

Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified and some of which are beyond our control, you should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. Moreover, we operate in an evolving environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors and uncertainties. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise. We intend the forward-looking statements contained in this Quarterly Report to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act.

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		Page
PART I.	FINANCIAL INFORMATION	4
Item 1.	Interim Financial Statements (Unaudited)	4
	Balance Sheets	4
	Statements of Operations and Comprehensive Loss	5
	Statements of Stockholders’ Equity	6
	Statements of Cash Flows	7
	Notes to Unaudited Interim Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	34
Item 4.	Controls and Procedures	34
PART II.	OTHER INFORMATION	35
Item 1.	Legal Proceedings	35
Item 1A.	Risk Factors	35
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	91
Item 3.	Defaults Upon Senior Securities	91
Item 4.	Mine Safety Disclosures	91
Item 5.	Other Information	91
Item 6.	Exhibits	92
Signatures		94

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PART I-FINANCIAL INFORMATION

Item 1. Interim Financial Statements.

Passage Bio, Inc.

Balance Sheets


	(Unaudited)
(in thousands, except share data)	March 31, 2022		December 31, 2021
Assets
Current assets:
Cash and cash equivalents	$	101,614	$	128,965
Marketable securities		165,476		186,808
Prepaid expenses and other current assets		2,835		1,726
Prepaid research and development		13,076		7,567
Total current assets		283,001		325,066
Property and equipment, net		24,292		23,806
Right of use assets - operating leases		20,212		-
Other assets		5,719		6,204
Total assets	$	333,224	$	355,076
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	9,135	$	9,448
Accrued expenses and other current liabilities		15,227		20,050
Operating lease liabilities		3,119		-
Total current liabilities		27,481		29,498
Operating lease liabilities - noncurrent		24,432		-
Deferred rent		-		6,921
Total liabilities		51,913		36,419

Commitments and Contingencies (note 9)

Stockholders’ equity:
Common stock, $0.0001 par value: 300,000,000 shares authorized; 54,307,691 shares issued and outstanding at March 31, 2022 and 54,244,996 shares issued and outstanding at December 31, 2021		5		5
Additional paid‑in capital		681,732		675,346
Accumulated other comprehensive income (loss)		(1,334)		(413)
Accumulated deficit		(399,092)		(356,281)
Total stockholders’ equity		281,311		318,657
Total liabilities and stockholders’ equity	$	333,224	$	355,076

See accompanying notes to unaudited interim financial statements.

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Passage Bio, Inc.

Statements of Operations and Comprehensive Loss

(Unaudited)


	Three Months Ended March 31,
(in thousands, except share and per share data)	2022		2021
Operating expenses:
Research and development	$	26,213	$	24,970
Acquired in‑process research and development		1,500		1,500
General and administrative		15,099		12,464
Loss from operations		(42,812)		(38,934)
Interest income, net		1		52
Net loss	$	(42,811)	$	(38,882)
Per share information:
Net loss per share of common stock, basic and diluted	$	(0.79)	$	(0.76)
Weighted average common shares outstanding, basic and diluted		54,275,751		51,331,449
Comprehensive loss:
Net loss	$	(42,811)	$	(38,882)
Unrealized gain (loss) on marketable securities		(921)		5
Comprehensive loss	$	(43,732)	$	(38,877)

See accompanying notes to unaudited interim financial statements.

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Passage Bio, Inc.

Statements of Stockholders’ Equity

(Unaudited)




	Common stock				Additional		Accumulated other		Accumulated
(in thousands, except share data)	Shares	Amount			paid‑in capital		comprehensive income (loss)		deficit	Total
Balance at January 1, 2022	54,244,996	$	5	$	675,346	$	(413)	$	(356,281)	$	318,657
Exercise of stock options and vesting of restricted stock units	62,695		—		49		—		—		49
Unrealized gain (loss) on marketable securities and cash equivalents	—		—		—		(921)		—		(921)
Share‑based compensation expense	—		—		6,337		—		—		6,337
Net loss	—		—		—		—		(42,811)		(42,811)
Balance at March 31, 2022	54,307,691	$	5	$	681,732	$	(1,334)	$	(399,092)	$	281,311





	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, 2021	45,614,807	$	4	$	475,617		(12)		(170,895)		304,714
Vesting of early exercise option awards	173,117		—		41		—		—		41
Exercise of stock options	10,400		—		81		—		—		81
Sale of common stock, net of issuance costs of $669	8,050,000		1		165,804		—		—		165,805
Unrealized gain (loss) on marketable securities	—		—		—		5		—		5
Share-based compensation expense	—		—		9,740		—		—		9,740
Net loss	—		—		—		—		(38,882)		(38,882)
Balance at March 31, 2021	53,848,324	$	5	$	651,283	$	(7)	$	(209,777)	$	441,504

See accompanying notes to unaudited interim financial statements.

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Passage Bio, Inc.

Statements of Cash Flows

(Unaudited)


	Three Months Ended
	March 31,
(in thousands)	2022		2021
Cash flows used in operating activities:
Net loss	$	(42,811)	$	(38,882)
Adjustments to reconcile net loss to net cash used in operating activities:
Acquired in‑process research and development		1,500		1,500
Depreciation and amortization		883		211
Share‑based compensation		6,337		9,740
Amortization of premium and discount on marketable securities, net		875		848
Deferred rent		-		(647)
Changes in operating assets and liabilities:
Prepaid expenses and other current assets, and other assets		(624)		(1,366)
Prepaid research and development		(5,509)		975
Right of use assets and operating lease liabilities		418		-
Accounts payable		(957)		592
Accrued expenses and other current liabilities		(4,823)		(3,689)
Net cash used in operating activities		(44,711)		(30,718)
Cash flows used in investing activities:
Purchases of marketable securities		(37,402)		(60,325)
Sales or maturities of marketable securities		56,938		41,229
Purchases of technology licenses		(1,500)		(500)
Purchases of property and equipment		(725)		(801)
Net cash provided by (used in) investing activities		17,311		(20,397)
Cash flows provided by financing activities:
Proceeds from issuance of common stock, net of offering costs		-		165,805
Payment of offering costs		-		(252)
Proceeds from the exercise of stock options		49		81
Net cash provided by financing activities		49		165,634
Net increase (decrease) in cash and cash equivalents		(27,351)		114,519
Cash and cash equivalents at beginning of year		128,965		135,002
Cash and cash equivalents at end of period	$	101,614	$	249,521
Supplemental disclosure of non‑cash investing and financing activities:
Unrealized gain (loss) on marketable securities	$	(921)	$	(5)
Property and equipment in accounts payable and accrued expenses and other current liabilities	$	644	$	420
Property and equipment in deferred rent	$	-	$	2,769
Acquired in-process research and development in accrued expenses and other current liabilities	$	-	$	1,500
Offering costs in accounts payable	$	-	$	29
Vesting of early exercise option awards	$	-	$	41
Right of use assets recognized upon the adoption of Topic 842	$	(20,375)	$	-
Operating lease liabilities recognized upon the adoption of Topic 842	$	27,296	$	-

See accompanying notes to unaudited interim financial statements.

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Passage Bio, Inc.

Notes to Unaudited Interim 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 focused on developing transformative therapies for central nervous system, or CNS disorders, with limited or no approved treatment options. The Company has a strategic research collaboration with the Trustees of the University of Pennsylvania’s, or Penn, Gene Therapy Program, or GTP, that provides the Company with access to one of the premier research institutions in the world for the discovery and preclinical development of genetic medicine product candidates and exclusive rights to certain CNS indications. Under this collaboration, GTP conducts discovery and preclinical activities enabling Investigational New Drug, or IND, applications and the Company conducts all clinical development, regulatory strategy, and commercialization activities under the agreement. The Company also has a collaboration agreement and a development services and clinical supply agreement with Catalent Maryland, Inc., or Catalent, for clinical scale manufacturing requirements.

2. Risks and Liquidity

The Company has incurred recurring losses and negative cash flows from operations since inception and had an accumulated deficit of $399.1 million as of March 31, 2022. The Company anticipates incurring additional losses until such time, if ever, that it can generate significant sales of its product candidates currently in development. Substantial additional capital will be needed by the Company to fund its operations and to develop its product candidates.

In January 2021, the Company closed a follow-on public offering in which the Company issued and sold 8,050,000 shares of its common stock at a public offering price of $22.00 per share for net proceeds of $165.8 million after deducting underwriting discounts, commissions and other offering expenses.

