MADRIGAL PHARMACEUTICALS, INC. - Quarter Report: 2020 September (Form 10-Q)

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM

10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2020

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from

Commission file number:

001-33277

MADRIGAL PHARMACEUTICALS, INC.

(Exact name of registrant as specified in its charter)


Delaware		04-3508648
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

Four Tower Bridge 200 Barr Harbor Drive, Suite 200 West Conshohocken, Pennsylvania		19428
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code:

(267)824-2827

Former name, former address and former fiscal year, if changed since last report:

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.0001 Par Value Per Share	MDGL	The NASDAQ Stock Market LLC

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. ☒ Yes ☐ No

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). ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a

non-accelerated

filer, a 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.

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 7(a)(2)(B) of the Securities Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule

12b-2

of the Exchange Act). Yes ☐ No ☒

As of October 30, 2020, the registrant had 15,466,451 shares of common stock outstanding.

Table of Contents

MADRIGAL PHARMACEUTICALS, INC.

TABLE OF CONTENTS


Item	Description	Page
	Part I. Financial Information
Item 1.	Financial Statements (Unaudited):		3
	Condensed Consolidated Balance Sheets at September 30, 2020 and December 31, 2019		3
	Condensed Consolidated Statements of Operations for the Three Months and Nine Months Ended September 30, 2020 and 2019		4
	Condensed Consolidated Statements of Comprehensive Loss for the Three Months and Nine Months Ended September 30, 2020 and 2019		5
	Condensed Consolidated Statements of Stockholders’ Equity for the Three Months and Nine Months Ended September 30, 2020 and 2019		6
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2020 and 2019		7
	Notes to Condensed Consolidated Financial Statements		8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		14
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		19
Item 4.	Controls and Procedures		20
	Part II. Other Information
Item 1.	Legal Proceedings		21
Item 1A.	Risk Factors		21
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		21
Item 3.	Defaults Upon Senior Securities		21
Item 4.	Mine Safety Disclosures		21
Item 5.	Other Information		21
Item 6.	Exhibits		21
	Signatures		23

Table of Contents

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

MADRIGAL PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited; in thousands, except share and per share amounts)


	September 30, 2020			December 31, 2019
Assets
Current assets:
Cash and cash equivalents	$	109,120		$	46,697
Marketable securities		226,817			392,348
Prepaid expenses and other current assets		1,664			1,152

Total current assets		337,601			440,197
Property and equipment, net		1,153			1,184
Right-of-use asset		863			675

Total assets	$	339,617		$	442,056

Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	6,277		$	1,178
Accrued expenses		42,773			23,637
Lease liability		315			315

Total current liabilities		49,365			25,130
Long term liabilities:
Lease liability		548			361

Total long term liabilities		548			361

Total liabilities		49,913			25,491

Stockholders’ equity:

Preferred stock, par value $0.0001 per share authorized: 5,000,000 shares at September 30, 2020 and December 31, 2019; 1,969,797 shares issued and outstanding at September 30, 2020 and December 31, 2019		—			—

Common stock, par value $0.0001 per share authorized: 200,000,000 at September 30, 2020 and December 31, 2019; 15,466,451 and 15,429,154 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively		2			2

Additional paid-in-capital		655,622			639,567
Accumulated other comprehensive gain		421			216
Accumulated deficit		(366,341	)		(223,220	)

Total stockholders’ equity		289,704			416,565

Total liabilities and stockholders’ equity	$	339,617		$	442,056

See accompanying notes to condensed consolidated financial statements.

Table of Contents

MADRIGAL PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited; in thousands, except share and per share amounts)


	Three Months Ended September 30,						Nine Months Ended September 30,
	2020			2019			2020			2019
	2020			2019			2020			2019
Revenues:
Total revenues	$	—		$	—		$	—		$	—
Operating expenses:
Research and development		53,292			19,447			131,380			47,414
General and administrative		5,494			4,748			15,738			17,604

Total operating expenses		58,786			24,195			147,118			65,018

Loss from operations		(58,786	)		(24,195	)		(147,118	)		(65,018	)
Interest income		823			2,766			3,897			8,810
Other income		—			—			100			—

Net loss	$	(57,963	)	$	(21,429	)	$	(143,121	)	$	(56,208	)

Net loss per common share:
Basic and diluted net loss per common share	$	(3.75	)	$	(1.39	)	$	(9.27	)	$	(3.65	)
Basic and diluted weighted average number of common shares outstanding		15,448,425			15,415,096			15,437,018			15,383,034

See accompanying notes to condensed consolidated financial statements.

Table of Contents

MADRIGAL PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Unaudited; in thousands)


	Three Months Ended September 30,						Nine Months Ended September 30,
	2020			2019			2020			2019
	2020			2019			2020			2019
Net Loss	$	(57,963	)	$	(21,429	)	$	(143,121	)	$	(56,208	)
Other comprehensive income (loss):
Unrealized gain (loss) on available-for-sale securities		(660	)		(193	)		205			611

Comprehensive loss	$	(58,623	)	$	(21,622	)	$	(142,916	)	$	(55,597	)

See accompanying notes to condensed consolidated financial statements.

