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Item 7. Management’s Discussion and Analysis

2024-02-28 compared with 2023-02-23 · 162 added, 97 removed, 115 unchanged (69% of the section changed)

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Factors that could cause or contribute to such differences include, but are not limited to, those discussed in “Cautionary Note Regarding Forward-Looking Statements” and in the “Risk Factors” sections contained in Part I, Item 1A in this Annual Report on Form 10-K.

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, 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.

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

We are a clinical-stage biopharmaceutical company pursuing novel therapeutics for nonalcoholic steatohepatitis, or NASH, a liver disease with high unmet medical need.

Our lead candidate, resmetirom, is a once-daily, oral, liver-directed thyroid hormone receptor-ß (THR-ß), agonist designed to target key underlying causes of NASH.

NASH Disease State Overview.

NASH is a more advanced form of nonalcoholic fatty liver disease (NAFLD).

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

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

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

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

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

In the United States, 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 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.

Our Completed Studies.

For NASH, we enrolled 125 patients in a Phase 2 clinical trial with resmetirom.

We achieved the 12-week primary endpoint for this Phase 2 clinical trial and reported the results in December 2017, and we reported positive topline 36-week results at the conclusion of the Phase 2 clinical trial in May 2018.

We also completed a 36-week, open-label extension study in 31 participating NASH patients from our Phase 2 clinical trial, which included 14 patients who received placebo in the main study.

On December 18, 2019 the Company announced it had opened for enrollment MAESTRO-NAFLD-1, a 52-week, non-invasive, multi-center, double-blind, placebo-controlled Phase 3 clinical study of patients with biopsy-confirmed or presumed NASH recruited from sites in the U.S.

Key endpoints are safety, including safety biomarkers.

Secondary endpoints include LDL cholesterol, lipid biomarkers, MRI-PDFF, NASH and fibrosis biomarkers.

Except for serial liver biopsies, the study protocol is similar to the MAESTRO-NASH study (discussed below under “—Our Ongoing and Planned Studies”), with resmetirom doses of 80 mg or 100 mg or placebo.

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 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, as summarized in “- Key Developments” below.

Our Ongoing and Planned Studies.

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

This double-blind, placebo-controlled study is being conducted at more than 220 sites in the United States and the rest of the world.

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 (up to 2,000 in total) 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” below.

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

In December 2022, Madrigal announced topline results from the pivotal Phase 3 MAESTRO-NASH biopsy study of resmetirom.

Madrigal reported that resmetirom achieved both primary endpoints with both daily oral doses, 80 mg and 100 mg, relative to placebo.

For additional details on these topline results and other recent developments, see:

NASH is the leading cause of liver transplants in the U.S.

for women, and is expected to soon be the leading cause of liver transplants overall.

Additionally, patients with NASH, especially those with more advanced metabolic risk factors (hypertension, concomitant type 2 diabetes), are at increased risk for adverse cardiovascular events and increased morbidity and mortality.

Once patients progress to NASH with significant fibrosis (consistent with fibrosis stages 2 and 3), the risk of adverse liver outcomes increases substantially.

NASH is also known as metabolic dysfunction-associated steatohepatitis (“MASH”) following a change in disease nomenclature introduced by hepatology medical societies in 2023.

Our Patient Focus.

Madrigal estimates that approximately 1.5 million patients have been diagnosed with NASH in the U.S., of which approximately 525,000 have NASH with significant fibrosis.

Madrigal estimates that approximately 315,000 diagnosed patients with NASH with significant fibrosis are under the care of the liver specialist physicians Madrigal will be targeting during the planned launch of resmetirom following approval.

Our Clinical Development Program.

Madrigal is currently conducting multiple Phase 3 clinical trials to evaluate the safety and efficacy of resmetirom for the treatment of NASH, including the pivotal MAESTRO-NASH biopsy study in patients with significant fibrosis, the MAESTRO-NASH Outcomes study in patients with NASH with compensated cirrhosis and the MAESTRO-NAFLD-1 safety study.

Positive results from the pivotal MAESTRO-NASH biopsy study were published in the New England Journal of Medicine in February 2024.