The Company’s operations have consisted primarily of organizing the Company, securing financing, developing licensed technology, performing research, and conducting preclinical studies and clinical trials. The Company faces risks associated with early-stage biotechnology companies whose product candidates are in development. Product candidates currently under development will require significant additional research and development efforts, including extensive preclinical and clinical testing, establishing manufacturing capacity and regulatory approval prior to commercialization. These efforts require significant amounts of additional capital for the Company to complete its research and development, achieve its research and development objectives, defend its intellectual property rights, and recruit and retain skilled personnel, and key members of management. Even if the Company’s product development efforts are successful, it is uncertain when, if ever, the Company will realize revenue from product sales.

The Company plans to seek additional funding through public or private equity offerings, debt financings, other collaborations, strategic alliances and licensing arrangements. The Company may not be able to obtain financing on acceptable terms, or at all, and the Company may not be able to enter into strategic alliances or other arrangements on favorable terms, or at all. The terms of any financing may adversely affect the holdings or the rights of the Company’s stockholders. If the Company is unable to obtain funding, the Company could be required to delay, reduce or eliminate research and development programs, product portfolio expansion or future commercialization efforts, which could adversely affect its business prospects.

In accordance with Accounting Standards Update, or ASU, No. 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, the Company has evaluated whether there are certain conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued. As of the issuance date of these financial statements, the Company expects that its cash, cash equivalents and marketable debt securities will be sufficient to fund its forecasted operating expenses and capital expenditure requirements for at least the next twelve months from the issuance date of these financial statements.

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Passage Bio, Inc.

Notes to Unaudited Interim Financial Statements

3. Summary of Significant Accounting Policies

The Company’s complete summary of significant accounting policies can be found in “Note 3. Summary of Significant Accounting Policies” in the audited financial statements included in the Company’s Annual Report filed on Form 10-K for the year ended December 31, 2021.

Basis of Presentation

The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles in the United States, or GAAP. Any reference in these notes to applicable guidance is meant to refer to GAAP as found in the Accounting Standards Codification, or ASC, and Accounting Standards Updates promulgated by the Financial Accounting Standards Board, or FASB.

Interim Financial Statements

The accompanying unaudited interim financial statements have been prepared from the books and records of the Company in accordance with GAAP for interim financial information and Rule 10-01 of Regulation S-X promulgated by the United States Securities and Exchange Commission, or SEC, which permits reduced disclosures for interim periods. All adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the accompanying balance sheets, statements of operations, convertible preferred stock and stockholders’ equity, and cash flows have been made. Although these interim financial statements do not include all of the information and footnotes required for complete annual financial statements, management believes the disclosures are adequate to make the information presented not misleading. Unaudited interim results of operations and cash flows are not necessarily indicative of the results that may be expected for the full year. Unaudited interim financial statements and footnotes should be read in conjunction with the audited financial statements and footnotes included in the Company’s 2021 Annual Report filed on Form 10-K.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and contingent liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates.

Estimates and assumptions are periodically reviewed and the effects of the revisions are reflected in the accompanying financial statements in the period they are determined to be necessary.

Fair Value of Financial Instruments

Management believes that the carrying amounts of the Company’s financial instruments, including cash equivalents, prepaid expenses, and accounts payable, approximate fair value due to the short-term nature of those instruments.

Concentration of credit risk

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash, cash equivalents, and marketable securities. The Company maintains deposits in federally insured financial institutions in excess of federally insured limits. The Company has not experienced any losses in such accounts and believes it is not exposed to significant risk on its cash, cash equivalents, and marketable securities.

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Passage Bio, Inc.

Notes to Unaudited Interim Financial Statements

Cash and cash equivalents

The Company considers all highly-liquid investments that have maturities of three months or less when acquired to be cash equivalents. Cash equivalents as of March 31, 2022 consisted of money market funds, certificates of deposit, commercial paper and corporate debt securities. Cash consists of cash deposits at banking institutions.

Marketable securities

The Company classifies its marketable securities as available-for-sale, which include commercial paper, certificates of deposit, corporate debt securities and United States, or U.S., government and non-U.S. government debt securities with original maturities of greater than three months. These securities are carried at fair market value, with unrealized gains and losses reported in comprehensive loss and accumulated other comprehensive income (loss) within stockholders’ equity. Gains or losses on marketable securities sold are recognized on the specific identification method.

Offering costs

The Company capitalizes costs directly associated with equity financings until such financings are consummated, at which time such costs are recorded in additional paid-in capital against the gross proceeds of the equity financings. Costs associated with the shelf registration statement on Form S-3 have been capitalized and will be reclassified to additional paid in capital on a pro rata basis when the Company completes offerings under the shelf registration. At the end of the three-year term of the shelf registration, the remaining deferred offering costs, if any, will be expensed to operations. As of March 31, 2022 and December 31, 2021, $0.4 million of such deferred costs are included in other assets on the balance sheets.

Share-based compensation

The Company measures share-based awards at their grant-date fair value and records compensation expense on a straight-line basis over the vesting period of the awards.

Estimating the fair value of share-based awards requires the input of subjective assumptions, including, for stock options, stock price volatility. The Company accounts for forfeitures for stock option awards as they occur. The Company uses the Black-Scholes option pricing model to value its stock option awards. The assumptions used in estimating the fair value of share-based awards represent management's estimate and involve inherent uncertainties and the application of management's judgment. As a result, if factors change and management uses different assumptions, share-based compensation expense could be materially different for future awards.

The expected term of the stock options is estimated using the "simplified method," as the Company has limited historical information from which to develop reasonable expectations about future exercise patterns and post-vesting employment termination behavior for its stock option grants. The simplified method is the midpoint between the vesting period and the contractual term of the option. For stock price volatility, the Company uses a composite of comparable public company data as a basis for its expected volatility to calculate the fair value of option grants. The risk-free rate is based on the U.S. Treasury yield curve commensurate with the expected life of the option.

Net Loss Per Share

Basic net loss per share of common stock is computed by dividing net loss by the weighted-average number of shares of common stock outstanding during each period. Diluted loss per share of common stock includes the effect, if any, from the potential exercise or conversion of securities, such as 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.

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Notes to Unaudited Interim Financial Statements

The following potentially dilutive securities have been excluded from the computation of diluted weighted-average shares of common stock outstanding, as they would be anti-dilutive:


	Three Months Ended March, 31
	2022	2021
Stock options	10,650,128	8,708,503
Unvested restricted stock units	428,500	170,000
Employee stock purchase plan	197,655	32,821
	11,276,283	8,911,324

Recently Adopted Accounting Pronouncements

In February 2016, the FASB issued ASU No. 2016-02, Leases Topic 842, or ASU 2016-02, which requires a lessee to record a right-of-use asset and a corresponding lease liability on the balance sheet for all leases with terms longer than 12 months. The Company adopted ASU 2016-02 on January 1, 2022 using the modified retrospective transition method and elected the following transition practical expedients: (i) to not reassess lease identification, lease classification and initial indirect costs related to those leases entered into prior to the adoption of Topic 842; and (ii) to not separate lease and non-lease components for the Company’s operating lease portfolio. The Company recorded an operating lease right-of-use asset and lease liability of $20.4 million and $27.3 million respectively, related to the adoption of the Topic 842. See note 8 for further details.

Recently Issued Accounting Pronouncements

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments”, or ASU 2016-13, which replaces the incurred loss impairment methodology under current U.S. GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. ASU 2016-13 was subsequently updated by ASU No. 2019-04, “Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments”, to clarify that entities should include recoveries when estimating the allowance for credit losses. This guidance is effective for the Company for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022 and must be adopted using a modified retrospective approach, with certain exceptions. The Company is currently evaluating the impact of this standard on its financial statements and related disclosures.

