What changed in this filing

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Item 9A. Controls and Procedures

2021-02-25 compared with 2020-02-26 · 69 added, 89 removed, 588 unchanged (21% of the section changed)

35 unchanged sentences

The information required by this item regarding security ownership of certain beneficial owners and management is incorporated by reference in our 2021 Proxy Statement.

In addition, information about our equity compensation plans is incorporated herein by reference to our 2021 Proxy Statement.

Certain Relationships and Related Transactions, and Director Independence.

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Description of Securities of the Registrant

Equity Agreements

(Exhibit 4.1)

Securities Purchase Agreement, dated June 20, 2017, by and among the Registrant and the investors party thereto, including the Registration Rights Agreement attached as Exhibit B thereto.

(Exhibit 10.1)

Equity Agreements

Sales Agreement, dated November 5, 2020, by and between Madrigal Pharmaceuticals, Inc.

and Cowen and Company, LLC (concerning at-the-market offerings of Madrigal common stock).

(Exhibit 1.1)

Agreements with Respect to Collaborations, Licenses, Research and Development

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Consent of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm.

Certification of Principal Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Exhibit Description

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Reference herein

Certification of Principal Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Certification of Principal Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

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Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in

accordance with generally accepted accounting principles.

A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

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Total research and development costs incurred during the year ended December 31, 2020 were $184.8 million and research and development costs accrued were $31.6 million as of December 31, 2020.

The principal considerations for our determination that performing procedures relating to research and development costs is a critical audit matter are there was significant judgment by management when estimating the costs incurred for services performed by vendors that have not yet been invoiced in estimating the research and development costs to accrue in the reporting period.

The principal considerations for our determination that performing procedures relating to research and development costs is a critical audit matter are the significant judgment by management when estimating the costs incurred for services performed by vendors that have not yet been invoiced in estimating the research and development costs to accrue in the reporting period.

This in turn led to a high degree of auditor judgment, subjectivity and effort in performing procedures to evaluate the audit evidence obtained relating to estimates of costs accrued.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements.

These procedures included testing the effectiveness of controls over management’s process relating to accruing research and development costs, including controls over estimating the costs incurred for services performed by vendors that have not yet been invoiced.

These procedures included testing the effectiveness of controls over management’s process relating to accruing research and development costs, including controls overestimating the costs incurred for services performed by vendors that have not yet been invoiced.

These procedures also included, among others, testing management’s process for estimating the research and development costs to accrue in the reporting period, evaluating the completeness and accuracy of underlying data used in management’s estimate by testing for consistency with a sample of contracts and invoices, testing the number of patients screened for and enrolled in the trial, testing the mathematical accuracy of the calculation of the accrual for research and development costs incurred, and evaluating the reasonableness of assumptions used in the estimate.

Evaluating the reasonableness of assumptions used in the estimate involved assessing management’s ability to reasonably estimate costs incurred that have not been invoiced by (i) performing a

comparison of the estimated accrual to average procedure rates per contracts applied to the number of patients screened for and enrolled in the trial, and by (ii) performing a comparison of the estimated accrual to actual costs incurred on similar completed preclinical studies and clinical trials.

Evaluating the reasonableness of assumptions used in the estimate involved assessing management’s ability to reasonably estimate costs incurred that have not been invoiced by (i) performing a comparison of the estimated accrual to average procedure rates per contracts applied to the number of patients screened for and enrolled in the trial, and by (ii) performing a comparison of the estimated accrual to actual costs incurred on similar completed preclinical studies and clinical trials.

/s/ PricewaterhouseCoopers LLP

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Additional paid-in-capital

Accumulated other comprehensive gain (loss)

Accumulated other comprehensive gain

Accumulated deficit

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Balance at December 31, 2017

Issuance of common and preferred shares in equity offerings, net of transaction costs

Compensation expense related to stock options for services

Unrealized loss on marketable securities

Balance at December 31, 2017

Issuance of common shares in equity offering, excluding to related parties, net of transaction costs

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Balance at December 31, 2019

Issuance of common shares in equity offering, excluding to related parties, net of transaction costs

Sale of common shares to related parties and exercise of common stock options, net of transaction costs

Compensation expense related to stock options for services

Unrealized loss on marketable securities

Balance at December 31, 2020

See accompanying notes to consolidated financial statements.

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asset in exchange for a lease liability

Purchases of property and equipment in accounts payable

or accrued expense

at period end

Purchases of property and equipment in accounts payable at period end

See accompanying notes to consolidated financial statements.

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fatty liver disease (“NAFLD”).

The Company initiated a Phase 2 study of resmetirom in NASH in October 2016.

In February 2017, the Company initiated a Phase 2 study of resmetirom in patients with Heterozygous Familial Hypercholesterolemia (“HeFH”).

