UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
Amendment No. 1
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _____________________ TO _____________________ |
Commission File Number
(Exact name of Registrant as specified in its Charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
(Address of principal executive offices) |
(Zip Code) |
Registrant’s telephone number, including area code: (
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
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Trading Symbol(s) |
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Name of each exchange on which registered |
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Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐
Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
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☐ |
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Accelerated filer |
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☐ |
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☒ |
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Smaller reporting company |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements.
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant, based on the closing price of the shares of common stock on Nasdaq Global Select Market on June 30, 2023, was $
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s Definitive Proxy Statement relating to its 2024 Annual Meeting of Stockholders to be filed hereafter are incorporated by reference into Part III of this Annual Report on Form 10-K where indicated.
Auditor Firm Id: |
Auditor Name: |
Auditor Location: |
Explanatory Note
This Amendment speaks as of the filing date of the Form 10-K and does not reflect events occurring after the filing of the Form 10-K.
As required by Rule 12b-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), new certifications by the Company’s principal executive officer and principal financial officer are filed herewith as exhibits to this Amendment pursuant to Rule 13a-14(a) or 15d-14(a) of the Exchange Act. As this Amendment does not contain or amend any disclosure with respect to Items 307 and 308 of Regulation S-K, paragraphs 4 and 5 of the certifications have been omitted.
In addition, as required by Rule 12b-15 under the Exchange Act, new certifications by the Company’s principal executive officer and principal financial officer are filed herewith as exhibits to this Amendment pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350).
PART IV
Item 15. Exhibits, Financial Statement Schedules.
1
2
Exhibit Number |
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Description |
3.1** |
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3.2** |
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3.3** |
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4.1** |
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4.2** |
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4.3** |
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10.1** |
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10.2** |
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10.3** |
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10.4** |
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10.5** |
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10.6** |
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10.7** |
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10.8** |
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10.9** |
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10.10** |
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10.11** |
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10.12** |
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10.13** |
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10.14** |
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10.15** |
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10.16** |
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3
10.17** |
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10.18** |
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10.19** |
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21.1** |
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23.1* |
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Consent of KPMG, LLP, independent registered public accounting firm. |
31.1** |
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31.2** |
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31.3* |
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31.4* |
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32.1** |
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32.2** |
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32.3*** |
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32.4*** |
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97** |
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101.INS |
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Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document. |
101.SCH |
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Inline XBRL Taxonomy Extension Schema Document |
101.CAL |
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Inline XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF |
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Inline XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB |
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Inline XBRL Taxonomy Extension Label Linkbase Document |
101.PRE |
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Inline XBRL Taxonomy Extension Presentation Linkbase Document |
104 |
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Cover Page Interactive Data File (embedded within the Inline XBRL document contained in Exhibit 101) |
* Filed herewith.
** Previously filed.
*** Furnished herewith
Portions of this exhibit (indicated by asterisks) have been omitted in accordance with the rules of the SEC.
Item 16. Form 10-K Summary.
None.
4
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, on March 29, 2024.
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PEPGEN INC. |
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By: |
/s/ Noel Donnelly |
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Name: |
Noel Donnelly |
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Title: |
Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) |
5
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
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Page |
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Report of Independent Registered Public Accounting Firm (PCAOB ID No. 185) |
F-2 |
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Consolidated Financial Statements as of and for the Year Ended December 31, 2023 and 2022: |
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F-3 |
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F-4 |
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F-5 |
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Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit) |
F-6 |
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F-7 |
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F-8 |
F-1
Report of Independent Registered Public Accounting Firm
To the Stockholders and the 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, 2023 and 2022, 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, 2023, 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, 2023 and 2022, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2023, 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. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
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.
/s/ KPMG LLP
We have served as the Company’s auditor since 2021.