Table of Contents

MADRIGAL PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited; in thousands, except share and per share amounts)


	Preferred stock				Common stock				Additional paid-in Capital		Accumulated other comprehensive income (loss)			Accumulated deficit			Total stockholders’ equity
	Shares		Amount		Shares		Amount		Additional paid-in Capital		Accumulated other comprehensive income (loss)			Accumulated deficit			Total stockholders’ equity
Balance at December 31, 2019		1,969,797	$	—		15,429,154	$	2	$	639,567	$	216		$	(223,220	)	$	416,565
Compensation expense related to stock options for services		—		—		—		—		4,846		—			—			4,846
Unrealized gain on marketable securities		—		—		—		—		—		199			—			199
Net loss		—		—		—		—		—		—			(36,135	)		(36,135	)

Balance at March 31, 2020		1,969,797	$	—		15,429,154	$	2	$	644,413	$	415		$	(259,355	)	$	385,475
Exercise of common stock options		—		—		8,970		—		109		—			—			109
Compensation expense related to stock options for services		—		—		—		—		5,689		—			—			5,689
Unrealized gain on marketable securities		—		—		—		—		—		666			—			666
Net loss		—		—		—		—		—		—			(49,023	)		(49,023	)

Balance at June 30, 2020		1,969,797	$	—		15,438,124	$	2	$	650,211	$	1,081		$	(308,378	)	$	342,916
Exercise of common stock options		—		—		28,327		—		350		—			—			350
Compensation expense related to stock options for services		—		—		—		—		5,061		—			—			5,061
Unrealized loss on marketable securities		—		—		—		—		—		(660	)		—			(660	)
Net loss		—		—		—		—		—		—			(57,963	)		(57,963	)

Balance at September 30, 2020		1,969,797	$	—		15,466,451	$	2	$	655,622	$	421		$	(366,341	)	$	289,704


Balance at December 31, 2018		1,969,797	$	—		15,409,023	$	2	$	616,573	$	(319	)	$	(139,272	)	$	476,984
Exercise of common stock options		—		—		8,041		—		83		—			—			83
Compensation expense related to stock options for services		—		—		—		—		6,022		—			—			6,022
Unrealized gain on marketable securities		—		—		—		—		—		497			—			497
Net loss		—		—		—		—		—		—			(15,080	)		(15,080	)

Balance at March 31, 2019		1,969,797	$	—		15,417,064	$	2	$	622,678	$	178		$	(154,352	)	$	468,506
Exercise of common stock options		—		—		9,233		—		117		—			—			117
Compensation expense related to stock options for services		—		—		—		—		7,755		—			—			7,755
Unrealized gain on marketable securities		—		—		—		—		—		307			—			307
Net loss		—		—		—		—		—		—			(19,699	)		(19,699	)

Balance at June 30, 2019		1,969,797	$	—		15,426,297	$	2	$	630,550	$	485		$	(174,051	)	$	456,986
Exercise of common stock options		—		—		2,857		—		35		—			—			35
Compensation expense related to stock options for services		—		—		—		—		4,950		—			—			4,950
Unrealized loss on marketable securities		—		—		—		—		—		(193	)		—			(193	)
Net loss		—		—		—		—		—		—			(21,429	)		(21,429	)

Balance at September 30, 2019		1,969,797	$	—		15,429,154	$	2	$	635,535	$	292		$	(195,480	)	$	440,349

See accompanying notes to condensed consolidated financial statements.

Table of Contents

MADRIGAL PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited; in thousands)


	Nine Months Ended September 30,
	2020			2019
	2020			2019
Cash flows from operating activities:
Net loss	$	(143,121	)	$	(56,208	)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation expense		15,596			18,727
Depreciation and amortization expense		355			84
Changes in operating assets and liabilities:
Prepaid expenses and other current assets		(513	)		(229	)
Accounts payable		5,099			(1,714	)
Accrued expenses		19,136			8,424
Accrued interest, net of interest received on maturity of investments		834			1,574

Net cash used in operating activities		(102,614	)		(29,342	)

Cash flows from investing activities:
Purchases of marketable securities		(213,186	)		(407,073	)
Sales and maturities of marketable securities		378,088			468,325
Purchases of property and equipment, net of disposals		(324	)		(38	)

Net cash provided by investing activities		164,578			61,214

Cash flows from financing activities:
Proceeds from the exercise of common stock options		459			235

Net cash provided by financing activities		459			235

Net increase in cash and cash equivalents		62,423			32,107
Cash and cash equivalents at beginning of period		46,697			57,379

Cash and cash equivalents at end of period	$	109,120		$	89,486

Supplemental disclosure of cash flow information:
Obtaining a right-of-use asset in exchange for a lease liability	$	451		$	900

See accompanying notes to condensed consolidated financial statements.

Table of Contents

MADRIGAL PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Organization, Business, and Basis of Presentation

Organization and Business

Madrigal Pharmaceuticals, Inc. (the “Company” or “Madrigal”) is a clinical-stage pharmaceutical company developing novel, high-quality, small-molecule drugs addressing major unmet needs in cardiovascular, metabolic, and liver diseases. The Company’s lead compound,

MGL-3196

(resmetirom), is being advanced for

non-alcoholic

steatohepatitis (“NASH”), a liver disease that commonly affects people with metabolic diseases such as obesity and diabetes, and

non-alcoholic

fatty liver disease (“NAFLD”). The Company initiated two Phase 3 studies of resmetirom in NASH in 2019. The Company previously completed Phase 2 studies of resmetirom in NASH in May of 2018 and Heterozygous Familial Hypercholesterolemia in February of 2018.

Basis of Presentation

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) have been condensed or omitted. Accordingly, the unaudited condensed consolidated financial statements do not include all information and footnotes required by GAAP for complete annual financial statements. However, we believe that the disclosures included in these financial statements are adequate to make the information presented not misleading. The unaudited condensed financial statements, in the opinion of management, reflect all adjustments, which include normal recurring adjustments, necessary for a fair statement of such interim results. The interim results are not necessarily indicative of the results that we will have for the full year ending December 31, 2020 or any subsequent period. These unaudited condensed financial statements should be read in conjunction with the audited consolidated financial statements and the notes to those statements for the year ended December 31, 2019.

