Madrigal Pharmaceuticals, Inc. — FY2017 Form 10-K
Reporting period: Fiscal year ended December 31, 2017; filed March 13, 2018. This is an annual report, not a standalone fourth-quarter report. The financial comparison is FY2017 versus FY2016. Madrigal was a clinical-stage biopharmaceutical company with no product revenue.
Business context and development
The company’s principal asset was MGL-3196, an oral, liver-directed selective thyroid hormone receptor-beta agonist being developed for nonalcoholic steatohepatitis (NASH) and familial hypercholesterolemia (FH). At year-end, its NASH and heterozygous FH (HeFH) programs were in Phase 2. Madrigal also identified preclinical MGL-3745 as a potential backup compound.
Financial performance and liquidity
| Metric | FY2017 | FY2016 |
|---|---|---|
| Revenue | $0 | $0 |
| Research and development expense | $24.4 million | $15.9 million |
| General and administrative expense | $7.7 million | $9.3 million |
| Operating loss | $32.1 million | $25.2 million |
| Net loss | $31.2 million | $26.4 million |
| Basic and diluted loss per share | $2.54 | $5.07 |
| Cash used in operating activities | $22.3 million | $17.6 million |
| Cash, cash equivalents and marketable securities at year-end | $191.5 million | $40.5 million |
R&D expense rose 53%, principally because of costs for two Phase 2 studies; G&A fell 17%, mainly reflecting merger-related costs in 2016. Net loss increased by $4.8 million. Loss per share declined despite the higher net loss, alongside a substantial increase in weighted-average shares outstanding.
Financing provided $173.8 million of net cash in 2017, mainly from equity offerings. The December 2017 public offering generated approximately $135.7 million net; the June 2017 offering generated approximately $34.9 million net and included convertible preferred shares. Year-end liabilities were $10.1 million, all current; the balance sheet reported no debt. Current assets were $192.0 million versus current liabilities of $10.1 million. Management stated available cash and securities were expected to fund operations beyond one year from issuance of the statements, while warning that further capital would be needed for later-stage development and commercialization. Profit margins are not meaningful because the company had no revenue and incurred operating losses.
Clinical developments and material changes
- NASH: In December 2017, Madrigal reported the 12-week Phase 2 primary endpoint: median MRI-PDFF liver-fat reduction of 36.3% for all treated patients versus 9.6% for placebo (p<0.0001). In a prespecified higher-drug-level subgroup, the reduction was 42.0%. The filing reported mostly mild adverse events, with three serious adverse events considered unrelated to treatment. The 36-week biopsy and repeat-imaging assessments remained pending.
- HeFH: The 12-week Phase 2 study enrolled 116 patients and was completed in February 2018. Top-line results announced in February 2018—after the fiscal year—reported placebo-corrected LDL-C reduction of 18.8%, and 21% at an optimal dose. The filing also reported reductions in triglycerides and Lp(a), and described the safety profile as generally well tolerated; two serious adverse events were considered unrelated to treatment.
- Pipeline stage: Neither program had reached pivotal Phase 3 testing or regulatory approval. The promising Phase 2 findings do not establish approval or long-term benefit.
Outlook, risks and unusual items
- Management expected R&D spending to increase as programs advanced and said substantial additional funding would be required. Initiating Phase 3 NASH development might require a strategic partner or additional capital. No product-sales guidance was provided.
- Key risks include clinical failure or delay, uncertain long-term safety and regulatory endpoints, competition, patient enrollment, reliance on third-party manufacturers and service providers, and uncertainty around reimbursement and commercialization. Madrigal had no sales or marketing infrastructure and relied on contract manufacturers.
- The Roche license carries up to $10 million in remaining development and regulatory milestone payments, plus single-digit royalties on future net sales, subject to reductions.
- The company reported a prior material weakness in internal control over financial reporting, identified in 2016 and subsequently remediated. Management and the auditor concluded controls were effective as of December 31, 2017. The financial statements received an unqualified audit opinion.
- There were no material legal proceedings or off-balance-sheet arrangements reported. The company had no cash dividend history and did not anticipate paying dividends.
Most important facts for investors to verify
- Whether the 36-week NASH biopsy results support NASH resolution and fibrosis improvement, not just reduced liver fat.
- Whether Phase 3 design, endpoints, timing and funding are agreed with regulators, and whether a partner or further financing is needed.
- Durability of MGL-3196’s efficacy and safety with longer exposure and larger patient populations, including use with statins.
- Cash runway relative to planned clinical spending, and the dilution and preferred-stock terms associated with future financing.
- How competitive therapies, regulatory requirements, reimbursement and Roche royalties could affect eventual commercialization economics.