PASG US Equity☆

Item 7. 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 together with our financial statements and the related notes and other financial information included elsewhere in this Form 10-K. Some of the information contained in this discussion and analysis contains forward-looking statements that involve risks and uncertainties. You should review the section titled “Risk Factors” in this Form 10-K for a discussion of important factors that could cause actual results to differ materially from the results described below.

Overview

We are a clinical stage genetic medicines company focused on developing transformative therapies for CNS disorders. 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, including our three clinical product candidates, all of which we retain global rights.

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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 losses were $185.4 million and $112.2 million for the years ended December 31, 2021 and 2020, respectively. As of December 31, 2021, we had an accumulated deficit of $356.3 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. 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 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.

As of December 31, 2021, we had cash, cash equivalents and marketable securities of $315.8 million. We expect our existing cash, cash equivalents and marketable securities, will enable us to fund our operating expense and capital expenditures requirements until the end of 2023.

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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 owned upon a further developmental milestone.

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 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.

We and Penn entered into an amendment, or the Amendment, to the Penn Agreement, on August 3, 2021. Under the Amendment, we and Penn expanded the scope of the collaboration to include certain non-rare and/or non-monogenic, or large, CNS indications, initially AD and TLE and such other mutually agreed upon large CNS indications; included an exploratory research collaboration to identify targets and early product candidates in such large CNS indications; and extended the term to August 3, 2026 by which product candidates for CNS indications may be selected for the entire

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agreement. 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. The election of any option to any such product candidates will count against our remaining eight options and will trigger the aggregate $1.0 million option fee. As a result, we now will fund discovery research through August 3, 2026, and will now have until August 3, 2026 to exercise our remaining eight options. We made an upfront payment of $5.0 million; will reimburse Penn for expenses incurred in the exploratory research program; and will pay Penn a tiered transaction fee ranging from 1-2% of the net proceeds upon certain change of control events.

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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. 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. 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.

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:

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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. We expect our research and development expenses to increase over the next several years as we increase personnel costs, including share-based compensation, conduct our clinical trials, including later-stage clinical trials, for current and future product candidates and prepare regulatory filings for our product candidates.

Expenses incurred in obtaining technology licenses are expenses 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 expense also includes corporate facility costs, including rent, utilities, depreciation and maintenance, not otherwise included in research and development expense, legal expenses related to intellectual property and corporate matters, insurance expense, and expenses for accounting and consulting services.

We expect that our general and administrative expenses will increase in the future to support our continued research and development activities, potential commercialization efforts and continued increased expenses of operating as a public company. These increases will likely include increased expenses related to the hiring of additional personnel and fees to outside consultants, lawyers and accountants, among other expenses. Additionally, we anticipate increased costs associated with being a public company, including expenses related to services associated with maintaining compliance with the requirements of The Nasdaq Stock Market, LLC and the SEC, insurance and investor relations expenses. If any of our current or future product candidates obtains U.S. regulatory approval, we expect that we would incur significantly increased expenses associated with building a commercial sales and marketing team.

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.

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Results of Operations

Comparison of the Years Ended December 31, 2021 and 2020

The following table sets forth our results of operations for the years ended December 31, 2021 and 2020.

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​ ​ Year ended ​ ​ ​

​ ​ December 31, ​ ​ ​

Operating expenses: ​ ​ ​

Acquired in‐process research and development ​ 8,000 ​ 1,000 ​ 7,000

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Research and Development Expenses

Research and development expenses increased by $35.9 million from $81.8 million for the year ended December 31, 2020 to $117.7 million for the year ended December 31, 2021. The increase was primarily due to increases of: $19.7 million in personnel-related expenses, including share-based compensation, due to an increase in employee headcount in the research and development function and expenses related to the modification of stock options, which increased by $5.5 million; $18.7 million in clinical manufacturing expenses related to manufacturing supply for our clinical product candidates and in preparation of an IND filing for a research program; $10.9 million in clinical operations expenses to support the clinical trials of our clinical product candidates; and, $3.7 million in facility and other expenses. These increases were partially offset by decreases of: $2.5 million in professional services and consulting expense; and, $14.6 million in research and development expenses with Penn, which relates to expenses incurred for preclinical work performed in preparation for IND filings for our clinical programs. We expect that expenses associated with Penn will continue to vary from period to period based on the status of our preclinical pipeline and the timing of preclinical work performed.

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

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​ ​ Year ended

​ ​ December 31,

Program Specific Expenses ​ ​ ​ ​ ​ ​

Unallocated Internal Expenses ​ ​ ​ ​ ​ ​

Personnel-related (including share-based compensation) ​ ​ 34,956 ​ ​ 15,219

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Acquired In-Process Research and Development Expenses

Acquired in-process research and development expenses were $8.0 million for the year ended December 31, 2021 compared to $1.0 million for the year ended December 31, 2020. We incurred $1.5 million in license fees, $1.5 million

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in fees related to the achievement of a development milestone, and $5.0 million in fees related to the August 2021 amendment with Penn during the year ended December 31, 2021.

