What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-08-04 compared with 2022-05-09 · 117 added, 63 removed, 142 unchanged (56% 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 the “Cautionary Note Regarding Forward-Looking Statements” and “Risk Factors” sections contained in this Form 10-Q and our Annual Report on Form 10-K

Factors that could cause

or contribute to such differences include, but are not limited to, those discussed in the “Cautionary Note Regarding Forward-Looking Statements” and “Risk Factors” sections contained in this Form 10-Q

and our Annual Report on Form 10-K

for the year ended December 31, 2021.

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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 pursuing novel therapeutics for nonalcoholic steatohepatitis (NASH), a liver disease with high unmet medical need.

Our lead product candidate, resmetirom, is a proprietary, liver-directed, selective thyroid hormone receptor-ß, or THR-ß,

agonist being developed as a once-daily oral pill that can potentially be used to treat a number of disease states with high unmet medical need, including non-alcoholic

steatohepatitis, or NASH.

agonist being developed as a once-daily oral pill that can potentially be used to treat NASH and a number of disease states with high unmet medical need.

Our Patient Market Opportunity.

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and in January 2022 we announced that we achieved primary and secondary endpoints for the double-blind portion of MAESTRO-NAFLD-1.

Further MAESTRO-NAFLD-1

data were presented at a hepatology medical congress in June of 2022.

MAESTRO-NAFLD-1

has completed the double-blind arms and an open-label 100 mg arm.

An additional open-label active treatment arm in patients with early (well-compensated) NASH cirrhosis is ongoing.

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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associated with at least a 2-point

reduction in NAS (NAFLD Activity Score), and no worsening of fibrosis

reduction in NAS (NAFLD Activity Score), and no worsening of fibrosis stage;

and two key secondary endpoints pertained to reduction in LDL-cholesterol

and a 1-point

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

In May 2022, the Company announced that it determined to move the 1-point fibrosis endpoint up the hierarchy in our MAESTRO-NASH trial to a primary endpoint along with NASH resolution, as dual primary endpoints.

The dual primary endpoint design allows for a successful outcome of the study, which can be filed for subpart H approval, if either the NASH resolution or 1-point fibrosis reduction endpoint is met.

or more improvement in fibrosis stage on the week

52 biopsy with no worsening of NASH.

In May 2022, the Company announced that it determined to move the 1-point

fibrosis endpoint up the hierarchy in our MAESTRO-NASH trial to a primary endpoint along with NASH resolution, as dual primary endpoints.

The dual primary endpoint design allows for a successful outcome of the study, which can be filed for subpart H approval, if either the NASH resolution or 1-point

fibrosis reduction endpoint is met.

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 as hepatic decompensation.

The total anticipated enrollment currently 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.

On June 30, 2021 we announced our achievement of the requisite enrollment of patients to support the planned Subpart H (Accelerated Approval of New

Drugs for Serious or Life-Threatening Illnesses) submission to the US Food and Drug Administration (FDA).

On July 13, 2021 we announced first patient dosed in a planned

open label active treatment extension study of

MAESTRO-NAFLD-1,

The total anticipated enrollment currently is up to 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.

On June 30, 2021 we announced our achievement of the requisite enrollment of patients to support the planned Subpart H (Accelerated Approval of New Drugs for Serious or Life-Threatening Illnesses) submission to the US Food and Drug Administration (FDA).

On July 13, 2021 we announced first patient dosed in a planned 52-week

open label active treatment extension study of MAESTRO-NAFLD-1,

named MAESTRO-NAFLD-Open Label Extension (OLE).

The OLE study allows patients who complete

MAESTRO-NAFLD-1

to consent to 52 weeks of active treatment with resmetirom, making this treatment available to both patients who were assigned to placebo in

MAESTRO-NAFLD-1

and patients who were on resmetirom in

MAESTRO-NAFLD-1.

The OLE study allows patients who complete MAESTRO-NAFLD-1

to consent to 52 weeks of active treatment with resmetirom, making this treatment available to both patients who were assigned to placebo in MAESTRO-NAFLD-1

and patients who were on resmetirom in MAESTRO-NAFLD-1.

Key Developments

Additional Phase 3 MAESTRO-NAFLD-1 Data

In January, we announced that certain primary and key secondary endpoints from the double-blind, placebo-controlled, 969-patient MAESTRO-NAFLD-1 safety study were achieved;

resmetirom was well-tolerated and provided significant reductions in liver fat, LDL-c and other atherogenic lipids vs.

In May of 2022, we announced additional data and results from the MAESTRO-NAFLD-1 safety study, as described below.

