Executive Summary / Key Takeaways

• Focused Pipeline & Cash Runway Extension: Passage Bio has undergone a significant strategic realignment, divesting non-core assets and implementing aggressive cost controls, extending its cash runway into Q1 2027. This focus is now squarely on PBFT02 for Frontotemporal Dementia (FTD-GRN) and its potential expansion into other neurodegenerative diseases.
• Promising PBFT02 Biomarker Data: Interim data from the upliFT-D trial for FTD-GRN shows robust, durable increases in CSF progranulin (PGRN) levels and a favorable impact on plasma neurofilament light chain (NfL), a key disease progression biomarker, suggesting a differentiated therapeutic profile.
• Differentiated AAV1/ICM Technology: Passage Bio's proprietary AAV1 capsid combined with intra cisterna magna (ICM) administration offers a technological edge, aiming for widespread brain and spinal cord delivery with a potentially improved safety profile and lower dosing requirements compared to systemic approaches.
• High-Stakes Competitive Landscape: The company operates in a highly competitive gene therapy space dominated by larger, more financially robust players. PASG's success hinges on its ability to rapidly advance PBFT02 through pivotal trials and secure regulatory approvals ahead of or with superior efficacy to rivals.
• Significant Execution & Funding Risks: Despite strategic streamlining, Passage Bio faces substantial execution risks in clinical trial enrollment, manufacturing scalability, and the need for significant additional capital to fund operations beyond its current runway, particularly for potential commercialization.

The Genesis of a Focused Vision: Passage Bio's Evolution in Gene Therapy

Passage Bio, Inc. (NASDAQ:PASG) was founded in July 2017 with an ambitious mission: to transform the lives of patients suffering from devastating neurodegenerative diseases through cutting-edge, one-time gene therapies. From its inception, the company's journey has been characterized by a relentless pursuit of innovation, underpinned by a strategic research collaboration with the University of Pennsylvania's Gene Therapy Program (GTP) and a focus on developing treatments for conditions with limited or no approved options. This foundational period saw the company primarily engaged in preclinical studies, technology licensing, and building the necessary infrastructure for clinical development, including a key manufacturing agreement with Catalent Maryland, Inc.

The gene therapy landscape is a high-stakes arena, marked by rapid technological advancements and intense competition. Larger, more established biotechnology and pharmaceutical companies, such as Sarepta Therapeutics (SRPT), Bluebird Bio (BLUE), CRISPR Therapeutics (CRSP), and BioMarin Pharmaceutical (BMRN), command significant market share and possess substantially greater financial, technical, and commercial resources. These rivals often benefit from broader product portfolios, established regulatory approvals, and robust revenue streams from commercialized products, which allows for sustained, high-cost R&D. Passage Bio, as a relatively newer entrant, has strategically positioned itself by focusing on highly targeted, differentiated approaches for specific central nervous system (CNS) disorders, aiming to carve out a niche through superior therapeutic efficacy and delivery mechanisms.

Technological Edge: The AAV1/ICM Differentiator

At the core of Passage Bio's investment thesis is its proprietary gene therapy platform, particularly its lead clinical candidate, PBFT02. This therapy leverages an adeno-associated virus serotype 1 (AAV1) capsid to deliver a functional granulin (GRN) gene, encoding progranulin (PGRN), directly to the brain via intra cisterna magna (ICM) administration. This combination represents a critical technological differentiator in the competitive gene therapy landscape.

The AAV1 capsid was selected for its demonstrated ability to achieve extensive and robust vector delivery throughout the brain and spinal cord in non-human primates (NHPs). This widespread biodistribution is crucial for treating diffuse neurodegenerative diseases. Furthermore, ICM administration offers a significant advantage over systemic delivery by requiring lower doses, which can translate into an improved safety profile and reduced manufacturing costs. This approach also leads to higher PGRN levels in cerebrospinal fluid (CSF) compared to other serotypes tested, directly addressing the underlying progranulin deficiency in target indications.

