PepGen Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Nature of Business and Basis of Presentation

PepGen Inc., hereinafter referred to as 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.

Liquidity

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, cash equivalents, and marketable securities to date have been funding 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 June 30, 2026, the Company had an accumulated deficit of $396.7 million. To date, the Company has funded operations primarily through private placements of convertible preferred stock, the sale of shares of common stock in its initial public offering, or IPO, the sale of shares of common stock under its At-the-Market Equity Offering Sales Agreement, or Sales Agreement, with Stifel, Nicolaus & Company, Incorporated, or Stifel, and through the sale of shares of common stock in follow-on public offerings in February 2024, referred to as the 2024 Offering, and in September 2025, referred to as the 2025 Offering. As of June 30, 2026, the Company had cash, cash equivalents, and marketable securities of $117.2 million.

The Company believes that its cash, cash equivalents, and marketable securities as of June 30, 2026, will be sufficient to fund its currently planned operations for at least the next 12 months from the issuance of these condensed consolidated financial statements.

As the Company continues to pursue its business plan to successfully develop and obtain regulatory approval for its 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 condensed consolidated financial statements are unaudited and have been prepared in conformity with generally accepted accounting principles in the United States of America, or GAAP. Any reference in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the Accounting Standards Codification and Accounting Standards Update of the Financial Accounting Standards Board, or FASB.

The condensed consolidated financial statements have been prepared on the same basis as the audited annual financial statements. Certain information and footnote disclosures normally included in the Company’s annual financial statements have been condensed or omitted. These condensed consolidated financial statements, in the opinion of management, reflect all normal recurring adjustments necessary for a fair presentation of the Company’s financial position as of June 30, 2026, and results of operations for the interim periods ended June 30, 2026 and June 30, 2025.

The results of operations for the interim periods are not necessarily indicative of the results of operations to be expected for the full year. These condensed consolidated financial statements should be read in conjunction with the audited financial statements as of and for the years ended December 31, 2025 and 2024, and the notes thereto, included in the Company’s Annual Report on Form 10-K, filed with the SEC on March 4, 2026, or Form 10-K.

2. Summary of Significant Accounting Policies

The Company’s significant accounting policies are disclosed in the audited financial statements for the year ended December 31, 2025 included in the Form 10-K. Since the date of those financial statements, there have been no changes to the Company’s significant accounting policies.

Recently Issued 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 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 November 2024, the FASB issued ASU No. 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40), or ASU 2024-03. ASU 2024-03 requires companies to disaggregate certain expenses presented on the face of the financial statements to enhance transparency and help investors better understand an entity's performance within the notes to the financial statements. The amendments in ASU 2024-03 are effective for fiscal years beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027, with early adoption permitted. The Company will not be required to adopt ASU 2024-03 until January 1, 2027. The Company is currently evaluating the potential impact of the adoption of ASU 2024-03 on its financial statement disclosures.

3. Fair Value Measurements

The following tables present information about the Company’s financial assets that have been measured at fair value as of June 30, 2026 and December 31, 2025, and indicate the fair value of the hierarchy of the valuation inputs utilized to determine such fair value. In general, fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities. All instruments held by the Company are Level 1. The following tables set forth marketable securities as of June 30, 2026 and December 31, 2025 (in thousands):

The following tables set forth the fair value of the Company’s financial assets measured at fair value on a recurring basis and indicate the level within the fair value hierarchy utilized to determine such values as of June 30, 2026 and December 31, 2025 (in thousands):

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 consolidated balance sheets under cash and cash equivalents.

The following table summarizes the scheduled maturity for the Company's marketable securities for the period presented (in thousands):

4. Property and Equipment, Net

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

Depreciation expense was $0.3 million for each of the three months ended June 30, 2026 and June 30, 2025. Depreciation expense was $0.6 million for the six months ended June 30, 2026 and $0.7 million for the six months ended June 30, 2025.

During the second quarter of 2025, the Company also took $0.7 million in non-cash charges to research and development and general and administrative expense, associated with the impairment of unused lab equipment and computer and office equipment.

5. Accrued Expenses

Accrued expenses consisted of the following (in thousands):

6. 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, which was subsequently amended in December 2018, further amended and restated in November 2020, and further amended in February 2022, referred to, as so amended, as the License Agreement. 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 worldwide license to licensed data and technology owned by OUI and MRC in respect of cell-penetrating peptides for the 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, as well as a Restatement Completion Fee and a License Data Fee (each as defined in the License Agreement) in 2020 totaling $0.1 million.

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 $0.1 million. In 2024, the Company paid the Licensors a patent procurement milestone of £10,000, adjusted per the retail price index under the terms of the License Agreement. 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 in excess of a threshold amount between £20 million and £30 million ($26.5 million and $39.7 million as of June 30, 2026), 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 license agreement.

