MADRIGAL PHARMACEUTICALS, INC. - Quarter Report: 2021 June (Form 10-Q)

 

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, (resmetirom), is being advanced for steatohepatitis (“NASH”), a liver disease that commonly affects people with metabolic diseases such as obesity and diabetes, and fatty liver disease (“NAFLD”). The Company initiated two Phase 3 studies of resmetirom in NASH in 2019 that are ongoing. The Company previously completed Phase 2 studies of resmetirom in NASH in May of 2018 and Heterozygous Familial Hypercholesterolemia (“HeFH”) in February of 2018

Marketable securities consist of investments in high-grade corporate obligations and government and government agency obligations that are classified as Since these securities are available to fund current operations, they are classified as current assets on the consolidated balance sheets.

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 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.

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

Comprehensive loss is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from sources. Changes in unrealized gains and losses on marketable securities represent the only difference between the Company’s net loss and comprehensive loss.

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

A summary of cash, cash equivalents and marketable securities held by the Company as of June 30, 2021 and December 31, 2020 is as follows (in thousands):

 

 

Each common stockholder generally is entitled to vote for each share of common stock held, subject to limitations as may be established for certain other classes and series of stock of the Company from time to time. Each share of common stock is entitled to receive dividends, as and when declared by the

winding-up

no

as-converted

entered into an

sales agreement (the “2020 Sales Agreement”), with Cowen and Company, LLC (“Cowen”), pursuant to which the Company could, from time to time, issue and sell shares of its common stock. The 2020 Sales Agreement authorized an aggregate offering of up to $

 million in shares of our common stock, at the Company’s option, through Cowen as its sales agent. Sales of common stock through Cowen could be made by any method that is deemed an

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

30, 2021, 1,126,733 shares had been sold under the 2020 Sales Agreement for an aggregate of approximately $137.4 million in gross proceeds, with net proceeds to the Company of approximately $134.6 million after deducting commissions and other transaction costs. Of those shares sold, 1,087,126 were sold 2021, and 39,607 were sold in

S-3

200

200

 

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

from the date the option is granted. As of June 30, 2021, the Company had options outstanding to purchase

shares of its common stock, which includes options outstanding under its 2006 Stock Plan. As of June 30, 2021,

shares were

The total cash received by the Company as a result of stock option exercises was $0.5 million and $0.1 million, respectively, for the six months ended June 30, 2021 and 2020. The weighted-average grant date fair values, based on the Black-Scholes option model, of options granted during the six months ended June 30, 2021 and 2020 were $78.34 and $64.74, respectively

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 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 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 2016, in the United States alone, NAFLD was estimated to affect approximately 26% of the population, or an estimated 85 million people, and approximately 20% of this population was projected to progress from NAFLD to NASH. Current estimates place NASH prevalence at approximately 17 million people in the United States, or five percent of the population. Slightly lower prevalence is seen in the EU and Asia, with approximately of the population having NASH.

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 also completed a open-label extension study in 31 participating NASH patients from our Phase 2 clinical trial, which included 14 patients who received placebo in the main study. 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 is being conducted at more than 200 sites in the United States and the rest of the world. Patients with liver biopsy confirmed NASH with stage 2 or 3 fibrosis are being 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 as 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 June 30, 2021 we announced achievement of target enrollment of patients to support the planned Subpart H (Accelerated Approval of New Drugs for Serious or Life-Threatening Illnesses) submission to the US Food and Drug Administration (FDA). On December 18, 2019 the Company

announced it had opened for enrollment a multi-center, double-blind, placebo-controlled Phase 3 clinical study of patients with biopsy-confirmed or presumed NASH recruited from sites in the U.S. Key endpoints are safety, including safety biomarkers. Secondary endpoints include LDL cholesterol, lipid biomarkers, NASH 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. In October 2020, we completed enrollment of the double-blind, placebo-controlled arms of the study. Enrollment objectives for this study have been exceeded, with approximately 1,300 patients enrolled overall. The 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). On July 13, 2021 we announced first patient dosed in a planned open label active treatment extension study of named MAESTRO-NAFLD-Open Label Extension (OLE). The OLE study allows patients who complete to consent to 52 weeks of active treatment with resmetirom, making this treatment available to both patients who were assigned to placebo in and patients who were on resmetirom in

In April 2020 we announced that in response to guidance from regulatory agencies, measures for at impacted sites have been put in place for our 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. The pandemic had no material adverse impact on our operating results, study or liquidity for the period ended June 30, 2021 and year ended December 31, 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 summarized in the section entitled “Risk Factors” in Part I, Item 1A of our Annual Report on Form for the year ended December 31, 2020, filed with the SEC on February 25, 2021.

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. 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 substantially expanding our workforce for commercial hires, and maintaining and expanding our patent portfolio. We expect these potential increases will likely include management and personnel costs, legal fees, accounting fees, directors’ and officers’ liability insurance premiums and expenses associated with investor relations.

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 six months ended June 30, 2021, as compared to those disclosed in our Annual Report on Form for the fiscal year ended December 31, 2020 filed with the SEC on February 25, 2021.

As of June 30, 2021, we had cash, cash equivalents and marketable securities totaling $323.8 million compared to $284.1 million as of December 31, 2020, with the increase attributable to net proceeds of $130.2 million (reflecting $2.4 million in commissions plus other transaction expenses) raised from the sale of 1,087,126 shares under our sales agreement, partially offset by 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 June 30, 2021 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 pandemic. For a description of pandemic risks, including risks and uncertainties beyond our control, see Part I, Item 1A, “Risk Factors” on Form for the year ended December 31, 2020, filed with the SEC on February 25, 2021. 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 and intend to raise additional capital to fund our operations, primarily through equity or debt financings. 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 the $200 million sales agreement. 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.

Net cash used in operating activities was $90.3 million for the six months ended June 30, 2021, compared to $54.8 million for the corresponding period in 2020. 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 six months ended June 30, 2021, as compared to those disclosed in our Annual Report on Form for the fiscal year ended December 31, 2020 filed with the SEC on February 25, 2021.

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.

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 for the year ended December 31, 2020, filed with the SEC on February 25, 2021.

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.