Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and the related notes included elsewhere in this 10-K. Some of the information contained in this discussion and analysis or set forth elsewhere in this 10-K, including information with respect to our plans, strategies, objectives, expectations and intentions for our business and related financing, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the “Risk Factors” section of this 10-K, our actual results could differ materially from the results described in or implied by these forward-looking statements. Please also see the section titled “Special Note Regarding Forward-Looking Statements.”

We are a clinical-stage biotechnology company advancing the next generation of oligonucleotide therapeutics with the goal of transforming the treatment of severe neuromuscular and neurologic diseases. Our Enhanced Delivery Oligonucleotide, or EDO, platform is founded on over a decade of research and development and leverages cell-penetrating peptides to improve the uptake and activity of conjugated oligonucleotide therapeutics. This technology was initially developed through a collaboration between researchers at the University of Oxford and the Medical Research Council of United Kingdom Research and Innovation. We have in-licensed an extensive patent portfolio from these institutions to support the further advancement and potential commercialization of our EDO platform. Our EDO peptides are engineered to optimize tissue penetration, cellular uptake and nuclear delivery, and in preclinical studies we have observed their ability to transport oligonucleotides into a broad range of target tissues, including smooth, skeletal, and cardiac muscle and the central nervous system, or CNS. We have also seen robust delivery of oligonucleotides to skeletal muscle in a clinical trial. Furthermore, the high levels of pharmacological activity observed in clinical and preclinical studies support our belief that our EDO platform technology has the potential to deliver therapeutic agents to the cell nucleus. Using these EDO peptides, we are generating a pipeline of oligonucleotide product candidates that target the root cause of serious diseases.

We are currently in clinical-stage development and completed a first-in-human Phase 1 clinical trial in healthy volunteers, or HVs, with our lead product candidate, PGN-EDO51, in the third quarter of 2022. We are developing PGN-EDO51 to treat individuals with Duchenne muscular dystrophy, or DMD, whose mutations are amenable to an exon 51-skipping therapeutic approach. An exon is a segment of a gene that – together with other exons – contains the code that is translated into a protein. Exon skipping is a therapeutic modality that enables mutations in the gene to be bypassed, thereby repairing this code and enabling production of a truncated, yet functional version of the target protein. In a Phase 1 clinical trial, treatment with PGN-EDO51 resulted in the highest levels of exon skipping and oligonucleotide delivery in humans following a single dose when compared to publicly available data for other approaches. In non-human primate, or NHP, studies, PGN-EDO51 at a dose of 30 mg/kg achieved over 70% exon 51 skipping in skeletal muscle, including diaphragm, and in mdx mouse studies dystrophin levels of over 80% were observed in skeletal muscle following a single 60 mg/kg dose of PGN-EDO23, the murine analogue of PGN-EDO51. These results represent the highest level of exon 51 skipping in NHP skeletal muscle at tolerable target dose levels, and the highest level of dystrophin production in mdx mice skeletal muscle, when compared to clinical-stage DMD therapeutic candidates. In addition, in head-to-head NHP studies, we observed that PGN-EDO51 had greater activity than R6G-PMO, which we believe to be structurally equivalent to Sarepta Therapeutics, Inc.’s, or Sarepta’s, SRP-5051, the most clinically advanced peptide-antisense oligonucleotide conjugate. Our Phase 1 clinical trial also indicated that PGN-EDO51 was generally well-tolerated at pharmacologically active dose levels. Moving forward, our clinical development program comprises two, parallel Phase 2 studies of PGN-EDO51 in DMD patients whose disease is amenable to an exon 51 skipping approach. The first study, CONNECT1-EDO51, is expected to be an open-label MAD study to open in Canada in the first half of 2023, with initial dystrophin, exon skipping and safety data anticipated in 2024. The second study, CONNECT2-EDO51 is expected to be a global, randomized, double-blind, placebo-controlled MAD clinical trial, or RCT, anticipated to open in the second half of 2023, pending clearance by the U.S. Food and Drug Administration, or FDA, of an Investigational New Drug, or IND, filing, or clearance by the European Medicines Agency, or EMA, of a Clinical Trial Application, or CTA, filing, in either case anticipated in the second half of this year. Learnings from the open label study will inform the conduct of the global RCT which is intended to support a future accelerated approval pathway for PGN-EDO51. Building on the high levels of exon skipping and tissue concentration observed in our Phase 1 trial, we believe that repeat dosing of PGN-EDO51 may lead to the accumulation of exon 51 skipped transcript and dystrophin protein in patients, which may in turn drive meaningful clinical benefit for those who live with this devastating, progressive, life-shortening disease.

We are also developing PGN-EDODM1 for the treatment of myotonic dystrophy type 1, or DM1, and are utilizing what we believe to be a unique mechanism of action. The therapeutic oligonucleotide component of PGN-EDODM1 is engineered to bind to the cytosine-uracil-guanine (CUG) repeat expansion present in the DMPK mRNA of DM1 patients, thus reducing the ability of these trinucleotide repeats to sequester MBNL1, a critical transcription factor. The liberation of MBNL1 in turn leads to the correction of downstream mis-splicing events that are evident in DM1, and thus this approach – which is not designed to knock down DPMK – has the potential to directly address the underlying genetic defect central to this disease. Treatment with PGN-EDODM1 resulted in the robust correction of mis-splicing in preclinical models with both long and short CTG repeats, including in the HSALR mouse model, where complete reversal of myotonia was also observed following a single dose. Furthermore, the oligonucleotide concentrations that were observed to be pharmacologically active in this mouse model of DM1 were found to be comparable to the tissue concentrations

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of oligonucleotide in human muscle observed in our clinical trial of PGN-EDO51. We anticipate opening our FREEDOM-DM1 Phase 1, randomized, placebo controlled SAD clinical trial of PGN-EDODM1 in DM1 patients in the first half of 2023, with functional assessments, correction of mis-splicing and safety data anticipated in 2024. Based on data obtained in our Phase 1 HV study of PGN-EDO51, we believe that PGN-EDODM1 has the potential to achieve tissue concentrations in people living with DM1 that could lead to clinically meaningful outcomes.

In addition to these lead candidates, we are developing EDO therapeutics for further DMD exon skipping populations, including exon 53-, 45- and exon 44-skipping amenable patients, and have observed robust exon skipping levels in NHP for our PGN-EDO53 program, and in wild-type human cells for our PGN-EDO45 and PGN-EDO44 programs. We have also initiated research efforts for additional indications, including neuromuscular diseases and neurologic disorders, and from this pipeline of candidates we anticipate advancing additional programs into CTA and IND-enabling studies in 2024.

Initial Public Offering and Liquidity

On May 10, 2022, we closed our initial public offering, or IPO in which we sold an aggregate of 9,000,000 shares at a public offering price of $12.00 per share for gross proceeds of $108.0 million. In connection with the IPO, we granted the underwriters a 30-day option to purchase 1,350,000 additional shares of common stock. On May 16, 2022, the underwriters exercised the option in part and we issued 1,238,951 shares of common stock for gross proceeds of $14.9 million. From the IPO and option exercise by the underwriters, we received approximately $122.9 million in gross proceeds and $110.2 million in net proceeds, after deducting underwriting discounts and offering expenses.

Since our inception, we have not generated any revenue from product sales or other sources and have incurred significant operating losses and negative cash flows from our operations. Our primary uses of cash to date have been to fund our research and development activities, business planning, establishing and maintaining our intellectual property portfolio, acquiring and developing product and technology rights, hiring personnel, leasing premises and associated capital expenditures, raising capital, and providing general and administrative support for these operations. To date, we have funded our operations primarily through private placements of our convertible preferred stock and proceeds from our IPO.

We have incurred operating losses in each year since our inception. Our net losses were $69.1 million and $27.3 million for the years ended December 31, 2022 and December 31, 2021, respectively. As of December 31, 2022, we had cash and cash equivalents of $181.8 million. As of December 31, 2022, we had an accumulated deficit of $102.9 million. We expect our expenses and operating losses will continue to increase as we conduct our ongoing preclinical studies and current and planned clinical trials, continue our research and development activities, utilize third parties to manufacture our product candidates and related raw materials, hire additional personnel, protect our intellectual property and incur additional costs associated with being a public company, including audit, legal, regulatory, and tax-related services associated with maintaining compliance with an exchange listing and SEC requirements, director and officer insurance premiums, and investor relations costs. In addition, we have several development, regulatory and commercial milestone payment obligations under our licensing arrangements. Our net losses may fluctuate significantly from quarter-to-quarter and year-to-year, depending on the timing of our preclinical studies and current and planned clinical trials and our expenditures on other research and development activities.

Based upon our current operating plans, we believe that the estimated net proceeds of our IPO, together with our existing cash and cash equivalents, will be sufficient to fund our currently planned operations into early 2025. We do not expect to generate any revenues from product sales unless and until we successfully complete development and obtain regulatory approval for one or more of our product candidates, which will not be for at least the next several years, if ever. If we obtain regulatory approval for any of our product candidates, we expect to incur significant commercialization expenses related to product sales, marketing, manufacturing and distribution. Accordingly, until such time as we can generate significant revenue from sales of our product candidates, if ever, we expect to finance our cash needs through equity offerings, debt financings or other capital sources, including potential collaborations, licenses and other similar arrangements. However, we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all. Our failure to raise capital or enter into such other arrangements when needed would have a negative impact on our financial condition and could force us to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

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Impact of COVID-19 on our Business

The global coronavirus disease 2019, or COVID-19, pandemic continues to evolve, and we continue to monitor the COVID-19 situation. The extent of the impact of the ongoing COVID-19 pandemic on our business, operations and clinical development timelines and plans remains uncertain, and will depend on certain developments, including the duration and spread of the pandemic and its impact on contract research organizations, or CROs, third-party manufacturers, and other third parties with whom we do business, as well as its impact on regulatory authorities and our key scientific and management personnel. To the extent possible, we are conducting business as usual, with only advisable modifications to employee travel. We continue to actively monitor the impacts of COVID-19 and may take further actions that alter our operations, including those that may be required by federal, state or local authorities, or that we determine are in the best interests of our employees and other third parties with whom we do business. The extent to which the ongoing COVID-19 pandemic may affect our business, operations and clinical development timelines and plans, including the resulting impact on our expenditures and capital needs, remains uncertain and is subject to change.

Corporate Reorganization

We were initially formed as PepGen Limited on January 25, 2018, in the United Kingdom. On November 9, 2020, PepGen Limited initiated a corporate reorganization, or the Reorganization. As part of the Reorganization, PepGen Limited formed PepGen Inc., a Delaware corporation with nominal assets and liabilities, for the purpose of consummating the Reorganization. In connection with the Reorganization, the existing shareholders of PepGen Limited exchanged each of their classes of shares of PepGen Limited for the same number and class of common stock of PepGen Inc. on a one-to-one basis. The newly issued stock of PepGen Inc. had substantially identical rights to the exchanged shares of PepGen Limited. As a result of the exchange, PepGen Inc. became the sole shareholder of PepGen Limited. Upon the completion of the Reorganization on November 23, 2020, the historical financial statements of PepGen Limited became the historical financial statements of PepGen Inc., as the Reorganization was deemed to be between entities under common control.