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Notes to Unaudited Interim Financial Statements

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
March 31, 2022:
Cash accounts in banking institutions	$	28,450	$	-	$	-	$	28,450
Money market funds		60,000		-		-		60,000
Certificates of deposit		3,901		-		-		3,901
Commercial paper		8,736		3		-		8,739
Corporate debt securities		524		-		-		524
Total	$	101,611	$	3	$	-	$	101,614

December 31, 2021
Cash accounts in banking institutions	$	44,549	$	-	$	-	$	44,549
Money market funds		84,416		-		-		84,416
Total	$	128,965	$	-	$	-	$	128,965

The following table provides details regarding the Company’s portfolio of marketable securities:


(in thousands)	Amortized cost		Unrealized gains		Unrealized losses		Fair value
March 31, 2022:
Certificates of deposit	$	5,191	$	-	$	(30)	$	5,161
Commercial paper		37,978		-		(112)		37,866
Corporate debt securities		111,774		1		(1,158)		110,617
U.S. government securities		9,889		-		(38)		9,851
Non-U.S. government securities		1,981		-		-		1,981
Total	$	166,813	$	1	$	(1,338)	$	165,476

December 31, 2021
Certificates of deposit	$	5,296	$	-	$	-	$	5,296
Commercial paper		26,503		4		(4)		26,503
Corporate debt securities		145,577		10		(418)		145,169
U.S. government securities		1,996		-		(8)		1,988
Non-U.S. government securities		7,849		4		(1)		7,852
Total	$	187,221	$	18	$	(431)	$	186,808

5. Fair Value of Financial Instruments

Fair value is the price that could be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Fair value determination in accordance with applicable accounting guidance requires that a number of significant judgments be made. Additionally, fair value is used on a nonrecurring basis to evaluate assets for impairment or as required for disclosure purposes by applicable accounting guidance on disclosures about fair value of financial instruments. Depending on the nature of the assets and liabilities, various valuation techniques and assumptions are used when estimating fair value. The carrying amounts of certain of the Company’s financial instruments, including prepaid expense and accounts payable are shown at cost, which approximates fair value due to the short-term nature of these instruments. The Company follows the provisions of FASB ASC Topic 820, Fair Value Measurement, for

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Notes to Unaudited Interim Financial Statements

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).

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Notes to Unaudited Interim Financial Statements

The following fair value hierarchy table presents information about the Company’s assets measured at fair value on a recurring basis. 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)
March 31, 2022:
Assets
Cash and cash equivalents:
Money market funds	$	60,000	$	-	$	-
Certificates of deposit		-		3,901		-
Commercial paper		-		8,739		-
Corporate debt securities		-		524		-
Total cash and cash equivalents		60,000		13,164		-

Marketable securities:
Certificates of deposit		-		5,161		-
Commercial paper		-		37,866		-
Corporate debt securities		-		110,617		-
U.S. government securities		-		9,851		-
Non-U.S. government securities		-		1,981		-
Total marketable securities		-		165,476		-

Total financial assets	$	60,000	$	178,640	$	-

December 31, 2021
Assets
Cash and cash equivalents:
Money market funds	$	84,416	$	-	$	-
Total cash and cash equivalents		84,416		-		-

Marketable securities:
Certificates of deposit		-		5,296		-
Commercial paper		-		26,503		-
Corporate debt securities		-		145,169		-
U.S. government securities		-		1,988		-
Non-U.S. government securities		-		7,852		-
Total marketable securities		-		186,808		-

Total financial assets	$	84,416	$	186,808	$	-

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Passage Bio, Inc.

Notes to Unaudited Interim Financial Statements

6. Property and Equipment, net

Property and Equipment, net, consist of the following:



(in thousands)		March 31, 2022	December 31, 2021
Laboratory equipment	$	9,494	$	8,916
Office equipment		621		621
Computer hardware and software		1,103		1,028
Furniture and fixtures		1,519		1,487
Leasehold improvements		14,111		13,409
Construction in progress		804		822
Total property and equipment		27,652		26,283
Accumulated depreciation and amortization		(3,360)		(2,477)
	$	24,292	$	23,806

7. Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following:


(in thousands)	March 31, 2022		December 31, 2021
Professional fees	$	921	$	877
Compensation and related benefits		4,864		10,014
Research and development		7,319		8,498
Property and equipment		-		161
Other		2,123		500
	$	15,227	$	20,050

8. Leases

On January 1, 2022, the Company adopted ASU No. 2016-02, Leases, using a modified retrospective approach and recorded operating lease right-of-use, or ROU, assets and operating lease liabilities of $20.4 million and $27.3 million, respectively, related to the Company’s Lease Agreement and Laboratory Lease Agreement, or collectively, the Leases, which are each defined below. The Company elected the package of practical expedients available under ASU No. 2016-02 and as such, did not reassess any of the Company’s existing or expired contracts or any other agreements that were previously concluded to not contain a lease for the following practical expedient guidance: (1) whether the arrangement is or contains a lease, (2) lease classification and (3) whether previously capitalized costs continue to qualify as initial direct costs. In addition, the Company applied the accounting policy election to not separate lease and non-lease components and the accounting policy election to not apply the recognition requirement under ASU No. 2016-02 to leases with a term of twelve months or less.

The Company was not required to record a cumulative effect adjustment upon adoption as the Company did not capitalize any material initial direct costs nor were any contracts reassessed leading to changes in the terms or contractual payments of historical arrangements that would impact expense recognition, however, the Company eliminated $3.2 million of deferred rent liabilities and $3.8 million of tenant improvement allowances as of January 1, 2022 related to the Leases as these liabilities are reflected in the operating lease ROU assets. The Company used incremental borrowing rates, or IBRs, of 9.0% and 10.0% to discount the operating lease liabilities for the Lease Agreement and the Laboratory Lease Agreement, respectively. The Company’s IBRs were quoted by an unrelated third-party lender and reflect a collateralized borrowing with similar terms and amounts as the Leases.

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Passage Bio, Inc.

Notes to Unaudited Interim Financial Statements

The Company is party to an office space lease in Philadelphia, Pennsylvania, or the Lease Agreement, which commenced in February 2021, expires in December 2031 and provides the Company an option to extend the term 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 March 31, 2022. The landlord provided the Company with a tenant improvement allowance of $2.8 million, for which the related expenditures were paid directly by the landlord.

The Company is also party to a lease agreement for laboratory space, or the Laboratory Lease Agreement, in Hopewell, New Jersey. The laboratory is initially 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 February 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 March 31, 2022. The landlord provided the Company with a tenant improvement allowance of $1.3 million in connection with the Laboratory Lease Agreement, for which the related expenditures were paid by the Company and will be reimbursed by the landlord. As of March 31, 2022, $0.3 million of reimbursements were unpaid by the landlord and recorded within other current assets.

The following table summarizes the Company’s operating leases:


	Three Months Ended
($ in thousands)	March 31, 2022
Operating lease cost	$	829
Cash paid for amounts included in the measurement of operating cash flows from operating leases	$	411
Weighted-average discount rate		9.7%
Weighted-average remaining lease term (years)		12.9

The future minimum lease payments under the Company’s operating lease arrangements as of March 31, 2022 are as follows:


(in thousands)
2022 (remaining)	$	2,443
2023		3,450
2024		3,548
2025		3,648
2026		3,751
Thereafter		33,507
Total undiscounted lease payments		50,347
Less: imputed interest		22,796
Total lease liabilities	$	27,551

The Company recognized rent expense of $0.8 million and $0.8 million during the three months ended March 31, 2022 and 2021, respectively, related to the leases.

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Notes to Unaudited Interim Financial Statements

The future minimum lease payments under the Company’s operating lease arrangements as of December 31, 2021 were as follows:


(in thousands)
2022	$	2,884
2023		3,453
2024		3,550
2025		3,651
2026		3,754
Thereafter		33,534
	$	50,826

9. Commitments and Contingencies

Amended and Restated Research, Collaboration and License Arrangement with Penn

The Company has a research, collaboration and licensing agreement with Penn, as amended, or the Penn Agreement, for research and development collaborations and exclusive license rights to patents for certain products and technologies. Under the Penn Agreement, in addition to the obligation to fund certain research relating to the preclinical development of selected products, the Company will fund discovery research conducted by Penn through August 3, 2026 and will receive exclusive rights, subject to certain limitations, to technologies resulting from the discovery research for the Company’s products developed with GTP, such as novel capsids, toxicity reduction technologies and delivery and formulation improvements. This funding commitment for the discovery research is $5.0 million annually, paid in quarterly increments of $1.3 million through August 3, 2026.

The Penn Agreement includes an exploratory research program focused on discovering targets and novel gene therapy candidates for non-rare and/or non-monogenic, or large CNS diseases, initially focused on Alzheimer’s Disease, or AD, and Temporal Lobe Epilepsy, or TLE, and can be expanded to other large CNS diseases upon mutual agreement. The initial term of the exploratory research program is until August 2024, which term can be extended by mutual agreement. During such term, the Company will have an exclusive right of first negotiation to include additional targets to the exploratory research program within the agreed upon large CNS indications. Under the exploratory research program, the Company will have the right to further develop and commercialize any gene therapy product candidates specific for those selected targets within AD and TLE (and any future large CNS diseases that are mutually agreed upon) that may arise from the exploratory research programs on substantially the same terms of the current Penn Agreement.