General and Administrative Expenses

General and administrative expenses increased by $30.0 million from $30.1 million for the year ended December 31, 2020 to $60.1 million for the year ended December 31, 2021. The increase was primarily due to increases of: $21.8 million in personnel-related and share-based compensation expense due to increases in employee headcount; and, $8.2 million in facility, professional services and other expense related to expanding our operations to support our research and development efforts.

Interest Income, net

Interest income, net was $0.3 million and $0.7 million for the years ended December 31, 2021 and 2020, respectively. Interest income is primarily attributable to interest income earned on our cash, cash equivalents and marketable securities, partially offset by amortization of premium and discount on our marketable securities and fees paid to our external asset manager.

Liquidity and Capital Resources

Overview

Historically, we have funded our operations through the sale of convertible preferred stock and public offerings of common stock. In January 2021, we received $165.8 million in net proceeds from the sale of our common stock. As of December 31, 2021, we had $315.8 million in cash, cash equivalents and marketable securities and had an accumulated deficit of $356.3 million. We expect our existing cash, cash equivalents and marketable securities will enable us to fund our operating expense and capital expenditures until the end of 2023.

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:

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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 interest 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.

On March 5, 2021, we entered into a Sales Agreement, or the Sales Agreement, with Cowen and Company, LLC, or Cowen, pursuant to which we may, but are not obligated to, offer and sell, from time to time, shares of our common stock with an aggregate offering price up to $125.0 million through Cowen, as sales agent. No sales of common stock have been made pursuant to this Sales Agreement to date.

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Cash Flows

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

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​ ​ Year ended

​ ​ December 31,

Cash used in operating activities $ (126,879) $ (80,520)

Cash used in investing activities ​ (45,814) ​ (172,106)

Net increase (decrease) in cash and cash equivalents ​ $ (6,037) ​ $ (23,872)

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Net Cash Used in Operating Activities

During the year ended December 31, 2021, we used $126.9 million of net cash in operating activities, primarily to fund our operations related to the development of our product candidates and related general and administrative support activities. Cash used in operating activities reflected our net loss of $185.4 million, which was partially offset by adjustments to reconcile net loss to net cash used in operating activities of $47.1 million related to acquired in-process research and development expense, share-based compensation, depreciation and amortization, amortization of premium and discount of marketable securities, net and changes in deferred rent as well as a $11.4 million net increase in cash flows resulting from changes in our operating assets and liabilities.

During the year ended December 31, 2020, we used $80.5 million of net cash in operating activities, primarily to fund our operations related to the development of our product candidates. Cash used in operating activities reflected our net loss of $112.2 million, which was partially offset by non-cash charges of $17.3 million related to acquired in-process

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research and development expense, share-based compensation, depreciation and amortization, amortization of premium and discount, net and changes in deferred rent as well as a $14.4 million net increase in cash flows resulting from changes in our operating assets and liabilities.

Net Cash Used in Investing Activities

During the year ended December 31, 2021, we purchased $202.5 million in marketable securities and had sales and maturities of $182.4 million in marketable securities. Additionally, we used $17.6 million for the purchase of property and equipment and we used $8.0 million to purchase technology rights from Penn.

During the year ended December 31, 2020, we purchased $266.1 million in marketable securities and had sales and maturities of $95.6 million in marketable securities. Additionally, we used $1.1 million for the purchase of property and equipment and we used $0.5 million to purchase technology rights from Penn.

Net Cash Provided by Financing Activities

During the year ended December 31, 2021, financing activities provided $165.8 million from the sale of our common stock, we received $0.9 million from the issuance of common stock under our employee stock purchase plan, we received $0.3 million from the exercise of stock options, partially offset by payments for offering costs of $0.3 million.

During the year ended December 31, 2020, financing activities provided $228.3 million from the sale of our common stock, we received $0.2 million from the issuance of common stock under our employee stock purchase plan, and we received $0.3 million from the exercise of stock options.

Contractual obligations and other commitments

We lease approximately 37,000 square feet of office space in Philadelphia, Pennsylvania. The lease will expire in December 2031. We have an option to extend the term of the lease by up to two additional five-year terms. The aggregate estimated rent payments due over the initial term of the lease is $11.8 million, with rent payments beginning in 2022. The landlord provided us with a tenant improvement allowance of up to $2.8 million.

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We lease approximately 62,000 square feet of laboratory space in Hopewell, NJ. The lease will expire in March 2036. The aggregate estimated rent payments due over the initial term of the lease is approximately $40.3 million, with rent payments beginning in 2021. The landlord provided us with a tenant improvement allowance of up to $1.3 million.

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Under both the Collaboration Agreement and the Manufacturing and Supply Agreement with Catalent, we have an annual minimum commitment of $10.6 million per year owed to Catalent through November 2025, 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 the Penn Agreement, we agreed to fund discovery research conducted by Penn for five years, beginning in May 2020. Our funding commitment is $5.0 million a year through June 2026.

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The contractual obligations and commitments above are associated with contracts that are enforceable and legally binding and that specify all significant terms, including fixed or minimum services to be used, fixed, minimum or variable price provisions, and the approximate timing of the actions under the contracts. Payments due upon cancellation consisting only of payments for services provided or expenses incurred, including noncancelable obligations of our service providers, up to the date of cancellation are not included in the preceding table as the amount and timing of such payments are not known.

