10-Q: PepGen Discontinues DMD Program, Faces Going Concern Doubt

PepGen Inc. announced the discontinuation of its Duchenne muscular dystrophy program, PGN-EDO51, due to insufficient dystrophin levels, shifting focus to its Myotonic Dystrophy Type 1 candidate, PGN-EDODM1, amidst substantial doubt about its ability to continue as a going concern.

Summary

• PepGen Inc. is a clinical-stage biotechnology company focused on oligonucleotide therapeutics for neuromuscular and neurological diseases.
• The company has voluntarily discontinued the development of PGN-EDO51 for Duchenne muscular dystrophy (DMD) and will wind down all DMD-related research and development activities, including those for exons 44, 45, and 53.
• The decision to discontinue PGN-EDO51 was based on results from the 10 mg/kg cohort of the CONNECT1-EDO51 study, which showed an increase in exon 51 skipped transcripts to 4.26% (mean increase of 3.5%) but total dystrophin only increased to 0.59% of normal levels (mean increase of 0.36%).
• PGN-EDO51's safety profile was generally favorable, with all treatment-related adverse events being mild and no serious adverse events reported.
• The company will now focus on advancing its PGN-EDODM1 program for Myotonic Dystrophy Type 1 (DM1).
• Initial data from the 5 mg/kg and 10 mg/kg dose cohorts of the Phase 1 FREEDOM-DM1 study for PGN-EDODM1 showed a favorable emerging safety profile and robust dose-dependent splicing correction (29.1% at 10 mg/kg dose level), though limited change in functional outcomes after a single dose over one month.
• Patient dosing has been completed in the 15 mg/kg cohort of the FREEDOM trial, with safety, 28-day splicing, and functional benefit data expected in early Q4 2025.
• The Phase 2 FREEDOM2-DM1 study is currently dosing participants in the 5 mg/kg dose cohort, with data expected in Q1 2026.
• PGN-EDODM1 has received Orphan Drug Designation and Fast Track Designation from the FDA for DM1.
• The company incurred a net loss of $53.3 million for the six months ended June 30, 2025, compared to $46.4 million for the same period in 2024.
• Research and development expenses decreased by $6.7 million to $18.4 million for the three months ended June 30, 2025, but increased by $4.0 million to $43.8 million for the six months ended June 30, 2025, primarily due to manufacturing timing, personnel costs, and wind-down costs for PGN-EDO51 trials.
• General and administrative expenses increased by $0.2 million to $5.6 million for the three months ended June 30, 2025, and by $1.1 million to $11.5 million for the six months ended June 30, 2025.
• As of June 30, 2025, cash, cash equivalents, and marketable securities totaled $74.7 million, down from $123.761 million at December 31, 2024.
• The company had an accumulated deficit of $324.8 million as of June 30, 2025.
• Management concluded that substantial doubt exists about the company's ability to continue as a going concern for one year from the financial statement issuance date (August 7, 2025), as existing cash is expected to fund operations only into Q2 2026.
• A putative shareholder class action lawsuit was filed on June 9, 2025, alleging material misrepresentations/omissions regarding PGN-EDO51 between March 7, 2024, and March 3, 2025.

Sentiment

Score: 3

Explanation: The sentiment is predominantly negative due to the discontinuation of a lead clinical program (PGN-EDO51) after disappointing efficacy results, coupled with an explicit 'going concern' warning and significant accumulated losses. While there is some positive early data for the remaining PGN-EDODM1 program, the overall financial instability and major program setback outweigh these early positives, indicating high risk and uncertainty for investors.

Positives

• PGN-EDODM1, the company's lead remaining clinical-stage product candidate for Myotonic Dystrophy Type 1 (DM1), showed a favorable emerging safety profile and robust dose-dependent splicing correction (29.1% at 10 mg/kg) in initial Phase 1 FREEDOM study data.
• PGN-EDODM1 has received both Orphan Drug Designation and Fast Track Designation from the FDA, which could expedite its development and regulatory review.
• The company has completed patient dosing in the 15 mg/kg cohort of the FREEDOM trial, indicating progress in its DM1 program.
• The Phase 2 FREEDOM2-DM1 study is currently dosing participants, demonstrating advancement into later-stage clinical development for the DM1 program.

