☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Delaware		04-3508648
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
Four Tower Bridge 200 Barr Harbor Drive, Suite 200 West Conshohocken, Pennsylvania		19428
(Address of principal executive offices)		(Zip Code)

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common Stock, $0.0001 Par Value Per Share		MDGL		The NASDAQ Stock Market LLC

Large accelerated filer		☒		Accelerated filer		☐
Non-accelerated filer		☐		Smaller reporting company		☐
				Emerging growth company		☐

		June 30, 2020				December 31, 2019
Assets
Current assets:
Cash and cash equivalents		$	61,867			$	46,697
Marketable securities			322,513				392,348
Prepaid expenses and other current assets			2,223				1,152
Total current assets			386,603				440,197
Property and equipment, net			1,265				1,184
Right-of-use asset			520				675
Total assets		$	388,388			$	442,056
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable		$	5,004			$	1,178
Accrued expenses			39,948				23,637
Lease liability			323				315
Total current liabilities			45,275				25,130
Long term liabilities:
Lease liability			197				361
Total long term liabilities			197				361
Total liabilities			45,472				25,491
Stockholders’ equity:
Preferred stock, par value $0.0001 per share authorized: 5,000,000 shares at June 30, 2020 and December 31, 2019; 1,969,797 shares issued and outstanding at June 30, 2020 and December 31, 2019			—				—
Common stock, par value $0.0001 per share authorized: 200,000,000 at June 30, 2020 and December 31, 2019; 15,438,124 and 15,429,154 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively			2				2
Additional paid-in-capital			650,211				639,567
Accumulated other comprehensive gain			1,081				216
Accumulated deficit			(308,378	)			(223,220	)
Total stockholders’ equity			342,916				416,565
Total liabilities and stockholders’ equity		$	388,388			$	442,056

		Three Months Ended June 30,								Six Months Ended June 30,
		2020				2019				2020				2019
Revenues:
Total revenues		$	—			$	—			$	—			$	—
Operating expenses:
Research and development			44,688				15,594				78,088				27,967
General and administrative			5,639				7,110				10,244				12,856
Total operating expenses			50,327				22,704				88,332				40,823
Loss from operations			(50,327	)			(22,704	)			(88,332	)			(40,823	)
Interest income			1,204				3,005				3,074				6,044
Other income			100				—				100				—
Net loss		$	(49,023	)		$	(19,699	)		$	(85,158	)		$	(34,779	)
Net loss per common share:
Basic and diluted net loss per common share		$	(3.18	)		$	(1.28	)		$	(5.52	)		$	(2.26	)
Basic and diluted weighted average number of common shares outstanding			15,433,348				15,368,986				15,431,251				15,366,738

		Three Months Ended June 30,								Six Months Ended June 30,
		2020				2019				2020				2019
Net Loss		$	(49,023	)		$	(19,699	)		$	(85,158	)		$	(34,779	)
Other comprehensive income (loss):
Unrealized gain on available-for-sale securities			666				307				865				804
Comprehensive loss		$	(48,357	)		$	(19,392	)		$	(84,293	)		$	(33,975	)

																		Additional paid-in Capital				Accumulated other comprehensive income (loss)				Accumulated deficit				Total stockholders’ equity
		Preferred stock								Common stock
		Shares				Amount				Shares				Amount
Balance at December 31, 2019			1,969,797			$	—				15,429,154			$	2			$	639,567			$	216			$	(223,220	)		$	416,565
Compensation expense related to stock options for services			—				—				—				—				4,846				—				—				4,846
Unrealized gain on marketable securities			—				—				—				—				—				199				—				199
Net loss			—				—				—				—				—				—				(36,135	)			(36,135	)
Balance at March 31, 2020			1,969,797			$	—				15,429,154			$	2			$	644,413			$	415			$	(259,355	)		$	385,475
Exercise of common stock options			—				—				8,970				—				109				—				—				109
Compensation expense related to stock options for services			—				—				—				—				5,689				—				—				5,689
Unrealized gain on marketable securities			—				—				—				—				—				666				—				666
Net loss			—				—				—				—				—				—				(49,023	)			(49,023	)
Balance at June 30, 2020			1,969,797			$	—				15,438,124			$	2			$	650,211			$	1,081			$	(308,378	)		$	342,916
Balance at December 31, 2018			1,969,797			$	—				15,409,023			$	2			$	616,573			$	(319	)		$	(139,272	)		$	476,984
Exercise of common stock options			—				—				8,041				—				83				—				—				83
Compensation expense related to stock options for services			—				—				—				—				6,022				—				—				6,022
Unrealized gain on marketable securities			—				—				—				—				—				497				—				497
Net loss			—				—				—				—				—				—				(15,080	)			(15,080	)
Balance at March 31, 2019			1,969,797			$	—				15,417,064			$	2			$	622,678			$	178			$	(154,352	)		$	468,506
Exercise of common stock options			—				—				9,233				—				117				—				—				117
Compensation expense related to stock options for services			—				—				—				—				7,755				—				—				7,755
Unrealized gain on marketable securities			—				—				—				—				—				307				—				307
Net loss			—				—				—				—				—				—				(19,699	)			(19,699	)
Balance at June 30, 2019			1,969,797			$	—				15,426,297			$	2			$	630,550			$	485			$	(174,051	)		$	456,986