After the Reorganization was completed, PepGen Limited began the process of transferring certain operations, including financial management functions, to PepGen Inc. pursuant to an intercompany services agreement, effective as of April 2021, and certain assets, including a novation of all intellectual property assets, pursuant to an asset transfer agreement, effective as of January 1, 2022. After the transfer of intellectual property and other assets from PepGen Limited to PepGen Inc., there were limited operations through the end of the year at PepGen Limited.

Components of Results of Operations

Operating Expenses

Research and Development

To date, our research and development expenses have primarily consisted of external and internal costs associated with our research and development activities, including our discovery and research efforts, the development of our proprietary EDO platform, and the preclinical and clinical development of our product candidates. Our research and development expenses include:

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external expenses, including expenses incurred under arrangements with third parties, such as contract research organizations, or CROs, contract development manufacturers or CDMOs, consultants and our scientific advisors;

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personnel-related costs, including salaries, cash incentive compensation, payroll taxes, employee benefits, and stock-based compensation;

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costs for laboratory supplies and materials and reagents for chemical synthesis of product candidates; and

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facility costs, depreciation, and other expenses, which include direct and allocated expenses for rent and maintenance of facilities, insurance, and other supplies.

Research and development expenses are recognized as incurred and payments made prior to the receipt of goods or services to be used in research and development activities are recorded as prepaid expenses until the goods or services are received. Research and development expenses are presented net of reimbursement received related to a U.K. grant and refundable research and development tax credits from the U.K government. In 2022, our research and development tax credits from the U.K. government were not material as the intellectual property was transferred from our wholly-owned U.K. subsidiary, PepGen Limited, to the parent company, PepGen Inc. in January 2022.

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The following table summarizes our research and development expenses for the year ended December 31, 2022 and December 31, 2021, respectively. The direct external development program expenses reflect external costs attributable to our clinical development candidates and preclinical candidates selected for further development. Our internal resources, personnel and infrastructure are not directly tied to any one research or drug discovery program and are typically deployed across multiple programs. As such, we do not track internal expenses on a program-specific basis.

Year EndedDecember 31,

External expenses:

Other programs and unallocated expenses 2,306 202

Internal expenses:

Personnel-related (including stock-based compensation) 10,744 2,960

Total research and development expenses $ 54,077 $ 18,999

We plan to continue to increase our research and development expenses in 2023 as we continue to conduct our ongoing research and development activities, advance our preclinical research programs toward clinical development, including conducting IND- and CTA-enabling studies, and conducting clinical trials for PGN-EDO51 and PGN-EDODM1. The process of conducting preclinical studies and clinical trials necessary to obtain regulatory approval is costly and time consuming. We may never succeed in achieving marketing approval for any of our product candidates.

The timelines and costs associated with research and development activities are uncertain and can vary significantly for each product candidate and development program due to the inherently unpredictable nature of preclinical and clinical development. We anticipate we will make determinations as to which programs to pursue and how much funding to direct to each program on an ongoing basis in response to preclinical and clinical results, regulatory developments, and ongoing assessments as to each program’s commercial potential. We will need to raise substantial additional capital in the future.

Our future development costs may vary significantly based on factors such as:

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clinical trials, animal and other preclinical studies and IND- or CTA-enabling studies;

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per patient trial costs;

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the number of trials required for approval;

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the number of sites included in the trials;

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the countries in which the trials are conducted;

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the length of time required to enroll eligible patients;

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the number of patients that participate in the trials;

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the number of doses that patients receive;

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the drop-out or discontinuation rates of patients;

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the duration of patient participation in the trials and follow-up;

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the cost and timing of manufacturing our product candidates;

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the efficacy and safety profile of our product candidates; and

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maintaining a continued acceptable safety profile of our products if any receive regulatory approval.

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General and Administrative

General and administrative expenses consist primarily of personnel-related costs, including salaries, cash incentive compensation, payroll taxes, employee benefits, and stock-based compensation charges for those individuals in executive, finance, facility operations, and other administrative functions. Other significant costs include legal fees relating to intellectual property and corporate matters, professional fees for accounting and consulting services, and insurance costs.

We anticipate that our general and administrative expenses will increase in 2023 to support our continued research and development activities. We also anticipate increased expenses related to audit, legal, regulatory, and tax-related services associated with maintaining compliance with our exchange listing and SEC requirements, director and officer insurance premiums, and investor relations costs associated with operating as a public company.

Other Income (Expense), Net

Interest income

Interest income consists of interest earned on our cash deposits.

Other income (expense)

We classified our outstanding warrants to purchase shares of our Series A-2 convertible preferred stock as liabilities on our consolidated balance sheets at their estimated fair value as the underlying convertible preferred stock is classified as temporary equity. At the end of each reporting period, changes in the estimated fair value during the period were recorded as a component of other income (expense), net. We recognized changes in the fair value of our warrant liability until the warrants were exercised on May 4, 2022, prior to the completion of our IPO.

Other components of other income (expense) relate to realized and unrealized gains and losses on currency revaluation.

Income Taxes

We have not recorded a U.S. provision for federal or state income taxes as we have no revenue and have incurred losses since inception. During the year ended December 31, 2022, we recorded a $3.7 million tax charge associated with the transfer of our intellectual property assets from our wholly owned subsidiary, PepGen Limited, to the parent company, PepGen Inc. (see Note 11 of Notes to the Consolidated Financial Statements).

Results of Operations

Comparison of the Year Ended December 31, 2022 and 2021

The following table summarizes our results of operations for the year ended December 31, 2022 and 2021 (in thousands):

Year EndedDecember 31, Period-to-

Operating expenses:

Other income (expense), net

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Research and Development Expenses

Research and development expenses increased by $35.1 million from $19.0 million for the year ended December 31, 2021, to $54.1 million for the year ended December 31, 2022. This increase was attributable to increased research and development activities related to the advancement of our pipeline programs, including a $15.5 million increase in preclinical and manufacturing costs, a $2.9 million increase in clinical costs due to our Phase 1 trial for PGN-EDO51, and a $7.6 million increase in personnel-related costs due to increased headcount, including an increase of $1.3 million in stock-based compensation expense. There was also an increase of $4.7 million in research and development tax credits recognized as an offset to research and development expense during the year ended December 31, 2021, and a $1.7 million increase in other research and development expense primarily related to the $1.4 million OUI exit fee that was expensed upon completion of our IPO (see Note 2 of Notes to Consolidated Financial Statements).

General and Administrative Expenses

General and administrative expenses increased by $6.1 million from $8.1 million for the year ended December 31, 2021, to $14.2 million for the year ended December 31, 2022. The increase was primarily driven by a $2.7 million increase in personnel-related costs due to increased headcount, including an increase of $1.9 million in stock-based compensation expense, an increase of $2.2 million in legal, accounting, consulting, and insurance costs associated operating as a public company costs, and a $1.2 million increase in facility-related costs due to our expansion of operations in Boston, Massachusetts.

Other Income (Expense), Net

Other income (expense), net was income of $2.9 million for the year ended December 31, 2022 compared to expense of $0.2 million for the year ended December 31, 2021. The increase was primarily driven by interest earned from our cash deposits.

Income Tax Expense

Income tax expense increased by $3.7 million from nil for the year ended December 31, 2021, to $3.7 million for the year ended December 31, 2022 due to the transfer of all intellectual property assets from PepGen Limited to the parent company, PepGen Inc., pursuant to an asset transfer agreement, effective January 1, 2022. The transfer of the intellectual property assets resulted in an estimated tax charge to His Majesty’s Revenue & Customs, after considering net operating loss carryforwards, of $3.7 million, inclusive of the $0.8 million uncertain tax position. The liability for the estimated tax accounted for in accrued expenses on the consolidated balance sheet and was $3.2 million as of December 31, 2022 after currency translation.

Liquidity and Capital Resources

Sources of Liquidity

From our inception in January 2018 through December 31, 2022, we have funded our operations primarily through the sale of our common stock and convertible preferred stock. We have received aggregate gross proceeds of $163.9 million from these sales. Additionally, we received gross proceeds from our IPO of $108.0 million, and $14.9 million when the underwriters partially exercised their option to purchase 1,350,000 additional shares of common stock.

Future Funding Requirements

As of December 31, 2022 we had cash and cash equivalents in the amount of $181.8 million, which includes net proceeds of $110.2 million from our IPO. Based on our current operating plans, we believe that our existing cash and cash equivalents will be sufficient to fund our operations into early 2025. However, our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement that involves risks and uncertainties, and actual results could vary materially. We have based this estimate on assumptions that may prove to be wrong, and we could deplete our capital resources sooner than we expect. Additionally, the process of conducting preclinical studies and testing product candidates in clinical trials is costly, and the timing of progress and expenses in these studies and trials is uncertain.

Our future capital requirements will depend on many factors, including but not limited to:

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the type, number, scope, progress, expansions, results, costs, and timing of, discovery, preclinical studies and clinical trials of our product candidates which we are pursuing or may choose to pursue in the future;

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the costs and timing of manufacturing for our product candidates and commercial manufacturing if any product candidate is approved;

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the costs, timing, and outcome of regulatory review of our product candidates;

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the terms and timing of establishing and maintaining licenses and other similar arrangements;

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the legal costs of obtaining, maintaining, and enforcing our patents and other intellectual property rights;

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our efforts to enhance operational systems and hire additional personnel to satisfy our obligations as a public company;

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the costs associated with hiring additional personnel and consultants as our preclinical and clinical activities increase;

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the costs and timing of establishing or securing sales and marketing capabilities if any product candidate is approved;

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our ability to achieve sufficient market acceptance, coverage and adequate reimbursement from third-party payors and adequate market share and revenue for any approved products;

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costs associated with any products or technologies that we may in-license or acquire; and

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costs associated with short-term leases and the lease of lab in office space commenced in early 2022.

Until such time, if ever, as we can generate substantial product revenue to support our cost structure, we expect to finance our cash needs through equity offerings, debt financings, or other capital sources, potentially including collaborations, licenses, and other similar arrangements. However, we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our stockholders will be or could be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stockholders. Debt financing and equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures, or declaring dividends. If we raise funds through collaborations, or other similar arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or drug candidates or grant licenses on terms that may not be favorable to us and/or may reduce the value of our common stock. Our failure to raise capital or enter into such other arrangements when needed could have a negative impact on our financial condition and on our ability to pursue our business plans and strategies. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market our drug candidates even if we would otherwise prefer to develop and market such drug candidates ourselves.

Cash Flows

The following table sets forth a summary of the net cash flow activity for the year ended December 31, 2022 and December 31, 2021 (in thousands):

Years Ended December 31,

Net cash (used in) provided by:

Investing activities (3,755 ) (500 )

Effect of exchange rate changes on cash (316 ) 33

Net increase in cash, cash equivalents and restricted cash $ 48,857 $ 124,590

Operating Activities

For the year ended December 31, 2022, net cash used in operating activities was $59.3 million resulting from our net loss of $69.1 million partially offset by cash provided by changes in our operating assets and liabilities of $4.5 million and non-cash charges of $5.3 million. The net changes in our operating assets and liabilities were primarily due to an increase in accrued expenses of $5.5 million and receipt of $4.2 million associated with our U.K. R&D tax credit in 2022, which is accounted for in other receivables. These increases were partially offset by a $2.0 million decrease in operating lease liabilities related to cash paid towards tenant improvements on our new office and lab lease. Non-cash charges included $4.8 million in share-based compensation expense and $0.5 million in depreciation expense.

