MADRIGAL PHARMACEUTICALS, INC. 10-Q

Item 1. Financial Statements. MADRIGAL PHARMACEUTICALS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited; in thousands, except share and per share amounts) March 31, 2022 December 31, 2021 Assets Current assets: Cash and cash equivalents $ 42,282 $ 36,269 Marketable securities 177,671 234,077 Prepaid expenses and other current assets 1,217 1,338 Total current assets 221,170 271,684 Property and equipment, net 796 851 Right-of-use asset 696 797 Total assets $ 222,662 $ 273,332 Liabilities and Stockholders’ Equity Current liabilities: Accounts payable $ 22,780 $ 21,380 Accrued expenses 53,442 55,048 Lease liability 413 410 Total current liabilities 76,635 76,838 Long term liabilities: Lease liability 283 387 Total long term liabilities 283 387 Total liabilities 76,918 77,225 Stockholders’ equity: Preferred stock, par value $ 0.0001 per share authorized: 5,000,000 shares at March 31, 2022 and December 31, 2021; 1,969,797 shares issued and outstanding at March 31, 2022 and December 31, 2021 — — Common stock, par value $ 0.0001 per share authorized: 200,000,000 at March 31, 2022 and December 31, 2021; 17,103,395 and 17,103,395 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively 2 2 Additional paid-in-capital 870,972 863,495 Accumulated other comprehensive gain (loss) ( 402 ) ( 80 ) Accumulated deficit ( 724,828 ) ( 667,310 ) Total stockholders’ equity 145,744 196,107 Total liabilities and stockholders’ equity $ 222,662 $ 273,332 See accompanying notes to condensed consolidated financial statements. 3 Table of Contents MADRIGAL PHARMACEUTICALS, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited; in thousands, except share and per share amounts) Three Months Ended March 31, 2022 2021 Revenues: Total revenues $ — $ — Operating expenses: Research and development 47,929 45,770 General and administrative 9,658 7,209 Total operating expenses 57,587 52,979 Loss from operations ( 57,587 ) ( 52,979 ) Interest income 69 160 Other income — 273 Net loss $ ( 57,518 ) $ ( 52,546 ) Net loss per common share: Basic and diluted net loss per common share $ ( 3.36 ) $ ( 3.32 ) Basic and diluted weighted average number of common shares outstanding 17,103,395 15,840,401 See accompanying notes to condensed consolidated financial statements. 4 Table of Contents MADRIGAL PHARMACEUTICALS, INC. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (Unaudited; in thousands) Three Months Ended March 31, 2022 2021 Net Loss $ ( 57,518 ) $ ( 52,546 ) Other comprehensive income (loss): Unrealized gain (loss) on available-for-sale securities ( 322 ) ( 61 ) Comprehensive loss $ ( 57,840 ) $ ( 52,607 ) See accompanying notes to condensed consolidated financial statements. 5 Table of Contents MADRIGAL PHARMACEUTICALS, INC. CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited; in thousands, except share and per share amounts) Preferred stock Common stock Additional paid-in Capital Accumulated other comprehensive income (loss) Accumulated deficit Total stockholders’ equity Shares Amount Shares Amount Balance at December 31, 2021 1,969,797 $ — 17,103,395 $ 2 $ 863,495 $ ( 80 ) $ ( 667,310 ) $ 196,107 Compensation expense related to stock options for services — — — — 7,477 — — 7,477 Unrealized gain on marketable securities — — — — — ( 322 ) — ( 322 ) Net loss — — — — — — ( 57,518 ) ( 57,518 ) Balance at March 31, 2022 1,969,797 $ — 17,103,395 $ 2 $ 870,972 $ ( 402 ) $ ( 724,828 ) $ 145,744 Balance at December 31, 2020 1,969,797 $ — 15,508,146 $ 2 $ 665,385 $ 47 $ ( 425,464 ) $ 239,970 Issuance of common shares in equity offering, excluding to related parties, net of transaction costs — — 550,803 — 66,616 — — 66,616 Sale of common shares to related parties and exercise of common stock options, net of transaction costs — — 4,250 — 478 — — 478 Compensation expense related to stock options for services — — — — 6,096 — — 6,096 Unrealized loss on marketable securities — — — — — ( 61 ) — ( 61 ) Net loss — — — — — — ( 52,546 ) ( 52,546 ) Balance at March 31, 2021 1,969,797 $ — 16,063,199 $ 2 $ 738,575 $ ( 14 ) $ ( 478,010 ) $ 260,553 See accompanying notes to condensed consolidated financial statements. 6 Table of Contents MADRIGAL PHARMACEUTICALS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited; in thousands) Three Months Ended March 31, 2022 2021 Cash flows from operating activities: Net loss $ ( 57,518 ) $ ( 52,546 ) Adjustments to reconcile net loss to net cash used in operating activities: Stock-based compensation expense 7,477 6,096 Depreciation and amortization expense 107 113 Changes in operating assets and liabilities: Prepaid expenses and other current assets 121 191 Accounts payable 1,400 3,379 Accrued expense ( 1,606 ) ( 1,147 ) Accrued interest, net of interest received on maturity of investments 106 485 Net cash used in operating activities ( 49,913 ) ( 43,429 ) Cash flows from investing activities: Purchases of marketable securities ( 37,567 ) ( 93,722 ) Sales and maturities of marketable securities 93,545 60,302 Purchases of property and equipment, net of disposals ( 52 ) ( 44 ) Net cash provided by (used in) investing activities 55,926 ( 33,464 ) Cash flows from financing activities: Proceeds from issuances of stock, excluding related parties, net of transaction costs — 66,616 Proceeds from the sale of related party stock and exercise of common stock options, net of transaction costs — 478 Net cash provided by financing activities — 67,094 Net increase (decrease) in cash and cash equivalents 6,013 ( 9,799 ) Cash and cash equivalents at beginning of period 36,269 54,004 Cash and cash equivalents at end of period $ 42,282 $ 44,205 See accompanying notes to condensed consolidated financial statements. 