Madrigal Pharmaceuticals, Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. Madrigal is a clinical-stage biopharmaceutical company developing resmetirom for NASH; it reported no revenue and is dependent on financing to fund development.
Financial performance and position
- Q2 net loss: $70.7 million, or $4.14 per share, versus $61.7 million, or $3.72 per share, in Q2 2021. Revenue was zero in both periods.
- First-half net loss: $128.2 million, or $7.50 per share, versus $114.2 million, or $7.05 per share, in the first half of 2021.
- Q2 operating expenses: $70.3 million, up 14% year over year. Research and development was $58.5 million (+13%); general and administrative expense was $11.8 million (+16%).
- First-half operating expenses: $127.9 million, up 11% year over year. R&D was $106.4 million (+9%); G&A was $21.4 million (+24%). No operating margin is meaningful given the absence of revenue.
- Cash and liquidity: Cash, cash equivalents and marketable securities totaled $211.8 million at June 30, 2022, down from $270.3 million at December 31, 2021. Management said these resources were expected to fund operations for more than one year from the financial-statement issuance date.
- Cash flows, first half: Operating cash use was $107.3 million, compared with $90.3 million in 2021. Investing activities provided $75.2 million, primarily reflecting net maturities and sales of securities. Financing provided $49.1 million, including the initial loan draw; cash and cash equivalents increased $17.0 million.
- Debt: Madrigal drew $50 million under its new Hercules facility. The loan’s stated rate was 8.70% at June 30; the facility has a 7.45% minimum rate and is linked to prime. The balance-sheet carrying amount, net of discount, was $48.7 million.
- Other balance-sheet measures: Total assets were $216.4 million; total liabilities $132.9 million; stockholders’ equity $83.5 million; accumulated deficit $795.6 million. Accrued liabilities were $71.8 million, including $57.3 million of contract research organization costs.
Material changes versus prior periods
- Q2 net loss increased $9.1 million (15%) year over year; first-half net loss increased $14.1 million (12%). Higher clinical-trial activity, headcount and stock compensation drove R&D growth; commercial preparation and related headcount and stock compensation drove G&A growth.
- The company entered a secured loan facility of up to $250 million in May 2022, drawing $50 million at closing. Up to $125 million more is available subject to clinical and regulatory milestones; a further $75 million requires Hercules’ approval.
- Interest expense rose to $0.8 million in both the Q2 and first-half periods due to the new facility. There were no common-stock ATM sales in the first half of 2022; $159.2 million remained available under the 2021 ATM agreement at June 30.
Outlook, developments and risks
- Management expects continued operating losses and rising development costs, including from ongoing trials and a planned MAESTRO-NASH Outcomes study. It provided no quantified revenue or earnings guidance.
- Resmetirom is being evaluated in Phase 3 studies. Madrigal reported that MAESTRO-NAFLD-1 met certain primary and key secondary endpoints; reported findings included improvements in liver-fat and lipid measures. The filing also describes adverse-event rates and notes increased early gastrointestinal events.
- In May 2022, the company made NASH resolution and a one-point fibrosis improvement dual primary endpoints in MAESTRO-NASH. The design permits a potential Subpart H filing if either endpoint is met; approval and timing remain uncertain.
- The loan is secured by substantially all company assets other than intellectual property. Interest-only payments initially run for 30 months, with possible extensions tied to milestones and covenant compliance. Financial covenants, including a minimum liquidity covenant of $35 million, commence January 1, 2023; the company reported compliance at June 30, 2022.
- Key risks include clinical-trial enrollment, outcomes, safety and timing; regulatory approval; commercialization and market acceptance; and the ability to raise additional capital on acceptable terms. Future equity financing could dilute shareholders, while additional debt may restrict operations. The filing reported no material pending legal proceedings and no material changes to previously disclosed risk factors.
Important facts for investors to verify
- Progress, timing and results for MAESTRO-NASH and the planned MAESTRO-NASH Outcomes study, including whether either dual primary endpoint is achieved.
- Cash burn and liquidity runway as clinical and commercial-preparation spending increases; availability and conditions for drawing remaining loan tranches and using the ATM.
- Loan interest-rate exposure, covenant thresholds and compliance, including the minimum-liquidity requirement starting in 2023.
- Potential dilution from outstanding options, preferred shares convertible one-for-one into common stock, and any future equity issuance.
- Potential milestone payments and royalties under the Roche agreement: $8 million in remaining regulatory milestones and tiered single-digit royalties on future net sales, subject to reductions.