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Item 2. Management’s Discussion and Analysis

2021-05-06 compared with 2020-11-05 · 54 added, 91 removed, 111 unchanged (57% of the section changed)

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As disclosed in this report, our actual results could differ materially from those discussed in these forward-looking statements.

Factors that could cause or contribute to such differences include, but are not limited to, those discussed in “Special Note Regarding Forward-Looking Statements” in this Form 10-Q

Factors that could cause or contribute to such differences include, but are not limited to, those discussed in “Cautionary Note Regarding Forward-Looking Statements” in this Form 10-Q

and in the “Risk Factors” sections contained in Part I, Item 1A of our Annual Report on Form 10-K

for the year ended December 31, 2019, filed with the SEC on February 26, 2020, and Part II, Item 1A of the Quarterly Report on Form 10-Q for the period ended June 30, 2020, filed with the SEC on August 6, 2020.

for the year ended December 31, 2020, filed with the SEC on February 25, 2021.

Our operating results are not necessarily indicative of results that may occur for the full fiscal year or any other future period.

About Madrigal Pharmaceuticals, Inc.

We are a clinical-stage biopharmaceutical company focused on the development and commercialization of innovative therapeutic candidates

for the treatment of cardiovascular, metabolic, and liver diseases.

We are a clinical-stage biopharmaceutical company focused on the development and commercialization of innovative therapeutic candidates for the treatment of cardiovascular, metabolic, and liver diseases.

Our lead product candidate, MGL-3196

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NASH is a serious inflammatory form of nonalcoholic fatty liver disease, or NAFLD.

NAFLD has become the most

common liver disease in the United States and other developed countries and is characterized by an accumulation of fat in the liver with no other apparent causes.

NAFLD has become the most common liver disease in the United States and other developed countries and is characterized by an accumulation of fat in the liver with no other apparent causes.

NASH can progress to cirrhosis or liver failure, require liver transplantation and can also result in liver cancer.

Progression of NASH to end stage liver disease will soon surpass all other causes of liver failure requiring liver

transplantation.

Progression of NASH to end stage liver disease will soon surpass all other causes of liver failure requiring liver transplantation.

Importantly, beyond these critical conditions, NASH and NAFLD patients additionally suffer heightened cardiovascular risk and, in fact, die more frequently from cardiovascular events than from liver disease.

NASH and NAFLD have grown as a consequence of rising worldwide obesity-related disorders.

In the United States alone, NAFLD is estimated to affect approximately 27% to 34% of the population, or an estimated 86 million to 108 million people, and approximately 10% to 20% of this population is projected to progress from NAFLD to NASH.

Current estimates place NASH prevalence at approximately 9 million to 15 million people in the United States, or three percent to five percent of the population, with similar prevalence in Europe and Asia.

In 2016, in the United States alone, NAFLD was estimated to affect approximately 26% of the population, or an estimated 85 million people, and approximately 20% of this population was projected to progress from NAFLD to NASH.

Current estimates place NASH prevalence at approximately 17 million people in the United States, or five percent of the population.

Slightly lower prevalence is seen in the EU and Asia, with approximately 2.5-4.5%

of the population having NASH.

Our Completed Studies.

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We achieved the 12-week

primary endpoint for

this Phase 2 clinical trial and reported the results in December 2017, and we reported positive topline 36-week

primary endpoint for this Phase 2 clinical trial and reported the results in December 2017, and we reported positive topline 36-week

results at the conclusion of the Phase 2 clinical trial in May 2018.

We have completed treatment in a 36-week,

open-label extension study in 31 participating NASH patients from our Phase 2 clinical trial, which includes 14 patients who received placebo in the main study.

We also completed a 36-week,

open-label extension study in 31 participating NASH patients from our Phase 2 clinical trial, which included 14 patients who received placebo in the main study.

We also completed a 116 patient Phase 2 clinical trial and announced results in February 2018 for the use of resmetirom in patients with heterozygous familial hypercholesterolemia, or HeFH.

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Our Ongoing and Planned Studies.

On March 28, 2019, the Company announced that it had initiated MAESTRO-NASH, a Phase 3 trial in NASH with

its once daily, oral thyroid hormone receptor beta selective agonist, resmetirom.

