10-Q
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4

 

 

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 March 31, 2024

OR

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 May 1, 2024, the registrant had 32,417,181 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 Stockholders’ Equity

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

16

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

24

Item 4.

Controls and Procedures

24

 

 

 

PART II.

OTHER INFORMATION

25

 

 

 

Item 1.

Legal Proceedings

25

Item 1A.

Risk Factors

25

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

85

Item 3.

Defaults Upon Senior Securities

86

Item 4.

Mine Safety Disclosures

86

Item 5.

Other Information

86

Item 6.

Exhibits

87

Signatures

88

 

 


 

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 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, or U.S., and foreign countries;
our ability to contract with third-party suppliers and manufacturers and their ability to perform adequately, and our ability to identify and contract with alternative third-party suppliers and manufacturers in a timely manner and on reasonable terms, if needed;
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

1


 

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 U.S. Securities and Exchange Commission, or the SEC, 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.

 

TRADEMARKS

This 10-Q contains references to our trademarks and to trademarks belonging to other entities. Solely for convenience, trademarks and trade names referred to, including logos, artwork and other visual displays, may appear without the ® or TM symbols, but such references are not intended to indicate, in any way, that their respective owners will not assert, to the fullest extent under applicable law, their rights thereto. We do not intend our use or display of other companies’ trade names or trademarks to imply a relationship with, or endorsement or sponsorship of us by, any other companies.

2


 

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 completed a Phase 1 clinical trial for our lead product candidate and initiated a Phase 1 clinical trial of a second product candidate as well as Phase 2 clinical trials of our lead product candidate, 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.
Preclinical and clinical development involves a lengthy and expensive process with an uncertain outcome, and the results of preclinical and clinical studies, including studies of PGN-EDO51, PGN-EDODM1 and PGN-EDO53, are not necessarily predictive of the results of later preclinical studies and any clinical trials of our product candidates. 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 clinical trials and advancement of our clinical trials, or failure to demonstrate safety and efficacy to the satisfaction of applicable regulatory authorities could prevent us from commercializing 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, preclinical and clinical testing, and these third parties may not perform satisfactorily. If we have to replace one or more of these third parties, we may be unable to enter into new agreements in a timely manner or on reasonable terms, if at all.
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 Enhanced Delivery Oligonucleotide, or 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 headcount to support our development and regulatory capabilities and potentially implement sales, marketing and distribution 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 is volatile and fluctuates 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 10-Q, as well as in other documents that we file with the 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.

3


 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

PEPGEN INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS)

 

 

March 31,
2024
(unaudited)

 

 

December 31,
2023

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

133,854

 

 

$

80,774

 

Marketable securities

 

 

41,369

 

 

 

29,633

 

Prepaid expenses and other current assets

 

 

2,396

 

 

 

2,271

 

Total current assets

 

$

177,619

 

 

$

112,678

 

Property and equipment, net

 

$

4,440

 

 

$

4,764

 

Operating lease right-of-use asset

 

 

23,083

 

 

 

23,620

 

Other assets

 

 

1,858

 

 

 

1,990

 

Total assets

 

$

207,000

 

 

$

143,052

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

1,480

 

 

$

1,005

 

Accrued expenses

 

 

6,752

 

 

 

13,522

 

Operating lease liability

 

 

3,026

 

 

 

3,004

 

Total current liabilities

 

$

11,258

 

 

$

17,531

 

Operating lease liability, net of current portion

 

 

16,743

 

 

 

17,100

 

Total liabilities

 

$

28,001

 

 

$

34,631

 

Commitments and contingencies (Note 7)

 

 

 

 

 

 

Stockholders’ equity

 

 

 

 

 

 

Preferred stock

 

$

 

 

$

 

Common stock

 

 

3

 

 

 

2

 

Additional paid-in capital

 

 

378,535

 

 

 

289,867

 

Accumulated other comprehensive (loss) income

 

 

(37

)

 

 

34

 

Accumulated deficit

 

 

(199,502

)

 

 

(181,482

)

Total stockholders’ equity

 

$

178,999

 

 

$

108,421

 

Total liabilities and stockholders’ equity

 

$

207,000

 

 

$

143,052

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

4


 

PEPGEN INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

(UNAUDITED)

 

 

Three Months Ended
March 31,

 

 

 

2024

 

 

2023

 

Operating expenses:

 

 

 

 

 

 

Research and development

 

$

14,732

 

 

$

14,360

 

General and administrative

 

 

5,066

 

 

 

3,671

 

Total operating expenses

 

$

19,798

 

 

$

18,031

 

Operating loss

 

$

(19,798

)

 

$

(18,031

)

Other income (expense)

 

 

 

 

 

 

Interest income

 

 

1,735

 

 

 

1,792

 

Other income (expense), net

 

 

43

 

 

 

(80

)

Total other income, net

 

 

1,778

 

 

 

1,712

 

Net loss before income tax

 

$

(18,020

)

 

$

(16,319

)

Income tax expense

 

 

 

 

 

 

Net loss

 

$

(18,020

)

 

$

(16,319

)

Net loss per share, basic and diluted

 

$

(0.63

)

 

$

(0.69

)

Weighted-average common stock outstanding, basic and diluted

 

 

28,656,401

 

 

 

23,761,915

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

5


 

PEPGEN INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(IN THOUSANDS)

(UNAUDITED)

 

 

Three Months Ended
March 31,

 

 

 

2024

 

 

2023

 

Net loss

 

$

(18,020

)

 

$

(16,319

)

Cumulative translation adjustment arising during the period

 

 

(51

)

 

 

53

 

Unrealized loss on marketable securities

 

 

(20

)

 

 

 

Comprehensive loss

 

$

(18,091

)

 

$

(16,266

)

 

See accompanying notes to unaudited condensed consolidated financial statements.

6


 

PEPGEN INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

(UNAUDITED)

 

 

Common Stock

 

 

Additional
Paid-in

 

 

Accumulated
Other
Comprehensive
(Loss)

 

 

Accumulated

 

 

Total
Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income

 

 

Deficit

 

 

Equity

 

Balance as of December 31, 2023

 

 

23,823,241

 

 

$

2

 

 

$

289,867

 

 

$

34

 

 

$

(181,482

)

 

$

108,421

 

Issuance of stock in public offering, net of underwriters' fees and issuance costs of $3,730

 

 

7,530,000

 

 

 

1

 

 

 

76,351

 

 

 

 

 

 

 

 

 

76,352

 

Issuance of common stock from At-the-Market Sales Agreement, net of underwriters' fees of $100

 

 

1,000,000

 

 

 

 

 

 

9,900

 

 

 

 

 

 

 

 

 

9,900

 

Exercise of stock options

 

 

36,194

 

 

 

 

 

 

395

 

 

 

 

 

 

 

 

 

395

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

2,022

 

 

 

 

 

 

 

 

 

2,022

 

Unrealized loss on marketable securities

 

 

 

 

 

 

 

 

 

 

 

(20

)

 

 

 

 

 

(20

)

Cumulative translation adjustment arising during the period

 

 

 

 

 

 

 

 

 

 

 

(51

)

 

 

 

 

 

(51

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(18,020

)

 

 

(18,020

)

Balance as of March 31, 2024

 

 

32,389,435

 

 

$

3

 

 

$

378,535

 

 

$

(37

)

 

$

(199,502

)

 

$

178,999

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of December 31, 2022

 

 

23,713,196

 

 

$

2

 

 

$

282,566

 

 

$

(81

)

 

$

(102,856

)

 

$

179,631

 

Exercise of stock options

 

 

68,709

 

 

 

 

 

 

130

 

 

 

 

 

 

 

 

 

130

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

1,348

 

 

 

