| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) | |
| |
||
(Address of principal executive offices) |
(Zip Code) | |
| Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered | ||
| ☒ | Accelerated filer | ☐ | ||||
Non-accelerated filer |
☐ | Smaller reporting company | ||||
| Emerging growth company | ||||||
TABLE OF CONTENTS
| Item |
Description | Page | ||||
| 3 | ||||||
| Item 1. |
3 | |||||
| Condensed Consolidated Balance Sheets at March 31, 2023 and December 31, 2022 |
3 | |||||
| Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2023 and 2022 |
4 | |||||
| 5 | ||||||
| 6 | ||||||
| Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2023 and 2022 |
7 | |||||
| 8 | ||||||
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
19 | ||||
| Item 3. |
24 | |||||
| Item 4. |
24 | |||||
| 25 | ||||||
| Item 1. |
25 | |||||
| Item 1A. |
25 | |||||
| Item 2. |
25 | |||||
| Item 3. |
25 | |||||
| Item 4. |
25 | |||||
| Item 5. |
25 | |||||
| Item 6. |
25 | |||||
| 27 | ||||||
2
Item 1. |
Financial Statements. |
March 31, 2023 |
December 31, 2022 |
|||||||
Assets |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | $ | ||||||
Marketable securities |
||||||||
Prepaid expenses and other current assets |
||||||||
Total current assets |
||||||||
Property and equipment, net |
||||||||
Right-of-use |
||||||||
Total assets |
$ | $ | ||||||
Liabilities and Stockholders’ Equity |
||||||||
Current liabilities: |
||||||||
Accounts payable |
$ | $ | ||||||
Accrued expenses |
||||||||
Lease liability |
||||||||
Total current liabilities |
||||||||
Long term liabilities: |
||||||||
Loan payable, net of discount |
||||||||
Total long term liabilities |
||||||||
Total liabilities |
||||||||
Stockholders’ equity: |
||||||||
Preferred stock, par value $ |
— | |||||||
Common stock, par value $ |
||||||||
Additional paid-in-capital |
||||||||
Accumulated other comprehensive loss |
( |
) | ( |
) | ||||
Accumulated deficit |
( |
) | ( |
) | ||||
Total stockholders’ equity |
||||||||
Total liabilities and stockholders’ equity |
$ | $ | ||||||
Three Months Ended March 31, |
||||||||
2023 |
2022 |
|||||||
Revenues: |
||||||||
Total revenues |
$ | $ | ||||||
Operating expenses: |
||||||||
Research and development |
||||||||
General and administrative |
||||||||
Total operating expenses |
||||||||
Loss from operations |
( |
) | ( |
) | ||||
Interest income |
||||||||
Interest expense |
( |
) | ||||||
Net loss |
$ | ( |
) | $ | ( |
) | ||
Net loss per common share: |
||||||||
Basic and diluted net loss per common share |
$ | ( |
) | $ | ( |
) | ||
Basic and diluted weighted average number of common shares outstanding |
||||||||
Three Months Ended March 31, |
||||||||
2023 |
2022 |
|||||||
| Net Loss |
$ | ( |
) | $ | ( |
) | ||
| Other comprehensive income (loss): |
||||||||
| Unrealized loss on available-for-sale |
( |
) | ( |
) | ||||
| |
|
|
|
|||||
| Comprehensive loss |
$ | ( |
) | $ | ( |
) | ||
| |
|
|
|
|||||
Additional paid-in Capital |
Accumulated other comprehensive income (loss) |
Accumulated deficit |
Total stockholders’ equity |
|||||||||||||||||||||||||||||
Preferred stock |
Common stock |
|||||||||||||||||||||||||||||||
Shares |
Amount |
Shares |
Amount |
|||||||||||||||||||||||||||||
Balance at December 31, 2022 |
$ | — | $ | $ | $ | ( |
) | $ | ( |
) | $ | |||||||||||||||||||||
Sale of common shares to related parties and exercise of common stock options, net of transaction costs |
— | — | — | — | — | |||||||||||||||||||||||||||
Compensation expense related to stock options for services |
— | — | — | — | — | — | ||||||||||||||||||||||||||
Unrealized loss on marketable securities |
— | — | — | — | — | ( |
) | — | ( |
) | ||||||||||||||||||||||
Hercules warrant |
— | — | — | — | — | — | ||||||||||||||||||||||||||
Net loss |
— | — | — | — | — | — | ( |
) | ( |
) | ||||||||||||||||||||||
Balance at March 31, 2023 |
$ | — | $ | $ | $ | ( |
) | $ | ( |
) | $ | |||||||||||||||||||||
Balance at December 31, 2021 |
$ | — | $ | $ | $ | ( |
) | $ | ( |
) | $ | |||||||||||||||||||||
Compensation expense related to stock options for services |
— | — | — | — | — | — | ||||||||||||||||||||||||||
Unrealized loss on marketable securities |
— | — | — | — | — | ( |
) | — | ( |
) | ||||||||||||||||||||||
Net loss |
— | — | — | — | — | — | ( |
) | ( |
) | ||||||||||||||||||||||
Balance at March 31, 2022 |
$ | — | $ | $ | $ | ( |
) | $ | ( |
) | $ | |||||||||||||||||||||
Three Months Ended March 31, |
||||||||
2023 |
2022 |
|||||||
Cash flows from operating activities: |
||||||||
Net loss |
$ | ( |
) | $ | ( |
) | ||
Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||
Stock-based compensation expense |
||||||||
Depreciation and amortization expense |
||||||||
Amortization of debt issuance costs and discount |
||||||||
Changes in operating assets and liabilities: |
||||||||
Prepaid expenses and other current assets |
||||||||
Accounts payable |
( |
) | ||||||
Accrued expense |
( |
) | ( |
) | ||||
Accrued interest, net of interest received on maturity of investments |
