Passage BIO, Inc. Fair Value Disclosure
5. Fair Value of Financial Instruments and Non-Financial Instruments
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). |
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 |
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| markets for |
| other |
| Significant | ||||
| identical |
| observable |
| unobservable | ||||
| assets |
| inputs | inputs | |||||
(in thousands) |
| (Level 1) |
| (Level 2) |
| (Level 3) | |||
December 31, 2024: |
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Assets |
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Cash equivalents: | |||||||||
Money market funds | $ | 29,058 | $ | - | $ | - | |||
Commercial paper | - | 4,988 | - | ||||||
Total cash equivalents | 29,058 | 4,988 | - | ||||||
Marketable securities: | |||||||||
Certificates of deposit | - | 5,971 | - | ||||||
Commercial paper | - | 25,439 | - | ||||||
Corporate debt securities | - | 1,865 | - | ||||||
U.S. government securities | - | 5,908 | - | ||||||
Total marketable securities | - | 39,183 | - | ||||||
Total financial assets | $ | 29,058 | $ | 44,171 | $ | - | |||
December 31, 2023: | |||||||||
Assets |
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Cash equivalents: | |||||||||
Money market funds | $ | 13,763 | $ | - | $ | - | |||
Commercial paper | - | 2,670 | - | ||||||
Corporate debt securities | - | 1,680 | - | ||||||
Total cash equivalents | 13,763 | 4,350 | - | ||||||
Marketable securities: | |||||||||
Certificates of deposit | - | 10,956 | - | ||||||
Commercial paper | - | 34,606 | - | ||||||
Corporate debt securities | - | 22,940 | - | ||||||
U.S. government securities | - | 16,005 | - | ||||||
U.S. government agency securities | - | 8,078 | - | ||||||
Total marketable securities | - | 92,585 | - | ||||||
Total financial assets | $ | 13,763 | $ | 96,935 | $ | - | |||
Non-Financial Instruments
Long-lived non-financial assets are measured at fair value on a nonrecurring basis for purposes of calculating impairment using Level 3 inputs as defined in the fair value hierarchy. The fair value of long-lived assets using Level 3 inputs is determined by estimating the amount and timing of net future cash flows (which are unobservable inputs) and discounting them using a risk-adjusted rate of interest. Significant increases or decreases in actual cash flows may result in valuation changes.
The following long-lived assets were measured at fair value, on a nonrecurring basis, during the years ended December 31, 2024 and 2023. Assets remeasured in 2023 are not included in the fair values presented as of December 31, 2024. The significant assumptions utilized, which relate to future net cash flows, are further described in Note 9:
Fair Value Measurements as of December 31, 2024 of assets remeasured during 2024 | Year ended December 31, 2024 | |||||||
(in thousands) | Level 1 | Level 2 | Level 3 | Impairment Losses | ||||
Property and equipment, net | $ | - | $ | - | $ | 1,668 | $ | 2,279 |
Right of use assets | - | - | 1,642 | 2,516 | ||||
Other assets | - | - | 200 | 438 | ||||
Total | $ | - | $ | - | $ | 3,510 | $ | 5,233 |
Fair Value Measurements as of December 31, 2023 of assets remeasured during 2023 | Year ended December 31, 2023 | |||||||
(in thousands) | Level 1 | Level 2 | Level 3 | Impairment Losses | ||||
Property and equipment, net | $ | - | $ | - | $ | 1,306 | $ | 3,205 |
Right of use assets | - | - | 903 | 2,185 | ||||
Total | $ | - | $ | - | $ | 2,209 | $ | 5,390 |
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About Fair Value Disclosures
Fair value disclosures classify all assets and liabilities measured at fair value into a three-level hierarchy: Level 1 (quoted market prices), Level 2 (observable inputs like yield curves), and Level 3 (unobservable inputs requiring management estimates). The proportion of Level 3 assets directly reflects how much of the balance sheet depends on internal models rather than market evidence.
Key signals: a growing Level 3 balance relative to total fair-value assets increases valuation uncertainty and earnings volatility risk. Watch for transfers between levels — assets moving from Level 2 to Level 3 often signal deteriorating market liquidity. Unrealized gains and losses on Level 3 positions flow through earnings or other comprehensive income, so large swings deserve scrutiny. For financial institutions, examine the sensitivity disclosures that show how Level 3 valuations change under alternative assumptions. Compare the fair value of debt against its carrying amount to gauge hidden leverage.