2. Summary of Significant Accounting Policies

Principle of Consolidation

The consolidated financial statements include the financial statements of the Compan

and its wholly owned subsidiaries. All significant intercompany balances have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect certain reported amounts of assets and liabilities, and the reported amounts of revenues and expenses during the reporting periods. The Company bases its estimates on historical experience and various other assumptions that management believes to be reasonable under the circumstances. Changes in estimates are recorded in the period in which they become known. Actual results could differ from those estimates.

Cash and Cash Equivalents

The Company considers all highly liquid investments with original maturities of three months or less at the date of purchase to be cash equivalents. The Company maintains its cash in bank accounts, the balance of which, at times, exceeds Federal Deposit Insurance Corporation insured limits.

The primary objective of the Company’s investment activities is to preserve its capital for the purpose of funding operations and the Company does not enter into investments for trading or speculative purposes. The Company’s cash is deposited in highly rated financial institutions in the United States. The Company invests in money market funds and high-grade, commercial paper and corporate bonds, which management believes are subject to minimal credit and market risk.

Marketable Securities

Marketable securities consist of investments in high-grade corporate obligations and government and government agency obligations that are classified as

available-for-sale.

Since these securities are available to fund current operations, they are classified as current assets on the consolidated balance sheets.

The Company adjusts the cost of

available-for-sale

debt securities for amortization of premiums and accretion of discounts to maturity. The Company includes such amortization and accretion as a component of interest income, net. Realized gains and losses and declines in value, if any, that the Company judges to be other-than-temporary on

available-for-sale

securities are reported as a

Table of Contents

component of interest income, net. To determine whether an other-than-temporary impairment exists, the Company considers whether it intends to sell the debt security and, if the Company does not intend to sell the debt security, it considers available evidence to assess whether it is more likely than not that it will be required to sell the security before the recovery of its amortized cost basis. During the nine months ended September 30, 2020 and 2019, the Company determined it did not have any securities that were other-than-temporarily impaired.

Marketable securities are stated at fair value, including accrued interest, with their unrealized gains and losses included as a component of accumulated other comprehensive income or loss, which is a separate component of stockholders’ equity. The fair value of these securities is based on quoted prices and observable inputs on a recurring basis. Realized gains and losses are determined on the specific identification method. During the nine months ended September 30, 2020 and 2019, the Company did not have any realized gains or losses on marketable securities.

Fair Value of Financial Instruments

The carrying amounts of the Company’s financial instruments, which include cash equivalents and marketable securities, approximate their fair values. The fair value of the Company’s financial instruments reflects the amounts that would be received upon sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy has the following three levels:

Level 1—quoted prices in active markets for identical assets and liabilities.

Level 2—observable inputs other than Level 1 inputs. Examples of Level 2 inputs include quoted prices in active markets for similar assets or liabilities and quoted prices for identical assets or liabilities in markets that are not active.

Level 3—unobservable inputs that reflect the Company’s own assumptions about the assumptions market participants would use in pricing the asset or liability.

Financial assets and liabilities are classified in their entirety within the fair value hierarchy based on the lowest level of input that is significant to the fair value measurement. The Company measures the fair value of its marketable securities by taking into consideration valuations obtained from third-party pricing sources. The pricing services utilize industry standard valuation models, including both income and market based approaches, for which all significant inputs are observable, either directly or indirectly, to estimate fair value. These inputs include reported trades of and broker-dealer quotes on the same or similar securities, issuer credit spreads, benchmark securities and other observable inputs.

As of September 30, 2020, the Company’s financial assets valued based on Level 1 inputs consisted of cash and cash equivalents in a money market fund, its financial assets valued based on Level 2 inputs consisted of high-grade corporate and government agency bonds and commercial paper, and it had no financial assets valued based on Level 3 inputs. During the nine months ended September 30, 2020 and 2019, the Company did not have any transfers of financial assets between Levels 1 and 2. As of September 30, 2020 and December 31, 2019, the Company did not have any financial liabilities that were recorded at fair value on a recurring basis on the balance sheet.

Research and Development Costs

Research and development costs are expensed as incurred. Research and development costs are comprised of costs incurred in performing research and development activities, including internal costs (including stock-based compensation), costs for consultants, milestone payments under licensing agreements, and other costs associated with the Company’s preclinical and clinical programs. In particular, the Company has conducted safety studies in animals, optimized and implemented the manufacturing of our drug, and conducted Phase

1-3

clinical trials, all of which are considered research and development expenditures. Management uses significant judgment in estimating the amount of research and development costs recognized in each reporting period. Management analyzes and estimates the progress of its preclinical studies and clinical trials, completion of milestone events per underlying agreements, invoices received and contracted costs when estimating the research and development costs to accrue in each reporting period. Actual results could differ from the Company’s estimates.

Patents

Costs to secure and defend patents are expensed as incurred and are classified as general and administrative expense in the Company’s consolidated statements of operations.

Stock-Based Compensation

The Company recognizes stock-based compensation expense based on the grant date fair value of stock options granted to employees, officers, and directors. The Company uses the Black-Scholes option pricing model to determine the grant date fair value as management believes it is the most appropriate valuation method for its option grants. The Black-Scholes model requires inputs

Table of Contents

for risk-free interest rate, dividend yield, volatility and expected lives of the options. The expected lives for options granted represent the period of time that options granted are expected to be outstanding. The Company uses the simplified method for determining the expected lives of options. Expected volatility is based upon an industry estimate or blended rate including the Company’s historical trading activity. The risk-free rate for periods within the expected life of the option is based on the U.S. Treasury yield curve in effect at the time of the grant. The Company estimates the forfeiture rate based on historical data. This analysis is

re-evaluated

at least annually and the forfeiture rate is adjusted as necessary.