		Six Months Ended June 30,
		2020				2019
Cash flows from operating activities:
Net loss			$ (85,158	)			$ (34,779	)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation expense			10,535				13,777
Depreciation and amortization expense			240				56
Changes in operating assets and liabilities:
Prepaid expenses and other current assets			(1,072	)			(906	)
Accounts payable			3,826				(2,041	)
Accrued expense			16,311				5,607
Accrued interest, net of interest received on maturity of investments			554				268
Net cash used in operating activities			(54,764	)			(18,018	)
Cash flows from investing activities:
Purchases of marketable securities			(153,869	)			(266,116	)
Sales and maturities of marketable securities			224,015				299,103
Purchases of property and equipment, net of disposals			(321	)			(40	)
Net cash provided by investing activities			69,825				32,947
Cash flows from financing activities:
Proceeds from the sale of related party stock and exercise of common stock options, net of transaction costs			109				200
Net cash provided by financing activities			109				200
Net increase in cash and cash equivalents			15,170				15,129
Cash and cash equivalents at beginning of period			46,697				57,379
Cash and cash equivalents at end of period		$	61,867			$	72,508
Supplemental disclosure of cash flow information:
Obtaining a right-of-use asset in exchange for a lease liability		$	—			$	900

1. Organization, Business, and Basis of Presentation

Organization and Business

Madrigal Pharmaceuticals, Inc. (the “Company” or “Madrigal”) is a clinical-stage pharmaceutical company developing novel, high-quality, small-molecule drugs addressing major unmet needs in cardiovascular, metabolic, and liver diseases. The Company’s lead compound,

MGL-3196

(resmetirom), is being advanced for

non-alcoholic

steatohepatitis (“NASH”), a liver disease that commonly affects people with metabolic diseases such as obesity and diabetes, and

non-alcoholic

fatty liver disease (“NAFLD”). The Company initiated two Phase 3 studies of resmetirom in NASH in 2019. The Company previously completed Phase 2 studies of resmetirom in NASH in May of 2018 and Heterozygous Familial Hypercholesterolemia in February of 2018.

Basis of Presentation

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) have been condensed or omitted. Accordingly, the unaudited condensed consolidated financial statements do not include all information and footnotes required by GAAP for complete annual financial statements. However, we believe that the disclosures included in these financial statements are adequate to make the information presented not misleading. The unaudited condensed financial statements, in the opinion of management, reflect all adjustments, which include normal recurring adjustments, necessary for a fair statement of such interim results. The interim results are not necessarily indicative of the results that we will have for the full year ending December 31, 2020 or any subsequent period. These unaudited condensed financial statements should be read in conjunction with the audited consolidated financial statements and the notes to those statements for the year ended December 31, 2019.

2. Summary of Significant Accounting Policies

Principle of Consolidation

The consolidated financial statements include the financial statements of the Company and its wholly owned subsidiaries. All significant intercompany balances have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect certain reported amounts of assets and liabilities, and the reported amounts of revenues and expenses during the reporting periods. The Company bases its estimates on historical experience and various other assumptions that management believes to be reasonable under the circumstances. Changes in estimates are recorded in the period in which they become known. Actual results could differ from those estimates.

Cash and Cash Equivalents

The Company considers all highly liquid investments with original maturities of six months or less at the date of purchase to be cash equivalents. The Company maintains its cash in bank accounts, the balance of which, at times, exceeds Federal Deposit Insurance Corporation insured limits.

The primary objective of the Company’s investment activities is to preserve its capital for the purpose of funding operations and the Company does not enter into investments for trading or speculative purposes. The Company’s cash is deposited in highly rated financial institutions in the United States. The Company invests in money market funds and high-grade, commercial paper and corporate bonds, which management believes are subject to minimal credit and market risk.

Marketable Securities

Marketable securities consist of investments in high-grade corporate obligations and government and government agency obligations that are classified as

available-for-sale.

Since these securities are available to fund current operations, they are classified as current assets on the consolidated balance sheets.

The Company adjusts the cost of

available-for-sale

debt securities for amortization of premiums and accretion of discounts to maturity. The Company includes such amortization and accretion as a component of interest income, net. Realized gains and losses and declines in value, if any, that the Company judges to be other-than-temporary on

available-for-sale

securities are reported as a

 

component of interest income, net. To determine whether an other-than-temporary impairment exists, the Company considers whether it intends to sell the debt security and, if the Company does not intend to sell the debt security, it considers available evidence to assess whether it is more likely than not that it will be required to sell the security before the recovery of its amortized cost basis. During the six months ended June 30, 2020 and 2019, the Company determined it did not have any securities that were other-than-temporarily impaired.