For the year ended December 31, 2021, net cash used in operating activities was $22.6 million resulting from our net loss of $27.3 million partially offset by cash provided by changes in our operating assets and liabilities of $2.8 million and non-cash charges of $1.9 million. The net changes in our operating assets and liabilities were primarily due to increases in accrued expenses and accounts payable of $9.3 million, partially offset by increases in other receivables and prepaids and other current and non-current

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assets of $6.6 million. This is primarily driven by the $3.5 million U.K. tax credit which was recorded as a receivable at year-end. The non-cash charges included $1.5 million of stock-based compensation, $0.2 million of depreciation expense and $0.2 million from the change in the fair value of preferred stock warrant liability.

Investing Activities

Net cash used in investing activities was $3.8 million during the year ended December 31, 2022 as compared to $0.5 million during the year ended December 31, 2021. Cash used for investing activities was related to the purchase of property and equipment.

Financing Activities

Net cash provided by financing activities was $112.2 million for the year ended December 31, 2022, which was primarily the result of $114.3 million in net proceeds from the Company's IPO, after deducting the payment of $2.7 million in IPO-related costs made in 2022. In 2021, the Company made payments of $1.4 million in IPO-related costs. Total net proceeds from the IPO were $110.2 million. Additionally, the Company generated $0.4 million from the exercise of the A-2 preferred stock warrants and $0.2 million in proceeds from stock option exercises.

Net cash provided by financing activities was $147.7 million for the year ended December 31, 2021. The increase in net cash provided by financing activities was primarily due to the proceeds of $37.0 million raised from the sale of our Series A-2 convertible preferred stock and the proceeds of $112.1 million from the sale of our Series B convertible preferred stock partially offset by $1.4 million in deferred offering costs related to our IPO.

Critical Accounting Polices and Estimates

Our management’s discussion and analysis of our financial condition and results of operations are based on our financial statements, which are prepared in accordance with generally accepted accounting principles in the United States, or GAAP. The preparation of our financial statements requires us to make estimates and management discussion assumptions that affect the reported amounts of assets, liabilities, costs, and expenses and the disclosure of contingent assets and liabilities in our financial statements and accompanying notes. We evaluate our estimates and judgments on an ongoing basis. We base our estimates and assumptions on historical experience, known trends and events, and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Our actual results may differ from these estimates under different assumptions or conditions.

While our significant accounting policies are more fully described in Note 2, “Summary of Significant Accounting Policies” to our consolidated financial statements appearing elsewhere in this 10-K, we believe that the following accounting policies are the most critical for fully understanding and evaluating our financial condition and results of operations.

Research and Development Expenses and Accrued Research and Development Costs

We are required to estimate our expenses resulting from obligations under contracts with vendors, consultants, CMOs, and CROs, in connection with conducting research and development activities. The financial terms of these contracts are subject to negotiations, which vary from contract to contract and may result in payment flows that do not match the periods over which materials or services are provided under such contracts. We reflect research and development expenses in our financial statements by matching those expenses with the period in which services and efforts are expended. We account for these expenses according to the progress of the applicable preclinical or clinical study as measured by the timing of various aspects of the study or related activities. We determine accrual estimates through review of the underlying contracts along with preparation of financial models taking into account discussions and confirmations with research and other key personnel and the third-party vendors as to the progress of studies, or other services being conducted. During the course of a study, we adjust our rate of expense recognition if actual results differ from our estimates.

Although we do not expect our estimates to be materially different from amounts actually incurred, if our estimates of the status and timing of services performed differ from the actual status and timing of services performed, it could result in us reporting amounts that are too high or too low in any particular period. To date, there have been no material differences between our estimates of such expenses and the amounts actually incurred.

Stock-Based Compensation

We account for all stock-based compensation awards granted as stock-based compensation expense at fair value in accordance with FASB ASC Topic 718, Compensation—Stock Compensation (ASC 718). Stock-based compensation expense

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represents the cost of the grant date fair value of equity awards recognized over the requisite service period of the awards (usually the vesting period) on a straight-line or accelerated basis. We estimate the fair value of stock option awards using the Black-Scholes option pricing model and recognize forfeitures as they occur.

The Black-Scholes option pricing model requires the use of subjective assumptions, including the risk-free interest rate, the expected stock price volatility, the expected term of stock options, the expected dividend yield, and the fair value of the underlying common stock on the date of grant. Changes in the assumptions can materially affect the fair value and ultimately how much stock-based compensation expense is recognized. Prior to our IPO, there was no public market for our common stock, and consequently, the estimated fair value of our common stock was determined by our board of directors as of the date of each option grant, with input from management, considering third-party valuations of our common stock as well as our board of directors’ assessment of additional objective and subjective factors that it believed were relevant and which may have changed from the date of the most recent third-party valuation through the date of the grant. These third-party valuations were performed in accordance with the guidance outlined in the American Institute of Certified Public Accountants’ Accounting and Valuation Guide, Valuation of Privately-Held-Company Equity Securities Issued as Compensation (Practice Aid). The Practice Aid identifies various available methods for allocating the enterprise value across classes of series of capital stock in determining the fair value of our common stock at each valuation date. Since our IPO, we have determined the fair market value of our common stock using the closing price of our common stock as reported on the Nasdaq Global Select Market.

Off-balance sheet arrangements

We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined in the rules and regulations of the SEC.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.

Item 8. Financial Statements and Supplementary Data.

Our consolidated financial statements, together with the reports of our independent registered public accounting firms, appear beginning on page F-1 of this Annual Report for the year ended December 31, 2022.

Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

None.

Item 9A. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Our management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer (our principal executive officer and principal financial officer, respectively), evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2022. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Management recognizes that any disclosure controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of December 31, 2022, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

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Management’s Annual Report on Internal Control Over Financial Reporting

This Annual Report does not include a report of management's assessment regarding internal control over financial reporting or an attestation report of the company's registered public accounting firm due to a transition period established by rules of the Securities and Exchange Commission for newly public companies.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d‐15(f) under the Exchange Act) that occurred during the quarter ended December 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Item 9B. Other Information.

The Company recently entered into new employment agreements with each of James McArthur, Ph.D., Noel Donnelly, M.B.A., Jaya Goyal, Ph.D., Michelle L. Mellion, M.D. and Niels Svenstrup, Ph.D. (each, an “executive”), which agreements supersede any prior offer letters or employment agreements previously entered into. These new agreements were authorized by our compensation committee.

James McArthur, Ph.D.

On March 21, 2023, we entered into an employment agreement, or the McArthur Employment Agreement, with Dr. McArthur, to continue to be employed as our Chief Executive Officer. The McArthur Employment Agreement provides for Dr. McArthur’s annual base salary, a discretionary annual bonus, and his ability to participate in our benefit plans generally. Dr. McArthur’s target bonus is equal to 50% of his annual base salary.

In the event of a termination of Dr. McArthur’s employment by the Company without “cause” or Dr. McArthur’s resignation for “good reason” (each as defined in the McArthur Employment Agreement), subject to Dr. McArthur’s execution of the Separation Agreement and Release (as defined in McArthur Employment Agreement) and the Separation Agreement and Release becoming fully effective, the Company will pay Dr. McArthur (i) a severance amount equal to 12 months of his base salary, (ii) subject to Dr. McArthur’s election to receive continued health benefits under COBRA, payment of premiums for participation in our health benefit plans (or cash payments equal to the amount of such premiums) for up to twelve (12) months and (iii) prorated target bonus for the year in which the termination occurs. In addition, in the event that such a termination occurs within twelve (12) months following the effective date of a “Sale Event” (as defined in the Company’s applicable equity plans), subject to Dr. McArthur’s execution of the Separation Agreement and Release and the Separation Agreement and Release becoming fully effective, the Company will pay Dr. McArthur (i) a severance amount equal to 18 months of his base salary, (ii) subject to Dr. McArthur’s election to receive continued health benefits under COBRA, payment of premiums for participation in our health benefit plans (or cash payments equal to the amount of such premiums) for up to eighteen (18) months and (iii) the target bonus for the year in which the termination occurs, and any unvested equity awards held by the executive immediately prior to the executive’s termination date will be deemed immediately vested effective as of the termination date.

Noel Donnelly, M.B.A.

On March 21, 2023, we entered into an employment agreement, or the Donnelly Employment Agreement, with Mr. Donnelly, to continue to be employed as our Chief Financial Officer. The Donnelly Employment Agreement provides for Mr. Donnelly’s annual base salary, a discretionary annual bonus and his ability to participate in our benefit plans generally. Mr. Donnelly’s target bonus is equal to 40% of his annual base salary.

In the event of a termination of Mr. Donnelly’s employment by the Company without “cause” or his resignation for “good reason” (each as defined in the Donnelly Employment Agreement), subject to Mr. Donnelly’s execution of the Separation Agreement and Release (as defined in Donnelly Employment Agreement) and the Separation Agreement and Release becoming fully effective, the Company will pay Mr. Donnelly (i) a severance amount equal to nine (9) months of his base salary, (ii) subject to Mr. Donnelly’s election to receive continued health benefits under COBRA, payment of premiums for participation in our health benefit plans (or cash payments equal to the amount of such premiums) for up to nine (9) months and (iii) prorated target bonus for the year in which the termination occurs. In addition, in the event that such a termination occurs within twelve (12) months following the effective date of a “Sale Event” (as defined in the Company’s applicable equity plans), subject to Mr. Donnelly’s execution of the Separation Agreement and Release and the Separation Agreement and Release becoming fully effective, the Company will pay Mr. Donnelly (i) a severance amount equal to twelve (12) months of his base salary, (ii) subject to Mr. Donnelly’s election to receive continued health benefits under COBRA, payment of premiums for participation in our health benefit plans (or cash payments equal to the amount of such premiums) for up to twelve (12) months and (iii) the target bonus for the year in which the termination occurs, and any unvested

131

equity awards held by the executive immediately prior to the executive’s termination date will be deemed immediately vested effective as of the termination date.

Jaya Goyal, Ph.D.

On March 21, 2023, we entered into an employment agreement, or the Goyal Employment Agreement, with Dr. Goyal, to continue to be employed as the Executive Vice President, Research and Preclinical Development. The Goyal Employment Agreement provides for Goyal’s annual base salary, a discretionary annual bonus and her ability to participate in our benefit plans generally. Dr. Goyal’s target bonus is equal to 40% of her annual base salary.

