Madrigal Pharmaceuticals, Inc. — Q3 2018 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2018. Madrigal is a clinical-stage biopharmaceutical company with no product revenue, developing MGL-3196 for NASH and dyslipidemia.
Financial performance
Amounts below are in millions of dollars except per-share data. The company reported no revenue in either comparable period; profit margins are therefore not meaningful.
| Metric | Q3 2018 | Q3 2017 | Nine months 2018 | Nine months 2017 |
|---|---|---|---|---|
| Research and development expense | $6.2 | $6.7 | $16.5 | $17.9 |
| General and administrative expense | $5.1 | $2.0 | $9.7 | $5.3 |
| Operating loss | $11.3 | $8.6 | $26.2 | $23.2 |
| Interest income | $2.8 | $0.2 | $4.7 | $0.3 |
| Net loss | $8.5 | $8.4 | $21.3 | $22.7 |
| Net loss per common share | $0.56 | $0.68 | $1.46 | $1.87 |
At September 30, cash and cash equivalents were $38.0 million and marketable securities were $450.5 million, totaling $488.5 million, versus $191.5 million at year-end 2017. Current liabilities were $6.6 million; the company reported no debt. Stockholders’ equity was $482.9 million. Management said available resources were expected to fund operations for more than one year from issuance of the financial statements.
- Cash flow, nine months: Operating cash used was $19.2 million, compared with $16.4 million in 2017. Financing provided $313.7 million, principally from the June 2018 stock offering and option exercises. Investing used $405.1 million, mainly reflecting purchases of marketable securities, partly offset by maturities and sales; this largely reflects treasury portfolio management rather than operating spend.
- Liquidity and financing: The June 2018 public offering generated approximately $311.8 million net proceeds. The company may seek additional debt or equity financing, collaborations, or other transactions; additional funding may not be available on acceptable terms and equity issuance could dilute stockholders.
Material changes and operating developments
- Quarterly and year-to-date R&D expense declined 7% and 8%, respectively, which management attributed primarily to completion of treatment in Phase 2 trials during 2018. Management nevertheless expects R&D expense to rise as development advances.
- G&A expense rose 162% in Q3 and 84% year to date, primarily due to higher non-cash stock-based compensation. Stock compensation was $5.0 million in Q3 and $8.4 million year to date, versus $1.0 million and $2.3 million, respectively, in 2017.
- Higher interest income reflected a larger average investment balance and increased interest rates. Year-to-date net loss narrowed despite higher operating expenses, principally because of this increase in interest income.
- Madrigal reported positive topline 36-week results from its 125-patient Phase 2 NASH trial in May 2018 and had an ongoing 36-week open-label extension with 31 participating patients. The 116-patient Phase 2 HeFH trial was completed, with results reported in February 2018.
Outlook, risks and contingencies
- The company expects continuing operating losses and substantial development spending, including as it initiates a Phase 3 clinical program. It provided no quantified earnings or revenue guidance.
- Development and regulatory approval remain uncertain; management cautioned that it may never obtain approval for a product candidate. Other risks include clinical-trial execution, commercialization and reimbursement, competition, intellectual property, regulatory compliance, and ability to raise capital.
- Under its Roche license, remaining milestone payments total $10 million, contingent on specified Phase 3 and U.S./European regulatory milestones; single-digit royalties may also apply to future product net sales. No product sales or additional milestones were reported to date.
- The company reported no material pending legal proceedings, no significant change to previously disclosed risk factors, and no off-balance-sheet arrangements. It stated that short-term investments were not expected to create a material interest-rate impact, though cash balances at financial institutions exceeded federally insured limits.
- Disclosure controls were assessed as effective at a reasonable-assurance level; no material change in internal control over financial reporting was reported.
Important facts for investors to verify
- Current MGL-3196 Phase 3 plans, timing, costs, and subsequent clinical or regulatory developments.
- Cash, cash equivalents and marketable securities, and whether projected cash runway still exceeds one year given planned trial spending.
- Potential dilution from future financing, stock compensation, outstanding options, and preferred shares convertible into common stock.
- Roche milestone triggers and royalty terms, and whether any new contractual commitments or contingencies have arisen.