Data from the 52-week first 1,000 patient portion of MAESTRO-NASH, together with data from MAESTRO-NAFLD-1, the open-label extension of the MAESTRO-NAFLD-1 study, Phase 2 and Phase 1 data, including safety parameters, formed the basis for Madrigal’s subpart H submission to the FDA for accelerated approval of resmetirom for treatment of NASH with liver fibrosis.

Key Developments

In February 2024, primary results from the MAESTRO-NASH study were published in the New England Journal of Medicine.

In September 2023, Madrigal announced we had commenced a public underwritten offering of common stock and pre-funded warrants to purchase common stock (the “Offering”).

The Offering closed in October 2023.

We received gross proceeds totaling $500.0 million.

Our net proceeds were $472.0 million, after deducting fees and commissions.

We intend to use the net proceeds from the Offering for our clinical and commercial activities in preparation for a potential launch of resmetirom in the U.S.

and for general corporate purposes, including, without limitation, research and development expenditures, clinical trial expenditures, manufacture and supply of drug substance and drug products, potential acquisitions or licensing of new technologies, capital expenditures and working capital.

Also in September 2023, Madrigal announced our Board of Directors (the “Board”) appointed Bill Sibold as the President and Chief Executive Officer of the Company.

In connection with this appointment, the size of the Board was increased to nine, and Mr.

Sibold was also appointed a member of the Board.

Sibold’s start date, he assumed the duties and responsibilities of the Company’s principal executive officer from Paul Friedman, M.D., who previously served as the Chief Executive Officer since July of 2016.

Friedman continues to serve on the Board as a director of the Company.

Additionally in September 2023, the U.S.

Food and Drug Administration (the “FDA”) informed Madrigal that it accepted for review our New Drug Application (“NDA”) for resmetirom for the treatment of adult patients with NASH with liver fibrosis and granted a Priority Review designation.

The FDA has assigned a Prescription Drug User Fee Act (“PDUFA”) date of March 14, 2024, the target date by which the FDA intends to complete its review and take action on the NDA.

The FDA noted in its September 2023 correspondence that it is not currently planning to hold an advisory committee meeting to discuss our application.

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

Research and Development Expenses

Research and development expenses primarily consist of costs associated with our research activities, including the preclinical and clinical development of our product candidates.

Research and development expenses primarily consist of costs associated with our research activities, including the preclinical and clinical development of our product candidate, resmetirom.

We expense our research and development expenses as incurred.

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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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 year over year in each of 2020, 2021, and 2022 and we expect that our research and development expenses will increase substantially in the future.

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

Our research and development expenses have increased year over year in each of 2021, 2022, and 2023 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.

The probability of success for each product candidate is affected by numerous factors, including preclinical data, clinical data, competition, manufacturing capability and commercial viability.

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

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

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

General and Administrative Expenses

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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.

Critical Accounting Policies and Estimates

Our management’s discussion and analysis of our financial condition and results of operations are based on our financial statements which have been prepared in accordance with GAAP.

Critical Accounting Estimates

Our management’s discussion and analysis of our financial condition and results of operations are based on our financial statements which have been prepared in accordance with generally accepted accounting principles in the United States.

The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities, and expenses and the disclosure of contingent assets and liabilities at the date of the financial statements.

On an ongoing basis, we evaluate our estimates and judgments, including those related to accrued research and development expenses.

On an ongoing basis, we evaluate our estimates and judgments, including those related to accrued research and development expenses and stock-based compensation expenses.

We base our estimates on historical experience, known trends and events, and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources.

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Research and development costs are expensed as incurred.

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

In particular, the Company has conducted safety studies in animals, optimized and implemented the manufacturing of our drug, and conducted Phase 1-3 clinical trials, all of which are considered research and development expenditures.

In particular, we have conducted safety studies in animals, optimized and implemented the manufacturing of our drug, and 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 milestones 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.

The Company’s historical estimates for research and development costs have not been materially different from the actual costs.

Actual results could differ from our estimates.

Our historical estimates for research and development costs have not been materially different from the actual costs.

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.

We recognize stock-based compensation expense based on the grant date fair value of stock options, restricted stock units, and other stock-based compensation awards granted to employees, officers, directors, and consultants.

We use the Black-Scholes option pricing model to determine the grant date fair value of stock options 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.

We use the simplified method for determining the expected lives of options.