 

 

 

 

 

 

1,348

 

Cumulative translation adjustment arising during the period

 

 

 

 

 

 

 

 

 

 

 

53

 

 

 

 

 

 

53

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(16,319

)

 

 

(16,319

)

Balance as of March 31, 2023

 

 

23,781,905

 

 

$

2

 

 

$

284,044

 

 

$

(28

)

 

$

(119,175

)

 

$

164,843

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

7


 

PEPGEN INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

(UNAUDITED)

 

 

Three Months Ended
March 31,

 

 

 

2024

 

 

2023

 

Cash flows from operating activities:

 

 

 

 

 

 

Net loss

 

$

(18,020

)

 

$

(16,319

)

Adjustments to reconcile net loss to cash used in operating activities:

 

 

 

 

 

 

Depreciation

 

 

376

 

 

 

150

 

Stock-based compensation expense

 

 

2,022

 

 

 

1,348

 

Amortization and interest accretion related to operating lease

 

 

(135

)

 

 

37

 

Amortization of premium and discounts on marketable securities, net

 

 

(516

)

 

 

 

Other non-cash adjustments

 

 

20

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Prepaids and other current and non-current assets

 

 

62

 

 

 

1,267

 

Accounts payable

 

 

88

 

 

 

(120

)

Accrued expenses and other non-current liabilities

 

 

(6,765

)

 

 

166

 

Operating lease liabilities, current and non-current

 

 

336

 

 

 

(1,951

)

Net cash used in operating activities

 

$

(22,532

)

 

$

(15,422

)

Cash flows from investing activities:

 

 

 

 

 

 

Purchases of property and equipment

 

$

(53

)

 

$

(1,181

)

Purchases of marketable securities

 

 

(29,239

)

 

 

 

Maturities of marketable securities

 

 

18,000

 

 

 

 

Net cash used in investing activities

 

$

(11,292

)

 

$

(1,181

)

Cash flows from financing activities:

 

 

 

 

 

 

Issuance of common stock in public offering, net of underwriters' fees

 

$

76,878

 

 

$

 

Payment of offering costs

 

 

(206

)

 

 

 

Issuance of common stock from At-the-Market Sales Agreement, net of underwriters' fees

 

 

9,900

 

 

 

 

Proceeds from employee equity plans

 

 

395

 

 

 

130

 

Net cash provided by financing activities

 

$

86,967

 

 

$

130

 

Effect of exchange rate changes on cash

 

 

(63

)

 

 

124

 

Net increase (decrease) in cash, cash equivalents and restricted cash

 

$

53,080

 

 

$

(16,349

)

Cash, cash equivalents and restricted cash at beginning of period

 

 

82,322

 

 

 

183,225

 

Cash, cash equivalents and restricted cash at end of period

 

$

135,402

 

 

$

166,876

 

Components of cash, cash equivalents and restricted cash:

 

 

 

 

 

 

Cash and cash equivalents

 

$

133,854

 

 

$

165,403

 

Restricted cash

 

 

1,548

 

 

 

1,473

 

Total cash, cash equivalents and restricted cash at end of period

 

$

135,402

 

 

$

166,876

 

Supplemental noncash investing and financing activities:

 

 

 

 

 

 

Property and equipment included in accounts payable and accrued expenses

 

$

19

 

 

$

974

 

Deferred offering costs in accounts payable and accrued expenses

 

$

188

 

 

$

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

8


 

PEPGEN INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1. Nature of Business and Basis of Presentation

PepGen Inc., hereinafter referred to as PepGen or the Company, is a clinical-stage biotechnology company advancing the next generation of oligonucleotide therapeutics with the goal of transforming the treatment of severe neuromuscular and neurologic diseases. The Company's principal offices are located in Boston, Massachusetts.

The Company was initially formed as PepGen Limited on January 25, 2018, in the United Kingdom, or the U.K. On November 9, 2020, PepGen Limited completed a corporate reorganization, or the Reorganization. As part of the Reorganization, PepGen Limited formed PepGen Inc., a Delaware corporation with nominal assets and liabilities, for the purpose of consummating the Reorganization. In connection with the Reorganization, the existing stockholders of PepGen Limited exchanged each of its classes of shares of PepGen Limited for the same number and class of common stock of PepGen Inc. on a one-to-one basis. The newly issued stock of PepGen Inc. had substantially identical rights to the exchanged shares of PepGen Limited. As a result of the exchange, PepGen Inc. became the sole stockholder of PepGen Limited. Upon the completion of the Reorganization on November 23, 2020, the historical financial statements of PepGen Limited became the historical financial statements of PepGen Inc. as the Reorganization was deemed to be between entities under common control.

Liquidity and Capital Resources

Since inception, the Company has not generated any revenue from product sales or other sources and has incurred significant operating losses and negative cash flows from operations. The Company’s primary uses of cash and cash equivalents to date have been to fund research and development activities, business planning, establishing and maintaining the Company’s intellectual property portfolio, hiring personnel, leasing premises and associated capital expenditures, raising capital, and providing general and administrative support for these operations. As of March 31, 2024, the Company had an accumulated deficit of $199.5 million. To date, the Company has funded operations primarily through private placements of convertible preferred stock, the sale of shares of common stock in its initial public offering, or IPO, the sale of shares of common stock under its At-the-Market Equity Offering Sales Agreement, or Sales Agreement, with Stifel, Nicolaus & Company, Incorporated, or Stifel, and through the sale of shares of common stock in a follow-on offering, referred to as the Follow-on Offering. As of March 31, 2024, the Company had cash, cash equivalents, and marketable securities of $175.2 million. The Company believes that its cash, cash equivalents, and marketable securities as of March 31, 2024, will be sufficient to fund its currently planned operations for at least the next 12 months from the filing of these condensed consolidated financial statements.

The Company filed a shelf registration statement on Form S-3 with the United States Securities and Exchange Commission, or SEC, which covers the offering, issuance and sale of an amount up to $300.0 million in the aggregate of shares of common stock, preferred stock, debt securities, warrants, and/or units or any combination thereof, which was declared effective on June 16, 2023. On August 8, 2023, the Company filed a prospectus supplement and entered into the Sales Agreement with Stifel, as sales agent, which provides for the issuance and sale by the Company of up to $100.0 million of shares of common stock from time to time in “at-the-market” offerings. The sales agent is entitled to receive a commission of up to 3.0% of gross proceeds from sales under the Sales Agreement. On February 5, 2024, the Company sold 1,000,000 shares of common stock at a price of $10.00 per share under the Sales Agreement, resulting in net proceeds of $9.9 million. On February 9, 2024, the Company sold 7,530,000 shares of common stock in the Follow-on Offering, pursuant to an underwriting agreement with Leerink Partners LLC dated as of February 6, 2024, at a price of $10.635 per share resulting in net proceeds of $76.4 million after deducting underwriting fees and offering costs of $3.7 million. Net proceeds from sales under the Sales Agreement and Follow-on Offering, after deducting underwriters' fees and costs, were $86.3 million.

As the Company continues to pursue its business plan to successfully develop and obtain regulatory approval for the Company’s product candidates, it expects to finance its operations through the sale of equity, debt financings or other capital resources, which could include income from collaborations, strategic partnerships or marketing, distribution, licensing or other strategic arrangements with third parties, or from grants. However, there can be no assurance that any additional financing or strategic transactions will be available to the Company on acceptable terms, if at all. If events or circumstances occur such that the Company does not obtain additional funding, it may need to delay, reduce or eliminate its product development or future commercialization efforts, which could have a material adverse effect on the Company’s business, results of operations or financial condition.