Marketable securities are stated at fair value, including accrued interest, with their unrealized gains and losses included as a component of accumulated other comprehensive income or loss, which is a separate component of stockholders’ equity. The fair value of these securities is based on quoted prices and observable inputs on a recurring basis. Realized gains and losses are determined on the specific identification method. During the six months ended June 30, 2020 and 2019, the Company did not have any realized gains or losses on marketable securities.

Fair Value of Financial Instruments

The carrying amounts of the Company’s financial instruments, which include cash equivalents, and marketable securities, approximate their fair values. The fair value of the Company’s financial instruments reflects the amounts that would be received upon sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy has the following three levels:

Level 1—quoted prices in active markets for identical assets and liabilities.

Level 2—observable inputs other than Level 1 inputs. Examples of Level 2 inputs include quoted prices in active markets for similar assets or liabilities and quoted prices for identical assets or liabilities in markets that are not active.

Level 3—unobservable inputs that reflect the Company’s own assumptions about the assumptions market participants would use in pricing the asset or liability.

Financial assets and liabilities are classified in their entirety within the fair value hierarchy based on the lowest level of input that is significant to the fair value measurement. The Company measures the fair value of its marketable securities by taking into consideration valuations obtained from third-party pricing sources. The pricing services utilize industry standard valuation models, including both income and market based approaches, for which all significant inputs are observable, either directly or indirectly, to estimate fair value. These inputs include reported trades of and broker-dealer quotes on the same or similar securities, issuer credit spreads, benchmark securities and other observable inputs.

As of June 30, 2020, the Company’s financial assets valued based on Level 1 inputs consisted of cash and cash equivalents in a money market fund, its financial assets valued based on Level 2 inputs consisted of high-grade corporate and government agency bonds and commercial paper, and it had no financial assets valued based on Level 3 inputs. During the six months ended June 30, 2020 and 2019, the Company did not have any transfers of financial assets between Levels 1 and 2. As of June 30, 2020 and December 31, 2019, the Company did not have any financial liabilities that were recorded at fair value on a recurring basis on the balance sheet.

Research and Development Costs

Research and development costs are expensed as incurred. Research and development costs are comprised of costs incurred in performing research and development activities, including internal costs (including stock-based compensation), costs for consultants, milestone payments under licensing agreements, and other costs associated with the Company’s preclinical and clinical programs. In particular, the Company has conducted safety studies in animals, optimized and implemented the manufacturing of our drug, and 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.

Patents

Costs to secure and defend patents are expensed as incurred and are classified as general and administrative expense in the Company’s consolidated statements of operations.

Stock-Based Compensation

The Company recognizes stock-based compensation expense based on the grant date fair value of stock options granted to employees, officers, and directors. The Company uses the Black-Scholes option pricing model to determine the grant date fair value as management believes it is the most appropriate valuation method for its option grants. The Black-Scholes model requires inputs for

risk-free interest rate, dividend yield, volatility and expected lives of the options. The expected lives for options granted represent the period of time that options granted are expected to be outstanding. The Company uses the simplified method for determining the expected lives of options. Expected volatility is based upon an industry estimate or blended rate including the Company’s historical trading activity. The risk-free rate for periods within the expected life of the option is based on the U.S. Treasury yield curve in effect at the time of the grant. The Company estimates the forfeiture rate based on historical data. This analysis is

re-evaluated

at least annually and the forfeiture rate is adjusted as necessary.

Certain of the employee stock options granted by the Company are structured to qualify as incentive stock options (“ISOs”). Under current tax regulations, the Company does not receive a tax deduction for the issuance, exercise or disposition of ISOs if the employee meets certain holding requirements. If the employee does not meet the holding requirements, a disqualifying disposition occurs, at which time the Company may receive a tax deduction. The Company does not record tax benefits related to ISOs unless and until a disqualifying disposition is reported. In the event of a disqualifying disposition, the entire tax benefit is recorded as a reduction of income tax expense. The Company has not recognized any income tax benefit for its share-based compensation arrangements due to the fact that the Company does not believe it is more likely than not it will realize the related deferred tax assets.

Income Taxes

The Company uses the asset and liability method to account for income taxes. Deferred tax assets and liabilities are determined based on the expected future tax consequences of temporary differences between the Company’s financial statement carrying amounts and the tax basis of assets and liabilities using enacted tax rates expected to be in effect in the years in which the differences are expected to reverse. The Company currently maintains a 100% valuation allowance on its deferred tax assets.

Comprehensive Loss

Comprehensive loss is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from

non-owner

sources. Changes in unrealized gains and losses on marketable securities represent the only difference between the Company’s net loss and comprehensive loss.