In the event of a termination of Dr. Goyal’s employment by the Company without “cause” or Dr. Goyal’s resignation for “good reason” (each as defined in the Goyal Employment Agreement), subject to Dr. Goyal’s execution of the Separation Agreement and Release (as defined in Goyal Employment Agreement) and the Separation Agreement and Release becoming fully effective, the Company will pay Dr. Goyal (i) a severance amount equal to nine (9) months of her base salary, (ii) subject to Dr. Goyal’s election to receive continued health benefits under COBRA, payment of premiums for participation in our health benefit plans (or cash payments equal to the amount of such premiums) for up to nine (9) months and (iii) prorated target bonus for the year in which the termination occurs. In addition, in the event that such a termination occurs within twelve (12) months following the effective date of a “Sale Event” (as defined in the Company’s applicable equity plans), subject to Dr. Goyal’s execution of the Separation Agreement and Release and the Separation Agreement and Release becoming fully effective, the Company will pay Dr. Goyal (i) a severance amount equal to twelve (12) months of his base salary, (ii) subject to Dr. Goyal’s election to receive continued health benefits under COBRA, payment of premiums for participation in our health benefit plans (or cash payments equal to the amount of such premiums) for up to twelve (12) months and (iii) the target bonus for the year in which the termination occurs, and any unvested equity awards held by the executive immediately prior to the executive’s termination date will be deemed immediately vested effective as of the termination date.

Michelle L. Mellion, M.D.

On March 21, 2023, we entered into an employment agreement, or the Mellion Employment Agreement, with Dr. Mellion, to continue to be employed as the Executive Vice President, Research and Preclinical Development. The Mellion Employment Agreement provides for Mellion’s annual base salary, a discretionary annual bonus and her ability to participate in our benefit plans generally. Dr. Mellion’s target bonus is equal to 35% of her annual base salary.

In the event of a termination of Dr. Mellion’s employment by the Company without “cause” or Dr. Mellion’s resignation for “good reason” (each as defined in the Mellion Employment Agreement), subject to Dr. Mellion’s execution of the Separation Agreement and Release (as defined in Mellion Employment Agreement) and the Separation Agreement and Release becoming fully effective, the Company will pay Dr. Mellion (i) a severance amount equal to nine (9) months of her base salary, (ii) subject to Dr. Mellion’s election to receive continued health benefits under COBRA, payment of premiums for participation in our health benefit plans (or cash payments equal to the amount of such premiums) for up to nine (9) months and (iii) prorated target bonus for the year in which the termination occurs. In addition, in the event that such a termination occurs within twelve (12) months following the effective date of a “Sale Event” (as defined in the Company’s applicable equity plans), subject to Dr. Mellion’s execution of the Separation Agreement and Release and the Separation Agreement and Release becoming fully effective, the Company will pay Dr. Mellion (i) a severance amount equal to twelve (12) months of his base salary, (ii) subject to Dr. Mellion’s election to receive continued health benefits under COBRA, payment of premiums for participation in our health benefit plans (or cash payments equal to the amount of such premiums) for up to twelve (12) months and (iii) the target bonus for the year in which the termination occurs, and any unvested equity awards held by the executive immediately prior to the executive’s termination date will be deemed immediately vested effective as of the termination date.

Niels Svenstrup, Ph.D.

On March 21, 2023, we entered into an employment agreement, or the Svenstrup Employment Agreement, with Dr. Svenstrup, to continue to be employed as the Executive Vice President, Research and Preclinical Development. The Svenstrup Employment Agreement provides for Svenstrup’s annual base salary, a discretionary annual bonus and her ability to participate in our benefit plans generally. Dr. Svenstrup’s target bonus is equal to 35% of his annual base salary.

In the event of a termination of Dr. Svenstrup’s employment by the Company without “cause” or Dr. Svenstrup’s resignation for “good reason” (each as defined in the Svenstrup Employment Agreement), subject to Dr. Svenstrup’s execution of the Separation Agreement and Release (as defined in Svenstrup Employment Agreement) and the Separation Agreement and Release becoming fully effective, the Company will pay Dr. Svenstrup (i) a severance amount equal to nine (9) months of her base salary, (ii) subject to Dr. Svenstrup’s election to receive continued health benefits under COBRA, payment of premiums for participation in our health benefit plans (or cash payments equal to the amount of such premiums) for up to nine (9) months and (iii) prorated target bonus for the year in

132

which the termination occurs. In addition, in the event that such a termination occurs within twelve (12) months following the effective date of a “Sale Event” (as defined in the Company’s applicable equity plans), subject to Dr. Svenstrup’s execution of the Separation Agreement and Release and the Separation Agreement and Release becoming fully effective, the Company will pay Dr. Svenstrup (i) a severance amount equal to twelve (12) months of his base salary, (ii) subject to Dr. Svenstrup’s election to receive continued health benefits under COBRA, payment of premiums for participation in our health benefit plans (or cash payments equal to the amount of such premiums) for up to twelve (12) months and (iii) the target bonus for the year in which the termination occurs, and any unvested equity awards held by the executive immediately prior to the executive’s termination date will be deemed immediately vested effective as of the termination date.

The foregoing description of the employment agreements is not complete and is qualified in its entirety by reference to the complete text of each such agreement, copies of which are filed as Exhibits 10.7, 10.8, 10.9, 10.10 and 10.11 hereto and are incorporated herein by reference.

Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.

Not Applicable.

133

PART III

Item 10. Directors, Executive Officers and Corporate Governance.

The information required under this item is incorporated herein by reference to the Company’s definitive proxy statement pursuant to Regulation 14A, which proxy statement will be filed with the Securities and Exchange Commission not later than 120 days after the close of the Company’s fiscal year ended December 31, 2022.

Item 11. Executive Compensation.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

Item 13. Certain Relationships and Related Transactions, and Director Independence.

Item 14. Principal Accounting Fees and Services.

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PART IV

Item 15. Exhibits, Financial Statement Schedules.

(1)

For a list of the financial statements included herein, see Index to the Consolidated Financial Statements on page F-1 of this Annual Report on Form 10-K, incorporated into this Item by reference.

135

(2)

Financial statement schedules have been omitted because they are either not required or not applicable or the information is included in the consolidated financial statements or the notes thereto.

(3)

Exhibits:

136

ExhibitNumber Description

4.3* Description of Securities

23.1* Consent of KPMG, LLP, independent registered public accounting firm

101.SCH Inline XBRL Taxonomy Extension Schema Document

101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document

137

104 Cover Page Interactive Data File (embedded within the Inline XBRL document)

* Filed herewith.

** Furnished herewith.

*** Previously filed.

† Portions of this exhibit (indicated by asterisks) will be omitted in accordance with the rules of the Securities and Exchange Commission.

Item 16. Form 10-K Summary.

None.

138

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

PEPGEN INC.

Date: March 23, 2023 By: /s/ James McArthur

Name: James McArthur

Title: Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated.

Name Title Date

James McArthur, Ph. D.

Noel Donnelly, M.B.A.

/s/ Laurie B. Keating Chairperson of the Board of Directors March 23, 2023

Laurie B. Keating, J.D.

/s/ Christopher Ashton Director March 23, 2023

Christopher Ashton, Ph.D.

/s/ Habib Joseph Dable Director March 23, 2023

Habib Joseph Dable

/s/ Heidi Henson Director March 23, 2023

Heidi Henson

/s/ Joshua Resnick. Director March 23, 2023

Joshua Resnick, M.D., M.B.A

139

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Page

Report of Independent Registered Public Accounting Firm (PCAOB ID No. 185) F-2

Consolidated Balance Sheets F-3

Consolidated Statements of Operations F-4

Consolidated Statements of Comprehensive Loss F-5

Consolidated Statements of Cash Flows F-7

Notes to Consolidated Financial Statements F-8

F-1

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors

PepGen Inc.:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of PepGen Inc. and subsidiaries (the Company) as of December 31, 2022 and 2021, the related consolidated statements of operations, comprehensive loss, convertible preferred stock and stockholders’ equity (deficit), and cash flows for each of the years in the two-year period ended December 31, 2022, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2022, in conformity with U.S. generally accepted accounting principles.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

We have served as the Company’s auditor since 2021.

/s/ KPMG LLP

Phoenix, Arizona

March 23, 2023

F-2

PEPGEN INC.

CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS, EXCEPT SHARE AND PAR VALUE AMOUNTS)

December 31,

Assets

Current assets:

Prepaid expenses and other current assets 4,273 2,347

Property and equipment, net 3,335 636

Operating lease right-of-use asset 26,549 —

Liabilities, convertible preferred stock, and stockholders’ equity (deficit)

Current liabilities:

Operating lease liability 5,553 —

Preferred stock warrant liability — 226

Operating lease liability, net of current portion 18,981 —

Commitments and contingencies (Note 8)

Convertible preferred stock:

Stockholders’ equity (deficit):

Accumulated other comprehensive income (loss) (81 ) 17

See accompanying notes to consolidated financial statements.

F-3

PEPGEN INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

Year EndedDecember 31,

Operating expenses:

Other income (expense)

Interest income 2,793 —

Other income (expense), net 110 (172 )

Total other income (expense), net 2,903 (172 )

Income tax expense (3,706 ) —

Net loss per share, basic and diluted $ (4.42 ) $ (30.27 )

Weighted-average common shares outstanding, basic and diluted 15,639,728 901,108

See accompanying notes to consolidated financial statements.

F-4

PEPGEN INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(IN THOUSANDS)

Year EndedDecember 31,

Cumulative translation adjustment arising during the period (98 ) 25

See accompanying notes to consolidated financial statements.

F-5

PEPGEN INC.

CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)

(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

Shares Amount Shares Amount Shares Amount Shares Amount

Release of common stock from vesting restrictions — — — — — — 69,528 — — — — —

Stock-based compensation expense — — — — — — — — 1,534 — — 1,534

Foreign currency translation adjustment — — — — — — — — — 25 — 25

Release of common stock from vesting restrictions — — — — — — 69,529 — — — — —

Exercise of stock options — — — — — — 81,272 — 217 — — 217

Stock-based compensation expense — — — — — — — — 4,763 — — 4,763

Foreign currency translation adjustment — — — — — — — — — (98 ) — (98 )

See accompanying notes to consolidated financial statements.

F-6

PEPGEN INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

Year EndedDecember 31,

Cash flows from operating activities:

Adjustments to reconcile net loss to cash used in operating activities:

Stock-based compensation expense 4,763 1,534

Change in fair value of preferred stock warrant liability (58 ) 196

Other non-cash adjustments 134 —

Changes in operating assets and liabilities:

Operating lease, right-of-use asset — —

Prepaids and other current and non-current assets (1,784 ) (2,215 )

Accrued expenses and other non-current liabilities 5,531 6,821

Operating lease liabilities, current and non-current (2,016 ) —

Net cash used in operating activities (59,265 ) (22,599 )

Cash flows from investing activities:

Purchases of property and equipment (3,755 ) (500 )

Net cash used in investing activities (3,755 ) (500 )

Cash flows from financing activities:

Payment of offering costs (2,697 ) (1,386 )

Proceeds from exercise of stock options 217 —

Effect of exchange rate changes on cash (316 ) 33

Net increase in cash, cash equivalents and restricted cash $ 48,857 $ 124,590

Cash, cash equivalents and restricted cash at beginning of period 134,368 9,778

Cash, cash equivalents and restricted cash at end of period $ 183,225 $ 134,368

Components of cash, cash equivalents and restricted cash

Supplemental noncash investing and financing activities

Lease assets obtained in exchange for new operating lease liabilities 26,549 —

Deferred offering costs included in accounts payable and accrued expenses — 160

See accompanying notes to consolidated financial statements.