Under the Penn Agreement, the Company has eight remaining options available to commence additional licensed programs for CNS indications and has until August 3, 2026, to exercise these options. If the Company were to exercise any of these options, it would owe Penn a non-refundable upfront 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 the obligation to fund certain research relating to the preclinical development of each licensed program.

The Penn Agreement requires that the Company make payments of up to (i) $16.5 million per product candidate for rare, monogenic disorders in the aggregate and (ii) $39.0 million per product candidate in the aggregate arising from the exploratory program for large CNS indications, initially AD and TLE and such other mutually agreed upon large CNS indications. Each payment will be due upon the achievement of specific development milestone events by such licensed product for a first indication, reduced development milestone payments for the second and third indications and no development milestone payments for subsequent indications. In addition, on a product-by-product basis, the Company is

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Passage Bio, Inc.

Notes to Unaudited Interim Financial Statements

obligated to make up to $55.0 million in sales milestone payments on each licensed product based on annual sales of the licensed product in excess of defined thresholds.

Upon successful commercialization of a product using the licensed technology, the Company is obligated to pay to Penn, on a licensed product-by-licensed product and country-by-country basis, tiered royalties (subject to customary reductions) in the mid-single digits on annual worldwide net sales of such licensed product. In addition, the Company is obligated to pay to Penn a percentage of sublicensing income, ranging from the mid-single digits to low double digits, for sublicenses under the Penn Agreement. The agreement will expire on a licensed product-by-licensed product and country-by-country basis upon the later of (i) the expiration of the last valid claim of the licensed patent rights that covers the exploitation of such licensed product in such country, and (ii) the expiration of the royalty period. In addition, the Company will pay a tiered transaction fee of 1-2% of the net proceeds upon certain change of control events.

During both of the three months ended March 31, 2022 and 2021, the Company paid Penn $1.5 million related to the achievement of a development milestone.

Catalent Agreements

In June 2019, the Company entered into a collaboration agreement, or the Collaboration Agreement, with Catalent Maryland Inc., or Catalent. As part of the Collaboration Agreement, the Company will pay an annual fee for five years ending in 2025 for the use of the Clean Room Suite and is also committed to minimum annual purchase commitments.

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. The Manufacturing and Supply Agreement confirms the terms contemplated by the Collaboration Agreement. The Collaboration Agreement continues to be in effect pursuant to its terms.

Under the terms of the Manufacturing and Supply Agreement, Catalent has agreed to manufacture batches of drug product for 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 provides for a term of five years which period may be extended once, at the Company’s option, for an additional five-year period.

The Company has the right to terminate the Manufacturing and Supply Agreement for convenience or other reasons specified in the Manufacturing and Supply Agreement upon prior written notice. If the Company terminates the Manufacturing and Supply Agreement, it will be obligated to pay an early termination fee to Catalent.

Under both the Collaboration Agreement and the Manufacturing and Supply Agreement, the Company has an annual minimum commitment of $10.6 million per year owed to Catalent for five years from the validation of the Clean Room, subject to certain inflationary adjustments.

Employment Agreements

The Company has entered into employment agreements with key personnel providing for compensation and, in certain circumstances, severance and acceleration of vesting in stock-based compensation awards, as described in the respective employment agreements.

Patent Infringement Claim

On February 18, 2020, the Company received a letter from REGENXBIO Inc., or Regenx, which stated its view that the use of the Company’s AAVhu68 capsid infringes patent claims to which Regenx has an exclusive license and which expire in 2024. Regenx also stated that it has exclusive licenses to various pending patent applications regarding the use

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Passage Bio, Inc.

Notes to Unaudited Interim Financial Statements

of AAV vectors administered via instar-cisterna magna injection, and that these applications may lead to issued claims that Regenx believes may, if issued, cover the Company’s planned method of administration for the Company’s lead product candidates. The Company believes it has valid defenses to the issued claims set forth by Regenx relating to AAVhu68. Further, the prosecution of pending patent applications is highly uncertain, and it is unclear whether any patents will be issued from these pending Regenx patent applications at all, much less with claims that are relevant to the administration of the Company’s product candidates. Regenx also requested information regarding the Company’s relationship with Dr. Wilson while he was serving as an advisor to Regenx. Regenx's letter also offers to discuss licensing the applicable patent portfolios from them. In April 2020, the Company responded to Regenx indicating that it does not believe it requires a license to any of the specified Regenx patents or patent applications at this time, and that it found that Dr. Wilson’s relationship with the Company was consistent with his obligations to Regenx. The Company will continue to monitor the situation and, if necessary, take appropriate actions, which may include responding to further correspondence from Regenx, and engaging in discussions with Regenx regarding their claims. If any such patents were enforceable and such claims were ultimately successful, the Company might require a license to continue to use and sell any product candidates using such AAV vector.

10. 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 March 31, 2022 was 10,370,926. Of this amount, 4,915,933 shares were available for future grants as of March 31, 2022. 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 or compensation committee to determine a lesser number of shares shall be added for such year. As a result, on January 1, 2022, the number of shares reserved for issuance under the Incentive Plan increased by 2,712,249 shares. 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 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 March 31, 2022 was 2,000,000, as a result of an increase to the shares authorized for issuance in February 2022. Of this amount, 1,012,900 shares were available for future grants as of March 31, 2022. 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.

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Notes to Unaudited Interim Financial Statements

The Company measures share-based awards at their grant-date fair value and records compensation expense on a straight-line basis over the vesting period of the awards. The Company recorded share-based compensation expense in the following expense categories in its accompanying statements of operations for the period presented:


	Three Months Ended March 31,
(in thousands)	2022		2021
Research and development	$	2,996	$	6,591
General and administrative		3,341		3,149
	$	6,337	$	9,740

During the three months ended March 31, 2021, the Company modified certain awards and recognized an additional $5.2 million related to the modifications in research and development expense. During the three months ended March 31, 2022, there were no modifications of share based compensation awards.

The following table summarizes stock option activity for the three months ended March 31, 2022:


				Weighted
		Weighted		average
		average		remaining
	Number of	exercise price		contractual
	shares	per share		term (years)
Outstanding at January 1, 2022	9,416,998	$	12.36	9.0
Granted	2,887,183		4.49
Exercised	(47,695)		1.02
Forfeited	(1,606,358)		12.61
Outstanding at March 31, 2022	10,650,128	$	11.43	8.7
Vested and Exercisable at March 31, 2022	3,864,722	$	12.98	8.0
Vested or expected to vest at March 31, 2022	10,650,128	$	11.43	8.7

The weighted-average grant date fair value of options granted was $3.45 and $17.18 for the three months ended March 31, 2022 and 2021, respectively. As of March 31, 2022, the total unrecognized compensation expense related to unvested stock option awards was $51.5 million, which the Company expects to recognize over a weighted-average period of 2.7 years.

The 2018 Plan provides certain holders of stock options an election to early exercise prior to vesting. The Company has the right to repurchase early exercised options without transferring any appreciation in the value of the underlying shares to the employee if the employee terminates employment before the end of the original vesting period. The repurchase price is the lesser of the original exercise price or the then fair value of the Company’s common stock. As of March 31, 2022, 1,139,650 options to purchase common stock are unvested, but exercisable, under these early exercise provisions.

The fair value of each option was estimated on the date of grant using the weighted average assumptions in the table below:


	Three Months Ended March 31,
	2022		2021
Expected volatility	95.4	%	99.1	%
Risk‑free interest rate	1.5	%	0.8	%
Expected term	6.0	years	6.1	years
Expected dividend yield	—		—

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Passage Bio, Inc.

Notes to Unaudited Interim Financial Statements

Restricted Stock Units

The Company issues restricted stock units, or RSUs, to employees that vest over periods as determined by the board of directors. Any unvested shares are forfeited upon termination of services. The fair value of the RSUs is equal to the fair market value price of the Company’s common stock on the date of grant. Compensation expense is recognized on a straight-line basis over the vesting period of the RSUs.