Expected volatility is based upon an industry estimate or blended rate including our 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.

We estimate 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.

For other stock-based compensation awards granted to employees and directors that vest based on market conditions, such as the trading price of our common stock achieving or exceeding certain price targets, we use a Monte Carlo simulation model to estimate the grant date fair value and recognize stock compensation expense over the derived service period.

The Monte Carlo simulation model requires key inputs that are subject to uncertainty for risk-free interest rate, dividend yield, volatility, and expected life.

The assumptions used in computing the fair value of equity awards reflect our best estimates but involve uncertainties related to market and other conditions.

Changes in any of these assumptions may materially affect the fair value of awards granted and the amount of stock-based compensation recognized.

Certain of the employee stock options we grant are structured to qualify as incentive stock options (ISOs).

Under current tax regulations, we do 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 we may receive a tax deduction.

We do 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.

We have not recognized any income tax benefit for its share-based compensation arrangements due to the fact that we do not believe it is more likely than not we will realize the related deferred tax assets.

Results of Operations

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The following table provides comparative results of our operating expenses for the years ended December 31, 2023 and 2022 (in thousands):

Year Ended December 31,

Increase / (Decrease)

Year Ended December 31, Increase / (Decrease)

Research and Development Expenses $ 272,350 $ 245,441 26,909 11 %

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Interest Expense 12,712 3,964 8,748 221 %

Other (income)

$ 373,630 $ 295,350 78,280 27 %

Research and Development Expense

The following represents our research and development expenses for the years ended December 31, 2023 and 2022 (in thousands):

Year Ended December 31, Increase / (Decrease)

Personnel and Internal Expense

$ 56,824 $ 39,121 17,703 45 %

External Expense

215,526 206,320 9,206 4 %

Total $ 272,350 $ 245,441 26,909 11 %

Our research and development expenses were $272.4 million for the year ended December 31, 2023 compared to $245.4 million for the year ended December 31, 2022.

Research and development expenses increased by $40.3 million in the 2022 period due primarily to the additional activities related to our Phase 3 clinical trials, 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.

Research and development expenses increased by $26.9 million in 2023 due primarily to a scale up of manufacturing activities, an increase in headcount, and an increase in stock compensation expense.

General and Administrative Expense

Our general and administrative expenses were $108.1 million for the year ended December 31, 2023 compared to $48.1 million for the year ended December 31, 2022.

General and administrative expenses increased by $10.8 million in the 2022 period due primarily to increases in commercial preparation activities, including corresponding increase in headcount, 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.

General and administrative expenses increased by $60.0 million in 2023 due primarily to increases in commercial preparation activities, including a corresponding increase in headcount, and an increase in stock compensation expense.

We believe our general and administrative expenses will increase over time as we prepare for commercialization and expand our operating activities, which will result in an increase in our headcount, consulting services, and related overhead needed to support those efforts.

Interest Income

Our interest income was $19.6 million for the year ended December 31, 2023 compared to $2.2 million for the year ended December 31, 2022.

The increase in interest income was due primarily to a higher average principal balance in our investment account in 2022 and increased interest rates.

The increase in interest income was due primarily to a higher average principal balance in our investment account in 2023, along with increased interest rates in 2023.

Interest Expense

Our interest expense was $4.0 million for year ended December 31, 2022, compared to $0 million for the year ended December 31, 2021.

The increase in interest expense was as a result of the Loan and Security Agreement (“Loan Facility”) we entered into with Hercules during the second quarter of 2022.

Our interest expense was $12.7 million for the year ended December 31, 2023, compared to $4.0 million for the year ended December 31, 2022.

The increase in interest expense was primarily a result of higher outstanding principal balances during the period under the Loan Facility with Hercules.

