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10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2023


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________________ to ___________________

Commission File Number: 001-41374

PEPGEN INC.

(Exact Name of Registrant as Specified in its Charter)


Delaware	85-3819886
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
321 Harrison Ave. 8th Floor Boston, Massachusetts	02118
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (781) 797-0979

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading
Symbol(s)

Name of each exchange on which registered

Common stock, par value $0.0001 per share

PEPG

Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of August 1, 2023, the registrant had 23,813,547 of common stock, $0.0001 par value per share, outstanding.

Table of Contents


		Page

PART I.	FINANCIAL INFORMATION	4

Item 1.	Condensed Consolidated Financial Statements (Unaudited)	4
	Condensed Consolidated Balance Sheets	4
	Condensed Consolidated Statements of Operations	5
	Condensed Consolidated Statements of Comprehensive Loss	6
	Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders’ Deficit	7
	Condensed Consolidated Statements of Cash Flows	8
	Notes to Unaudited Condensed Consolidated Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	27
Item 4.	Controls and Procedures	27

PART II.	OTHER INFORMATION	29

Item 1.	Legal Proceedings	29
Item 1A.	Risk Factors	29
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	88
Item 3.	Defaults Upon Senior Securities	89
Item 4.	Mine Safety Disclosures	89
Item 5.	Other Information	89
Item 6.	Exhibits	90
Signatures		91

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q, or 10-Q contains express or implied forward-looking statements that are based on our management’s belief and assumptions and on information currently available to our management and which are made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, or the or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Although we believe that the expectations reflected in these forward-looking statements are reasonable, these statements relate to future events or our future operational or financial performance, and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. Forward-looking statements in this 10-Q include, but are not limited to, statements about:

•

the initiation, timing, progress, results, and cost of our research and development programs and our current and future preclinical studies and clinical trials, including statements regarding the timing of initiation and completion of studies or trials and related preparatory work, and the period during which the results of our clinical trials will become available;

•

our ability to efficiently develop our existing product candidates and discover new product candidates;

•

our ability to successfully manufacture our investigational drug substances and drug product for preclinical use, for clinical trials and on a larger scale for commercial use, if our investigational drug candidates are approved;

•

our ability to obtain funding for our operations necessary to complete further development and commercialization of our product candidates;

•

our ability to obtain and maintain regulatory approval of our product candidates;

•

our ability to commercialize our product candidates, if approved;

•

the pricing and reimbursement of our product candidates, if approved;

•

the implementation of our business model, and strategic plans for our business and product candidates;

•

the scope of protection we are able to establish and maintain for intellectual property rights covering our product candidates and our technology platform;

•

estimates of our future expenses, revenues, capital requirements, and our needs for additional financing;

•

the size and growth potential of the markets for our product candidates, and our ability to serve those markets;

•

our financial performance;

•

the rate and degree of market acceptance of our product candidates;

•

regulatory developments in the United States and foreign countries;

•

our ability to contract with third-party suppliers and manufacturers and their ability to perform adequately;

•

our ability to produce our products or product candidates with advantages in turnaround times or manufacturing cost;

•

the success of competing therapies that are or may become available;

•

our ability to attract and retain key research and development or management personnel;

•

the impact of laws and regulations;

•

developments relating to our competitors and our industry;

•

the effects of the COVID-19 pandemic, or any future pandemics, including mitigation efforts and economic effects, on any of the foregoing or other aspects of our business operations, including but not limited to our preclinical studies and clinical trials and any future studies or trials; and

•

other risks and uncertainties, including those listed under the caption “Risk Factors.”