( |
) | ||||||
Net cash used in operating activities |
( |
) | ( |
) | ||||
Cash flows from investing activities: |
||||||||
Purchases of marketable securities |
( |
) | ( |
) | ||||
Sales and maturities of marketable securities |
||||||||
Purchases of property and equipment, net of disposals |
( |
) | ( |
) | ||||
Net cash provided by (used in) investing activities |
( |
) | ||||||
Cash flows from financing activities: |
||||||||
Proceeds from the sale of related party stock and exercise of common stock options, net of transaction costs |
||||||||
Proceeds from issuance of loan payable |
||||||||
Payment of debt issuance costs |
( |
) | ||||||
Net cash provided by financing activities |
||||||||
Net increase (decrease) in cash and cash equivalents |
( |
) | ||||||
Cash and cash equivalents at beginning of period |
||||||||
Cash and cash equivalents at end of period |
$ | $ | ||||||
Three Months Ended March 31, |
||||||||
2023 |
2022 |
|||||||
Common stock options |
||||||||
Restricted stock units |
||||||||
Preferred stock |
||||||||
Warrants |
||||||||
March 31, 2023 |
||||||||||||||||
Cost |
Unrealized gains |
Unrealized losses |
Fair value |
|||||||||||||
Cash and cash equivalents: |
||||||||||||||||
Cash |
$ | $ | — | $ | — | $ | ||||||||||
Money market funds (Level 1) |
— | — | ||||||||||||||
Corporate debt securities due within |
— | — | ||||||||||||||
Total cash and cash equivalents |
— | — | ||||||||||||||
Marketable securities: |
||||||||||||||||
Corporate debt securities due within |
( |
) | ||||||||||||||
U.S. government and government sponsored entities due within |
||||||||||||||||
Total cash, cash equivalents and marketable securities |
$ | $ | $ | ( |
) | $ | ||||||||||
December 31, 2022 |
||||||||||||||||
Cost |
Unrealized gains |
Unrealized losses |
Fair value |
|||||||||||||
Cash and cash equivalents: |
||||||||||||||||
Cash |
$ | $ | — | $ | — | $ | ||||||||||
Money market funds (Level 1) |
— | — | ||||||||||||||
Total cash and cash equivalents |
— | — | ||||||||||||||
Marketable securities: |
||||||||||||||||
Corporate debt securities due within |
( |
) | ||||||||||||||
Total cash, cash equivalents and marketable securities |
$ | $ | $ | ( |
) | $ | ||||||||||
March 31, |
December 31, |
|||||||
2023 |
2022 |
|||||||
| Contract research organization costs |
$ | $ | ||||||
| Other clinical study related costs |
||||||||
| Manufacturing and drug supply |
||||||||
| Compensation and benefits |
||||||||
| Professional fees |
||||||||
| Other |
||||||||
| |
|
|
|
|||||
| Total accrued liabilities |
$ | $ | ||||||
| |
|
|
|
|||||
| Period Ending March 31, 2023: |
Amount |
|||
| 2023 |
$ | |||
| 2024 |
||||
| 2025 |
||||
| Thereafter |
||||
| |
|
|||
| $ | ||||
| Less amount representing interest |
( |
) | ||
| Less unamortized discount |
( |
) | ||
| |
|
|||
| Loans payable, net of discount |
$ | |||
| |
|
|||
Shares |
Weighted average exercise price |
|||||||
Outstanding at January 1, 2023 |
$ | |||||||
Options granted |
||||||||
Options exercised |
( |
) | ||||||
Options cancelled |
( |
) | ||||||
Outstanding at March 31, 2023 |
$ | |||||||
Exercisable at March 31, 2023 |
$ | |||||||
Three Months Ended March 31, |
||||||||
2023 |
2022 |
|||||||
Stock-based compensation expense by type of award: |
||||||||
Stock options |
$ | $ | ||||||
Restricted stock units |
||||||||
Total stock-based compensation expense |
$ | $ | ||||||
Effect of stock-based compensation expense by line item: |
||||||||
Research and development |
$ | $ | ||||||
General and administrative |
||||||||
Total stock-based compensation expense included in net loss |
$ | $ | ||||||
| • | Anticipated or estimated future results, including the risks and uncertainties associated with our future operating performance and financial position; |
| • | Our possible or assumed future results of operations and expenses, business strategies and plans (including ex-U.S. launch/partnering plans), capital needs and financing plans, including incurrence of indebtedness and compliance with debt covenants under the Loan and Security Agreement with Hercules Capital, Inc., as agent and lender, market trends, market sizing, competitive position, industry environment and potential growth opportunities, among other things; |
| • | Our ability to delay certain research activities and related clinical expenses as necessary; |
| • | Our projected resources and sufficiency of capital to fund our operating expenses through the projected commercial launch of resmetirom, assuming Food and Drug Administration (“FDA”) approval is obtained; |
| • | Our clinical trials, including the anticipated timing of disclosure, presentations of data from, or outcomes from our trials, |
| • | Research and development activities, and the timing and results associated with the future development of our lead product candidate, resmetirom (formerly known as MGL-3196), including projected market size, sector leadership, and patient treatment estimates for non-alcoholic steatohepatitis (“NASH”) and nonalcoholic fatty liver disease (“NAFLD”) patients, |
