Passage BIO(PASG) - 2021 Q1 - Quarterly Report

FORM 10-Q Filing Information This section details Passage Bio, Inc.'s Form 10-Q filing for Q1 2021, including registrant status and common stock outstanding - Passage Bio, Inc. filed its Quarterly Report on Form 10-Q for the period ended March 31, 2021[1] Registrant Status and Securities | Category | Status | | :--- | :--- | | Filing Type | Quarterly Report (Form 10-Q) | | Period Ended | March 31, 2021 | | Commission File Number | 001-39231 | | State of Incorporation | Delaware | | IRS Employer Identification No. | 82-2729751 | | Common Stock Trading Symbol | PASG | | Exchange Registered | The Nasdaq Stock Market LLC (Nasdaq Select Global Market) | | Reports Filed (preceding 12 months) | Yes | | Interactive Data File Submitted | Yes | | Filer Status | Non-accelerated filer, Smaller reporting company, Emerging growth company | - As of May 3, 2021, the registrant had 53,977,484 shares of common stock outstanding[5] CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS This section advises that the report contains forward-looking statements subject to risks and uncertainties, which the company does not plan to publicly update - The report contains forward-looking statements based on current expectations and projections, subject to known and unknown risks, uncertainties, and assumptions, including those detailed in 'Risk Factors' and 'Management's Discussion and Analysis of Financial Condition and Results of Operations'[6][7] - These statements are predictions and actual results could differ materially; the company does not plan to publicly update or revise them, except as required by law, and intends them to be covered by safe harbor provisions[7][8] PART I. FINANCIAL INFORMATION This part covers unaudited interim financial statements, management's discussion, market risk, and internal controls Item 1. Interim Financial Statements (Unaudited) This section presents Passage Bio, Inc.'s unaudited interim financial statements, including Balance Sheets, Statements of Operations, Stockholders' Equity, and Cash Flows, with detailed notes Balance Sheets This section provides a summary of Passage Bio, Inc.'s unaudited balance sheet as of March 31, 2021, and December 31, 2020 Balance Sheet Highlights (in thousands) | Metric | March 31, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Cash and cash equivalents | $249,521 | $135,002 | | Marketable securities | $188,068 | $169,815 | | Total current assets | $450,949 | $317,183 | | Total assets | $465,172 | $328,007 | | Total current liabilities | $19,469 | $21,175 | | Total liabilities | $23,668 | $23,293 | | Total stockholders' equity | $441,504 | $304,714 | | Accumulated deficit | $(209,777) | $(170,895) | Statements of Operations and Comprehensive Loss This section presents the unaudited statements of operations and comprehensive loss for the three months ended March 31, 2021 and 2020 Statements of Operations and Comprehensive Loss (Three Months Ended March 31, in thousands) | Metric | 2021 | 2020 | | :--- | :--- | :--- | | Research and development | $24,970 | $13,117 | | Acquired in-process research and development | $1,500 | $— | | General and administrative | $12,464 | $4,795 | | Loss from operations | $(38,934) | $(17,912) | | Interest income, net | $52 | $327 | | Net loss | $(38,882) | $(17,585) | | Net loss per share (basic and diluted) | $(0.76) | $(1.00) | | Weighted average common shares outstanding | 51,331,449 | 17,624,011 | | Comprehensive loss | $(38,877) | $(17,585) | Statement of Stockholders' Equity This section details the changes in stockholders' equity for the three months ended March 31, 2021 Stockholders' Equity Changes (Three Months Ended March 31, 2021, in thousands) | Item | Common Stock (Shares) | Common Stock (Amount) | Additional Paid-in Capital | Accumulated Other Comprehensive Loss | Accumulated 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 | 8,050,000 | $1 | $165,804 | $— | $— | $165,805 | | Unrealized gain 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 | Statements of Convertible Preferred Stock and Stockholders' Equity (Deficit) This section outlines changes in convertible preferred stock and stockholders' equity (deficit) for the three months ended March 31, 2020 Convertible Preferred Stock and Stockholders' Equity (Deficit) Changes (Three Months Ended March 31, 2020, in thousands) | Item | Series A-1 Shares | Series A-1 Amount | Series A-2 Shares | Series A-2 Amount | Series B Shares | Series B Amount | Common Stock Shares | Common Stock Amount | Additional Paid-in Capital | Accumulated Deficit | Total | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Balance at January 1, 2020 | 63,023,258 | $63,099 | 22,209,301 | $46,311 | 33,592,907 | $109,897 | 4,293,039 | $— | $2,410 | $(58,663) | $(56,253) | | Vesting of early exercise option awards | — | — | — | — | — | — | 454,971 | $— | $32 | $— | $32 | | Conversion of convertible preferred stock upon IPO | (63,023,258) | (63,099) | (22,209,301) | (46,311) | (33,592,907) | (109,897) | 26,803,777 | $3 | $230,602 | $— | $230,605 | | Sale of common stock in