Pepgen Inc. quarterly report, Q2 FY2023

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PepGen Inc. — Q2 2023 Form 10-Q

Reporting period: Three and six months ended June 30, 2023. Amounts below are in U.S. dollars; financial statement figures are in millions unless noted.

Business context and reporting period

PepGen is a clinical-stage biotechnology company developing peptide-conjugated oligonucleotide medicines using its Enhanced Delivery Oligonucleotide (EDO) platform. It has no approved products and has not generated revenue. PGN-EDO51, for Duchenne muscular dystrophy (DMD), is its lead clinical candidate; PGN-EDODM1, for myotonic dystrophy type 1 (DM1), is also in development.

Financial performance and liquidity

  • Revenue and margins: No revenue was reported. Operating margins are not meaningful for this pre-revenue company.
  • Q2 2023: Research and development expense was $16.9 million (up from $14.2 million); general and administrative expense was $4.2 million (up from $3.4 million). Operating loss was $21.1 million and net loss was $19.5 million, compared with $17.6 million and $17.3 million, respectively, in Q2 2022. Interest income was $1.7 million, versus $0.3 million.
  • First half 2023: R&D expense was $31.3 million (up from $24.9 million); G&A expense was $7.9 million (up from $6.6 million). Operating loss was $39.2 million and net loss was $35.8 million, versus net loss of $35.6 million in first-half 2022. The prior-year net loss included $4.4 million of tax expense related to an intellectual-property transfer; the 2023 period had no income tax expense.
  • Cash flow: Cash used in operating activities was $33.1 million in the first half, compared with $24.9 million in 2022. Investing activities used $2.2 million in both periods. Financing provided $0.3 million in 2023, compared with $113.4 million in 2022, largely reflecting the IPO in that prior-year period.
  • Balance sheet at June 30: Cash and cash equivalents were $147.0 million, down from $181.8 million at December 31, 2022. Total assets were $182.1 million and total liabilities were $34.8 million. Lease liabilities totaled $21.4 million; the filing does not report borrowings or other financial debt. Accumulated deficit was $138.7 million.
  • Per-share loss: Q2 basic and diluted loss per share was $0.82, versus $1.23 in Q2 2022. First-half loss per share was $1.51, versus $4.70 in 2022; comparisons are affected by the IPO-related increase in weighted-average shares and the prior-year tax charge.

Material changes versus the prior comparable period

  • Higher R&D spending reflected program advancement, CRO costs, increased headcount and Boston lease costs. G&A also increased, including personnel and lease costs.
  • Higher interest income partly offset operating losses, as cash was held in deposits and U.S. Treasury-backed money market funds.
  • Operating cash use increased year over year. Cash declined by $34.7 million in the first half of 2023; the comparable 2022 period included substantial IPO proceeds.

Outlook, risks and unusual items

  • Management said existing cash was expected to fund currently planned operations into early 2025. The filing cautions this estimate depends on assumptions and may change; additional capital may be needed.
  • Health Canada cleared the CTA for the open-label CONNECT1-EDO51 Phase 2 study in May 2023. PepGen anticipated dosing in Canada in the second half of 2023 and initial data after four monthly doses in mid-2024. CONNECT2-EDO51 was planned for the second half of 2023, subject to regulatory clearance.
  • The FDA placed the IND for the planned FREEDOM-EDODM1 Phase 1 study on clinical hold. PepGen said it was working with the FDA to resolve the hold and anticipated starting the study in Canada in 2024, subject to regulatory alignment.
  • Management expected R&D and operating losses to increase as trials and research programs advance. Key risks include clinical and regulatory uncertainty, the FDA hold, manufacturing and third-party dependence, competition, patent protection, and the need for future financing.
  • A $300 million shelf registration statement became effective in June 2023. On August 8, 2023, after quarter-end, PepGen entered into an at-the-market agreement to sell up to $100 million of common stock; the sales agent may receive commissions of up to 3% of gross proceeds. Any sales could dilute existing shareholders.
  • The company reported no material legal proceedings and no material changes in internal control over financial reporting during the quarter. Management concluded disclosure controls were effective at the reasonable assurance level.

Important facts for investors to verify

  • Whether the FDA clinical hold on PGN-EDODM1 is resolved, and how it affects the program’s timing and geography.
  • Whether CONNECT1 and CONNECT2 begin on the anticipated timelines, and whether subsequent patient data support management’s interpretation of earlier PGN-EDO51 results.
  • Cash burn, trial and manufacturing costs, and whether the stated early-2025 runway remains achievable.
  • Whether and how much stock is sold under the $100 million ATM facility, and the resulting dilution.
  • The safety and efficacy profile of PGN-EDO51 in patient studies; the filing describes a non-life-threatening serious adverse event and transient kidney-biomarker changes in the prior healthy-volunteer study.