Negatives

• The company has voluntarily discontinued the development of PGN-EDO51 for Duchenne muscular dystrophy (DMD) and will wind down all DMD-related research and development activities, including those for exons 44, 45, and 53, due to insufficient dystrophin levels (0.59% of normal levels) in the CONNECT1 trial.
• There is substantial doubt about the company's ability to continue as a going concern, as existing cash and cash equivalents are expected to fund operations only into the second quarter of 2026.
• The company has incurred significant operating losses since inception, with a net loss of $53.3 million for the six months ended June 30, 2025, and an accumulated deficit of $324.8 million.
• Cash, cash equivalents, and marketable securities decreased significantly from $123.761 million at December 31, 2024, to $74.7 million at June 30, 2025.
• A shareholder class action lawsuit was filed on June 9, 2025, alleging material misrepresentations/omissions related to PGN-EDO51, which could result in substantial costs and diversion of management resources.
• Interest income decreased significantly to $1.964 million for the six months ended June 30, 2025, from $3.856 million for the same period in 2024.

Risks

• Substantial doubt about the ability to continue as a going concern and the need to raise substantial additional funding; inability to raise capital could force delays, scale-backs, or discontinuation of product development.
• Early stage of development efforts; only one remaining clinical-stage product candidate (PGN-EDODM1), making the business highly dependent on its success.
• Preclinical and clinical development is lengthy, expensive, and has uncertain outcomes; results from earlier studies (e.g., PGN-EDO51) are not necessarily predictive of later clinical trial results.
• Substantial delays in commencement, enrollment, or completion of clinical trials, or failure to demonstrate safety and efficacy, could prevent or delay commercialization.
• Reliance on third parties for manufacturing, research, preclinical, and clinical testing, who may not perform satisfactorily or may need to be replaced, causing delays or increased costs.
• Significant competition from major pharmaceutical, specialty pharmaceutical, and biotechnology companies, including those with more resources or more effective/safer products.
• Inability to obtain and maintain patent protection for the Enhanced Delivery Oligonucleotide (EDO) platform, therapeutic candidates, or other proprietary technologies, allowing competitors to develop similar products.
• Expected expansion of headcount to support development, regulatory, sales, marketing, and distribution capabilities, which may lead to difficulties in managing growth and disrupting operations.
• Future success depends on the ability to retain key executives and attract, retain, and motivate qualified personnel.
• The price of common stock is volatile and fluctuates substantially, potentially resulting in substantial losses for shareholders.
• Clinical trial and product liability lawsuits could divert resources, incur substantial liabilities, and limit commercialization.
• FDA and comparable foreign regulatory authorities may not accept data from clinical trials conducted outside the U.S., leading to delays.
• Dependence on single-source suppliers for some components and materials, risking supply disruptions or price increases.
• Potential future collaborations with third parties may not be successful, limiting market potential or leading to loss of control.
• Stringent data protection, privacy, and security laws and regulations; actual or perceived failure to comply could lead to investigations, fines, and reputational harm.
• Changes in tax laws or regulations or their interpretation may adversely affect business and financial condition.
• Exposure to significant foreign exchange risk due to international operations.
• Adverse developments affecting the financial services industry could impair access to funding sources.
• The effects of a future pandemic, epidemic, or outbreak of infectious disease may materially and adversely affect business and financial results.
• Anti-takeover provisions in corporate charter documents and Delaware law could make an acquisition more difficult.
• Securities class action litigation risk, as demonstrated by the recently filed lawsuit.

Future Outlook

The company expects to continue incurring significant expenses and operating losses for the foreseeable future as it advances the PGN-EDODM1 program through clinical development, continues research and development activities, utilizes third parties for manufacturing, hires additional personnel, protects intellectual property, and incurs costs associated with being a public company. Net losses may fluctuate significantly depending on the timing of preclinical studies, clinical trials, and manufacturing campaigns. Existing cash and cash equivalents are expected to fund operations into the second quarter of 2026, but additional capital will be required beyond that point, which cannot be assured.

