What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-05-09 compared with 2022-11-03 · 56 added, 133 removed, 91 unchanged (68% of the section changed)

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As disclosed in this report under “Cautionary Note Regarding Forward-Looking Statements,” 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 our Annual Report on Form 10-K for the year ended December 31, 2021 and our Form 10-Q for the quarter ended March 31, 2022.

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 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 NASH and a number of disease states with high unmet medical need.

We are a clinical-stage biopharmaceutical company pursuing novel therapeutics for nonalcoholic steatohepatitis, or NASH.

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 for the treatment of NASH.

Our Patient Market Opportunity.

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In the United States, NAFLD is estimated to affect approximately 25% of the population, and approximately 25% of those will progress from NAFLD to NASH.

Current estimates place NASH prevalence at approximately 20 million people in the United States, or five to six percent of the adult population, with similar prevalence in Europe and Asia.

Current estimates place NASH prevalence at approximately 22 million people in the United States by 2024, with similar prevalence in Europe and Asia.

The prevalence of NASH is also increasing in developing regions due to the adoption of a more sedentary lifestyle and a diet consisting of processed foods with high fat and fructose content.

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Enrollment objectives for this study were exceeded, with approximately 1,300 patients enrolled overall.

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.

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 patients with NASH with fibrosis.

In November of 2021, we reported data from the open label non-cirrhotic arm of MAESTRO-NAFLD-1, 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.

In addition to the NASH and HeFH Phase 2 clinical trials, resmetirom has also been studied in multiple completed Phase 1 trials in a total of more than 300 subjects.

Resmetirom was well-tolerated in these trials, which included a single ascending dose trial, a multiple ascending dose trial, several drug interaction studies, a multiple dose mass balance study, a single dose relative bioavailability study of tablet formulation versus capsule formulation, a multiple dose drug interaction study, a multiple dose drug interaction with food effect study, and a hepatic impairment study.

Our Ongoing and Planned Studies.

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This double-blind, placebo-controlled study is being conducted at more than 220 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 accelerated approval under subpart H of applicable FDA regulations, which we refer to as subpart H-accelerated approval.

Historically:

the primary endpoint pertained to the percent of patients treated with either dose of resmetirom as compared with placebo who achieve NASH resolution on the week 52 liver biopsy, defined as the absence of hepatocyte ballooning (score=0), and minimal lobular inflammation (score 0-1), associated with at least a 2-point 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.

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 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).

MAESTRO-NASH is a multicenter, randomized, double-blind, placebo-controlled Phase 3 study of resmetirom in patients with liver biopsy-confirmed NASH and was initiated in March 2019.

The subpart H portion of the study enrolled more than 1,000 patients with biopsy-proven NASH (at least half with F3 (advanced) fibrosis, the remainder F2 or F1B (moderate fibrosis) with a few earlier F1 patients), randomized 1:1:1 to receive once-daily resmetirom 80 mg, resmetirom 100 mg, or placebo.

After 52 weeks of treatment, a second liver biopsy is performed.

The dual primary surrogate endpoints on biopsy are NASH resolution with ≥2-point reduction in NAS (NAFLD Activity Score), and with no worsening of fibrosis OR a 1-point decrease in fibrosis with no worsening of NAS.

Achievement of either primary endpoint is considered a successful trial outcome.

A key secondary endpoint is lowering of LDL-C.

All patients enrolled in the

MAESTRO-NASH study (approximately 1,750) continue on therapy after the initial 52-week treatment period for up to 54 months to accrue and measure hepatic clinical outcome events including progression to cirrhosis on biopsy (52 weeks and 54 months) and hepatic decompensation events, as well as all-cause mortality.

In December 2022, we reported topline results from the subpart H portion of the study:

resmetirom achieved both primary endpoints with both daily oral doses, 80 mg and 100 mg, relative to placebo, as summarized in “- Key Developments” in our Annual Report on Form 10-K for the year ended December 31, 2022.

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.

In August 2022, Madrigal initiated MAESTRO-NASH-OUTCOMES, a randomized double-blind placebo-controlled study in approximately 700 patients with early NASH cirrhosis to allow for noninvasive monitoring of progression to liver decompensation events.