Certain of the employee stock options granted by the Company are structured to qualify as incentive stock options (“ISOs”). Under current tax regulations, the Company does not receive a tax deduction for the issuance, exercise or disposition of ISOs if the employee meets certain holding requirements. If the employee does not meet the holding requirements, a disqualifying disposition occurs, at which time the Company may receive a tax deduction. The Company does not record tax benefits related to ISOs unless and until a disqualifying disposition is reported. In the event of a disqualifying disposition, the entire tax benefit is recorded as a reduction of income tax expense. The Company has not recognized any income tax benefit for its share-based compensation arrangements due to the fact that the Company does not believe it is more likely than not it will realize the related deferred tax assets.

Income Taxes

The Company uses the asset and liability method to account for income taxes. Deferred tax assets and liabilities are determined based on the expected future tax consequences of temporary differences between the Company’s financial statement carrying amounts and the tax basis of assets and liabilities using enacted tax rates expected to be in effect in the years in which the differences are expected to reverse. The Company currently maintains a 100% valuation allowance on its deferred tax assets.

Comprehensive Loss

Comprehensive loss is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from

non-owner

sources. Changes in unrealized gains and losses on marketable securities represent the only difference between the Company’s net loss and comprehensive loss.

Basic and Diluted Loss Per Common Share

Basic net loss per share is computed using the weighted average number of common shares outstanding during the period, excluding restricted stock that has been issued but is not yet vested. Diluted net loss per common share is computed using the weighted average number of common shares outstanding and the weighted average dilutive potential common shares outstanding using the treasury stock method. However, for the nine months ended September 30, 2020 and 2019, diluted net loss per share is the same as basic net loss per share because the inclusion of weighted average shares of unvested restricted common stock, common stock issuable upon the exercise of stock options, and common stock issuable upon the conversion of preferred stock would be anti-dilutive.

The following table summarizes outstanding securities not included in the computation of diluted net loss per common share, as their inclusion would be anti-dilutive:


	Nine Months Ended September 30,
	2020		2019
Common stock options		1,810,753		1,461,237
Preferred stock		1,969,797		1,969,797

Recent Accounting Pronouncements

In June 2016, the FASB issued ASU

2016-13,

“Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” which requires all or a portion of the amortized cost basis of a financial asset to be written off when it is deemed uncollectible. For public business entities that do not qualify as a smaller reporting company, ASU

2016-13

is effective for annual and interim reporting periods beginning after December 15, 2019. The Company adopted ASU

2016-13

effective January 1, 2020. There was no significant impact from the adoption.

3. Liquidity and Uncertainties

The Company is subject to risks common to development stage companies in the biopharmaceutical industry including, but not limited to, uncertainty of product development and commercialization, dependence on key personnel, uncertainty of market acceptance of products and product reimbursement, product liability, uncertain protection of proprietary technology, potential inability to raise additional financing necessary for development and commercialization, and compliance with the U.S. Food and Drug Administration and other government regulations.

The Company has incurred losses since inception, including approximately $143.1 million for the nine months ended September 30, 2020, resulting in an accumulated deficit of approximately $366.3 million as of September 30, 2020. Management expects to incur losses for the foreseeable future. To date, the Company has funded its operations primarily through proceeds from sales of the Company’s common and Series A Convertible Preferred Stock.

Table of Contents

The Company believes that its cash, cash equivalents and marketable securities at September 30, 2020 will be sufficient to fund operations past one year from the issuance of these financial statements. To meet its future capital needs, the Company intends to raise additional capital through debt or equity financings, collaborations, partnerships or other strategic transactions. However, there can be no assurance that the Company will be able to complete any such transactions on acceptable terms or otherwise. The inability of the Company to obtain sufficient funds on acceptable terms when needed could have a material adverse effect on the Company’s business, results of operations and financial condition. The Company has the ability to delay certain research activities and related clinical expenses if necessary due to liquidity concerns until a date when those concerns are relieved.

4. Cash, Cash Equivalents and Marketable Securities

A summary of cash, cash equivalents and

available-for-sale

marketable securities held by the Company as of September 30, 2020 and December 31, 2019 is as follows (in thousands):


	September 30, 2020
	Cost		Unrealized gains		Unrealized losses			Fair value
Cash and cash equivalents:
Cash (Level 1)	$	2,062	$	—	$	—		$	2,062
Money market funds (Level 1)		107,058		—		—			107,058
Corporate debt securities due within 3 months of date of purchase (Level 2)		—		—		—			—

Total cash and cash equivalents		109,120		—		—			109,120
Marketable securities:
Corporate debt securities due within 1 year of date of purchase (Level 2)		211,513		413		(15	)		211,911
U.S. government and government sponsored entities due within 1 year of date of purchase (Level 2)		12,479		22		—			12,501
Corporate debt securities due within 1 to 2 years of date of purchase (Level 2)		2,404		3		(2	)		2,405

Total cash, cash equivalents and marketable securities	$	335,516	$	438	$	(17	)	$	335,937


	December 31, 2019
	Cost		Unrealized gains		Unrealized losses			Fair value
Cash and cash equivalents:
Cash (Level 1)	$	1,772	$	—	$	—		$	1,772
Money market funds (Level 1)		44,925		—		—			44,925
Corporate debt securities due within 3 months of date of purchase (Level 2)		—		—		—			—

Total cash and cash equivalents		46,697		—		—			46,697
Marketable securities:
Corporate debt securities due within 1 year of date of purchase (Level 2)		309,365		220		(40	)		309,545
Corporate debt securities due within 1 to 2 years of date of purchase (Level 2)		82,767		39		(3	)		82,803

Total cash, cash equivalents and marketable securities	$	438,829	$	259	$	(43	)	$	439,045

Table of Contents

5. Accrued Liabilities

Accrued liabilities as of September 30, 2020 and December 31, 2019 consisted of the following (in thousands):


	September 30, 2020		December 31, 2019
Contract research organization costs	$	29,750	$	13,775
Other clinical study related costs		6,923		2,621
Compensation and benefits		2,883		2,779
Professional fees		790		1,177
Other		2.427		3,285

Total accrued liabilities	$	42,773	$	23,637

6. Stockholders’ Equity

Common Stock

Each common stockholder is entitled to one vote for each share of common stock held. Each share of common stock is entitled to receive dividends, as and when declared by the Company’s board of directors.