In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue” or the negative of these terms or other comparable terminology. These statements are only predictions, and are subject to change due to known and unknown risks, uncertainties, and other factors, which are, in some cases, beyond our control and which could materially affect results. Factors that

may cause actual results to differ materially from current expectations include, among other things, those listed under the section titled “Risk Factors” and elsewhere in this 10-Q. If one or more of these risks or uncertainties occur, or if our underlying assumptions prove to be incorrect, actual events or results may vary significantly from those implied or projected by the forward-looking statements. No forward-looking statement is a guarantee of future performance. Moreover, we operate in an evolving environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors and uncertainties. You should read this 10-Q and the documents that we reference in this 10-Q and have filed with the Securities and Exchange Commission completely and with the understanding that our actual future results may be materially different from any future results expressed or implied by these forward-looking statements.

The forward-looking statements in this 10-Q represent our views as of the date of this 10-Q. We anticipate that subsequent events and developments will cause our views to change. However, while we may elect to update these forward-looking statements at some point in the future, we have no current intention of doing so except to the extent required by applicable law. You should therefore not rely on these forward-looking statements as representing our views as of any date subsequent to the date of this 10-Q.

In addition, statements that ‘‘we believe’’ and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain.

This 10-Q also contains estimates, projections and other information concerning our industry, our business and the markets for our programs and product candidates. Information that is based on estimates, forecasts, projections, market research or similar methodologies is inherently subject to uncertainties and actual events or circumstances may differ materially from events and circumstances that are assumed in this information. Unless otherwise expressly stated, we obtained this industry, business, market, and other data from our own internal estimates and research as well as from reports, research surveys, studies, and similar data prepared by market research firms and other third parties, industry, medical and general publications, government data and similar sources. While we are not aware of any misstatements regarding any third-party information presented in this 10-Q, their estimates, in particular, as they relate to projections, involve numerous assumptions, are subject to risks and uncertainties and are subject to change based on various factors, including those discussed under the section titled “Risk Factors” and elsewhere in this 10-Q.

SUMMARY OF MATERIAL RISKS ASSOCIATED WITH OUR BUSINESS

Our business is subject to numerous risks and uncertainties that you should be aware of in evaluating our business. These risks include, but are not limited to, the following:

•

We have incurred significant losses since our inception, have no products approved for sale and we expect to incur losses for the foreseeable future.

•

We will need to raise substantial additional funding. If we are unable to raise capital when needed, we could be forced to delay, scale back, or discontinue our product development programs or future commercialization efforts.

•

We are early in our development efforts. We have only advanced one product candidate into clinical development, and as a result it will be years before we commercialize a product candidate, if ever. If we are unable to advance our product candidates through preclinical studies and clinical trials, obtain marketing approval and ultimately commercialize them, or experience significant delays in doing so, our business will be materially harmed.

•

Our business is highly dependent on the clinical advancement of our programs and modalities and is especially dependent on the success of our lead product candidates, PGN-EDO51 and PGN-EDODM1. Delay or failure to advance programs or modalities, including PGN-EDO51 and PGN-EDODM1 could adversely impact our business.

•

The U.S. Food and Drug Administration (FDA) has placed the investigational new drug application for our planned Phase 1 FREEDOM-EDODM1 clinical trial on clinical hold. Our response to the FDA may be delayed or not satisfactory to the FDA, the clinical hold may not be lifted on a timely basis, or at all, and we may not be able to initiate our clinical trial of PGN-EDODM1.

•

Preclinical and clinical development involves a lengthy and expensive process with an uncertain outcome, and the results of preclinical and clinical studies, including those of the Phase 1 study of PGN-EDO51, are not necessarily predictive of the results of later preclinical studies and any clinical trials of our product candidates. We have only entered clinical trials for one of our product candidates and our product candidates may not have favorable results in clinical trials, if any, or receive regulatory approval on a timely basis, if at all.

•

Substantial delays in the commencement, enrollment or completion of our planned clinical trials or failure to demonstrate safety and efficacy to the satisfaction of applicable regulatory authorities could prevent us from commercializing any product candidates we determine to develop on a timely basis, if at all.

•

We rely, and expect to continue to rely, on third parties to conduct some or all aspects of our product manufacturing, research and preclinical and clinical testing, and these third parties may not perform satisfactorily or, dedicate adequate resources to meet our needs, or may be unable to acquire the necessary supplies to perform successfully.