The following table summarizes activity related to RSU awards during the three months ended March 31, 2022:


			Weighted average
	Number of shares		grant date fair value
Unvested balance at January 1, 2021	290,500	$	14.78
Granted	224,000	$	4.52
Vested	(15,000)		18.85
Forfeited	(71,000)	$	15.16
Unvested balance at March 31, 2022	428,500	$	9.21

As of March 31, 2022, the total unrecognized expense related to all RSUs was $3.2 million, which the Company expects to recognize over a weighted-average period of 2.7 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 1,435,619 shares of the Company’s common stock. Of this amount, 1,324,385 were available for future grants as of March 31, 2022. The number of shares of the Company’s common stock that may be issued pursuant to rights granted under the ESPP shall automatically increase on January 1st of each year and continuing for ten years, in an amount equal to one percent of the total number of shares of the Company’s common stock outstanding on December 31st of the preceding calendar year, subject to the discretion of the board of directors or compensation committee to determine a lesser number of shares shall be added for such year. As a result, on January 1, 2022, the number of shares reserved for issuance under the ESPP increased by 542,449 shares, resulting in a total of 1,435,619 shares authorized for issuance.

Under the ESPP, eligible employees can purchase the Company’s common stock through accumulated payroll deductions at such times as are established by the compensation committee. Eligible employees may purchase the Company’s common stock at 85% of the lower of the fair market value of the Company’s common stock on the first day of the offering period or on the last day of the offering period. The offering periods under the ESPP have a duration of six months, with periods ending in May and November of each calendar year. Eligible employees may contribute up to 15% of their eligible compensation. Under the ESPP, a participant may not accrue rights to purchase more than $25,000 worth of the Company’s common stock for each calendar year in which such right is outstanding or purchase more than 4,000 shares of the Company’s common stock in any single offering period.

In accordance with the guidance in ASC 718-50 – Compensation – Stock Compensation, the ability to purchase shares of the Company’s common stock at 85% of the lower of the price on the first day of the offering period or the last day of the offering period (i.e. the purchase date) represents an option and, therefore, the ESPP is a compensatory plan under this guidance. Accordingly, share-based compensation expense is determined based on the option’s grant-date fair value as estimated by applying the Black Scholes option-pricing model and is recognized over the withholding period. The Company recognized share-based compensation expense of $0.1 million and $0.1 million during the three months ended March 31, 2022 and 2021, respectively, related to the ESPP.

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Passage Bio, Inc.

Notes to Unaudited Interim Financial Statements

11. Subsequent Event

On May 11, 2022, the Company and Penn entered into an amendment to the Penn Agreement pursuant to which the Company returned to Penn the rights to the Canavan disease, Charcot-Marie-Tooth Type 2A and Parkinson’s disease research programs. The amendment did not result in any termination costs.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our financial statements and the related notes and other financial information included elsewhere in this Quarterly Report on Form 10-Q. In addition to historical financial information, this discussion and analysis contains forward-looking statements based upon current expectations that involve risks and uncertainties, such as statements of our plans, objectives, expectations, intentions and beliefs. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth in the section titled “Risk Factors” under Part II, Item 1A below.

Overview and Pipeline

We are a clinical stage genetic medicines company focused on developing transformative therapies for central nervous system, or CNS, disorders with limited or no approved treatment options. Our vision is to finally fulfill the promise of gene therapy by developing groundbreaking therapies that transform the lives of patients with CNS diseases. The field of genetic medicine is rapidly expanding and we believe we have a differentiated approach to developing treatments for CNS disorders that enables us to select and advance product candidates with a higher probability of technical and regulatory success. We have entered into a strategic research collaboration with the Trustees of the University of Pennsylvania’s, or Penn’s, Gene Therapy Program, or GTP, headed by Dr. James Wilson, a leader in the genetic medicines field. We also leverage our close working relationship with Penn’s Orphan Disease Center, or ODC, to develop historical and prospective comparable natural history patient profiles for comparison to participants in interventional trials. Through this collaboration we have assembled a deep portfolio of genetic medicine product candidates, for which we retain global rights, the details of which are outlined in the below table:

Graphical user interface, application Description automatically generated

* 8 additional CNS pipeline license options; 3 license options were previously exercised, and rights were subsequently returned to the University of Pennsylvania.

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

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PBGM01 for the Treatment of GM1

We are currently developing PBGM01, which utilizes a proprietary, next-generation AAVhu68 capsid to deliver to the brain and peripheral tissues a functional GLB1 gene encoding β-gal for infantile GM1. Infantile GM1 is the most common and severe form of GM1, in which patients have mutations in the GLB1 gene that produce little or no residual β-gal enzyme activity. β-gal is an enzyme that catalyzes the first step in the natural degradation of GM1 ganglioside. Reduced β-gal activity results in the accumulation of toxic levels of GM1 ganglioside in neurons throughout the brain, causing rapidly progressive neurodegeneration, with a life expectancy of two to ten years. Currently, there are no disease-modifying therapies approved for the treatment of GM1. Early onset infantile GM1 is characterized by onset in the first 6 months of life, while late onset infantile GM1 is characterized by onset between 6 and 24 months. We believe PBGM01 could provide patients with significantly improved outcomes. In preclinical studies we observed meaningful transgene expression in both the CNS and in peripheral organs affected in GM1. We are conducting clinical trials using an intra-cisterna magna, or ICM, method of administration, which involves an injection at the craniocervical junction.

We have an active IND, or Investigational New Drug application, from the U.S. Food and Drug Administration, or FDA, and approved clinical trial authorizations, or CTAs, in multiple countries for PBGM01, and we are actively proceeding with our Imagine-1 Trial, an international, multi-center, open-label, single-arm Phase 1/2 clinical trial of PBGM01 in patients with a diagnosis of early and late infantile GM1.

In March 2021, we dosed the first patient in our Imagine-1 Trial. In the fourth quarter of 2021, we reported initial safety and 30-day biomarker data from the initial cohort of two late onset patients with GM1 treated with the low dose of PBGM01. We also reported interim safety data for the initial cohort that showed PBGM01 was well tolerated with no serious adverse events and no evidence of dorsal root ganglion toxicity. In February 2022, we reported meaningful developmental improvement in assessments, utilizing the Bayley III and Vineland II scales, performed by trained healthcare providers and caregivers, respectively, for both patients in the initial cohort. Additionally we have dosed our first patient in Cohort 2, for late onset infantile with high dose PBGM01, and completed dosing patients in Cohort 3, for early onset infantile GM1 with low dose PBGM01, with initial biomarker and safety data from these cohorts expected to be reported in the second half of 2022.

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

Through our manufacturing partners, we have manufactured the PBGM01 clinical supply and have established a clinical supply chain to support global clinical trials.

PBFT02 for the Treatment of FTD-GRN

We are currently developing PBFT02, which utilizes an AAV1 capsid to deliver a functional copy of the granulin gene, or GRN, encoding for human progranulin, or PGRN, for the treatment of frontotemporal dementia caused by progranulin deficiency, or FTD-GRN. FTD-GRN is an inheritable form of FTD in which patients have mutations in the GRN gene, causing a deficiency in PGRN. PGRN is a complex and highly conserved protein thought to have multiple roles in cell homeostasis, neurodevelopment, and inflammation. Emerging evidence suggests that PGRN deficiency in FTD and other neurodegenerative disorders may contribute to lysosomal dysfunction. Currently, there are no disease-modifying therapies approved for the treatment of FTD-GRN. Based on findings in preclinical studies, we believe that PBFT02 may provide FTD-GRN patients with significantly improved outcomes. We selected the AAV1 capsid and ICM administration for PBFT02 because this approach led to extensive and robust expression of human PGRN throughout the brain and spinal cord of NHPs, and due to the higher PGRN levels in CSF using AAV1 as compared with other serotypes tested. ICM administration of AAV1 to NHPs resulted in CSF levels of human PGRN in excess of 50-fold higher than those in healthy human subjects’ CSF, and in excess of 5-fold higher than levels achieved in NHPs with AAVhu68 or AAV5.

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We have an active IND from the FDA and approved CTAs in multiple countries for PBFT02, which allows us to proceed with our upliFT-D Trial, an international, multi-center, open-label, single-arm Phase 1/2 clinical trial of PBFT02 in patients with a diagnosis of early symptomatic FTD-GRN.

We expect to dose the first patient in our initial cohort of our upliFT-D Trial in mid-2022.

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

Through our manufacturing partners, we have manufactured the PBFT02 clinical supply to support clinical trial initiation.

