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

☒	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

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)

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

Large accelerated filer		☒		Accelerated filer		☐
Non-accelerated filer		☐		Smaller reporting company		☐
				Emerging growth company		☐

Table of Contents 

Item		Description		Page
		Part I. Financial Information
Item 1.		Financial Statements (Unaudited):			1
		Condensed Consolidated Balance Sheets at March 31, 2020 and December 31, 2020			1
		Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2020 and 2019			2
		Condensed Consolidated Statements of Comprehensive Loss for the Three Months Ended March 31, 2020 and 2019			3
		Condensed Consolidated Statements of Stockholders’ Equity for the Three Months Ended March 31, 2020 and 2019			4
		Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2020 and 2019			5
		Notes to Condensed Consolidated Financial Statements			6
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			12
Item 3.		Quantitative and Qualitative Disclosures About Market Risk			16
Item 4.		Controls and Procedures			17
		Part II. Other Information
Item 1.		Legal Proceedings			17
Item 1A.		Risk Factors			17
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds			18
Item 3.		Defaults Upon Senior Securities			18
Item 4.		Mine Safety Disclosures			18
Item 5.		Other Information			18
Item 6.		Exhibits			18
		Signatures			20

		March 31, 2020				December 31, 2019
Assets
Current assets:
Cash and cash equivalents		$	66,651			$	46,697
Marketable securities			341,859				392,348
Prepaid expenses and other current assets			976				1,152
Total current assets			409,486				440,197
Property and equipment, net			1,373				1,184
Right-of-use asset			598				675
Total assets		$	411,457			$	442,056
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable		$	1,115			$	1,178
Accrued expenses			24,269				23,637
Lease liability			319				315
Total current liabilities			25,703				25,130
Long term liabilities:
Lease liability			279				361
Total long term liabilities			279				361
Total liabilities			25,982				25,491
Stockholders’ equity:
Preferred stock, par value $0.0001 per share authorized: 5,000,000 shares at March 31, 2020 and December 31, 2019; 1,969,797 shares issued and outstanding at March 31, 2020 and December 31, 2019			—				—
Common stock, par value $0.0001 per share authorized: 200,000,000 at March 31, 2020 and December 31, 2019; 15,429,154 shares issued and outstanding at March 31, 2020 and December 31, 2019			2				2
Additional paid-in-capital			644,413				639,567
Accumulated other comprehensive gain (loss)			415				216
Accumulated deficit			(259,355	)			(223,220	)
Total stockholders’ equity			385,475				416,565
Total liabilities and stockholders’ equity		$	411,457			$	442,056

		Three Months Ended March 31,
		2020				2019
Revenues:
Total revenues		$	—			$	—
Operating expenses:
Research and development			33,400				12,373
General and administrative			4,605				5,746
Total operating expenses			38,005				18,119
Loss from operations			(38,005	)			(18,119	)
Interest income			1,870				3,039
Net loss		$	(36,135	)		$	(15,080	)
Net loss per common share:
Basic and diluted net loss per common share		$	(2.34	)		$	(0.98	)
Basic and diluted weighted average number of common shares outstanding			15,429,154				15,364,465

		Three Months Ended March 31,
		2020				2019
Net Loss			(36,135	)		$	(15,080	)
Other comprehensive income (loss):
Unrealized gain on available-for-sale securities			199				497
Comprehensive loss		$	(35,936	)		$	(14,583	)

		Three Months Ended
		March 31,
		2020				2019
Common stock options			1,728,112				1,367,077
Unvested restricted common stock			—				52,063
Preferred stock			1,969,797				1,969,797

		March 31, 2020
		Cost				Unrealized				Unrealized				Fair
						gains				losses				value
Cash and cash equivalents:
Cash (Level 1)		$	1,668			$	—			$	—			$	1,668
Money market funds (Level 1)			63,532				—				—				63,532
Corporate debt securities due within 3 months of date of purchase (Level 2)			1,451				—				—				1,451
Total cash and cash equivalents			66,651				—				—				66,651
Marketable securities:
Corporate debt securities due within 1 year of date of purchase (Level 2)			320,478				680				(261	)			320,897
Corporate debt securities due within 1 to 2 years of date of purchase (Level 2)			20,966				39				(43	)			20,962
Total cash, cash equivalents and marketable securities		$	408,095			$	719			$	(304	)		$	408,510

