SEC Filing | PepGen

View:

Download DOC

Download PDF

Download XLS

Download XBRL

10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)


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

For the quarterly period ended June 30, 2024


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

For the transition period from ___________________ to ___________________

Commission File Number: 001-41374

PEPGEN INC.

(Exact Name of Registrant as Specified in its Charter)


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

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

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

    Title of each class

    Trading
Symbol(s)

    Name of each exchange on which registered

    Common stock, par value $0.0001 per share

    PEPG

    Nasdaq Global Select Market

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

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

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


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

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

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

As of August 1, 2024, the registrant had 32,589,702 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 and Comprehensive Loss (Unaudited)	5
	Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)	6
	Condensed Consolidated Statements of Cash Flows (Unaudited)	7
	Notes to Condensed Consolidated Financial Statements (Unaudited)	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
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	86
Item 3.	Defaults Upon Senior Securities	86
Item 4.	Mine Safety Disclosures	86
Item 5.	Other Information	87
Item 6.	Exhibits	88
Signatures		89

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

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.

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.

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

PEPGEN INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS)


	June 30, 2024 (unaudited)			December 31, 2023
Assets
Current assets:
Cash and cash equivalents	$	66,085		$	80,774
Marketable securities		95,221			29,633
Prepaid expenses and other current assets		3,472			2,271
Total current assets	$	164,778		$	112,678
Property and equipment, net	$	4,236		$	4,764
Operating lease right-of-use asset		22,540			23,620
Other assets		1,956			1,990
Total assets	$	193,510		$	143,052
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	7,741		$	1,005
Accrued expenses		11,317			13,522
Operating lease liability		3,049			3,004
Total current liabilities	$	22,107		$	17,531
Operating lease liability, net of current portion		16,363			17,100
Total liabilities	$	38,470		$	34,631
Commitments and contingencies (Note 7)
Stockholders’ equity (deficit)
Preferred stock	$	—		$	—
Common stock		3			2
Additional paid-in capital		382,949			289,867
Accumulated other comprehensive (loss) income		(75	)		34
Accumulated deficit		(227,837	)		(181,482	)
Total stockholders’ equity	$	155,040		$	108,421
Total liabilities and stockholders’ equity	$	193,510		$	143,052

See accompanying notes to unaudited condensed consolidated financial statements.

PEPGEN INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

(UNAUDITED)


	Three Months Ended June 30,						Six Months Ended June 30,
	2024			2023			2024			2023
Operating expenses:
Research and development	$	25,063		$	16,926		$	39,795		$	31,286
General and administrative		5,362			4,218			10,428			7,889
Total operating expenses	$	30,425		$	21,144		$	50,223		$	39,175
Operating loss	$	(30,425	)	$	(21,144	)	$	(50,223	)	$	(39,175	)
Other income (expense)
Interest income		2,121			1,684			3,856			3,476
Other (expense) income, net		(31	)		(62	)		12			(142	)
Total other income, net		2,090			1,622			3,868			3,334
Net loss before income tax	$	(28,335	)	$	(19,522	)	$	(46,355	)	$	(35,841	)
Income tax expense		—			—			—			—
Net loss	$	(28,335	)	$	(19,522	)	$	(46,355	)	$	(35,841	)
Net loss per share, basic and diluted	$	(0.87	)	$	(0.82	)	$	(1.52	)	$	(1.51	)
Weighted-average common shares outstanding, basic and diluted		32,469,187			23,790,430			30,562,794			23,776,448
Other comprehensive (loss) income:
Cumulative translation adjustment arising during the period	$	(1	)	$	41		$	(52	)	$	94
Unrealized loss on marketable securities		(37	)		—			(57	)		—
Comprehensive loss	$	(28,373	)	$	(19,481	)	$	(46,464	)	$	(35,747	)

See accompanying notes to unaudited condensed consolidated financial statements.