9


 

Basis of Presentation and Consolidation

The accompanying condensed consolidated financial statements are unaudited and have been prepared in conformity with generally accepted accounting principles in the United States of America, or GAAP. Any reference in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the Accounting Standards Codification and Accounting Standards Update of the Financial Accounting Standards Board. The condensed consolidated financial statements have been prepared on the same basis as the audited annual financial statements. Certain information and footnote disclosures normally included in the Company’s annual financial statements have been condensed or omitted. These condensed consolidated financial statements, in the opinion of management, reflect all normal recurring adjustments necessary for a fair presentation of the Company’s financial position as of March 31, 2024, and results of operations for the interim periods ended March 31, 2024 and March 31, 2023.

The results of operations for the interim periods are not necessarily indicative of the results of operations to be expected for the full year. These condensed consolidated financial statements should be read in conjunction with the audited financial statements as of and for the years ended December 31, 2023 and 2022, and the notes thereto, included in the Company’s Annual Report on Form 10-K, filed with the SEC on March 6, 2024, or Form 10-K, as amended by the Form 10-K/A filed on March 29, 2024.

2. Summary of Significant Accounting Policies

The Company’s significant accounting policies are disclosed in the audited financial statements for the year ended December 31, 2023 included in the Form 10-K. Since the date of those financial statements, there have been no changes to the Company’s significant accounting policies.

 

Concentration of Credit Risk

 

Financial instruments, which potentially subject the Company to concentrations of credit risk, consist of cash and money market accounts. As of March 31, 2024, the Company’s cash and money market accounts were held by three financial institutions in the United States, or U.S., and one financial institution in the United Kingdom, or U.K. At times, the Company’s deposits held in the U.S. and U.K. may exceed the respective insured limits of the Federal Depository Insurance Corporation and Financial Services Compensation Scheme.

 

Deferred Offering Costs

 

The Company capitalizes within other long-term assets certain legal, accounting, and other third-party fees that are directly related to the Company’s in-process equity financings, until such financings are consummated. After consummation of the equity financing, these costs are recorded as a reduction of the proceeds received as a result of the offering. Should a planned equity financing be abandoned, terminated, or significantly delayed, the deferred offering costs are immediately written off to operating expenses. As of March 31, 2024, deferred offering costs of $0.3 million were recorded within other assets on the condensed consolidated balance sheets related to the Company’s Registration Statement on Form S-3 filed with the SEC on June 2, 2023 and Prospectus Supplement filed on August 8, 2023.

 

Income Taxes

 

Income taxes are accounted for using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts or existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using the 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 of enactment. The Company records a valuation allowance to reduce deferred tax assets to an amount for which realization is more likely than not.

 

The Company recognizes the tax benefit from an uncertain tax position if it is more likely than not that the tax position will be sustained upon examination by the tax authorities, based on the merits of the position. The Company’s policy is to recognize interest and penalties related to the underpayment of income taxes as a component of income tax expense or benefit. To date, there have been no interest or penalties charged in relation to the unrecognized tax benefits.

Restricted Cash

 

10


 

The Company classifies all cash whose use is limited by contractual provisions as restricted cash. Restricted cash arises from the requirement for the Company to maintain cash of $1.5 million as collateral under a lease agreement. As of March 31, 2024 and December 31, 2023, the Company had $1.5 million of restricted cash classified in other assets on the condensed consolidated balance sheets.

3. Fair Value Measurements

 

The following tables present information about the Company’s financial assets that have been measured at fair value as of March 31, 2024 and December 31, 2023, and indicate the fair value of the hierarchy of the valuation inputs utilized to determine such fair value. In general, fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities. Fair value determined by Level 2 inputs utilize observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted market prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities. Fair values determined by Level 3 inputs are unobservable data points for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability. The following tables set forth marketable securities as of March 31, 2024 and December 31, 2023 (in thousands):

 

 

As of March 31, 2024

 

 

Amortized Cost

 

 

Unrealized Gains

 

 

Unrealized Losses

 

 

Total

 

U.S. Treasury notes

 

 

41,389

 

 

 

 

 

 

(20

)

 

 

41,369

 

Total

 

$

41,389

 

 

$

 

 

$

(20

)

 

$

41,369

 

 

 

As of December 31, 2023

 

 

Amortized Cost

 

 

Unrealized Gains

 

 

Unrealized Losses

 

 

Total

 

U.S. Treasury notes

 

 

29,622

 

 

 

11

 

 

 

 

 

 

29,633

 

Total

 

$

29,622

 

 

$

11

 

 

$

 

 

$

29,633

 

 

The following tables set forth the fair value of the Company’s financial assets measured at fair value on a recurring basis and indicate the level within the fair value hierarchy utilized to determine such values (in thousands):

 

 

As of March 31, 2024

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Cash Equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury-backed money market funds

 

$

118,978

 

 

$

118,978

 

 

$

 

 

$

 

U.S. Treasury notes

 

 

5,987

 

 

 

5,987

 

 

 

 

 

 

 

Marketable Securities

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury notes

 

 

41,369

 

 

 

41,369

 

 

 

 

 

 

 

Total

 

$

166,334

 

 

$

166,334

 

 

$

 

 

$

 

 

 

 

As of December 31, 2023

 

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Cash Equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury-backed money market funds

 

$

64,397

 

 

$

64,397

 

 

$

 

 

$

 

U.S. Treasury notes

 

 

11,980

 

 

 

11,980

 

 

 

 

 

 

 

Marketable Securities:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury notes

 

 

29,633

 

 

 

29,633

 

 

 

 

 

 

 

Total

 

$

106,010

 

 

$

106,010

 

 

$

 

 

$

 

 

Money market funds are highly liquid investments that are valued based on quoted market prices in active markets, which represent a Level 1 measurement within the fair value hierarchy. These money market funds are classified on the balance sheet under cash and cash equivalents.

11


 

 

4. Property and Equipment, Net

The cost and accumulated depreciation of property and equipment were as follows (in thousands):

 

 

March 31,
2024

 

 

December 31,
2023

 

Lab equipment

 

$

4,874

 

 

$

4,821

 

Computer and office equipment

 

 

1,506

 

 

 

1,446

 

Construction in process

 

 

1

 

 

 

69

 

Total property and equipment

 

 

6,381

 

 

 

6,336

 

Less: accumulated depreciation

 

 

(1,941

)

 

 

(1,572

)

Total property and equipment, net

 

$

4,440

 

 

$

4,764

 

Depreciation expense was $0.4 million and $0.2 million for the three months ended March 31, 2024 and March 31, 2023, respectively.

5. Accrued Expenses

Accrued expenses consisted of the following (in thousands):

 

 

March 31,
2024

 

 

December 31,
 2023

 

Research and development expenses

 

$

4,049

 

 

$

9,521

 

Employee-related expenses

 

 

1,114

 

 

 

2,368

 

Professional Services

 

 

637

 

 

 

715

 

Other

 

 

952

 

 

 

918

 

Total accrued expenses

 

$

6,752

 

 

$

13,522

 

 

6. Related Party Transactions

Technology License Agreement with Oxford University Innovation Limited

In March 2018, the Company, Oxford University Innovation Limited, or OUI, and the Medical Research Council of United Kingdom Research and Innovation, or MRC, or collectively, the Licensors, entered into a license of technology agreement, which was subsequently amended in December 2018, further amended and restated in November 2020, and further amended in February 2022, or the License Agreement. The Licensors and affiliates held shares of Series A-1 and Series A-2 preferred stock, Series B preferred stock and Class A common stock. The License Agreement provides the Company with an exclusive world-wide license to licensed data and technology owned by OUI and MRC in respect of cell-penetrating peptides for the treatment of Duchenne muscular dystrophy, spinal muscular atrophy, and other conditions. The License Agreement provides the Company with the rights to grant and authorize sublicenses to make, use, sell, and import products and otherwise exploit the patent rights.