		December 31, 2019
		Cost				Unrealized				Unrealized				Fair
						gains				losses				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

		March 31,				December 31,
		2020				2019
Accrued contract research costs		$	18,105			$	13,775
Compensation and benefits			1,124				2,779
Professional fees			816				1,177
Other			4,224				5,906
		$	24,269			$	23,637

		Shares				Weighted average exercise price
Outstanding at January 1, 2020			1,461,987			$	64.67
Options granted			266,125				90.75
Outstanding at March 31, 2020			1,728,112			$	68.69
Exercisable at March 31, 2020			1,025,465			$	45.81

		Three Months Ended March 31,
		2020				2019
Stock-based compensation expense by type of award:
Stock options		$	4,846			$	5,901
Restricted stock			—				121
Total stock-based compensation expense		$	4,846			$	6,022
Effect of stock-based compensation expense by line item:
Research and development		$	2,078			$	1,877
General and administrative			2,768				4,145
Total stock-based compensation expense included in net loss		$	4,846			$	6,022

This Quarterly Report on Form 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, and the timing and results associated with the future development of our lead product candidate, (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; 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 “anticipates,” “be,” “believes,” “continue,” “could,” “demonstrates,” ”design,” “estimates,” “expects,” “forecasts,” “future,” “goal,” “intends,” “may,” “might,” “plans,” “potential,” “predicts,” ”predictive,” “projects,” “seeks,” “should,” “will,” “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 mandatory lock-down measures and individual precautionary measures that may be implemented for an uncertain period of time; outcomes or trends from competitive studies; 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 section entitled “Risk Factors” in Part I, Item 1A of our Annual Report on Form for the year ended December 31, 2019, as well as in our other filings with the SEC.

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

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

For NASH, we enrolled 125 patients in a Phase 2 clinical trial with resmetirom. We achieved the primary endpoint for this Phase 2 clinical trial and reported the results in December 2017, and we reported positive topline results at the conclusion of the Phase 2 clinical trial in May 2018. We have completed treatment in a 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.

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 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 associated with at least a reduction in NAS (NAFLD Activity Score), and no worsening of fibrosis stage. Two key secondary endpoints are reduction in and a 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 10, 2019 the Company announced it had opened for enrollment a double-blind, placebo controlled Phase 3 clinical study in 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, and NASH biomarker endpoints. In addition, includes an open label arm in which up to 100 patients will be dosed with 100 mg resmetirom. The MAESTRO 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).

In April 2020 we announced that in response to guidance from regulatory agencies, measures for at impacted sites have been put in place for its Phase 3 MAESTRO-NASH and 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.

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, 2020, as compared to those disclosed in our Annual Report on Form for the fiscal year ended December 31, 2019 filed with the SEC on February 26, 2020.

Our research and development expenses were $33.4 million for the three months ended March 31, 2020, compared to $12.4 million in the corresponding period in 2019. Research and development expenses increased by $21.0 million in the 2020 period due primarily to the additional activities related to the Phase 3 clinical trials initiated in 2019, an increase in head count, and an increase in stock compensation from stock option awards. We expect our research and development expenses to increase over time as we advance our clinical and preclinical development programs for resmetirom.

Our general and administrative expenses were $4.6 million for the three months ended March 31, 2020, compared to $5.7 million in the corresponding period in 2019. General and administrative expenses decreased by $1.1 million in the 2020 period due primarily to a decrease in 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, which will likely result in an increase in our headcount, consulting services, and related overhead needed to support those efforts.

Net cash used in operating activities was $30.5 million for the three months ended March 31, 2020, compared to $6.5 million for the corresponding period in 2019. The use of cash in these periods resulted primarily from our losses from operations, as adjusted for charges for stock-based compensation, and changes in our working capital accounts.

No significant changes to contractual obligations and commitments occurred during the three months ended March 31, 2020, as compared to those disclosed in our Annual Report on Form for the fiscal year ended December 31, 2019 filed with the SEC on February 26, 2020.