Both Phase 2 studies were fully enrolled in 2017, the HeFH study was completed in February 2018, and the NASH study was completed in May 2018.

The Company initiated two Phase 3 studies of resmetirom in NASH in 2019.

The Company initiated two Phase 3 studies of resmetirom in NASH in 2019 that are ongoing.

The Company previously completed Phase 2 studies of resmetirom in NASH in May of 2018 and Heterozygous Familial Hypercholesterolemia (“HeFH”) in February of 2018.

Madrigal was originally incorporated as a private company (“Private Madrigal”) on August 19, 2011 and operations commenced in September 2011.

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securities are reported as a component of interest income.

To determine whether an other-than-temporary impairment exists, the Company considers whether it intends to sell the debt security and, if the Company does not intend to sell the debt security, it considers available evidence to assess whether it is more likely than not that it will be required to sell the security before the recovery of its amortized cost basis.

To determine whether other-than-temporary impairment exists, the Company considers whether it intends to sell the debt security and, if the Company does not intend to sell the debt security, it considers available evidence to assess whether it is more likely than not that it will be required to sell the security before the recovery of its amortized cost basis.

During the years ended December 31, 2020, 2019 and 2018, the Company determined it did not have any securities that were other-than-temporarily impaired.

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Research and development costs are expensed as incurred.

Research and development costs are comprised of costs incurred in performing research and development activities, including internal costs (including

based compensation), costs for consultants, milestone payments under licensing agreements, and other costs associated with the Company’s preclinical and clinical programs.

Research and development costs are comprised of costs incurred in performing research and development activities, including internal costs (including stock-based compensation), costs for consultants, milestone payments under licensing agreements, and other costs associated with the Company’s preclinical and clinical programs.

In particular, the Company has conducted safety studies in animals, optimized and implemented the manufacturing of our drug, and conducted Phase 1-3

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The Black-Scholes model requires inputs for risk-free interest rate, dividend yield, volatility and expected lives of the options.

The expected lives for options granted represent the period of time that options granted are expected to be outstanding.

The expected lives for options granted represent the

period of time that options granted are expected to be outstanding.

The Company uses the simplified method for determining the expected lives of options.

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Recent Accounting Pronouncements

In February 2016, the FASB issued ASU 2016-02,

“Leases,” which, together with amendments comprising ASC 842, requires lessees to identify arrangements that should be accounted for as leases and generally recognized, for operating and finance leases with terms exceeding twelve months, a right-of-use

asset (or “ROU”) and lease liability on the balance sheet.

For public business entities, ASU 2016-02

is effective for annual and interim reporting periods beginning after December 15, 2018, with early adoption permitted.

A modified retrospective transition approach is required, applying the new standard to all leases existing at the date of initial application.

The Company adopted ASU 2016-02

effective January 1, 2019.

Based on the modified retrospective transition approach, there

was no significant retrospective impact from the adoption.

The new standard provides a number of optional practical expedients in transition.

We have elected the package of practical expedients , which permits us not to reassess under the new standard our prior conclusions about lease identification, lease classification and initial direct costs.

The new standard also provides practical expedients for an entity’s ongoing accounting.

We have elected the short-term lease exception and we will not recognize ROU assets or lease liabilities for qualifying leases (leases with a term of less than 12 months from lease commencement).

In 2019, the Company accounted for a new lease under the guidance (see Note 8).

Liquidity and Uncertainties

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The Company believes that its cash, cash equivalents and marketable securities at December 31, 2020 will be sufficient to fund operations past one year from the issuance of these financial statements.

To meet its future

capital needs, the Company intends to raise additional capital through debt or equity financings, collaborations, partnerships or other strategic transactions.

To meet its future capital needs, the Company intends to raise additional capital through debt or equity financings, collaborations, partnerships or other strategic transactions.

However, there can be no assurance that the Company will be able to complete any such transactions on acceptable terms or otherwise.

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Money market funds (Level 1)

Corporate debt securities due within 3 months of date of purchase (Level 2)

Total cash and cash equivalents

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Money market funds (Level 1)

Corporate debt securities due within 3 months of date of purchase (Level 2)

Total cash and cash equivalents

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Corporate debt securities due within 1 year of date of purchase (Level 2)

Corporate debt securities due within 1 to 2 years of date of purchase (Level 2)

Total cash, cash equivalents and marketable securities

1 unchanged sentence

Accrued liabilities as of December 31, 2020 and 2019 consisted of the following (in thousands):

ontract research costs

Contract research organization costs

Other clinical study related costs

Compensation and benefits

Professional fees

Stockholders’ Equity (Deficit)

Total accrued liabilities

Stockholders’ Equity

Each common stockholder is entitled to one vote for each share of common stock held.