A positive outcome is expected to support the full approval of resmetirom for noncirrhotic NASH, potentially accelerating the timeline to full approval.

In addition, this study has the potential to support an additional indication for resmetirom in patients with well-compensated NASH cirrhosis.

Key Developments

Additional Phase 3 MAESTRO-NAFLD-1 Data

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;

<0.0001) relative to placebo.

ALT increases ≥3 times the upper limit of normal occurred in 0.61% in the resmetirom 80 mg group, 0.31% in the 100 mg group and 1.6% of patients in the placebo group.

Treatment-emergent adverse events ≥ grade 3 in severity occurred in 7.6% of patients in the resmetirom 80 mg group, 9.0% in the 100 mg group and 9.1% in the placebo group.

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.

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

FibroScan liver stiffness reductions were similar in the 100 mg open-label and double-blind arms.

Responder analyses of FibroScan (vibration-controlled transient elastography (VCTE) reduction and % reduction from baseline comparing resmetirom 100 mg open-label and double-blind arms with placebo showed a significant increase in responders in resmetirom treatment arms (44% averaged across the arms) compared with placebo (25%);

magnetic resonance elastography (MRE) responders as measured by kPa reduction were significantly greater in resmetirom-treated groups compared with placebo.

Mean reduction in FibroScan VCTE in resmetirom double-blind patients was greater than placebo but not statistically significant.

MAESTRO-NASH Outcomes Study

In August 2022, we initiated 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.

We expect that a positive outcome in MAESTRO-NASH Outcomes could support the full approval of resmetirom for non-cirrhotic 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 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 Facility, $50 million was drawn at closing.

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

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.

In April 2023, Madrigal announced that resmetirom has received Breakthrough Therapy designation from the FDA for the treatment of patients with NASH with liver fibrosis.

Breakthrough Therapy designation is a process intended to expedite the development and review of drugs for serious or life-threatening conditions.

The criteria for breakthrough therapy designation require preliminary clinical evidence that demonstrates the drug may have substantial improvement on at least one clinically significant endpoint over available therapy, or over placebo if there is no available therapy.

A drug that receives Breakthrough Therapy designation is eligible for more intensive guidance on an efficient drug development program and organizational commitment involving senior managers from FDA.

Also in April 2023, Madrigal announced that the outcomes portion of the Phase 3 MAESTRO-NASH biopsy trial has completed enrollment.

Enrollment of the MAESTRO-NASH study was closed at approximately 1,750 patients based on the enrollment target of the 54-month long-term clinical outcome portion of the study.

Basis of Presentation

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Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later stage clinical trials, additional drug manufacturing requirements, and later stage toxicology studies such as carcinogenicity studies.

Our research and development expenses have increased period over period in each of 2022 and 2021 and we expect that our research and development expenses will increase in the future, including as a result of our MAESTRO-NASH Outcomes study discussed in –“Key Developments” above.

Our research and development expenses have increased period over period in each of 2023 and 2022 and we expect that our research and development expenses may increase in the future.

The process of conducting preclinical studies and clinical trials necessary to obtain regulatory approval is costly and time consuming.

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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 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.

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, and allocated overhead expenses.

We expect that our general and administrative expenses may increase in the future as we expand our operating activities, maintain and expand our patent portfolio and incur additional costs associated with being a public company and maintaining compliance with exchange listing and SEC requirements.

We expect that our general and administrative expenses will increase in the future as we expand our operating activities, prepare for commercialization, maintain and expand our patent portfolio and incur 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.

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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, 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.

There have been no material changes in our critical accounting policies and significant judgments and estimates during the three months ended March 31, 2023, as compared to those disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 filed with the SEC on February 23, 2023.

Results of Operations

Three months Ended September 30, 2022 and 2021

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

Three Months Ended September 30,

Increase / (Decrease)

Research and Development Expenses

General and Administrative Expenses

Interest (Income)

Interest Expense

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

Research and Development Expenses

Our research and development expenses were $68.3 million for the three months ended September 30, 2022, compared to $54.9 million in the corresponding period in 2021.