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

Our disclosure controls and procedures (as defined in Rules and  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.

There has been no change in our internal control over financial reporting (as defined in Rule 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. 

Our business is subject to substantial risks and uncertainties. You should carefully consider the risk factors set forth below as well as the other information contained in this Quarterly Report on Form and in our other public filings in evaluating our business, including risk factors in our 2019 Annual Report on Form for the year ended December 31, 2019, which was filed with the SEC on February 26, 2020 (collectively, our “Risk Factors”). Any of our Risk Factors either alone or taken together, could materially and adversely affect our business, financial condition, results of operations or prospects and the value of our common stock. In addition, these risks and uncertainties could cause actual results to differ materially from those expressed or implied by forward-looking statements contained in this Form See “Special Note Regarding Forward-Looking Statements” in this Form There have been no material changes to the Risk Factors as previously disclosed in the Company’s 2019 Annual Report on Form except as follows:

The pandemic is causing many governments to implement measures to slow the spread of the outbreak through quarantines, travel restrictions, heightened border security, and other measures. This outbreak and the resulting governmental measures have had a significant impact, both direct and indirect, on businesses and commerce, as supply chains have been disrupted; facilities and production have been suspended; unemployment has increased; and demand for certain goods and services, such as medical services and supplies, has spiked. The future progression of the pandemic and its effects on our business and operations are uncertain.

We and our contract research organizations (“CROs”) and contract manufacturing organizations (“CMO”) may face disruptions that may affect our ability to conduct and timely complete ongoing clinical trials including disruptions in procuring items that are essential for our development activities, such as materials and intermediates used in the manufacturing of resmetirom. We and our CROs and CMOs, as well as clinical trial sites, may face disruptions related to our ongoing clinical trials arising from staffing disruptions and limitations on our activities and the activities of our CROs and CMOs, and delays in the ability to obtain necessary institutional review board or other necessary site approvals or delays in site initiations or site monitoring visits, as well as other delays at clinical trial sites. We may also face limitations on enrollment and patients withdrawing from our clinical trials or not complying with the protocol procedures, which could delay completion of our clinical trials or adversely affect the data generated by our clinical trials. The response to the pandemic also could redirect resources with respect to regulatory and intellectual property matters in a way that could adversely impact our ability to progress regulatory approvals and protect our intellectual property. In addition, we may face impediments to regulatory meetings and approvals due to measures that are intended to limit interactions. The pandemic has significantly impacted economies worldwide, which could result in adverse effects on our business and operations. Moreover, the pandemic has also caused significant disruptions in the financial markets, and may continue to cause such disruptions, which has led to increased trading volatility and significant stock price declines within the first quarter of 2020 and may adversely impact the future volatility and value of our stock and future trading in our stock.

In accordance with governmental pronouncements, we have instituted policies to facilitate working remotely. The continuation of personnel working from home (not only at Madrigal, but also at CROs, CMOs, clinical sites and governmental and supervisory bodies) may negatively impact our productivity, or disrupt, delay, or otherwise adversely impact our business. This could adversely impact our business operations or delay necessary interactions with regulators, ethics committees, manufacturing sites, research or clinical trial sites and other important agencies and contractors, including our CROs and CMOs. We cannot be certain what the overall impact of the pandemic will be on our business. However, it has the potential to adversely affect our business, financial condition, results of operations, and prospects.

We may not be able to continue clinical trials for resmetirom as planned if we are unable to locate and enroll a sufficient number of eligible patients to participate in these trials as required by the FDA or similar regulatory authorities outside of the United States. In particular, because resmetirom is focused on specific patient populations, our ability to enroll eligible patients may be limited or may result in slower enrollment than we anticipate. If the pandemic continues, patient recruitment and enrollment in our clinical trials may be adversely affected, delayed or interrupted. Patients may choose to withdraw from our studies or we may choose to or be required to pause enrollment and or patient dosing in our ongoing clinical trials in order to preserve health resources and protect trial participants. It is unknown whether or how long pauses or disruptions could occur or continue.

The exhibits filed or furnished as part of this Quarterly Report on Form are set forth on the Exhibit Index, which Exhibit Index is incorporated herein by reference.