Phoenix, Arizona
March 6, 2024
F-2
PEPGEN INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PAR VALUE AMOUNTS)
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December 31, |
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2023 |
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2022 |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Marketable Securities |
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— |
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Prepaid expenses and other current assets |
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Total current assets |
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$ |
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$ |
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Property and equipment, net |
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Operating lease right-of-use asset |
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Other assets |
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Total assets |
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$ |
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$ |
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Liabilities, convertible preferred stock, and stockholders’ equity (deficit) |
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Current liabilities: |
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Accounts payable |
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$ |
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$ |
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Accrued expenses |
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Operating lease liability |
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Total current liabilities |
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Operating lease liability, net of current portion |
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Total liabilities |
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Stockholders’ equity: |
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Preferred stock, $ |
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Common stock, $ |
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Additional paid-in capital |
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Accumulated other comprehensive income (loss) |
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( |
) |
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Accumulated deficit |
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( |
) |
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( |
) |
Total stockholders’ equity (deficit) |
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Total liabilities, convertible preferred stock, and stockholders’ equity (deficit) |
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$ |
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$ |
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See accompanying notes to consolidated financial statements.
F-3
PEPGEN INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
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Year Ended |
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2023 |
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2022 |
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Operating expenses: |
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Research and development |
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$ |
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$ |
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General and administrative |
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Total operating expenses |
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$ |
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$ |
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Operating loss |
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$ |
( |
) |
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$ |
( |
) |
Other income (expense) |
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Interest income |
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Other income (expense), net |
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( |
) |
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Total other income, net |
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Net loss before income tax |
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$ |
( |
) |
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$ |
( |
) |
Income tax expense |
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( |
) |
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( |
) |
Net loss |
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$ |
( |
) |
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$ |
( |
) |
Net loss per share, basic and diluted |
|
$ |
( |
) |
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$ |
( |
) |
Weighted-average common shares outstanding, basic and diluted |
|
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See accompanying notes to consolidated financial statements.
F-4
PEPGEN INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(IN THOUSANDS)
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Year Ended |
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|||||
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2023 |
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2022 |
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Net loss |
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$ |
( |
) |
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$ |
( |
) |
Cumulative translation adjustment arising during the period |
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( |
) |
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Unrealized gain on marketable securities |
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— |
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Comprehensive loss |
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$ |
( |
) |
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$ |
( |
) |
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)
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Series A-1 |
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Series A-2 |
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Series B |
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Common Stock |
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Additional |
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Accumulated |
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Accumulated |
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Total |
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Shares |
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Amount |
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Shares |
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Amount |
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Shares |
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Amount |
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Shares |
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Amount |
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Balance as of December 31, 2021 |
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$ |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
) |
|||||||||
Issuance of Series A-2 stock upon exercise of warrants |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Conversion of convertible preferred stock upon IPO |
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( |
) |
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( |
) |
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( |
) |
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( |
) |
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( |
) |
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( |
) |
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— |
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— |
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Issuance of common stock in IPO, net of underwriters' fees and issuance costs of $ |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Release of common stock from vesting restrictions |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Exercise of stock options |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Cumulative translation adjustment arising during the period |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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— |
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( |
) |
Net loss |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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( |
) |
Balance as of December 31, 2022 |
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— |
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— |
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— |
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— |
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— |
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— |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
) |
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$ |
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Issuance of stock under the employee stock purchase plan |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Exercise of stock options |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Stock-based compensation expense |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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||
Unrealized gain on marketable securities |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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||
Cumulative translation adjustment arising during the period |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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( |
) |
Balance as of December 31, 2023 |
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— |
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— |
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— |
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— |
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— |
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— |
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$ |
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|
$ |
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|
$ |
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|
$ |
( |
) |
|
$ |
|
See accompanying notes to consolidated financial statements.