PBKR03 for the Treatment of Krabbe disease

We are currently developing PBKR03, which utilizes a proprietary, next-generation AAVhu68 capsid to deliver to the brain and peripheral tissues a functional GALC gene encoding the hydrolytic enzyme galactosylceramidase for Krabbe disease. Krabbe disease is an autosomal recessive lysosomal storage disease caused by mutations in the GALC gene, which provides instructions for making an enzyme called galactosylceramidase, which breaks down certain fats, including galactosylceramide and psychosine. This results in the accumulation of galactolipids such as psychosine, resulting in widespread death of myelin-producing cells in the CNS and in the peripheral nervous system, or PNS. Without myelin, nerves in the brain and other parts of the body cannot transmit signals properly, leading to the signs and symptoms of Krabbe disease. We believe PBKR03 may provide patients with significantly improved outcomes. In preclinical models, we have observed meaningful transduction of both the CNS and other critical peripheral organs for Krabbe disease patients using our ICM method of administration in combination with our next-generation AAVhu68 capsid.

We have an active IND from the FDA and approved CTAs in multiple countries for PBKR03, which allows us to proceed with our GALax-C Trial, an international, multi-center, open-label, single-arm Phase 1/2 clinical trial of PBKR03 in patients with a diagnosis of infantile Krabbe disease.

In March 2022, we dosed the first patient in our GALax-C Trial. This patient experienced a grade 4 adverse event of acute communicating hydrocephalus, which is a build-up of the CSF in the brain, twenty-six days after dosing. Health authorities, including the FDA and ex-U.S. regulatory agencies, as well as study investigators, were notified. The patient underwent surgery to have a shunt inserted to reduce CSF build-up in the brain. The procedure was well-tolerated, and the patient has been stable post-procedure.

Following an investigation, this adverse event was assessed to be possibly related to either study treatment or study procedures due to the temporal proximity of the adverse event to the administration of treatment. At the time of the adverse event, there was no evidence of inflammation in blood or in cerebrospinal fluid. However, the role of disease progression may also be a factor due to the following findings: 1) hydrocephalus has been reported in the literature in association with Krabbe disease, and 2) baseline imaging showed evidence of changes in the ventricles of the brain that progressed following dosing in this patient.

In addition, preliminary biomarker data in this patient showed rapid normalization of GALC activity and reduction of psychosine in both serum and CSF within 30 days.

The IDMC recommended continuation of the trial with specified modifications including certain changes to the inclusion/exclusion criteria and additional monitoring post administration. We are implementing these modifications expeditiously. In addition, we have increased the number of subjects in Cohort 1 from three to four per study protocol following this adverse event.

We are proceeding with study recruitment, and we expect to report interim safety and 30-day biomarker data from the initial cohort by the end of 2022.

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

Through our manufacturing partners, we have manufactured PBKR03 clinical supply to support clinical trial initiation.

Research Programs

We have three programs in preclinical research stages under our license agreement with Penn: PBML04 for metachromatic leukodystrophy, or MLD, PBAL05 for ALS and an unnamed program for Huntington’s disease.

In March 2022, we announced plans to prioritize research and development programs to reduce operating expenses and extend our cash runway. We have completed our prioritization and will continue to advance our ongoing three clinical programs as well as our preclinical programs in MLD, ALS and Huntington’s disease, and our exploratory research programs in Alzheimer’s disease and temporal lobe epilepsy. We returned our rights to programs in Canavan disease, Charcot-Marie-Tooth Type 2A and Parkinson’s disease to Penn’s GTP for future development. We continue to hold eight additional license options.

An IND has been submitted for PBML04 which is being advanced for MLD, a rare, pediatric, lysosomal storage disorder caused by mutations in the ARSA gene. PBML04 utilizes the same next-generation proprietary capsid as PBGM01 and PBKR03 to deliver, through ICM administration, a functional ARSA gene into the CSF. PBAL05 is targeting patients with ALS who have a gain-of-function mutation in the C9orf72 gene. Our unnamed program is for the treatment of Huntington’s disease, a repeat expansion disorder.

Beyond this portfolio, through our research collaboration with GTP, we also have the option to license programs for eight additional new indications in CNS diseases along with rights and licenses to new gene therapy technologies developed by Penn, such as novel capsids, toxicity reduction technologies and delivery and formulation. We also have exploratory research programs with GTP for large indications, initially focused on AD and TLE, which can be expanded to other large CNS diseases upon mutual agreement with GTP.

Business Overview

We were incorporated in July 2017 under the laws of the State of Delaware. Since inception, we have devoted substantially all of our resources to acquiring and developing product and technology rights, conducting research and development, organizing and staffing our company, business planning and raising capital. We have incurred recurring losses, the majority of which are attributable to research and development activities, and negative cash flows from operations. Historically, we have funded our operations through the sale of convertible preferred stock and public offerings of common stock. Our net loss was $42.8 and $38.9 million for the three months ended March 31, 2022 and 2021, respectively. As of March 31, 2022, we had an accumulated deficit of $399.1 million. Our primary use of cash is to fund operating expenses, which consist primarily of research and development expenditures, and to a lesser extent, general and administrative expenditures. Our ability to generate product revenue sufficient to achieve profitability will depend heavily on the successful development and eventual commercialization of one or more of our current or future product candidates. We expect to continue to incur significant expenses and operating losses for the foreseeable future as we advance our product candidates through all stages of development and clinical trials and, ultimately, seek regulatory approval. In addition, if we obtain marketing approval for any of our product candidates, we expect to incur significant commercialization expenses related to product manufacturing, marketing, sales and distribution. Furthermore, we expect to incur additional costs associated with operating as a public company, including significant legal, accounting, investor relations and other expenses that we did not incur as a private company. Our net losses may fluctuate significantly from quarter-to-quarter and year-to-year, depending on the timing of our clinical trials and our expenditures on other research and development activities.

We will need to raise substantial additional capital to support our continuing operations and pursue our growth strategy. Until such time as we can generate significant revenue from product sales, if ever, we plan to finance our operations through the sale of equity, debt financings or other capital sources, which may include collaborations with other companies or other strategic transactions. There are no assurances that we will be successful in obtaining an adequate

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level of financing as and when needed to finance our operations on terms acceptable to us or at all. Any failure to raise capital as and when needed could have a negative impact on our financial condition and on our ability to pursue our business plans and strategies. If we are unable to secure adequate additional funding, we may have to significantly delay, scale back or discontinue the development and commercialization of one or more product candidates or delay our pursuit of potential in-licenses or acquisitions.

In March 2022, we announced a 13 percent reduction in workforce and plans to prioritize research and development programs, as described above, to reduce operating expenses and to extend our cash runway. We have slowed our investment in our pilot plant and therefore, the establishment of a pilot plant will be later than end of 2022.

As of March 31, 2022, we had cash, cash equivalents and marketable securities of $267.1 million. We expect our existing cash, cash equivalents and marketable securities will enable us to fund our operating expenses and capital expenditure requirements into the second quarter of 2024.

COVID-19 Impact

We are continuing to proactively monitor and assess the current coronavirus disease 2019, or COVID-19, global pandemic. Since early March 2020, we have activated a management team task force to assess the potential impact on our business that may result from this rapidly evolving crisis and to avoid any unnecessary potential delays to our programs. The safety and well-being of employees, patients and partners is our highest priority.

As we diligently work to activate sites for our clinical programs, we are experiencing some impacts to our site initiation activities related to COVID-19, such as meeting delays with various investigational review bodies or ethics committees that have prioritized COVID-19 related clinical trials and staffing levels at site hospitals. For example, the clinical initiation of our upliFT-D clinical study for PBFT02 and the GALax-C clinical study for PBKR03 were substantially impacted by COVID-19-related issues. Our expected timelines for clinical trials could be further delayed by these impacts.