| • | The timing and completion of projected future clinical milestone events, including enrollment, additional studies, top-line data and open label projections, |
| • | Resmetirom’s potential to be a cost-effective specialty therapy for NASH patients with significant liver fibrosis, |
| • | Plans, objectives and timing for making a Subpart H (Accelerated Approval of New Drugs for Serious or Life-Threatening Illnesses) submission to the FDA, |
| • | Projections or objectives for obtaining accelerated or full approval for resmetirom for NASH patients with significant fibrosis (or non-cirrhotic NASH patients) and NASH patients with compensated cirrhosis, |
| • | Our primary and key secondary study endpoints for resmetirom, and the potential for achieving such endpoints and projections, including NASH resolution, safety, fibrosis treatment, cardiovascular effects and lipid treatment with resmetirom, |
| • | Optimal dosing levels for resmetirom and projections regarding potential NASH or NAFLD and potential patient benefits with resmetirom, including future NASH resolution, safety, fibrosis treatment, cardiovascular effects, lipid treatment and/or biomarker effects with resmetirom, |
| • | Our ability to address the unmet needs of patients suffering from NASH with significant fibrosis, |
| • | The potential efficacy and safety of resmetirom for non-cirrhotic NASH patients and cirrhotic NASH patients, |
| • | The potential for resmetirom to become the best-in-class first-to-market |
| • | Anticipated or estimated future results of operations and expenses as we expand our resmetirom clinical development program and our commercial development program; |
| • | Ex-U.S. launch/partnering plans, |
| • | The ability to develop clinical evidence demonstrating the utility of non-invasive tools and techniques to screen and diagnose NASH and/or NAFLD patients, |
| • | The predictive power of liver fat reduction with resmetirom, as measured by non-invasive tests, on NASH resolution and/or fibrosis reduction or improvement, and potential NASH or NAFLD patient risk profile benefits with resmetirom, |
| • | The predictive power of liver fat, liver volume changes or MAST scores for NASH and/or NAFLD patients, |
| • | The predictive power of NASH resolution and/or liver fibrosis reduction with resmetirom or improvement using non-invasive tests, including the use of ELF, FibroScan, MRE and/or MRI-PDFF, |
| • | The predictive power of non-invasive tests generally, including for purposes of diagnosing NASH, monitoring patient response to resmetirom, or recruiting and conducting a NASH clinical trial, |
| • | Market demand for and acceptance of our products, |
| • | Research, development and commercialization of new products, |
| • | The potential for resmetirom to be an effective treatment for other disease indications, |
| • | Obtaining and maintaining regulatory approvals, including, but not limited to, potential regulatory delays or rejections, |
| • | Risks associated with meeting the objectives of our clinical studies, including, but not limited to our ability to achieve enrollment objectives concerning patient numbers (including an adequate safety database), outcomes objectives and/or timing objectives for our studies, any delays or failures in enrollment, the occurrence of adverse safety events, and the risks of successfully conducting trials that are substantially larger, and have patients with different disease states, than our past trials, |
| • | our continued reliance on third-party contract manufacturers for the manufacture of our product candidates, including resmetirom, |
| • | Risks related to the effects of resmetirom’s mechanism of action and our ability to accomplish our business and business development objectives and realize the anticipated benefit of any such transactions, and |
| • | Assumptions underlying any of the foregoing. |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations. |
The consolidated financial statements, included elsewhere in this Quarterly Report on Form 10-Q, and this Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read together with our audited financial statements and accompanying notes for year ended December 31, 2022 and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations, both of which are included in our Annual Report on Form 10-K. In addition to historical information, this discussion and analysis contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions. As disclosed in this report under “Cautionary Note Regarding Forward-Looking Statements,” our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the “Cautionary Note Regarding Forward-Looking Statements” and “Risk Factors” sections contained in our Annual Report on Form 10-K for the year ended December 31, 2022. Our operating results are not necessarily indicative of results that may occur for the full fiscal year or any other future period.
