Madrigal Pharmaceuticals, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2016. The filing was made November 14, 2016. Madrigal is a clinical-stage biopharmaceutical company developing MGL-3196 for non-alcoholic steatohepatitis (NASH) and dyslipidemia. On July 22, 2016, it completed a reverse merger with Synta Pharmaceuticals; Madrigal was the accounting acquirer, and the combined company adopted the Madrigal name. Prior-period results reflect private Madrigal.
Financial performance and position
| Metric | Q3 2016 | Q3 2015 | Nine months 2016 | Nine months 2015 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Research and development expense | $7.8 million | $0.7 million | $10.4 million | $1.7 million |
| General and administrative expense | $6.3 million | $0.2 million | $7.1 million | $0.7 million |
| Net loss | $14.0 million | $1.8 million | $18.6 million | $5.0 million |
| Basic and diluted loss per share | $1.34 | $0.25 | $2.24 | $0.68 |
| Operating cash used | — | — | $12.3 million | $2.0 million |
- At September 30, 2016, cash and cash equivalents were $8.4 million and marketable securities were $31.2 million, totaling $39.6 million. Current assets were $41.2 million; current liabilities were $3.9 million; stockholders’ equity was $37.6 million.
- There were no convertible notes payable at quarter-end. Approximately $45.1 million of related-party notes converted into about 7.1 million shares in connection with the merger; the notes had been $48.6 million at December 31, 2015. Lenders also waived $13.68 million of accrued interest during the restructuring.
- Nine-month investing cash flow provided $11.9 million, including $5.8 million of cash received in the merger and net proceeds from marketable-security sales and maturities. Financing cash flow provided $8.5 million, primarily from related-party convertible notes. Cash increased $8.1 million during the period.
- Profit margins are not meaningful because the company had no revenue and incurred operating losses.
Material changes and unusual items
- Year-over-year net loss increased by $12.2 million in the quarter and $13.7 million for the nine-month period. Management attributed the higher expenses mainly to merger-related stock compensation and increased MGL-3196 development activity; G&A also included merger and public-company costs.
- Stock-based compensation was $7.35 million for the nine months, including $5.41 million related to a change-in-control bonus plan. The filing also reports a $750,000 cash merger advisory success fee and $500,000 settled in shares.
- Quarterly interest income was approximately $42,000, compared with $920,000 of net interest expense in Q3 2015. Nine-month net interest expense declined to $1.17 million from $2.65 million, partly reflecting the interest waiver and conversion of debt.
Outlook, risks and contingencies
- Management expected cash and marketable securities, together with the merger-related financing and debt conversion, to fund operations for at least 12 months from September 30, 2016. It expects substantial future R&D spending and losses, with no product revenue expected for the foreseeable future. Management said a Phase 3 NASH program would require a strategic partner or significant additional financing.
- In October 2016, the first patient was dosed in the Phase 2 NASH study of MGL-3196. This triggered a milestone payment under the Roche agreement. The filing states $10.8 million of Roche development and regulatory milestones remained; the amount of the triggered payment is not specified. Roche is also entitled to single-digit royalties on qualifying net sales, subject to reductions.
- Key risks include clinical-trial failure or delay, uncertain long-term safety and efficacy, patient enrollment, regulatory requirements, competition, reliance on third-party manufacturers, and intellectual-property protection. The filing describes a prior FDA partial clinical hold related to dosing MGL-3196 with statins; the timing of the FDA response could affect trial timing or enrollment.
- Additional financing may be needed and could dilute shareholders; financing may not be available on acceptable terms. The company reported no material legal proceedings and no off-balance-sheet arrangements. Management assessed disclosure controls as effective; internal-control integration was still being evaluated following the merger.
Important facts for investors to verify
- Phase 2 NASH trial progress, results, timing, and any FDA response affecting concomitant statin use.
- Actual cash burn and runway, including the Roche milestone triggered in October and expected clinical-development costs.
- Funding needs for later-stage trials and the likelihood and terms of any partnership, debt, or equity financing.
- Merger-related accounting, stock compensation, post-merger share count and potential dilution. The filing reports 11,570,149 common shares outstanding as of November 11, 2016.
- Final merger purchase-price allocation, which was preliminary at the filing date, and the remaining Roche milestone and royalty obligations.