Management Comments

• "Based on the levels of dystrophin protein measured in the 10 mg/kg cohort of the CONNECT1-EDO51 study investigating our candidate, PGN-EDO51, in Duchenne muscular dystrophy, or DMD, for patients amenable to exon 51 skipping, we have decided to voluntarily discontinue development of PGN-EDO51."
• "We intend to focus on advancing our development efforts on our PGN-EDODM1 program for the treatment of myotonic dystrophy type 1, or DM1, to address the underlying cause of DM1, that has a high unmet need."
• "Based on the positive splicing correction observed at the 5 and 10 mg/kg dose cohorts and the totality of the blinded safety data to date, we have decided to conclude dose escalation in the FREEDOM trial with the 15 mg/kg cohort."
• "We have completed patient dosing in the 15 mg/kg cohort of the FREEDOM trial and expect to report safety, 28-day splicing and functional benefit data from the 15 mg/kg cohort in early fourth quarter of 2025."
• "The safety data from the ongoing FREEDOM study has informed the design of FREEDOM2, which is currently open in Canada and U.K. We also plan to open the FREEDOM2 study other geographies, including the U.S., subject to regulatory authorizations."
• "We expect to report data from this cohort [FREEDOM2 5 mg/kg] in the first quarter of 2026."
• "Based on our current operating plan, we believe that our existing cash and cash equivalents as of June 30, 2025 will enable us to fund our development activities and other operations into the second quarter of 2026."
• "Our management has concluded that there is substantial doubt about our ability to continue as a going concern for a period of one year from the date that such interim condensed consolidated financial statements are issued."

Industry Context

The biotechnology industry, particularly in rare diseases and gene therapies, is characterized by high R&D costs, lengthy development timelines, and significant competition. PepGen's discontinuation of its DMD program highlights the inherent risks of drug development, where promising preclinical or early-stage results may not translate to clinical success. The shift to focus solely on DM1 reflects a common strategy for companies with limited resources to concentrate efforts on the most promising candidate. The competitive landscape for DM1 includes several companies with advanced pipeline candidates utilizing various approaches (e.g., antibody-linked siRNA, conjugated antisense oligonucleotides, gene editing), indicating a crowded and evolving market. The ongoing challenges with funding and the explicit 'going concern' warning are common for early-stage biotechs that have not yet commercialized a product.

Comparison to Industry Standards

• The discontinuation of PGN-EDO51 for DMD due to insufficient dystrophin levels, despite a favorable safety profile, is a common occurrence in drug development, where efficacy targets are not met. This is comparable to Sarepta Therapeutics, Inc. discontinuing its SRP-5051 peptide-linked PMO program in 2024 due to risk-benefit concerns, including hypomagnesemia, and the evolving therapeutic landscape for DMD.
• For Myotonic Dystrophy Type 1 (DM1), PepGen's PGN-EDODM1 is in Phase 1/2 clinical development. This places it behind Avidity Biosciences, Inc.'s AOC 1001 (antibody linked siRNA) which is in Phase 3, and Dyne's DYNE-101 (antibody conjugated antisense oligonucleotide) and Entrada Therapeutics, Inc. / Vertex's VX-670 (peptide conjugated PMO), both in Phase 2. Arrowhead Pharmaceuticals, Inc. / Sarepta's ARO-DM1 (conjugated siRNA) is also in Phase 1/2.
• The observed robust splicing correction with PGN-EDODM1 (29.1% at 10 mg/kg) is a positive biological signal, but the limited functional improvement after a single dose over one month suggests that repeat dosing and longer observation periods will be critical to demonstrate clinical benefit, a challenge common to many oligonucleotide therapies aiming for disease modification.
• The company's financial position, with cash to fund operations only into Q2 2026 and an explicit 'going concern' warning, is typical for early-stage biotechnology companies that have not yet generated product revenue and rely heavily on capital raises to fund extensive and costly R&D activities. This financial runway is relatively short compared to some more established biotechs but not uncommon for those in early clinical stages without significant partnerships.

Management Changes

Corporate Governance

Legal Proceedings

• On June 9, 2025, a putative shareholder class action lawsuit, Johnny Karam v. PepGen Inc., et al., was filed in the United States District Court for the Eastern District of New York. The lawsuit names the company, its CEO, and CFO as defendants.
• The plaintiff, a stockholder, claims to be suing on behalf of those who purchased or acquired the company's securities between March 7, 2024, and March 3, 2025.
• Allegations include material misrepresentations and/or omissions of material fact in public disclosures, primarily related to statements regarding PGN-EDO51, in violation of Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5.
• The plaintiff seeks unspecified monetary damages, costs, and attorneys' fees.
• The company believes the allegations are without merit and intends to vigorously defend the case.
• The company has not recorded an estimate of possible loss due to uncertainties regarding likelihood and amount of loss.