F-6
PEPGEN INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
|
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Year Ended |
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|||||
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2023 |
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2022 |
|
||
Cash flows from operating activities: |
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Net loss |
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$ |
( |
) |
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$ |
( |
) |
Adjustments to reconcile net loss to cash used in operating activities: |
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Depreciation |
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Stock-based compensation expense |
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Amortization and interest accretion related to operating lease |
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( |
) |
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— |
|
Amortization of premium and discounts on marketable securities, net |
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( |
) |
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— |
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Change in fair value of preferred stock warrant liability |
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— |
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( |
) |
Loss on disposal of fixed assets |
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— |
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|
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
||
Other receivables |
|
|
|
|
|
|
||
Prepaids and other current and non-current assets |
|
|
|
|
|
( |
) |
|
Accounts payable |
|
|
( |
) |
|
|
( |
) |
Accrued expenses and other non-current liabilities |
|
|
|
|
|
|
||
Operating lease liabilities, current and non-current |
|
|
( |
) |
|
|
( |
) |
Net cash used in operating activities |
|
|
( |
) |
|
|
( |
) |
Cash flows from investing activities: |
|
|
|
|
|
|
||
Purchases of property and equipment |
|
|
( |
) |
|
|
( |
) |
Purchases of marketable securities |
|
|
( |
) |
|
|
— |
|
Net cash used in investing activities |
|
|
( |
) |
|
|
( |
) |
Cash flows from financing activities: |
|
|
|
|
|
|
||
Issuance of common stock upon initial public offering, net of underwriters’ fees |
|
|
— |
|
|
|
|
|
Payment of offering costs |
|
|
( |
) |
|
|
( |
) |
Proceeds from issuance of common stock upon exercise of Series A-2 warrants |
|
|
— |
|
|
|
|
|
Proceeds from employee equity plans |
|
|
|
|
|
|
||
Net cash provided by financing activities |
|
|
( |
) |
|
|
|
|
Effect of exchange rate changes on cash |
|
|
|
|
|
( |
) |
|
Net (decrease) increase in cash, cash equivalents and restricted cash |
|
$ |
( |
) |
|
$ |
|
|
Cash, cash equivalents and restricted cash at beginning of period |
|
|
|
|
|
|
||
Cash, cash equivalents and restricted cash at end of period |
|
$ |
|
|
$ |
|
||
Components of cash, cash equivalents and restricted cash |
|
|
|
|
|
|
||
Cash and cash equivalents |
|
$ |
|
|
$ |
|
||
Restricted cash |
|
|
|
|
|
|
||
Total cash, cash equivalents and restricted cash at end of period |
|
$ |
|
|
$ |
|
||
Supplemental noncash investing and financing activities |
|
|
|
|
|
|
||
Property and equipment included in accounts payable and accrued expenses |
|
$ |
|
|
$ |
|
||
Cash paid for taxes |
|
|
|
|
|
— |
|
|
Lease assets obtained in exchange for new operating lease liabilities |
|
|
— |
|
|
|
|
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 U.K. 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 and Follow-On Offerings
On May 10, 2022, the Company closed its initial public offering, or IPO, in which the Company sold an aggregate of
Immediately prior to consummation of the IPO, all
On February 5, 2024, the Company sold shares under its At-the-Market Equity Offering Sales Agreement, or Sales Agreement, with Stifel, Nicolaus & Company, Incorporated dated as of August 8, 2023, resulting in net proceeds of $
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, 2023, the Company had an accumulated deficit of $
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
F-8
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 U.K. corporation) and PepGen Securities Corp. (a U.S. corporation). All intercompany accounts and transactions have been eliminated in consolidation.
Reclassifications
Certain amounts disclosed in the prior period financial statements have been reclassified from their original presentation to conform to the current period presentation. The reclassification had no effect on net income, earnings per share, retained earnings, cash flows or total assets.
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
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 cumulative translation adjustment, a component of accumulated other comprehensive loss in stockholders’ equity (deficit).
Concentration of Credit Risk
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, 2023 and 2022, cash and cash equivalents consisted primarily of checking and money market funds composed of U.S. government obligations.
F-9
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 $
Marketable Securities
The Company’s marketable securities consist of U.S. treasury notes which are classified as available-for-sale and are reported at fair value. Unrealized gains and losses on available-for-sale debt securities are reported as a component of accumulated other comprehensive loss in stockholders’ equity (deficit). Realized gains and losses are based on the specific identification method and are included as a component of other income (expense), net in the consolidated statements of operations and comprehensive loss.
The Company evaluates its marketable securities with unrealized losses for other-than-temporary impairment. When assessing marketable securities for other-than-temporary declines in value, the Company considers such factors as, among other things, how significant the decline in value is as a percentage of the original cost, how long the market value of the investment has been less than its original cost, the Company’s ability and intent to retain the investment for a period of time sufficient to allow for any anticipated recovery in fair value, and market conditions in general. If any adjustment to fair value reflects a decline in the value of the investment that the Company considers to be “other than temporary,” the Company reduces the investment to fair value through a charge to the statement of operations and comprehensive loss. No such adjustments were necessary during the periods presented.