Basic and Diluted Loss Per Common Share

Basic net loss per share is computed using the weighted average number of common shares outstanding during the period, excluding restricted stock that has been issued but is not yet vested. Diluted net loss per common share is computed using the weighted average number of common shares outstanding and the weighted average dilutive potential common shares outstanding using the treasury stock method. However, for the six months ended June 30, 2020 and 2019, diluted net loss per share is the same as basic net loss per share because the inclusion of weighted average shares of unvested restricted common stock, common stock issuable upon the exercise of stock options, and common stock issuable upon the conversion of preferred stock would be anti-dilutive.

The following table summarizes outstanding securities not included in the computation of diluted net loss per common share, as their inclusion would be anti-dilutive:

 

		Six Months Ended June 30,
		2020				2019
Common stock options			1,820,142				1,454,844
Unvested restricted common stock			—				52,063
Preferred stock			1,969,797				1,969,797

Recent Accounting Pronouncements

In June 2016, the FASB issued ASU

2016-13,

“Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” which requires all or a portion of the amortized cost basis of a financial asset to be written off when it is deemed uncollectible. For public business entities that do not qualify as a smaller reporting company, ASU

2016-13

is effective for annual and interim reporting periods beginning after December 15, 2019. The Company adopted ASU

2016-13

effective January 1, 2020. There was no significant impact from the adoption.

3. Liquidity and Uncertainties

The Company is subject to risks common to development stage companies in the biopharmaceutical industry including, but not limited to, uncertainty of product development and commercialization, dependence on key personnel, uncertainty of market acceptance of products and product reimbursement, product liability, uncertain protection of proprietary technology, potential inability to raise additional financing necessary for development and commercialization, and compliance with the U.S. Food and Drug Administration and other government regulations.

The Company has incurred losses since inception, including approximately $85.2 million for the six months ended June 30, 2020, resulting in an accumulated deficit of approximately $308.4 million as of June 30, 2020. Management expects to incur losses for the foreseeable future. To date, the Company has funded its operations primarily through proceeds from sales of the Company’s common and Series A Convertible Preferred Stock.

The Company believes that its cash, cash equivalents and marketable securities at June 30, 2020 will be sufficient to fund operations past one year from the issuance of these financial statements. To meet its future capital needs, the Company intends to raise additional capital through debt or equity financings, collaborations, partnerships or other strategic transactions. However, there can be no assurance that the Company will be able to complete any such transactions on acceptable terms or otherwise. The inability of the Company to obtain sufficient funds on acceptable terms when needed could have a material adverse effect on the Company’s business, results of operations and financial condition. The Company has the ability to delay certain research activities and related clinical expenses if necessary due to liquidity concerns until a date when those concerns are relieved.

4. Cash, Cash Equivalents and Marketable Securities

A summary of cash, cash equivalents and

available-for-sale

marketable securities held by the Company as of June 30, 2020 and December 31, 2019 is as follows (in thousands):

 

		June 30, 2020
		Cost				Unrealized gains				Unrealized losses				Fair value
Cash and cash equivalents:
Cash (Level 1)		$	2,668			$	—			$	—			$	2,668
Money market funds (Level 1)			42,952				—				—				42,952
Corporate debt securities due within 3 months of date of purchase (Level 2)			16,247				—				—				16,247
Total cash and cash equivalents			61,867				—				—				61,867
Marketable securities:
Corporate debt securities due within 1 year of date of purchase (Level 2)			268,946				993				(6	)			269,933
U.S. government and government sponsored entities due within 1 year of date of purchase (Level 2)			48,470				92				—				48,562
Corporate debt securities due within 1 to 2 years of date of purchase (Level 2)			4,016				4				(2	)			4,018
Total cash, cash equivalents and marketable securities		$	383,299			$	1,089			$	(8	)		$	384,380

 

		December 31, 2019
		Cost				Unrealized gains				Unrealized losses				Fair value
Cash and cash equivalents:
Cash (Level 1)		$	1,772			$	—			$	—			$	1,772
Money market funds (Level 1)			44,925				—				—				44,925
Corporate debt securities due within 3 months of date of purchase (Level 2)			—				—				—				—
Total cash and cash equivalents			46,697				—				—				46,697
Marketable securities:
Corporate debt securities due within 1 year of date of purchase (Level 2)			309,365				220				(40	)			309,545
Corporate debt securities due within 1 to 2 years of date of purchase (Level 2)			82,767				39				(3	)			82,803
Total cash, cash equivalents and marketable securities		$	438,829			$	259			$	(43	)		$	439,045

 

5. Accrued Liabilities

Accrued liabilities as of June 30, 2020 and December 31, 2019 consisted of the following (in thousands):

 

		June 30, 2020				December 31, 2019
Accrued contract research costs		$	32,202			$	13,775
Compensation and benefits			1,917				2,779
Professional fees			862				1,177
Other			4,967				5,906
		$	39,948			$	23,637

6. Stockholders’ Equity

Common Stock

Each common stockholder is entitled to one vote for each share of common stock held. Each share of common stock is entitled to receive dividends, as and when declared by the Company’s board of directors.