IPO, net | — | — | — | — | — | — | 13,798,900 | $1 | $227,498 | $— | $227,499 | | Share-based compensation expense | — | — | — | — | — | — | — | $— | $2,368 | $— | $2,368 | | Net loss | — | — | — | — | — | — | — | $— | $— | $(17,585) | $(17,585) | | Balance at March 31, 2020 | — | $— | — | $— | — | $— | 45,350,687 | $4 | $462,910 | $(76,248) | $386,666 | Statements of Cash Flows This section summarizes the company's cash flows from operating, investing, and financing activities for the three months ended March 31 Cash Flow Summary (Three Months Ended March 31, in thousands) | Activity Type | 2021 | 2020 | | :--- | :--- | :--- | | Net cash used in operating activities | $(30,718) | $(21,851) | | Net cash used in investing activities | $(20,397) | $(99) | | Net cash provided by financing activities | $165,634 | $229,904 | | Net increase in cash and cash equivalents | $114,519 | $207,954 | | Cash and cash equivalents at beginning of period | $135,002 | $158,874 | | Cash and cash equivalents at end of period | $249,521 | $366,828 | - Operating activities consumed $30.7 million in Q1 2021, primarily due to a net loss of $38.9 million, partially offset by non-cash charges and changes in operating assets/liabilities[25][146][147] - This represents an increase from $21.9 million used in Q1 2020[25][147] - Investing activities used $20.4 million in Q1 2021, mainly due to purchases of marketable securities ($60.3 million) and a technology license ($0.5 million), partially offset by sales/maturities of marketable securities ($41.2 million)[25][149] - This is a significant increase from $99 thousand used in Q1 2020[25][149] - Financing activities provided $165.6 million in Q1 2021, primarily from net proceeds of common stock issuance ($165.8 million)[25][150] - This is lower than the $229.9 million provided in Q1 2020, which included IPO proceeds[25][150] Notes to Unaudited Interim Financial Statements This section provides detailed notes explaining the company's operations, accounting policies, and financial instrument details 1. Nature of Operations This note describes Passage Bio, Inc.'s focus as a genetic medicines company for rare CNS diseases and its key collaborations - Passage Bio, Inc. is a genetic medicines company focused on rare monogenic central nervous system (CNS) diseases, incorporated in July 2017[28] - The company has a strategic research collaboration with the University of Pennsylvania's Gene Therapy Program (GTP) for discovery and preclinical development, and an agreement with Catalent Maryland, Inc. for clinical scale manufacturing[28] 2. Risks and Liquidity This note discusses the company's recurring losses, need for additional capital, and risks associated with early-stage biotechnology development - The company has incurred recurring losses and negative cash flows since inception, with an accumulated deficit of $209.8 million as of March 31, 2021[29] - A follow-on public offering in January 2021 generated net proceeds of $165.8 million, but substantial additional capital will be needed to fund operations and product development[30][31] - The company faces risks associated with early-stage biotechnology, including significant R&D efforts, preclinical and clinical testing, manufacturing capacity, regulatory approval, and intellectual property defense[31] 3. Summary of Significant Accounting Policies This note outlines the significant accounting policies used in preparing the financial statements, including estimates and new pronouncements - Financial statements are prepared in accordance with GAAP and SEC Rule 10-01 of Regulation S-X, with management making estimates and assumptions that affect reported amounts[35][36][37] - Key policies include classifying marketable securities as available-for-sale, capitalizing equity financing costs, measuring share-based awards at grant-date fair value, and computing basic and diluted net loss per share[43][44][45][48] Potentially Dilutive Securities Excluded from EPS (Three Months Ended March 31) | Security Type | 2021 | 2020 | | :--- | :--- | :--- | | Stock options (including shares subject to repurchase) | 8,708,503 | 6,359,947 | | Unvested restricted stock units | 170,000 | — | | Employee stock purchase plan | 32,821 | — | | Total | 8,911,324 | 6,359,947 | - The company is evaluating the impact of recently issued accounting pronouncements on Leases (ASU 2016-02, effective Jan 1, 2022) and Financial Instruments-Credit Losses (ASU 2016-13, effective after Dec 15, 2022)[51][52] 4. Cash, cash equivalents and marketable securities This note details the composition and fair value of the company's cash, cash equivalents, and marketable securities portfolios Cash and Cash Equivalents Portfolio (in thousands) | Category | March 31, 2021 (Fair Value) | December 31, 2020 (Fair Value) | | :--- | :--- | :--- | | Cash accounts in banking institutions | $164,094 | $46,660 | | Money market funds | $84,416 | $84,409 | | Commercial paper | $600 | $3,933 | | Corporate debt securities | $411 | — | | Total | $249,521 | $135,002 | Marketable Securities Portfolio (in thousands) | Category | March 31, 2021 (Fair