As consideration for the license, the Company made an initial upfront payment in 2018, as well as a Restatement Completion Fee and a License Data Fee in 2020 totaling $0.1 million.

The Company could be required to make milestone payments to the Licensors upon achievement of certain patent and commercial milestones related to the patents and commercialization of certain of the Company’s product candidates. The aggregate potential milestone payments are $0.1 million. The Company also agreed to pay the Licensors low single digit royalties on net sales of any licensed products that are commercialized by the Company in excess of a threshold amount between £20 million and £30 million ($25.2 million and $37.9 million as of March 31, 2024), subject to certain adjustments. The term of the License Agreement continues until the later of (i) the date on which all the patents and patent applications covered thereunder have been abandoned or allowed to lapse or expired or been rejected or revoked or (ii) 20 years from the date of the original license agreement.

Upon completion of the IPO, the Company became obligated to pay OUI an exit fee between 0.5% to 2% of the value determined in an acquisition or initial public offering, not to exceed £5 million ($6.2 million as of the IPO date). The exit fee due to OUI, based on the proceeds of the IPO, was $1.4 million, which was paid during the second quarter of 2022 and included in research and development expense on the condensed consolidated statement of operations. One member of the Company’s board of directors is also employed by Oxford Science Enterprises, or OSE, which is an affiliate by OUI.

12


 

OSE is related to OUI and as of March 31, 2024 owned 14.7% of the Company’s outstanding common stock. One member of the Company’s board of directors, Dr. Christopher Ashton, is affiliated with OSE. Pursuant to the terms of Dr. Ashton's employment agreement with OSE, he is obligated to transfer any cash compensation from the Company to OSE. Fees paid in cash for Dr. Ashton's service on the Company's board of directors were paid directly to OSE. The Company paid $11,875 during the three months ended March 31, 2024 and 2023 to OSE as compensation for Dr. Ashton's service on the board of directors.

RA Capital Management, L.P.

Entities affiliated with RA Capital Management, L.P., or RA Capital, purchased common stock in the Company’s IPO in May 2022 and the Company’s Follow-on Offering in February 2024. As of March 31, 2024, entities affiliated with RA Capital owned 33.0% of the Company’s outstanding common stock.

Two members of the Company’s board of directors, Dr. Joshua Resnick and Habib Dable, are affiliated with RA Capital. Pursuant to the governing legal documents of RA Capital, Dr. Resnick is obligated to transfer any cash compensation from the Company to RA Capital. Fees paid in cash for Dr. Resnick's service on the Company's board of directors were paid directly to RA Capital. The Company paid $10,750 during the three months ended March 31, 2024 and 2023 to RA Capital for Dr. Resnick’s service on the board of directors.

7. Commitments and Contingencies

Legal proceedings

From time to time, the Company may have certain contingent liabilities that arise in the ordinary course of its business activities. The Company accrues a liability for such matters when it is probable that future expenditures will be made and that such expenditures can be reasonably estimated.

The Company is not party to any litigation and does not have contingency reserves established for any litigation liabilities.

Other

The Company enters into standard indemnification agreements in the ordinary course of business. Pursuant to the agreements, the Company agrees to indemnify, hold harmless, and to reimburse the indemnified party for losses suffered or incurred by the indemnified party, including in connection with any U.S. patent or any copyright or other intellectual property infringement claim by any third-party with respect to the Company’s products. Further, the Company indemnifies its directors and officers who are, or were, serving at the Company’s request in such capacities. The Company’s maximum exposure under these arrangements is unknown as of March 31, 2024. The Company does not anticipate recognizing any significant losses relating to these arrangements. The term of these indemnification agreements is generally perpetual any time after execution of the agreement. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements may be unlimited. The Company has never incurred costs to defend lawsuits or settle claims related to these indemnification agreements.

8. Stockholders’ Equity

Under the Third Amended and Restated Certificate of Incorporation, dated May 10, 2022, as currently in effect, the Company has the authority to issue a total of 500,000,000 shares of common stock (par value of $0.0001 per share) and 10,000,000 shares of undesignated preferred stock (par value of $0.0001 per share). In connection with the IPO, the Company re-designated all shares of Class A common stock as shares of common stock. Each share of common stock has the right to one vote. The holders of common stock are also entitled to receive dividends whenever funds are legally available and when declared by the board of directors, subject to the prior rights of holders of all classes of stock outstanding having priority rights as to dividends. No cash dividends were declared by the board of directors during the three months ended March 31, 2024 and March 31, 2023.

The Company has reserved shares of common stock for issuance, on an as-converted basis, as follows:

 

 

 

March 31,
2024

 

 

December 31,
2023

 

Stock options issued and outstanding

 

 

5,284,400

 

 

 

4,233,203

 

Unvested restricted stock and performance stock units

 

 

106,200

 

 

 

 

Authorized for future stock awards or option grants

 

 

1,088,748

 

 

 

1,091,187

 

Authorized for future issuance under employee stock purchase plan

 

 

454,538

 

 

 

216,306

 

Total

 

 

6,933,886

 

 

 

5,540,696

 

 

13


 

 

9. Stock-Based Compensation

The Company maintains three equity compensation plans; the 2020 Stock Plan, or the 2020 Plan, the 2022 Stock Option and Incentive Plan, or the 2022 Plan, and the 2022 Employee Stock Purchase Plan, or the ESPP. As of the Company's IPO in May 2022, the Company's board of directors determined that no further awards would be made under the 2020 Plan. The number of shares of common stock that may be issued under the 2022 Plan is subject to increase by the number of shares under any outstanding stock options forfeited and not exercised under the 2020 Plan. Additionally, the number of shares reserved for issuance under the 2022 Plan automatically increases on the first day of each fiscal year in an amount equal to the lower of (1) 5% of the shares of common stock outstanding on such date and (2) an amount determined by the Company’s board of directors. The 2022 Plan allows the board of directors to grant incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock awards, restricted stock units, unrestricted stock awards, cash-based awards, and dividend equivalent rights to the Company’s officers, employees, directors and other key persons. As of March 31, 2024, 1,088,748 shares remained available for grant under the 2022 Plan and 454,538 shares remained available for issuance under the ESPP.

Stock Option Activity

Stock option activity under the 2020 Plan and the 2022 Plan, is as follows:

 

 

Stock
Options

 

 

Weighted-Average
Exercise
Price

 

Outstanding as of December 31, 2023

 

 

4,233,203

 

 

$

10.83

 

Granted

 

 

1,316,400

 

 

 

15.69

 

Exercised

 

 

(36,204

)

 

 

10.92

 

Canceled/Forfeited

 

 

(228,999

)

 

 

13.06

 

Outstanding as of March 31, 2024

 

 

5,284,400

 

 

$

11.94

 

 

The weighted-average grant date fair value of options granted during the three months ended March 31, 2024 was $11.25 per share. The Company had 5,284,400 unvested stock options outstanding as of March 31, 2024. As of March 31, 2024, total unrecognized compensation cost related to stock options was $32.6 million. This amount is expected to be recognized over a weighted average period of approximately 2.84 years.