The Company has never declared cash dividends on its common stock and does not expect to do so in the foreseeable future.

Preferred Stock

The Series A Preferred Stock has a par value of $0.0001 per share and is convertible into shares of the common stock at a

one-to-one

ratio, subject certain limitations and to adjustment provisions as provided in the Certificate of Designation of Preferences, Rights and Limitations of Series A Convertible Preferred Stock, that the Company filed with the Secretary of State of the State of Delaware on June 21, 2017 (the “Series A Certificate”). The terms of the Series A Preferred Stock are set forth in the Series A Certificate. Upon any liquidation, dissolution or

winding-up

of the Company, whether voluntary or involuntary, after the satisfaction in full of the debts of the Company and the payment of any liquidation preference owed to the holders of shares of capital stock of the Company ranking prior to the Series A Preferred Stock upon liquidation, the holders of the Series A Preferred Stock shall participate pari passu with the holders of the Common Stock (on an

as-if-converted-to-Common-Stock

basis) in the net assets of the Company. Shares of the Series A Preferred Stock will generally have no voting rights, except as required by law. Shares of the Series A Preferred Stock will be entitled to receive dividends before shares of any other class or series of capital stock of the Company (other than dividends in the form of the Common Stock) generally equal to the dividend payable on each share of the Common Stock, on an

as-converted

basis.

7. Stock-based Compensation

The 2015 Stock Plan, as amended, is our primary plan through which equity based grants are awarded. We ceased making new awards under the 2006 Stock Plan upon adoption of the 2015 Stock Plan. The 2015 Stock Plan provides for the grant of incentive stock options,

non-statutory

stock options, restricted stock and other stock-based compensation awards to employees, officers, directors, and consultants of the Company. The administration of the 2015 Stock Plan is under the general supervision of the Compensation Committee of the Board of Directors. The terms of stock options awarded under the 2015 Stock Plan, in general, are determined by the Compensation Committee, provided the exercise price per share generally shall not be set at less than the fair market value of a share of the common stock on the date of grant and the term shall not be greater than ten years from the date the option is granted. As of June 30, 2020, the Company had options outstanding to purchase 1,820,142 shares of its common stock, which includes options outstanding under its 2006 Stock Plan. As of June 30, 2020, 984,220 shares were available for future issuance.

The following table summarizes stock option activity during the six months ended June 30, 2020:

 

		Shares				Weighted average exercise price
Outstanding at January 1, 2020			1,461,987			$	64.67
Options granted			381,125				88.04
Options exercised			(8,970	)			12.19
Options cancelled			(14,000	)			80.99
Outstanding at June 30, 2020			1,820,142			$	69.70
Exercisable at June 30, 2020			1,123,761			$	51.06

The total cash received by the Company as a result of stock option exercises was $0.1 million and $0.2 million, respectively, for the six months ended June 30, 2020 and 2019. The weighted-average grant date fair values, based on the Black-Scholes option model, of options granted during the six months ended June 30, 2020 and 2019 were $64.74 and $92.97, respectively.

Stock-Based Compensation Expense

Stock-based compensation expense during the six months ended June 30, 2020 and 2019 was as follows (in thousands):

 

		Three Months Ended June 30,								Six MonthsEndedJune 30,
		2020				2019				2020				2019
Stock-based compensation expense by type of award:
Stock options		$	5,689			$	7,632			$	10,535			$	13,533
Restricted stock			—				123				—				244
Total stock-based compensation expense		$	5,689			$	7,755			$	10,535			$	13,777
Effect of stock-based compensation expense by line item:
Research and development		$	2,289			$	2,366			$	4,367			$	4,243
General and administrative			3,400				5,389				6,168				9,534
Total stock-based compensation expense included in net loss		$	5,689			$	7,755			$	10,535			$	13,777

Unrecognized stock-based compensation expense on stock options as of June 30, 2020 was $44.6 million with a weighted average remaining period of 2.8 years.

8. Commitments and Contingencies

The Company has a Research, Development and Commercialization Agreement with

Hoffmann-La

Roche (“Roche”) which grants the Company a sole and exclusive license to develop, use, sell, offer for sale and import any Licensed Product as defined by the agreement.

The agreement requires future milestone payments to Roche. Remaining milestones under the agreement total $8 million and are earned by achieving specified objectives related to future regulatory approval in the United States and Europe of a product developed from resmetirom. A single-digit royalty payment range is based on net sales of products developed from resmetirom, subject to certain reductions. Except as described above, the Company has not achieved any additional product development or regulatory milestones and had no Licensed Product sales for the six months ended June 30, 2020 and 2019.

