Madrigal Pharmaceuticals, Inc. — Q2 2017 Form 10-Q
Reporting period: Three and six months ended June 30, 2017. Madrigal is a clinical-stage biopharmaceutical company with no product revenue. Its lead candidate, MGL-3196, is in Phase 2 development for NASH and heterozygous familial hypercholesterolemia (HeFH); a proof-of-concept study in homozygous FH was planned.
Key financial metrics
Amounts in millions, except per-share data. Interim financial statements are unaudited.
| Metric | Q2 2017 | Q2 2016 | Six months 2017 | Six months 2016 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Research and development | $6.816 | $2.088 | $11.196 | $2.604 |
| General and administrative | $1.623 | $0.551 | $3.318 | $0.773 |
| Net loss | $(8.347) | $(2.877) | $(14.346) | $(4.590) |
| Net loss per common share | $(0.69) | $(16.33) | $(1.20) | $(26.06) |
| Operating cash flow | Not stated for quarter | Not stated for quarter | $(11.421) | $(3.085) |
- Liquidity: Cash, cash equivalents and marketable securities totaled $67.166 million at June 30, 2017, versus $40.500 million at December 31, 2016. Current assets were $67.947 million and current liabilities $6.436 million.
- Balance sheet: Total assets were $68.067 million; total liabilities were $6.436 million. The filing reports no outstanding debt at June 30, 2017; related-party convertible notes had converted to equity upon the 2016 merger.
- Cash flows: Investing activities used $11.205 million, largely reflecting purchases of marketable securities net of sales and maturities. Financing activities provided $38.278 million, principally from equity offerings. Cash and cash equivalents increased by $15.652 million in the first half.
- Profitability and margins: The company reported no revenue and continuing losses, so revenue-based margins are not meaningful. Accumulated deficit was $89.653 million.
Changes versus the prior comparable periods
- Q2 research and development expense rose $4.728 million (226%) year over year; first-half expense increased $8.592 million (330%). Management attributed the increase mainly to CRO costs for the two MGL-3196 Phase 2 studies, plus hiring-related compensation.
- Q2 G&A expense increased $1.072 million (195%); first-half G&A rose $2.545 million (329%), primarily from post-merger hiring and public-company costs.
- First-half net loss increased $9.756 million to $14.346 million. Lower interest costs compared with 2016 reflected conversion of the related-party notes; 2017 included interest income.
- Per-share comparisons are affected by the reverse merger and recapitalization: weighted-average common shares were about 12.0 million in first-half 2017 versus 176,158 in first-half 2016. The filing states historical Private Madrigal results are used for comparative periods.
Outlook, risks and notable items
- Management expected available cash, cash equivalents and marketable securities to fund operations for more than one year from issuance of the statements. It also said further capital would be needed beyond that assessment period; the filing identifies Phase 3 NASH development as requiring a strategic partner or significant financing.
- Management expects substantial R&D spending to continue and increase as clinical, manufacturing and toxicology work advances; G&A may also rise. No quantified earnings, revenue or cash-flow guidance was provided.
- In June 2017, the company raised approximately $35.0 million gross and $34.9 million net by selling common stock and Series A convertible preferred stock. The 1,969,797 preferred shares are convertible one-for-one into common shares, subject to adjustment.
- Remaining Roche milestone payments total $10 million, contingent on Phase 3 commencement and future U.S. and European regulatory approvals; single-digit royalties would apply to qualifying net sales. The company reported no product sales and no material legal proceedings.
- Principal risks include clinical efficacy, safety and trial-enrollment uncertainty; regulatory delays; competition; reliance on third-party manufacturers and research organizations; patent and licensing risks; and the need for additional financing, which could dilute shareholders or constrain programs.
- The filing says disclosure controls were effective and reports no material change in internal control during the quarter. It also notes a previously identified material weakness in financial reporting controls had been remediated.
Important facts for investors to verify
- Clinical-trial progress, enrollment, timing and results for the NASH and HeFH Phase 2 programs, and plans for the proposed homozygous FH study.
- Cash runway assumptions and the timing, size and terms of financing or partnership needs, especially for Phase 3 development.
- Potential dilution from preferred-stock conversion, outstanding options and future equity issuance.
- Roche milestone triggers and obligations, and the status of manufacturing and clinical-trial supply.
- The 10-Q contains a timing inconsistency for the private placement: elsewhere it says the transaction closed June 23, 2017, while Part II, Item 2 says securities were issued July 23, 2017. Confirm the correct date against the related filings.