Financial Operations Overview

License Agreement

University of Pennsylvania

We have a research, collaboration and licensing agreement, as amended, or the Penn Agreement, with Penn, for research and development collaborations and exclusive license rights to patents for certain products and technologies. Under the Penn Agreement, we have the obligation to fund certain research relating to the preclinical development of selected products in research programs as well as the new exploratory research program in non-rare and/or non-monogenic (or large) CNS indications, initially Alzheimer’s Disease, or AD, and Temporal Lobe Epilepsy, or TLE. We also fund discovery research conducted by Penn through August 2026 and will receive exclusive rights, subject to certain limitations, to technologies resulting from the discovery program for products developed with GTP, such as novel capsids, toxicity reduction technologies and delivery and formulation improvements. Our discovery research funding commitment is $5.0 million a year for five years, with quarterly payments of $1.3 million through June 2026. Under the Penn Agreement we have eight remaining options available to us to commence additional licensed programs for CNS indications until May 2026. If we were to exercise any of these remaining options, we would owe Penn a non-refundable aggregate fee of $1.0 million, with $0.5 million per product indication paid immediately and another $0.5 million fee owed upon a further developmental milestone. We have the obligation to fund certain research relating to the preclinical development of each licensed program

The Penn Agreement requires that we make payments of up to (i) $16.5 million per product candidate for rare, monogenic disorders in aggregate and (ii) $39.0 million per product candidate in the aggregate arising from the exploratory program for large CNS indications, initially AD and TLE and such other mutually agreed upon large CNS indications. Each payment will be due upon the achievement of specific development milestone events by such licensed product for a first indication, reduced development milestone payments for the second and third indications and no

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

Upon successful commercialization of a product using the licensed technology, we are obligated to pay to Penn, on a licensed product-by-licensed product and country-by-country basis, tiered royalties (subject to customary reductions) in the mid-single digits on annual worldwide net sales of such licensed product. In addition, we are obligated to pay to Penn a percentage of sublicensing income, ranging from the mid-single digits to low double digits, for sublicenses under the Penn Agreement. In addition, we will pay Penn a tiered transaction fee ranging from 1-2% of the net proceeds upon certain change of control events.

The Penn Agreement includes an exploratory research collaboration to identify targets and early product candidates in such large CNS indications. The exploratory research program is focused on discovering targets and novel gene therapy candidates for large CNS diseases, initially focused on AD and TLE, and that can be expanded to other large CNS diseases upon mutual agreement. The initial term of the exploratory research program is 3 years, which term can be extended by mutual agreement. During such term we will have an exclusive right of first negotiation to include additional targets to the exploratory research program in the agreed upon large CNS indications. Under the exploratory research program, we will have the right to further develop and commercialize any gene therapy product candidates specific for those selected targets within AD and TLE (and any future large CNS indications that are mutually agreed upon) that arise from the exploratory research programs on substantially the same terms of the current Penn Agreement.

Collaboration and Manufacturing and Supply Agreements

Catalent

In June 2019, we entered into a collaboration agreement, or the Collaboration Agreement, with Catalent Maryland, Inc., or Catalent. As part of the Collaboration Agreement, we paid Catalent an upfront fee for the commissioning, qualification, validation and equipping of a dedicated clean room suite, or the Clean Room Suite. We will pay an annual fee for five years for the exclusive use of the Clean Room Suite, which commenced in November 2020 upon its validation.

In April 2020, we entered into a development services and clinical supply agreement, or the Manufacturing and Supply Agreement, with Catalent to secure clinical scale manufacturing capacity for batches of active pharmaceutical ingredients for our gene therapy product candidates. The Manufacturing and Supply Agreement provides for a term of five years which period may be extended once, at our option, for an additional five year-period. The Collaboration Agreement continues to be in effect pursuant to its terms. Under the terms of the Manufacturing and Supply Agreement, Catalent has agreed to manufacture batches of drug product for our gene therapy product candidates at the Clean Room Suite provided for in the Collaboration Agreement. There is a minimum annual purchase commitment owed to Catalent for five years beginning in November 2020, subject to certain inflationary adjustments. We have the right to terminate the Manufacturing and Supply Agreement for convenience or other reasons specified in the Manufacturing and Supply Agreement upon prior written notice. If we terminate the Manufacturing and Supply Agreement, we will be obligated to pay an early termination fee to Catalent.

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

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Components of Results of Operations

Research and Development and Acquired In-Process Research and Development

Research and development expenses consist primarily of costs incurred in connection with the discovery and development of our product candidates. These expenses include:

●

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

●

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

●

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

●

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

●

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

●

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

●

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

●

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

We track outsourced development expenses and other external research and development expenses to specific product candidates on a program-by-program basis, such as expenses incurred under our collaboration with Penn, fees paid to CROs, CMOs and research laboratories in connection with our preclinical development, process development, manufacturing and clinical development activities. However, we do not track our internal research and development expenses on a program-by-program basis as they primarily relate to compensation, early research and other expenses which are deployed across multiple projects under development.

Research and development activities are central to our business model. Product candidates in later stages of clinical development generally have higher development expenses than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. Given our recent reduction in workforce and prioritization of research and development programs, we expect our research and development expenses to remain consistent or decrease in the near future.

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

General and Administrative Expenses

General and administrative expenses consist primarily of personnel expenses, including salaries, benefits and share-based compensation expense, for employees and consultants in executive, finance, accounting, legal, information technology, commercial, quality, regulatory, operations and human resource functions. General and administrative expenses also include corporate facility costs, including rent, utilities, depreciation and maintenance, not otherwise included in research and development expenses, legal expenses related to intellectual property and corporate matters, insurance expense, and expenses for accounting and consulting services. Given our recent reduction in workforce and prioritization of operating expenses, we expect our general and administrative expenses to remain consistent in the near future.

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Interest Income, net

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

Results of Operations

Comparison of the Three Months Ended March 31, 2022 and 2021

The following table sets forth our results of operations for the three months ended March 31, 2022 and 2021.


	Three months ended
	March 31,
(in thousands)	2022		2021		Change
Operating expenses:
Research and development	$	26,213	$	24,970	$	1,243
Acquired in‑process research and development		1,500		1,500		—
General and administrative		15,099		12,464		2,635
Loss from operations		(42,812)		(38,934)		(3,878)
Interest income, net		1		52		(51)
Net loss	$	(42,811)	$	(38,882)	$	(3,929)

Research and Development Expenses

Research and development expenses increased by $1.2 million to $26.2 million for the three months ended March 31, 2022 from $25.0 million for the three months ended March 31, 2021. The increase was primarily due to an increase of $5.1 million in clinical manufacturing expenses, a $1.6 million increase in clinical development and professional services expense, and a $1.1 million increase in facility and other expenses. These increases were partially offset by a $5.2 million decrease in research and development expenses associated with the Penn Agreement and a $1.4 million decrease in personnel-related expense due to share-based compensation modification expense incurred in the three months ended March 31, 2021, which was partially offset by an increase in headcount and severance related expenses incurred in the three months ended March 31, 2022. Expenses associated with the Penn Agreement will continue to vary from quarter to quarter based on our selection and prioritization of preclinical product candidates, the status of our preclinical pipeline and timing of preclinical work performed.

We track outsourced development, outsourced personnel expenses and other external research and development costs of specific programs. We do not track our internal research and development expenses on a program by program basis. Research and development expenses are summarized by program in the table below:


	Three months ended
	March 31,
(in thousands)	2022		2021
Program Specific Expenses	$		$
GM1		1,209		3,523
FTD‑GRN		3,297		1,268
Krabbe		2,686		4,052
MLD		3,755		955
Other Programs and Discovery		2,089		3,817
Unallocated Internal Expenses
Personnel-related (including share-based compensation)		9,844		11,274
Other		3,333		81
	$	26,213	$	24,970

Acquired In-Process Research and Development Expenses

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During both of the three months ended March 31, 2022 and 2021, we incurred expenses of $1.5 million related to the achievement of a development milestone.

General and Administrative Expenses

General and administrative expenses increased by $2.6 million to $15.1 million for the three months ended March 31, 2022 from $12.5 million for the three months ended March 31, 2021. The increase was primarily due to a $3.1 million increase in personnel-related and share-based compensation expense due to an increase in employee headcount, as well as severance expenses incurred during the three months ended March 31, 2022 related to our workforce reduction. This was partially offset by a decrease in our professional fees and other expenses of $0.5 million.

Interest Income, net

Interest income, net was de minimus and $0.1 million for the three months ended March 31, 2022 and 2021, respectively, which is primarily attributable to interest income earned on cash, cash equivalents and marketable securities, partially offset by realized losses on marketable securities in the three months ended March 31, 2022.

Liquidity and Capital Resources

Overview

As of March 31, 2022, we had $267.1 million in cash, cash equivalents and marketable securities and had an accumulated deficit of $399.1 million. We expect that our existing cash, cash equivalents and marketable securities will enable us to fund our operating expenses and capital expenditure requirements into the second quarter of 2024.

Funding Requirements

Our primary use of cash is to fund operating expenses, most significantly research and development expenditures. Cash used to fund operating expenses is impacted by the timing of when we pay these expenses, as reflected in the change in our outstanding accounts payable, accrued expenses and prepaid expenses.