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 (Deficit)
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
Exercise of stock options		128,354		—		1,403		—			—			1,403
Issuance of stock under the employee stock purchase plan		32,614		—		149		—			—			149
Stock-based compensation expense		—		—		2,862		—			—			2,862
Unrealized loss on marketable securities		—		—		—		(37	)		—			(37	)
Cumulative translation adjustment arising during the period		—		—		—		(1	)		—			(1	)
Net loss		—		—		—		—			(28,335	)		(28,335	)
Balance as of June 30, 2024		32,550,403	$	3	$	382,949	$	(75	)	$	(227,837	)	$	155,040

Balance as of December 31, 2022		23,713,196	$	2	$	282,566	$	(81	)	$	(102,856	)		179,631
Stock-based compensation expense		—		—		1,348		—			—			1,348
Exercise of stock options		68,709		—		130		—			—			130
Net loss		—		—				—			(16,319	)		(16,319	)
Cumulative translation adjustment arising during the period		—		—		—		53			—			53
Balance as of March 31, 2023		23,781,905		2		284,044		(28	)		(119,175	)		164,843
Stock-based compensation expense		—		—		1,837		—			—			1,837
Exercise of stock options		31,642		—		85		—			—			85
Net loss		—		—		—		—			(19,522	)		(19,522	)
Cumulative translation adjustment arising during the period		—		—		—		41			—			41
Balance as of June 30, 2023		23,813,547	$	2	$	285,966	$	13		$	(138,697	)	$	147,284

See accompanying notes to unaudited condensed consolidated financial statements.

PEPGEN INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

(UNAUDITED)


	Six Months Ended June 30,
	2024			2023
Cash flows from operating activities:
Net loss	$	(46,355	)	$	(35,841	)
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation		746			481
Stock-based compensation expense		4,884			3,185
Amortization and interest accretion related to operating lease		1,874			(117	)
Amortization of premium and discounts on marketable securities, net		(1,692	)		—
Other non-cash adjustments		20			—
Changes in operating assets and liabilities:
Prepaids and other current and non-current assets		(1,201	)		817
Accounts payable		6,590			302
Accrued expenses and other non-current liabilities		(2,263	)		(451	)
Operating lease liabilities, current and non-current		(1,488	)		(1,265	)
Net cash used in operating activities	$	(38,885	)	$	(32,889	)
Cash flows from investing activities:
Purchases of property and equipment		(84	)		(2,190	)
Purchases of marketable securities		(93,952	)		—
Maturities of marketable securities		30,000			—
Net cash used in investing activities		(64,036	)		(2,190	)
Cash flows from financing activities:
Issuance of common stock upon initial public offering, net of underwriters' fees		76,878			—
Payment of offering costs		(431	)		(104	)
Issuance of common stock from At-the-Market Sales Agreement, net of underwriters' fees		9,900			—
Proceeds from employee equity plans		1,947			215
Net cash provided by financing activities	$	88,294		$	111
Effect of exchange rate changes on cash		(62	)		318
Net decrease in cash, cash equivalents and restricted cash	$	(14,689	)	$	(34,650	)
Cash, cash equivalents and restricted cash at beginning of period		82,322			183,225
Cash, cash equivalents and restricted cash at end of period	$	67,633		$	148,575
Components of cash, cash equivalents and restricted cash
Cash and cash equivalents	$	66,085		$	147,027
Restricted cash		1,548			1,548
Total cash, cash equivalents and restricted cash at end of period	$	67,633		$	148,575
Supplemental noncash investing and financing activities
Property and equipment included in accounts payable and accrued expenses	$	155		$	208
Deferred offering costs in accounts payable and accrued expenses		62			42
Cash paid for taxes		71			—

See accompanying notes to unaudited condensed consolidated financial statements.

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, 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 on a one-to-one basis. The newly issued stock of PepGen had substantially identical rights to the exchanged shares of PepGen Limited. As a result of the exchange, PepGen 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 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 June 30, 2024, the Company had an accumulated deficit of $227.8 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 June 30, 2024, the Company had cash, cash equivalents, and marketable securities of $161.3 million. The Company believes that its cash, cash equivalents, and marketable securities as of June 30, 2024, will be sufficient to fund its currently planned operations for at least the next 12 months from the issuance of these unaudited 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. On June 28, 2024, the Company filed a second shelf registration statement on Form S-3 with the SEC, which covers the offering, issuance and sale of an amount up to $250.0 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 July 8, 2024.

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.

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 June 30, 2024, and results of operations for the interim periods ended June 30, 2024 and June 30, 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 June 30, 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 shelf registration statements and 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 from the offering. Should a planned equity financing be abandoned, terminated, or significantly delayed, the deferred offering costs are written off to operating expenses. As of June 30, 2024, deferred offering costs of $0.4 million were recorded within other assets on the condensed consolidated balance sheets related to the Company’s shelf registration statement on Form S-3 filed with the SEC on June 2, 2023, the Prospectus Supplement filed on August 8, 2023, and the Company’s shelf registration statement on Form S-3 filed with the SEC on June 28, 2024.

