10-Q: PepGen Secures Funding, Shifts Focus to DM1 After DMD Program Halt

PepGen Inc. reported a significant increase in cash and cash equivalents to $142.8 million following a $107.6 million public offering, extending its cash runway into the second half of 2027, despite discontinuing its Duchenne muscular dystrophy program.

Summary

• Net loss for the nine months ended September 30, 2025, was $71.3 million, compared to $67.7 million for the same period in 2024.
• Cash, cash equivalents, and marketable securities totaled $163.7 million as of September 30, 2025, up from $123.8 million at December 31, 2024.
• The company completed a public offering in September 2025, raising net proceeds of $107.6 million.
• Management believes existing cash, cash equivalents, and marketable securities are sufficient to fund operations into the second half of 2027.
• Voluntarily discontinued development of PGN-EDO51 for Duchenne muscular dystrophy (DMD) in May 2025, winding down all DMD-related research.
• Focus is now on PGN-EDODM1 for Myotonic Dystrophy Type 1 (DM1), with positive topline Phase 1 data showing 53.7% mean splicing correction at 15 mg/kg.
• The Phase 2 FREEDOM2 study for PGN-EDODM1 is open in Canada and the U.K., with data from the 5 mg/kg cohort expected in Q1 2026.
• A shareholder class action lawsuit (Karam Litigation) was filed on June 9, 2025, alleging misrepresentations regarding PGN-EDO51.
• 3,557,903 eligible stock options were repriced to an exercise price of $4.53 on November 4, 2025.

Sentiment

Score: 6

Explanation: The significant capital raise and positive initial data for the lead candidate (PGN-EDODM1) are strong positives, extending the cash runway and addressing previous going concern doubts. However, the complete discontinuation of the DMD program (PGN-EDO51) and the ongoing shareholder litigation represent substantial setbacks and risks. The company is now highly concentrated on a single clinical-stage asset, increasing risk profile despite the improved liquidity.

Positives

• Successful public offering in September 2025 raised $107.6 million in net proceeds.
• Cash, cash equivalents, and marketable securities increased to $163.7 million as of September 30, 2025, from $123.8 million at December 31, 2024.
• Cash runway extended into the second half of 2027, alleviating previous "going concern" doubt.
• Positive topline results from the 15 mg/kg cohort of the FREEDOM Phase 1 study for PGN-EDODM1, demonstrating a mean splicing correction of 53.7% and general tolerability.
• PGN-EDODM1 has received Orphan Drug and Fast Track designations from the FDA.
• Operating loss for the three months ended September 30, 2025, decreased to $18.7 million from $23.2 million in the prior year.
• Net loss per share for the three months ended September 30, 2025, improved to $(0.52) from $(0.66) in the prior year.

Negatives

• Incurred significant operating losses, with a net loss of $71.3 million for the nine months ended September 30, 2025, compared to $67.7 million for the same period in 2024.
• Accumulated deficit reached $342.8 million as of September 30, 2025.
• Voluntarily discontinued development of PGN-EDO51 for DMD in May 2025 due to not achieving target dystrophin levels in the CONNECT1 trial, leading to winding down all DMD-related research.
• A shareholder class action lawsuit (Karam Litigation) was filed on June 9, 2025, alleging material misrepresentations regarding PGN-EDO51.
• Interest income decreased significantly for both the three and nine months ended September 30, 2025, compared to 2024.
• Net cash used in operating activities increased to $65.8 million for the nine months ended September 30, 2025, from $62.9 million in the prior year.
• The company will need to raise substantial additional funding in the future to advance PGN-EDODM1 beyond initial data readouts.