Value) | December 31, 2020 (Fair Value) | | :--- | :--- | :--- | | Certificates of deposit | $10,418 | $6,115 | | Commercial paper | $40,811 | $47,877 | | Corporate debt securities | $98,825 | $85,577 | | U.S. government securities | $22,220 | $24,344 | | Non-U.S. government securities | $15,794 | $5,902 | | Total | $188,068 | $169,815 | 5. Fair Value of Financial Instruments This note explains the fair value measurement hierarchy and presents the fair value of financial assets as of March 31, 2021 - The company classifies fair value measurements into Level 1 (quoted prices in active markets), Level 2 (observable inputs), and Level 3 (unobservable inputs)[58] Fair Value Measurement Hierarchy (March 31, 2021, in thousands) | Asset Category | Level 1 | Level 2 | Level 3 | | :--- | :--- | :--- | :--- | | Cash and cash equivalents: | | | | | Money market fund | $84,416 | $— | $— | | Commercial paper | $— | $600 | $— | | Corporate debt securities | $— | $411 | $— | | Total cash and cash equivalents | $84,416 | $1,011 | $— | | Marketable securities: | | | | | Certificates of deposit | $— | $10,418 | $— | | Commercial paper | $— | $40,811 | $— | | Corporate debt securities | $— | $98,825 | $— | | U.S. government securities | $— | $22,220 | $— | | Non-U.S. government securities | $— | $15,794 | $— | | Total marketable securities | $— | $188,068 | $— | | Total financial assets | $84,416 | $189,079 | $— | 6. Accrued Expenses and Other Current Liabilities This note provides a breakdown of accrued expenses and other current liabilities as of March 31, 2021, and December 31, 2020 Accrued Expenses and Other Current Liabilities (in thousands) | Category | March 31, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Professional fees | $1,521 | $720 | | Compensation and related benefits | $2,824 | $5,183 | | Research and development | $6,876 | $9,466 | | Other | $2,000 | $541 | | Total | $13,221 | $15,910 | 7. Commitments and Contingencies This note details the company's contractual commitments, including research agreements, manufacturing services, lease payments, and legal contingencies - The company has a research, collaboration, and licensing agreement with Penn, committing $5.0 million annually through May 2025 for discovery research and exclusive rights to resulting technologies[63] - R&D expenses under the Penn Agreement were $4.5 million for Q1 2021, down from $7.7 million for Q1 2020[63] - A $1.5 million development milestone fee was accrued in Q1 2021[63] - Agreements with Catalent Maryland, Inc. include an annual minimum commitment of $10.6 million for five years from November 2020 for the use of a Clean Room Suite and manufacturing services[64][66][70] Future Minimum Lease Payments (as of March 31, 2021, in thousands) | Year | Amount | | :--- | :--- | | 2021 | $658 | | 2022 | $2,612 | | 2023 | $3,431 | | 2024 | $3,528 | | 2025 | $3,628 | | Thereafter | $38,123 | | Total | $51,980 | - The company is involved in a patent infringement claim with REGENXBIO Inc. regarding its AAVhu68 capsid and ICM administration method, believing it has valid defenses and does not require a license[77] 8. Share-Based Compensation This note describes the company's equity incentive plans, share-based compensation expense, and activity for stock options and restricted stock units - The company has two equity incentive plans, with 3,640,677 shares available for future grants under the 2020 Equity Incentive Plan as of March 31, 2021[78] Share-Based Compensation Expense (Three Months Ended March 31, in thousands) | Expense Category | 2021 | 2020 | | :--- | :--- | :--- | | Research and development | $6,591 | $1,046 | | General and administrative | $3,149 | $1,322 | | Total | $9,740 | $2,368 | - During Q1 2021, the company recognized an additional $5.2 million in R&D expense due to modifications of certain awards[79] Stock Option Activity (Three Months Ended March 31, 2021) | Activity | Number of Shares | Weighted Average Exercise Price per Share | | :--- | :--- | :--- | | Outstanding at January 1, 2021 | 6,928,111 | $12.36 | | Granted | 1,895,917 | $21.50 | | Exercised | (10,400) | $7.80 | | Forfeited | (105,125) | $24.21 | | Outstanding at March 31, 2021 | 8,708,503 | $14.21 | | Exercisable at March 31, 2021 | 2,258,962 | $10.41 | | Vested or expected to vest at March 31, 2021 | 8,708,503 | $14.21 | - Total unrecognized compensation expense for unvested stock options was $71.4 million as of March 31, 2021, to be recognized over a weighted-average period of 3.2 years[81] RSU Activity (Three Months Ended March 31, 2021) | Activity | Number of Shares | Weighted Average Grant Date Fair Value | | :--- | :--- | :--- | | Unvested balance at January 1, 2021 | — | $— | | Granted | 180,000 | $20.18 | | Forfeited | (10,000) | $21.85 | | Unvested balance at March 31, 2021 | 170,000 | $20.09 | - The Employee Stock Purchase Plan (ESPP) authorizes up to 890,148 shares, with 870,039 available for future grants as of March 31, 2021[87] - Employees can purchase stock at 85% of the lower of the fair market value on the first or last day of the offering period[88] 9. Subsequent Events This