F-7

PEPGEN INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Nature of Business and Basis of Presentation

PepGen Inc. (PepGen or the Company), is a clinical-stage biotechnology company advancing the next generation of oligonucleotide therapeutics with the goal of transforming the treatment of severe neuromuscular and neurologic diseases. The Company's principal offices are located in Boston, Massachusetts.

The Company was initially formed as PepGen Limited on January 25, 2018, in the United Kingdom, or the UK. On November 9, 2020, PepGen Limited completed a corporate reorganization, or the Reorganization. As part of the Reorganization, PepGen Limited formed PepGen Inc., a Delaware corporation with nominal assets and liabilities, for the purpose of consummating the Reorganization. In connection with the Reorganization, the existing stockholders of PepGen Limited exchanged each of its classes of shares of PepGen Limited for the same number and class of common stock of PepGen Inc. on a one-to-one basis. The newly issued stock of PepGen Inc. had substantially identical rights to the exchanged shares of PepGen Limited. As a result of the exchange, PepGen Inc. became the sole stockholder of PepGen Limited. Upon the completion of the Reorganization on November 23, 2020, the historical financial statements of PepGen Limited became the historical financial statements of PepGen Inc. as the Reorganization was deemed to be between entities under common control.

Initial Public Offering

On May 10, 2022, the Company closed its initial public offering (IPO) in which the Company sold an aggregate of 9,000,000 shares at a public offering price of $12.00 per share for gross proceeds of $108.0 million. In connection with the IPO, the Company granted the underwriters a 30-day option to purchase 1,350,000 additional shares of common stock. On May 16, 2022, the underwriters exercised the option in part and the Company issued 1,238,951 shares of common stock for gross proceeds of $14.9 million. From the IPO and option exercise by the underwriters, the Company received approximately $122.9 million in gross proceeds and $110.2 million in net proceeds, after deducting underwriting discounts and estimated offering expenses payable by the Company.

Immediately prior to consummation of the IPO, all 12,546,805 outstanding shares of the Company’s redeemable convertible preferred stock, and 35,529 preferred stock warrants that were exercised on May 4, 2022 (see Note 3), converted into 12,359,856 shares of the Company’s common stock. As a result of this conversion, the Company's net loss per share, basic and diluted, will be significantly different in future filings.

Liquidity and Going Concern

Since inception, the Company has not generated any revenue from product sales or other sources and has incurred significant operating losses and negative cash flows from operations. The Company’s primary uses of cash and cash equivalents to date have been to fund research and development activities, business planning, establishing and maintaining the Company’s intellectual property portfolio, hiring personnel, leasing premises and associated capital expenditures, raising capital, and providing general and administrative support for these operations. As of December 31, 2022, the Company had an accumulated deficit of $102.9 million. To date, the Company has funded operations primarily through private placements of convertible preferred stock and its IPO. As of December 31, 2022, the Company had cash and cash equivalents of $181.8 million. Based on its current operating plans, the Company believes that its cash and cash equivalents as of December 31, 2022, will be sufficient to fund its currently planned operations for at least the next 12 months from the filing of these consolidated financial statements.

As the Company continues to pursue its business plan to successfully develop and obtain regulatory approval for the Company’s product candidates, it expects to finance its operations through the sale of equity, debt financings or other capital resources, which could include income from collaborations, strategic partnerships or marketing, distribution, licensing or other strategic arrangements with third parties, or from grants. However, there can be no assurance that any additional financing or strategic transactions will be available to the Company on acceptable terms, if at all. If events or circumstances occur such that the Company does not obtain additional funding, it may need to delay, reduce or eliminate its product development or future commercialization efforts, which could have a material adverse effect on the Company’s business, results of operations or financial condition.

Basis of Presentation and Consolidation

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States, or U.S. GAAP. The consolidated financial statements include the accounts of PepGen Inc. (a U.S. Corporation) and its wholly owned subsidiaries PepGen Limited (a UK corporation) and PepGen Securities Corp. All intercompany accounts and transactions have been eliminated in consolidation.

F-8

2. Summary of Significant Accounting Policies

Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Management bases its estimates and judgments on historical experience, knowledge of current conditions, and beliefs of what could occur in the future, given the available information. On an ongoing basis, management evaluates such estimates and assumptions for continued reasonableness. In particular, management makes estimates with respect to accruals for research and development activities, for the valuation of Intellectual Property, for the fair value of common stock and convertible preferred stock warrants and stock-based compensation expense. Appropriate adjustments, if any, to the estimates used are made prospectively based upon such periodic evaluation. Actual results could differ materially from those estimates and assumptions.

Segment Reporting

Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision-maker, or the CODM. The Company’s CODM is its chief executive officer who reviews financial information together with certain operating metrics principally to make decisions about how to allocate resources and to measure the Company’s performance. The Company has determined that it operates as a single reportable segment. The Company’s CODM evaluates financial information on a consolidated basis. As the Company operates as one operating segment, all required segment financial information is presented in the consolidated financial statements.

Foreign Currency Remeasurement

The Company’s reporting currency is the U.S. Dollar. The functional currency of PepGen Limited is the British Pound. The assets and liabilities of PepGen Limited are translated into U.S. Dollars at the exchange rates in effect at each balance sheet date, and the results of operations are translated using the average exchange rates prevailing throughout the reporting period. Adjustments resulting from translating foreign functional currency financial statements into U.S. Dollars are included in the foreign currency translation adjustment, a component of accumulated other comprehensive loss in stockholders’ deficit.

Concentration of Credit Risk

Financial instruments, which potentially subject the Company to concentrations of credit risk, consist of cash and money market accounts. As of December 31, 2022, the Company’s cash and money market accounts were held by one financial institution in the U.S. and one financial institution in the U.K. At times, the Company’s deposits held in the U.S. and U.K. may exceed the Federal Depository Insurance Corporation and Financial Services Compensation Scheme, respectively, insured limits.

Deferred Offering Costs

The Company capitalizes within other long-term assets certain legal, accounting, and other third- party fees that are directly related to the Company’s in-process equity financings, until such financings are consummated. After consummation of the equity financing, these costs are recorded as a reduction of the proceeds received as a result of the offering. Should a planned equity financing be abandoned, terminated, or significantly delayed, the deferred offering costs are immediately written off to operating expenses. As of December 31, 2021, deferred offering costs of $1.5 million were recorded within other assets on the consolidated balance sheets. Subsequent to the completion of the IPO in May 2022, deferred offering costs totaling $4.1 million were recorded within stockholders’ equity as a reduction of additional paid-in-capital generated from the initial public offering.

Fair Value Measurements

Certain assets and liabilities of the Company are carried at fair value under U.S. GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable:

•

Level 1: Fair values are determined utilizing prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access.

F-9

•

Level 2: Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data.

•

Level 3: Unobservable inputs that are supported by little or no market activity that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques.

For certain financial instruments, including cash and cash equivalents, prepaid expenses, accounts payable, as well as certain accrued liabilities, the recorded amount approximates estimated fair value due to their relatively short maturity period.

Cash and Cash Equivalents

The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. Cash and cash equivalents are recorded at cost, which approximates fair value. As of December 31, 2022 and 2021, cash and cash equivalents consisted primarily of checking and money market funds composed of US government obligations.

Restricted Cash

The Company classifies all cash whose use is limited by contractual provisions as restricted cash. Restricted cash arises from the requirement for the Company to maintain cash of $1.5 million as collateral under a lease agreement. As of December 31, 2022 and 2021, $1.5 million of restricted cash was recorded in other assets on the consolidated balance sheets.

Property and Equipment, Net

Property and equipment are stated at cost, net of accumulated depreciation. Depreciation of property and equipment is calculated using the straight-line method over the estimated useful lives of the respective assets. Maintenance and repairs that do not improve or extend the life of the assets are expensed when incurred.

The estimated useful lives of the Company’s property and equipment are as follows:

Laboratory and computer equipment 5 years

Furniture and fixtures 3 years

Impairment of Long-Lived Assets

The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. The recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset or asset group to the estimated undiscounted future cash flows expected to be generated by the asset or asset group.

If the carrying amount of an asset or asset group exceeds its estimated undiscounted future cash flows, an impairment charge is recognized as the amount by which the carrying amount of the asset or asset group exceeds the estimated discounted future cash flows of the asset or asset group. There have been no such impairments of long-lived assets for the years ended December 31, 2022 and 2021.

Leases

Effective January 1, 2022, the Company adopted ASU 2016-02, Leases (Topic 842) (“ASC 842”). Under ASC 842, at the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on the unique facts and circumstances presented in the arrangement, including whether the Company controls the use of identified assets. The Company classifies leases with a term greater than one year as either operating or finance leases at the lease commencement date and records a right-of-use assets and current and non-current lease liabilities, as applicable on the balance sheet. The Company has elected not to recognize on the balance sheet leases with terms of one year or less, but payments are recognized as expense on a straight-line basis over the lease term. If a lease includes options to extend the lease term, the Company does not assume the option will be exercised in its initial lease term assessment unless there is reasonable certainty that the Company will renew based on an assessment of economic factors present as of the lease commencement date. The Company monitors its plans to renew its material lease each reporting period. If a lease includes provisions for leasehold improvements for which the Company has an obligation to pay, the Company determines if the improvements should be considered lessor or lessee assets. If the improvements are considered lessor assets, the Company records the payments in the calculation of the lease liability and corresponding right-of-use asset.

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Lease liabilities and the corresponding right-of-use assets are recorded based on the present value of lease payments over the remaining lease term. The present value of future lease payments are discounted using the interest rate implicit in lease contracts if that rate is readily determinable; otherwise the Company utilizes information available at the commencement of the lease to calculate the incremental borrowing rate, or IBR, which reflects the fixed rate at which the Company could borrow on a collateralized basis over a similar term, the amount of the lease payments in a similar economic environment. In order to determine the appropriate incremental borrowing rate, the Company used available third-party information, including comparable company collateralized borrowing information. After lease commencement and the establishment of a right-to-use asset and operating lease liability, lease expense is recorded on a straight-line basis over the lease term.

The Company enters into contracts that contain both lease and non-lease components. Non-lease components include costs that do not provide a right-to-use a leased asset but instead provide a service, such as maintenance costs. The Company has elected to account for the lease and non-lease components together as a single component for all classes of underlying assets. Variable costs associated with the lease, such as maintenance and utilities, are not included in the measurement of right-to-use assets and lease liabilities but rather are expensed when the events determining the amount of variable consideration to be paid have occurred.

Commitment and Contingencies

The Company recognizes a liability with regard to loss contingencies when it believes it is probable a liability has been incurred, and the amount can be reasonably estimated. If some amount within a range of loss appears at the time to be a better estimate than any other amount within the range, the Company accrues that amount. When no amount within the range is a better estimate than any other amount the Company accrues the minimum amount in the range. The Company has not recorded any such liabilities as of December 31, 2022 and 2021 that were material to the consolidated financial statements.