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:
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.
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 |
|
|
Furniture and fixtures |
|
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
F-10
expenses. As of December 31, 2023, deferred offering costs of $
Leases
Effective
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.
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
Commitment and Contingencies
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 could 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
F-11
the IPO, all preferred stock was converted to common stock and as such
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 have required 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. During the year-ended December 31, 2022, the Company received £
Stock-Based Compensation
The Company accounts for its stock-based compensation in accordance with ASC Topic 718, Compensation-Stock Compensation, or 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 stock options granted using the Black-Scholes option pricing model, or Black-Scholes, for stock option grants to employees, non-employees and directors. 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, non-employees and directors 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 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 stock options granted to employees, non-employees and directors whereby, the expected term equals the arithmetic average of the vesting term and the original contractual term of the stock 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 stock 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 , or 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.
F-12
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.
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
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 and unrealized gains and losses on available-for-sale marketable debt securities.
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 include unvested common stock under the Company’s equity incentive plan which 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, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Options to purchase common stock |
|
|
|
|
|
|
||
Total |
|
|
|
|
|
|
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 the IPO or such earlier time that it is no longer an “emerging growth company.” As a result of the Company having elected the extended
F-13
transition period for complying with new or revised accounting standards pursuant to Section 107(b) of the JOBS Act, 2016-13 and 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 Financial Accounting Standards Board, or 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.
Effective January 1, 2022, the Company adopted ASC 842. Upon commencement of the Company's lease in December 2022, the Company recognized lease liabilities totaling $
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, or ASU 2016-13. 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
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740), or ASU 2019-12. 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
In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvement to Income Tax Disclosures, or ASU 2023-07, to enhance the transparency and decision usefulness of income tax disclosures. ASU 2023-09 is effective for annual periods beginning after December 15, 2024 on a prospective basis. Early adoption and retrospective application is permitted. The Company is currently evaluating the impact of this ASU on its consolidated financial statements and related disclosures.
In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, or ASU 2023-07, which requires public entities to disclose information about their reportable segments’ significant expenses on an interim and annual basis. ASU 2023-07 is effective for the Company beginning the year ended May 31, 2025. The Company is currently evaluating the impact of this ASU 2023-07 on its consolidated financial statements and related disclosures.
3. Fair Value Measurements
The following table sets forth marketable securities for the year ended December 31, 2023 (in thousands). The Company did
|
|
As of December 31, 2023 |
|
|||||||||||||
|
|
Amortized Cost |
|
|
Unrealized Gains |
|
|
Unrealized Losses |
|
|
Total |
|
||||
U.S. Treasury-backed money market funds |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
Total |
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
F-14
The following table set forth the fair value of the Company’s financial assets measured at fair value on a recurring basis and indicates the level within the fair value hierarchy utilized to determine such values (in thousands):
|
|
As of December 31, 2023 |
|
|||||||||||||
|
|
Total |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
||||
Cash Equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
U.S. Treasury-backed money market funds |
|
$ |
|
|
$ |
|
|
|
— |
|
|
|
— |
|
||
U.S. Treasury notes |
|
$ |
|
|
$ |
|
|
|
— |
|
|
|
— |
|
||
Marketable Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
U.S. Treasury notes |
|
$ |
|
|
$ |
|
|
|
— |
|
|
|
— |
|
||
Total |
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
|
As of December 31, 2022 |
|
|||||||||||||
|
|
Total |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
||||
U.S. Treasury-backed money market funds |
|
$ |
|
|
$ |
|
|
|
— |
|
|
|
— |
|
||
Total |
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
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 (see Note 9), the Company granted warrants to purchase up to
As there are several 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 warrants utilized the Black-Scholes option-pricing model, which incorporates assumptions and estimates to value the preferred stock warrants.
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 warrants, 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 warrants 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 warrants. 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 warrants. The Company had estimated a
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.