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The contractual obligations and commitments above do not include any potential milestone or royalty payments that we may be required to make under the Penn Agreement.

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Critical Accounting Policies and Estimates

Our management’s discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, and expenses and the disclosure of contingent assets and liabilities in our financial statements. On an ongoing basis, we evaluate our estimates and judgments, including those related to accrued expenses and share-based compensation. We base our estimates on historical experience, known trends and events, and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

While our significant accounting policies are described in more detail in Note 3 to our annual financial statements included elsewhere in this Form 10-K, we believe the following accounting policies are the most critical to the judgments and estimates used in the preparation of our financial statements.

Research and Development Expenses

Research and development expenses consist primarily of costs incurred in connection with the development of our product candidates. We expense research and development costs as incurred.

We accrue an expense for preclinical studies and clinical trial activities performed by Penn and other vendors based on an estimate of progress to completion of specific tasks using facts and circumstances known to us at that time. We determine the estimates by reviewing contracts, vendor agreements and change orders, and through discussions with our internal clinical personnel and external service providers as to the progress to completion of trials or services and the agreed-upon fee to be paid for such services. However, actual costs and timing of clinical trials are highly uncertain, subject to risks and may change depending upon a number of factors, including our clinical development plan.

We make estimates of our accrued research and development expenses as of each balance sheet date in our financial statements based on facts and circumstances known at that time. If the actual timing of the performance of services or the level of effort varies from the estimate, we will adjust the accrual accordingly. Nonrefundable advance payments for goods and services, including fees for process development or manufacturing and distribution of clinical supplies that will be used in future research and development activities, are deferred and recognized as expenses in the period that the related goods are consumed or services are performed.

Share-Based Compensation

We recognize compensation costs related to share-based awards granted to employees and directors, including stock options and restricted stock units, based on the estimated fair value of the awards on the date of grant. We estimate the grant date fair value, and the resulting share-based compensation, using the Black-Scholes option-pricing model. The grant date fair value of the stock-based awards is recognized on a straight-line basis over the requisite service period, which is generally the vesting period of the respective awards.

We estimate the fair value of stock options using the Black-Scholes option-pricing model, which requires assumptions, including the fair value of our common stock prior to our initial public offering, volatility, the expected term of our stock options, the risk-free interest rate for a period that approximates the expected term of our stock options, and our expected dividend yield. Certain assumptions used in our Black-Scholes option-pricing model represent management’s best estimates and involve a number of variables, uncertainties, and assumptions and the application of management’s judgment, as they are inherently subjective. If any assumptions change, our share-based compensation expense could be materially different in the future.

The subjective assumptions is estimated as follows:

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Expected volatility—We do not have sufficient historical trading history based on the length of time we have been a public company. Therefore, the expected volatility is estimated based on the average volatility for a composite of comparable publicly traded biotechnology companies over a period equal to the expected term of the stock option grants. The comparable companies are chosen based on their similar size, stage in the life cycle or area of specialty. As a public company we have and will continue to use the average volatility for comparable publicly traded biotechnology companies until we have sufficient trading history of our own stock commensurate with the estimated expected term of our options.

Recent Accounting Pronouncements

See Note 3 to our financial statements found elsewhere in this Form 10-K for a description of recent accounting pronouncements applicable to our financial statements.

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 would 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 by 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 30th, (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.

In addition, the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. This allows an emerging growth company to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards and, therefore, we are subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.

We are also a “smaller reporting company,” meaning that the market value of our stock held by non-affiliates is less than $700.0 million and our annual revenue is less than $100.0 million during the most recently completed fiscal year. We may continue to be a smaller reporting company if either (i) the market value of our stock held by non-affiliates is less than $250.0 million or (ii) our annual revenue is less than $100.0 million during the most recently completed fiscal year and the market value of our stock held by non-affiliates is less than $700.0 million. If we are a smaller reporting company at the time we cease to be an emerging growth company, we may continue to rely on exemptions from certain disclosure requirements that are available to smaller reporting companies. Specifically, as a smaller reporting company we may choose to present only the two most recent fiscal years of audited financial statements in our Annual Report on Form 10-K and, similar to emerging growth companies, smaller reporting companies have reduced disclosure obligations regarding executive compensation.

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Item 7A. Quantitative and Qualitative Disclosures about Market Risk

We are exposed to market risks in the ordinary course of our business. Our primary exposure to market risk is interest rate sensitivity, which is affected by changes in the general level of U.S. interest rates, particularly because our investments are in marketable securities. Our marketable securities are subject to interest rate risk and could fall in value if market interest rates increase. However, we believe that our exposure to interest rate risk is not significant as the majority of our investments are short-term in duration and due to the low risk profile of our investments, a 10% change in interest rates would not have a material effect on the total market value of our investment portfolio. We have the ability to hold our marketable securities until maturity, and therefore we would not expect our operating results or cash flows to be affected to any significant degree by the effect of a change in market interest rates on our investments.