•

We face significant competition, and if our competitors develop technologies or product candidates more rapidly than we do or their technologies or product candidates are more effective or have more favorable safety or tolerability profiles, our business and our ability to develop and successfully commercialize products may be adversely affected.

•

If we are unable to obtain and maintain patent protection for our EDO platform, therapeutic development candidates or programs and/or other proprietary technologies we develop, or if the scope of the patent protection obtained is not sufficiently broad, our competitors could develop and commercialize products and technology similar or identical to ours, and our ability to successfully commercialize our therapeutic product candidates or programs and other proprietary technologies we may develop may be adversely affected.

•

We expect to expand our development and regulatory capabilities, and as a result, we may encounter difficulties in managing our growth, which could disrupt our operations.

•

Our future success depends on our ability to retain key executives and to attract, retain and motivate qualified personnel.

•

The price of our common stock has been and may continue to be volatile and fluctuate substantially, which could result in substantial losses for holders of our common stock.

The summary risk factors described above should be read together with the text of the full risk factors below in the section titled “Risk Factors” in Part II, Item 1.A. and the other information set forth in this Quarterly Report on Form 10-Q, as well as in other documents that we file with the U.S. Securities and Exchange Commission (SEC). The risks summarized above or described in full below are not the only risks that we face. Additional risks and uncertainties not precisely known to us, or that we currently deem to be immaterial, may also materially adversely affect our business, financial condition, results of operations and future growth prospects.

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

PEPGEN INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS)


	June 30, 2023 (unaudited)			December 31, 2022
Assets
Current assets:
Cash and cash equivalents	$	147,027		$	181,752
Prepaid expenses and other current assets		3,351			4,331
Total current assets	$	150,378		$	186,083
Property and equipment, net	$	5,251		$	3,335
Operating lease right-of-use asset		24,754			26,549
Other assets		1,702			1,473
Total assets	$	182,085		$	217,440
Liabilities, convertible preferred stock, and stockholders’ equity
Current liabilities:
Accounts payable	$	1,815		$	1,362
Accrued expenses		11,629			11,913
Operating lease liability		3,492			5,553
Total current liabilities	$	16,936		$	18,828
Operating lease liability, net of current portion		17,865			18,981
Total liabilities	$	34,801		$	37,809
Commitments and contingencies (Note 8)
Convertible preferred stock	$	—		$	—
Stockholders’ equity (deficit)
Common stock	$	2		$	2
Additional paid-in capital		285,966			282,566
Accumulated other comprehensive (loss) income		13			(81	)
Accumulated deficit		(138,697	)		(102,856	)
Total stockholders’ equity	$	147,284		$	179,631
Total liabilities, convertible preferred stock, and stockholders’ equity	$	182,085		$	217,440

See accompanying notes to condensed consolidated financial statements.

PEPGEN INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

(UNAUDITED)


	Three Months Ended June 30,						Six Months Ended June 30,
	2023			2022			2023			2022
Operating expenses:
Research and development	$	16,926		$	14,240		$	31,286		$	24,947
General and administrative		4,218			3,401			7,889			6,587
Total operating expenses	$	21,144		$	17,641		$	39,175		$	31,534
Operating loss	$	(21,144	)	$	(17,641	)	$	(39,175	)	$	(31,534	)
Other income (expense)
Interest income		1,684			250			3,476			259
Other income (expense), net		(62	)		76			(142	)		134
Total other income, net		1,622			326			3,334			393
Net loss before income tax	$	(19,522	)	$	(17,315	)	$	(35,841	)	$	(31,141	)
Income tax expense		—			—			—			(4,420	)
Net loss	$	(19,522	)	$	(17,315	)	$	(35,841	)	$	(35,561	)
Net loss per share, basic and diluted	$	(0.82	)	$	(1.23	)	$	(1.51	)	$	(4.70	)
Weighted-average common shares outstanding, basic and diluted		23,790,430			14,090,455			23,776,448			7,563,283

See accompanying notes to condensed consolidated financial statements.

