Madrigal Pharmaceuticals, Inc. — Q2 2018 Form 10-Q
Reporting period: Three and six months ended June 30, 2018. The company is a clinical-stage biopharmaceutical developer with no product revenue; its lead candidate, MGL-3196, is being developed for NASH and dyslipidemia, including HeFH.
Key financial results
| Metric | Q2 2018 | Q2 2017 | Six months 2018 | Six months 2017 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Research and development expense | $5.1 million | $6.8 million | $10.3 million | $11.2 million |
| General and administrative expense | $2.7 million | $1.6 million | $4.6 million | $3.3 million |
| Net loss | $6.5 million | $8.3 million | $12.8 million | $14.3 million |
| Net loss per share, basic and diluted | $0.45 | $0.69 | $0.90 | $1.20 |
At June 30, 2018, cash and cash equivalents were $264.9 million and marketable securities were $225.4 million, totaling $490.3 million, versus $191.5 million at December 31, 2017. Current liabilities were $5.4 million; the balance sheet reported no debt. Stockholders’ equity was $486.1 million and accumulated deficit was $119.3 million. With no revenue or cost of sales, a commercial gross margin is not applicable.
For the first six months, operating cash use was $14.0 million (prior year: $11.4 million); investing cash use was $183.0 million, primarily reflecting purchases of marketable securities; and financing provided $313.3 million. Cash increased by $116.2 million. The June public offering generated approximately $311.8 million net proceeds, following issuance of 1,079,580 shares at $305 per share. The offering increased the common share count.
Changes and operating developments
- Q2 net loss narrowed by $1.9 million year over year; six-month net loss narrowed by $1.5 million. Higher interest income, reflecting a larger investment balance, contributed to the improvement.
- Q2 R&D expense fell 25%, and six-month R&D fell 8%, primarily because treatment in Phase 2 trials was completed. G&A rose 67% in Q2 and 38% for the six-month period, mainly due to increased non-cash stock compensation.
- Management reported positive topline 36-week results from the 125-patient Phase 2 NASH study in May 2018; the study was completed that month. A 36-week open-label extension had 31 participating patients. The 116-patient Phase 2 HeFH study was completed in February, with results reported that month.
Outlook, risks and contingencies
- Management expects continuing operating losses and substantial development spending. It expects R&D expense to increase as the company advances MGL-3196, including a planned Phase 3 NASH program. No specific financial guidance or Phase 3 start date is provided in the filing text.
- The company believes existing cash, cash equivalents and marketable securities will fund operations for more than one year from issuance of the financial statements. It also states that additional capital may be needed for later development and commercialization; financing may be unavailable or dilutive, and Phase 3 NASH may require a strategic partner or additional working capital.
- Key risks include clinical efficacy and long-term safety uncertainty, trial design and enrollment, regulatory requirements, manufacturing dependence, competition, intellectual-property protection, and the ability to secure financing. MGL-3196 is not approved for any indication.
- The Roche license includes up to $10 million in remaining development and regulatory milestone payments and single-digit royalties on applicable net sales, subject to reductions. No material pending legal proceedings or off-balance-sheet arrangements were reported. The company said disclosure controls were effective and no material change in internal control occurred in the quarter.
- The filing reports $0.2 million of other income for Q2 and the six-month period; the provided filing text does not clearly explain its source.
Investor verification points
- Review the full Phase 2 NASH and HeFH data, including endpoints, safety findings, and how Phase 3 plans and patient populations may differ.
- Verify Phase 3 timing, trial design, expected spending, and whether a partner or additional financing will be required.
- Track cash burn and investment balances against the stated runway, distinguishing marketable-security purchases from operating cash use.
- Assess dilution and potential share supply, including the June offering, convertible preferred stock, outstanding options, and remaining at-the-market capacity.
- Confirm the source and nature of the reported other income and review the Roche milestone and royalty terms.