7 Table of Contents MADRIGAL PHARMACEUTICALS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. Organization, Business, and Basis of Presentation Organization and Business Madrigal Pharmaceuticals, Inc. (the “Company” or “Madrigal”) is a clinical-stage pharmaceutical company developing novel, high-quality, small-molecule drugs addressing major unmet needs in cardiovascular, metabolic, and liver diseases. The Company’s lead compound, resmetirom, is being advanced for non-alcoholic steatohepatitis (“NASH”), a liver disease that commonly affects people with metabolic diseases such as obesity and diabetes, and non-alcoholic fatty liver disease (“NAFLD”). The Company initiated two Phase 3 studies of resmetirom in NASH in 2019 that are ongoing. The Company announced results from the Phase 3 MAESTRO-NAFLD-1 safety study of resmetirom in 2022. Basis of Presentation Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) have been condensed or omitted. Accordingly, the unaudited condensed consolidated financial statements do not include all information and footnotes required by GAAP for complete annual financial statements. However, we believe that the disclosures included in these financial statements are adequate to make the information presented not misleading. The unaudited condensed consolidated financial statements, in the opinion of management, reflect all adjustments, which include normal recurring adjustments, necessary for a fair statement of such interim results. The interim results are not necessarily indicative of the results that we will have for the full year ending December 31, 2022 or any subsequent period. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes to those statements for the year ended December 31, 2021. 2. Summary of Significant Accounting Policies Principle of Consolidation The consolidated financial statements include the financial statements of the Company and its wholly owned subsidiaries. All significant intercompany balances have been eliminated in consolidation. Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect certain reported amounts of assets and liabilities, and the reported amounts of revenues and expenses during the reporting periods. The Company bases its estimates on historical experience and various other assumptions that management believes to be reasonable under the circumstances. Changes in estimates are recorded in the period in which they become known. Actual results could differ from those estimates. Cash and Cash Equivalents The Company considers all highly liquid investments with original maturities of three months or less at the date of purchase to be cash equivalents. The Company maintains its cash in bank accounts, the balance of which, at times, exceeds Federal Deposit Insurance Corporation insured limits. 8 Table of Contents The primary objective of the Company’s investment activities is to preserve its capital for the purpose of funding operations and the Company does not enter into investments for trading or speculative purposes. The Company’s cash is deposited in highly rated financial institutions in the United States. The Company invests in money market funds and high-grade, commercial paper and corporate bonds, which management believes are subject to minimal credit and market risk. Marketable Securities Marketable securities consist of investments in high-grade corporate obligations and government and government agency obligations that are classified as available-for-sale. Since these securities are available to fund current operations, they are classified as current assets on the consolidated balance sheets. The Company adjusts the cost of available-for-sale debt securities for amortization of premiums and accretion of discounts to maturity. The Company includes such amortization and accretion as a component of interest income. Realized gains and losses and declines in value, if any, that the Company judges to be other-than-temporary on available-for-sale 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. During the three months ended March 31, 2022 and 2021, the Company determined it did not have any securities that were other-than- temporarily impaired. Marketable securities are stated at fair value, including accrued interest, with their unrealized gains and losses included as a component of accumulated other comprehensive income or loss, which is a separate component of stockholders’ equity. The fair value of these securities is based on quoted prices and observable inputs on a recurring basis. Realized gains and losses are determined on the specific identification method. During the three months ended March 31, 2022 and 2021, the Company did not have any realized gains or losses on marketable securities. Fair Value of Financial Instruments The carrying amounts of the Company’s financial instruments, which include cash equivalents and marketable securities, approximate their fair values. The