Risks

• Incurred significant losses since inception, have no products approved for sale, and expect to incur losses for the foreseeable future.
• Will need to raise substantial additional funding; inability to do so could force delays, scale-backs, or discontinuation of product development or commercialization efforts.
• Early in development efforts, having conducted only two Phase 1 and three Phase 2 clinical trials since inception, making commercialization years away, if ever.
• Business is highly dependent on the clinical advancement and success of PGN-EDODM1, with delay or failure adversely impacting the business.
• Preclinical and clinical development is lengthy, expensive, and has an uncertain outcome; results are not necessarily predictive of later studies.
• Substantial delays in the commencement, enrollment, or completion of clinical trials, or failure to demonstrate safety and efficacy, could prevent timely commercialization.
• Reliance on third parties for product manufacturing, research, preclinical, and clinical testing, who may not perform satisfactorily.
• Significant competition from major pharmaceutical, specialty pharmaceutical, and biotechnology companies.
• Inability to obtain and maintain patent protection for the Enhanced Delivery Oligonucleotide platform, therapeutic candidates, or other proprietary technologies.
• Expected headcount expansion 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, which could result in substantial losses for holders.
• The approach to discovery and development based on the EDO platform is unproven, and efforts to identify, discover, or develop potential product candidates may not be successful.
• Undesirable side effects or other unexpected adverse properties of product candidates could delay or prevent clinical trials, regulatory approval, or limit commercial potential.
• Expending limited resources on a particular program or product candidate may lead to failure to capitalize on more profitable opportunities.
• Increasing use of social media platforms presents new risks and challenges, including adverse event reporting and reputational harm.
• 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.
• Failure to obtain or maintain adequate coverage and reimbursement for future product candidates could limit marketability and decrease revenue.
• Inability to establish sales, marketing, and distribution capabilities or enter into agreements with third parties could hinder commercialization.
• Intellectual property rights do not necessarily address all potential threats, and the degree of future protection is uncertain.
• Reliance on third parties requires sharing trade secrets, increasing the possibility of discovery or misappropriation.
• Operations or those of third parties upon whom the company depends might be affected by the occurrence of a natural disaster, pandemic, or other catastrophic event.
• Adverse developments affecting the financial services industry could impact business operations and financial condition.
• Changes in tax laws or regulations or their interpretation may adversely affect the business and financial condition.
• Ability to utilize net operating loss carryforwards and certain other tax attributes may be subject to limitations.
• Disclosure controls and procedures may not prevent or detect all errors or acts of fraud.
• Exposure to the risk of securities class action litigation.
• Significant foreign exchange risk due to international operations.

Future Outlook

The company believes its existing cash, cash equivalents, and marketable securities of $163.7 million as of September 30, 2025, will be sufficient to fund currently planned operations into the second half of 2027. It expects to continue incurring significant expenses and operating losses for the foreseeable future as it advances PGN-EDODM1 through clinical development, expands its EDO platform, and potentially establishes commercial capabilities. Future funding will likely be sought through equity offerings, debt financings, or collaborations. Data from the 5 mg/kg cohort of the FREEDOM2 study for PGN-EDODM1 is expected in Q1 2026.

Management Comments

• "We believe that our existing cash, cash equivalents, and marketable securities as of September 30, 2025, will be sufficient to fund our currently planned operations for at least the next 12 months from the issuance of these condensed consolidated financial statements."
• "Therefore, the Company has concluded that the conditions and events raising substantial doubt no longer exist."
• "We believe that our existing cash, cash equivalents and marketable securities will be sufficient to fund our currently planned operations into the second half of 2027."
• "We believe that the allegations contained in the complaint are without merit and intend to defend the case vigorously." (Regarding Karam Litigation)
• "We believe robust splicing correction with PGN-EDODM1 has the potential to lead to meaningful functional improvements with repeat dosing over time, but this may not be the case."

Industry Context

PepGen operates in the highly competitive clinical-stage biotechnology sector, specifically focusing on oligonucleotide therapeutics for rare neuromuscular and neurological diseases. The discontinuation of its DMD program (PGN-EDO51) highlights the high failure rate and inherent risks in drug development, even after promising early-stage data. The company's pivot to focus solely on DM1 (PGN-EDODM1) places it in direct competition with other companies developing similar approaches, such as Avidity Biosciences (acquired by Novartis), Dyne, Entrada Therapeutics/Vertex, and Sarepta/Arrowhead, all targeting DMPK RNA or other mechanisms for DM1. The industry is also seeing increased interest in gene editing and gene delivery treatments, posing future competitive threats. The regulatory environment, including potential changes in FDA policies and the sunsetting of the RPDD program, adds complexity and uncertainty to drug development and commercialization.

Comparison to Industry Standards

• Avidity Biosciences, Inc. (acquired by Novartis) is in Phase 3 clinical development with AOC 1001, an antibody-linked siRNA for DM1.
• Dyne Therapeutics is in Phase 2 clinical development with DYNE-101, an antibody conjugated antisense oligonucleotide for DM1, with plans for a confirmatory Phase 3 trial in Q1 2026.
• Entrada Therapeutics, Inc. and Vertex Pharmaceuticals are developing VX-670, a peptide conjugated PMO for DM1, in Phase 2.
• Sarepta Therapeutics, Inc. (originally developed by Arrowhead Pharmaceuticals, Inc.) is in Phase 1/2 clinical development with ARO-DM1, a conjugated siRNA for DM1.
• Arthex Biotech S.L. is in Phase 1/2a clinical development with ATX-01, a microRNA for DM1.
• Vertex, Astellas Pharma Inc., and Kate Therapeutics Inc. (acquired by Novartis) are developing gene editing and gene delivery treatments for DM1 in discovery or preclinical stages.
• Design Therapeutics and Expansion Therapeutics, Inc. / Arrakis Therapeutics are developing small molecule approaches for DM1 in preclinical development.
• Sarepta Therapeutics, Inc. discontinued its SRP-5051 peptide-linked PMO development program for DMD in 2024 due to risk-benefit concerns, including hypomagnesemia, which is a similar technology to PepGen's EDO platform.