Because of the numerous risks and uncertainties associated with research, development and commercialization of pharmaceutical products, we are unable to estimate the exact amount of our operating capital requirements. Our future funding requirements will depend on many factors, including, but not limited to:

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

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

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

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

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

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

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

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

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

We will need additional funds to meet operational needs and capital requirements for clinical trials, other research and development expenditures, and business development activities. We currently have no credit facility or committed sources of capital. Because of the numerous risks and uncertainties associated with the development and commercialization of our product candidates, we are unable to estimate the amounts of increased capital outlays and operating expenditures associated with our current and anticipated clinical studies.

Until such time, if ever, as we can generate substantial product revenue, we expect to finance our operations through a combination of equity offerings, debt financings, collaborations, strategic alliances and marketing, distribution or licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, existing stockholders’ ownership interests will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect existing stockholders’ rights as common stockholders. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making acquisitions or capital expenditures or declaring dividends. If we raise additional funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or drug candidates, or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings or other arrangements when needed, we may be required to delay, limit, reduce or terminate our research, product development or future commercialization efforts, or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

Cash Flows

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


	Three Months Ended
	March 31,
(in thousands)	2022		2021
Cash used in operating activities	$	(44,711)	$	(30,718)
Cash provided by (used in) investing activities		17,311		(20,397)
Cash provided by financing activities		49		165,634
Net increase (decrease) in cash and cash equivalents	$	(27,351)	$	114,519

Net Cash Used in Operating Activities

During the three months ended March 31, 2022, we used $44.7 million of net cash in operating activities. Cash used in operating activities reflected a net loss of $42.8 million and a net increase in our operating assets of $11.5 million, partially offset by non-cash charges of $9.6 million related to share-based compensation, depreciation, amortization of premium and discount, net, reduction of operating right of use assets and operating lease liabilities and acquired in-process research and development. The primary use of cash was to fund our operations related to the development of our product candidates.

During the three months ended March 31, 2021, we used $30.7 million of net cash in operating activities. Cash used in operating activities reflected a net loss of $38.9 million and a $3.5 million net increase in our operating assets and liabilities. which was partially offset by non-cash charges of $11.7 million related to share-based compensation, acquired in-process research and development, depreciation, amortization of premium and discount, net and changes in deferred rent. The primary use of cash was to fund our operations related to the development of our product candidates.

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Net Cash Used in Investing Activities

During the three months ended March 31, 2022, we purchased $37.4 million in marketable securities, had sales and maturities of $56.9 million in marketable securities, had purchases of property and equipment of $0.7 million, and paid $1.5 million for technology licenses.

During the three months ended March 31, 2021, we purchased $60.3 million in marketable securities, had sales and maturities of $41.2 million in marketable securities, paid $0.5 million for technology licenses and purchased $0.8 million in property and equipment.

Net Cash Provided by Financing Activities

During the three months ended March 31, 2022, we received $49,000 from the exercise of stock options.

During the three months ended March 31, 2021, we received net proceeds of $165.8 million from the sale of our common stock and received $81,000 from the exercise of stock options. We also paid $0.3 million in deferred offering costs.

Off-Balance Sheet Arrangements

During the periods presented, we did not have, nor do we currently have, any relationships with unconsolidated entities or financial partnerships, including entities sometimes referred to as structured finance or special purpose entities that were established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. We do not engage in off-balance sheet financing arrangements. In addition, we do not engage in trading activities involving non-exchange traded contracts. We therefore believe that we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in these relationships.

Critical Accounting Policies and Estimates

During the three months ended March 31, 2022, there were no material changes to our critical accounting policies and estimates from those described under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” in our 2021 Annual Report filed on Form 10-K.

JOBS Act Accounting Election

We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies.

We have elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.

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

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Recent Accounting Pronouncements

See Note 3 to our unaudited interim financial statements included elsewhere in this Quarterly Report on Form 10-Q for a description of recent accounting pronouncements applicable to our financial statements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Not applicable.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

As of March 31, 2022, management, with the participation of our Principal Executive Officer and Principal Financial and Accounting Officer, performed an evaluation of the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Our disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including the Principal Executive Officer and Principal Financial and Accounting Officer, to allow timely decisions regarding required disclosures. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objective and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on this evaluation, our Principal Executive Officer and Principal Financial and Accounting Officer concluded that, as of March 31, 2022, our disclosure controls and procedures were effective at a reasonable assurance level.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the quarter ended March 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II-OTHER INFORMATION

Item 1. Legal Proceedings.

From time to time, we may be involved in legal proceedings arising in the ordinary course of our business. We are not presently a party to any legal proceedings that, in the opinion of management, would 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.

Item 1A. Risk Factors.

Investing in our common stock involves a high degree of risk. Before making your decision to invest in shares of our common stock, you should carefully consider the risks and uncertainties described below, together with the other information contained in this quarterly report, including our financial statements and the related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties that we are unaware of, or that we currently believe are not material, may also become important factors that affect us. We cannot assure you that any of the events discussed below will not occur. These events could have a material and adverse impact on our business, financial condition, results of operations and prospects. If that were to happen, the trading price of our common stock could decline, and you could lose all or part of your investment.

Summary of Risk Factors

Our business is subject to a number of risks and uncertainties, including those immediately following this summary. Some of these risks are:

●

We are a clinical stage genetic medicines company with a history of operating losses, and we may not achieve or sustain profitability. We anticipate that we will continue to incur losses for the foreseeable future. Our limited operating history may make it difficult for you to evaluate our success to date and to assess our future viability;

●	The novel strain of coronavirus, SARS-CoV-2, which causes COVID-19, has adversely impacted our business, including our preclinical development activities, clinical studies and planned timing of clinical trials;

●	We will need to raise additional funding before we can expect to become profitable from any potential future sales of our products;

●	We are early in our development efforts. Our business is dependent on our ability to advance our current and future product candidates through preclinical studies and clinical trials, obtain marketing approval and ultimately commercialize them;

●	The disorders we seek to treat have low incidence and prevalence and it may be difficult to identify patients with these diseases, which may lead to delays in enrollment for our trials or slower commercial revenue if approved;

●

Preclinical and clinical development involve a lengthy and expensive process with an uncertain outcome. We may incur additional expenses or experience delays in completing, or ultimately be unable to complete, the development and commercialization of our current product candidates or any future product candidates;

●	Gene therapy is a novel technology, which makes it difficult to predict the time and cost of product candidate development and subsequently obtaining regulatory approval;

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●	Our product candidates may cause undesirable and unforeseen side effects, which could delay or prevent their advancement into clinical trials or regulatory approval, limit the commercial potential or result in significant negative consequences;

●	We currently rely exclusively on our collaboration with Penn for our preclinical research and development, including for discovering, preclinically developing and conducting all IND-enabling studies for our clinical product candidates and our near-term future pipeline;

●	Gene therapies are novel, complex and difficult to manufacture. We could experience manufacturing problems that result in delays in our development or commercialization programs or otherwise harm our business;

●	We face significant competition in an environment of rapid technological change and the possibility that our competitors may achieve regulatory approval before us or develop therapies or technologies that are more advanced or effective than ours;

●	We currently rely and expect to continue to rely on third-party manufacturers to produce clinical supply of our product candidates; and

●

If we are unable to obtain and maintain patent protection or other necessary rights for our products and technology, or if the scope of the patent protection obtained is not sufficiently broad or our rights under licensed patents is not sufficiently broad, our competitors could develop and commercialize products and technology similar or identical to ours, and our ability to successfully commercialize our products and technology may be adversely affected.

Risks Related to Our Financial Position and Need for Additional Capital

We are a clinical stage genetic medicines company with a history of operating losses, and we may not achieve or sustain profitability. We anticipate that we will continue to incur losses for the foreseeable future. Our limited operating history may make it difficult for you to evaluate the success of our business to date and to assess our future viability.

We are a clinical stage genetic medicines company with a limited operating history on which to base your investment decision. Biotechnology product development is a highly speculative undertaking and involves a substantial degree of risk. Our operations to date have been limited primarily to organizing and staffing our company, business planning, raising capital and entering into collaboration and vendor agreements for conducting preclinical research and clinical development activities for our product candidates. All of our clinical product candidates are still in clinical development or the preclinical testing stage. We have no products approved for commercial sale and have not generated any revenue from commercial product sales, and we will continue to incur significant research and development and other expenses related to our clinical development and ongoing operations. We have funded our operations to date through proceeds from sales

PASG

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