Upon completion of the IPO, 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 proceeds of the IPO, was $1.4 million, which was paid during the second quarter of 2022 and included in research and development expense on the condensed consolidated statement of operations.

Oxford Science Enterprises, or OSE, which is an affiliate of OUI, owned 7.2% of the Company’s outstanding common stock as of June 30, 2026.

RA Capital Management, L.P.

Entities affiliated with RA Capital Management, L.P., or RA Capital, purchased common stock in the Company’s IPO in May 2022, the Company’s 2024 Offering in February 2024, and the Company’s 2025 Offering in September 2025. As of June 30, 2026, entities affiliated with RA Capital owned 29.0% of the Company’s outstanding common stock.

Two members of the Company’s board of directors, Dr. Joshua Resnick and Habib Dable, are affiliated with RA Capital. Pursuant to the governing legal documents of RA Capital, Dr. Resnick is obligated to transfer any cash compensation from the Company to RA Capital. Fees paid in cash for Dr. Resnick's service on the Company's board of directors were paid directly to RA Capital and are included within general and administrative expense on the consolidated statement of operations. The Company paid $11,000 and $12,000 for the three months ended June 30, 2026 and 2025, respectively, and $22,000 and $24,000 for the six months ended June 30, 2026 and 2025, respectively, to RA Capital for Dr. Resnick’s service on the board of directors.

7. 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.

On June 9, 2025, a putative shareholder class action captioned Johnny Karam v. PepGen Inc., et al. was filed in the United States District Court for the Eastern District of New York, naming the Company and its Chief Executive Officer and Chief Financial Officer as defendants. On November 18, 2025, the parties filed a stipulation of voluntary dismissal of the action. Separately, by a letter received by the Company on September 29, 2025, a putative shareholder of the Company made a purported shareholder demand based on substantially the same allegations as those set forth in the above-mentioned putative class action suit. On December 1, 2025, the demanding shareholder withdrew the demand.

The Company is not party to any other 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 June 30, 2026. 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.

8. Stockholders’ Equity

Under the Third Amended and Restated Certificate of Incorporation, dated May 10, 2022, as amended on June 20, 2024, as currently in effect, 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). Each share of common stock has the right toone 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 were declared by the board of directors during the six months ended June 30, 2026.

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

9. Stock-Based Compensation

The Company maintains four equity compensation plans; the 2020 Stock Plan, or the 2020 Plan, the 2022 Stock Option and Incentive Plan, or the 2022 Plan, the 2022 Employee Stock Purchase Plan, or the ESPP, and the 2024 Inducement Plan, or the Inducement Plan. As of the Company's IPO in May 2022, the Company's board of directors determined that no further awards would be made under 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)5% of the shares of common stock outstanding on such date and (2) an amount determined by the Company’s board of directors. The 2022 Plan allows the board of directors to grant incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock awards, restricted stock units, unrestricted stock awards, cash-based awards, and dividend equivalent rights to the Company’s officers, employees, directors and other key persons. The number of shares reserved for issuance under the ESPP automatically increases on the first day of each fiscal year in an amount equal to the lower of (1)1% of the shares of common stock outstanding on such date and (2) an amount determined by the Company’s board of directors. In August 2024, the Company's board of directors adopted the Inducement Plan. The Inducement Plan provides for the grant of non-qualified stock options, stock appreciation rights, restricted stock awards, restricted stock units, unrestricted stock awards, dividend equivalent rights and other stock-based awards with respect to an aggregate of 1,000,000 shares of common stock (subject to adjustment as provided in the Inducement Plan). Awards under the Inducement Plan may only be granted to new employees who were not previously employed by the Company or its affiliates in accordance with the requirements of Nasdaq Stock Market Rule 5635(c)(4).

As of June 30, 2026,2,315,899 shares remained available for grant under the 2022 Plan,1,124,465 shares remained available for issuance under the ESPP, and 637,184 shares remained available for issuance under the Inducement Plan.

Stock Option Repricing

On November 4, 2025, the Company’s board of directors approved an option repricing, or the Repricing, effective as of November 4, 2025, or the Effective Date. The Repricing was undertaken in accordance with, and as permitted by, the Company’s 2020 Plan, 2022 Plan, and Inducement Plan. Pursuant to the Repricing, all options granted pursuant to the 2020 Plan, 2022 Plan and Inducement Plan that are held by current employees, or Eligible Participants, were repriced, to the extent such options had an exercise price in excess of the 52-week high fair market value per share of the Company’s common stock on the Nasdaq Global Select Market determined as of November 4, 2025, or Eligible Options.

