Madrigal Pharmaceuticals, Inc. — FY 2018 Form 10-K
Business context and reporting period. This annual filing covers the fiscal year ended December 31, 2018; quarterly figures include the three months ended December 31, 2018. Madrigal was a clinical-stage biopharmaceutical company with no marketed products or product revenue. Its lead candidate, MGL-3196, was being developed for NASH and dyslipidemia.
Financial performance and position
| Metric | FY 2018 | FY 2017 |
|---|---|---|
| Revenue | $0 | $0 |
| Research and development expense | $25.4 million | $24.4 million |
| General and administrative expense | $15.3 million | $7.7 million |
| Total operating expenses | $40.7 million | $32.1 million |
| Net loss | $32.8 million | $31.2 million |
| Net loss per share, basic and diluted | $2.22 | $2.54 |
| Cash, cash equivalents and marketable securities at year-end | $483.7 million | $191.5 million |
| Total liabilities at year-end | $8.4 million | $10.1 million |
| Net cash used in operating activities | $25.5 million | $22.3 million |
FY 2018 interest income was $7.7 million, compared with $0.6 million of interest income in 2017. The company had no product sales, so product gross margins are not applicable. Its reported balance sheet showed no debt; liabilities consisted of accounts payable and accrued expenses.
In Q4 2018, revenue was $0, operating expenses were $14.5 million and net loss was $11.5 million, versus Q4 2017 operating expenses of $8.9 million and net loss of $8.4 million. Q4 2018 loss per share was $0.75, compared with $0.67 in Q4 2017.
Material changes versus prior period
- Annual net loss increased by $1.7 million, while loss per share narrowed from $2.54 to $2.22, reflecting a higher weighted-average share count.
- G&A expense nearly doubled, primarily due to higher non-cash stock-based compensation. Stock-based compensation totaled $13.5 million in 2018 versus $3.3 million in 2017.
- R&D expense rose modestly; management attributed the increase mainly to stock compensation, partly offset by lower costs as Phase 2 treatment concluded.
- Cash and marketable securities increased by $292.2 million, primarily following the June 2018 common-stock offering, which generated approximately $311.8 million in net proceeds. Shares outstanding increased during the year.
Development, outlook and risks
- NASH: The 125-patient Phase 2 trial met its 12-week liver-fat primary endpoint and reported positive 36-week results. MGL-3196 showed a 37% mean relative liver-fat reduction versus 8.5% for placebo; reported biopsy outcomes included NASH resolution in 27% of all treated patients versus 6% of placebo patients, and in 39% of MRI-PDFF responders. Management said it had held an end-of-Phase-2 meeting with the FDA and expected to begin a Phase 3 NASH study before the end of Q1 2019.
- Dyslipidemia: In a 116-patient Phase 2 HeFH study, the filing reports placebo-corrected LDL-C lowering of 18.8%, with larger reductions in certain dose and patient subgroups. This remained investigational, not an approved use.
- Cash runway and spending: Management expected year-end cash and investments to fund operations beyond one year from issuance of the financial statements, while anticipating continued losses and higher R&D spending as clinical development advanced. Additional financing may be needed; availability and terms are uncertain.
- Key risks: MGL-3196 had not completed a pivotal trial or received regulatory approval. Phase 3 outcomes, FDA-required endpoints and approval pathway were uncertain. Other risks include long-term safety, enrollment and execution, competition, reimbursement, reliance on contract manufacturers and service providers, and dependence on Roche-licensed rights. The filing reports mostly mild or moderate adverse events in Phase 2, including transient mild diarrhea in the NASH study.
- Contingencies and unusual items: Remaining Roche milestone payments totaled $10 million, tied to future Phase 3 commencement and U.S./European regulatory approvals; single-digit royalties would apply to future net sales, subject to reductions. The company reported no material legal proceedings or off-balance-sheet arrangements. Operating lease obligations were $110,000, due within one year.
Investor facts to verify
- Whether the planned Phase 3 NASH trial began on schedule and how its protocol, endpoints, population and formulation compare with Phase 2.
- Full clinical data, including biopsy results, responder definitions, statistical analyses, adverse events and longer-term safety.
- Actual cash burn and runway as development spending increases, and potential dilution or financing needs.
- Regulatory requirements, competitive progress and eventual coverage, pricing and commercial potential for NASH and dyslipidemia indications.
- Roche milestone, royalty and license terms, and the status and enforceability of relevant patent protection.