About Madrigal Pharmaceuticals, Inc.
Our Focus. We are a clinical-stage biopharmaceutical company pursuing novel therapeutics for nonalcoholic steatohepatitis, or NASH. Our lead product candidate, resmetirom, is a proprietary, liver-directed, selective thyroid hormone receptor-ß, or THR-ß, agonist being developed as a once-daily oral pill for the treatment of NASH.
Our Patient Market Opportunity. NASH is a serious inflammatory form of nonalcoholic fatty liver disease, or NAFLD. NAFLD has become the most common liver disease in the United States and other developed countries and is characterized by an accumulation of fat in the liver with no other apparent causes. NASH can progress to cirrhosis or liver failure, require liver transplantation and can also result in liver cancer. Progression of NASH to end stage liver disease will soon surpass all other causes of liver failure requiring liver transplantation. Importantly, beyond these critical conditions, NASH and NAFLD patients additionally suffer heightened cardiovascular risk and, in fact, die more frequently from cardiovascular events than from liver disease. NASH and NAFLD have grown as a consequence of rising worldwide obesity-related disorders. In the United States, NAFLD is estimated to affect approximately 25% of the population, and approximately 25% of those will progress from NAFLD to NASH. Current estimates place NASH prevalence at approximately 22 million people in the United States by 2024, with similar prevalence in Europe and Asia. The prevalence of NASH is also increasing in developing regions due to the adoption of a more sedentary lifestyle and a diet consisting of processed foods with high fat and fructose content.
Our Completed Studies. For NASH, we enrolled 125 patients in a Phase 2 clinical trial with resmetirom. We achieved the 12-week primary endpoint for this Phase 2 clinical trial and reported the results in December 2017, and we reported positive topline 36-week results at the conclusion of the Phase 2 clinical trial in May 2018. We also completed a 36-week, open-label extension study in 31 participating NASH patients from our Phase 2 clinical trial, which included 14 patients who received placebo in the main study.
On December 18, 2019 the Company announced it had opened for enrollment MAESTRO-NAFLD-1, a 52-week, non-invasive, multi-center, double-blind, placebo-controlled Phase 3 clinical study of patients with biopsy-confirmed or presumed NASH recruited from sites in the U.S. Key endpoints are safety, including safety biomarkers. Secondary endpoints include LDL cholesterol, lipid biomarkers, MRI-PDFF, NASH and fibrosis biomarkers. Except for serial liver biopsies, the study protocol is similar to the MAESTRO-NASH study (discussed below under “—Our Ongoing and Planned Studies”), with resmetirom doses of 80 mg or 100 mg or placebo. Enrollment objectives for this study were exceeded, with approximately 1,300 patients enrolled overall. The MAESTRO-NAFLD-1 study will help support the adequacy of the safety database at the time of NDA submission for Subpart H approval for treatment of patients with NASH with fibrosis. In November of 2021, we reported data from the open label non-cirrhotic arm of MAESTRO-NAFLD-1, and in January 2022 we announced that we achieved primary and secondary endpoints for the double-blind portion of MAESTRO-NAFLD-1.