As of December 31, 2021, we held $315.8 million in cash, cash equivalents and marketable securities, all of which was denominated in U.S. dollar assets, and consisting primarily of cash accounts in banking institutions and investments in money market funds, certificates of deposit, commercial paper, corporate bonds and investments in U.S. and non-U.S. treasury securities.

We are also exposed to market risk related to changes in foreign currency exchange rates, as a result of entering into transactions denominated in currencies other than U.S. dollars. Due to the uncertain timing of expected payments in foreign currencies, we do not utilize any forward exchange contracts. All foreign transactions settle on the applicable spot exchange basis at the time such payments are made. For the year ended December 31, 2021, a majority of our expenditures were denominated in U.S. dollars. A hypothetical 10% change in foreign exchange rates during any of the periods presented would not have had a material impact on our consolidated financial statements.

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Item 8. Financial Statements and Supplementary Data

PASSAGE BIO, INC.

INDEX TO AUDITED FINANCIAL STATEMENTS

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​ Page

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Balance Sheets ​ 117

Statements of Operations and Comprehensive Loss ​ 118

Statements of Cash Flows ​ 120

Notes to Financial Statements ​ 121

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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To the Stockholders and Board of Directors

Passage Bio, Inc.:

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Opinion on theFinancial Statements

We have audited the accompanying balance sheets of Passage Bio, Inc. (the Company) as of December 31, 2021 and 2020, the related statements of operations and comprehensive loss, convertible preferred stock and stockholders’ equity (deficit), and cash flows for the years then ended, and the related notes (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles.

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Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

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We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

​

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

​

/s/ KPMG LLP

We have served as the Company’s auditor since 2019.

Philadelphia, Pennsylvania

March 3, 2022

​

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Balance Sheets

​ ​ ​ ​ ​ ​ ​

​ ​ December 31,

(in thousands, except share data) 2021 2020

Assets ​ ​

Current assets: ​ ​

Prepaid expenses and other current assets ​ 1,726 ​ 1,405

Prepaid research and development ​ 7,567 ​ 10,961

Liabilities and stockholders’ equity ​ ​ ​

Current liabilities: ​ ​ ​

Accrued expenses and other current liabilities ​ 20,050 ​ 15,910

Other liabilities ​ - ​ 41

​ ​ ​ ​ ​ ​ ​

Commitments and Contingencies (note 8) ​ ​ ​

​ ​ ​ ​ ​ ​ ​

Stockholders’ equity: ​ ​ ​

Accumulated other comprehensive income (loss) ​ ​ (413) ​ ​ (12)

Total liabilities and stockholders’ equity ​ $ 355,076 ​ $ 328,007

​

See accompanying notes to financial statements.

​

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Statements of Operations and Comprehensive Loss

​ ​ ​ ​ ​ ​ ​

​ ​ Year Ended December 31,

(in thousands, except share and per share data) ​ 2021 2020

Operating expenses: ​ ​ ​

Acquired in‐process research and development ​ 8,000 ​ 1,000

Interest income, net ​ 343 ​ 670

Per share information: ​ ​

Net loss per share of common stock, basic and diluted ​ $ (3.48) ​ $ (2.91)

Comprehensive loss: ​ ​ ​ ​ ​ ​

Unrealized gain (loss) on marketable securities ​ ​ (401) ​ ​ (12)

​

See accompanying notes to financial statements.

​

​

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Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit)

(in thousands, except share data)

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ Convertible preferred stock ​ ​ Stockholders’ equity (deficit)

Net loss — ​ — — ​ — ​ ​ — ​ — ​ — ​ — ​ — ​ ​ — ​ (112,232) ​ (112,232)

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ Stockholders’ equity

​ ​ Common stock ​ Additional ​ ​ Accumulated other ​ ​ Accumulated ​ ​ ​

Vesting of early exercise option awards 302,277 ​ — 45 ​ — ​ — ​ 45

Unrealized gain (loss) on marketable securities — ​ — — ​ (401) ​ — ​ (401)

Share‐based compensation expense — ​ — 32,691 ​ — ​ — ​ 32,691

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​

See accompanying notes to financial statements.

​

​

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Statements of Cash Flows

​ ​ ​ ​ ​ ​ ​

​ ​ Year Ended

​ ​ December 31,

Cash flows used in operating activities: ​ ​

Acquired in‐process research and development ​ 8,000 ​ 1,000

Depreciation and amortization ​ 1,543 ​ 800

Changes in operating assets and liabilities: ​ ​

Prepaid expenses and other current assets, and other assets ​ 1,842 ​ 1,871

Prepaid research and development ​ 3,394 ​ (4,216)

Accrued expenses and other current liabilities ​ 3,983 ​ 12,197

Net cash used in operating activities ​ (126,879) ​ (80,520)

Cash flows used in investing activities: ​ ​

Sales or maturities of marketable securities ​ 182,374 ​ 95,597

Purchases of technology licenses ​ (8,000) ​ (500)

Purchases of property and equipment ​ (17,642) ​ (1,146)

Net cash used in investing activities ​ (45,814) ​ (172,106)