This double-blind, placebo-controlled study will be conducted at more than 150 sites in the United States and the rest of the world.

Patients with liver biopsy confirmed NASH with stage 2 or 3 fibrosis will be randomized 1:1:1 to receive a single oral daily dose of placebo, resmetirom 80 mg or resmetirom 100 mg.

On March 28, 2019, the Company announced that it had initiated MAESTRO-NASH, a Phase 3 trial in NASH with its once daily, oral thyroid hormone receptor beta selective agonist, resmetirom.

This double-blind, placebo-controlled study is being conducted at more than 200 sites in the United States and the rest of the world.

Patients with liver biopsy confirmed NASH with stage 2 or 3 fibrosis are being randomized 1:1:1 to receive a single oral daily dose of placebo, resmetirom 80 mg or resmetirom 100 mg.

A second liver biopsy at week 52 in the first 900 patients will be the basis of filing for subpart H-accelerated

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or more improvement in fibrosis stage on the week 52 biopsy with no worsening of NASH.

Patients will continue in the study for a total of approximately 54 months, and will be evaluated for a composite clinical outcome including cirrhosis on liver biopsy, or a liver related event such a hepatic decompensation.

The total anticipated enrollment is approximately 2,000 patients, and will include up to 15% high risk F1 fibrosis stage NASH patients whose efficacy responses will be evaluated as exploratory endpoints.

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In October 2020 we completed enrollment of the double-blind, placebo-controlled arms of the study.

This may allow topline data from the 52 week double blind arms by the end of 2021.

Open label enrollment is ongoing for patients with compensated NASH cirrhosis.

The MAESTRO-NAFLD-1

study will help support the adequacy of the safety database at the time of NDA submission for subpart H approval for treatment of NASH in patients with F2 or F3 fibrosis (MAESTRO-NASH, NASH resolution surrogate endpoint).

Recent Developments

Initiation of MAESTRO-NASH Phase 3 clinical trial

In March of 2019 we initiated a Phase 3 trial in NASH, described in detail above under “About Madrigal;

Our Ongoing and Planned Studies.”

FDA grants Fast Track designation for resmetirom in NASH

In October 2019, FDA granted Fast Track designation to resmetirom for NASH.

Initiation of MAESTRO-NAFLD-1

Phase 3 clinical trial and completion of enrollment of the double-blind, placebo controlled arm

In December 2019 we initiated a Phase 3 trial in presumed NASH, described in detail above under “About Madrigal;

Our Ongoing and Planned Studies.”

In October 2020 we completed enrollment of the double-blind, placebo controlled arms of the study.

Pandemic Effects on Madrigal

In April 2020 we announced that in response to guidance from regulatory agencies, measures for COVID-19

at impacted sites have been put in place for its Phase 3 MAESTRO-NASH and MAESTRO-NAFLD-1

at impacted sites have been put in place for our Phase 3 MAESTRO-NASH and MAESTRO-NAFLD-1

studies, allowing both studies to continue without changes to the protocol.

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pandemic had no material adverse impact on our operating results, MAESTRO-NAFLD-1

study or liquidity for the period ended September 30, 2020, but it did introduce clinical trial and operational risks and uncertainties that are both general in nature and relate specifically to our MAESTRO-NASH study.

These risks and uncertainties, which are beyond our control, are referenced as “Risk Factors” and summarized in Part II, Item 1A, “Risk Factors” on Form 10-Q

for the period ending June 30, 2020 filed with the SEC on August 6, 2020.

study or liquidity for the period ended March, 31 2021 and year ended December 31, 2020, but it did introduce clinical trial and operational risks and uncertainties that are both general in nature and relate specifically to our MAESTRO-NASH study.

These risks and uncertainties, which are beyond our control, are summarized in the section entitled “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K

for the year ended December 31, 2020, filed with the SEC on February 25, 2021.

Basis of Presentation

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As a result, we cannot estimate with any degree of certainty the costs we will incur in connection with the development of our product candidates at this point in time.