Research and development expenses increased by $13.4 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 $12.1 million for the three months ended September 30, 2022, compared to $8.3 million in the corresponding period in 2021.

General and administrative expenses increased by $3.9 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 $0.7 million for the three months ended September 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 $1.5 million for the three months ended September 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.

Nine months Ended September 30, 2022 and 2021

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

Nine Months Ended September 30,

Three months Ended March 31, 2023 and 2022

The following table provides comparative unaudited results of operations for the three months ended March 31, 2023 and 2022 (in thousands):

Three Months Ended March 31,

Increase / (Decrease)

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Interest Expense

Other (income)

We had no revenue for the nine months ended September 30, 2022 and 2021.

We had no revenue for the three months ended March 31, 2023 and 2022.

Research and Development Expenses

Our research and development expenses were $174.7 million for the nine months ended September 30, 2022, compared to $152.3 million in the corresponding period in 2021.

Research and development expenses increased by $22.4 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.

Our research and development expenses were $62.2 million for the three months ended March 31, 2023, compared to $47.9 million in the corresponding period in 2022.

Research and development expenses increased by $14.2 million in the 2023 period due primarily to the additional activities related to our Phase 3 clinical trials, including MAESTRO-NASH Outcomes for which no expenses were incurred in the prior year quarter, an increase in headcount, 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 $33.6 million for the nine months ended September 30, 2022, compared to $25.6 million in the corresponding period in 2021.

General and administrative expenses increased by $8.0 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.

Our general and administrative expenses were $16.2 million for the three months ended March 31, 2023, compared to $9.7 million in the corresponding period in 2022.

General and administrative expenses increased by $6.5 million in the 2023 period due primarily to increases in commercial preparation activities, including a corresponding increase in headcount, and an increase in stock compensation expense.

Interest Income

Our net interest income was $1.1 million for the nine months ended September 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.

Our net interest income was $3.8 million for the three months ended March 31, 2023, compared to $0.1 million in the corresponding period in 2022.

The increase in interest income was due primarily to higher principal balances and interest rates in 2023.

Interest Expense

Our interest expense was $2.3 million for the nine months ended September 30, 2022, compared to $0 million in the corresponding period in 2021.

Our interest expense was $2.3 million for the three months ended March 31, 2023, compared to $0 million in the corresponding period in 2022.

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 capital stock and also from Loan Facility and the proceeds from our 2016 merger transaction.

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, borrowings under the Loan Facility with Hercules, the issuance of convertible debt and the proceeds from the merger with Synta Pharmaceuticals Corp.

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.

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

As of September 30, 2022, we had cash, cash equivalents and marketable securities totaling $153.2 million compared to $270.3 million as of December 31, 2021, with this 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.

As of March 31, 2023, we had cash, cash equivalents and marketable securities totaling $329.5 million compared to $358.8 million as of December 31, 2022, with this decrease attributable to funding of operations, partially offset by $35.0 million drawn from the Loan Facility with Hercules and proceeds from the exercise of stock options.

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.

Subject to the considerations noted below, our rate of cash usage will likely increase in the future, in particular to support our product development and pre-commercialization efforts.

While our rate of cash usage will likely increase in the future, in particular to support our product development and clinical trial efforts, as well as preparation for commercialization, we believe our available cash resources as of March 31, 2023 will be sufficient to fund our operations past one year from the issuance of the financial statements contained herein.

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 financings, collaborations, partnerships or other strategic transactions.

To meet future long-term liquidity requirements, as well as maintain compliance with certain of our Loan Facility covenants, we will need to raise additional capital to fund our operations through equity or debt financings, collaborations, partnerships or other strategic transactions.

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 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 Loan Facility with Hercules based upon achievement of resmetirom clinical and regulatory milestones and conditions.

However, there is no assurance that additional capital and financing will be available on terms acceptable to us, or at all.