Additional Phase 3 MAESTRO-NAFLD-1

In January 2022, we announced that certain primary and key secondary endpoints from the double-blind, placebo-controlled, 969-patient

MAESTRO-NAFLD-1

safety study were achieved;

resmetirom was well-tolerated and provided significant reductions in liver fat, LDL-c

and other atherogenic lipids vs.

In May 2022 and June 2022, we announced additional data and results from the MAESTRO-NAFLD-1

safety study, as described below.

Patients in the resmetirom 80 mg and 100 mg double-blind arms achieved reductions in ALT (p=0.002;

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Withdrawals due to adverse events were 2.4% in the 80 mg group, 2.8% in the 100 mg group and 1.3% in the placebo group.

GI-related adverse events (diarrhea, nausea) were increased relative to placebo at the initiation of therapy but not after the first few weeks.

adverse events (diarrhea, nausea) were increased relative to placebo at the initiation of therapy but not after the first few weeks.

FibroScan CAP (controlled attenuation parameter) scores reflective of hepatic fat were statistically significantly (p<0.0001) reduced in resmetirom arms as compared with placebo.

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MAESTRO-NASH Outcomes Study

In the next few months, we plan to initiate a second NASH outcomes study, MAESTRO-NASH Outcomes, a randomized double-blind placebo-controlled study in approximately 700 patients with early NASH cirrhosis to allow for non-invasive monitoring of progression to liver decompensation events.

We plan to initiate a second NASH outcomes study, MAESTRO-NASH Outcomes, a randomized double-blind placebo-controlled study in approximately 700 patients with early NASH cirrhosis to allow for non-invasive

monitoring of progression to liver decompensation events.

Several biomarker and imaging techniques will also be employed to assess correlates with disease progression.

Ongoing open-label studies of more than 180 patients with well-compensated NASH cirrhosis (MAESTRO-NAFLD-1 open-label arm) support the potential of resmetirom in this patient population.

Term loan facility to support expansion of clinical development program and

Ongoing open-label studies of more than 180 patients with well-compensated NASH cirrhosis (MAESTRO-NAFLD-1

open-label arm) support the potential of resmetirom in this patient population.

We expect that a positive outcome in MAESTRO-NASH Outcomes could support the full approval of resmetirom for noncirrhotic NASH, and could potentially accelerate the timeline to full approval.

In addition, this study has the potential to broaden the label for resmetirom to include NASH patients with compensated cirrhosis.

Loan Facility to support expansion of clinical development program and ramp-up

for potential resmetirom launch

We have secured a $250 million term loan facility with Hercules Capital, Inc (“Hercules”).

The committed capital strengthens Madrigal’s balance sheet, providing an additional source of funding both to support the expanded clinical program and

We secured a $250 million Loan Facility (“Loan Facility”) with Hercules Capital, Inc (“Hercules”) in May 2022.

The committed capital strengthens our balance sheet, providing an additional source of funding both to support the expanded clinical program and ramp-up

for a potential launch of resmetirom in the U.S.

Under the terms of the loan agreement, $50 million was drawn at closing.

Madrigal 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 Madrigal, 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%.

We 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

We may also draw up to an additional $125 million in two separate tranches upon achievement of resmetirom clinical and regulatory milestones.

An additional $75 million may be drawn by us, subject to the approval of Hercules.

The loan facility has a minimum interest rate of 7.45% and adjusts with changes in the prime rate.

We will pay interest-only for a period of 30 months, which may be extended to 60 months upon the achievement of certain clinical and regulatory milestones.

The loan matures in May 2026 and may be extended an additional year upon the achievement of certain clinical and regulatory milestones.

Additional details of the Loan Facility were filed with the Securities and Exchange Commission (“SEC”) on a Current Report on Form 8-K

on May 9, 2022 and the Loan and Security Agreement associated with the Loan Facility is included as an exhibit to this Quarterly Report on Form 10-Q.

Basis of Presentation

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We contract with clinical research organizations to manage our clinical trials under agreed upon budgets for each study, with oversight by our clinical program managers.

We account for nonrefundable advance payments for goods and services that will be used in future research and

development activities as expenses when the service has been performed or when the goods have been received.

We account for nonrefundable advance payments for goods and services that will be used in future research and development activities as expenses when the service has been performed or when the goods have been received.

Manufacturing expense includes costs associated with drug formulation development and clinical drug production.

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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 three months ended March 31, 2022, 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 six months ended June 30, 2022, as compared to those disclosed in our Annual Report on Form 10-K

for the fiscal year ended December 31, 2021 filed with the SEC on February 25, 2022.