F-15
A reconciliation of the Level 3 warrant liability through exercise in the second quarter of 2022 was as follows (in thousands):
|
|
Series A-2 Preferred |
|
|
Balance as of December 31, 2021 |
|
$ |
|
|
Change in fair value |
|
|
( |
) |
Exercise of preferred stock warrants |
|
|
( |
) |
Balance as of December 31, 2022 |
|
$ |
— |
|
4. Property and Equipment, Net
The cost and accumulated depreciation of property and equipment were as follows (in thousands):
|
|
December 31, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Lab equipment |
|
$ |
|
|
$ |
|
||
Computer and office equipment |
|
|
|
|
|
|
||
Construction in process |
|
|
|
|
|
|
||
Total property and equipment |
|
|
|
|
|
|
||
Less accumulated depreciation |
|
|
( |
) |
|
|
( |
) |
Total property and equipment, net |
|
$ |
|
|
$ |
|
Depreciation expense was $
5. Accrued Expenses
Accrued expenses consisted of the following (in thousands):
|
|
December 31, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Research and development |
|
$ |
|
|
$ |
|
||
Employee-related expenses |
|
|
|
|
|
|
||
Taxes payable |
|
|
— |
|
|
|
|
|
Professional services |
|
|
|
|
|
|
||
Other |
|
|
|
|
|
|
||
Total accrued expenses |
|
$ |
|
|
$ |
|
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
The landlord completed significant leasehold improvements to the Premises, a portion of which the Company was obligated to pay per the terms of the Harrison Lease. The Company paid $
During 2022 and the first quarter of 2023,
F-16
Summary of Lease Costs
The components of lease cost under ASC 842 for the leases were as follows (in thousands):
|
|
2023 |
|
|
2022 |
|
||
Fixed lease cost |
|
$ |
|
|
$ |
— |
|
|
Variable lease cost |
|
|
|
|
|
— |
|
|
Short-term lease cost |
|
|
|
|
|
|
||
Total lease cost |
|
$ |
|
|
$ |
|
Supplemental disclosure of cash flow information under ASC 842 for the leases was as follows (in thousands):
|
|
December 31, 2023 |
|
|
Operating cash payments for operating leases |
|
$ |
|
Cash payments for operating leases during 2023 related to tenant improvements of $
The remaining lease term for the Harrison Lease is
Future minimum lease payments under the non-cancelable operating lease consisted of the following as of December 31, 2023:
Year Ending December 31, |
|
(in thousands) |
|
|
2024 |
|
$ |
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
2027 |
|
|
|
|
2028 |
|
|
|
|
Thereafter |
|
|
|
|
Total future minimum lease payments |
|
$ |
|
|
Less: imputed interest |
|
|
( |
) |
Present value of lease liability |
|
$ |
|
|
|
|
|
|
|
Included in the consolidated balance sheet (in thousands) |
|
December 31, 2023 |
|
|
Lease liability |
|
$ |
|
|
Lease liability, net of current portion |
|
|
|
|
Total lease liability |
|
$ |
|
7. Related Party Transactions
Technology License Agreement with Oxford University Innovation Limited
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 held 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 CPP 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.
F-17
As consideration for the license, the Company made an initial upfront payment in 2018, as well as a Restatement Completion Fee and a License Data Fee in 2020 totaling $
The Company could be required to make milestone payments to the Licensors upon achievement 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 $
Upon completion of the IPO, the Company became obligated to pay OUI an exit fee between
Additionally, the Company paid office space rent to OUI. For the years ended December 31, 2023 and 2022, total rent payments were
Services Agreement with RA Capital Management, L.P.
In November 2020, the Company entered into an agreement, or the Services Agreement, with Carnot Pharma, LLC, or Carnot, under which Carnot provided 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 2020 and May and July 2021. In addition, entities affiliated with RA Capital Management, L.P. purchased shares of the Company’s 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 compensated Carnot on a fully burdened cost basis for personal time devoted to Company projects. In addition, the Company reimbursed Carnot on a costs basis for any subcontractor costs incurred. The Company paid Carnot on a quarterly basis, in arrears, for services performed and costs incurred. The Services Agreement was terminated in April 2022.