Convertible Preferred Stock

The Company recorded convertible preferred stock at fair value on the dates of issuance, net of issuance costs. Upon the occurrence of certain events that are outside the Company’s control, including a deemed liquidation event, holders of the convertible preferred stock can cause redemption for cash. Therefore, convertible preferred stock was classified outside of stockholders’ deficit on the consolidated balance sheets as events triggering the liquidation preferences are not solely within the Company’s control. No accretion was recognized as the contingent events that could give rise to redemption were not deemed probable. Upon completion of the IPO, all preferred stock was converted to common stock and as such no amounts were issued or outstanding as of December 31, 2022.

Preferred Stock Warrants

The Company classified warrants to purchase its Series A-2 convertible preferred stock as a liability on the consolidated balance sheets as these warrants were freestanding financial instruments that could require the Company to transfer assets upon exercise.

Research and Development

Research and development costs are expensed as incurred. Research and development costs consist of salaries, benefits, and other personnel-related costs, including stock-based compensation, laboratory supplies, process development costs, fees paid to other entities to conduct certain research and development activities on the Company’s behalf, including contract manufacturing organizations and contract research organizations, and allocated facility and other related costs. Non-refundable advance payments for goods or services that will be used or rendered for future research and development activities are deferred and capitalized as prepaid expenses until the related goods are delivered or services are performed. The Company recognizes the benefit of government grants and refundable research and development tax credits as a reduction of research and development expense when it is probable that the Company has complied with the conditions attached and will receive reimbursement. Government grants and refundable research and development tax credits are included in other receivables within the consolidated balance sheets. For the years ended December 31, 2022 and 2021, the Company recorded nil and $4.8 million as reductions of research and development expense in the consolidated statements of operations, respectively. During the year-ended December 31, 2022, the Company received £3.4 million (approximately $4.1 million) relating to its 2021 United Kingdom research and development tax credit for research and development activities undertaken by its U.K. subsidiary. As of December 31, 2022 and 2021, nil and $4.7 million of research and development tax credits were recorded in other receivables on the consolidated balance sheets, respectively.

The Company records accrued liabilities for estimated costs of research and development activities conducted by third-party service providers. The Company accrues for these costs based on factors such as estimates of the work completed and in accordance with agreements established with its third-party service providers under the service agreements. The Company makes significant judgments and estimates in determining the accrued liabilities balance in each reporting period. As actual costs become known, the Company adjusts its accrued liabilities. The historical accrual estimates made by the Company have not been materially different from the actual costs.

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Common Stock Valuation

Prior to the Company's IPO, due to the absence of an active market for the Company’s common stock, the Company utilized methodologies, approaches and assumptions consistent with the American Institute of Certified Public Accountants’ Audit and Accounting Practice Guide: Valuation of Privately-Held Company Equity Securities Issued as Compensation to estimate the fair value of its common stock. In determining the exercise prices for options granted, the Company has considered the fair value of the common stock as of the grant date. The fair value of the common stock has been determined based upon a variety of factors, including valuations of the Company’s common stock performed with the assistance of independent third-party valuation specialists; the Company’s stage of development and business strategy, including the status of research and development efforts of its product candidates, and the material risks related to its business and industry; the Company’s business conditions and projections; the Company’s results of operations and financial position, including its levels of available capital resources; the valuation of publicly traded companies in the life sciences and biotechnology sectors, as well as recently completed mergers and acquisitions of peer companies; the lack of marketability of the Company’s common stock as a private company; the prices of the Company’s convertible preferred stock sold to investors in arm’s length transactions and the rights, preferences and privileges of its convertible preferred stock relative to those of its common stock; the likelihood of achieving a liquidity event for the holders of the Company’s common stock, such as an initial public offering or a sale of the Company given prevailing market conditions; trends and developments in its industry; the hiring of key personnel and the experience of management; and external market conditions affecting the life sciences and biotechnology industry sectors. Significant changes to the key assumptions underlying the factors used could result in different fair values of common stock at each valuation date.

Stock-Based Compensation

The Company accounts for its stock-based compensation in accordance with ASC Topic 718, Compensation-Stock Compensation (ASC 718). ASC 718 requires all stock-based payments to employees, non-employees and directors, to be recognized as expense in the consolidated statements of operations based on their grant date fair values. The Company estimates the fair value of options granted using the Black-Scholes option pricing model (Black-Scholes) for stock option grants to both employees and non-employees. The fair value of the Company’s common stock is used to determine the fair value of restricted stock awards.

The Company’s stock-based compensation awards are generally subject to service-based vesting conditions. Compensation expense related to awards to employees, directors and non-employees with service-based vesting conditions is recognized on a straight-line basis based on the grant date fair value over the associated service period of the award, which is generally the vesting term.

Black-Scholes requires inputs based on certain subjective assumptions, including (i) the expected stock price volatility, (ii) the expected term of the award, (iii) the risk-free interest rate and (iv) expected dividends. The Company determines the expected volatility using a the historical volatility of a peer group of comparable publicly traded companies with product candidates in similar stages of development to the Company’s product candidates. The Company uses the simplified method as prescribed by the SEC Staff Accounting Bulletin No. 107, Share-Based Payment, to calculate the expected term for options granted to employees and non-employees whereby, the expected term equals the arithmetic average of the vesting term and the original contractual term of the options due to its lack of sufficient historical data. The risk-free interest rate is based on U.S. Treasury securities with a maturity date commensurate with the expected term of the associated award. The expected dividend yield is assumed to be zero as the Company has never paid dividends and has no current plans to pay any dividends on its common stock. The Company recognizes forfeitures as they occur.

Prior to the Company’s IPO, there was no public market for its common stock, and consequently, the estimated fair value of its common stock was determined by the board of directors as of the date of each option grant, with input from management, considering third-party valuations of its common stock as well as its board of directors’ assessment of additional objective and subjective factors that it believed were relevant and which may have changed from the date of the most recent third-party valuation through the date of the grant. These third-party valuations were performed in accordance with the guidance outlined in the American Institute of Certified Public Accountants’ Accounting and Valuation Guide, Valuation of Privately-Held-Company Equity Securities Issued as Compensation (Practice Aid). The Practice Aid identifies various available methods for allocating the enterprise value across classes of series of capital stock in determining the fair value of the Company’s common stock at each valuation date.

Subsequent to the Company’s IPO, the fair value of the common stock underlying the stock-based awards is the closing price of the Company’s common stock on the date of grant.

The Company classifies stock-based compensation expense in its consolidated statements of operations in the same manner in which the award recipient’s payroll costs are classified or in which the award recipient’s service payments are classified.

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Income Taxes

Income taxes are accounted for using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts or existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period of enactment. The Company records a valuation allowance to reduce deferred tax assets to an amount for which realization is more likely than not.

The Company recognizes the tax benefit from an uncertain tax position if it is more likely than not that the tax position will be sustained upon examination by the tax authorities, based on the merits of the position. The Company’s policy is to recognize interest and penalties related to the underpayment of income taxes as a component of income tax expense or benefit. To date, there have been no interest or penalties charged in relation to the unrecognized tax benefits.

Comprehensive Loss

Comprehensive loss is composed of two components — net loss and other comprehensive loss. Other comprehensive loss refers to gains and losses that under U.S. GAAP are recorded as an element of stockholders’ equity but are excluded from net loss. The Company’s other comprehensive loss consists of foreign currency translation adjustments.

Net Loss Per Share

Basic net loss per share is calculated by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding for the period, without consideration of potential dilutive securities. Diluted net loss per share is computed by dividing the net loss attributable to common stockholders by the sum of the weighted average number of common shares plus the potential dilutive effects of potential dilutive securities outstanding during the period.

Potential dilutive securities are excluded from diluted earnings or loss per share if the effect of such inclusion is anti-dilutive. The Company’s potentially dilutive securities, which include convertible preferred stock and unvested common stock under the Company’s equity incentive plan, vesting conditions placed on previously issued common shares and warrants to purchase convertible preferred stock have been excluded from the computation of diluted net loss per share as they would be anti-dilutive to the net loss per share. For all periods presented, there is no difference in the number of shares used to calculate basic and diluted shares outstanding due to the Company’s net loss position.

The following table sets forth the outstanding potentially dilutive securities that have been excluded in the calculation of diluted net loss per share because their inclusion would be anti-dilutive:

As of December 31,

Series A-1 convertible preferred stock — 1,372,970

Series A-2 convertible preferred stock — 3,939,069

Series A-2 convertible preferred stock warrants — 35,529

Series B convertible preferred stock — 7,234,766

Vesting conditions placed on previously issued common shares — 69,528

Emerging Growth Company Status

The Company is an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act, or JOBS Act, and may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies. The Company may take advantage of these exemptions until the Company is no longer an “emerging growth company.” Section 107 of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period afforded by the JOBS Act for the implementation of new or revised accounting standards. The Company has elected to use the extended transition period for complying with new or revised accounting standards and as a result of this election, its consolidated financial statements may not be comparable to companies that comply with public company effective dates. The Company may take advantage of these exemptions up until the last day of the fiscal year following the fifth anniversary of an offering or such earlier time that it is no longer an “emerging growth company.” As a result of the Company having elected the extended transition period for complying with new or revised accounting standards pursuant to Section 107(b) of the JOBS Act, 2016-13 and

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ASU 2019-11 are effective for the Company for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years.

Recent Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the FASB or other standard-setting bodies that the Company adopts as of the specified effective date. The Company qualifies as an “emerging growth company” as defined in the JOBS Act of 2012 and has elected not to “opt out” of the extended transition related to complying with new or revised accounting standards, which means that when a standard is issued or revised and it has different application dates for public and non-public companies, the Company can adopt the new or revised standard at the time non-public companies adopt the new or revised standard and can do so until such time that the Company either (i) irrevocably elects to “opt out” of such extended transition period or (ii) no longer qualifies as an emerging growth company. The Company may choose to early adopt any new or revised accounting standards whenever such early adoption is permitted for non-public companies. Unless otherwise discussed, the Company believes that the impact of recently issued standards that are not yet effective will not have a material impact on its consolidated financial statements and disclosures.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), the amendment relates to leases to increase transparency and comparability among organizations by requiring the recognition of right-of-use, or the ROU, assets obtained in exchange for lease liabilities on the balance sheet. Most prominent among the changes in the standard is the recognition of ROU assets and lease liabilities by lessees for those leases classified as operating leases. Under the standard, disclosures are required to meet the objective of enabling users of consolidated financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. The effective date of this update is for fiscal years beginning after December 15, 2021, and interim periods therein. The Company adopted the standard on January 1, 2022. On December 29, 2022, the Company commenced a lease for accounting purposes, resulting in the recording of a lease liability and corresponding right of use asset on the consolidated balance sheet in accordance with Topic 842 (refer to Note 6). Prior to commencing this lease in December 2022, the Company had no leases with initial terms greater than 12 months and had no right-of-use assets or lease liabilities.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The standard changes how entities will measure credit losses for most financial assets, including accounts and notes receivables. The standard will replace today’s “incurred loss” approach with an “expected loss” model, under which companies will recognize allowances based on expected rather than incurred losses. Entities will apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. The effective date of this update is for fiscal years beginning after December 15, 2022, and interim periods therein. The Company is currently assessing the impact of adopting this standard on the Company’s consolidated financial statements and related disclosures.