Cash flows provided by financing activities: ​ ​

Payment of offering costs ​ ​ (338) ​ ​ —

Proceeds from the exercise of stock options ​ 301 ​ 284

Net cash provided by financing activities ​ 166,656 ​ 228,754

Net increase (decrease) in cash and cash equivalents ​ (6,037) ​ (23,872)

Cash and cash equivalents at beginning of year ​ 135,002 ​ 158,874

Cash and cash equivalents at end of year ​ $ 128,965 ​ $ 135,002

Supplemental disclosure of non‐cash investing and financing activities: ​ ​

Unrealized gain (loss) on marketable securities ​ $ (401) ​ $ (12)

Property and equipment in deferred rent ​ $ 2,769 ​ $ 1,314

Reclassification of deferred offering costs paid in a prior period ​ $ - ​ $ 763

Vesting of early exercise option awards ​ $ 45 ​ $ 35

​

See accompanying notes to financial statements.

​

​

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Notes to Financial Statements

1. Nature of Operations

Passage Bio, Inc., or the Company, a Delaware corporation incorporated in July 2017, is a clinical stage genetic medicines company focused on developing transformative therapies for central nervous system diseases, 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 Investigation 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 $356.3 million as of December 31, 2021. 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 March 2020, the Company closed its initial public offering, or IPO, in which the Company issued and sold 13,798,900 shares of its common stock, which included shares sold pursuant to an option granted to the underwriters to purchase additional shares, at a public offering price of $18.00 per share for net proceeds of $227.5 million after deducting underwriting discounts, commissions and other offering expenses.

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, which included shares sold pursuant to an option granted to the underwriters to purchase additional shares, 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, 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

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Notes to Financial Statements (cont.)

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.

3. Summary of Significant Accounting Policies

Basis of Presentation

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

Use of Estimates

​

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and contingent liabilities at the date of the financial statements and the reported amounts of 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.

Segment Information

Operating segments are defined as components of an enterprise about which separate discrete information is available for evaluation by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. The Company views its operations and manages its business in one segment.

Cash and cash equivalents

The Company considers all highly liquid investments that have maturities of three months or less when acquired to be cash equivalents.

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Notes to Financial Statements (cont.)

Marketable securities

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

Property and Equipment, net

Property and equipment consists of laboratory equipment, office equipment, computer hardware and software, furniture and leasehold improvements and are recorded at cost. Maintenance and repairs that do not improve or extend the lives of the respective assets are expensed as incurred. Property and equipment are depreciated on a straight-line basis over their estimated useful lives. The Company estimates useful life on an asset by asset basis, which generally consists of three years for computer hardware and software, five years for office equipment, five years for laboratory equipment and seven years for furniture and fixtures. Leasehold improvements are amortized over the shorter of the lease term or the estimated useful life of the asset.

The Company reviews long-lived assets, such as property and equipment, for impairment when events or changes in circumstances indicate the carrying amount of the assets may not be recoverable. If circumstances require a long-lived asset to be tested for possible impairment, recoverability is measured by comparison of the carrying amount of the assets to estimated future undiscounted cash flows that the assets are expected to generate. If the carrying amount of an asset exceeds its estimated future cash flows, then impairment expense is recognized for the amount by which the carrying amount of the asset exceeds the fair value of the asset. For the years ended December 31, 2021, and 2020, no impairment expenses were recognized.

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. The Company’s share-based compensation consists of restricted stock units, or RSUs, and options to purchase common stock, or options.

The Company uses the Black-Scholes option pricing model to value its stock option awards. Estimating the fair value of share-based awards for stock options requires the input of assumptions, including, the expected term of the options and stock price volatility. The Company accounts for forfeitures for stock option awards as they occur. 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 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, which is considered the subjective assumption, 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 assumptions used in estimating the fair value of share-based awards for stock options 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.

Research and Development

Research and development costs are expensed as incurred and consist primarily of expenses incurred with Penn, contract research organization, contract manufacturing organizations, and employee-related expenses, including salaries, benefits, and share-based compensation.

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Notes to Financial Statements (cont.)

Management makes estimates of the Company’s accrued research and development expenses as of each balance sheet date in the Company’s financial statements based on an estimate of progress to completion of specific tasks using facts and circumstances known to the Company at that time. If the actual timing of the performance of services or the level of effort varies from the estimate, the Company will adjust the accrual and related expenses accordingly. Nonrefundable advance payments for goods and services, including fees for preclinical services, clinical services, manufacturing services and distribution of clinical supplies that will be used in future research and development activities, are deferred and recognized as expense in the period that the related goods are consumed or services are performed.

Acquired In-Process Research and Development

Fees paid to obtain research and development technology licenses are recognized as acquired in-process research and development expense if the research and development technology licensed has not reached technological feasibility and has no alternative future use. For the years ended December 31, 2021, and 2020, all fees paid to obtain technology licenses were recognized as acquired in-process research and development expense.

Income Taxes

Income taxes are accounted for under the asset-and-liability method as required by FASB ASC Topic 740, Income Taxes (ASC 740). Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period corresponding to the enactment date. Under ASC 740, a valuation allowance is required when it is more likely than not all or some portion of the deferred tax assets will not be realized through generating sufficient future taxable income.