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Upon any liquidation, dissolution or winding-up

of the Company, whether voluntary or involuntary, after the satisfaction in full of the debts of the Company and the payment of any liquidation preference owed to the holders of shares of capital stock of the Company ranking prior to the Series A Preferred Stock upon liquidation, the holders of the Series A Preferred Stock shall participate pari passu with the holders of the Common Stock (on an as-if-converted-to

-Common-Stock

basis) in the net assets of the Company.

1 unchanged sentence

Shares of the Series A Preferred Stock will be entitled to receive dividends before shares of any other class or series of capital stock of the Company (other than dividends in the form of the Common Stock) equal to the dividend payable on each share of the Common Stock, on an as-converted

At-The-Market

Issuance Sales Agreement

In November 2020, the Company entered into an at-the-market

sales agreement (the “2020 Sales Agreement”), with Cowen and Company, LLC (“Cowen”), pursuant to which the Company may, from time to time, issue and sell shares of its common stock.

The Company is not obligated to make any sales of its common stock under the 2020 Sales Agreement.

Any shares sold will be sold pursuant to the

effective shelf registration statement on Form S-3,

(the “Registration Statement”), and the

prospectus supplement to the Registration Statement.

The Sales Agreement authorizes an aggregate offering of up to $ 200 million in shares of our common stock, from time to time, at the Company’s option, through Cowen as its sales agent.

Sales of common stock through Cowen may be made by any method that is deemed an “at-the-market”

offering as defined in Rule 415 promulgated under the Securities Act of 1933, as amended, including by means of ordinary brokers’ transactions at market prices, in block transactions or as otherwise agreed by the Company and Cowen.

Subject to the terms and conditions of the 2020 Sales Agreement, Cowen will use commercially reasonable efforts consistent with its normal trading and sales practices to sell the common stock based upon the Company’s instructions (including any price, time or size limits or other customary parameters or conditions the Company may impose).

The 2020 Sales Agreement may be terminated by the Company at any time upon 10 days’ notice.

As of December 31, 2020, 39,607 shares have been sold under the 2020 Sales Agreement for an aggregate of approximately $ 4.8 million in gross proceeds.

Net proceeds to the Company were approximately $ 4.4 million after deducting commissions and other transaction costs.

Approximately $ 195.2 million remained reserved under the Company’s shelf registration statement and the applicable prospectus supplement for possible future issuance under the 2020 Sales Agreement.

June 2018 Registered Offering of Common Stock

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The June 2018 Offering closed on June 11, 2018.

December 2017 Registered Offering of Common Stock

In December 2017, the Company entered into an underwriting agreement (the “Underwriting Agreement”) with Goldman Sachs & Co.

LLC, as representative of the several underwriters named therein (the “Underwriters”), relating to an underwritten public offering (the “December 2017 Offering”) of 1,731,929 shares of the Company’s common stock, including 225,904 shares of the Company’s common stock purchased by the Underwriters pursuant to a 30 -day

option to purchase such additional shares granted therein, at a public offering price of $ 83.00 per share.

The December 2017 Offering resulted in gross proceeds to the Company of approximately $ 143.8 million, and net proceeds to the Company of approximately $ 135.7 million, after deducting the Underwriters’ discount and other estimated offering expenses payable by the Company.

The December 2017 Offering closed on December 21, 2017.

June 2017 Private Placement Offering and Series A Convertible Preferred Stock

In June 2017, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement)” with a group of institutional accredited investors, who were existing, non-controlling

stockholders of the Company, pursuant to which the Company sold securities to the Investors in a private placement transaction (the “June 2017 Offering”).

Under the terms of the Purchase Agreement, the Company sold 328,300 shares of its common stock at a price of $ 15.23 per share, and 1,969,797 shares of its Series A Convertible Preferred Stock (the “Series A Preferred Stock”) at a price of $ 15.23 per share.

The June 2017 Offering resulted in gross proceeds to the Company of approximately $ 35.0 million, and net proceeds to the Company of approximately $ 34.9 million.

The June 2017 Offering closed on June 23, 2017.

At-The-Market

Issuance Sales Agreement

In October 2015, the Company entered into an at-the-market

issuance sales agreement (the “October 2015 Sales Agreement”), with Cowen and Company, LLC (“Cowen”), pursuant to which the Company could issue and sell shares of its common stock.

215,539 shares were sold for an aggregate of approximately $ 3.5 million in gross proceeds, and $ 3.4 million in net proceeds.

No shares were sold in 2019 and 2018.

