PepGen Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. PepGen is a clinical-stage biotechnology company developing peptide-conjugated oligonucleotide medicines using its Enhanced Delivery Oligonucleotide (EDO) platform. It had no approved products and generated no revenue.
Financial performance and position
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | None | None | None | None |
| Research and development expense | $16.0 million | $5.7 million | $40.9 million | $14.5 million |
| General and administrative expense | $3.6 million | $2.4 million | $10.2 million | $5.4 million |
| Operating loss | $19.6 million | $8.1 million | $51.1 million | $19.9 million |
| Net loss | $18.6 million | $8.1 million | $54.2 million | $20.1 million |
| Net loss per share, basic and diluted | $0.79 | $9.07 | $4.18 | $22.52 |
Amounts are in U.S. dollars; expense and loss figures are shown as positive magnitudes. The company has no product revenue, so product margins are not applicable. Q3 interest income was $0.9 million; nine-month interest income was $1.2 million.
- Cash and liquidity: Cash and cash equivalents were $195.8 million at September 30, 2022, plus $1.5 million of restricted cash. Current assets were $204.2 million and current liabilities were $15.5 million, implying working capital of approximately $188.7 million.
- Cash flow: Nine-month operating cash use was $45.9 million; investing cash use was $2.7 million; financing provided $112.0 million. Cash, cash equivalents and restricted cash increased by $62.9 million to $197.3 million.
- Debt: The filing reports no debt balance. Total liabilities were $15.5 million, principally accounts payable and accrued expenses.
- Equity financing: The May 2022 IPO and partial over-allotment generated approximately $122.9 million gross and $110.2 million net proceeds. Preferred shares converted to common stock at the IPO. Shares outstanding were 23,631,924 as of November 7, 2022.
Material changes versus the prior comparable period
- Nine-month research and development expense rose $26.5 million year over year, reflecting increased preclinical, manufacturing and clinical activity, higher personnel costs, and the absence of $3.5 million of UK research and development tax-credit offsets recorded in 2021.
- Nine-month general and administrative expense increased $4.7 million, driven by headcount and stock compensation, public-company legal, accounting, consulting and insurance costs, and facility expansion.
- Nine-month net loss increased $34.0 million. The 2022 result included a $4.4 million tax expense associated with transferring intellectual property from the UK subsidiary to the U.S. parent; 2021 had no income tax expense.
- Cash increased substantially following the IPO, while operating cash use also rose from $16.6 million to $45.9 million for the nine-month period.
Outlook, developments and risks
- Management believes existing cash and IPO proceeds will fund currently planned operations into the first half of 2025, but this is an estimate based on assumptions; spending, trial timing or other changes could shorten the runway. The company expects operating expenses and losses to increase and may need additional financing.
- PGN-EDO51 completed a Phase 1 trial in healthy volunteers in Q3. Management reported generally good tolerability at pharmacologically active doses and sustained delivery and exon-skipping signals at 28 days. One participant at 15 mg/kg experienced a non-life-threatening serious adverse event involving kidney biomarkers, requiring a brief hospitalization; other reported findings included transient kidney biomarker changes and mild-to-moderate hypomagnesemia.
- Management planned to initiate a Phase 2a multiple-ascending-dose study of PGN-EDO51 in DMD patients in the first half of 2023; submit an IND for PGN-EDODM1 for DM1 in the first half of 2023; report PGN-EDO53 NHP exon-skipping data before the end of 2022; and nominate additional candidates before year-end 2022. These were forward-looking plans, not completed milestones in this filing.
- The company cautioned that early or topline clinical data may change and may not predict later results. Clinical, regulatory, manufacturing, patient-enrollment, intellectual-property and financing risks are substantial; PepGen relies on third parties for research, trials and manufacturing. COVID-19-related disruption remained uncertain.
- Other unusual items include a $1.4 million Oxford University Innovation exit fee expensed in R&D upon the IPO and a $3.7 million accrued tax liability at September 30 related to the IP transfer, including an uncertain tax position. No material legal proceedings were reported. Management stated disclosure controls were effective at the reasonable-assurance level.
Key investor verification points
- Review the complete PGN-EDO51 Phase 1 dataset, including final safety, dose-response and pharmacodynamic results, and compare the healthy-volunteer findings with outcomes in DMD patients.
- Track whether the planned PGN-EDO51 Phase 2a start, PGN-EDODM1 IND submission and PGN-EDO53 data disclosures occurred on schedule, and assess any regulatory feedback.
- Reassess the cash runway against actual R&D spending, clinical-trial costs, manufacturing commitments and the planned laboratory lease commencement.
- Check the resolution and cash consequences of the UK IP-transfer tax liability and uncertain tax position, and the potential milestone and royalty obligations under licenses.
- Monitor clinical safety, third-party manufacturing capacity, intellectual-property protection, financing needs and potential dilution from stock options and future capital raises.