FASB ASC Subtopic 740-10, Accounting for Uncertainty of Income Taxes, (ASC 740-10) defines the criterion an individual tax position must meet for any part of the benefit of the tax position to be recognized in financial statements prepared in conformity with GAAP. The Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not such tax position will be sustained on examination by the taxing authorities, based solely on the technical merits of the respective tax position. The tax benefits recognized in the financial statements from such a tax position should be measured based on the largest benefit having a greater than 50% likelihood of being realized upon ultimate settlement with the tax authority. In accordance with the disclosure requirements of ASC 740-10, the Company’s policy on statement of operations classification of interest and penalties related to income tax obligations is to include such items as part of total interest income, net.

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 convertible preferred stock, 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 Financial Statements (cont.)

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

​

​ ​ ​ ​ ​

​ ​ Year Ended December 31,

Unvested restricted stock units ​ 290,500 ​ —

​

Recently Issued Accounting Pronouncements

In February 2016, the FASB issued ASU No. 2016-02, Leases, 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 twelve months. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. As the Company elected to use the extended transition period for complying with new or revised accounting standards as available under the Jobs Act, the standard is effective for the Company beginning January 1, 2022. The Company will utilize the practical expedients available under ASU No. 2016-02, including, electing the package of practical expedients to not reassess prior conclusions related to contracts containing leases, lease classification and initial direct costs. In addition, the Company will apply 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 will not have a material cumulative adjustment to the statement of operations and comprehensive loss on January 1, 2022. The Company expects a material adjustment to the balance sheet in connection with the recognition of right-of-use assets and lease liabilities on January 1, 2022, with right-of-use assets approximating $17.0 million to $24.0 million and lease liabilities approximating $24.0 million to $31.0 million, subject to finalization of the Company’s incremental borrowing rate. The difference between right-of-use assets and lease liabilities relates to adjustments to unamortized balances of deferred rent and lease incentives existing as of December 31, 2021.

​

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 Financial Statements (cont.)

4. Cash, cash equivalents and marketable securities

The following table provides details regarding the Company’s portfolio of cash and cash equivalents:

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ Cost or ​ ​ ​ ​ ​ ​ ​ ​ ​

(in thousands) Amortized cost Unrealized gains Unrealized losses Fair value

Cash accounts in banking institutions ​ $ 44,549 ​ $ - ​ $ - ​ $ 44,549

Money market funds ​ ​ 84,416 ​ ​ - ​ ​ - ​ ​ 84,416

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Cash accounts in banking institutions ​ $ 46,660 ​ $ - ​ $ - ​ $ 46,660

Money market funds ​ ​ 84,409 ​ ​ - ​ ​ - ​ ​ 84,409

Commercial paper ​ ​ 3,933 ​ ​ - ​ ​ - ​ ​ 3,933

​

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

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

(in thousands) Amortized cost Unrealized gains Unrealized losses Fair value

Certificates of deposit ​ $ 5,296 ​ $ - ​ $ - ​ $ 5,296

U.S. government securities ​ ​ 1,996 ​ ​ - ​ ​ (8) ​ ​ 1,988

Non-U.S. government securities ​ ​ 7,849 ​ ​ 4 ​ ​ (1) ​ ​ 7,852

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Certificates of deposit ​ $ 6,115 ​ $ - ​ $ - ​ $ 6,115

U.S. government securities ​ ​ 24,345 ​ ​ 1 ​ ​ (2) ​ ​ 24,344

Non-U.S. government securities ​ ​ 5,902 ​ ​ - ​ ​ - ​ ​ 5,902

​

S

​

​

The contractual maturities of our marketable securities as of December 31, 2021, are as follows:

​ ​ ​ ​ ​ ​ ​

(in thousands) ​ Amortized Cost ​ Fair Value

Due after one year through five years ​ ​ 84,209 ​ ​ 83,845

​

​

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​

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 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 Financial Statements (cont.)

The following fair value hierarchy table presents information about the Company’s assets measured at fair value on a recurring basis. Included within cash and cash equivalents on the balance sheet, but excluded from the fair value hierarchy table, are cash deposits held at financial institutions:

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ Fair value measurement at

​ ​ reporting date using

​ ​ Quoted prices ​ ​ ​ ​ ​ ​

​ in active Significant ​ ​

​ ​ markets for other Significant

​ identical observable ​ unobservable

​ assets inputs ​ inputs

(in thousands) (Level 1) (Level 2) (Level 3)

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 ​ ​ -

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

December 31, 2020: ​ ​ ​ ​ ​ ​ ​ ​ ​

Assets ​ ​ ​

Cash and cash equivalents: ​ ​ ​ ​ ​ ​ ​ ​ ​

Money market funds ​ $ 84,409 ​ $ - ​ $ -

Commercial paper ​ ​ - ​ ​ 3,933 ​ ​ -

Total cash and cash equivalents ​ ​ 84,409 ​ ​ 3,933 ​ ​ -

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Marketable securities: ​ ​ ​ ​ ​ ​ ​ ​ ​

Certificates of deposit ​ ​ - ​ ​ 6,115 ​ ​ -

Commercial paper ​ ​ - ​ ​ 47,877 ​ ​ -

Corporate debt securities ​ ​ - ​ ​ 85,577 ​ ​ -

U.S. government securities ​ ​ - ​ ​ 24,344 ​ ​ -

Non-U.S. government securities ​ ​ - ​ ​ 5,902 ​ ​ -

Total marketable securities ​ ​ - ​ ​ 169,815 ​ ​ -

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​

​

​

​

​

​

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Notes to Financial Statements (cont.)

