Passage BIO(PASG) - 2020 Q2 - Quarterly Report

Part I. Financial Information Item 1. Interim Financial Statements (Unaudited) Unaudited interim financial statements for June 30, 2020, reflect asset growth from the March 2020 IPO, continued net losses, and increased operating expenses Balance Sheets The balance sheets show a substantial increase in cash and total assets, driven by the IPO, and a shift from deficit to equity Balance Sheet Summary (as of June 30, 2020 vs. December 31, 2019) | Metric | June 30, 2020 (in thousands) | December 31, 2019 (in thousands) | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $353,423 | $158,874 | | Total current assets | $368,230 | $165,775 | | Total assets | $378,097 | $178,613 | | Liabilities & Equity | | | | Total current liabilities | $14,134 | $3,681 | | Total liabilities | $14,701 | $4,261 | | Total convertible preferred stock | $0 | $230,605 | | Total stockholders' equity (deficit) | $363,396 | $(56,253) | - The significant increase in cash and cash equivalents from $158.9 million to $353.4 million is primarily due to the net proceeds from the company's IPO in March 2020[14][29] - All convertible preferred stock was converted to common stock upon the IPO, resulting in a shift from a stockholders' deficit of $56.3 million to a stockholders' equity of $363.4 million[14][19] Statements of Operations Statements of operations show increased R&D and G&A expenses, leading to higher net losses for the three and six months ended June 30, 2020 Statements of Operations Summary (Unaudited) | Metric (in thousands) | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :--- | :--- | :--- | :--- | :--- | | Research and development | $19,902 | $6,299 | $33,019 | $9,332 | | General and administrative | $7,402 | $968 | $12,197 | $2,122 | | Loss from operations | $(27,304) | $(7,767) | $(45,216) | $(11,954) | | Net loss | $(27,172) | $(13,426) | $(44,757) | $(21,095) | | Net loss per share | $(0.60) | $(3.19) | $(1.42) | $(5.02) | - Research and development expenses for the six months ended June 30, 2020, increased to $33.0 million from $9.3 million in the prior year period, driven by preparations for IND filings and clinical trials[17][127] - General and administrative expenses for the six months ended June 30, 2020, rose to $12.2 million from $2.1 million year-over-year, primarily due to increased headcount and costs associated with operating as a public company[17][131] Statements of Cash Flows Cash flow statements highlight a significant increase in cash from financing activities, primarily the IPO, offsetting increased cash used in operations Cash Flow Summary (Six Months Ended June 30) | Metric (in thousands) | 2020 | 2019 | | :--- | :--- | :--- | | Net cash used in operating activities | $(33,566) | $(10,994) | | Net cash used in investing activities | $(193) | $(1,541) | | Net cash provided by financing activities | $228,308 | $66,463 | | Net increase in cash | $194,549 | $53,928 | - Financing activities provided $228.3 million in cash for the first six months of 2020, primarily from the net proceeds of the company's IPO[24][144] - Net cash used in operating activities increased to $33.6 million for the first six months of 2020, up from $11.0 million in the same period of 2019, reflecting the increased net loss and operational scale-up[24][141] Notes to Unaudited Interim Financial Statements Notes detail the company's focus on genetic medicines, the impact of its March 2020 IPO, significant financial commitments, and a patent infringement claim - The company is a genetic medicines company focused on rare monogenic CNS diseases, with a strategic research collaboration with the University of Pennsylvania's (Penn) Gene Therapy Program (GTP)[27] - In March 2020, the company closed its IPO, raising net proceeds of $227.5 million[29][67] - The company has significant commitments, including an amended agreement with Penn requiring $5.0 million annually for five years for discovery research, and an annual minimum commitment of $10.6 million to Catalent for manufacturing for five years upon validation of the clean room[53][59] - In February 2020, the company received a letter from Regenxbio Inc. claiming potential patent infringement related to the AAVhu68 capsid and ICM administration method. The company believes it has valid defenses[66] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's focus on rare CNS genetic disorders, pipeline progress, strengthened financial position from the IPO, and increased R&D and G&A expenses Overview and Pipeline The company focuses on genetic medicines for rare CNS disorders, with key programs like PBGM01, PBFT02, and PBKR03 advancing towards clinical trials - The company is focused on developing genetic medicines for rare, monogenic CNS disorders, leveraging a strategic collaboration with the University of Pennsylvania's Gene Therapy Program (GTP)[86] Development Pipeline and Key Milestones | Program | Indication | Status | Anticipated Milestone | | :--- | :--- | :--- | :--- | | PBGM01 | GM1 Gangliosidosis | IND-enabling | Initiate Phase 1/2 trial in 4Q 2020 - 1Q 2021 | | PBFT02 | Frontotemporal Dementia (FTD-GRN) | IND-enabling | Initiate Phase 1/2 trial in 1H 2021 | | PBKR03 | Krabbe Disease | IND-enabling | Initiate Phase 1/2 trial in 1H 2021 | | PBML04 | Metachromatic leukodystrophy (MLD) | Discovery | - | | PBAL05 | Amyotrophic lateral sclerosis (ALS) | Discovery | - | | PBCM06 | Charcot-Marie-Tooth Type 2A (CMT2A) | Discovery | - | - In July 2020, the FDA placed the IND for PBGM01 on clinical hold pending additional biocompatibility risk assessments of the proposed ICM delivery device. The company is confident it can respond rapidly and expects to initiate the trial in late 2020 or early 2021[89][91] Results of Operations Results of operations show substantial increases in R&D and G&A expenses for the six months ended June 30, 2020, reflecting operational scale-up - For the six months ended June 30, 2020, R&D expenses increased by $23.7 million to $33.0 million compared to the same period in 2019. This was driven by increased costs with Penn for IND filings, clinical manufacturing, and higher personnel-related costs[127] - For the six months ended June 30, 2020, G&A expenses increased by $10.1 million to $12.2 million year-over-year, primarily due to a $6.9 million increase in personnel-related and share-based compensation expense and increased costs of operating as a public company[131] R&D Expenses by Program (Six Months Ended June 30) | Program (in thousands) | 2020 | 2019 | | :--- | :--- | :--- | | GM1 | $7,509 | $1,522 | | FTD-GRN | $8,563 | $4,261 | | Krabbe | $6,154 | $972 | | MLD | $1,227 | $791 | | ALS | $541 | $686 | | CMT2A | $338 | $0 | | Internal costs, including personnel | $8,687 | $1,100 | | Total | $33,019 | $9,332 | Liquidity and Capital Resources The company's liquidity was significantly bolstered by the March 2020 IPO, providing a cash runway into the first quarter of 2023 - As of June 30, 2020, the company had $353.4 million in cash and cash equivalents[134] - The company received net proceeds of $227.5 million from its IPO in the first quarter of 2020[134] - Existing cash and cash equivalents are expected to fund operating expenses and capital expenditure requirements into the first quarter of 2023[99][134] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company states that quantitative and qualitative disclosures about market risk are not applicable, indicating no material exposure - The company states that quantitative and qualitative disclosures about market risk are not applicable[152] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2020, with no material changes in internal control over financial reporting - Management concluded that as of June 30, 2020, the company's disclosure controls and procedures were effective at a reasonable assurance level[154] - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, internal controls[155] Part II. Other Information Item 1. Legal Proceedings The company reports no current legal proceedings that would have a material adverse effect on its business - The company reports it is not presently a party to any legal proceedings that would have a material adverse effect on its business[158] Item 1A. Risk Factors The company faces extensive risks including operating losses, need for capital, preclinical development uncertainties, COVID-19 impacts, reliance on third parties, and intellectual property disputes Risks Related to Financial Position and Need for Additional Capital The company, a preclinical stage entity, has a history of operating losses and will require substantial additional capital for future development - The company is a preclinical stage entity with a history of operating losses ($103.4 million accumulated deficit as of June 30, 2020) and expects to incur significant losses for the foreseeable future[160][161] - The company will require substantial additional capital to complete development and commercialization of its product candidates, and failure to obtain this funding may force delays, limitations, or termination of its programs[166] Risks Related to Product Development and Regulatory Approval Product development faces risks from the COVID-19 pandemic, preclinical stage uncertainties, and the novel, unpredictable nature of gene therapy regulatory approval - The COVID-19 pandemic could adversely impact the business, including preclinical development and planned clinical trials, through delays in operations of regulatory agencies, CROs, and CMOs[173][174] - All product candidates are in preclinical development, and their success is uncertain. The IND for PBGM01 has been placed on clinical hold by the FDA, which must be resolved before the trial can commence[179][185] - Gene therapy is a novel technology, making it difficult to predict the time and cost of development and regulatory approval. Only a limited number of gene therapy products have been approved to date[196] Risks Related to Our Reliance on Third Parties The company's reliance on third parties, particularly the University of Pennsylvania for R&D and CROs for clinical trials, poses significant operational risks - The company relies exclusively on its collaboration with the University of Pennsylvania (Penn) for all preclinical research and development. A failure or termination of this relationship would materially harm the business[222][223] - The company will rely on third-party CROs to conduct clinical trials, which means important aspects of development programs, including conduct and timing, will be outside of its direct control[226][228] Risks Related to Manufacturing Manufacturing gene therapies is complex, and the company's reliance on third parties like Catalent for supply, without commercial capabilities, presents significant risks - Gene therapies are complex and difficult to manufacture. The company relies on third parties like Catalent for clinical supply and may face delays, contamination, or other problems[245] - The company has not yet secured manufacturing capabilities for commercial quantities and may be unable to negotiate binding agreements with manufacturers on commercially reasonable terms[252][253] Risks Related to Intellectual Property Intellectual property risks include reliance on in-licensed patent applications, a patent infringement claim from Regenxbio, and potential government 'march-in' rights - The company's intellectual property protection consists solely of patent applications in-licensed from Penn, and there is no assurance these will mature into issued patents with sufficient scope[279] - The company received a letter from Regenxbio Inc. in February 2020 claiming that the use of the AAVhu68 capsid and ICM administration method infringes on patents licensed to Regenx. An unfavorable outcome could require the company to obtain a license, which may not be available on reasonable terms[303][304] - Intellectual property licensed from Penn may be subject to federal regulations, including "march-in" rights by the U.S. government, due to being developed with government funding[330] Risks Related to Ownership of Our Common Stock Risks related to common stock ownership include price volatility, significant influence by principal stockholders, and reduced disclosure requirements as an emerging growth company - The company's stock price is likely to be volatile, influenced by factors such as clinical trial results, regulatory decisions, and competitor success[381] - As of June 30, 2020, executive officers, directors, and principal stockholders beneficially owned approximately 38% of the company's capital stock, giving them significant influence over corporate matters[385] - The company is an "emerging growth company" and "smaller reporting company," which allows for reduced disclosure requirements that may make its common stock less attractive to some investors[395] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reports no unregistered equity sales and confirms its Q1 2020 IPO raised $227.5 million, with no material change in the planned use of proceeds - In Q1 2020, the company completed its IPO, selling 13,798,900 shares of common stock at $18.00 per share, for net proceeds of approximately $227.5 million[410] - There has been no material change in the planned use of proceeds from the IPO as described in the prospectus[411]