The Company has never declared cash dividends on its common stock and does not expect to do so in the foreseeable future.

Preferred Stock

The Series A Preferred Stock has a par value of $0.0001 per share and is convertible into shares of the common stock at a

one-to-one

ratio, subject certain limitations and to adjustment provisions as provided in the Certificate of Designation of Preferences, Rights and Limitations of Series A Convertible Preferred Stock, that the Company filed with the Secretary of State of the State of Delaware on June 21, 2017 (the “Series A Certificate”). The terms of the Series A Preferred Stock are set forth in the Series A Certificate. Upon any liquidation, dissolution or

winding-up

of the Company, whether voluntary or involuntary, after the satisfaction in full of the debts of the Company and the payment of any liquidation preference owed to the holders of shares of capital stock of the Company ranking prior to the Series A Preferred Stock upon liquidation, the holders of the Series A Preferred Stock shall participate pari passu with the holders of the Common Stock (on an

as-if-converted-to-Common-Stock

basis) in the net assets of the Company. Shares of the Series A Preferred Stock will generally have no voting rights, except as required by law. Shares of the Series A Preferred Stock will be entitled to receive dividends before shares of any other class or series of capital stock of the Company (other than dividends in the form of the Common Stock) generally equal to the dividend payable on each share of the Common Stock, on an

as-converted

basis.

7. Stock-based Compensation

The 2015 Stock Plan, as amended, is our primary plan through which equity based grants are awarded. We ceased making new awards under the 2006 Stock Plan upon adoption of the 2015 Stock Plan. The 2015 Stock Plan provides for the grant of incentive stock options,

non-statutory

stock options, restricted stock and other stock-based compensation awards to employees, officers, directors, and consultants of the Company. The administration of the 2015 Stock Plan is under the general supervision of the Compensation Committee of the Board of Directors. The terms of stock options awarded under the 2015 Stock Plan, in general, are determined by the Compensation Committee, provided the exercise price per share generally shall not be set at less than the fair market value of a share of the common stock on the date of grant and the term shall not be greater than

ten years

from the date the option is granted. As of September 30, 2020, the Company had options outstanding to purchase 1,810,753 shares of its common stock, which includes options outstanding under its 2006 Stock Plan. As of September 30, 2020, 965,282 shares were available for future issuance.

The following table summarizes stock option activity during the nine months ended September 30, 2020:


	Shares			Weighted average exercise price
Outstanding at January 1, 2020		1,461,987		$	64.67
Options granted		410,125			89.21
Options exercised		(37,297	)		12.30
Options cancelled		(24,062	)		96.47

Outstanding at September 30, 2020		1,810,753		$	70.89

Exercisable at September 30, 2020		1,147,815		$	53.88

Table of Contents

The total cash received by the Company as a result of stock option exercises was $0.5 million and $0.2 million, respectively, for the nine months ended September 30, 2020 and 2019. The weighted-average grant date fair values, based on the Black-Scholes option model, of options granted during the nine months ended September 30, 2020 and 2019 were $65.65 and $91.65, respectively.

Stock-Based Compensation Expense

Stock-based compensation expense during the nine months ended September 30, 2020 and 2019 was as follows (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Stock-based compensation expense by type of award:
Stock options	$	5,061	$	4,922	$	15,596	$	18,455
Restricted stock		—		28		—		272

Total stock-based compensation expense	$	5,061	$	4,950	$	15,596	$	18,727


Effect of stock-based compensation expense by line item:
Research and development	$	2,266	$	2,404	$	6,633	$	6,647
General and administrative		2,795		2,546		8,963		12,080

Total stock-based compensation expense included in net loss	$	5,061	$	4,950	$	15,596	$	18,727

Unrecognized stock-based compensation expense on stock options as of September 30, 2020 was $41.1 million with a weighted average remaining period of 2.7 years.

8. Commitments and Contingencies

The Company has a Research, Development and Commercialization Agreement with

Hoffmann-La

Roche (“Roche”) which grants the Company a sole and exclusive license to develop, use, sell, offer for sale and import any Licensed Product as defined by the agreement. The agreement requires future milestone payments to Roche. Remaining milestones under the agreement total $8 million and are earned by achieving specified objectives related to future regulatory approval in the United States and Europe of a product developed from resmetirom. A single-digit royalty payment range is based on net sales of products developed from resmetirom, subject to certain reductions. Except as described above, the Company has not achieved any additional product development or regulatory milestones and had no Licensed Product sales for the nine months ended September 30, 2020 and 2019.

The Company has entered into customary contractual arrangements and letters of intent in support of its Phase 3 clinical trials.

9. Subsequent Event

In November 2020, the Company

is entering

into an

at-the-market

sales agreement (the “2020 Sales Agreement”), with Cowen and Company, LLC (“Cowen”), pursuant to which the Company may, from time to time, issue and sell shares of its common stock. The Company is not obligated to make any sales of its common stock under the 2020 Sales Agreement. Any shares sold will be sold pursuant to an effective shelf registration statement on Form

S-3,

(the “Registration Statement”), and a prospectus supplement

that will be

filed pursuant to the Registration Statemen

t. The Sales Agreement

will authorize

an aggregate offering price of up to $200 million in shares of our common stock, from time to time, at the Company’s option, through Cowen as its sales agent. Sales of common stock through Cowen may be made by any method that is deemed an

“at-the-market”

offering as defined in Rule 415 promulgated under the Securities Act of 1933, as amended, including by means of ordinary brokers’ transactions at market prices, in block transactions or as otherwise agreed by the Company and Cowen. Subject to the terms and conditions of the 2020 Sales Agreement, Cowen will use commercially reasonable efforts consistent with its normal trading and sales practices to sell the common stock based upon the Company’s instructions (including any price, time or size limits or other customary parameters or conditions the Company may impose).