Results of Operations

Three months Ended March 31, 2022 and 2021

The following table provides comparative unaudited results of operations for the three months ended March 31, 2022 and 2021 (in thousands):

Three Months Ended

Three months Ended June 30, 2022 and 2021

The following table provides comparative unaudited results of operations for the three months ended June 30, 2022 and 2021 (in thousands):

Three Months Ended June 30,

Increase / (Decrease)

Research and Development Expenses

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Interest (Income)

Interest Expense

We had no revenue for the three months ended June 30, 2022 and 2021.

Research and Development Expenses

Our research and development expenses were $58.5 million for the three months ended June 30, 2022, compared to $51.6 million in the corresponding period in 2021.

Research and development expenses increased by $6.9 million in the 2022 period due primarily to the additional activities related to our Phase 3 clinical trials, an increase in head count, and an increase in stock compensation expense.

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

General and Administrative Expenses

Our general and administrative expenses were $11.8 million for the three months ended June 30, 2022, compared to $10.1 million in the corresponding period in 2021.

General and administrative expenses increased by $1.7 million in the 2022 period due primarily to increases in commercial preparation activities, including a corresponding increase in head count, and an increase in stock compensation expense.

We believe our general and administrative expenses may increase over time as we advance our clinical and preclinical development programs for resmetirom, prepare for commercialization, 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 $0.3 million for the three months ended June 30, 2022, compared to $0.1 million in the corresponding period in 2021.

The increase in interest income was due primarily to higher interest rates in 2022.

Interest Expense

Our interest expense was $0.8 million for the three months ended June 30, 2022, compared to $0 million in the corresponding period in 2021.

The increase in interest expense was as a result of the Loan Facility we entered into with Hercules during the second quarter of 2022.

Six months Ended June 30, 2022 and 2021

The following table provides comparative unaudited results of operations for the six months ended June 30, 2022 and 2021 (in thousands):

Six Months Ended June 30,

Research and Development Expenses

General and Administrative Expenses

Interest (Income)

Interest Expense

Other (income)

We had no revenue for the three months ended March 31, 2022 and 2021.

We had no revenue for the six months ended June 30, 2022 and 2021.

Research and Development Expenses

Our research and development expenses were $47.9 million for the three months ended March 31, 2022, compared to $45.8 million in the corresponding period in 2021.

Research and development expenses increased by $2.2 million in the 2022 period due primarily to the additional activities related to the Phase 3 clinical trials, increase in head count, and an increase in stock compensation expense.

We expect our research and development expenses to increase as we advance our clinical and preclinical development programs for resmetirom, including as a result of our planned MAESTRO-NASH Outcomes study.

Our research and development expenses were $106.4 million for the six months ended June 30, 2022, compared to $97.4 million in the corresponding period in 2021.

Research and development expenses increased by $9.0 million in the 2022 period due primarily to the additional activities related to our Phase 3 clinical trials, an increase in head count, and an increase in stock compensation expense.

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

General and Administrative Expenses

Our general and administrative expenses were $9.7 million for the three months ended March 31, 2022, compared to $7.2 million in the corresponding period in 2021.

Our general and administrative expenses were $21.4 million for the six months ended June 30, 2022, compared to $17.3 million in the corresponding period in 2021.

General and administrative expenses increased by $4.1 million in the 2022 period due primarily to increases in commercial preparation activities, including a corresponding increase in head count, and an increase in stock compensation expense.

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 $0.1 million for the three months ended March 31, 2022, compared to $0.2 million in the corresponding period in 2021.

The decrease in interest income was due primarily to a lower average principal balance in our investment account in 2022.

Our net interest income was $0.4 million for the six months ended June 30, 2022, compared to $0.3 million in the corresponding period in 2021.

The increase in interest income was due primarily to higher interest rates in 2022.

Interest Expense

Our interest expense was $0.8 million for the six months ended June 30, 2022, compared to $0 million in the corresponding period in 2021.

The increase in interest expense was as a result of the Loan Facility we entered into with Hercules during the second quarter of 2022.

Liquidity and Capital Resources

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

Since inception, we have incurred significant net losses and we have funded our operations primarily through the issuance of debt, the issuance of shares of our common stock and shares of our preferred stock, and the proceeds from our 2016 merger transaction.

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 March 31, 2022, we had cash, cash equivalents and marketable securities totaling $220.0 million compared to $270.3 million as of December 31, 2021, with the decrease attributable to the funding of operations.

We also are required to make repayments of interest and principal on our Loan Facility with Hercules, as described below.

As of June 30, 2022, we had cash, cash equivalents and marketable securities totaling $211.8 million compared to $270.3 million as of December 31, 2021, with the decrease attributable to the funding of operations, partially offset by $50.0 million drawn at closing in May 2022 from the Loan Facility with Hercules.