note confirms that there were no subsequent events requiring disclosure after the reporting period - There were no subsequent events requiring disclosure[90] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section discusses Passage Bio's business, pipeline, financial performance, liquidity, and capital requirements for Q1 2021, including COVID-19 impacts Overview and Pipeline This section provides an overview of Passage Bio's genetic medicines focus and updates on its lead product candidates' clinical development - Passage Bio is a genetic medicines company developing transformative therapies for rare, monogenic CNS disorders, leveraging a strategic research collaboration with the University of Pennsylvania's Gene Therapy Program (GTP)[92] - PBGM01 for Infantile GM1: FDA cleared IND in Dec 2020, first patient dosed in March 2021[94][95] - Expect initial safety and 30-day biomarker data in Q4 2021[96] - Granted Orphan Drug, Rare Pediatric Disease, and Fast Track Designations[96] - PBFT02 for FTD-GRN: FDA cleared IND in Jan 2021, upliFT-D Trial expected to initiate in Q2/Q3 2021[97][98] - Expect initial safety and 30-day biomarker data in H1 2022[99] - Granted Orphan Drug and Fast Track Designations[99] - PBKR03 for Krabbe disease: FDA cleared IND in Feb 2021, GALax-C Trial expected to initiate in Q3 2021[102][103] - Expect initial safety and 30-day biomarker data in H1 2022[104] - Granted Orphan Drug, Rare Pediatric Disease, and Fast Track Designations[104] - Research programs include PBML04 for MLD, PBAL05 for ALS, PBCM06 for CMT2A, and an undisclosed adult CNS indication, with options for ten additional rare, monogenic CNS indications[106] Business Overview This section summarizes the company's financial history, ongoing losses, and current capital resources expected to fund future operations - Since inception in July 2017, the company has focused on R&D and capital raising, incurring recurring losses and negative cash flows, with a net loss of $38.9 million for Q1 2021 and an accumulated deficit of $209.8 million[107] - The company expects significant expenses and operating losses to continue as product candidates advance through development and clinical trials, and anticipates additional costs as a public company[107][108] - As of March 31, 2021, cash, cash equivalents, and marketable securities totaled $437.6 million, expected to fund operations for at least the next 24 months[111] COVID-19 Impact This section discusses the COVID-19 pandemic's impact on clinical trial timelines and the company's ongoing monitoring efforts - The COVID-19 pandemic has caused some delays in clinical site initiation activities, including meeting delays with review bodies and staffing levels at site hospitals, impacting clinical trial timelines[113] - The company continues to monitor and assess the potential impact of COVID-19 on its business, manufacturing, preclinical development, and clinical trials, with the safety of employees, patients, and partners as a top priority[112] Financial Operations Overview This section outlines key financial agreements, including the Penn license and Catalent manufacturing contracts, and components of operating results License Agreement (University of Pennsylvania) This section details the financial commitments, milestone payments, and royalties associated with the Penn research, collaboration, and licensing agreement - The Penn Agreement involves annual funding of $5.0 million through May 2025 for discovery research and exclusive rights to resulting technologies[114] - The company has ten remaining options to commence additional licensed programs, each incurring a $0.5 million upfront fee and another $0.5 million upon a developmental milestone[114] - Milestone payments up to $16.5 million per product candidate for development and up to $55.0 million for sales milestones are owed to Penn, along with tiered mid-single digit royalties on net sales[115][117] Collaboration and Manufacturing and Supply Agreements (Catalent) This section describes the agreements with Catalent Maryland, Inc. for clinical scale manufacturing capacity and associated financial commitments - Agreements with Catalent Maryland, Inc. secure clinical scale manufacturing capacity, including an upfront fee for a Clean Room Suite and an annual minimum commitment of $10.6 million for five years from November 2020[118][119][120][122] Components of Results of Operations This section explains the primary drivers and expected trends for research and development, general and administrative expenses, and interest income - Research and development expenses include preclinical/clinical studies, technology licenses, personnel, third-party research, manufacturing, regulatory activities, and facility costs[122][123][126] - These are expected to increase significantly[126] - General and administrative expenses cover personnel, corporate facility costs, legal, accounting, and consulting fees, and are expected to increase due to continued R&D, potential commercialization, and public company operations[128][129] - Interest income, net, is derived from cash equivalents and