Expenses incurred by the Company under the Services Agreement with Carnot for the year ended December 31, 2023 and 2022, totaled
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, 2023. The Company does not anticipate recognizing any significant losses relating to these arrangements. The term of 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.
F-18
9. Convertible Preferred Stock and Stockholders’ Equity
Reverse Stock Split
On April 29, 2022, the Company filed a charter amendment to affect a
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
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
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
The Company has reserved the following shares of common stock for issuance, as follows:
|
|
December 31, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Stock options issued and outstanding |
|
|
|
|
|
|
||
Authorized for future stock awards or option grants |
|
|
|
|
|
|
||
Authorized for future issuance under employee stock purchase plan |
|
|
|
|
|
|
||
Total |
|
|
|
|
|
|
Shares of Common Stock Subject to Repurchase
In November 2020, in connection with the Series A-2 convertible preferred stock financing,
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 $
F-19
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. As of the Company's IPO in May 2022, the Company's board of directors determined that no further awards would be made from the 2020 plan. The number of shares of common stock that may be issued under the 2022 Plan is subject to increase by the number of shares under any outstanding stock 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)
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 is estimated based the average historical volatilities for comparable publicly traded biotechnology 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.
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
The fair value of stock options was estimated using the following weighted average assumptions:
|
|
Year Ended |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Risk-free interest rate % |
|
|
% |
|
|
% |
||
Expected volatility % |
|
|
% |
|
|
% |
||
Expected term (in years) |
|
|
|
|
||||
Expected dividend yield |
|
|
— |
|
|
|
— |
|
F-20
Stock Option Activity
Stock option activity under the 2020 Plan and 2022 Plan, are as follows:
|
|
Stock |
|
|
Weighted-Average |
|
|
Weighted-Average |
|
|
Aggregate |
|
||||
Outstanding as of December 31, 2022 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Granted |
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
||
Exercised |
|
|
( |
) |
|
|
|
|
|
— |
|
|
|
— |
|
|
Canceled/Forfeited |
|
|
( |
) |
|
|
|
|
|
— |
|
|
|
— |
|
|
Outstanding as of December 31, 2023 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Vested and exercisable as of December 31, 2023 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Vested and expected to vest as of December 31, 2023 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
The aggregate intrinsic value of stock options is calculated as the difference between the exercise prices of the stock options and the fair value of the Company's common stock for those stock options that had exercises prices lower than the fair value of the Company's common stock. The total intrinsic value of the stock options exercised during the years ended December 31, 2023 and 2022 was $
The weighted-average grant date fair value of stock options granted during the years ended December 31, 2023 and 2022 was $
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 Ended |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Research and development |
|
$ |
|
|
$ |
|
||
General and administrative |
|
|
|
|
|
|
||
Total stock-based compensation expense |
|
$ |
|
|
$ |
|
The Company had
11. Income Taxes
The Company’s loss before income taxes for the years ended December 31, 2023 and 2022 were generated in the following jurisdictions (in thousands):
|
|
Year Ended |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Domestic |
|
$ |
( |
) |
|
$ |
( |
) |
Foreign |
|
|
( |
) |
|
|
|
|
Worldwide |
|
$ |
( |
) |
|
$ |
( |
) |
F-21
The foreign income for the year-ended December 31, 2022 was due to the transfer of intellectual property, or 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, 2023 and 2022 (in thousands):
|
|
December 31, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Deferred tax assets: |