Comparison of the Years Ended December 31, 2022 and 2021

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The following table provides comparative results of our operating expenses for the years ended December 31, 2022 and 2021 (in thousands):

Year Ended December 31,

Increase / (Decrease)

Year Ended December 31, Increase / (Decrease)

Research and Development Expenses $ 245,441 $ 205,164 40,277 20 %

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Interest (Income) (2,185) (363) 1,822 502 %

Interest Expense

3,964 — 3,964 100 %

Other (income) — (273) (273) (100 %)

$ 295,350 $ 241,846 53,504 22 %

Research and Development Expense

The following represents our research and development expenses for the years ended December 31, 2022 and 2021 (in thousands):

Year Ended December 31, Increase / (Decrease)

Personnel and Internal Expense

$ 39,121 $ 26,232 12,889 49 %

External Expense 206,320 178,932 27,388 15 %

Total $ 245,441 $ 205,164 40,277 20 %

Our research and development expenses were $245.4 million for the year ended December 31, 2022 compared to $205.2 million for the year ended December 31, 2021.

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

General and Administrative Expense

Our general and administrative expenses were $48.1 million for the year ended December 31, 2022 compared to $37.3 million for the year ended December 31, 2021.

General and administrative expenses increased by $15.5 million in the 2021 period due primarily to increases in commercial activities, including a corresponding increase in headcount, and an increase in stock compensation expense.

General and administrative expenses increased by $10.8 million in the 2022 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 interest income was $2.2 million for the year ended December 31, 2022 compared to $0.4 million for the year ended December 31, 2021.

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

The increase in interest income was due primarily to a higher average principal balance in our investment account in 2022 and increased interest rates.

Interest Expense

Our interest expense was $4.0 million for year ended December 31, 2022, compared to $0.0 million for the year ended December 31, 2021.

The increase in interest expense was as a result of the Loan and Security Agreement (“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.

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 December 31, 2022, we had cash, cash equivalents and marketable securities totaling $358.8 million compared to $270.3 million as of December 31, 2021, with the increase attributable to our fundraising activities, including net proceeds of $155.9 million from our $200 million at-the-market sales agreement entered into in June of 2021, with Cowen and Company, LLC (the “2021 Sales Agreement”), net proceeds of $99.5 million from our registered direct offering (“Registered Direct Offering”) of shares of our common stock and Series B Convertible Preferred Stock (“Series B Preferred Stock”) in December 2022, and $50.0 million drawn on our Loan Facility, partially offset by cash used in operating activities.

Since inception, we have incurred significant net losses and we have funded our operations primarily through the issuance of shares of our common stock, shares of our convertible preferred stock, issuances of pre-funded warrants, 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 commercial, clinical, scientific, operational, financial and management personnel, along with manufacturing costs and commercialization costs to support a potential U.S.

As of December 31, 2023, we had cash, cash equivalents and marketable securities totaling $634.1 million compared to $358.8 million as of December 31, 2022, with the increase primarily attributable to our October 2023 public offering which provided $472.0 million net cash proceeds, partially offset by funding of operations.

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

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

While our rate of cash usage will likely increase in the future, in particular to support our product development and clinical trial efforts, we believe our available cash resources as of December 31, 2022 will be sufficient to fund our operations past one year from the issuance of the financial statements contained herein.

While our rate of cash usage will likely increase in the future, in particular to support our preparation for commercialization, we believe our available cash resources are 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, 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.

To meet future long-term liquidity requirements, as well as maintain compliance with certain of our Loan Facility covenants, we may 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.

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 if necessary due to liquidity concerns until a date when those concerns are relieved.

Additional capital, if needed, 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.

At-the-Market Sales Agreement

On May 9, 2023, we entered into Amendment No.

1 (the “Sales Agreement Amendment”) to the June 2021 Sales Agreement (the “2021 Sales Agreement”) with Cowen, which provided for up to an additional $200.0 million in the amount of common stock that can be issued and sold by us from time to time through or to Cowen under the 2021 Sales Agreement, acting as agent or principal.

Sales of our common stock, if any, under the Sales Agreement will be made by any method that is deemed to be an “at the market” offering as defined in Rule 415(a)(4) of the Securities Act of 1933, as amended.

We have no obligation to sell any common stock and may at any time suspend offers under the Sales Agreement or terminate the Sales Agreement pursuant to its terms.

During the three months ended December 31, 2023, under the Sales Agreement Amendment, we sold no shares.

During the year ended December 31, 2023, and in total under the Sales Agreement Amendment, we sold 98,101 shares for an aggregate of $25.2 million in gross proceeds, with net proceeds of approximately $24.5 million after deducting commissions and other transaction costs.

All shares were sold pursuant to our effective Registration Statement and the prospectus supplement relating thereto.

