Madrigal Pharmaceuticals, Inc. — Q2 2019 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2019. Madrigal is a clinical-stage biopharmaceutical company with no product revenue; its lead candidate, resmetirom (MGL-3196), is being developed for NASH and other metabolic and liver diseases.
Key financial results
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Research and development | $15.6 million | $5.1 million | $28.0 million | $10.3 million |
| General and administrative | $7.1 million | $2.7 million | $12.9 million | $4.6 million |
| Net loss | $19.7 million | $6.5 million | $34.8 million | $12.8 million |
| Basic and diluted loss per share | $1.28 | $0.45 | $2.26 | $0.90 |
| Operating cash used | Not provided for quarter | Not provided for quarter | $18.0 million | $14.0 million |
At June 30, 2019, cash and cash equivalents were $72.5 million and marketable securities were $393.9 million, totaling $466.4 million. Total assets were $469.8 million; total liabilities were $12.8 million, including $0.8 million in lease liabilities. The filing reports no conventional borrowings. Accumulated deficit was $174.1 million. No operating margin is meaningful given the absence of revenue.
Changes versus the comparable period
- Q2 operating expenses rose to $22.7 million from $7.8 million, while net loss increased to $19.7 million from $6.5 million. For the first half, operating expenses increased to $40.8 million from $14.9 million.
- Management attributed higher R&D costs primarily to starting the Phase 3 NASH trial, including a Roche milestone, higher headcount, and increased non-cash stock compensation. Higher G&A was primarily attributed to stock-based compensation.
- Six-month interest income increased to $6.0 million from $1.9 million, mainly due to a higher average investment balance and higher interest rates.
- Cash and marketable securities declined $17.3 million from December 31, 2018. Operating activities used $18.0 million; investing activities provided $32.9 million as security maturities and sales exceeded purchases; financing provided $0.2 million from option exercises. In the first half of 2018, financing provided $313.3 million, primarily from a common-stock offering.
Outlook, risks, and notable items
- In March 2019, Madrigal initiated a global, placebo-controlled Phase 3 NASH study, targeting approximately 2,000 patients. The first 900 patients’ week-52 biopsies are intended to support a potential accelerated-approval filing. Patients are expected to remain in the study for approximately 54 months for longer-term clinical outcomes.
- Management expects substantial R&D spending to continue increasing as clinical development advances and says G&A may also rise. The filing provides no numeric earnings or spending guidance.
- Management believes available cash and investments should fund operations for more than one year from issuance of the financial statements, but expects losses to continue and anticipates needing additional capital. Financing may not be available on acceptable terms; equity financing could dilute shareholders and debt could impose restrictive covenants.
- Starting the Phase 3 study triggered a $2 million Roche milestone. A further $8 million of specified regulatory milestones remains, plus single-digit royalties on future net sales, subject to reductions. Madrigal reported no licensed-product sales.
- Key risks include clinical-trial uncertainty, enrollment and outcome risks, competition, regulatory approval, commercialization and reimbursement, and the need for future financing. The company reported no material pending legal proceedings and no material changes to the risk factors in its 2018 Form 10-K. Disclosure controls were deemed effective; no material change in internal control was reported.
Important facts for investors to verify
- Phase 3 enrollment, trial progress, timing, and eventual biopsy and clinical-outcome results for resmetirom.
- Cash use and investment balances relative to the company’s stated runway, and the timing and terms of any additional financing.
- Whether rising clinical and stock-based compensation costs continue to accelerate, and how these affect losses and share dilution.
- Roche milestone obligations and potential future royalties, alongside the absence of current product revenue.