Restricted Stock Units

 

A restricted stock unit, or RSU, represents the right to receive one share of common stock upon vesting of the RSU. In February 2024, the Company granted employees a one-time RSU award that vests fully on the one-year anniversary of the grant date, provided that the employee remains employed with the Company. Certain employees, including employees who are executive officers of the Company, received a one-time RSU award that vests upon the achievement of certain performance-based clinical development milestones, or PSUs. Such awards cannot vest in less than one year, regardless of when the performance milestone is achieved. The Company’s chief executive officer did not receive any RSU or PSU awards. A summary of the Company’s RSU and PSU activity and related information for the three months ended March 31, 2024 is as follows:

 

 

 

Time-based RSUs

 

 

PSUs

 

 

Weighted-Average
Grant Date Fair Value

 

Outstanding as of December 31, 2023

 

 

 

 

 

 

 

$

 

Granted

 

 

77,645

 

 

 

28,555

 

 

 

10.64

 

Vested

 

 

 

 

 

 

 

 

 

Forfeited

 

 

 

 

 

 

 

 

 

Issued and unvested as of March 31, 2024

 

 

77,645

 

 

 

28,555

 

 

$

10.64

 

 

The weighted average grant date fair value of the time-based RSUs and PSUs granted during the three months ended March 31, 2024 was $10.64. As of March 31, 2024, there was $0.7 million of unrecognized compensation costs ​​​​​​​related to unvested time-based RSUs, which are expected to be recognized over a weighted-average period of 0.9 years and $0.3 million of unrecognized compensation costs ​​​​​​​related to unvested PSUs, dependent upon achievement of aforementioned clinical development milestones.

14


 

Stock-Based Compensation Expense

Stock-based compensation expense associated with stock options, RSUs, PSUs, and the Company’s ESPP included in the accompanying condensed consolidated statements of operations and comprehensive loss is as follows (in thousands):

 

 

Three Months Ended
March 31,

 

 

 

2024

 

 

2023

 

Research and development

 

$

745

 

 

$

600

 

General and administrative

 

 

1,277

 

 

 

748

 

Total stock-based compensation expense

 

$

2,022

 

 

$

1,348

 

 

10. Income Taxes

The Company recorded income tax expense of nil for the three months ended March 31, 2024 and 2023.

On January 1, 2022, or the Transfer Date, the Company’s wholly owned subsidiary, PepGen Limited, transferred all intellectual property, or IP, assets to the parent company, PepGen Inc., in an arm’s length transaction at fair value pursuant to an asset transfer agreement. The fair value of the IP assets is a non-recurring fair value measurement. The Company engaged valuation specialists to calculate the IP value, and the IP value was measured using the historical cost method. The historical cost method estimated the fair value of the IP assets using the historical cost base of the IP assets and the expected market return as of the Transfer Date. The significant assumption inherent in estimating the fair value using the historical cost method was the expected market return. The Company utilized a 40% expected market return, which a third-party investor may expect as a return on their investment, and which is based on studies of venture capital investment returns. The Company calculated the fair value of the IP assets by computing the present value of the historical cost base using the 40% expected market return. The assumptions used in the estimation of the IP assets represent level 3 inputs of the fair value hierarchy.

The transfer of the IP assets resulted in an estimated tax charge during 2022 to His Majesty’s Revenue & Customs, or HMRC, after considering net operating loss carryforwards, of $4.4 million, inclusive of the $0.7 million uncertain tax position. The Company paid amounts owed to HMRC in September 2023.

The Company recognizes the impact of an uncertain income tax position taken on its income tax returns at the amount that is more likely than not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will be recognized if it has less than a 50% likelihood of being sustained. The tax positions are analyzed at least quarterly, and adjustments are made as events occur that warrant adjustments for those positions. As of March 31, 2024, the Company maintains the liability for the uncertain tax position related to the IP transfer of $0.7 million, which is accounted for in accrued expenses on the condensed consolidated balance sheet.

15


 

Item 2. 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 included elsewhere in this Quarterly Report on Form 10-Q, or 10-Q. Some of the information contained in this discussion and analysis or set forth elsewhere in this 10-Q, including information with respect to our plans, strategies, objectives, expectations and intentions for our business and related financing, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the “Risk Factors” section of this 10-Q, our actual results could differ materially from the results described in or implied by these forward-looking statements. Please also see the section titled “Special Note Regarding Forward-Looking Statements.”

Overview

PepGen Inc., also referred to as “PepGen,” “we,” “our” or “us”, is a clinical-stage biotechnology company advancing the next-generation of oligonucleotide therapies with the goal of transforming the treatment of severe neuromuscular and neurological diseases. Our proprietary EDO platform is founded on over a decade of research and development and leverages cell-penetrating peptides, or CPPs, to improve the uptake and activity of conjugated oligonucleotide therapeutics. Using these EDO peptides, we are generating a pipeline of oligonucleotide therapeutic candidates that are designed to target the root cause of serious diseases.

We are initially focused on addressing the underlying cause of Duchenne muscular dystrophy, or DMD, and myotonic dystrophy type 1, or DM1, that have high unmet need. Our current pipeline consists of two clinical stage programs, PGN-EDO51 for DMD patients who are amenable to exon 51 skipping and PGN-EDODM1 for DM1 patients, along with three additional preclinical stage programs. We anticipate expanding this pipeline over time to include other neuromuscular targets as well as potential opportunities in neurologic diseases.

We completed a first-in-human Phase 1 clinical trial in healthy volunteers, or HVs, with our lead product candidate, PGN-EDO51, in the third quarter of 2022. In the Phase 1 HV clinical trial, treatment with PGN-EDO51 resulted in the highest levels of exon skipping in humans following a single dose compared to publicly available data for a single dose of other DMD exon 51-skipping approaches that are approved or in clinical development.

Our clinical development program for PGN-EDO51 comprises two parallel Phase 2 studies of PGN-EDO51 in DMD patients whose mutations are amenable to an exon 51-skipping approach. The first study, CONNECT1-EDO51, or CONNECT1, is an ongoing open-label, multiple ascending dose, or MAD, Phase 2 study in boys and young men living with DMD being conducted in Canada. We initiated dosing patients in CONNECT1 in January 2024 and have fully enrolled the first cohort at the 5 mg/kg PGN-EDO51 dose level. We anticipate reporting preliminary data, including safety, exon skipping and dystrophin production, for this cohort in mid-2024.

In February 2024, we received clearance from the Medicines and Healthcare products Regulatory Agency, or MHRA, to initiate the second study, CONNECT2-EDO51, or CONNECT2, a Phase 2, multinational, randomized, double-blind, placebo-controlled MAD study, in the United Kingdom, or U.K. The CONNECT2 study will evaluate multiple dose cohorts and trial participants will be administered PGN-EDO51 once every four weeks for six months. We will assess safety, tolerability, exon skipping, dystrophin expression and functional outcomes in this study. The CONNECT2 study, together with data from the CONNECT1 study, is designed to support a potential accelerated approval pathway for PGN-EDO51, subject to regulatory authority feedback. In March 2024, we announced that the U.S. Food and Drug Administration, or FDA granted both orphan drug designation and rare pediatric disease designations for PGN-EDO51 for the treatment of DMD patients who are amenable to exon 51 skipping.

We are also developing PGN-EDODM1 for the treatment of DM1 and are utilizing what we believe to be a unique mechanism of action and a different delivery approach compared to other approaches in more advanced stages of clinical development. We have conducted extensive preclinical studies of our product candidate, and these preclinical data form the basis of our clinical development plan for PGN-EDODM1. In May 2023, we announced that we received a clinical hold notice from the FDA, regarding our investigational new drug, or IND, application to initiate our first-in-human Phase 1 FREEDOM-DM1, or FREEDOM, study. In September 2023, we announced that Health Canada had cleared our Clinical Trial Application, or CTA, for the FREEDOM study in Canada. In October 2023, we announced that the FDA lifted the clinical hold on the FREEDOM study, allowing this study to proceed in the U.S. In December 2023, we announced that the MHRA had cleared our CTA for the FREEDOM study in the U.K. and we began dosing patients in this study. FREEDOM is a multinational, randomized, double-blind, placebo-controlled, single ascending dose, or SAD, study designed to assess PGN-EDODM1’s safety and tolerability, splicing correction and functional outcome measures in DM1 patients. We expect to report preliminary data from this study in the second half of 2024. In February 2024, we announced that PGN-EDODM1 received Fast Track designation from the FDA for the treatment of DM1. The FDA has also previously granted orphan drug designation for PGN-EDODMI. We also expect to open the FREEDOM2-DM1 Phase 2 randomized, double blind, placebo-controlled MAD study in DM1 patients in the second half of 2024.