As of December 31, 2023, $174.8 million remained reserved and available for sale under the 2023 Sales Agreement Amendment and our related prospectus supplement.

Loan Facility

In May 2022 we entered into the $250.0 million Loan Facility (the “Loan Facility”) with Hercules Capital, Inc.

(“Hercules”).

On February 3, 2023, we entered into the First Amendment (the “Amendment”) to the Loan Facility (as amended, the “Amended Loan Facility”).

Under the terms of the Loan Facility, the first $50.0 million tranche (“Tranche 1”) was drawn at closing.

Under the Amended Loan Facility, $65.0 million was drawn in 2023 under the second tranche (“Tranche 2”).

The third tranche (“Tranche 3”) of $75.0 million is available, subject to us obtaining a certain FDA approval for resmetirom.

The fourth tranche (“Tranche 4”) of $60.0 million is available subject to Hercules’ sole discretion.

In connection with Tranche 1, in 2022 we issued Hercules warrants to purchase 14,899 shares of our common stock, which had a Black-Scholes value of $0.6 million.

In connection with Tranche 2, in 2023 we issued to Hercules warrants to purchase an aggregate of 4,555 shares of common stock, which had a Black-Scholes value of $0.9 million.

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

The Amendment reduced the interest rate under the Amended Loan Facility to the greater of (i) the prime rate as reported in The Wall Street Journal plus 2.45% and (ii) 8.25%.

We will pay interest-only monthly payments of accrued interest under the Loan Facility through May 1, 2025, for a period of 36 months, which period may be extended to May 1, 2026 and May 3, 2027, upon the achievement of regulatory approval milestones and future revenue covenants, subject to compliance with applicable covenants.

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

The Loan Facility is secured by a security interest in substantially all of our

assets, other than intellectual property.

It includes an end of term charge of 5.35% of the aggregate principal amount, which is accounted for in the loan discount.

The Loan Facility includes affirmative and restrictive financial covenants which commenced on January 1, 2023, including maintenance of a minimum cash, cash equivalents and liquid funds covenant of $35.0 million, which may decrease in certain circumstances if we achieve certain clinical milestones and a revenue milestone, and a revenue-based covenant that could apply commencing at or after the time that financial reporting is due for the quarter ending September 30, 2024.

The Loan Facility contains event of default provisions for:

our failure to make required payments or maintain compliance with covenants under the Loan Facility;

our breach of certain representations or default under certain obligations outside the Loan Facility;

insolvency, attachment or judgment events affecting us;

and any circumstance which has occurred or could reasonably be expected to have a material adverse effect on us, provided that, any failure to achieve approval or certain other milestones under the Loan Facility shall not in and of itself constitute a material adverse effect.

The Loan Facility also includes customary covenants associated with a secured loan facility, including covenants concerning financial reporting obligations, and certain limitations on indebtedness, liens (including a negative pledge on intellectual property and other assets), investments, distributions (including dividends), collateral, investments, distributions, transfers, mergers or acquisitions, taxes, corporate changes, and deposit accounts.

As of December 31, 2023, the outstanding principal under the Loan Facility was $115.0 million.

The interest rate as of December 31, 2023 was 10.95%.

As of December 31, 2023, we were in compliance with all loan covenants and provisions.

2023 Public Offering

On September 28, 2023, we entered into an Underwriting Agreement with Goldman Sachs & Co.

LLC, as representative of the several underwriters named therein, pursuant to which we sold to the underwriters in an underwritten public offering (the “Offering”):

(i) 1,248,098 shares of common stock at a public offering price of $151.69 per share, and (ii) pre-funded warrants (the “Pre-Funded Warrants”) to purchase 2,048,098 shares of common stock at a public offering price of $151.6899 per Pre-Funded Warrant, which represents the per share public offering price for the common stock less a $0.0001 per share exercise price for each such Pre-Funded Warrant.

The Offering closed on October 3, 2023.

The gross proceeds of the Offering was $500.0 million, and we received net proceeds, after deducting the underwriting discount and commissions and other estimated offering expenses payable by us, of approximately $472.0 million.

We intend to use the net proceeds from the Offering for our clinical and commercial activities in preparation for a potential launch of resmetirom in the U.S.