The Company has entered into customary contractual arrangements and letters of intent in support of its Phase 3 clinical trials.

This Quarterly Report on contains “forward-looking statements” made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, that are based on our beliefs and assumptions and on information currently available to us, but are subject to factors beyond our control. Forward-looking statements include but are not limited to statements or references concerning: our clinical trials; research and development activities; the timing and results associated with the future development of our lead product candidate, (resmetirom); our primary and secondary study endpoints for resmetirom and the potential for achieving such endpoints and projections; optimal dosing levels for resmetirom; projections regarding potential future NASH resolution, safety, fibrosis treatment, cardiovascular effects, lipid treatment or biomarker effects with resmetirom; the predictive power of liver fat reduction on NASH resolution with fibrosis reduction; the achievement of enrollment objectives concerning patient number, safety database and/or timing for our studies; potential NASH or NAFLD patient risk profile benefits with resmetirom; our possible or assumed future results of operations and expenses, business strategies and plans, capital needs and financing plans, trends, market sizing, competitive position, industry environment and potential growth opportunities, among other things. Forward-looking statements: reflect management’s current knowledge, assumptions, judgment and expectations regarding future performance or events; include all statements that are not historical facts; and can be identified by terms such as “anticipates,” “be,” “believes,” “continue,” “could,” “demonstrates,” ”design,” “estimates,” “expects,” “forecasts,” “future,” “hopeful,” “goal,” “intends,” “may,” “might,” “plans,” “potential,” “predicts,” ”predictive,” “projects,” “seeks,” “should,” “will,” “would” or similar expressions and the negatives of those terms. Although management presently believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to be correct and you should be aware that actual results could differ materially from those contained in the forward-looking statements.

Forward-looking statements are subject to a number of risks and uncertainties including, but not limited to: our clinical development of resmetirom; enrollment uncertainties, generally and in relation to quarantine, and social distancing measures and individual precautionary measures that may be implemented or continued for an uncertain period of time; outcomes or trends from competitive studies; the risks of achieving potential benefits in studies that includes substantially more patients than our prior studies; the timing and outcomes of clinical studies of resmetirom; and the uncertainties inherent in clinical testing. Undue reliance should not be placed on forward- looking statements, which speak only as of the date they are made. Madrigal undertakes no obligation to update any forward-looking statements to reflect new information, events or circumstances after the date they are made, or to reflect the occurrence of unanticipated events. Please refer to Madrigal’s filings with the U.S. Securities and Exchange Commission for more detailed information regarding these risks and uncertainties and other factors that may cause actual results to differ materially from those expressed or implied. We specifically discuss these risks and uncertainties in greater detail in the “Risk Factors” appearing in Part I, Item 1A of our Annual Report on Form for the year ended December 31, 2019 and Part II, Item 1A of this Quarterly Report on Form for the period ended June 30, 2020, as well as in our other filings with the SEC.

We are a clinical-stage biopharmaceutical company focused on the development and commercialization of innovative therapeutic candidates for the treatment of cardiovascular, metabolic, and liver diseases. Our lead product candidate, (resmetirom), is a proprietary, liver-directed, selective thyroid hormone receptor-ß, or 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 steatohepatitis, or NASH.

NASH is a serious inflammatory form of nonalcoholic fatty liver disease, or NAFLD. NAFLD has become the most common liver disease in the United States and other developed countries and is characterized by an accumulation of fat in the liver with no other apparent causes. 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

For NASH, we enrolled 125 patients in a Phase 2 clinical trial with resmetirom. We achieved the primary endpoint for this Phase 2 clinical trial and reported the results in December 2017, and we reported positive topline results at the conclusion of the Phase 2 clinical trial in May 2018. We have completed treatment in a open-label extension study in 31 participating NASH patients from our Phase 2 clinical trial, which includes 14 patients who received placebo in the main study. We also completed a 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 eight completed Phase 1 trials in a total of 219 subjects. Resmetirom appeared to be safe and was well-tolerated in these trials, which included a single ascending dose trial, a multiple ascending dose trial, two drug interaction trials with statins, a multiple dose mass balance study, a single dose relative bioavailability study of tablet formulation versus capsule formulation, a multiple dose drug interaction study, and a multiple dose drug interaction with food effect study.

On March 28, 2019, the Company announced that it had initiated MAESTRO-NASH, a Phase 3 trial in NASH with its once daily, oral thyroid hormone receptor beta selective agonist, resmetirom. This double-blind, placebo-controlled study will be conducted at more than 150 sites in the United States and the rest of the world. Patients with liver biopsy confirmed NASH with stage 2 or 3 fibrosis will be randomized 1:1:1 to receive a single oral daily dose of placebo, resmetirom 80 mg or resmetirom 100 mg. A second liver biopsy at week 52 in the first 900 patients will be the basis of filing for subpart approval; the primary endpoint will be 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 associated with at least a reduction in NAS (NAFLD Activity Score), and no worsening of fibrosis stage. Two key secondary endpoints are reduction in and a or more improvement in fibrosis stage on the week 52 biopsy with no worsening of NASH. Patients will continue in the study for a total of approximately 54 months, and will be evaluated for a composite clinical outcome including cirrhosis on liver biopsy, or a liver related event such a hepatic decompensation. The total anticipated enrollment is approximately 2,000 patients, and will include up to 15% high risk F1 fibrosis stage NASH patients whose efficacy responses will be evaluated as exploratory endpoints.