fair value of the Company’s financial instruments reflects the amounts that would be received upon sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy has the following three levels: Level 1—quoted prices in active markets for identical assets and liabilities. Level 2—observable inputs other than Level 1 inputs. Examples of Level 2 inputs include quoted prices in active markets for similar assets or liabilities and quoted prices for identical assets or liabilities in markets that are not active. Level 3—unobservable inputs that reflect the Company’s own assumptions about the assumptions market participants would use in pricing the asset or liability. Financial assets and liabilities are classified in their entirety within the fair value hierarchy based on the lowest level of input that is significant to the fair value measurement. The Company measures the fair value of its marketable securities by taking into consideration valuations obtained from third- party pricing sources. The pricing services utilize industry standard valuation models, including both income and market based approaches, for which all significant inputs are observable, either directly or indirectly, to estimate fair value. These inputs include reported trades of and broker-dealer quotes on the same or similar securities, issuer credit spreads, benchmark securities and other observable inputs. As of March 31, 2022, the Company’s financial assets valued based on Level 1 inputs consisted of cash and cash equivalents in a money market fund, its financial assets valued based on Level 2 inputs consisted of high-grade corporate and government agency bonds and commercial paper, and it had no financial assets valued based on Level 3 inputs. During the three months ended March 31, 2022 and 2021, the Company did not have any transfers of financial assets between Levels 1 and 2. As of March 31, 2022 and December 31, 2021, the Company did not have any financial liabilities that were recorded at fair value on a recurring basis on the balance sheet. Research and Development Costs 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 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 9 Table of Contents conducted Phase 1-3 clinical trials, all of which are considered research and development expenditures. Management uses significant judgment in estimating the amount of research and development costs recognized in each reporting period. Management analyzes and estimates the progress of its preclinical studies and clinical trials, completion of milestone events per underlying agreements, invoices received and contracted costs when estimating the research and development costs to accrue in each reporting period. Actual results could differ from the Company’s estimates. Patents Costs to secure and defend patents are expensed as incurred and are classified as general and administrative expense in the Company’s consolidated statements of operations. Stock-Based Compensation The Company recognizes stock-based compensation expense based on the grant date fair value of stock options granted to employees, officers, and directors. The Company uses the Black-Scholes option pricing model to determine the grant date fair value as management believes it is the most appropriate valuation method for its option grants. 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 Company uses the simplified method for determining the expected lives of options. Expected volatility is based upon an industry estimate or blended rate including the Company’s historical trading activity. The risk-free rate for periods within the expected life of the option is based on the U.S. Treasury yield curve in effect at the time of the grant. The Company estimates the forfeiture rate based on historical data. This analysis is re-evaluated at least annually and the forfeiture rate is adjusted as necessary. Certain of the employee stock options granted by the Company are structured to qualify as incentive stock options (“ISOs”). Under current tax regulations, the Company does not receive a tax deduction for the issuance, exercise or disposition of ISOs if the employee meets certain holding requirements. If the employee does not meet the holding requirements, a disqualifying disposition occurs, at which time the Company may receive a tax deduction. The Company does not record tax benefits related to ISOs unless and until a disqualifying disposition is reported. In the event of a disqualifying disposition, the entire tax benefit is recorded as a reduction of income tax expense. The Company has not recognized any income tax benefit for its share-based compensation arrangements due to the fact that the Company does not believe it is more likely than not it will realize the related deferred tax assets. Income Taxes The Company uses the asset and liability method to account for income taxes. Deferred tax assets and liabilities are determined based on the expected future tax consequences of temporary differences between the Company’s financial statement carrying amounts and the tax basis of assets and liabilities using enacted tax rates expected to be in effect in the years in which the differences are expected to reverse. The Company currently maintains a 100 % valuation allowance on its deferred tax assets. Comprehensive Loss