The tangible benefits of this technology are beginning to emerge in clinical data. In the upliFT-D trial, Dose 1 of PBFT02 (3.3e10 genome copies/g estimated brain weight) resulted in robust and durable increases in CSF PGRN levels, with concentrations rising from below 3.0 ng/mL at baseline to a mean of 19.4 ng/mL at six months and 25.9 ng/mL at 12 months. These levels are notably higher than the 3.3 to 8.2 ng/mL range found in healthy adult controls. Critically, this elevation in PGRN correlated with an average 4% increase in plasma neurofilament light chain (NfL) levels at 12 months post-treatment, a stark contrast to the expected 28-29% annual increase observed in untreated, symptomatic FTD-GRN patients based on natural history data. This suggests a potential disease-modifying effect.

For investors, this technological differentiation and the early quantitative biomarker data are paramount. They underpin Passage Bio's competitive moat, offering the potential for superior clinical outcomes that could command premium pricing and drive market adoption. The ability to achieve widespread CNS delivery with a favorable safety profile and measurable biological impact positions PBFT02 as a potentially best-in-class therapy, which could translate into stronger financial performance through higher average selling prices (ASPs) and a more efficient path to market.

Strategic Realignment and Financial Discipline

Passage Bio's journey has been marked by significant strategic realignments aimed at optimizing its pipeline and extending its financial runway. In late 2022 and early 2023, the company made difficult, resource-driven decisions to halt further clinical development of PBKR03 for Krabbe disease and PBML04 for metachromatic leukodystrophy, citing financial considerations rather than safety concerns with the MLD asset itself. These programs, along with PBGM01 for GM1 gangliosidosis, were subsequently outlicensed to Gemma Biotherapeutics, Inc. in July 2024 (amended May 2025). Under these sublicense agreements, Passage Bio is entitled to receive initial payments, up to an additional $114.0 million in development and commercial milestone payments, and single-digit royalties on net sales, while Gemma assumes responsibility for payments to Penn. As of June 30, 2025, Passage Bio had collected $5.0 million in initial payments and $4.7 million in transition services payments from Gemma.

Further demonstrating its commitment to financial discipline, Passage Bio implemented substantial workforce reductions: a 13% cut in March 2022, a further 23% in Q3 2022, and a significant 55% reduction in January 2025. The latter also involved ceasing lab operations in Hopewell, New Jersey, and selling laboratory equipment. These measures, while impactful on personnel and operations, were crucial for extending the company's financial viability.

Financially, Passage Bio continues to operate with recurring losses and negative cash flows, reflecting its clinical-stage nature. As of June 30, 2025, the company reported an accumulated deficit of $684.0 million. However, the strategic cost reductions have had a tangible impact on its burn rate. For the six months ended June 30, 2025, net loss was $24.8 million, a notable improvement from $32.7 million for the same period in 2024. Research and development (R&D) expenses decreased by $8.4 million to $13.6 million, and general and administrative (G&A) expenses decreased by $2.4 million to $10.6 million for the same comparative periods. These reductions were primarily driven by lower preclinical research expenses due to the termination of the Penn discovery research obligation, reduced headcount, and decreased facility and manufacturing costs.

Liquidity and Future Funding Imperatives

As of June 30, 2025, Passage Bio held $57.6 million in cash and cash equivalents. Management projects this existing capital will fund operating expenses and capital expenditure requirements into the first quarter of 2027. This extended cash runway is a direct result of the aggressive cost-cutting and pipeline prioritization efforts. However, the company acknowledges that substantial additional capital will be needed to fund operations and fully develop its product candidates, particularly as PBFT02 advances into later-stage clinical trials and potential commercialization.

Passage Bio's long-term financing strategy involves a combination of equity offerings, debt financings, and strategic collaborations. The company's At-The-Market (ATM) Facility, with $15.8 million of capacity remaining as of June 30, 2025, provides a potential source of equity, though its utilization is constrained by SEC "baby shelf rule" limitations for smaller companies. The recent 1-for-20 reverse stock split, effective July 14, 2025, was primarily aimed at regaining compliance with Nasdaq's minimum bid price requirement, but it also carries risks of reduced stock liquidity.

Clinical Pipeline and Outlook

Passage Bio's future is now largely tethered to the success of PBFT02. The upliFT-D trial for FTD-GRN has completed dosing of Cohorts 1 and 2, with Dose 2 (half the concentration of Dose 1) showing substantial increases in CSF PGRN levels at 30 days, approaching the upper limit of the healthy adult reference range. Following serious adverse events (SAEs) in three patients (venous sinus thrombosis, hepatotoxicity, pulmonary embolism), the protocol was amended to include a short course of low-dose prophylactic anticoagulation, a decision supported by study investigators and the Independent Data Monitoring Committee (IDMC). The company plans to enroll Cohort 3 (5-10 FTD-GRN patients) under the amended protocol.