Our Ongoing and Planned Studies. On March 28, 2019, the Company announced that it had initiated MAESTRO-NASH, a Phase 3 trial in NASH with its once daily, oral thyroid hormone receptor beta selective agonist, resmetirom. This double-blind, placebo-controlled study is being conducted at more than 220 sites in the United States and the rest of the world. MAESTRO-NASH is a multicenter, randomized, double-blind, placebo-controlled Phase 3 study of resmetirom in patients with liver biopsy-confirmed NASH and was initiated in March 2019. The subpart H portion of the study enrolled more than 1,000 patients with biopsy-proven NASH (at least half with F3 (advanced) fibrosis, the remainder F2 or F1B (moderate fibrosis) with a few earlier F1 patients), randomized 1:1:1 to receive once-daily resmetirom 80 mg, resmetirom 100 mg, or placebo. After 52 weeks of treatment, a second liver biopsy is performed. The dual primary surrogate endpoints on biopsy are NASH resolution with ≥2-point reduction in NAS (NAFLD Activity Score), and with no worsening of fibrosis OR a 1-point decrease in fibrosis with no worsening of NAS. Achievement of either primary endpoint is considered a successful trial outcome. A key secondary endpoint is lowering of LDL-C. All patients enrolled in the
19
MAESTRO-NASH study (approximately 1,750) continue on therapy after the initial 52-week treatment period for up to 54 months to accrue and measure hepatic clinical outcome events including progression to cirrhosis on biopsy (52 weeks and 54 months) and hepatic decompensation events, as well as all-cause mortality. In December 2022, we reported topline results from the subpart H portion of the study: resmetirom achieved both primary endpoints with both daily oral doses, 80 mg and 100 mg, relative to placebo, as summarized in “- Key Developments” in our Annual Report on Form 10-K for the year ended December 31, 2022.
On July 13, 2021 we announced first patient dosed in a planned 52-week open label active treatment extension study of MAESTRO-NAFLD-1, named MAESTRO-NAFLD-Open Label Extension (OLE). The OLE study allows patients who complete MAESTRO-NAFLD-1 to consent to 52 weeks of active treatment with resmetirom, making this treatment available to both patients who were assigned to placebo in MAESTRO-NAFLD-1 and patients who were on resmetirom in MAESTRO-NAFLD-1.
In August 2022, Madrigal initiated MAESTRO-NASH-OUTCOMES, a randomized double-blind placebo-controlled study in approximately 700 patients with early NASH cirrhosis to allow for noninvasive monitoring of progression to liver decompensation events. A positive outcome is expected to support the full approval of resmetirom for noncirrhotic NASH, potentially accelerating the timeline to full approval. In addition, this study has the potential to support an additional indication for resmetirom in patients with well-compensated NASH cirrhosis.
Key Developments
In April 2023, Madrigal announced that resmetirom has received Breakthrough Therapy designation from the FDA for the treatment of patients with NASH with liver fibrosis. Breakthrough Therapy designation is a process intended to expedite the development and review of drugs for serious or life-threatening conditions. The criteria for breakthrough therapy designation require preliminary clinical evidence that demonstrates the drug may have substantial improvement on at least one clinically significant endpoint over available therapy, or over placebo if there is no available therapy. A drug that receives Breakthrough Therapy designation is eligible for more intensive guidance on an efficient drug development program and organizational commitment involving senior managers from FDA.
Also in April 2023, Madrigal announced that the outcomes portion of the Phase 3 MAESTRO-NASH biopsy trial has completed enrollment. Enrollment of the MAESTRO-NASH study was closed at approximately 1,750 patients based on the enrollment target of the 54-month long-term clinical outcome portion of the study.
Basis of Presentation
Research and Development Expenses
Research and development expenses primarily consist of costs associated with our research activities, including the preclinical and clinical development of our product candidates. We expense our research and development expenses as incurred. We contract with clinical research organizations to manage our clinical trials under agreed upon budgets for each study, with oversight by our clinical program managers. We account for nonrefundable advance payments for goods and services that will be used in future research and development activities as expenses when the service has been performed or when the goods have been received. Manufacturing expense includes costs associated with drug formulation development and clinical drug production. We do not track employee and facility related research and development costs by project, as we typically use our employee and infrastructure resources across multiple research and development programs. We believe that the allocation of such costs would be arbitrary and not be meaningful.
Our research and development expenses consist primarily of:
| • | salaries and related expense, including stock-based compensation; |
| • | external expenses paid to clinical trial sites, contract research organizations, laboratories, database software and consultants that conduct clinical trials; |
| • | expenses related to development and the production of nonclinical and clinical trial supplies, including fees paid to contract manufacturers; |
| • | expenses related to preclinical studies; |
| • | expenses related to compliance with drug development regulatory requirements; and |
| • | other allocated expenses, which include direct and allocated expenses for depreciation of equipment and other supplies. |
20
We expect to continue to incur substantial expenses related to our development activities for the foreseeable future as we conduct our clinical studies programs, manufacturing and toxicology studies. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later stage clinical trials, additional drug manufacturing requirements, and later stage toxicology studies such as carcinogenicity studies. Our research and development expenses have increased period over period in each of 2023 and 2022 and we expect that our research and development expenses may increase in the future. The process of conducting preclinical studies and clinical trials necessary to obtain regulatory approval is costly and time consuming. The probability of success for each product candidate is affected by numerous factors, including preclinical data, clinical data, competition, manufacturing capability and commercial viability. Accordingly, we may never succeed in achieving marketing approval for any of our product candidates.