Comprehensive loss is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. Changes in unrealized gains and losses on marketable securities represent the only difference between the Company’s net loss and comprehensive loss. Basic and Diluted Loss Per Common Share Basic net loss per share is computed using the weighted average number of common shares outstanding during the period, excluding any restricted stock that has been issued but is not yet vested. Diluted net loss per common share is computed using the weighted average number of common shares outstanding and the weighted average dilutive potential common shares outstanding using the treasury stock method. However, for the three months ended March 21, 2022 and 2021, diluted net loss per share is the same as basic net loss per share because the inclusion of weighted average shares of unvested restricted common stock, common stock issuable upon the exercise of stock options, and common stock issuable upon the conversion of preferred stock would be anti-dilutive. 10 Table of Contents The following table summarizes outstanding securities not included in the computation of diluted net loss per common share, as their inclusion would be anti-dilutive: Three Months Ended March 31, 2022 2021 Common stock options 2,878,399 2,193,915 Preferred stock 1,969,797 1,969,797 Recent Accounting Pronouncements None 3. Liquidity and Uncertainties The Company is subject to risks common to development stage companies in the biopharmaceutical industry including, but not limited to, uncertainty of product development and commercialization, dependence on key personnel, uncertainty of market acceptance of products and product reimbursement, product liability, uncertain protection of proprietary technology, potential inability to raise additional financing necessary for development and commercialization, and compliance with the U.S. Food and Drug Administration and other government regulations. The Company has incurred losses since inception, including approximately $ 57.5 million for the three months ended March 31, 2022, resulting in an accumulated deficit of approximately $ 724.8 million as of March 31, 2022. Management expects to incur losses for the foreseeable future. To date, the Company has funded its operations primarily through proceeds from sales of the Company’s capital stock. The Company believes that its cash, cash equivalents and marketable securities at March 31, 2022 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. However, there can be no assurance that the Company will be able to complete any such transactions on acceptable terms or otherwise. The inability of the Company to obtain sufficient funds on acceptable terms when needed could have a material adverse effect on the Company’s business, results of operations and financial condition. The Company has the ability to delay certain research activities and related clinical expenses if necessary due to liquidity concerns until a date when those concerns are relieved. 4. Cash, Cash Equivalents and Marketable Securities A summary of cash, cash equivalents and available-for-sale marketable securities held by the Company as of March 31, 2022 and December 31, 2021 is as follows (in thousands): March 31, 2022 Cost Unrealized gains Unrealized losses Fair value Cash and cash equivalents: Cash (Level 1) $ 2,238 $ — $ — $ 2,238 Money market funds (Level 1) 40,044 — — 40,044 Total cash and cash equivalents 42,282 — — 42,282 Marketable securities: Corporate debt securities due within 1 year of date of purchase (Level 2) 170,336 — ( 366 ) 169,970 U.S. government and government sponsored entities due within 1 year of date of purchase (Level 2) 6,036 — ( 12 ) 6,024 Corporate debt securities due within 1 to 2 years of date of purchase (Level 2) 1,701 — ( 24 ) 1,677 Total cash, cash equivalents and marketable securities $ 220,355 $ — $ ( 402 ) $ 219,953 11 Table of Contents December 31, 2021 Cost Unrealized gains Unrealized losses Fair value Cash and cash equivalents: Cash (Level 1) $ 18,877 $ — $ — $ 18,877 Money market funds (Level 1) 17,392 — — 17,392 Total cash and cash equivalents 36,269 — — 36,269 Marketable securities: Corporate debt securities due within 1 year of date of purchase (Level 2) 228,348 6 ( 66 ) 228,288 Corporate debt securities due within 1 to 2 years of date of purchase (Level 2) 5,809 — ( 20 ) 5,789 Total cash, cash equivalents and marketable securities $ 270,426 $ 6 $ ( 86 ) $ 270,346 5. Accrued Liabilities Accrued liabilities as of March 31, 2022 and December 31, 2021 consisted of the following (in thousands): March 31, 2022 December 31, 2021 Contract research organization costs $ 42,168 $ 38,349 Other clinical study related costs 4,103 3,957 Compensation and benefits 2,715 6,769 Professional fees 2,343 2,455 Other 2,113 3,518 Total accrued liabilities $ 53,442 $ 55,048 6. Stockholders’ Equity Common Stock Each common stockholder generally is entitled to one vote for each share of common stock held, subject to limitations as may be established for certain other classes and series of stock of the Company from time to time. Each share of common stock is entitled to receive dividends, as and when declared by the Company’s board of directors. The Company has never declared cash dividends on its common stock and does not expect to do so in the foreseeable future. Preferred Stock The Company’s Series A Convertible Preferred Stock (“Series A Preferred Stock”) has a par value of $0.0001 per share and is convertible into shares of the Common Stock at a one -to-one ratio, subject to adjustment as provided in the Certificate of Designation of Preferences, Rights and Limitations of Series A Convertible Preferred Stock, that the Company filed with the Secretary of State of the State of Delaware on June 21, 2017 (the “Series A Certificate”). The terms of the Series A Preferred Stock are set forth in the Series A Certificate. Each share of the Series A Preferred Stock is convertible into shares of Common Stock following notice that may be given at the holder’s option. 