PEPGEN INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(IN THOUSANDS)

(UNAUDITED)


	Three Months Ended June 30,						Six Months Ended June 30,
	2023			2022			2023			2022
Net loss	$	(19,522	)	$	(17,315	)	$	(35,841	)	$	(35,561	)
Cumulative translation adjustment arising during the period		41			(42	)		94			(116	)
Comprehensive loss	$	(19,481	)	$	(17,357	)	$	(35,747	)	$	(35,677	)

See accompanying notes to condensed consolidated financial statements.

PEPGEN INC.

CONDENSED CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT

(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

(UNAUDITED)


	Series A-1 Convertible Preferred Stock						Series A-2 Convertible Preferred Stock						Series B Convertible Preferred Stock						Class A Common Stock				Additional Paid-in		Accumulated Other Comprehensive (Loss)			Accumulated			Total Stockholders’
	Shares			Amount			Shares			Amount			Shares			Amount			Shares		Amount		Capital		Income			Deficit			Equity (Deficit)
Balance as of December 31, 2022		—		$	—			—		$	—			—		$	—			23,713,196	$	2	$	282,566	$	(81	)	$	(102,856	)	$	179,631
Stock-based compensation expense		—			—			—			—			—			—			—		—		1,348		—			—			1,348
Exercise of Stock Options																				68,709		—		130		—			—			130
Net loss		—			—			—			—			—			—			—		—				—			(16,319	)		(16,319	)
Foreign currency translation adjustment		—			—			—			—			—			—			—		—		—		53			—			53
Balance as of March 31, 2023		—			—			—			—			—			—			23,781,905		2		284,044		(28	)		(119,175	)		164,843
Stock-based compensation expense		—			—			—			—			—			—			—		—		1,837		—			—			1,837
Exercise of Stock Options		—			—			—			—			—			—			31,642		—		85		—			—			85
Net loss		—			—			—			—			—			—			—		—		—		—			(19,522	)		(19,522	)
Foreign currency translation adjustment		—			—			—			—			—			—			—		—		—		41			—			41
Balance as of June 30, 2023		—		$	—			—		$	—			—		$	—			23,813,547	$	2	$	285,966	$	13		$	(138,697	)	$	147,284

Balance as of December 31, 2021		1,372,970		$	8,454			3,939,069		$	44,639			7,234,766		$	112,083			963,588	$	—	$	1,653	$	17		$	(33,752	)		(32,082	)
Stock-based compensation expense		—			—			—			—			—			—			—		—		815		—			—			815
Net loss		—			—			—			—			—			—			—		—		—		—			(18,246	)		(18,246	)
Foreign currency translation adjustment		—			—			—			—			—			—			—		—		—		(74	)		—			(74	)
Balance as of March 31, 2022		1,372,970			8,454			3,939,069			44,639			7,234,766			112,083			963,588		—		2,468		(57	)		(51,998	)		(49,587	)
Stock-based compensation expense		—			—			—			—			—			—			—		—		1,228		—			—			1,228
Issuance of Series A-2 stock upon exercise of warrants		—			—			35,529			574			—			—			—		—		—		—			—			—
Conversion of convertible preferred stock upon initial public offering		(1,372,970	)		(8,454	)		(3,974,598	)		(45,213	)		(7,234,766	)		(112,083	)		12,359,856		1		165,751		—			—			165,752
Issuance of Common Stock upon initial public offering, net of underwriters' fees and issuance of costs of $12,684		—			—			—			—			—			—			10,238,951		1		110,182		—			—			110,183
Net loss		—			—			—			—			—			—			—		—		—		—			(17,315	)		(17,315	)
Foreign currency translation adjustment		—			—			—			—			—			—			—		—		—		(42	)		—			(42	)
Balance as of June 30, 2022		—		$	—