Madrigal Pharmaceuticals, Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. Madrigal is a clinical-stage biopharmaceutical company developing resmetirom for NASH; it had no product revenue in the periods presented.
Financial performance and position
Amounts below are in millions of dollars, except per-share data.
| Metric | Q3 / September 30, 2022 | Comparable period / prior date |
|---|---|---|
| Revenue | $0 | $0 in Q3 2021 |
| Research and development expense | $68.3 in Q3; $174.7 YTD | $54.9 in Q3 2021; $152.3 YTD 2021 |
| General and administrative expense | $12.1 in Q3; $33.6 YTD | $8.3 in Q3 2021; $25.6 YTD 2021 |
| Net loss | $81.2 in Q3; $209.4 YTD; Q3 loss per share $4.75 | $63.1 in Q3 2021; $177.3 YTD 2021; Q3 loss per share $3.79 |
| Cash, cash equivalents and marketable securities | $153.2 | $270.3 at December 31, 2021 |
| Net cash used in operating activities | $166.3 YTD | $135.9 YTD 2021 |
| Loan payable, net of discount | $49.0; $50.0 principal outstanding | No loan payable at December 31, 2021 |
| Total assets / stockholders’ equity | $158.6 / $10.7 | $273.3 / $196.1 at December 31, 2021 |
Operating expenses increased 27% in Q3 and 17% YTD year over year; Q3 and YTD net losses increased 29% and 18%, respectively. The company reported no revenue, so a revenue-based margin is not meaningful. Q3 interest expense was $1.5 million, reflecting the new loan; higher interest rates contributed to increased interest income.
YTD investing cash flow was a $140.3 million inflow, principally reflecting sales and maturities of marketable securities, partly offset by purchases. Financing provided $49.1 million, primarily the initial $50 million loan draw, net of issuance costs. Cash and cash equivalents rose to $59.3 million, while total cash and marketable securities declined from year-end.
Business developments, outlook and risks
- Resmetirom was being studied in Phase 3 MAESTRO-NASH and MAESTRO-NAFLD-1 programs. The filing reports that MAESTRO-NAFLD-1 achieved certain primary and secondary endpoints and describes favorable safety and liver-fat and lipid findings; those results do not establish regulatory approval.
- In May 2022, Madrigal elevated fibrosis improvement to a co-primary endpoint in MAESTRO-NASH, alongside NASH resolution. In August 2022, it initiated MAESTRO-NASH Outcomes, a study of approximately 700 patients with early NASH cirrhosis.
- Management expects substantial operating losses and higher R&D spending as clinical development expands, including the new outcomes study; G&A may also rise with commercialization preparation. The filing provides no quantified earnings or revenue guidance.
- Going concern: Management stated that the $153.2 million of cash, cash equivalents and marketable securities was not expected to fund operating expenses and capital requirements through the one-year anniversary of the filing. The filing says this raises substantial doubt about the company’s ability to continue as a going concern. Potential future financing and cost reductions were not counted as probable for this assessment.
- The May 2022 Hercules facility permits up to $250 million in term loans: $50 million was drawn; up to $125 million more is tied to clinical and regulatory milestones, and a further $75 million requires Hercules’ approval. The rate was 10.20% at September 30, 2022, adjusts with prime, and the loan is secured by substantially all assets other than intellectual property. A $35 million minimum-liquidity covenant commences January 1, 2023, subject to stated adjustments. The company reported covenant compliance at quarter-end.
- Further funding may require equity issuance, additional debt, partnerships or other transactions; availability and terms are uncertain. Failure to secure funding could force delays or reductions in clinical or pre-commercialization work and could affect covenant compliance. Key risks also include trial outcomes and timing, regulatory approval, safety, commercialization, reimbursement and market acceptance.
- Other disclosed obligations include up to $8 million of remaining Roche regulatory milestones and tiered royalties on future resmetirom sales. No material pending legal proceedings were reported. Management said disclosure controls were effective.
Investor verification priorities
- Review subsequent clinical-trial data, enrollment and timing, and the evidence supporting any anticipated FDA submission or approval.
- Assess cash burn against available liquidity and the company’s stated funding shortfall, including the timing and terms of any financing or cost reductions.
- Confirm availability and conditions for undrawn Hercules tranches, interest-rate exposure, covenant thresholds and compliance.
- Track R&D and commercialization-preparation spending, accrued clinical costs, and the impact of potential dilution or additional debt.
- Verify the scope of Roche milestones and royalties and any changes to clinical, regulatory or commercial risks.