6. Property and Equipment, net

Property and Equipment, net, consist of the following:

​

​ ​ ​ ​ ​ ​

​ ​ ​

Laboratory equipment $ 8,916 ​ $ -

Office equipment ​ 621 ​ ​ 80

Computer hardware and software ​ 1,028 ​ ​ 425

Furniture and fixtures ​ 1,487 ​ ​ 272

Construction in progress ​ 822 ​ ​ 1,314

Total property and equipment ​ 26,283 ​ ​ 3,729

Accumulated depreciation and amortization ​ (2,477) ​ ​ (934)

​

​

7. Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following:

​

​ ​ ​ ​ ​ ​ ​

Professional fees ​ $ 877 ​ $ 720

Compensation and related benefits ​ 10,014 ​ 5,183

Property and equipment ​ ​ 161 ​ ​ -

​

​

8. 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.

As a result of an Amendment in August 2021, the Penn Agreement includes an exploratory research program focused on discovering targets and novel gene therapy candidates for large CNS diseases, initially focused on AD and 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

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Notes to Financial Statements (cont.)

substantially the same terms of the current Penn Agreement. The Company made an upfront payment of $5.0 million in connection with the amendment to the Penn Agreement in August 2021; will reimburse Penn for expenses incurred in the exploratory research program; will pay an aggregate of $39.0 million in development milestones for each product candidate for which the Company has exercised its option in large CNS indications, initially AD and TLE and such other mutually agreed upon large CNS indications (in lieu of the milestones set forth in the existing Penn Agreement), in addition to the royalties and commercial milestones for products set forth under the existing Penn Agreement; and will pay Penn a tiered transaction fee ranging from 1-2% of the net proceeds upon certain change of control events.

​

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 $0.5 million per product indication, with another $0.5 million fee owed upon a further developmental milestone.

​

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 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.

​

Under the Penn Agreement, the Company incurred research and development expenses of $17.8 million and $32.4 million during the years ended December 2021 and 2020, respectively. During the year ended December 31, 2021, the Company paid Penn $1.5 million related to the achievement of a development milestone, $1.5 million related to option exercises under the Penn Agreement, and a $5.0 million payment related to the August 2021 amendment, which were recognized as in-process research and development expense.

​

Catalent Agreements

In June 2019, the Company entered into a collaboration agreement, or the Collaboration Agreement, with Catalent. As part of the Collaboration Agreement, the Company paid Catalent an upfront fee for the commissioning, qualification, validation and equipping of a clean room suite, or the Clean Room Suite. Subject to validation of the Clean Room Suite, which was completed in the fourth quarter of 2020, the Company will pay an annual fee for five years 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.

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Notes to Financial Statements (cont.)

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. For the years ended December 31, 2021 and 2020, the Company paid amounts in excess of the minimum commitment.

Operating Leases

The Company leased office space in Philadelphia, Pennsylvania under a noncancelable lease, as amended. The lease was classified as an operating lease and the Company recognized rent expense on a straight-line basis over the lease term. The lease was terminated in February 2021.

In April 2020, the Company entered into a new lease agreement, or New Lease Agreement, for larger office space in Philadelphia to accommodate the Company’s continued growth and serve as the new corporate headquarters. The New Lease Agreement commenced in February 2021 and expires in December 2031. The Company has an option to extend the term of the New Lease Agreement by up to twofive-year terms. The landlord provided the Company with a tenant improvement allowance of up to $2.8 million, for which the related expenditures were paid directly by the landlord. The expenditures were recorded as leasehold improvements with a corresponding amount recorded as a lease liability incentive within deferred rent in the balance sheet.

In December 2020, the Company entered into a lease agreement for laboratory space, or 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 2036. The Company has an option to extend the term of the Laboratory Lease Agreement by up to twofive-year terms. 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 December 31, 2021, $1.3 million of leasehold improvements related to the tenant improvement allowance was recorded as a lease liability incentive within deferred rent and the remaining receivable from the landlord of $0.3 million was recorded within prepaid expenses and other current assets. As of December 31, 2021, the Company received $1.0 million of reimbursement from the landlord related to the tenant improvement allowance, which is reflected as an operating inflow in the statement of cash flows.

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Notes to Financial Statements (cont.)

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

​

​ ​ ​ ​

(in thousands) ​

​

The Company recognized rent expense of $3.4 million and $0.6 million during the years ended December 31, 2021 and 2020, respectively, related to its operating leases.

Employment Agreements

The Company has entered into employment agreements with key personnel providing for compensation and severance in certain circumstances, 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 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 clinical 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.