|
|
|
|
|
|
||
Net operating loss carryforwards |
|
$ |
|
|
$ |
|
||
Research and development credits |
|
|
|
|
|
|
||
Accrued expenses |
|
|
|
|
|
|
||
Capitalized Section 174 R&D Costs |
|
|
|
|
|
|
||
Stock compensation |
|
|
|
|
|
|
||
Right-of-use liability |
|
|
|
|
|
|
||
Intangible asset amortization |
|
|
|
|
|
|
||
Other, net |
|
|
|
|
|
— |
|
|
Deferred tax assets |
|
|
|
|
|
|
||
Deferred tax liabilities |
|
|
|
|
|
|
||
Right-of-use-Asset |
|
|
( |
) |
|
|
( |
) |
Fixed Assets |
|
|
( |
) |
|
|
( |
) |
Other, net |
|
|
— |
|
|
|
( |
) |
Deferred tax liabilities |
|
|
( |
) |
|
|
( |
) |
Net deferred tax assets |
|
|
|
|
|
|
||
Valuation allowance |
|
|
( |
) |
|
|
( |
) |
Net deferred tax assets |
|
$ |
— |
|
|
$ |
— |
|
The components of income tax expense were as follows for the years ended December 31, 2023 and 2022 (in thousands):
|
|
Year Ended |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Current expense: |
|
|
|
|
|
|
||
U.S. Federal |
|
$ |
— |
|
|
$ |
— |
|
State |
|
|
|
|
|
|
||
Foreign |
|
|
— |
|
|
|
|
|
Total current expense |
|
|
|
|
|
|
||
Deferred expense: |
|
|
|
|
|
|
||
U.S. Federal |
|
|
— |
|
|
|
— |
|
State |
|
|
— |
|
|
|
— |
|
Foreign |
|
|
— |
|
|
|
— |
|
Total deferred expense |
|
|
— |
|
|
|
— |
|
Provision for income taxes |
|
$ |
|
|
$ |
|
F-22
A reconciliation of income tax expense to the amount computed by applying the statutory federal income tax rate to the loss from operations is summarized for the years ended December 31, 2023 and 2022, as follows:
|
|
Year Ended |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Tax at statutory rate |
|
|
% |
|
|
% |
||
State tax (net of federal benefit) |
|
|
( |
)% |
|
|
( |
)% |
Permanent differences |
|
|
( |
)% |
|
|
( |
)% |
Research and development credit |
|
|
% |
|
|
% |
||
GILTI Inclusion |
|
|
% |
|
|
( |
)% |
|
U.K. R&D credit |
|
|
% |
|
|
% |
||
Foreign rate differential |
|
|
% |
|
|
( |
)% |
|
Change in valuation allowance |
|
|
( |
)% |
|
|
( |
)% |
Other |
|
|
% |
|
|
% |
||
Income tax expense (benefit) |
|
|
( |
)% |
|
|
( |
)% |
The Company’s income tax expense was $
On January 1, 2022, or the Transfer Date, the Company’s wholly owned subsidiary, PepGen Limited, transferred all IP assets to the parent company, PepGen Inc., in an arm’s length transaction at fair value pursuant to an asset transfer agreement. The fair value of the IP assets was a non-recurring fair value measurement. The Company engaged valuation specialists to calculate the IP value, and the IP value was measured using the historical cost method. The historical cost method estimated the fair value of the IP assets using the historical cost base of the IP assets and the expected market return as of the Transfer Date. The significant assumption inherent in estimating the fair value using the historical cost method was the expected market return. The Company utilized a
The Company has federal net operating losses, or NOLs of $
The future utilization of the Company’s state NOLs and federal and state R&D credits to offset future taxable income may be subject to a substantial annual limitation as a result of changes in ownership by stockholders that hold
The Company is subject to taxation in the U.S. and the U.K. The Company’s federal and state returns since inception are subject to examination due to the carryover of NOLs. The Company has not been, nor is it currently, under examination by any tax authorities. The U.K. tax returns from
The following table summarizes the reconciliation of the beginning and ending amount of total unrecognized tax benefits for each of the periods indicated:
F-23
|
|
December 31, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Balance at beginning of the period |
|
$ |
|
|
$ |
— |
|
|
Increase related to current year tax positions |
|
|
— |
|
|
|
|
|
Increase related to prior year tax positions |
|
|
— |
|
|
|
— |
|
Decrease related to prior year tax positions |
|
|
— |
|
|
|
— |
|
Currency translation |
|
|
|
|
|
( |
) |
|
Balance at the end of the period |
|
$ |
|
|
$ |
|
The Company does not expect the amount of unrecognized tax benefits to change significantly in the next twelve months. The Company’s policy is to recognize interest and/or penalties related to income tax matters in income tax expense. It had
12. Subsequent Events
On February 5, 2024, the Company sold shares under the Sales Agreement, resulting in net proceeds of $
F-24