Completion dates and costs for our clinical development programs as well as our research program can vary significantly for each current and future product candidate and are difficult to predict. As a result, we cannot estimate with any degree of certainty the costs we will incur in connection with the development of our product candidates at this point in time. We expect that we will make determinations as to which programs and product candidates to pursue and how much funding to direct to each program and product candidate on an ongoing basis in response to the scientific success of research, results of ongoing and future clinical trials, potential collaborative agreements with respect to programs or potential product candidates, as well as ongoing assessments as to each current or future product candidate’s commercial potential.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries, benefits and stock-based compensation expenses for employees, management costs, costs associated with obtaining and maintaining our patent portfolio, professional fees for accounting, auditing, consulting and legal services, and allocated overhead expenses.
We expect that our general and administrative expenses will increase in the future as we expand our operating activities, prepare for commercialization, maintain and expand our patent portfolio and incur additional costs associated with being a public company and maintaining compliance with exchange listing and SEC requirements. We expect these potential increases will likely include management costs, legal fees, accounting fees, directors’ and officers’ liability insurance premiums and expenses associated with investor relations.
Critical Accounting Policies and Estimates
Our management’s discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amount of assets, liabilities, and expenses and the disclosure of contingent assets and liabilities as of the date of the financial statements. On an ongoing basis, we evaluate our estimates and judgments, including those related to accrued research and development expenses and stock-based compensation expense. We base our estimates on historical experience, known trends and events, and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ materially from these estimates under different assumptions or conditions. There have been no material changes in our critical accounting policies and significant judgments and estimates during the three months ended March 31, 2023, as compared to those disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 filed with the SEC on February 23, 2023.
Results of Operations
Three months Ended March 31, 2023 and 2022
The following table provides comparative unaudited results of operations for the three months ended March 31, 2023 and 2022 (in thousands):
| Three Months Ended March 31, | Increase / (Decrease) | |||||||||||||||
| 2023 | 2022 | $ | % | |||||||||||||
| Research and Development Expenses |
$ | 62,154 | $ | 47,929 | 14,225 | 30 | % | |||||||||
| General and Administrative Expenses |
16,182 | 9,658 | 6,524 | 68 | % | |||||||||||
| Interest (Income) |
(3,776 | ) | (69 | ) | 3,707 | 5372 | % | |||||||||
| Interest Expense |
2,336 | — | 2,336 | 100 | % | |||||||||||
|
|
|
|
|
|||||||||||||
| $ | 76,896 | $ | 57,518 | 19,378 | 34 | % | ||||||||||
21
Revenue
We had no revenue for the three months ended March 31, 2023 and 2022.
Research and Development Expenses
Our research and development expenses were $62.2 million for the three months ended March 31, 2023, compared to $47.9 million in the corresponding period in 2022. Research and development expenses increased by $14.2 million in the 2023 period due primarily to the additional activities related to our Phase 3 clinical trials, including MAESTRO-NASH Outcomes for which no expenses were incurred in the prior year quarter, an increase in headcount, and an increase in stock compensation expense. We expect our research and development expenses to increase as we advance our clinical and preclinical development programs for resmetirom.
General and Administrative Expenses
Our general and administrative expenses were $16.2 million for the three months ended March 31, 2023, compared to $9.7 million in the corresponding period in 2022. General and administrative expenses increased by $6.5 million in the 2023 period due primarily to increases in commercial preparation activities, including a corresponding increase in headcount, and an increase in stock compensation expense. We believe our general and administrative expenses may increase over time as we advance our clinical and preclinical development programs for resmetirom, prepare for commercialization, and expand our operating activities, which will likely result in an increase in our headcount, consulting services, and related overhead needed to support those efforts.
Interest Income
Our net interest income was $3.8 million for the three months ended March 31, 2023, compared to $0.1 million in the corresponding period in 2022. The increase in interest income was due primarily to higher principal balances and interest rates in 2023.
Interest Expense
Our interest expense was $2.3 million for the three months ended March 31, 2023, compared to $0 million in the corresponding period in 2022. The increase in interest expense was as a result of the Loan Facility we entered into with Hercules during the second quarter of 2022.
Liquidity and Capital Resources
Since inception, we have incurred significant net losses and we have funded our operations primarily through the issuance of shares of our common stock and shares of our preferred stock, borrowings under the Loan Facility with Hercules, the issuance of convertible debt and the proceeds from the merger with Synta Pharmaceuticals Corp. Our most significant use of capital pertains to salaries and benefits for our employees, including clinical, scientific, operational, financial and management personnel, and external research and development expenses, such as clinical trials and preclinical activity related to our product candidates.