marketable securities, offset by amortization of premium and discount[130] Results of Operations This section analyzes the changes in research and development, general and administrative expenses, and net loss for the three months ended March 31 Results of Operations (Three Months Ended March 31, in thousands) | Metric | 2021 | 2020 | Change | | :--- | :--- | :--- | :--- | | Research and development | $24,970 | $13,117 | $11,853 | | Acquired in-process research and development | $1,500 | $— | $1,500 | | General and administrative | $12,464 | $4,795 | $7,669 | | Loss from operations | $(38,934) | $(17,912) | $(21,022) | | Interest income, net | $52 | $327 | $(275) | | Net loss | $(38,882) | $(17,585) | $(21,297) | - Research and development expenses increased by $11.9 million to $25.0 million in Q1 2021, driven by a $5.1 million increase in clinical manufacturing, a $0.4 million increase in clinical development, and an $8.9 million increase in personnel-related costs (including a one-time $5.2 million share-based compensation charge)[133] Research and Development Expenses by Program (Three Months Ended March 31, in thousands) | Program | 2021 | 2020 | | :--- | :--- | :--- | | GM1 | $3,523 | $2,410 | | FTD-GRN | $1,268 | $3,456 | | Krabbe | $4,052 | $2,252 | | MLD | $955 | $890 | | ALS | $148 | $249 | | CMT2A | $199 | $211 | | Undisclosed program | $431 | $— | | Internal costs, including personnel related | $14,394 | $3,649 | | Total | $24,970 | $13,117 | - General and administrative expenses increased by $7.7 million to $12.5 million in Q1 2021, primarily due to a $4.3 million increase in personnel-related and share-based compensation and a $3.2 million increase in professional fees and facility costs[136] Liquidity and Capital Resources This section discusses the company's cash position, future funding requirements, and potential financing strategies to support operations - As of March 31, 2021, the company had $437.6 million in cash, cash equivalents, and marketable securities, expected to fund operations for at least 24 months[138] - Future funding requirements are substantial and depend on factors like the scope and timing of R&D, clinical trials, manufacturing costs, intellectual property, and commercialization efforts[139][140][143] - The company expects to finance operations through equity offerings, debt financings, collaborations, and licensing arrangements, with potential for stockholder dilution or restrictions on operations[144] Cash Flow Summary (Three Months Ended March 31, in thousands) | Activity Type | 2021 | 2020 | | :--- | :--- | :--- | | Cash used in operating activities | $(30,718) | $(21,851) | | Cash used in investing activities | $(20,397) | $(99) | | Cash provided by financing activities | $165,634 | $229,904 | | Net increase in cash and cash equivalents | $114,519 | $207,954 | Off-Balance Sheet Arrangements This section confirms the absence of off-balance sheet arrangements or trading activities involving non-exchange traded contracts - The company has no relationships with unconsolidated entities or financial partnerships for off-balance sheet arrangements and does not engage in trading activities involving non-exchange traded contracts[151] Critical Accounting Policies and Estimates This section states that there were no material changes to critical accounting policies and estimates from the prior annual report - There were no material changes to critical accounting policies and estimates from those described in the company's Form 10-K filed on March 3, 2021[152] JOBS Act Accounting Election This section explains the company's status as an 'emerging growth company' and its election for an extended transition period for accounting standards - The company is an 'emerging growth company' under the JOBS Act and has elected to use the extended transition period for complying with new or revised accounting standards, making its financial statements potentially non-comparable to other public companies[153][154] - The company will remain an emerging growth company until the earliest of reaching $1.07 billion in annual gross revenues, becoming a large accelerated filer, issuing over $1.0 billion in non-convertible debt, or December 31, 2025[155] Recent Accounting Pronouncements This section refers to Note 2 of the interim financial statements for details on recent accounting pronouncements - Refer to Note 2 of the interim financial statements for a description of recent accounting pronouncements applicable to the financial statements[156] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section states that there are no quantitative and qualitative disclosures about market risk applicable to the company - This item is not applicable to the company[158] Item 4. Controls and Procedures This section details the evaluation of the company's disclosure controls and procedures, concluding their effectiveness, and reports no material changes in internal control over financial reporting - As of March 31, 2021, management, with the participation of the Principal Executive Officer and Principal Financial and Accounting Officer, concluded