The 2020 Sales Agreement may be terminated by the Company at any time upon 10 days’ notice.

Table of Contents

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form

10-Q

contains “forward-looking statements” made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, that are based on our beliefs and assumptions and on information currently available to us, but are subject to factors beyond our control. Forward-looking statements include but are not limited to statements or references concerning: our clinical trials; research and development activities; the timing and results associated with the future development of our lead product candidate,

MGL-3196

(resmetirom); our primary and secondary study endpoints for resmetirom and the potential for achieving such endpoints and projections; optimal dosing levels for resmetirom; projections regarding potential future NASH resolution, safety, fibrosis treatment, cardiovascular effects, lipid treatment or biomarker effects with resmetirom; the predictive power of liver fat reduction on NASH resolution with fibrosis reduction or improvement; the achievement of enrollment objectives concerning patient number, safety database and/or timing for our studies; potential NASH or NAFLD patient risk profile benefits with resmetirom; our possible or assumed future results of operations and expenses, business strategies and plans, capital needs and financing plans, trends, market sizing, competitive position, industry environment and potential growth opportunities, among other things. Forward-looking statements: reflect management’s current knowledge, assumptions, judgment and expectations regarding future performance or events; include all statements that are not historical facts; and can be identified by terms such as “allow,” “anticipates,” “be,” “believes,” “continue,” “could,” “demonstrates,” ”design,” “estimates,” “expects,” “forecasts,” “future,” “hopeful,” “goal,” “intends,” “may,” “might,” “plans,” “potential,” “predicts,” ”predictive,” “projects,” “seeks,” “should,” “will,” “will achieve,” “would” or similar expressions and the negatives of those terms. Although management presently believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to be correct and you should be aware that actual results could differ materially from those contained in the forward-looking statements.

Forward-looking statements are subject to a number of risks and uncertainties including, but not limited to: our clinical development of resmetirom; enrollment uncertainties, generally and in relation to

COVID-19

quarantine,

shelter-in-place

and social distancing measures and individual precautionary measures that may be implemented or continued for an uncertain period of time; outcomes or trends from competitive studies; future topline data timing or results; the risks of achieving potential benefits in studies that includes substantially more patients than our prior studies; the timing and outcomes of clinical studies of resmetirom; and the uncertainties inherent in clinical testing. Undue reliance should not be placed on forward- looking statements, which speak only as of the date they are made. Madrigal undertakes no obligation to update any forward-looking statements to reflect new information, events or circumstances after the date they are made, or to reflect the occurrence of unanticipated events. Please refer to Madrigal’s filings with the U.S. Securities and Exchange Commission for more detailed information regarding these risks and uncertainties and other factors that may cause actual results to differ materially from those expressed or implied. We specifically discuss these risks and uncertainties in greater 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, 2019, filed with the SEC on February 26, 2020, and Part II, Item 1A of the Quarterly Report on Form

10-Q

for the period ended June 30, 2020, filed with the SEC on August 6, 2020, as well as in our other filings with the SEC.

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, 2019 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, 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 “Special Note Regarding Forward-Looking Statements” in this

Form 10-Q

and in the “Risk Factors” sections contained in Part I, Item 1A of our Annual Report on

Form 10-K

for the year ended December 31, 2019, filed with the SEC on February 26, 2020, and Part II, Item 1A of the Quarterly Report on Form 10-Q for the period ended June 30, 2020, filed with the SEC on August 6, 2020. 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 focused on the development and commercialization of innovative therapeutic candidates

for the treatment of cardiovascular, metabolic, and liver diseases. Our lead product candidate,

MGL-3196

(resmetirom), is a proprietary, liver-directed, selective thyroid hormone receptor-ß, or

THR-ß,

agonist being developed as a once-daily oral pill that can potentially be used to treat a number of disease states with high unmet medical need, including

non-alcoholic

steatohepatitis, or 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

Table of Contents

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 alone, NAFLD is estimated to affect approximately 27% to 34% of the population, or an estimated 86 million to 108 million people, and approximately 10% to 20% of this population is projected to progress from NAFLD to NASH. Current estimates place NASH prevalence at approximately 9 million to 15 million people in the United States, or three percent to five percent of the population, with similar prevalence in Europe and Asia.

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 have completed treatment in a

36-week,

open-label extension study in 31 participating NASH patients from our Phase 2 clinical trial, which includes 14 patients who received placebo in the main study. We also completed a 116 patient Phase 2 clinical trial and announced results in February 2018 for the use of resmetirom in patients with heterozygous familial hypercholesterolemia, or HeFH. In addition to the NASH and HeFH Phase 2 clinical trials, resmetirom has also been studied in eight completed Phase 1 trials in a total of 219 subjects. Resmetirom appeared to be safe and was well-tolerated in these trials, which included a single ascending dose trial, a multiple ascending dose trial, two drug interaction trials with statins, a multiple dose mass balance study, a single dose relative bioavailability study of tablet formulation versus capsule formulation, a multiple dose drug interaction study, and a multiple dose drug interaction with food effect study.