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

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 June 30, 2024 and

December 31, 2023, the Company had $1.5 million of restricted cash classified in other assets on the unaudited 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 June 30, 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 June 30, 2024 and December 31, 2023 (in thousands):


	As of June 30, 2024
	Amortized Cost		Unrealized Gains		Unrealized Losses			Total
U.S. Treasury notes		95,278		—		(57	)		95,221
Total	$	95,278	$	—	$	(57	)	$	95,221


	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 as of June 30, 2024 and December 31, 2023 (in thousands):


	As of June 30, 2024
	Total		Level 1		Level 2		Level 3
Cash Equivalents:
U.S. Treasury-backed money market funds	$	63,116	$	63,116	$	—	$	—
U.S. Treasury notes		—		—		—		—
Marketable Securities:
U.S. Treasury notes		95,221		95,221		—		—
Total	$	158,337	$	158,337	$	—	$	—


	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.

4. Property and Equipment, Net

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


	June 30, 2024			December 31, 2023
Lab equipment	$	4,898		$	4,821
Computer and office equipment		1,557			1,446
Construction in process	92				69
Total property and equipment		6,547			6,336
Less: accumulated depreciation		(2,311	)		(1,572	)
Total property and equipment, net	$	4,236		$	4,764

Depreciation expense was $0.4 million and $0.3 million for the three months ended June 30, 2024 and June 30, 2023, respectively. Depreciation expense was $0.7 million and $0.5 million for the six months ended June 30, 2024 and June 30, 2023, respectively.

5. Accrued Expenses

Accrued expenses consisted of the following (in thousands):


	June 30, 2024		December 31, 2023
Research and development expenses	$	7,426	$	9,521
Employee-related expenses		2,070		2,368
Professional services		877		715
Other		944		918
Total accrued expenses	$	11,317	$	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 (each as defined in the License Agreement) 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 ($25.3 million and $37.9 million as of June 30, 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, Dr. Christopher Ashton, is also employed by Oxford Science Enterprises, or OSE, which is an affiliate of OUI.

As of June 30, 2024, OSE owned 14.6% of the Company’s outstanding common stock. 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 are paid directly to OSE and are included within general and administrative expense on the unaudited consolidated statement of operations. The Company paid $11,875 for the three months ended June 30, 2024 and 2023 and $23,750 for the six months ended June 30, 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 June 30, 2024, entities affiliated with RA Capital owned 32.9% 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 and are included within general and administrative expense on the unaudited consolidated statement of operations. The Company paid $10,750 for the three months ended June 30, 2024 and 2023 and $21,500 for the six months ended June 30, 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 June 30, 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 amended on June 20, 2024, 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 or six months ended June 30, 2024 and June 30, 2023.

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


	June 30, 2024		December 31, 2023
Stock options issued and outstanding		5,278,975		4,233,203
Unvested restricted stock and performance stock units		103,740		—
Authorized for future stock awards or option grants		968,289		1,091,187
Authorized for future issuance under employee stock purchase plan		421,924		216,306
Total		6,772,928		5,540,696

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 June 30, 2024, 968,289 shares remained available for grant under the 2022 Plan and 421,924 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		1,474,417		$	15.68
Exercised		(164,548	)	$	10.93
Canceled/Forfeited		(264,097	)	$	12.98
Outstanding as of June 30, 2024		5,278,975		$	12.07

The weighted-average grant date fair value of options granted during the six months ended June 30, 2024 was $11.24 per share. The Company had 5,278,975 unvested stock options outstanding as of June 30, 2024. As of June 30, 2024, total unrecognized compensation cost related to stock options was $31.3 million. This amount is expected to be recognized over a weighted average period of approximately 2.68 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 six months ended June 30, 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		(2,460	)		—		10.64
Issued and unvested as of June 30, 2024		75,185			28,555	$	10.64

The weighted average grant date fair value of the time-based RSUs and the PSUs granted during the six months ended June 30, 2024 was $10.64. As of June 30, 2024, there was $0.5 million of unrecognized compensation costs related to unvested time-based RSUs, which are expected to be recognized over a weighted-average period of 0.6 years, and $0.3 million of unrecognized compensation costs related to unvested PSUs, which are dependent upon achievement of the aforementioned clinical development milestones.