In addition to these lead candidates, we are developing EDO candidates for additional DMD sub-populations amenable to skipping of other exons, including exon 53, 45 and 44. We have previously reported robust exon 53-skipping levels following either a

16


 

single dose or multiple doses in non-human primates, or NHPs, for our PGN-EDO53 program. We continue to advance PGN-EDO53 into CTA and/or IND-enabling preclinical studies.

Initial Public Offering, ATM Program, Follow-on Offering and Liquidity

In May 2022, we closed our initial public offering, or IPO, in which we sold an aggregate of 9,000,000 shares of common stock at a public offering price of $12.00 per share for gross proceeds of $108.0 million. In connection with the IPO, we granted the underwriters a 30-day option to purchase 1,350,000 additional shares of common stock, which they exercised in part to purchase 1,238,951 additional shares of common stock for gross proceeds of $14.9 million. We received approximately $122.9 million in gross proceeds and $110.2 million in net proceeds in the IPO, after deducting underwriters’ fees and offering expenses.

Immediately prior to consummation of the IPO, all 12,546,805 outstanding shares of our redeemable convertible preferred stock, and 35,529 preferred stock warrants that were exercised on May 4, 2022, converted into 12,359,856 shares of our common stock.

On February 5, 2024, we issued and sold 1,000,000 of common stock shares at a purchase price of $10.00 per share under our at-the-market offering program, or ATM program, pursuant to an At-the-Market Equity Offering Sales Agreement, or Sales Agreement, with Stifel, Nicolaus & Company, Incorporated, or Stifel, resulting in net proceeds of $9.9 million. On February 9, 2024, we issued and sold 7,530,000 shares of common stock at a purchase price of $10.635 per share, which was the closing sale price of our common stock on the Nasdaq Global Select Market on February 6, 2024 in an underwritten follow-on offering, or the Follow-on Offering. The Follow-on Offering resulted in net proceeds of $76.4 million after deducting underwriters' fees of $3.7 million. Net proceeds from the ATM program and Follow-on Offering, after deducting underwriters’ fees and costs of the offerings, were $86.3 million.

Since our inception, we have not generated any revenue from product sales or other sources and have incurred significant operating losses and negative cash flows from our operations. Our primary uses of cash to date have been to fund our research and development activities, business planning, establishing and maintaining our intellectual property portfolio, acquiring and developing product and technology rights, hiring personnel, leasing premises and associated capital expenditures, raising capital, and providing general and administrative support for these operations. To date, we have funded our operations primarily through private placements of our convertible preferred stock and proceeds from our IPO, the ATM program and the Follow-on Offering.

We have incurred operating losses in each year since our inception. Our net losses were $18.0 million and $16.3 million for the three months ended March 31, 2024 and March 31, 2023, respectively. As of March 31, 2024, we had cash, cash equivalents, and marketable securities of $175.2 million. As of March 31, 2024, we had an accumulated deficit of $199.5 million. We expect our expenses and operating losses will continue as we conduct our ongoing preclinical studies and current and planned clinical trials, continue our research and development activities, utilize third parties to manufacture our product candidates and related raw materials, hire additional personnel, protect our intellectual property and incur additional costs associated with being a public company, including audit, legal, regulatory, and tax-related services associated with maintaining compliance with an exchange listing and SEC, requirements, director and officer insurance premiums, and investor relations costs. In addition, we have several development, regulatory and commercial milestone payment obligations under our licensing arrangements. Our net losses may fluctuate significantly from quarter-to-quarter and year-to-year, depending on the timing of our preclinical studies and current and planned clinical trials and our expenditures on other research and development activities.

Based on our current operating plans, we believe that our existing cash, cash equivalents and marketable securities, will be sufficient to fund our operations into 2026. We do not expect to generate any revenues from product sales unless and until we successfully complete development and obtain regulatory approval for one or more of our product candidates, which will not be for at least the next several years, if ever. If we obtain regulatory approval for any of our product candidates, we expect to incur significant commercialization expenses related to product sales, marketing, manufacturing and distribution. Accordingly, until such time as we can generate significant revenue from sales of our product candidates, if ever, we expect to finance our cash needs through equity offerings, debt financings or other capital sources, including potential collaborations, licenses and other similar arrangements. However, we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all. Our failure to raise capital or enter into such other arrangements when needed would have a negative impact on our financial condition and could force us to delay, limit, reduce or terminate our 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.

Corporate Reorganization

We were initially formed as PepGen Limited on January 25, 2018, in the U.K. On November 9, 2020, PepGen Limited initiated a corporate reorganization, or the Reorganization. As part of the Reorganization, PepGen Limited formed PepGen Inc., a Delaware corporation with nominal assets and liabilities, for the purpose of consummating the Reorganization. In connection with the Reorganization, the existing shareholders of PepGen Limited exchanged each of their classes of shares of PepGen Limited for the same number and class of common stock of PepGen Inc. on a one-to-one basis. The newly issued stock of PepGen Inc. had

17


 

substantially identical rights to the exchanged shares of PepGen Limited. As a result of the exchange, PepGen Inc. became the sole shareholder of PepGen Limited. Upon the completion of the Reorganization on November 23, 2020, the historical financial statements of PepGen Limited became the historical financial statements of PepGen Inc., as the Reorganization was deemed to be between entities under common control.

After the Reorganization was completed, PepGen Limited began the process of transferring operations, including financial management functions, to PepGen Inc. pursuant to an intercompany services agreement, effective as of April 2021, and certain assets, including a novation of all intellectual property assets, pursuant to an asset transfer agreement, effective as of January 1, 2022. After the transfer of intellectual property and other assets from PepGen Limited to PepGen Inc., there were limited operations through the end of 2022 at PepGen Limited.

Components of Results of Operations

Operating Expenses

Research and Development

To date, our research and development expenses have primarily consisted of external and internal costs associated with our research and development activities, including our discovery and research efforts, the development of our proprietary EDO platform, and the preclinical and clinical development of our product candidates. Our research and development expenses include:

external expenses, including expenses incurred under arrangements with third parties, such as clinical research organizations, or CROs, contract development manufacturing organizations, or CDMOs, consultants and our scientific advisors;
personnel-related costs, including salaries, cash incentive compensation, payroll taxes, employee benefits, and stock-based compensation;
costs for laboratory supplies and materials and reagents for chemical synthesis of product candidates; and
facility costs, depreciation, and other expenses, which include direct and allocated expenses for rent and maintenance of facilities, insurance, and other supplies.

Research and development expenses are recognized as incurred and payments made prior to the receipt of goods or services to be used in research and development activities are recorded as prepaid expenses until the goods or services are received.

The following table (in thousands) summarizes our research and development expenses for the three months ended March 31, 2024 and March 31, 2023. The direct external development program expenses reflect external costs attributable to our clinical development candidates and preclinical candidates selected for further development. Our internal resources, personnel and infrastructure are not directly tied to any one research or drug discovery program and are typically deployed across multiple programs. As such, we do not track internal expenses on a program-specific basis.