On December 10, 2019 the Company announced it had opened for enrollment a double-blind, placebo controlled Phase 3 clinical study in 700 patients with biopsy-confirmed or presumed NASH recruited from sites in the U.S. Key endpoints are safety, including safety biomarkers, LDL cholesterol, lipid biomarkers, and fibrosis biomarkers. Except for serial liver biopsies, the study protocol is similar to the MAESTRO-NASH study with resmetirom doses of 80 mg or 100 mg or placebo and includes key secondary lipid, and NASH biomarker endpoints. In addition, includes an open label arm in which up to 100 patients will be dosed with 100 mg resmetirom. The MAESTRO study will help support the adequacy of the safety database at the time of NDA submission for subpart H approval for treatment of NASH in patients with F2 or F3 fibrosis (MAESTRO-NASH, NASH resolution surrogate endpoint).

In April 2020 we announced that in response to guidance from regulatory agencies, measures for at impacted sites have been put in place for its Phase 3 MAESTRO-NASH and studies, allowing both studies to continue without changes to the protocol. At a recently conducted Data Monitoring Committee (DMC) meeting it was recommended that Phase 3 studies proceed without modification. The pandemic had no material adverse impact on our operating results, study or liquidity for the period ended June 30, 2020, but it did introduce clinical trial and operational risks and uncertainties that are both general in nature and relate specifically to our MAESTRO-NASH study. These risks and uncertainties, which are beyond our control, are referenced as “Risk Factors” and summarized in Part II, Item 1A in this Form 10-Q.

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 amount of assets, liabilities, and expenses and the disclosure of contingent assets and liabilities as of 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 and stock-based compensation expense. 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. 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 six months ended June 30, 2020, as compared to those disclosed in our Annual Report on Form for the fiscal year ended December 31, 2019 filed with the SEC on February 26, 2020.

Our general and administrative expenses were $5.6 million for the three months ended June 30, 2020, compared to $7.1 million in the corresponding period in 2019. General and administrative expenses decreased by $1.5 million in the 2020 period due primarily to a decrease in stock compensation from stock option awards, partially offset by increases in other general and administrative expenses. 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.

Our research and development expenses were $78.1 million for the six months ended June 30, 2020, compared to $28.0 million in the corresponding period in 2019. Research and development expenses increased by $50.1 million in the 2020 period due primarily to the additional activities related to the Phase 3 clinical trials initiated in 2019, an increase in head count, and an increase in stock compensation from stock option awards. We expect our research and development expenses to increase over time as we advance our clinical and preclinical development programs for resmetirom.

Our general and administrative expenses were $10.2 million for the six months ended June 30, 2020, compared to $12.9 million in the corresponding period in 2019. General and administrative expenses decreased by $2.6 million in the 2020 period due primarily to a decrease in stock compensation from stock option awards, partially offset by increases in other general and administrative expenses. 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.

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 June 30, 2020 will be sufficient to fund our operations past one year from the issuance of the financial statements contained herein, and this outlook takes into account circumstances that are currently reasonably foreseeable in connection with the pandemic. For a description of pandemic risks, including risks and uncertainties beyond our control, see Part II, Item 1A, “Risk Factors” in

this Form Our future long-term liquidity requirements will be substantial and will depend on many factors. To meet future long-term liquidity requirements, we will need to raise additional capital to fund our operations through equity or debt financing. 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. 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.

Net cash used in operating activities was $54.8 million for the six months ended June 30, 2020, compared to $18.0 million for the corresponding period in 2019. The use of cash in these periods resulted primarily from our losses from operations, as adjusted for charges for stock-based compensation, and changes in our working capital accounts.

No significant changes to contractual obligations and commitments occurred during the six months ended June 30, 2020, as compared to those disclosed in our Annual Report on Form for the fiscal year ended December 31, 2019 filed with the SEC on February 26, 2020.

We do not have any off balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation

Our disclosure controls and procedures (as defined in the Exchange Act) are designed to provide reasonable assurance that information required to be disclosed by us in the reports that we file under the Exchange Act, such as this Quarterly Report, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Our management evaluates these controls and procedures on an ongoing basis.