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 will be conducted at more than 150 sites in the United States and the rest of the world. Patients with liver biopsy confirmed NASH with stage 2 or 3 fibrosis will be randomized 1:1:1 to receive a single oral daily dose of placebo, resmetirom 80 mg or resmetirom 100 mg. A second liver biopsy at week 52 in the first 900 patients will be the basis of filing for subpart

H-accelerated

approval; the primary endpoint will be the percent of patients treated with either dose of resmetirom as compared with placebo who achieve NASH resolution on the week 52 liver biopsy, defined as the absence of hepatocyte ballooning (score=0), and minimal lobular inflammation (score

0-1),

associated with at least a

2-point

reduction in NAS (NAFLD Activity Score), and no worsening of fibrosis stage. Two key secondary endpoints are reduction in

LDL-cholesterol

and a

1-point

or more improvement in fibrosis stage on the week 52 biopsy with no worsening of NASH. Patients will continue in the study for a total of approximately 54 months, and will be evaluated for a composite clinical outcome including cirrhosis on liver biopsy, or a liver related event such a hepatic decompensation. The total anticipated enrollment is approximately 2,000 patients, and will include up to 15% high risk F1 fibrosis stage NASH patients whose efficacy responses will be evaluated as exploratory endpoints.

On December 18, 2019 the Company announced it had opened for enrollment

MAESTRO-NAFLD-1,

52-week,

double-blind, placebo controlled Phase 3 clinical study originally targeting enrollment of 700 patients with biopsy-confirmed or presumed NASH recruited from sites in the U.S. Key endpoints are safety, including safety biomarkers, LDL cholesterol, lipid biomarkers, and fibrosis biomarkers. Except for serial liver biopsies, the study protocol is similar to the MAESTRO-NASH study with resmetirom doses of 80 mg or 100 mg or placebo and includes key secondary lipid,

MRI-PDFF

and NASH biomarker endpoints. Enrollment objectives for this study have been exceeded, with approximately 1,200 patients enrolled overall. In October 2020 we completed enrollment of the double-blind, placebo controlled arms of the study. This may allow topline data from the 52 week double blind arms by the end of 2021. Open label enrollment is ongoing for patients with compensated NASH cirrhosis. 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 NASH in patients with F2 or F3 fibrosis (MAESTRO-NASH, NASH resolution surrogate endpoint).

Recent Developments

Initiation of MAESTRO-NASH Phase 3 clinical trial

In March of 2019 we initiated a Phase 3 trial in NASH, described in detail above under “About Madrigal; Our Ongoing and Planned Studies.”

FDA grants Fast Track designation for resmetirom in NASH

In October 2019, FDA granted Fast Track designation to resmetirom for NASH.

Initiation of

MAESTRO-NAFLD-1

Phase 3 clinical trial and completion of enrollment of the double-blind, placebo controlled arm

In December 2019 we initiated a Phase 3 trial in presumed NASH, described in detail above under “About Madrigal; Our Ongoing and Planned Studies.”

In October 2020 we completed enrollment of the double-blind, placebo controlled arms of the study.

Table of Contents

COVID-19

Pandemic Effects on Madrigal

In April 2020 we announced that in response to guidance from regulatory agencies, measures for

COVID-19

at impacted sites have been put in place for its Phase 3 MAESTRO-NASH and

MAESTRO-NAFLD-1

studies, allowing both studies to continue without changes to the protocol. At a recently conducted Data Monitoring Committee (DMC) meeting it was recommended that Phase 3 studies proceed without modification. The

COVID-19

pandemic had no material adverse impact on our operating results,

MAESTRO-NAFLD-1

study or liquidity for the period ended September 30, 2020, but it did introduce clinical trial and operational risks and uncertainties that are both general in nature and relate specifically to our MAESTRO-NASH study. These risks and uncertainties, which are beyond our control, are referenced as “Risk Factors” and summarized in Part II, Item 1A, “Risk Factors” on Form

10-Q

for the period ending June 30, 2020 filed with the SEC on August 6, 2020.

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.

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 2020 and 2019 and we expect that our research and development expenses will increase substantially 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 early research programs, results of ongoing and future clinical trials, our ability to enter into 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, liability insurance, and allocated overhead expenses.

Table of Contents

We expect that our general and administrative expenses may increase in the future as we advance our clinical and preclinical development programs for resmetirom and expand our operating activities, including maintaining and expanding our patent portfolio, incurring 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 nine months ended September 30, 2020, as compared to those disclosed in our Annual Report on Form

10-K

for the fiscal year ended December 31, 2019 filed with the SEC on February 26, 2020.

Results of Operations

Three months Ended September 30, 2020 and 2019

The following table provides comparative unaudited results of operations for the three months ended September 30, 2020 and 2019 (in thousands):


	Three Months Ended September 30,						Increase / (Decrease)
	2020			2019			$			%
	2020			2019			$			%
Research and Development Expenses	$	53,292		$	19,447			33,845			174	%
General and Administrative Expenses		5,494			4,748			746			16	%
Interest (Income)		(823	)		(2,766	)		(1,943	)		(70	%)

	$	57,963			21,429			36,534			170	%

Revenue

We had no revenue for the three months ended September 30, 2020 and 2019.

Research and Development Expenses

Our research and development expenses were $53.3 million for the three months ended September 30, 2020, compared to $19.4 million in the corresponding period in 2019. Research and development expenses increased by $33.8 million in the 2020 period due primarily to the additional activities related to the Phase 3 clinical trials initiated in 2019, and an increase in head count. We expect our research and development expenses to increase over time as we advance our clinical and preclinical development programs for resmetirom.

General and Administrative Expenses

Our general and administrative expenses were $5.5 million for the three months ended September 30, 2020, compared to $4.7 million in the corresponding period in 2019. General and administrative expenses increased by $0.7 million in the 2020 period due primarily to increases in head count and consulting costs. We believe our general and administrative expenses may increase over time as we advance our clinical and preclinical development programs for resmetirom 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 $0.8 million for the three months ended September 30, 2020, compared to $2.8 million in the corresponding period in 2019. The decrease in interest income was due primarily to a lower average principal balance in our investment account in 2020 and decreased interest rates.