that disclosure controls and procedures were effective at a reasonable assurance level[159] - There were no changes in internal control over financial reporting during the quarter ended March 31, 2021, that materially affected or are reasonably likely to materially affect internal control over financial reporting[160] PART II. OTHER INFORMATION This part covers legal proceedings, risk factors, equity sales, defaults, mine safety, other information, and exhibits for the reporting period Item 1. Legal Proceedings This section states that the company is not currently a party to any legal proceedings that would have a material adverse effect on its business - The company is not presently a party to any legal proceedings that, in management's opinion, would have a material adverse effect on its business[163] - Litigation, regardless of outcome, can adversely impact the company due to defense and settlement costs, diversion of management resources, and negative publicity[163] Item 1A. Risk Factors This section outlines significant risks related to Passage Bio's financial position, product development, third-party reliance, manufacturing, commercialization, and intellectual property Summary of Risk Factors This section provides a high-level overview of key risks, including operating losses, funding needs, clinical trial uncertainties, and reliance on third parties - The company is a clinical-stage genetic medicines company with a history of operating losses and may not achieve profitability, requiring additional funding[165][168] - Business is dependent on advancing product candidates through preclinical/clinical trials, obtaining marketing approval, and commercialization, which is a lengthy, expensive, and uncertain process[165][198] - Risks include the impact of COVID-19, potential undesirable side effects, difficulty identifying patients for rare diseases, reliance on third-party collaborations (e.g., Penn, Catalent), manufacturing complexities, intense competition, and challenges in obtaining and maintaining intellectual property protection[165][170] Risks Related to Our Financial Position and Need for Additional Capital This section details risks associated with the company's recurring losses, substantial capital requirements, and potential stockholder dilution from future financing - The company has incurred net losses since inception ($38.9 million for Q1 2021, $209.8 million accumulated deficit as of March 31, 2021) and expects to continue incurring significant losses for the foreseeable future[169] - Substantial additional capital will be required to complete preclinical and clinical development, and potentially commercialize product candidates[175][178] - Failure to obtain this funding could force delays or termination of development efforts[178] - Raising additional capital through equity or convertible debt securities will dilute stockholders' ownership, and debt financing may impose restrictive covenants[181][184] Risks Related to Product Development and Regulatory Approval This section covers risks inherent in the lengthy and uncertain process of product development, clinical trials, gene therapy regulation, and patient enrollment - The COVID-19 pandemic has caused delays in clinical site initiation activities, impacting clinical trial timelines, and could further disrupt business operations, manufacturing, and preclinical/clinical development[186][190][191] - Product development is an early, lengthy, and expensive process with uncertain outcomes; success in early studies may not predict later results, and clinical trials can fail at any stage[192][198][211] - Gene therapy is a novel technology with unclear and changing regulatory requirements, making it difficult to predict development time and cost, and potentially leading to unforeseen side effects or adverse public perception[214][215][220] - Low prevalence of target disorders may make patient identification and enrollment difficult, leading to trial delays or abandonment, and potentially limiting commercial revenue[223][226][227] - Regulatory approval is uncertain, may be for narrow indications, or subject to post-marketing requirements[228][233][242] - Failure to obtain foreign approvals would limit market potential[242] Risks Related to Our Reliance on Third Parties This section highlights risks stemming from the company's dependence on third-party collaborations for R&D, clinical trials, and potential commercialization - The company relies exclusively on its collaboration with the University of Pennsylvania (Penn) for preclinical R&D, and any failure, delay, or termination of this agreement would materially harm the business[244][245] - Reliance on third-party CROs for preclinical and clinical trials means less direct control over timing and quality, and their failure to perform could delay or terminate development programs[250][254][256] - Future collaborations may not lead to successful product development or commercialization due to limited control over collaborator resources, potential conflicts, or termination of agreements[260][261][262] - Inability to find additional