 

 

 

Three Months Ended
March 31,

 

 

 

2024

 

 

2023

 

External expenses:

 

 

 

 

 

 

PGN-EDO51

 

$

2,859

 

 

$

3,177

 

PGN-EDODM1

 

 

4,093

 

 

 

3,496

 

PGN-EDO53

 

 

56

 

 

 

19

 

Other programs and unallocated expenses

 

 

375

 

 

 

1,785

 

Total external expense

 

 

7,383

 

 

 

8,477

 

Internal expenses:

 

 

 

 

 

 

Personnel-related (including stock-based compensation)

 

 

4,908

 

 

 

3,576

 

Facilities and related costs

 

 

1,533

 

 

 

1,533

 

Other

 

 

908

 

 

 

774

 

Total research and development expenses

 

$

14,732

 

 

$

14,360

 

We plan to increase our research and development expenses in the remainder of 2024 as we conduct our ongoing CONNECT1 and CONNECT2 Phase 2 clinical trials for PGN-EDO51, and our ongoing FREEDOM Phase 1 clinical trial and our planned FREEDOM2 Phase 2 clinical trial for PGN-EDODM1. Additionally, we continue to conduct our ongoing research and development activities, and advance our preclinical research programs toward clinical development, including conducting IND- and CTA-enabling

18


 

studies for PGN-EDO53. The process of conducting preclinical studies and clinical trials necessary to obtain regulatory approval is costly and time consuming. We may never succeed in achieving marketing approval for any of our product candidates.

The timelines and costs associated with research and development activities are uncertain and can vary significantly for each product candidate and development program due to the inherently unpredictable nature of preclinical and clinical development. We anticipate we will make determinations as to which programs to pursue and how much funding to direct to each program on an ongoing basis in response to preclinical and clinical results, regulatory developments, and ongoing assessments as to each program’s commercial potential. We will need to raise substantial additional capital in the future.

Our future development costs may vary significantly based on factors such as:

the status of clinical trials, animal and other preclinical studies and IND- or CTA-enabling studies;
per patient trial costs;
the number of trials required for approval;
the number of sites included in the trials;
the countries in which the trials are conducted;
the length of time required to enroll eligible patients;
the number of patients that participate in the trials;
the number of doses that patients receive;
the drop-out or discontinuation rates of patients;
the duration of patient participation in the trials and follow-up;
the cost and timing of manufacturing our product candidates;
the efficacy and safety profile of our product candidates; and
maintaining a continued acceptable safety profile of our products if any receive regulatory approval.

General and Administrative

General and administrative expenses consist primarily of personnel-related costs, including salaries, cash incentive compensation, payroll taxes, employee benefits, and stock-based compensation charges for those individuals in executive, finance, facility operations, and other administrative functions. Other significant costs include legal fees relating to intellectual property and corporate matters, professional fees for audit, accounting and consulting services, and insurance costs.

We anticipate that our general and administrative expenses will remain consistent in 2024 as compared to 2023 to support our public company operating expenses associated with audit, legal, regulatory, and tax-related services associated with maintaining compliance with our exchange listing and SEC requirements, director and officer insurance premiums, and investor relations.

Other Income (Expense), Net

Interest income

Interest income consists of interest earned on our money market mutual funds and short-term U.S. treasury holdings.

Other income (expense)

Components of other income (expense) relate to realized and unrealized gains and losses on currency revaluation.

Income Taxes

We have not recorded a U.S. provision for federal or state income taxes as we have no revenue and have incurred losses since inception. We had no tax liability for the three months ended March 31, 2024 or March 31, 2023.

19


 

Results of Operations

Comparison of the Three Months Ended March 31, 2024 and March 31, 2023

The following table summarizes our results of operations for the three months ended March 31, 2024 and March 31, 2023 (in thousands):

 

 

 

Three Months Ended
March 31,

 

 

Period-to-

 

 

 

2024

 

 

2023

 

 

Period Change

 

Operating expenses:

 

 

 

 

 

 

 

 

 

Research and development

 

$

14,732

 

 

$

14,360

 

 

$

372

 

General and administrative

 

 

5,066

 

 

 

3,671

 

 

 

1,395

 

Total operating expenses

 

$

19,798

 

 

$

18,031

 

 

$

1,767

 

Operating loss

 

$

(19,798

)

 

$

(18,031

)

 

$

(1,767

)

Other income (expense), net

 

 

 

 

 

 

 

 

 

Interest income

 

 

1,735

 

 

 

1,792

 

 

 

(57

)

Other income (expense), net

 

 

43

 

 

 

(80

)

 

 

123

 

Total other income (expense), net

 

 

1,778

 

 

 

1,712

 

 

$

66

 

Net loss before income tax

 

$

(18,020

)

 

$

(16,319

)

 

$

(1,701

)

Income tax expense

 

 

 

 

 

 

 

 

 

Net loss

 

$

(18,020

)

 

$

(16,319

)

 

$

(1,701

)

 

Research and Development Expenses

Research and development expenses increased by $0.3 million from $14.4 million for the three months ended March 31, 2023, to $14.7 million for the three months ended March 31, 2024. This increase was attributable to spend related to the advancement of our clinical trials for our two lead programs, including a $2.1 million increase in clinical trial costs, a $1.3 million increase in personnel-related costs due to increased headcount, including an increase of $0.4 million in stock-based compensation expense, and a $0.4 million increase in facility and office related expenses related to rent expense on our lease agreement pursuant to which we lease office and laboratory space in Boston, Massachusetts, or the Harrison Lease, and depreciation on lab equipment. These increases were partially offset by a $2.8 million decrease in preclinical costs as our two lead programs are now in clinical trials, a $0.5 million decrease in manufacturing costs related to the timing of production, and a $0.3 million decrease in consultant costs from the prior year.

General and Administrative Expenses

General and administrative expenses increased by $1.4 million from $3.7 million for the three months ended March 31, 2023, to $5.1 million for the three months ended March 31, 2024. The increase was primarily driven by an increase of $1.0 million in personnel-related costs due to increased headcount, including $0.5 million in stock-based compensation expense, and an increase of $0.3 million in facility and office related expenses related to rent expense for our Harrison Lease and depreciation on office furniture.

Other Income (Expense), Net

Other income (expense), net was income of $1.7 million for the three months ended March 31, 2024 and $1.8 million for the three months ended March 31, 2023. Interest is earned through our cash deposits and U.S. Treasury-backed money market funds.

Income Tax Expense

Income tax expense was nil for the three months ended March 31, 2024 and March 31, 2023.

Liquidity and Capital Resources

Sources of Liquidity

From our inception in January 2018 through March 31, 2024, we have funded our operations primarily through the sale of our common stock and convertible preferred stock. We received aggregate gross proceeds of $163.9 million from these sales prior to our IPO. Additionally, in May 2022, we received gross proceeds from our IPO of $122.9 million.

20


 

We filed a shelf registration statement on Form S-3 with the SEC, which covers the offering, issuance and sale of an amount up to $300.0 million in the aggregate of shares of our common stock, preferred stock, debt securities, warrants, and/or units or any combination thereof, which was declared effective on June 16, 2023.

On August 8, 2023, we filed a prospectus supplement and entered into the Sales Agreement with Stifel, as sales agent, which provides for the issuance and sale by us of up to $100.0 million of shares of common stock from time to time under the ATM program. On February 5, 2024, we issued and sold 1,000,000 shares of common stock at a purchase price of $10.00 per share under the ATM program, resulting in net proceeds of $9.9 million.

On February 9, 2024, we issued and sold 7,530,000 shares of common stock in the Follow-on Offering at a purchase price of $10.635 per share, resulting in net proceeds of $76.4 million after deducting underwriters’ fees and offering costs of $3.7 million.