We expect that we will make determinations as to which programs and product candidates to pursue and how much funding to direct to each program and product candidate on an ongoing basis in response to the scientific success of early research programs, results of ongoing and future clinical trials, our ability to enter into collaborative agreements with respect to programs or potential product candidates, as well as ongoing assessments as to each current or future product candidate’s commercial potential.

We expect that we will make determinations as to which programs and product candidates to pursue and how much funding to direct to each program and product candidate on an ongoing basis in response to the scientific success of research, results of ongoing and future clinical trials, potential collaborative agreements with respect to programs or potential product candidates, as well as ongoing assessments as to each current or future product candidate’s commercial potential.

General and Administrative Expenses

General and administrative expenses consist primarily of salaries, benefits and stock-based compensation expenses for employees, management costs, costs associated with obtaining and maintaining our patent portfolio, professional fees for accounting, auditing, consulting and legal services, liability insurance, and allocated overhead expenses.

We expect that our general and administrative expenses may increase in the future as we advance our clinical and preclinical development programs for resmetirom and expand our operating activities, including maintaining and expanding our patent portfolio, incurring additional costs associated with being a public company and maintaining compliance with exchange listing and SEC requirements.

We expect these potential increases will likely include management costs, legal fees, accounting fees, directors’ and officers’ liability insurance premiums and expenses associated with investor relations.

General and administrative expenses consist primarily of salaries, benefits and stock-based compensation expenses for non-R&D employees, management costs, costs associated with obtaining and maintaining our patent portfolio, professional fees for accounting, auditing, consulting and legal services, liability insurance, and allocated overhead expenses.

We expect that our general and administrative expenses may increase in the future as we advance our clinical and preclinical development programs for resmetirom and expand our operating activities, including substantially expanding our workforce for commercial hires, maintaining and expanding our patent portfolio, incurring additional costs associated with being a public company and maintaining compliance with exchange listing and SEC requirements.

We expect these potential increases will likely include management and personnel costs, legal fees, accounting fees, directors’ and officers’ liability insurance premiums and expenses associated with investor relations.

Critical Accounting Policies and Estimates

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Actual results may differ materially from these estimates under different assumptions or conditions.

There have been no material changes in our critical accounting policies and significant judgments and estimates during the nine months ended September 30, 2020, as compared to those disclosed in our Annual Report on Form 10-K

There have been no material changes in our critical accounting policies and significant judgments and estimates during the three months ended March 31, 2021, as compared to those disclosed in our Annual Report on Form 10-K

for the fiscal year ended December 31, 2020 filed with the SEC on February 25, 2021.

Results of Operations

Three months Ended September 30, 2020 and 2019

The following table provides comparative unaudited results of operations for the three months ended September 30, 2020 and 2019 (in thousands):

Three Months Ended September 30,

Increase / (Decrease)

Research and Development Expenses

General and Administrative Expenses

Interest (Income)

We had no revenue for the three months ended September 30, 2020 and 2019.

Research and Development Expenses

Our research and development expenses were $53.3 million for the three months ended September 30, 2020, compared to $19.4 million in the corresponding period in 2019.

Research and development expenses increased by $33.8 million in the 2020 period due primarily to the additional activities related to the Phase 3 clinical trials initiated in 2019, and an increase in head count.

We expect our research and development expenses to increase over time as we advance our clinical and preclinical development programs for resmetirom.

General and Administrative Expenses

Our general and administrative expenses were $5.5 million for the three months ended September 30, 2020, compared to $4.7 million in the corresponding period in 2019.

General and administrative expenses increased by $0.7 million in the 2020 period due primarily to increases in head count and consulting costs.

We believe our general and administrative expenses may increase over time as we advance our clinical and preclinical development programs for resmetirom and expand our operating activities, which will likely result in an increase in our headcount, consulting services, and related overhead needed to support those efforts.

Interest Income

Our net interest income was $0.8 million for the three months ended September 30, 2020, compared to $2.8 million in the corresponding period in 2019.

The decrease in interest income was due primarily to a lower average principal balance in our investment account in 2020 and decreased interest rates.