collaborators or successfully complete strategic transactions (acquisitions, in-licensing) could adversely affect pipeline development, cash position, and management focus[265][271][274] Risks Related to Manufacturing This section addresses challenges in gene therapy manufacturing, reliance on third-party manufacturers and suppliers, and potential delays or quality issues - Gene therapies are complex to manufacture, and problems (e.g., equipment malfunctions, contamination, raw material shortages) could cause delays in development or commercialization programs[275][276] - Changes in manufacturing methods or formulation during development may lead to additional costs, delays, or require further testing and regulatory approval[281] - The company relies on third-party manufacturers for clinical supply and has not secured commercial manufacturing agreements, facing intense competition for services and risks of non-compliance with cGMP regulations[282][284][287] - Dependence on third-party suppliers for raw materials carries risks of limited control over pricing, availability, quality, and potential supply interruptions or contamination[293][295] Risks Related to Commercialization This section discusses risks concerning market competition, product acceptance, the need for sales capabilities, and resource allocation for product candidates - The company faces significant competition from other biotechnology and pharmaceutical companies, many with greater resources, which could lead to competitors achieving regulatory approval faster or developing more effective therapies[296][301] - Commercial success depends on market acceptance by physicians, patients, and third-party payors, which is uncertain for novel gene therapy products and influenced by efficacy, safety, cost, and administration methods[302][305] - Inability to establish internal or third-party sales and marketing capabilities would hinder commercialization and revenue generation[306][307] - Expending limited resources on specific product candidates or indications may cause the company to miss more profitable opportunities[308][311] Risks Related to Intellectual Property This section outlines risks in obtaining and maintaining patent protection, reliance on third-party licenses, potential infringement claims, and changes in IP law - Commercial success depends on obtaining and maintaining patent protection and other IP rights, but patentability is uncertain, expensive, and subject to litigation and challenges[312][316][320] - All current product candidates and research programs are licensed from third parties (primarily Penn), and termination or narrow interpretation of these agreements would materially adversely affect development[327][328][330] - Third parties, including Regenxbio Inc., may allege intellectual property infringement, leading to costly litigation, potential licensing requirements, or redesign of products[337][341][346] - Inability to protect trade secrets, comply with patent agency requirements, or protect IP globally could harm competitive position and business[348][351][352] - Changes in patent law (e.g., America Invents Act, Supreme Court rulings) and government-funded programs (Bayh-Dole Act 'march-in' rights) could diminish patent value and limit exclusive rights[359][362][363][369] Risks Related to Government Regulation This section details risks concerning product pricing, reimbursement, regulatory designations, post-marketing requirements, healthcare legislation, and compliance with anti-fraud laws - Uncertainty in pricing, insurance coverage, and reimbursement for newly approved products, especially for small patient populations, could limit marketability and revenue[370][372][373] - Designations like Breakthrough Therapy, RMAT, and Fast Track do not guarantee faster development, review, or approval, nor do they increase the likelihood of marketing approval[380][381][382][383][386] - Orphan Drug Designation provides financial incentives and potential market exclusivity, but does not guarantee approval or protection from competition if a clinically superior or different drug is approved[387][388] - Approved products are subject to extensive post-marketing regulatory requirements, and non-compliance or unforeseen problems could lead to restrictions, penalties, or market withdrawal[391][394][396] - Competition from biosimilars, changes in healthcare legislation (e.g., ACA), and increased scrutiny over pharmaceutical pricing practices could adversely affect market approval, commercialization, and profitability[398][404][408] - Operations are subject to anti-kickback, fraud and abuse, and other healthcare laws, with potential for significant penalties, reputational harm, and diminished profits for non-compliance[409][412][413] Risks Related to Employee Matters, Managing Growth and Other Risks Related to Our Business This section covers risks associated with managing rapid growth, retaining key personnel, cybersecurity, tax limitations, employee misconduct, and product liability - Rapid expansion in manufacturing, development, and regulatory capabilities may lead to