The new exercise price for the Eligible Options is $4.53. However, in order to exercise the repriced options at the reduced exercise price, Eligible Participants are required to remain in service with the Company through the Retention Period (as defined herein). The “Retention Period” begins on the Effective Date and ends on the earliest of the following: (i) March 31, 2027; (ii) with respectto Eligible Options granted under the 2020 Plan, the occurrence of a Sale of the Company (as defined therein), or (iii) with respect to Eligible Options granted under the 2022 Plan and the Inducement Plan, the occurrence of a Sale Event (as defined therein).

As of the date of approval of the Repricing, the total number of shares underlying all Eligible Options was 3,557,903 shares. The Eligible Options previously had exercise prices ranging from $8.89 to $17.91 per share. There were no changes to the number of shares, the vesting schedule or the expiration date of the Eligible Options.

The effect of the option repricing resulted in a total incremental non-cash stock-based compensation expense of $3.4 million, which was calculated using the Black-Scholes option-pricing model, which is being recognized ratably through the 17-month Retention Period.

The Company recognized $0.5 million during the three months ended June 30, 2026, and $1.1 million during the six months ended June 30, 2026 associated with the option repricing which is included in general and administrative and research and development expense in the consolidated statement of operations and comprehensive loss. There wasno incremental stock-based compensation expense recognized for the three or six months ended June 30, 2025.

Stock Option Activity

Stock option activity for the six months ended June 30, 2026, was as follows:

The weighted-average grant date fair value of options granted during the six months ended June 30, 2026 was $4.73 per share. As of June 30, 2026, total unrecognized compensation cost related to stock options, inclusive of the repricing, was $20.4 million. This amount is expected to be recognized over a weighted average period of approximately 2.76 years.

Restricted Stock Units

A restricted stock unit, or RSU, represents the right to receive one share of common stock upon vesting of the RSU. In February 2024, the Company granted employees a one-time RSU award that vested in full on the one-year anniversary of the grant date, provided that the employee remained employed with the Company through the date of vesting. Certain employees, including employees who are executive officers of the Company, received a one-time RSU award that vests upon the achievement of certain performance-based clinical development milestones, or PSUs, provided that the employee remains employed with the Company through the date of vesting. Such awards could not vest in less than one year, regardless of when the performance milestone was achieved. This milestone was achieved and all PSUs vested on February 24, 2025. During the six months ended June 30, 2025 the Company recognized $0.3 million in expense associated with the achievement of the performance milestone. No PSUs remain outstanding since March 31, 2025.

Beginning in 2025, the Company introduced RSU grants which generally vest over four years, provided the employee remains employed by the Company through the vesting dates. A summary of the Company’s RSU activity and related information for the six months ended June 30, 2026 is as follows:

The weighted average grant date fair value of the service-based RSUs granted during the six months ended June 30, 2026 was $6.08. During the six months ended June 30, 2026,58,111 RSUs vested with a total fair value of $0.3 million. As of June 30, 2026, there was $5.6 million of unrecognized compensation costs related to unvested service-based RSUs, which are expected to be recognized over a weighted-average period of 3.52 years.

Stock-Based Compensation Expense

Stock-based compensation expense associated with stock options, RSUs, PSUs, and the Company’s ESPP included in the accompanying unaudited condensed consolidated statements of operations and comprehensive loss is as follows (in thousands):

10. Segment Reporting

ASU 2023-07 establishes standards for reporting information about operating segments on a basis consistent with the Company’s internal organization structure as well as information about services categories, business segments and major customers in financial statements.

Segment reporting is prepared on the same basis that thechief executive officer, who is the Company’s chief operating decision maker and manages the business, makes business decisions and assesses performance. The Company hasone reportable segment and regularly reviews operating expenses and net loss on a consolidated basis. The Company operates in one location in Boston, Massachusetts focused on advancing oligonucleotide therapeutics with the goal of transforming the treatment of severe neuromuscular and neurologic diseases. The Company tracks external operating expenses on a program-by-program basis. Net loss is comprised of expenses related to the Company's two product candidates, one of which was discontinued in May 2025, and other personnel, facility, and general and administrative costs. Operating expenses and net loss are the basis the chief operating decision maker uses for the purpose of deciding how to allocate resources, specifically on a program basis as presented below.

The chief operating decision maker uses operating expenses and net loss to evaluate progress on research and development activities on the Company's two product candidates, one of which was discontinued in May 2025, as well as when making strategic decisions regarding the Company's research and development efforts. Operating expenses and loss are also used to monitor budget versus actual results.

The foll owing table outlines the Company’s functional operating expenses (in thousands):