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. Shares of the Series A Preferred Stock will generally have no voting rights, except as required by law. 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 basis. 12 Table of Contents 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 could, from time to time, issue and sell shares of its common stock. The 2020 Sales Agreement authorized an aggregate offering of up to $ 200 million in shares of our common stock, at the Company’s option, through Cowen as its sales agent. Sales of common stock through Cowen could 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. The 2020 Sales Agreement was terminated in June 2021 when the Company filed a new shelf registration statement. Under the 2020 Sales Agreement the Company sold 1,126,733 shares for an aggregate of approximately $ 137.4 million in gross proceeds, with net proceeds to the Company of approximately $ 134.8 million after deducting commissions and other transaction costs. Of those shares sold, 1,087,126 were sold in 2021. In June 2021, the Company filed with the U.S. Securities and Exchange Commission (the “SEC”) and had declared effective a new shelf registration statement on Form S-3 and, in connection therewith, entered into a new at-the-market sales agreement (the “2021 Sales Agreement”) with Cowen. The terms of the 2021 Sales Agreement are substantially the same as the 2020 Sales Agreement. The 2021 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. The 2021 Sales Agreement supersedes the 2020 Sales Agreement. Subject to the terms and conditions of the 2021 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). As of March 31, 2022, 497,043 shares had been sold under the 2021 Sales Agreement for an aggregate of approximately $ 40.8 million in gross proceeds, with net proceeds to the Company of approximately $ 39.8 million after deducting commissions and other transaction costs. All of those shares were sold in 2021. As of March 31, 2022, $ 159.2 million remained reserved and available for sale under the 2021 Sales Agreement and the Company’s related prospectus supplement. 7. Stock-based Compensation The Company’s 2015 Stock Plan, as amended, is our primary equity incentive compensation plan through which equity based grants are awarded. The 2015 Stock Plan provides for the grant of incentive stock options, non-statutory stock options, restricted stock and other stock-based compensation awards to employees, officers, directors, and consultants of the Company. The administration of the 2015 Stock Plan is under the general supervision of the Compensation Committee of the Board of Directors. The terms of stock options awarded under the 2015 Stock Plan, in general, are determined by the Compensation Committee, provided the exercise price per share generally shall not be set at less than the fair market value of a share of the common stock on the date of grant and the term shall not be greater than ten years from the date the option is granted. As of March 31, 2022, the Company had options outstanding to purchase 2,878,399 shares of its common stock, which includes options outstanding under its prior incentive compensation plan, the 2006 Stock Plan. As of March 31, 2022, 1,084,468 shares were available for future issuance under the 2015 Stock Plan. The following table summarizes stock option activity during the three months ended March 31, 2022: Shares Weighted average exercise price Outstanding at January 1, 2022 2,301,574 $ 78.90 Options granted 613,425 85.80 Options cancelled ( 36,600 ) 110.09 Outstanding at March 31, 2022 2,878,399 $ 79.96 Exercisable at March 31, 2022 1,525,599 $ 65.64 The total cash received by the Company as a result of stock option exercises was $ 0 million and $ 0.5 million, respectively, for the three months ended March 31, 2022 and 2021. The total intrinsic value of options exercised was $ 0 million and $ 0.1 million, respectively, for the three months ended March 31, 2022 and 2021. The weighted-average grant date fair values, based on the Black-Scholes option model, of options granted during the three months ended March 31, 2022 and 2021 were $ 59.63 and $ 85.17 , respectively. 13 Table of Contents Stock-Based Compensation Expense Stock-based compensation expense during the three months ended March 31, 2022 and 2021 was as follows (in thousands): Three Months Ended March 31, 2022 2021 Stock-based compensation expense by type of award: Stock options $ 7,477 $ 6,096 Restricted stock — — Total stock-based compensation expense $ 7,477 $ 6,096 Effect of stock-based compensation expense by line item: Research and development $ 3,187 $ 2,637 General and administrative 4,290 3,459 Total stock-based compensation expense included in net loss $ 7,477 $ 6,096 Unrecognized stock-based compensation expense on stock options as of March 31, 2022 was $ 74.2 million with a weighted average remaining period of 3.16 years. 