Future Funding Requirements

As of March 31, 2024, we had cash, cash equivalents, and marketable securities of $175.2 million. Based on our current operating plans, we believe that our existing cash, cash equivalents, and marketable securities will be sufficient to fund our operations into 2026. However, our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement that involves risks and uncertainties, and actual results could vary materially. We have based this estimate on assumptions that may prove to be wrong, and we could deplete our capital resources sooner than we expect. Additionally, the process of conducting preclinical studies and testing product candidates in clinical trials is costly, and the timing of progress and expenses in these studies and trials is uncertain.

Our future capital requirements will depend on many factors, including but not limited to:

the scope, progress, costs and results of preclinical and clinical development for our product candidates, any additional product candidates we may develop and any new indications we may pursue;
the scope, costs, timing and outcome of regulatory review of our product candidates, any additional product candidates we may develop and any new indications we may pursue;
the cost and timing of manufacturing activities;
the identification of additional research programs and product candidates;
the costs and scope of the continued development of our EDO platform;
the costs and timing of preparing, filing and prosecuting applications for patents, maintaining and enforcing our intellectual property rights and defending any intellectual property-related claims, including claims of infringement, misappropriation or other violations of third-party intellectual property;
the costs and timing of future commercialization activities, including product manufacturing, marketing, sales and distribution, for any product candidate that receives marketing approval;
the costs of satisfying any post-marketing requirements;
the revenue, if any, received from commercial sales of our product candidates if marketing approval is received;
the costs of operational, financial and management information systems and associated personnel;
the associated costs in connection with any acquisition of in-licensed products, intellectual property and technologies; and
the costs of operating as a public company.

Until such time, if ever, as we can generate substantial product revenue to support our cost structure, we expect to finance our cash needs through equity offerings, debt financings, or other capital sources, potentially including collaborations, licenses, and other similar arrangements. However, we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our stockholders will be or could be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stockholders. Debt financing and 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 capital expenditures, or declaring dividends. If we raise funds through collaborations, or other similar 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 and/or may reduce the value of our common stock. Our failure to raise capital or enter into such other arrangements when needed could have a negative impact on our financial condition and on our ability to

21


 

pursue our business plans and strategies. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market our drug candidates even if we would otherwise prefer to develop and market such drug candidates ourselves.

Cash Flows

The following table sets forth a summary of the net cash flow activity for the three months ended March 31, 2024 and March 31, 2023 (in thousands):

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Net cash (used in) provided by:

 

 

 

 

 

 

Operating activities

 

$

(22,532

)

 

$

(15,422

)

Investing activities

 

 

(11,292

)

 

 

(1,181

)

Financing activities

 

 

86,967

 

 

 

130

 

Effect of exchange rate changes on cash

 

 

(63

)

 

 

124

 

Net increase (decrease) in cash, cash equivalents and restricted cash

 

$

53,080

 

 

$

(16,349

)

 

Operating Activities

For the three months ended March 31, 2024, net cash used in operating activities was $22.5 million resulting from our net loss of $18.0 million and changes in our operating assets and liabilities of $6.3 million partially offset by non-cash charges of $1.8 million. The net changes in our operating assets and liabilities were primarily due to a decrease in accrued expenses of $6.8 million, an increase in prepaids and other current assets of $0.1 million, an increase in accounts payable of $0.1 million, and a decrease in operating lease liabilities of $0.3 million. The $6.8 million decrease in accrued expenses was primarily due to lower research and development accruals as a result of manufacturing timing, and the payment of our annual employee incentive bonus. The non-cash charges included $2.0 million of stock-based compensation, $0.4 million of depreciation expense, $0.5 million of amortization of discounts on our marketable securities, and $0.1 million of amortization and interest accretion on our operating lease.

For the three months ended March 31, 2023, net cash used in operating activities was $15.4 million resulting from our net loss of $16.3 million partially offset by cash provided by changes in our operating assets and liabilities of $0.6 million and non-cash charges of $1.5 million. The net changes in our operating assets and liabilities were primarily due to an increase in prepaids and other assets of $1.3 million, and a decrease in operating lease liabilities of $2.0 million. The non-cash charges included $1.3 million of stock-based compensation, $0.2 million of depreciation expense, and an immaterial amount of amortization and interest accretion on the Harrison Lease.

Investing Activities

For the three months ended March 31, 2024, net cash used in investing activities was $11.3 million resulting from $29.2 million in purchases of marketable securities partially offset by $18.0 million in maturities and sales of marketable securities.

For the three months ended March 31, 2023, net cash used in investing activities was $1.2 million related to the purchase of property and equipment, primarily associated with building lab space at our new Boston headquarters.

Financing Activities

For the three months ended March 31, 2024, net cash provided by financing activities was $87.0 million resulting from $76.9 million in proceeds from the Follow-on Offering, $9.9 million in proceeds from sales under the Sales Agreement, and $0.4 million from proceeds from the purchase of shares under employee equity plans, partially offset by $0.2 million in the payment of deferred offering costs.

Net cash provided by financing activities was immaterial for the three months ended March 31, 2023.

 

 

Critical Accounting Polices and Estimates

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There have been no material changes to our critical accounting policies and estimates from those described in our financial statements and the related notes and other financial information included in our Annual Report on Form 10-K for the year ended December 31, 2023, as amended by the Form 10K/A filed on March 29, 2024.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Interest Rate Risk

As of March 31, 2024, we had $175.2 million in cash, cash equivalents, and marketable securities, consisting of cash in a readily available checking account and U.S. treasury-backed money market funds. Our primary exposure to market risk is interest income sensitivity, which is affected by changes in the general level of U.S. interest rates. However, because of the short-term maturities of our investments, we believe a hypothetical 100 basis point increase or decrease in interest rates during any of the periods presented would not have had a material impact on our financial results.

Concentration of Credit Risk

Financial instruments, which potentially subject us to concentrations of credit risk, consist of cash and money market accounts. As of March 31, 2024, our cash and money market accounts were held by three financial institutions in the U.S. and one financial institution in the U.K. At times, our deposits held in the U.S. and U.K. may exceed the respective insured limits of the Federal Depository Insurance Corporation and Financial Services Compensation Scheme.

Item 4. Controls and Procedures.

 

We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed in reports that we file or submit under the Exchange Act is (1) recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and (2) accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

Our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. In designing and evaluating our disclosure controls and procedures, our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Our principal executive officer and principal financial officer have concluded based upon the evaluation described above that, as of March 31, 2024, our disclosure controls and procedures were effective at the reasonable assurance level.

We continue to review and document our disclosure controls and procedures, including our internal controls and procedures for financial reporting, and may from time to time make changes aimed at enhancing their effectiveness and to ensure that our systems evolve with our business in accordance with the Exchange Act.

Changes in Internal Control over Financial Reporting

We are also required to maintain internal control over financial reporting (as defined in Rules 13a-15(f) or 15d-15(f) under the Exchange Act) that are designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that (1) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the issuer, (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the issuer are being made only in accordance with authorizations of management and directors of the issuer, and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the issuer's assets that could have a material effect on the financial statements.

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended March 31, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II—OTHER INFORMATION

From time to time, we may be a party to litigation or subject to claims incident to the ordinary course of business. Although the results of litigation and claims cannot be predicted with certainty, we currently believe that the final outcome of these ordinary course matters will not have a material adverse effect on our business. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors. As of March 31, 2024, we were not a party to any material legal proceedings.

Item 1A. Risk Factors.

 

Investing in our common stock involves a high degree of risk. You should carefully read and consider all of the risks described below, as well as the other information in this Form 10-Q, including our financial statements and the related notes and the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and in other documents we file with the SEC when evaluating our business. The occurrence of any of the events or developments described below could harm our business, financial condition, results of operations and growth prospec