See “Risk Factors” in Part I, Item 1A of our Annual Report for the year ended December 31, 2021 and in Part II, Item I.A of our quarterly report on Form 10-Q for the period ended March 31, 2022, which includes a description of the risks related to our liquidity requirements, financial position and need for capital.

In addition, if such capital or financing is available, 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.

Based upon our current operating plans, and the Company’s cash, cash equivalents and marketable securities totaling $153.2 million as of September 30, 2022, the Company expects, that such resources will not be sufficient to fund our operating expenses and capital requirements through the one year anniversary of the filing of this Quarterly Report on Form 10-Q.

These conditions raise substantial doubt about our ability to continue as a going concern under ASC 205-40.

While management currently believes this shortfall can be addressed by future financings and capital issuances, or by delaying certain clinical studies or pre-commercialization expenses if necessary, under the requirements of ASC 205-40, management may not consider in its assessment of the Company’s ability to meet its obligations for the next twelve months the potential for future capital raises through debt or equity financings, collaborations, partnerships or other strategic transactions, or management plans to reduce costs that are not considered probable under these accounting standards.

The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

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;

could result in

the Company delaying, reducing or eliminating some or all of its research and development programs, clinical studies or pre-commercialization efforts;

could adversely affect the Company’s business prospects;

and could affect the Company’s ability to maintain compliance with covenants under the Loan Facility.

Although the Company has been successful in raising capital and financing in the past, there is no assurance that it will be successful in obtaining such additional financing on terms acceptable to the Company, if at all.

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 and conditions.

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 September 30, 2022, the outstanding principal under the Loan Facility was $50.0 million.

The interest rate as of September 30, 2022 was 10.20%.

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.

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

We also have the ability to delay certain research activities and related clinical expenses, as well as commercial preparation investments, if necessary due to liquidity concerns until a date when those concerns are relieved.

If adequate funds are not available, or if the terms of potential funding sources are unfavorable, our business and our ability to develop our product candidates would be harmed.

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

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 (used in) investing activities

Net cash (used in) provided by investing activities

Net cash provided by financing activities

Net increase (decrease) in cash and cash equivalents

Net cash used in operating activities was $166.3 million for the nine months ended September 30, 2022, compared to $135.9 million for the corresponding period in 2021.

Net cash used in operating activities was $84.1 million for the three months ended March 31, 2023, compared to $49.9 million for the corresponding period in 2022.

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 $140.3 million for the nine months ended September 30, 2022, compared to $20.7 million used in for the corresponding period in 2021.

Net cash provided by investing activities for the nine months ended September 30, 2022 consisted of $271.2 million from sales and maturities of marketable securities, partially offset by $130.7 million used in purchases of marketable securities for our investment portfolio.

Net cash used in for the corresponding period in 2021 consisted of $339.4 million of purchases of marketable securities for our investment portfolio, partially offset by $318.8 million from sales and maturities of marketable securities.

Net cash provided by financing activities was $49.1 million for the nine months ended September 30, 2022, compared to $151.7 million for the corresponding period in 2021.

Financing activities for the nine months ended September 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 by for the corresponding period in 2021 consisted of $151.2 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.

Net cash used in investing activities was $186.9 million for the three months ended March 31, 2023, compared to $55.9 million provided by for the corresponding period in 2022.

Net cash used in investing activities for the three months ended March 31, 2023 consisted of $198.8 million of purchases of marketable securities for our investment portfolio, partially offset by $12.0 million from sales and maturities of marketable securities.

Net cash provided by for the corresponding period in 2022 consisted of $93.5 million from sales and maturities of marketable securities, partially offset by $37.6 million of purchases of marketable securities for our investment portfolio.

Net cash provided by financing activities was $52.7 million for the three months ended March 31, 2023, compared to $0 million for the corresponding period in 2022.

Financing activities for the three months ended March 31, 2023 consisted of $35.0 million from issuance of the Loan Facility and $17.9 million from proceeds from the exercise of common stock options, partially offset by $0.2 million of loan issuance costs.

Contractual Obligations and Commitments

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 nine months ended September 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.

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 three months ended March 31, 2023, as compared to those disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 filed with the SEC on February 23, 2023.

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