8. Commitments and Contingencies The Company has a Research, Development and Commercialization Agreement with Hoffmann-La Roche (“Roche”) which grants the Company a sole and exclusive license to develop, use, sell, offer for sale and import any Licensed Product as defined by the agreement. The agreement requires future milestone payments to Roche. Remaining milestones under the agreement total $ 8 million and are payable upon Madrigal achieving specified objectives related to future regulatory approval in the United States and Europe of resmetirom or a product developed from resmetirom. Furthermore, a tiered single-digit royalty is payable on net sales of resmetirom or a product developed from resmetirom, subject to certain reductions. The Company has not achieved any additional product development or regulatory milestones and had no Licensed Product sales for the three months ended March 31, 2022 and 2021. The Company has entered into customary contractual arrangements and letters of intent in preparation for and in support of the Phase 3 clinical trials. 9. Subsequent Event In May 2022 the Company entered into a $ 250 million term loan facility with Hercules Capital, Inc. (“Hercules”). Under the terms of the loan agreement, $ 50 million was drawn at closing. The Company may also draw an additional $ 125 million in two separate tranches upon achievement of resmetirom clinical and regulatory milestones. An additional $ 75 million may be drawn by the Company, subject to the approval of Hercules. The loan facility has a floor interest rate of 7.45 % and adjusts with future changes in the prime rate, subject to the floor rate. The loan bears initial interest at a rate of 7.95 %. The Company will pay interest-only for a period of 30 months, which may be extended to 60 months upon the achievement of certain milestones . The loan matures in May 2026 and may be extended an additional year upon the achievement of certain milestones. Additional details of the loan agreement will be filed with the Securities and Exchange Commission on a Current Report on Form 8-K. 14 Table of Contents CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS This Quarterly Report on Form 10-Q includes “forward-looking statements” made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, that are based on our beliefs and assumptions and on information currently available to us, but are subject to factors beyond our control Forward-looking statements: reflect management’s current knowledge, assumptions, judgment and expectations regarding future performance or events; include all statements that are not historical facts; and can be identified by terms such as “achieve,” “allow,” “anticipates,” “appear,” “be,” “believes,” “can,” “continue,” “could,” “demonstrates,” ”design,” “estimates,” “expects,” “expectation,” “forecasts,” “future,” “goal,” “help,” “hopeful,” “inform,” “goal,” “intends,” “may,” “might,” “on track,” “planned,” “planning,” “plans,” “positions,” “potential,” “powers,” “predicts,” ”predictive,” “projects,” “seeks,” “should,” “will,” “will be,” “will achieve,” “would” or similar expressions and the negatives of those terms. In particular, forward-looking statements contained in or incorporated by reference to this Quarterly Report relate to, among other things, • Anticipated or estimated future results, including the risks and uncertainties associated with our future operating performance and financial position, • Our possible or assumed future results of operations and expenses, business strategies and plans (including ex-U.S. launch/partnering plans), capital needs and financing plans, including incurrence of indebtedness and compliance with debt covenants under the Loan and Security Agreement (the “Loan Agreement”) with Hercules Capital, Inc., as agent and lender (“Hercules”), market trends, competitive position, industry environment and potential growth opportunities, • Our ability to delay certain research activities and related clinical expenses as necessary, • Our clinical trials, including the anticipated timing of disclosure, presentations of data from, or outcomes from our trials, • Research and development activities, and the timing and results associated with the future development of our lead product candidate, resmetirom (formerly known as MGL-3196), including projected market size and sector leadership, • The timing and completion of projected 2022 clinical milestone events, including enrollment, additional studies, top-line data and open label projections, • Plans, objectives and timing for making a Subpart H (Accelerated Approval of New Drugs for Serious or Life-Threatening Illnesses) submission to FDA, • Our primary and secondary study endpoints for resmetirom, and the potential for achieving such endpoints and projections, including non-alcoholic steatohepatitis (“NASH”) resolution, safety, fibrosis treatment, cardiovascular effects and lipid treatment with resmetirom, • Optimal dosing levels for resmetirom and projections