MADRIGAL PHARMACEUTICALS, INC. quarterly report, Q1 FY2023

Business context and reporting period

Madrigal Pharmaceuticals, Inc. is a clinical-stage biopharmaceutical company developing resmetirom, an oral THR-β agonist for NASH. This unaudited Form 10-Q covers the three months ended March 31, 2023, with comparisons to Q1 2022. The company had no product revenue and remains dependent on financing to fund research and development.

Financial results and position

Operating expenses totaled $78.3 million, up 36% year over year; net loss increased 34%. No operating margin is meaningful given the absence of revenue. Interest income was $3.8 million and interest expense was $2.3 million. Total assets were $332.4 million, liabilities $182.3 million, and stockholders’ equity $150.1 million. Current assets of $331.3 million exceeded current liabilities of $98.3 million.

Cash and cash equivalents alone were $113.3 million, versus $331.5 million at year-end; the decrease largely reflects transfers into marketable securities, as well as operating cash use. Investing activities used $186.9 million, mainly from $198.8 million of security purchases, partially offset by maturities and sales. Financing provided $52.7 million, including $35.0 million of loan proceeds and $17.9 million from stock-related proceeds and option exercises. Comprehensive loss was $77.0 million.

Material changes versus the prior comparable period

• R&D expense rose $14.2 million (30%), primarily from expanded Phase 3 activity, including MAESTRO-NASH-OUTCOMES, higher headcount, and stock compensation.
• G&A expense rose $6.5 million (68%), reflecting commercial preparation, headcount growth, and stock compensation.
• Interest income increased from $0.1 million to $3.8 million, reflecting higher balances and rates; interest expense increased to $2.3 million following the 2022 Hercules loan.
• In February 2023, Madrigal drew an additional $35 million under its amended Hercules facility. The loan’s rate was 10.45% at quarter-end; principal matures in May 2026, subject to potential extensions and milestone-based terms.

Outlook, commentary, and risks

Management expects substantial losses and spending to continue, with R&D and G&A potentially rising as clinical development and commercialization preparation advance. Madrigal believes its March 31 cash, equivalents, and marketable securities will fund operations for more than one year from issuance of the financial statements. It may nevertheless need further financing, collaborations, or strategic transactions; management cautions that funding may not be available on acceptable terms and says it could delay research, clinical, or commercial-preparation spending if needed.

Resmetirom is in Phase 3 development. The company reported in December 2022 that the MAESTRO-NASH trial met both primary endpoints at both tested doses. Subsequent to quarter-end, Madrigal announced FDA Breakthrough Therapy designation in April 2023 and completion of enrollment in the MAESTRO-NASH outcomes portion. These developments do not assure FDA approval or commercial success. Key risks include clinical and regulatory outcomes, trial timing and safety, manufacturing reliance, competition, commercialization and market acceptance, financing needs, and debt-covenant compliance. The loan carried a minimum liquidity covenant; the company reported compliance at March 31, 2023. No material pending legal proceedings or material changes to previously reported risk factors were disclosed.

In May 2023, the company amended its at-the-market sales agreement, authorizing up to $200 million in additional common-stock sales at its option. Such sales could dilute existing shareholders. The filing also reports $8 million of remaining Roche regulatory milestones and tiered single-digit royalties on future resmetirom net sales.

Important facts for investors to verify

• Progress, full results, and regulatory implications of the Phase 3 MAESTRO-NASH program, including what the reported endpoint results and Breakthrough Therapy designation do—and do not—establish.
• Cash runway assumptions, expected clinical and commercialization spending, and whether additional financing will be required.
• Hercules facility draw availability, interest-rate exposure, repayment schedule, covenant requirements, and the impact of any further borrowing.
• Potential dilution from the newly authorized $200 million ATM program, outstanding options, restricted stock units, warrants, and convertible preferred shares.
• Future Roche milestones and royalties, and the timing and costs of any commercialization or ex-U.S. partnering plans.