Madrigal Pharmaceuticals, Inc. — Q3 2019 Form 10-Q
Reporting period: Three and nine months ended September 30, 2019. Madrigal is a clinical-stage biopharmaceutical company with no product revenue; its lead candidate, resmetirom (MGL-3196), is being developed primarily for NASH.
Financial performance and liquidity
Amounts below are in millions of dollars, except per-share data.
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Research and development expense | $19.4 | $6.2 | $47.4 | $16.5 |
| General and administrative expense | $4.7 | $5.1 | $17.6 | $9.7 |
| Net loss | $(21.4) | $(8.5) | $(56.2) | $(21.3) |
| Basic and diluted loss per share | $(1.39) | $(0.56) | $(3.65) | $(1.46) |
| Interest income | $2.8 | $2.8 | $8.8 | $4.7 |
- Margins: Not meaningful because the company reported no revenue. Operating loss was $24.2 million in Q3 and $65.0 million for the first nine months.
- Cash flow: Operating cash use was $29.3 million for the nine months, versus $19.2 million in 2018. Investing activities provided $61.2 million, mainly reflecting marketable-security maturities and sales net of purchases. Financing provided $0.2 million; the prior-year period included $311.8 million of net proceeds from a stock offering.
- Liquidity: Cash, cash equivalents and marketable securities totaled $453.6 million at September 30, 2019, down from $483.7 million at year-end 2018. Management expected these resources to fund operations beyond one year from issuance of the statements.
- Debt and liabilities: The filing reports no borrowings. Total liabilities were $15.9 million, including $0.8 million of lease liabilities; current liabilities were $15.5 million. Accrued expenses increased to $14.4 million from $6.0 million at year-end, including $7.9 million of accrued contract research costs.
Material changes versus prior comparable periods
- Q3 net loss widened to $21.4 million from $8.5 million; nine-month net loss widened to $56.2 million from $21.3 million.
- R&D expense rose 213% in Q3 and 187% year to date, primarily due to NASH Phase 3 trial activity, increased headcount and higher stock-based compensation. Nine-month G&A expense increased 81%, primarily reflecting stock-based compensation.
- Nine-month interest income increased to $8.8 million from $4.7 million, principally due to a higher average investment balance.
- Cash and marketable securities declined by $30.1 million from December 31, 2018. The company issued no equity in the 2019 period; 2018 financing included the June offering.
Outlook, development, and risks
- Madrigal initiated a Phase 3 NASH trial in March 2019. The study plans approximately 2,000 patients and evaluates resmetirom doses of 80 mg and 100 mg against placebo. A week-52 biopsy in the first 900 patients is intended to support a potential accelerated-approval filing; patients are expected to be followed for approximately 54 months.
- The company planned a second Phase 3 NASH/NAFLD trial to assess lipid, fibrosis and noninvasive measures. In October 2019, after the quarter-end, the FDA granted resmetirom Fast Track designation.
- Initiation of the Phase 3 study triggered a $2 million Roche milestone payment. The filing states that $8 million of specified future regulatory milestones remain; royalties would apply to future net sales.
- Management expects substantial ongoing losses and rising R&D expense as development advances, and says future capital needs will be substantial. Additional financing may be needed; it may not be available on acceptable terms and equity financing could dilute shareholders. Management said available resources should cover operations beyond one year, while noting it could delay certain research and clinical spending if needed.
- Key risks include clinical-trial uncertainty, enrollment and study outcomes, regulatory approval, competition, commercialization and reimbursement, and the possibility that additional financing cannot be obtained. The filing reported no material pending legal proceedings and no material changes to previously disclosed risk factors.
Important facts for investors to verify
- Current enrollment, timelines and interim or final results for the Phase 3 NASH program, including the planned second trial.
- Whether the study meets its biopsy-based efficacy endpoints and whether results support regulatory approval; Fast Track designation is not approval.
- Cash consumption, investment balances and the estimated runway as trial spending increases.
- Accrued clinical-trial costs, Roche milestone obligations and any future financing or dilution.
- Potential stock-based compensation impact: nine-month 2019 expense was $18.7 million, and $35.4 million remained unrecognized at September 30.