Management Changes

Corporate Governance

Legal Proceedings

• Shareholder class action lawsuit, "Johnny Karam v. PepGen Inc., et al.", filed on June 9, 2025, in the U.S. District Court for the Eastern District of New York (transferred to District of Massachusetts on July 15, 2025).
• The lawsuit names the company, its CEO, and CFO as defendants.
• Allegations include material misrepresentations and/or omissions of material fact in public disclosures between March 7, 2024, and March 3, 2025, primarily related to PGN-EDO51.
• Plaintiff seeks unspecified monetary damages, costs, and attorney fees on behalf of the putative class.
• The company believes the allegations are without merit and intends to defend the case vigorously.
• A putative shareholder demand letter, based on substantially the same allegations, was received on September 29, 2025.

Related Party Transactions

• Technology License Agreement with Oxford University Innovation Limited (OUI) and Medical Research Council (MRC) for exclusive worldwide license to data and technology 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 above £20-30 million.
• Payments to Oxford Science Enterprises (OSE), an affiliate of OUI, for Dr. Christopher Ashton's board service: $13,125 for Q3 2024 and $36,875 for the nine months ended September 30, 2024. No cash compensation in 2025. OSE owns 7.2% of outstanding common stock.
• Entities affiliated with RA Capital Management, L.P. (RA Capital) own 29.2% of outstanding common stock and participated in the IPO, 2024, and 2025 offerings.
• Payments to RA Capital for Dr. Joshua Resnick's board service: $11,000 for Q3 2025, $12,000 for Q3 2024, $35,000 for the nine months ended September 30, 2025, and $33,500 for the nine months ended September 30, 2024.

Stakeholder Impact

• Shareholders: Significant dilution from the recent public offering (31.25 million shares plus option exercise). Increased cash runway provides stability but the discontinuation of a key program (PGN-EDO51) and ongoing litigation introduce uncertainty and risk. Stock option repricing could be seen as a positive for employee retention but also as a cost.
• Employees: Stock option repricing aims to retain key personnel. Discontinuation of the DMD program may lead to job reassignments or reductions in DMD-focused teams.
• Patients (DM1): Continued development of PGN-EDODM1 with positive initial Phase 1 data offers hope for a novel treatment for Myotonic Dystrophy Type 1. Fast Track and Orphan Drug designations could expedite development.
• Patients (DMD): Discontinuation of PGN-EDO51 and all DMD-related research eliminates a potential treatment option for Duchenne muscular dystrophy patients amenable to exon 51 skipping.
• Creditors: Improved cash position and extended cash runway reduce immediate liquidity concerns, potentially improving creditworthiness.

Next Steps

• Report data from the 5 mg/kg cohort of the FREEDOM2 study in Q1 2026.
• Open the FREEDOM2 study in additional geographies, including the U.S., subject to regulatory authorizations.
• Continue preclinical studies and current and planned clinical trials of PGN-EDODM1.
• Continue research and development activities for additional potential investigational drugs addressing other neuromuscular diseases and neurologic disorders.
• Wind down all DMD-related research and development activities, including efforts relating to exons 44, 45, and 53, through the end of 2025.
• Determine the incremental compensation expense associated with the stock option repricing approved on November 4, 2025.
• Seek additional funding through equity offerings, debt financings, or other capital sources, including collaborations, strategic partnerships, or licensing arrangements.
• Defend vigorously against the Karam Litigation and the shareholder demand.

Key Dates

Recommendation

The company's financial position has significantly improved with a successful capital raise, extending its cash runway into the second half of 2027 and resolving previous going concern doubts. This provides crucial stability for ongoing operations. The positive initial Phase 1 data for PGN-EDODM1, coupled with Orphan Drug and Fast Track designations, offers a promising path forward for its lead candidate in DM1. However, the complete discontinuation of the PGN-EDO51 DMD program due to insufficient efficacy is a major setback, narrowing the company's pipeline and increasing its reliance on a single asset. The ongoing shareholder class action lawsuit also presents a material legal and reputational risk. While the improved liquidity is a strong positive, the pipeline concentration and legal uncertainties warrant a cautious "hold" recommendation. Investors should monitor the progress of PGN-EDODM1's Phase 2 trial and the outcome of the legal proceedings.

Keywords

PepGen Inc., PEPG, Biotechnology, Oligonucleotide Therapeutics, Myotonic Dystrophy Type 1, DM1, PGN-EDODM1, Enhanced Delivery Oligonucleotide, EDO platform, Clinical Trials, Phase 1 FREEDOM, Phase 2 FREEDOM2, Duchenne Muscular Dystrophy, DMD, PGN-EDO51, Drug Development, SEC Filing, 10-Q, Financial Results, Capital Raise, Orphan Drug, Fast Track, Clinical Hold, Shareholder Lawsuit, Stock Option Repricing