Stock-based Compensation

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The following table summarizes stock option activity during the twelve months ended December 31, 2020:

exercise price

average exercise

contractual life

intrinsic value

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Exercisable at December 31, 2020

The total cash received by the Company as a result of stock option exercises was $ 0.2 million, $ 2.1 million and $ 0.0 for the years ended December 31, 2019, 2018, and 2017.

The total cash received by the Company as a result of stock option exercises was $ 0.7 million, $ 0.2 million and $ 2.5 million for the years ended December 31, 2020, 2019, and 2018.

The total intrinsic value of options exercised was $ 4.1 million in the year ended December 31, 2020.

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Restricted shares vest over the service period.

The following table summarizes restricted share activity during the year ended December 31, 2019:

exercise price

Outstanding at January 1, 2019

Outstanding at December 31, 2019

There were no outstanding restricted shares or activity in 2020.

Stock-Based Compensation Expense

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Unrecognized stock-based compensation expense on stock options as of December 31, 2020 was $ 38.8 million with a weighted average remaining period of 2.6 years.

In 2019, the Company entered into an operating lease for office space.

As described within Note 2, we adopted ASU 2016-02,

“Leases,” on January 1, 2019 requiring, among other changes, operating and finance leases with terms exceeding twelve months to be recognized as a right-of-use asset (or “

and lease liabilities on the balance sheet.

In 2019, the Company entered into an operating lease for office space, which was renewed and extended in 2020.

We adopted ASU 2016-02,

“Leases,” on January 1, 2019 requiring, among other changes, operating and finance leases with terms exceeding twelve months to be recognized as a right-of-use

asset (or “ROU”) and lease liabilities on the balance sheet.

Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at the commencement date.

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As of December 31, 2020, the weighted average remaining operating lease term was 2.4 years and the weighted average discount rate used to determine the operating lease liabilities was 3.25 %.

Cash paid related to the lease liability was $ 297 thousand for the year ended December 31, 2019.

Operating lease costs during the year ended December 31, 2019

was $ 386 thousand.

Rent expense during the year ended December 31 ,

2018 and 2017 was $ 239 thousand and $ 134

, respectively.

Cash paid related to the lease liability was $ 303 and $ 297 thousand for years ended December 31, 2020 and 2019 respectively.

Operating lease costs during the year ended December 31, 2020 was $ 347 and $ 386 thousand for years ended December 31, 2020 and 2019 respectively.

Rent expense during the year ended December 31, 2020 and 2019 was $ 0 thousand and $ 239 thousand, respectively.

Short term and variable leases costs were immaterial during the years ended December 31, 2020, 2019 and 2018.

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Steatohepatitis (NASH), which triggered a $ 2 million milestone payment under the agreement.

Remaining milestones under the agreement total $ 8 million and are earned by achieving specified objectives related to future regulatory approval in the United States and Europe of a product developed from resmetirom.

Remaining milestones under

the agreement total $ 8 million and are earned by achieving specified objectives related to future regulatory approval in the United States and Europe of a product developed from resmetirom.

A single-digit royalty payment range is based on net sales of products developed from resmetirom, subject to certain reductions.

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The Company has entered into customary contractual arrangements and letters of intent in preparation for and in support of the Phase 3 clinical trials.

At December 31, 2019, the Company had federal net operating loss (“NOL”) carryforwards of approximately $ 64.2 million available to reduce future taxable income, of which

$ 40.4 million will

expire between 203 1

The Company also has state operating loss carryforwards of approximately $ 52.9 million, available to reduce future taxable income, which expire between 2031

At December 31, 2020, the Company had federal net operating loss (“NOL”) carryforwards of approximately $ 99.9 million available to reduce future taxable income, of which $ 40.4 million will expire between 2031 and 2037.

The Company also has state operating loss carryforwards of approximately $ 88.6 million, available to reduce future taxable income, which expire between 2031 and 2040.

The Company has unused federal research and development carryforwards of approximately $ 13.4 million which will begin to expire in 2031.

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Capitalized R&D

For the years ended December 31,

Total deferred tax assets before valuation allowance

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Stock based compensation

Effect of tax reform, change in federal tax rate

ondeductible e

Other nondeductible expenses

State income taxes benefit before valuation allowance, net of federal benefit

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Basic and diluted weighted average number of common shares outstanding

Subsequent Event

As of February 24

, 2021 the company has sold 549,617 shares under the 2020 Sales Agreement (described in Note 6) for an aggregate of approximately $ 67.8 million in gross proceeds in 2021 to date.

Net proceeds to the Company were approximately $ 66.5 million after deducting commissions and other transaction costs.

Approximately $ 127.3 million remained reserved under the Company’s shelf registration statement and the applicable prospectus supplement for possible future issuance under the 2020 Sales Agreement.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 9A. Controls and Procedures