In November 2019, the FASB issued ASU 2019-11, Codification Improvements to Topic 326, Financial Instruments—Credit Losses. The standard is an accounting pronouncement that amends ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” The amendments update guidance on reporting credit losses for financial assets. These amendments affect loans, debt securities, trade receivables, net investments in leases, off balance sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. The amendments in both ASU 2016-13 and ASU 2019-11 are effective for annual reporting periods beginning after December 15, 2019, including interim periods within those fiscal years. The Company does not expect ASU 2016-13 and ASU 2019-11 to have a material impact on its consolidated financial statements and financial statement disclosures.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740). The standard simplifies the Accounting for Income Taxes. The standard simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and also improves consistent application by clarifying and amending existing guidance. The standard is effective for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. The Company is assessing the impact of this guidance and is continuing to evaluate the impact on its consolidated financial statements.

3. Fair Value Measurements

The following table set forth the fair value of the Company’s financial assets measure at fair value on a recurring basis and indicates the level within the fair value hierarchy utilized to determine such values (in thousands):

Total Level 1 Level 2 Level 3

US Treasury-backed money market funds $ 18,645 $ 18,645 — —

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Total Level 1 Level 2 Level 3

US Treasury-backed money market funds $ 30,719 $ 30,719 — —

Money market funds are highly liquid investments that are valued based on quoted market prices in active markets, which represent a Level 1 measurement within the fair value hierarchy. These money market funds are classified on the balance sheet under cash and cash equivalents.

Preferred stock warrant liability

In connection with the November 24, 2020 Stock Purchase Agreement (Note 8), the Company granted warrants to purchase up to 35,529 shares of Series A-2 convertible preferred stock at a price per share equal to $11.42 and with a term ending upon the earlier of an underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933, the consummation of a Deemed Liquidation Event, as such term is defined in the Company’s Restated Certificate of Incorporation or 10 years. As the warrants are for preferred stock, which do not qualify for equity classification, the warrants were recorded as a liability and were required to be remeasured to fair value at each reporting date. The warrants were exercised on May 4, 2022, just prior to the completion of the IPO, for proceeds of $0.4 million. Immediately prior to the consummation of the IPO, the warrants were converted into 34,901 shares of the Company's common stock.

As there are a number of inputs that are not observable in the market, the warrant valuation represented a Level 3 measurement within the fair value hierarchy. The Company’s valuation of the preferred stock warrant utilized the Black-Scholes option-pricing model, which incorporates assumptions and estimates to value the preferred stock warrant.

The quantitative elements associated with the Company’s Level 3 inputs impacting the fair value measurement of the preferred stock warrant liability included the fair value per share of the underlying Series A-2 convertible preferred stock, the remaining contractual term of the warrant, risk-free interest rate, expected dividend yield and expected volatility of the price of the underlying preferred stock. The most significant assumption in the Black-Scholes option-pricing model impacting the fair value of the preferred stock warrant was the fair value of the Company’s Series A-2 convertible preferred stock as of each remeasurement date. The Company determined the fair value per share of the underlying preferred stock by taking into consideration its most recent sales of its convertible preferred stock. The Company historically had been a private company and lacked company-specific historical and implied volatility information of its stock. Therefore, it estimated its expected stock volatility based on the historical volatility of publicly traded peer companies for a term equal to the remaining contractual term of the warrant. The risk-free interest rate was determined by reference to the U.S. Treasury yield curve for time periods approximately equal to the remaining contractual term of the warrant. The Company had estimated a 0% dividend yield based on the expected dividend yield and the fact that the Company has never paid or declared dividends.

The Company recognized changes in the fair value of the warrant liability as a component of other income (expense) in its consolidated statements of operations and comprehensive loss.

A reconciliation of the Level 3 warrant liability through exercise in the second quarter of 2022 is as follows (in thousands):

Series A-2 PreferredStock Warrant Liability

Change in fair value 196

Change in fair value (58 )

Exercise of preferred stock warrants (168 )

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4. Property and Equipment, Net

The cost and accumulated depreciation of property and equipment were as follows (in thousands):

December 31,

Computer and office equipment 171 91

Construction in process 1,129 —

Less accumulated depreciation (389 ) (430 )

Total property and equipment, net $ 3,335 $ 636

Depreciation expense was $0.5 million and $0.2 million for the year ended December 31, 2022 and 2021, respectively.

5. Accrued Expenses

Accrued expenses consisted of the following (in thousands):

December 31,

Taxes payable 3,248 —

6. Leases

In December 2021, the Company entered into a non-cancellable operating lease agreement, or the Harrison Lease, pursuant to which the Company leases 31,668 square feet of office and laboratory space located in Boston, Massachusetts, or the Premises. The Harrison Lease commenced for accounting purposes when the Company gained access to the premises on December 29, 2022 or the Lease Commencement Date. The Harrison Lease has a term of nine years and two months from the lease commencement date. The Company’s obligation for the payment of base rent for the Premises begins in March 2023, and will be $0.2 million per month, increasing up to $0.3 million per month during the term of the Lease. The Company has one option to extend the term of the Harrison Lease, for a period of an additional five years. Due to the timing of the lease commencement date at the end of 2022, there was no fixed lease rent expense associated with the Harrison Lease in 2022. At December 31, 2022, the Harrison Lease was the only lease for which the Company recorded a lease liability and corresponding right-of-use asset.

The landlord is completing significant leasehold improvements to the leased space, a portion of which the Company is obligated to pay per the term of the Harrison Lease. The Company paid $2.0 million for the improvements prior to lease commencement, and expects to pay approximately $3.9 million for the improvements in 2023. The Company has determined that the landlord is the accounting owner of the improvements, and expected payments by the Company for the improvements have been included in the calculation of the right-of-use asset and lease liability.

During 2022, the Company leased office space in Cambridge, Massachusetts, the terms of which were month-to-month, with a 30-day written notice of cancellation. The Company terminated this lease in January 2023. The Company also leased laboratory space at the University of Massachusetts, Mount Ida Campus in Newton, Massachusetts, on an initial lease term from February 1, 2022 to January 31, 2023, which the Company extended until March 2023. The Company also leased space at Innovation Building, University

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of Oxford in Oxford, United Kingdom. The Company terminated its lease in Oxford in July 2022. All of these leases had terms of under 12 months and are considered short-term lease costs and are not recognized on the consolidated balance sheets.

Summary of lease costs

The components of lease cost under ASC 842 for the leases were as follows (in thousands):

Fixed lease cost $ — $ —

The Company recorded immaterial variable lease costs for the years ended December 31, 2022 and 2021.

Supplemental disclosure of cash flow information under ASC 842 for the leases were as follows (in thousands):

Operating cash payments for operating leases $ 2,016

Cash payments for operating leases during 2022 related to tenant improvements made to the office and lab space prior to the Company obtaining occupancy. These payments were recorded in the right-of-use asset at December 31, 2022.

The remaining lease term for the Harrison Lease is 9.2 years, and the discount rate is 8.0%.

Future minimum lease payments under the non-cancelable operating leases consisted of the following as of December 31, 2022:

Year Ending December 31, (in thousands)

Total future minimum lease payments $ 33,885

Less: imputed interest (9,351 )

Present value of lease liability $ 24,534

Included in the consolidated balance sheet (in thousands) December 31, 2022

Lease liability $ 5,553

Lease liability, net of current portion 18,981

Total lease liability $ 24,534

7. Related Party Transactions

Technology license agreement

In March 2018, the Company, Oxford University Innovation Limited, or OUI, and the Medical Research Council of United Kingdom Research and Innovation, or MRC (or collectively the Licensors), entered into a license of technology agreement, or the License Agreement, which was subsequently amended in December 2018 and further amended and restated in November 2020. The Licensors and affiliates hold shares of Series A-1 and Series A-2 preferred stock, Series B preferred stock and Class A common stock. The License Agreement provides the Company with an exclusive world-wide license to licensed data and technology owned by OUI and MRC in respect of cell penetrating peptides for treatment of Duchenne muscular dystrophy, spinal muscular atrophy, and other conditions. The License Agreement provides the Company with the rights to grant and authorize sublicenses to make, use, sell, and import products and otherwise exploit the patent rights.

As consideration for the license, the Company made an initial upfront payment in 2018 of $0.1 million upon transfer of the license technology and data and in 2020 upon amending and restating the License Agreement made two additional payments of $19,000 for a Restatement Completion Fee and License Data Fee. The Company determined that the upfront payment and subsequent

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Restatement Completion Fee and License Data Fee as part of the license agreement would be expensed upon execution of the original contract and subsequent amendment as the license was acquired for research and development purposes which does not have alternative future uses, and the underlying technology has not reached technological feasibility.

The Company could be required to make milestone payments to the Licensors upon completion of certain patent and commercial milestones related to the patents and commercialization of certain of the Company’s product candidates. The aggregate potential milestone payments are $0.1 million. The Company also agreed to pay the Licensors low single digit royalties on net sales of any licensed products that are commercialized by the Company or sublicensees in excess of a threshold amount between £20 million and £30 million ($24.2 million and $36.3 million as of December 31, 2022), subject to certain adjustments. The term of the License Agreement continues until the later of (i) the date on which all the patents and patent applications covered thereunder have been abandoned or allowed to lapse or expired or been rejected or revoked or (ii) 20 years from the date of the original agreement.

Upon completion of the Company’s Initial Public Offering, or IPO in May 2022, the Company became obligated to pay OUI an exit fee between 0.5% to 2% of the value determined in an acquisition or initial public offering, not to exceed £5 million ($6.2 million as of the IPO date). The exit fee due to OUI, based on the IPO raise, was $1.4 million, which was paid during the second quarter of 2022 and included in research and development expense on the consolidated statement of operations.

Additionally, the Company paid office space rent to OUI. For the years ended December 31, 2022 and 2021, total rent payments were $0.2 million and $0.2 million, respectively. As of December 31, 2022 and 2021, nil and $30,000, respectively, was due to OUI by the Company.

Services agreement

In November 2020, the Company entered into an agreement, or the Services Agreement, with Carnot Pharma, LLC, or Carnot, under which Carnot provides research and other services to the Company. Carnot is an entity controlled by RA Capital Management, L.P. Entities affiliated with RA Capital Management, L.P. purchased shares of Series A-2 convertible preferred stock in the Company’s preferred stock financing in November of 2020 and May and July of 2021. In addition, entities affiliated with RA Capital Management, L.P. purchased shares of our Series B convertible preferred stock in the Company’s preferred stock financing in July 2021. Two members of the Company’s Board of Directors are also affiliated with RA Capital Management, L.P.