Table of Contents

Nine months Ended September 30, 2020 and 2019

The following table provides comparative unaudited results of operations for the nine months ended September 30, 2020 and 2019 (in thousands):


	Nine Months Ended September 30,						Increase / (Decrease)
	2020			2019			$			%
	2020			2019			$			%
Research and Development Expenses	$	131,380		$	47,414			83,966			177	%
General and Administrative Expenses		15,738			17,604			(1,866	)		(11	%)
Interest (Income)		(3,897	)		(8,810	)		(4,913	)		(56	%)
Other (income)		(100	)		—			100			100	%

	$	143,121		$	56,208			86,913			155	%

Revenue

We had no revenue for the nine months ended September 30, 2020 and 2019.

Research and Development Expenses

Our research and development expenses were $131.4 million for the nine months ended September 30, 2020, compared to $47.4 million in the corresponding period in 2019. Research and development expenses increased by $84.0 million in the 2020 period due primarily to the additional activities related to the Phase 3 clinical trials initiated in 2019, and an increase in head count. We expect our research and development expenses to increase over time as we advance our clinical and preclinical development programs for resmetirom.

General and Administrative Expenses

Our general and administrative expenses were $15.7 million for the nine months ended September 30, 2020, compared to $17.6 million in the corresponding period in 2019. General and administrative expenses decreased by $1.9 million in the 2020 period due primarily to a decrease in

non-cash

stock compensation from stock option awards, partially offset by increases in other general and administrative expenses. We believe our general and administrative expenses may increase over time as we advance our clinical and preclinical development programs for resmetirom 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 $3.9 million for the nine months ended September 30, 2020, compared to $8.8 million in the corresponding period in 2019. The decrease in interest income was due primarily to a lower average principal balance in our investment account in 2020 and decreased interest rates.

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. 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 September 30, 2020, we had cash, cash equivalents and marketable securities totaling $335.9 million compared to $439.0 million as of December 31, 2019, with the decrease attributable to the funding of operations. 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, we believe our available cash resources as of September 30, 2020 will be sufficient to fund our operations past one year from the issuance of the financial statements contained herein, and this outlook takes into account circumstances that are currently reasonably foreseeable in connection with the

COVID-19

pandemic. For a description of

COVID-19

pandemic risks, including risks and uncertainties beyond our control, see Part II, Item 1A, “Risk Factors” on Form

10-Q

for the period ending June 30, 2020 filed with the SEC on August 6, 2020. Our future long-term liquidity requirements will be substantial and will depend on many factors. To meet future long-term liquidity requirements, we will need to raise additional capital to fund our operations through equity or debt financing. 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. This includes, but is not limited to, the use of a $200 million

at-the-market

sales agreement entered into in November of 2020, with

Table of Contents

Cowen and Company, LLC. See footnote 9 to our condensed consolidated financial statements in this Form 10-Q. Additional capital may not be available on terms acceptable to us, or at all. 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.

Cash Flows

The following table provides a summary of our net cash flow activity (in thousands):


	Nine Months Ended September 30,
	2020			2019
	2020			2019
Net cash used in operating activities	$	(102,614	)	$	(29,342	)
Net cash provided by investing activities		164,578			61,214
Net cash provided by financing activities		459			235

Net increase in cash and cash equivalents	$	62,423		$	32,107

Net cash used in operating activities was $102.6 million for the nine months ended September 30, 2020, compared to $29.3 million for the corresponding period in 2019. 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 provided by investing activities was $164.6 million for the nine months ended September 30, 2020, compared to $61.2 million for the corresponding period in 2019. Net cash provided by investing activities for the nine months ended September 30, 2020 consisted of $378.1 million from sales and maturities of marketable securities, partially offset by $213.2 million of purchases of marketable securities for our investment portfolio and $0.3 million of purchases of property and equipment. Net cash provided by investing activities for the nine months ended September 30, 2019 consisted of $468.3 million from sales and maturities of marketable securities, partially offset by $407.1 million of purchases of marketable securities for our investment portfolio.

Net cash provided by financing activities was $0.5 million for the nine months ended September 30, 2020, compared to $0.2 million for the corresponding period in 2019, both of which consisted of proceeds from exercise of stock options.

Contractual Obligations and Commitments

No significant changes to contractual obligations and commitments occurred during the nine months ended September 30, 2020, as compared to those disclosed in our Annual Report on Form

10-K

for the fiscal year ended December 31, 2019 filed with the SEC on February 26, 2020.

Off-Balance

Sheet Arrangements

We do not have any off balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation

S-K.

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. 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.

Table of Contents

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.

Table of Contents

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, 2019, filed with the SEC on February 26, 2020, and in Part II, Item 1A in our Quarterly Report on Form

10-Q

for the period ended June 30, 2020 filed with the SEC on August 6, 2020.

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.

Table of Contents

EXHIBIT INDEX

Exhibit

Incorporated by Reference

Filed

Number

Exhibit Description

Form

File No.

Exhibit

Filing Date

Herewith

31.1

Certification of Principal Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2

Certification of Principal Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1**

Certifications of Principal Executive Officer and Principal Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS

Inline XBRL Instance Document.

101.SCH

Inline XBRL Taxonomy Extension Schema Document.

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document.

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document.

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document.

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document.

104

Inline XBRL for the cover page of this Annual Report on

Form 10-K,

included in the Exhibit 101 Inline XBRL Document Set.

*	Certain portions of this exhibit have been redacted in accordance with Item 601(b)(10) of Regulation S-K.

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.

Table of Contents

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: November 5, 2020	By:	/s/ Paul A. Friedman,
		M.D. Paul A. Friedman,
		M.D. Chief Executive Officer
		(Principal Executive Officer)

Date: November 5, 2020	By:	/s/ Marc R. Schneebaum
		Marc R. Schneebaum
		Chief Financial Officer
		(Principal Financial and Accounting Officer)