PepGen Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022; unaudited. Unless stated otherwise, financial amounts are in millions of dollars. PepGen is a clinical-stage biotechnology company developing oligonucleotide therapeutics using its Enhanced Delivery Oligonucleotide (EDO) platform. It has no approved products and has generated no revenue.
Financial performance and liquidity
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Research and development expense | $14.2 | $3.2 | $24.9 | $8.7 |
| General and administrative expense | $3.4 | $2.0 | $6.6 | $3.1 |
| Total operating expenses / operating loss | $17.6 | $5.2 | $31.5 | $11.8 |
| Net loss | $17.3 | $5.4 | $35.6 | $12.0 |
| Net loss per share, basic and diluted | $1.23 | $6.03 | $4.70 | $13.45 |
| Net cash used in operating activities | Not separately stated | Not separately stated | $24.9 | $9.0 |
At June 30, cash and cash equivalents were $218.8, compared with $132.9 at December 31, 2021. Current assets were $226.5 and current liabilities $20.6. The company reported $220.3 of cash, cash equivalents and restricted cash in the cash-flow statement, including $1.5 of restricted cash held as lease collateral. No debt balance is reported in the supplied filing text. Profit margins are not meaningful because the company had no revenue and incurred losses.
Six-month investing cash use was $2.2, primarily for property and equipment; financing provided $113.4, principally from the IPO. Cash, cash equivalents and restricted cash increased $85.9 over the six months. The accumulated deficit was $69.3.
Material changes versus the prior comparable periods
- Q2 operating expenses rose $12.4 year over year; six-month expenses rose $19.7. Management attributed the increases mainly to expanded pipeline research, preclinical and manufacturing work, increased headcount, clinical costs for PGN-EDO51, and public-company and facility costs.
- Six-month operating cash use increased to $24.9 from $9.0, reflecting the larger operating program. Accrued expenses also increased, including tax payable arising from the IP transfer.
- The company completed its IPO in May 2022, issuing 10,238,951 shares in the initial offering and partial underwriters’ option exercise. Gross proceeds were approximately $122.9 and net proceeds approximately $110.2. Preferred shares converted into common stock at the IPO, materially changing the share base; per-share loss comparisons therefore reflect different weighted-average share counts.
- Six-month 2022 net loss included a $4.4 income-tax expense related to the January 2022 transfer of intellectual property from the U.K. subsidiary to the U.S. parent. The filing reports a $0.7 uncertain-tax-position liability within the tax charge.
Outlook, management commentary and risks
- Management estimated that available cash and IPO proceeds would fund currently planned operations into the first half of 2025. This is an estimate based on assumptions; actual spending or development timing could shorten the runway. The company expects expenses and losses to increase and anticipates needing additional capital over time.
- PGN-EDO51 entered a Phase 1 trial in healthy volunteers in Q2 2022; topline data were anticipated by year-end 2022. PGN-EDODM1 was expected to reach IND submission in the first half of 2023. The company anticipated PGN-EDO53 NHP exon-skipping data and additional candidate nominations in the second half of 2022.
- Management reported preclinical NHP results for PGN-EDO51, including over 70% exon 51 skipping in skeletal muscle at 30 mg/kg. These are preclinical findings, not evidence of clinical efficacy; management cautioned that clinical outcomes may differ.
- Key risks include early-stage development and uncertain clinical results, possible safety issues, reliance on third-party research and manufacturing, limited manufacturing capacity, competition, patent and licensing uncertainty, and the need for future financing. COVID-19 and broader economic conditions could disrupt trials, suppliers or access to capital.
- The company paid a $1.4 OUI IPO exit fee, recorded in R&D expense. Its license includes potential aggregate milestone payments of $0.1 and low-single-digit royalties above specified net-sales thresholds. A 31,668-square-foot lab and office lease, with an initial monthly payment of about $0.2 and a 110-month term, was expected to commence in late 2022 or early 2023.
- No material legal proceedings were reported. Management stated that disclosure controls and procedures were effective at the reasonable-assurance level as of June 30, 2022.
Important facts for investors to verify
- Whether PGN-EDO51 clinical data and subsequent trials support the preclinical findings, and whether the planned development milestones were achieved.
- Whether the estimated cash runway into the first half of 2025 remains valid as clinical, manufacturing, staffing and lease costs rise.
- The tax treatment and any further liabilities associated with the U.K.-to-U.S. IP transfer, including resolution of the uncertain tax position.
- The status and terms of third-party manufacturing capacity, the company’s licensed IP protection, and any milestone or royalty obligations.
- Potential dilution from future financing, stock-option awards and shares becoming eligible for resale following the IPO lock-up period.