The Pre-Funded Warrants are exercisable at any time after the date of issuance.

A holder of Pre-Funded Warrants may not exercise the warrant if the holder, together with its affiliates, would beneficially own more than 9.99% of the number of shares of common stock outstanding immediately after giving effect to such exercise.

A holder of Pre-Funded Warrants may increase or decrease this percentage, but not in excess of 19.99%, by providing at least 61 days prior notice to us.

The following table summarizes our net cash flow activity (in thousands):

Year Ended December 31,

2023 2022 2021

Net cash used in operating activities $ (324,230) $ (224,857) $ (183,917)

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Net cash used in operating activities was $324.2 million, $224.9 million, and $183.9 million for the years ended December 31, 2023, 2022 and 2021, respectively.

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 used in the year ended December 31, 2022 increased from prior years predominately due to escalated clinical trial related activity.

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 used in the year ended December 31, 2023 increased from prior years predominately due to the build out of our commercial operations in anticipation of our potential commercial launch.

Investing Activities

Net cash provided by investing activities was $206.7 million for the year ended December 31, 2022 and consisted primarily of $350.4 million from sales and maturities of marketable securities, partially offset by $ $143.5 million of purchase of marketable securities for our investment portfolio.

Net cash used in investing activities was $502.5 million for the year ended December 31, 2023 and consisted primarily of $834.4 million of purchases of marketable securities for our investment portfolio, partially offset by $333.4 million from sales and maturities of marketable securities from our investment portfolio.

Net cash used in investing activities was $206.7 million for the year ended December 31, 2022 and consisted primarily of $350.4 million from sales and maturities of marketable securities, partially offset by $143.5 million of purchase of marketable securities for our investment portfolio.

Net cash used in investing activities was $5.1 million for the year ended December 31, 2021 and consisted primarily of $394.1 million of purchase of marketable securities for our investment portfolio, partially offset by $389.3 million from sales and maturities of marketable securities.

Net cash provided by investing activities was $159.8 million for the year ended December 31, 2020 and consisted primarily of $489.5 million from sales and maturities of marketable securities, partially offset by $329.3 million of purchase of marketable securities for our investment portfolio.

Financing Activities

Net cash provided by financing activities was $313.5 million for the year ended December 31, 2022 and consisted primarily of sales of our common stock under the 2021 Sales Agreement and Registered Direct Offering in December, and debt borrowings under our Loan Facility.

Net cash provided by financing activities was $595.1 million for the year ended December 31, 2023 and consisted primarily of $472.0 million in proceeds from our October 2023 public offering, in addition to $65.0 million in borrowings under the Loan Facility, $34.0 million from proceeds from the exercise of common stock options, and $24.5 million from sales of our common stock under the 2023 Sales Agreement, partially offset by $0.4 million of loan issuance costs.

Net cash provided by financing activities was $313.5 million for the year ended December 31, 2022 and consisted primarily of sales of our common stock under the 2021 Sales Agreement and a registered direct offering of Series B Convertible Preferred Stock and common stock in December, and debt borrowings under our Loan Facility.

Net cash provided by financing activities was $171.2 million for the year ended December 31, 2021 and consisted primarily of sales of our common stock under the 2021 Sales Agreement and the exercise of stock options.

Net cash provided by financing activities was $5.1 million for the year ended December 31, 2020 and consisted primarily of sales of our common stock under our at-the-market sales agreements with Cowen and Company, LLC and the exercise of stock options.

Contractual Obligations and Commercial Commitments

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Payments Due by Period

Contractual Obligations

Contractual Obligations Total Less Than

1 Year 1 - 3 Years 4 - 5 Years More Than

Operating Leases 1,861 937 924 — —

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Operating leases relate to our corporate headquarters facility located in West Conshohocken, Pennsylvania.

In August 2023, we entered into the Fifth Amendment to our Office Lease (the “Lease Amendment”).

The Lease Amendment extends the term of the lease through November 2026.

As a result of the Lease Amendment, an incremental $1.6 million ROU asset and lease liabilities were recorded during the year ended December 31, 2023.

In May 2022 we 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 Capital, Inc.

8 unchanged sentences

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

What changed 10-K

Item 7. Management’s Discussion and Analysis