difficulties in managing growth, diverting management resources and potentially disrupting operations[416] - Future success depends on retaining key executives and attracting qualified scientific, clinical, and manufacturing personnel, with the loss of such individuals potentially harming business strategy[417][418] - Internal computer systems or those of third-party collaborators may fail or suffer security breaches, leading to disruptions in development programs, loss of proprietary information, and increased costs[420][421] - The ability to utilize net operating loss carryforwards may be limited by ownership changes under IRC Sections 382 and 383, potentially increasing future tax liability[422][423] - U.S. federal income tax reform (TCJA) and changes in other tax laws could adversely affect the company's financial results, and employee misconduct could lead to regulatory sanctions and reputational harm[424][427][428] - Product liability lawsuits pose an inherent risk, potentially leading to substantial liabilities, decreased demand, reputational damage, and diversion of resources[429][430][431] Risks Related to Our Common Stock This section addresses risks concerning stock price volatility, influence of principal stockholders, dividend policy, internal control, and reduced disclosure as an emerging growth company - The price of the common stock may be volatile due to various factors, including clinical trial results, regulatory decisions, competition, and general market conditions, potentially resulting in substantial losses for investors[433][435] - Executive officers, directors, and principal stockholders exercise significant influence over the company, potentially limiting other stockholders' ability to influence corporate matters or prevent changes in control[436][437] - The company does not anticipate paying cash dividends in the foreseeable future, meaning capital appreciation will be the sole source of gain for stockholders[438] - Failure to establish and maintain effective internal control over financial reporting could impair the ability to produce accurate financial statements, harming operating results and stock value[441][442] - As an 'emerging growth company' and 'smaller reporting company,' reduced disclosure requirements may make the common stock less attractive to investors, potentially leading to a less active trading market and more volatile stock price[444][445][447] - Exclusive forum provisions in corporate charter documents may limit stockholders' ability to bring claims in preferred judicial forums, potentially discouraging lawsuits[448][453] General Risk Factors This section includes general business risks such as securities litigation, data privacy compliance, global economic conditions, and natural disasters - The company may be subject to securities litigation, which is expensive and could divert management attention, and negative research reports from securities analysts could cause stock price decline[460][461] - Compliance with various privacy and data security laws (e.g., GDPR, CCPA) is rigorous and costly, and failure to comply could result in significant fines and penalties[462][465][466] - Unfavorable global economic conditions could adversely affect business, financial condition, or results of operations, and natural disasters could severely disrupt operations[467][468] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section reports no unregistered sales of equity securities and confirms that the use of proceeds from the March 2020 IPO remains consistent with the initial plan - There were no unregistered sales of equity securities during the period[471] - The company completed its IPO on March 9, 2020, selling 13,800,000 shares at $18.00 per share, generating approximately $227.7 million in net proceeds[472][473] - There has been no material change in the planned use of proceeds from the IPO[474] Item 3. Defaults Upon Senior Securities This section states that there were no defaults upon senior securities - There were no defaults upon senior securities[475] Item 4. Mine Safety Disclosures This section indicates that mine safety disclosures are not applicable to the company - This item is not applicable to the company[476] Item 5. Other Information This section states that there is no other information to report - There is no other information to report[477] Item 6. Exhibits This section lists the exhibits filed or furnished as part of the Quarterly Report on Form 10-Q, including employment agreements and certifications Selected Exhibits Filed | Exhibit Number | Description | Filed/Furnished Herewith | | :--- | :--- | :--- | | 10.1 | Second Amended and Restated Employment Agreement with Gary Romano | X | | 31.1 | Certification of Principal Executive Officer (Section 302) | X | | 31.2 | Certification of Principal Financial Officer (Section 302) | X | | 32.1* | Certification of Principal Executive Officer (Section 906) | X | | 32.2* | Certification of Principal Financial Officer (Section 906) | X | - Certifications under Section 906 are deemed not filed for purposes of Section 18 of the Exchange Act[480]