As of March 31, 2023, we had cash, cash equivalents and marketable securities totaling $329.5 million compared to $358.8 million as of December 31, 2022, with this decrease attributable to funding of operations, partially offset by $35.0 million drawn from the Loan Facility with Hercules and proceeds from the exercise of stock options. Our cash and investment balances are held in a variety of interest-bearing instruments, including obligations of U.S. government agencies, U.S. Treasury debt securities, corporate debt securities and money market funds. Cash in excess of immediate requirements is invested in accordance with our investment policy with a view toward capital preservation and liquidity.
We anticipate continuing to incur operating losses for the foreseeable future. While our rate of cash usage will likely increase in the future, in particular to support our product development and clinical trial efforts, as well as preparation for commercialization, we believe our available cash resources as of March 31, 2023 will be sufficient to fund our operations past one year from the issuance of the financial statements contained herein. Our future long-term liquidity requirements will be substantial and will depend on many factors. To meet future long-term liquidity requirements, as well as maintain compliance with certain of our Loan Facility covenants, we will need to raise additional capital to fund our operations through equity or debt financings, collaborations, partnerships or other strategic transactions. We regularly consider fundraising opportunities and may decide, from time to time, to raise capital based on various factors, including market conditions and our plans of operation. Additional capital may not be available on terms acceptable to us, or at all. We also have the ability to delay certain research activities and related clinical expenses, as well as commercial preparation investments, if necessary due to liquidity concerns until a date when those concerns are relieved. If adequate funds are not available, or if the terms of potential funding sources are unfavorable, our business and our ability to develop our product candidates would be harmed. Furthermore, any sales of additional equity securities may result in dilution to our stockholders, and any debt financing may include covenants that restrict our business.
22
Cash Flows
The following table provides a summary of our net cash flow activity (in thousands):
| Three Months Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Net cash used in operating activities |
$ | (84,067 | ) | $ | (49,913 | ) | ||
| Net cash (used in) provided by investing activities |
(186,864 | ) | 55,926 | |||||
| Net cash provided by financing activities |
52,690 | — | ||||||
|
|
|
|
|
|||||
| Net increase (decrease) in cash and cash equivalents |
$ | (218,241 | ) | $ | 6,013 | |||
Net cash used in operating activities was $84.1 million for the three months ended March 31, 2023, compared to $49.9 million for the corresponding period in 2022. The use of cash in these periods resulted primarily from our losses from operations, as adjusted for non-cash charges for stock-based compensation, and changes in our working capital accounts.
Net cash used in investing activities was $186.9 million for the three months ended March 31, 2023, compared to $55.9 million provided by for the corresponding period in 2022. Net cash used in investing activities for the three months ended March 31, 2023 consisted of $198.8 million of purchases of marketable securities for our investment portfolio, partially offset by $12.0 million from sales and maturities of marketable securities. Net cash provided by for the corresponding period in 2022 consisted of $93.5 million from sales and maturities of marketable securities, partially offset by $37.6 million of purchases of marketable securities for our investment portfolio.
Net cash provided by financing activities was $52.7 million for the three months ended March 31, 2023, compared to $0 million for the corresponding period in 2022. Financing activities for the three months ended March 31, 2023 consisted of $35.0 million from issuance of the Loan Facility and $17.9 million from proceeds from the exercise of common stock options, partially offset by $0.2 million of loan issuance costs.
Contractual Obligations and Commitments
Except for the future minimum payments due on the Loan Facility with Hercules set forth in “Note 6 – Long Term Debt” to the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q, no significant changes to contractual obligations and commitments occurred during the three months ended March 31, 2023, as compared to those disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 filed with the SEC on February 23, 2023.
23
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk. |
Interest Rate Risk
Our exposure to market risk is confined to our cash, cash equivalents and marketable securities and Loan Facility. We regularly review our investments and monitor the financial markets. We invest in high-quality financial instruments, primarily money market funds, U.S. government and agency securities, government- sponsored bond obligations and certain other corporate debt securities, with the effective duration of the portfolio less than twelve months and no security with a duration in excess of twenty-four months, which we believe are subject to limited credit risk. We currently do not hedge interest rate exposure. Due to the short-term duration of our investment portfolio and the current risk profile of our investments, we believe that an immediate 10% change in interest rates would not have a material effect on the fair market value of our portfolio. We do not believe that we have any material exposure to interest rate risk or changes in credit ratings arising from our investments.
In May 2022 we entered into a Loan Facility, which has an interest rate that is linked to the prime rate. We do not believe that we have any material exposure to interest rate risk given the current principal amount of the loan.