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 June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
Research and development	$	1,269	$	782	$	2,014	$	1,382
General and administrative		1,593		1,055		2,870		1,803
Total stock-based compensation expense	$	2,862	$	1,837	$	4,884	$	3,185

10. Income Taxes

The Company recorded income tax expense of nil for the three months ended June 30, 2024 and 2023 and for the six months ended June 30, 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, 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 June 30, 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.

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 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. The CONNECT1 study was designed to provide proof-of-concept for our EDO platform and PGN-EDO51, as well as inform the design and conduct of our CONNECT2-EDO51, or CONNECT2, study. In July 2024, we reported initial clinical data from the CONNECT1 study from the 5 mg/kg starting dose cohort (n=3). PGN-EDO51 produced mean exon skipping in biceps tissue of 2.15% at week 13 compared to baseline, measured by RT-PCR. In addition, PGN-EDO51 achieved a mean muscle-adjusted dystrophin level of 1.49% of normal (0.70% increase from baseline) and a mean absolute dystrophin level (by Western blot analysis) of 0.61% of normal (0.26% increase from baseline), in each case after four doses, measured at week 13. The 5 mg/kg dose of PGN-EDO51 was well tolerated by all study cohort participants through week 13. There were no discontinuations, dose interruptions or dose reductions. The one related treatment-emergent adverse event was mild and resolved. There was no sustained elevation in kidney biomarkers. There were no cases of hypomagnesemia or hypokalemia. There were also no changes in electrolytes or hepatic function and no cases of anemia or thrombocytopenia. As of July 29, 2024, all three patients in this cohort were continuing to be dosed with PGN-EDO51 at 5 mg/kg in the long-term extension, or LTE, phase of the clinical trial and PGN-EDO51 was well tolerated during the LTE as of such date. As of July 29, 2024, two participants had received a total of four doses at 10 mg/kg in the ongoing CONNECT1 study, and as of such date, PGN-EDO51 had been generally well tolerated at this dose level. We expect to report initial results from the 10 mg/kg cohort in early 2025.

The second Phase 2 study of PGN-EDO51, CONNECT2, is a multinational, randomized, double-blind, placebo-controlled MAD study. 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. Based on the data from CONNECT1, including PGN-EDO51’s emerging safety profile to date, we are working to optimize the design of the CONNECT2 trial. The CONNECT2 study, together with data from the CONNECT1 study, is intended to support a potential accelerated approval pathway for PGN-EDO51, subject to regulatory authority feedback.

In February 2024, we received clearance from the Medicines and Healthcare products Regulatory Agency, or MHRA, to initiate CONNECT2 in the United Kingdom, or U.K. We plan to continue to engage with regulators in the European Union, or EU, regarding the CONNECT2 study and expect to file an investigational new drug, or IND, application and open the clinical trial in the United States by year-end, subject to regulatory clearance.

The U.S. Food and Drug Administration, or FDA has granted both orphan drug designation and rare pediatric disease designation, or RPDD, 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 fourth quarter of 2024.

The safety data from the ongoing FREEDOM study has informed the design of the FREEDOM2-DM1, or FREEDOM2, Phase 2 randomized, double-blind, placebo-controlled MAD study of PGN-EDODM1 in DM1 patients. FREEDOM2 is designed to assess PGN-EDODM1’s safety and tolerability, splicing correction and functional outcome measures in DM1 patients. We recently announced that both Health Canada and the MHRA have cleared our CTA filings for the FREEDOM2 study, and we expect to initiate patient dosing in the second half of 2024.

The FDA has granted both orphan drug designation and Fast Track designation for PGN-EDODM1 for the treatment of DM1.

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 single dose or multiple doses in non-human primates, or NHPs, for our PGN-EDO53 program. We continue to advance PGN-EDO53 in 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 $46.4 million and $35.8 million for the six months ended June 30, 2024 and June 30, 2023, respectively. As of June 30, 2024, we had cash, cash equivalents, and marketable securities of $161.3 million. As of June 30, 2024, we had an accumulated deficit of $227.8 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 currently planned operations, 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, 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 on a one-to-one basis. The newly issued stock of PepGen had substantially identical rights to the exchanged shares of PepGen Limited. As a result of the exchange, PepGen 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, 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 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, 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 and six months ended June 30, 2024 and June 30, 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 June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
External expenses:
PGN-EDO51	$	9,585	$	5,179	$	12,444	$	8,356
PGN-EDODM1		6,755		3,938		10,848		7,434
PGN-EDO53		100		77		156		96
Other programs and unallocated expenses		386		1,327		761		3,112
Total external expense		16,826		10,521