Related Party Transactions

• Technology License Agreement with Oxford University Innovation Limited (OUI) and Medical Research Council of United Kingdom Research and Innovation (MRC): Provides exclusive worldwide license for cell-penetrating peptides for Duchenne muscular dystrophy, spinal muscular atrophy, and other conditions. Potential milestone payments of $0.1 million and low single-digit royalties on net sales over a threshold. An exit fee of $1.4 million was paid to OUI in Q2 2022 related to the IPO.
• Payments to Oxford Science Enterprises (OSE): In 2024, Dr. Christopher Ashton, a former board member, was employed by OSE (an OUI affiliate). Cash compensation for his board service was paid directly to OSE ($11,875 for Q2 2024, $23,750 for YTD Q2 2024). No cash compensation was paid to OSE in Q2 2025. As of June 30, 2025, OSE owned 14.5% of the company's common stock.
• Payments to RA Capital Management, L.P. (RA Capital): Entities affiliated with RA Capital owned 32.6% of the company's common stock as of June 30, 2025. Two board members, Dr. Joshua Resnick and Habib Dable, are affiliated with RA Capital. Cash compensation for Dr. Resnick's board service was paid directly to RA Capital ($12,000 for Q2 2025, $24,000 for YTD Q2 2025).
• Issuance of common stock to RA Capital affiliates: Purchased common stock in the company's IPO (May 2022) and Follow-on Offering (February 2024).

Stakeholder Impact

• Shareholders: Face significant dilution risk from future capital raises, potential losses from stock price volatility due to program discontinuation and going concern issues, and uncertainty from the class action lawsuit. Existing shareholders have already experienced dilution from previous offerings.
• Patients (DMD): The discontinuation of PGN-EDO51 means a potential treatment option for Duchenne muscular dystrophy patients amenable to exon 51 skipping will no longer be pursued by PepGen, potentially limiting future therapeutic options from this company.
• Patients (DM1): The company's focused efforts on PGN-EDODM1 for Myotonic Dystrophy Type 1 could benefit patients if the program progresses successfully, offering a potential new treatment for an unmet medical need.
• Employees: The company expects to expand headcount for the DM1 program but also faces challenges in managing growth and retaining key personnel amidst program changes and financial uncertainty.
• Creditors: The 'going concern' doubt indicates increased risk for creditors, as the company's ability to satisfy liabilities in the ordinary course of business is uncertain without additional funding.
• Third-party suppliers and manufacturers: Continued reliance on these parties for manufacturing and clinical testing means their performance and stability are critical to PepGen's operations, and any disruptions could impact the company's ability to meet its development goals.

Next Steps

• Report safety, 28-day splicing, and functional benefit data from the 15 mg/kg cohort of the FREEDOM trial in early Q4 2025.
• Open the FREEDOM2 study in additional geographies, including the U.S., subject to regulatory authorizations.
• Report data from the 5 mg/kg dose cohort of the FREEDOM2 study in Q1 2026.
• Evaluate strategies to obtain additional funding through private or public equity financings, debt financings, collaborations, strategic transactions, and/or licensing arrangements.
• Continue to defend against the putative shareholder class action lawsuit.

Key Dates

Recommendation

The filing presents a highly concerning outlook. The discontinuation of a lead clinical program (PGN-EDO51) due to insufficient efficacy is a major setback, indicating a failure in a significant R&D investment. Coupled with an explicit 'substantial doubt about our ability to continue as a going concern' and a short cash runway into Q2 2026, the company faces severe financial distress. While the remaining DM1 program shows some early promise, it is still in early clinical stages, and its success is highly uncertain. The ongoing class-action lawsuit adds further legal and financial risk. The need for substantial additional capital, likely through dilutive equity offerings, will further erode shareholder value. Given the significant program failure, precarious financial position, and high execution risk, a seasoned investor would likely recommend a strong sell.

Keywords

Biotechnology, Oligonucleotide therapeutics, Myotonic Dystrophy Type 1, DM1, Duchenne Muscular Dystrophy, DMD, PGN-EDODM1, PGN-EDO51, Clinical trials, Rare diseases, Drug development, SEC filing, 10-Q, Going concern, Biopharma, Enhanced Delivery Oligonucleotide platform, EDO platform