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

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Cash in excess of immediate requirements is invested in accordance with our investment policy with a view toward capital preservation and liquidity.

The Company believes that its cash, cash equivalents, marketable securities at June 30, 2022 will be sufficient to fund operations over the next twelve months.

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 March 31, 2022 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 June 30, 2022 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

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sales agreement entered into in June of 2021, with Cowen and Company, LLC (the “2021 Sales Agreement”), pursuant to which we may, from time to time, issue and sell shares of our common stock up to established limits.

We may also draw on additional tranches of debt under our $250 million term loan facility with Hercules based upon achievement of resmetirom clinical and regulatory milestones.

We may also draw on additional tranches of debt under our $250 million Loan Facility with Hercules based upon achievement of resmetirom clinical and regulatory milestones.

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

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Furthermore, any sales of additional equity securities may result in dilution to our stockholders, and any additional debt financing may include covenants that restrict our business.

Loan Facility

On May 9, 2022, we and our wholly-owned subsidiary, Canticle Pharmaceuticals, Inc., entered into the $250.0 million Loan Facility with the several banks and other financial institutions or entities party thereto (each, a “Lender” and collectively referred to as the “Lenders”), and Hercules, in its capacity as administrative agent and collateral agent for itself and the Lenders.

Under the terms of the Loan Facility, the first $50.0 million tranche was drawn at closing.

The Company may also draw up to an additional $125.0 million in two separate tranches upon achievement of certain resmetirom clinical and regulatory milestones.

A fourth tranche of $75.0 million may be drawn by the Company, subject to the approval of Hercules.

The Loan Facility has a minimum interest rate of 7.45% and adjusts with changes in the prime rate.

The Company will pay interest-only monthly payments of accrued interest under the Loan Facility for a period of 30 months, which period may be extended to 36, 48, and 60 months upon the successive achievement of certain clinical and regulatory milestones and if the Company maintains compliance with applicable financial covenants.

The Loan Facility matures in May 2026 and may be extended an additional year upon the achievement of certain clinical and regulatory milestones.

As of June 30, 2022, the outstanding principal under the Loan Facility was $50.0 million.

The interest rate as of June 30, 2022 was 8.70%.

Please see “Note 6 – Long Term Debt” to the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q

for information on the Loan Facility.

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

Three Months Ended

Six Months Ended June 30,

Net cash used in operating activities

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Net increase (decrease) in cash and cash equivalents

Net cash used in operating activities was $49.9 million for the three months ended March 31, 2022, compared to $43.4 million for the corresponding period in 2021.

Net cash used in operating activities was $107.3 million for the six months ended June 30, 2022, compared to $90.3 million for the corresponding period in 2021.

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 $55.9 million for the three months ended March 31, 2022, compared to $33.5 million used in for the corresponding period in 2021.

Net cash provided by investing activities for the three months ended March 31, 2022 consisted of $93.5 million from sales and maturities of marketable securities, partially offset by $37.6 million used in purchases of marketable securities for our investment portfolio.

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 financing activities was $0 million for the three months ended March 31, 2022, compared to $67.1 million for the corresponding period in 2021.

Financing activities for the corresponding period in 2021 consisted of $66.6 million from net proceeds from issuances of stock under one of our At The Market (ATM) sales agreement and $0.5 million from the exercise of stock options.

Net cash provided by investing activities was $75.2 million for the six months ended June 30, 2022, compared to $60.8 million used in for the corresponding period in 2021.

Net cash provided by investing activities for the six months ended June 30, 2022 consisted of $191.9 million from sales and maturities of marketable securities, partially offset by $116.5 million used in purchases of marketable securities for our investment portfolio.

Net cash used in for the corresponding period in 2021 consisted of $224.1 million of purchases of marketable securities for our investment portfolio, partially offset by $163.3 million from sales and maturities of marketable securities.

Net cash provided by financing activities was $49.1 million for the six months ended June 30, 2022, compared to $130.7 million for the corresponding period in 2021.

Financing activities for the six months ended June 30,2022 consisted of $50.0 million from issuance of the Loan Facility, partially offset by $0.9 million of loan issuance costs.

Net cash provided for the corresponding period in 2021 consisted of $130.2 million from net proceeds from issuances of common stock under an At The Market (ATM) sales agreement and $0.5 million from the exercise of stock options.

Contractual Obligations and Commitments

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

Except for the future minimum payments due on the Loan Facility with Hercules set forth in “Note 6 – Long Term Debt” to the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q,

no significant changes to contractual obligations and commitments occurred during the six months ended June 30, 2022, as compared to those disclosed in our Annual Report on Form 10-K

for the fiscal year ended December 31, 2021 filed with the SEC on February 25, 2022.

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