Capital Market Risk
We currently have no product revenues and depend on funds raised through other sources. One source of funding is through future debt or equity offerings. Our ability to raise funds in this manner depends upon, among other things, capital market forces affecting our stock price and the factors described in our “Cautionary Note Regarding Forward-Looking “Statements.” “Liquidity and Capital Resources” and “Risk Factors” disclosures included or referred to in this filing.
Effects of Inflation
Inflation generally affects us with increased cost of labor and clinical trial costs. We do not believe that inflation and changing prices had a significant impact on our results of operations for any periods presented herein.
| Item 4. | Controls and Procedures. |
Definition and Limitations of Disclosure Controls
Our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) are designed to provide reasonable assurance that information required to be disclosed by us in the reports that we file under the Exchange Act, such as this Quarterly Report, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Our management evaluates these controls and procedures on an ongoing basis.
We carried out an evaluation, under the supervision of and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level.
Limitations on the Effectiveness of Controls and Procedures
In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute, assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
Changes in Internal Control over Financial Reporting
There has been no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
24
PART II – OTHER INFORMATION
| Item 1. | Legal Proceedings. |
We are not party to any material pending legal proceedings. From time to time, we may be involved in legal proceedings arising in the ordinary course of business.
| Item 1A. | Risk Factors. |
There have been no material changes to the risk factors included in detail in the “Risk Factors” sections appearing in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on February 23, 2023 (the “Annual Report”).
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds. |
None.
| Item 3. | Defaults Upon Senior Securities. |
None.
| Item 4. | Mine Safety Disclosures. |
Not applicable.
| Item 5. | Other Information. |
None.
| Item 6. | Exhibits. |
The exhibits filed or furnished as part of this Quarterly Report on Form 10-Q are set forth on the Exhibit Index, which Exhibit Index is incorporated herein by reference.
25
EXHIBIT INDEX
| * | The certifications attached as Exhibit 32.1 that accompany this Quarterly Report pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, shall not be deemed “filed” by the registrant for purposes of Section 18 of the Exchange Act and are not to be incorporated by reference into any of the registrant’s filings under the Securities Act or the Exchange Act, irrespective of any general incorporation language contained in any such filing. |
| † | Certain portions of this exhibit have been omitted pursuant to Item 601(b)(10)(iv) of Regulation S-K. |
26
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| MADRIGAL PHARMACEUTICALS, INC. | ||||||
| Date: May 9, 2023 | By: | /s/ Paul A. Friedman, M.D. | ||||
| Paul A. Friedman, M.D. | ||||||
| Chief Executive Officer and Chairman of the Board | ||||||
| (Principal Executive Officer) | ||||||
| Date: May 9, 2023 | By: | /s/ Alex G. Howarth | ||||
| Alex G. Howarth | ||||||
| Senior Vice President and Chief Financial Officer | ||||||
| (Principal Financial and Accounting Officer) | ||||||
27
Exhibit 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO EXCHANGE ACT RULES 13a-14(a) AND 15d-14(a) AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Paul A. Friedman, M.D., certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q of Madrigal Pharmaceuticals, Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| /s/ Paul A. Friedman, M.D. |
| Paul A. Friedman, M.D. |
| Chief Executive Officer and Chairman of the Board |
| (Principal Executive Officer) |
| Date: May 9, 2023 |
Exhibit 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO EXCHANGE ACT RULES 13a-14(a) AND 15d-14(a) AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Alex G. Howarth, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q of Madrigal Pharmaceuticals, Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| /s/ Alex G. Howarth |
| Alex G. Howarth |
| Senior Vice President and Chief Financial Officer |
| (Principal Financial and Accounting Officer) |
| Date: May 9, 2023 |
Exhibit 32.1
CERTIFICATIONS PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. Section 1350)), each of the undersigned officers of Madrigal Pharmaceuticals, Inc., a Delaware corporation (the “Company”), does hereby certify, to such officer’s knowledge, that:
The Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2023 (the “Form 10-Q”) of the Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.
| Dated: May 9, 2023 | /s/ Paul A. Friedman, M.D. | |||||
| Paul A. Friedman, M.D. | ||||||
| Chief Executive Officer and Chairman of the Board | ||||||
| (Principal Executive Officer) | ||||||
| Dated: May 9, 2023 | /s/ Alex G. Howarth | |||||
| Alex G. Howarth | ||||||
| Senior Vice President and Chief Financial Officer | ||||||
| (Principal Financial and Accounting Officer) | ||||||
These certifications accompany the Form 10-Q, are not deemed filed with the Securities and Exchange Commission and are not to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Form 10-Q), irrespective of any general incorporation language contained in such filing.