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9. Convertible Preferred Stock and Common Stock

Initial Public Offering

In March 2020, the Company completed its IPO in which the Company sold 13,798,900 shares of its common stock, which included shares sold pursuant to an option granted to the underwriters to purchase additional shares, at a public offering price of $18.00 per share. The Company received net proceeds of $227.5 million after deducting underwriting discounts, commissions, and other offering expenses paid by the Company. In addition, immediately prior to the initial closing of the IPO on March 3, 2020, (i) all of the Company’s outstanding shares of convertible preferred stock converted into an aggregate of 26,803,777 shares of common stock and (ii) the Company filed an amended and restated certificate of incorporation to, among other things, increase the number of authorized shares of common stock to 300.0 million.

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Notes to Financial Statements (cont.)

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, which included shares sold pursuant to an option granted to the underwriters to purchase additional shares, 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.

On March 5, 2021, the Company entered into a Sales Agreement, or the Sales Agreement, with Cowen and Company, LLC, or Cowen, pursuant to which the Company may, but are not obligated to, offer and sell, from time to time, shares of the Company’s common stock with an aggregate offering price up to $125.0 million through Cowen, as sales agent. No sales of common stock have been made pursuant to this Sales Agreement to date.

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10. Share-Based Compensation

Equity Incentive Plans

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 Inducement Plan.

The total number of shares authorized under the Incentive Plan as of December 31, 2021 was 7,658,677. Of this amount, 3,637,509 shares were available for future grants as of December 31, 2021. The number of shares of the Company’s common stock that may be issued pursuant to rights granted under the 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, the number of shares authorized for issuance under the Incentive Plan increased by 2,712,249 and 2,295,854 shares in January 2022 and 2021, respectively.

The 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 under the Incentive Plan vest based on the terms in each award agreement, 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 was 1,000,000. Of this amount, 12,900 shares were available for future grants as of December 31, 2021. 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 under the Inducement Plan vest based on the terms in each award agreement and have a term of ten years. The Company’s restricted stock units vest based on the terms in each award agreement and have a term based on each award agreement.

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

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​ ​ ​ ​ ​ ​ ​

​ ​ Year Ended December 31,

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Notes to Financial Statements (cont.)

During the year ended December 31, 2020, the Company modified certain awards and recognized $0.7 million related to the modifications, $0.6 million of which was recognized in research and development expense and $0.1 million was recognized in general and administrative expense.

During the year ended December 31, 2021, the Company modified certain awards and recognized $7.4 million related to the modifications, $6.1 million of which was recognized in research and development expense and $1.3 million was recognized in general and administrative expense. The terms of such modifications included, on an awards-by-award basis, acceleration of the vesting period and extensions of the post-employment period to exercise.

The following table summarizes stock option activity for the year ended December 31, 2021:

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​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ Weighted ​

​ ​ ​ ​ Weighted ​ average ​

​ ​ ​ ​ average ​ remaining ​

​ ​ Number of ​ exercise price ​ contractual ​

​ ​ shares ​ per share ​ term (years) ​

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As of December 31, 2021, 1,308,244 options to purchase common stock are unvested, but exercisable, under early exercise provisions as described below.

The weighted-average grant date fair value of options granted was $12.75 and $11.54 for the years ended December 31, 2021 and 2020, respectively.

The aggregate intrinsic value of options exercised was $1.3 and $2.0 million and during the year ended December 31, 2021 and 2020, respectively.

The aggregate intrinsic value of options outstanding as of December 31, 2021 was $1.6 million and the aggregate intrinsic value of options exercisable as of December 31, 2021 was $1.4 million.

As of December 31, 2021, the total unrecognized compensation expense related to unvested stock option awards was $58.8 million, which the Company expects to recognize over a weighted-average period of 2.8 years.

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

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​ ​ ​ ​ ​ ​ ​

​ ​ Year Ended December 31,

Expected volatility ​ 99.0 % ​ 95.7 %

Risk‐free interest rate ​ 0.9 % ​ 1.2 %

Expected term ​ 6.0 years ​ 6.1 years

Expected dividend yield ​ — ​ ​ — ​

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Notes to Financial Statements (cont.)

The 2018 Plan and 2020 Plan provide 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. There were no early exercises of options during the year ended December 31, 2021.

The following table summarizes activity relating to early exercises of stock options during the year ended December 31, 2021:

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​ ​ ​

​ Number of shares

Unvested balance at December 31, 2021 —

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Nonrecourse Promissory Notes with Related Parties

In February 2019, two of the Company’s then executive officers, elected to early exercise 688,875 and 309,994 stock options, respectively, in exchange for cash proceeds of $0.2 million and nonrecourse promissory notes, or the Notes, of $0.8 million. The Notes bore interest at 2.91% and were secured by the underlying shares of common stock that were issued. In January 2020, the Company forgave the Notes and associated interest related to the early exercise of stock options. An aggregate of 406,897 shares that were previously not considered outstanding for accounting purposes due to being secured by the Notes became outstanding upon the forgiveness of the Notes in January 2020.

During the year-ended December 31, 2021, the Company accelerated the vesting of each executive officer’s early exercise of stock options awards in relation to each of their separations from the Company such that all early exercised stock options were vested for accounting purposes as of December 31, 2021.

Restricted Stock Units