regarding potential NASH or nonalcoholic fatty liver disease (“NAFLD”) and potential patient benefits with resmetirom, including future NASH resolution, safety, fibrosis treatment, cardiovascular effects, lipid treatment and/or biomarker effects with resmetirom, • The potential efficacy and safety of resmetirom for non-cirrhotic NASH patients and cirrhotic NASH patients, • Increases in cash operating expenses, including as we expand our resmetirom clinical development program and our commercial development program; • Ex-U.S. launch/partnering plans, • The predictive power of resmetirom liver fat reduction, as measured by non-invasive tests, on NASH resolution and/or fibrosis reduction or improvement, and potential NASH or NAFLD patient risk profile benefits with resmetirom, • The predictive power of liver fat, volume or fibrosis reduction with resmetirom using non-invasive tests, • The predictive power of non-invasive tests generally, including for purposes of diagnosing NASH, monitoring patient response to resmetirom, or recruiting and conducting a NASH clinical trial, • Market demand for and acceptance of our products, • Research, development and commercialization of new products, • Obtaining and maintaining regulatory approvals, including, but not limited to, potential regulatory delays or rejections, • Risks associated with meeting the objectives of our clinical studies, including, but not limited to our ability to achieve enrollment objectives concerning patient numbers (including an adequate safety database), outcomes objectives and/or timing objectives for our studies, any delays or failures in enrollment, the occurrence of adverse safety events, and the risks of successfully conducting trials that are substantially larger, and have patients with different disease states, than our past trials, • Risks related to the effects of resmetirom’s mechanism of action and our ability to accomplish our business and business development objectives and realize the anticipated benefit of any such transactions, and • Assumptions underlying any of the foregoing. 15 Table of Contents We caution you that the foregoing list may not include all of the forward-looking statements made in this Quarterly Report. Although management presently believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to be correct and you should be aware that actual results could differ materially from those contained in the forward-looking statements. Forward-looking statements are subject to a number of risks and uncertainties including, but not limited to: our clinical development of resmetirom; enrollment and trial conclusion uncertainties, generally and in relation to COVID-19 shelter-in-place and social distancing measures and individual precautionary measures that may be implemented or continued for an uncertain period of time; our potential inability to raise sufficient capital to fund our ongoing operations as currently planned or to obtain financings on terms similar to those we have arranged in the past; our ability to service our indebtedness and otherwise comply with our debt covenants; outcomes or trends from competitive studies; future topline data timing or results; the risks of achieving potential benefits in studies that includes substantially more patients, and patients with different disease states, than our prior studies; the timing and outcomes of clinical studies of resmetirom; and the uncertainties inherent in clinical testing. Undue reliance should not be placed on forward-looking statements, which speak only as of the date they are made. Madrigal undertakes no obligation to update any forward-looking statements to reflect new information, events or circumstances after the date they are made, or to reflect the occurrence of unanticipated events. Please refer to Madrigal’s submissions filed or furnished with the U.S. Securities and Exchange Commission for more detailed information regarding these risks and uncertainties and other factors that may cause actual results to differ materially from those expressed or implied. We specifically discuss these risks and uncertainties in greater detail in the section appearing in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on February 25, 2022, as updated by the risk factors discussed in Part II, Item 1A of this Quarterly Report on Form 10-Q, as well as in our other filings with the SEC. You should read the 2021 Annual Report on Form 10-K, this Quarterly Report, and the other documents that we file or have filed with the SEC, with the understanding that our actual future results may be materially different from the results expressed or implied by these forward-looking statements. Moreover, we operate in an evolving environment. New risks and uncertainties emerge from time to time and it is not possible for our management to predict all risks and uncertainties, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual future results to be materially different from those expressed or implied by any forward-looking statements. Except as required by applicable law or the rules of the NASDAQ Stock Market, or NASDAQ, we assume no obligation to update any forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future. We qualify all of our forward-looking statements by these cautionary statements. 16 Table of Contents