Nine months Ended September 30, 2020 and 2019

The following table provides comparative unaudited results of operations for the nine months ended September 30, 2020 and 2019 (in thousands):

Nine Months Ended September 30,

Increase / (Decrease)

Three months Ended March 31, 2021 and 2020

The following table provides comparative unaudited results of operations for the three months ended March 31, 2021 and 2020 (in thousands):

Three Months Ended

Research and development expenses

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Other (income)

We had no revenue for the nine months ended September 30, 2020 and 2019.

We had no revenue for the three months ended March 31, 2021 and 2020.

Research and Development Expenses

Our research and development expenses were $131.4 million for the nine months ended September 30, 2020, compared to $47.4 million in the corresponding period in 2019.

Research and development expenses increased by $84.0 million in the 2020 period due primarily to the additional activities related to the Phase 3 clinical trials initiated in 2019, and an increase in head count.

Our research and development expenses were $45.8 million for the three months ended March 31, 2021, compared to $33.4 million in the corresponding period in 2020.

Research and development expenses increased by $12.4 million in the 2021 period due primarily to the additional activities related to the Phase 3 clinical trials, and an increase in head count.

We expect our research and development expenses to increase over time as we advance our clinical and preclinical development programs for resmetirom.

General and Administrative Expenses

Our general and administrative expenses were $15.7 million for the nine months ended September 30, 2020, compared to $17.6 million in the corresponding period in 2019.

General and administrative expenses decreased by $1.9 million in the 2020 period due primarily to a decrease in non-cash

stock compensation from stock option awards, partially offset by increases in other general and administrative expenses.

Our general and administrative expenses were $7.2 million for the three months ended March 31, 2021, compared to $4.6 million in the corresponding period in 2020.

General and administrative expenses increased by $2.6 million in the 2021 period due primarily to increases in commercial preparation activities, including a corresponding increase in head count.

Interest Income

Our net interest income was $3.9 million for the nine months ended September 30, 2020, compared to $8.8 million in the corresponding period in 2019.

Our net interest income was $0.2 million for the three months ended March 31, 2021, compared to $1.9 million in the corresponding period in 2020.

The decrease in interest income was due primarily to a lower average principal balance in our investment account in 2021 and decreased interest rates.

Liquidity and Capital Resources

Since inception, we have incurred significant net losses and we have funded our operations primarily through the issuance of shares of our common stock and shares of our preferred stock.

Our most significant use of capital pertains to salaries and benefits for our employees, including clinical, scientific, operational, financial and management personnel, and external research and development expenses, such as clinical trials and preclinical activity related to our product candidates.

As of September 30, 2020, we had cash, cash equivalents and marketable securities totaling $335.9 million compared to $439.0 million as of December 31, 2019, with the decrease attributable to the funding of operations.

Since inception, we have incurred significant net losses and we have funded our operations primarily through the issuance of shares of our capital stock.

Our most significant use of capital pertains to salaries and benefits for our employees, including clinical, scientific, operational, commercial, financial and management personnel, and external research and development expenses, such as clinical trials and preclinical activity related to our product candidates.

As of March 31, 2021, we had cash, cash equivalents and marketable securities totaling $307.2 million compared to $284.1 million as of December 31, 2020, with the increase attributable to net proceeds of $66.6 million (reflecting $1.4 million in commissions plus other transaction expenses) raised from the sale of 550,803 shares under our at-the-market

sales agreement, partially offset by funding of operations.

Our cash and investment balances are held in a variety of interest bearing instruments, including obligations of U.S.

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We anticipate continuing to incur operating losses for the foreseeable future.

While our rate of cash usage will likely increase in the future, in particular to support our product development and clinical trial efforts, we believe our available cash resources as of September 30, 2020 will be sufficient to fund our operations past one year from the issuance of the financial statements contained herein, and this outlook takes into account circumstances that are currently reasonably foreseeable in connection with the COVID-19

While our rate of cash usage will likely increase in the future, in particular to support our product development and clinical trial efforts, we believe our available cash resources as of March 31, 2021 will be sufficient to fund our operations past one year from the issuance of the financial statements contained herein, and this outlook takes into account circumstances that are currently reasonably foreseeable in connection with the COVID-19

For a description of COVID-19

pandemic risks, including risks and uncertainties beyond our control, see Part II, Item 1A, “Risk Factors” on Form 10-Q

for the period ending June 30, 2020 filed with the SEC on August 6, 2020.

pandemic risks, including risks and uncertainties beyond our control, see Part I, Item 1A, “Risk Factors” on Form 10-K

for the year ended December 31, 2020, filed with the SEC on February 25, 2021.