Under the terms of the Services Agreement, the Company compensates Carnot on a fully burdened cost basis for personal time devoted to Company projects. In addition, the Company reimburses Carnot on a costs basis for any subcontractor costs incurred. The Company pays Carnot on a quarterly basis, in arrears, for services performed and costs incurred. The Services Agreement is for a term of the later of (A) two (2) years and (B) the later of (a) completion of the Services or (b) latest-to-occur delivery of a final report or any other items required to be delivered to the Company under the last ongoing project as part of the services, if any. The Company may terminate the services agreement by giving 30 days’ prior notice and either party can terminate the services agreement for a material breach, if not cured within 30 days following notice by the non-breaching party. The services agreement was terminated on April 15, 2022.

Expenses incurred by the Company under the Services Agreement with Carnot for the year ended December 31, 2022 and 2021, totaled $0.1 million and $0.8 million, respectively. As of December 31, 2022 and 2021, nil and $2,600 was due to Carnot by the Company for services rendered under the Services Agreement, respectively.

8. Commitments and Contingencies

Legal proceedings

From time to time, the Company may have certain contingent liabilities that arise in the ordinary course of its business activities. The Company accrues a liability for such matters when it is probable that future expenditures will be made and that such expenditures can be reasonably estimated.

The Company is not party to any litigation and does not have contingency reserves established for any litigation liabilities.

Other

The Company enters into standard indemnification agreements in the ordinary course of business. Pursuant to the agreements, the Company agrees to indemnify, hold harmless, and to reimburse the indemnified party for losses suffered or incurred by the indemnified party, including in connection with any U.S. patent or any copyright or other intellectual property infringement claim by any third-party with respect to the Company’s products. Further, the Company indemnifies its directors and officers who are, or were, serving at the Company’s request in such capacities. The Company’s maximum exposure under these arrangements is unknown as of December 31, 2022. The Company does not anticipate recognizing any significant losses relating to these arrangements. The term of

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these indemnification agreements is generally perpetual any time after execution of the agreement. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements may be unlimited. The Company has never incurred costs to defend lawsuits or settle claims related to these indemnification agreements.

9. Convertible Preferred Stock and Stockholders’ Equity

Reverse Stock Split

On April 29, 2022, the Company filed a charter amendment to affect a 1.018 for 1 reverse stock split of its issued and outstanding shares of common stock, which resulted in a proportional adjustment to the existing conversion ratios for each series of the Company’s preferred stock. Accordingly, all share and per share amounts for all periods presented in the accompanying consolidated financial statements and notes thereto have been adjusted retroactively, where applicable, to reflect this reverse stock split and adjustment of the preferred stock conversion ratios.

Series A-1 convertible preferred stock and Series A-2 convertible preferred stock

In connection with the November 24, 2020, Stock Purchase Agreement, the Company agreed to issue an aggregate of 3,939,069 shares of Series A-2 convertible preferred stock to new and existing investors at a price of $11.42 per share, in three closings, and elected to convert 1,348,693 shares of outstanding Class A and Class B common stock into 1,372,970 shares of Series A-1 convertible preferred stock. A total of 1,033,117 shares of Class A common stock held by certain founding investors and employees were not modified and continue to exist as Class A common stock. The Series A-1 and Series A-2 convertible preferred stock was converted to common stock immediately prior to the consummation of the Company’s IPO in May 2022 (see Note 1).

Series B convertible preferred stock

In July 2021 the Company entered into the Series B Stock Purchase Agreement, whereby the Company agreed to issue and sold an aggregate of 7,234,766 shares of Series B convertible stock to new and existing investors at a per share price of $15.55 per share for aggregate gross proceeds of $112.5 million. The Series B convertible preferred stock was converted to common stock immediately prior to the consummation of the Company's IPO in May 2022 (see Note 1).

Common stock

Under the Third Amended and Restated Certificate of Incorporation, dated May 10, 2022, the Company has the authority to issue a total of 500,000,000 shares of common stock (par value of $0.0001 per share) and 10,000,000 shares of undesignated preferred stock (par value of $0.0001 per share). In connection with the IPO, the Company re-designated all shares of Class A common stock as shares of common stock. Each share of common stock has the right to one vote. The holders of common stock are also entitled to receive dividends whenever funds are legally available and when declared by the board of directors, subject to the prior rights of holders of all classes of stock outstanding having priority rights as to dividends. No cash dividends have been declared by the board of directors during the year ended December 31, 2022 and December 31, 2021.

The Company has reserved the following shares of common stock for issuance, on an as-converted basis for 2021, as follows:

December 31,

Preferred stock warrants issued and outstanding — 35,529

Vesting conditions placed on previously issued common shares — 69,529

Authorized for future stock awards or option grants 901,462 456,416

Authorized for future issuance under employee stock purchase plan 226,000 —

Shares of Common Stock Subject to Repurchase

In November 2020, in connection with the Series A-2 convertible preferred stock financing, two founding stockholders entered into Stock Restriction Agreements, or Restriction Agreements, whereby 139,057 shares that were previously vested and not subject to repurchase became restricted and subject to repurchase. The repurchase rights lapse 50% on the one-year anniversary of the Restriction Agreements and 50% on the second anniversary of the Restriction Agreements. Shares subject to repurchase by the

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Company are not deemed, for accounting purposes, to be outstanding until those shares vest and therefore are not included in the shares outstanding on the consolidated balance sheet.

In connection with the vesting restrictions placed on these previously vested shares, the Company was required to determine the measurement date fair value of the shares, which was $2.37 per share or $0.3 million in aggregate. The measurement date fair value of the restricted stock will be recognized as stock-based compensation expense over the vesting period. As of December 31, 2022 and 2021, zero and 69,529 shares were subject to repurchase by the Company, respectively.

10. Stock-Based Compensation

The Company maintains three equity compensation plans; the 2020 Stock Plan, or the 2020 Plan, the 2022 Stock Option Incentive Plan, or the 2022 Plan, and the 2022 Employee Stock Purchase Plan, or the ESPP. The number of shares of common stock that may be issued under the 2022 Plan is subject to increase by the number of shares forfeited under any options forfeited and not exercised under the 2020 Plan. Additionally, the number of shares reserved for issuance under the 2022 Plan automatically increases on the first day of each fiscal year in an amount equal to the lower of (1) 5% of the shares of common stock outstanding on such date and (2) an amount determined by the Company’s board of directors. The board of directors has determined not to make any further awards under the 2020 plan. As of December 31, 2022, 901,462 shares remained available for grant under the 2022 Plan and 226,000 shares remained available for grant under the ESPP.

Stock Option Valuation

In determining the fair value of the stock options granted, the Company uses the Black-Scholes option-pricing model and assumptions discussed below. Each of these inputs is subjective and generally requires significant judgment.

Expected Term—The Company’s expected term represents the period that the Company’s stock- based awards are expected to be outstanding. For stock options with service-based vesting periods, the expected term of the Company’s stock options has been determined utilizing the “simplified” method for awards that qualify as “plain-vanilla” options.

Expected Volatility—The Company has historically been a private company and lacks significant company-specific historical and implied volatility information. The expected volatility was estimated based the average historical volatilities for comparable publicly traded pharmaceutical companies over a period equal to the expected term of the stock option grants. The comparable companies were chosen based on their similar size, stage in the life cycle and area of specialty. The Company will continue to apply this process until enough historical information regarding the volatility of its own stock price becomes available. The Company expects to estimate stock volatility based on the historical volatility of peer companies until such time as it has adequate historical data regarding the volatility of its own traded stock price.

Risk-Free Interest Rate—The risk-free interest rate is based on the U.S. Treasury zero coupon issues in effect at the time of grant for periods corresponding with the expected term of option.

Expected Dividend Yield—The Company has never paid dividends on its common stock and has no plans to pay dividends on its common stock. Therefore, the Company used an expected dividend yield of zero.

The fair value of stock options was estimated using the following weighted average assumptions:

Year EndedDecember 31,

Risk-free interest rate % 2.95 % 1.10 %

Expected term (in years) 6.08 6.03

Expected dividend yield — —

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Stock Option Activity

Stock option activity under the Plan, is as follows:

The aggregate intrinsic value of options is calculated as the difference between the exercises price of the options and the fair value of the Company's common stock for those options that had exercises prices lower than the fair value of the Company's common stock. The total intrinsic value of the options exercised during the year ended December 31, 2022 and 2021 was $0.9 million and nil, respectively. The intrinsic value is the difference between the estimated fair value of the Company’s common stock at the time of exercise and the exercise price of the stock option. During the years ended December 31, 2022 and 2021, the total proceeds to the Company from stock option exercises was $0.2 million and nil, respectively.

The weighted-average grant date fair value of options granted during the year ended December 31, 2022 and 2021 was $7.66 and $5.22 per share, respectively.

Stock-Based Compensation Expense

Stock based compensation expense recognized for stock option grants included in the accompanying consolidated statements of operations and comprehensive loss is as follows (in thousands):

Year EndedDecember 31,

Research and development $ 1,695 $ 394

Total stock-based compensation expense $ 4,763 $ 1,534

The Company had 3,341,834 unvested options outstanding as of December 31, 2022. As of December 31, 2022, total unrecognized compensation cost related to stock options was $15.8 million. This amount is expected to be recognized over a weighted average period of approximately 2.98 years.

11. Income Taxes

The Company’s loss before income taxes for the years ended December 31, 2022 and 2021 were generated in the following jurisdictions (in thousands):

Year EndedDecember 31,

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The foreign income for the year-ended December 31, 2022 was due to the transfer of intellectual property (IP) from PepGen Limited to the parent company, PepGen Inc., in an arm’s length transaction at fair value pursuant to an asset transfer agreement.

The components of net deferred income taxes consisted of the following as of December 31, 2022 and 2021 (in thousands):

December 31,

Deferred tax assets:

Net operating loss carryforwards $ 474 $ 3,103

Research and development credits 1,287 36

Capitalized Section 174 R&D Costs 11,818 —

Stock compensation accruals 1,081 264

Right-of-use liability 5,760 —

Intangible asset amortization 6,879 —

Deferred tax liabilities

Right-of-use-Asset (6,233 )

Fixed Assets (45 ) (13 )

Other, net (2 ) —

Deferred tax liabilities (6,280 ) (13 )

Net deferred tax assets $ — $ —

PEPG US Equity

PEPG · 10-K · period ended 2022-12-31

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

Item 8. Financial Statements and Supplementary Data.

Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

Item 9A. Controls and Procedures.

Item 9B. Other Information.

Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.

Item 10. Directors, Executive Officers and Corporate Governance.

Item 11. Executive Compensation.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

Item 13. Certain Relationships and Related Transactions, and Director Independence.

Item 14. Principal Accounting Fees and Services.

Item 15. Exhibits, Financial Statement Schedules.

Item 16. Form 10-K Summary.

PEPG US Equity☆

PEPG · 10-K · period ended 2022-12-31

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

Item 8. Financial Statements and Supplementary Data.

Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

Item 9A. Controls and Procedures.

Item 9B. Other Information.

Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.

Item 10. Directors, Executive Officers and Corporate Governance.

Item 11. Executive Compensation.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

Item 13. Certain Relationships and Related Transactions, and Director Independence.

Item 14. Principal Accounting Fees and Services.

Item 15. Exhibits, Financial Statement Schedules.

Item 16. Form 10-K Summary.

PEPG US Equity