The strategic vision for PBFT02 extends beyond FTD-GRN. Passage Bio intends to pursue the therapy in other adult neurodegenerative diseases where elevated PGRN levels could be beneficial, including FTD-C9orf72 and Amyotrophic Lateral Sclerosis (ALS), based on preclinical evidence of PGRN's potential to ameliorate TDP-43 pathology. Positive regulatory feedback has been received for the clinical pathway in FTD-C9orf72 and ALS, with plans to enroll FTD-C9orf72 patients upon site acceptance of the amended upliFT-D protocol. The company also believes PBFT02 has potential in Alzheimer's disease (AD) for patients carrying the GRN rs5848 SNP.

Key upcoming milestones for PBFT02 include seeking regulatory feedback on suspension-based manufacturing process comparability in the second half of 2025, reporting updated interim safety and biomarker data from Dose 2 in the first half of 2026, and seeking regulatory feedback on registrational trial design in FTD-GRN in the first half of 2026. This aggressive timeline underscores the company's focused execution strategy.

Beyond PBFT02, Passage Bio maintains an active preclinical research program in Huntington's disease through its collaboration with Gemma Biotherapeutics, along with options to license programs for four additional new CNS indications. The Temporal Lobe Epilepsy (TLE) program, however, remains paused due to cost-cutting measures.

Competitive Dynamics and Risks

Passage Bio faces formidable competition. In FTD-GRN, direct rivals include Prevail Therapeutics (Eli Lilly Co (LLY)) and AviadoBio Ltd (Astellas Pharma Inc. (ALPMY)), both advancing gene therapies in Phase 1/2. Alector, Inc. (ALEC) (GSK plc (GSK)) is in a Phase 3 trial with an antibody, while others like Kyowa Kirin (KYKOF), QurAlis, Denali Therapeutics (DNLI), and Arkuda Therapeutics pursue preclinical or early-stage approaches. For FTD-C9orf72, Transposon Therapeutics and Alector are also in clinical stages. Passage Bio's technological differentiation in AAV1/ICM delivery and its promising biomarker data are crucial for standing out in this crowded field.

However, the company's competitive disadvantages include its early-stage development and reliance on third-party manufacturers like Catalent, which introduces risks related to supply and potential disruptions from corporate acquisitions. Patient identification and recruitment, particularly for FTD-GRN due to low pre-genotyping rates (only about 1 in 10 FTD patients are pre-genotyped), remain significant operational challenges that could delay trial timelines.

The risks extend beyond clinical execution. Passage Bio's financial health, while benefiting from recent cost controls, remains precarious given its accumulated deficit and the need for substantial future capital. Dilution from equity offerings or restrictive covenants from debt financing are persistent concerns. The novelty of gene therapy itself, coupled with manufacturing complexities and potential unforeseen side effects, presents inherent regulatory and commercialization hurdles. While management has addressed historical safety concerns (e.g., Krabbe hydrocephalus) by implementing protocol modifications and does not believe the risk extends to FTD or GM1, any future SAEs could significantly impact development. Furthermore, broader macroeconomic factors, such as fluctuating interest rates and inflation, could impact the company's ability to raise capital on favorable terms.

Conclusion

Passage Bio is at a pivotal juncture, having strategically narrowed its focus to PBFT02 and its promising potential in FTD-GRN and other neurodegenerative diseases. The company's differentiated AAV1/ICM gene therapy platform, supported by encouraging interim biomarker data, forms the bedrock of its investment thesis. This technological edge, if successfully translated into clinical efficacy and regulatory approval, could enable Passage Bio to carve out a significant position in the highly competitive gene therapy market.

However, the path forward is fraught with challenges, including the need for substantial additional capital, the complexities of clinical trial execution and patient recruitment, and the inherent risks associated with novel gene therapies. Investors must weigh the compelling scientific promise and strategic focus against the significant financial and operational hurdles that remain. Passage Bio's ability to execute on its upcoming clinical milestones and secure necessary funding will be paramount in determining whether its focused gambit ultimately unlocks transformative value for patients and shareholders alike.