Our future long-term liquidity requirements will be substantial and will depend on many factors.

To meet future long-term liquidity requirements, we will need to raise additional capital to fund our operations through equity or debt financing.

To meet future long-term liquidity requirements, we will need to and intend to raise additional capital to fund our operations, primarily through equity or debt financings.

We regularly consider fundraising opportunities and may decide, from time to time, to raise capital based on various factors, including market conditions and our plans of operation.

This includes, but is not limited to, the use of a $200 million at-the-market

sales agreement entered into in November of 2020, with

Cowen and Company, LLC.

See footnote 9 to our condensed consolidated financial statements in this Form 10-Q.

This includes, but is not limited to, the use of a at-the-market

sales agreement entered into in November of 2020, with Cowen and Company, LLC.

Additional capital may not be available on terms acceptable to us, or at all.

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The following table provides a summary of our net cash flow activity (in thousands):

Nine Months Ended September 30,

Three Months Ended March 31,

Net cash used in operating activities

Net cash provided by investing activities

Net cash (used in) provided by investing activities

Net cash provided by financing activities

Net increase in cash and cash equivalents

Net cash used in operating activities was $102.6 million for the nine months ended September 30, 2020, compared to $29.3 million for the corresponding period in 2019.

Net (decrease) increase in cash and cash equivalents

Net cash used in operating activities was $43.4 million for the three months ended March 31, 2021, compared to $30.5 million for the corresponding period in 2020.

The use of cash in these periods resulted primarily from our losses from operations, as adjusted for non-cash

charges for stock-based compensation, and changes in our working capital accounts.

Net cash provided by investing activities was $164.6 million for the nine months ended September 30, 2020, compared to $61.2 million for the corresponding period in 2019.

Net cash provided by investing activities for the nine months ended September 30, 2020 consisted of $378.1 million from sales and maturities of marketable securities, partially offset by $213.2 million of purchases of marketable securities for our investment portfolio and $0.3 million of purchases of property and equipment.

Net cash provided by investing activities for the nine months ended September 30, 2019 consisted of $468.3 million from sales and maturities of marketable securities, partially offset by $407.1 million of purchases of marketable securities for our investment portfolio.

Net cash provided by financing activities was $0.5 million for the nine months ended September 30, 2020, compared to $0.2 million for the corresponding period in 2019, both of which consisted of proceeds from exercise of stock options.

Net cash used in investing activities was $33.5 million for the three months ended March 31, 2021, compared to $50.5 million provided for the corresponding period in 2020.

Net cash used in investing activities for the three months ended March 31, 2021 consisted of $93.7 million of purchases of marketable securities for our investment portfolio, partially offset by $60.3 million from sales and maturities of marketable securities.

Net cash provided by investing activities for the three months ended March 31, 2020 consisted of $109.4 million from sales and maturities of marketable securities, partially offset by $58.6 million of purchases of marketable securities for our investment portfolio and $0.3 million of purchases of property and equipment.

Net cash provided by financing activities was $67.1 million for the three months ended March 31, 2021, which consisted of $66.6 million from net proceeds from issuances of stock under our ATM and $0.5 million from the exercise of stock options.

There were no financing activities for the corresponding period in 2020.

Contractual Obligations and Commitments

No significant changes to contractual obligations and commitments occurred during the nine months ended September 30, 2020, as compared to those disclosed in our Annual Report on Form 10-K

No significant changes to contractual obligations and commitments occurred during the three months ended March 31, 2021, as compared to those disclosed in our Annual Report on Form 10-K

for the fiscal year ended December 31, 2020 filed with the SEC on February 25, 2021.

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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-Q

Item 2. Management’s Discussion and Analysis