There has been no change in our internal control over financial reporting (as defined in the Exchange Act) during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Our business is subject to substantial risks and uncertainties, including risks, uncertainties and developments related to the pandemic. You should carefully consider the risk factors set forth below as well as the other information contained in this Quarterly Report on Form and in our other public filings in evaluating our business, including risk factors in our 2019 Annual Report on Form for the year ended December 31, 2019, which was filed with the SEC on February 26, 2020 (collectively, our “Risk Factors”). Any of our Risk Factors either alone or taken together, may be heightened due to the pandemic or other factors and could materially and adversely affect our business, financial condition, results of operations or prospects and the value of our common stock. In addition, these risks and uncertainties could cause actual results to differ materially from those expressed or implied by forward-looking statements contained in this Form or any of our public disclosures. See “Special Note Regarding Forward-Looking Statements” in this Form There have been no material changes to the Risk Factors as previously disclosed in the Company’s 2019 Annual Report on Form except as follows:

The pandemic is causing many governments to implement measures to slow the spread of the outbreak through quarantines, travel restrictions, heightened border security, place guidelines, social distancing restrictions and other measures. This outbreak and the resulting governmental measures have had a significant impact, both direct and indirect, on businesses and commerce in the life sciences industry generally, as supply chains have been disrupted; facilities and production have been suspended; unemployment has increased; and demand for certain third-party goods and services, such as medical services and supplies, has spiked. The future progression of the pandemic and its effects on our business and operations are extremely uncertain and subject to the risks described below.

We and our contract research organizations (“CROs”) and contract manufacturing organizations (“CMO”) may face disruptions that may affect our ability to conduct and timely complete ongoing clinical trials including disruptions in procuring items that are essential for our development activities, such as materials and intermediates used in the manufacturing of resmetirom. We and our CROs and CMOs, as well as clinical trial sites, may face disruptions related to our ongoing clinical trials arising from staffing disruptions and limitations on our activities and the activities of our CROs and CMOs, and delays in the ability to obtain necessary institutional review board or other necessary site approvals or delays in site initiations or site monitoring visits, as well as other delays at clinical trial sites. We may also face limitations on enrollment and patients withdrawing from our clinical trials or not complying with the protocol procedures, which could delay completion of our clinical trials or adversely affect the data generated by our clinical trials. For instance, patient screening and enrollment has been impacted and study patients may not be able to comply with clinical trial protocols (including biopsy testing), in each case where quarantines or restrictions impede patient movement or interrupt patient demand for, or a medical facility’s delivery of, protocol-required services and procedures. Additionally, our ability to recruit and retain patients and principal investigators and site staff who may have heightened risks if exposed to may adversely impact the Company’s clinical trial operations. The response to the pandemic also could redirect resources with respect to regulatory and intellectual property matters in a way that could adversely impact our ability to progress regulatory approvals and protect our intellectual property. In addition, we may face impediments to regulatory meetings and approvals due to measures that are intended to limit interactions. The pandemic has significantly impacted economies worldwide, which could result in adverse effects on our business and operations. Moreover, the pandemic has also caused significant disruptions in the financial markets, and may continue to cause such disruptions, which has led to increased trading volatility and significant stock price declines, particularly in the first quarter of 2020, and the pandemic or related consequences may adversely impact the future volatility and value of our stock and future trading in our stock.

In accordance with governmental pronouncements, we have instituted policies to facilitate working remotely. The continuation of personnel working from home (not only at Madrigal, but also at CROs, CMOs, clinical sites and governmental and supervisory bodies) may negatively impact our productivity, or disrupt, delay, or otherwise adversely impact our business. This could adversely impact our business operations or delay necessary interactions with regulators, ethics committees, manufacturing sites, research or clinical trial sites and other important agencies and contractors, including our CROs and CMOs. We cannot be certain what the overall impact of the pandemic will be on our business. However, it has the potential to adversely affect our business, financial condition, results of operations, and prospects.

We may not be able to complete our MAESTRO-NASH clinical trial for resmetirom as previously planned if we are unable to locate and enroll on a timely basis a sufficient number of eligible patients to participate in this trial, as required by the FDA or similar regulatory authorities outside of the United States. The global coronavirus pandemic has presented significant challenges in the conduct of MAESTRO-NASH enrollment in 2020. Screening for MAESTRO-NASH was negatively impacted due to the outbreak of the pandemic, and the resulting governmental quarantine restrictions and guidelines that influenced the closing or suspension of many European and U.S. trial sites and a decline in U.S. patients seeking screening biopsies. In addition, because MAESTRO-NASH is focused on specific patient populations with protocol-specified biopsy requirements, our ability to enroll eligible patients may be limited and enrollment may be slower than we anticipated before the pandemic.

In the face of these challenges, we have taken steps to mitigate the delay in MAESTRO-NASH enrollment by arranging biopsy and MRI services at facilities near many of our site locations, increasing the number of clinical sites and enrolling patients with existing biopsies, including patients from NASH trials which were discontinued and/or in which the drug was inactive in NASH. We believe these mitigation efforts have positioned us to accelerate enrollment growth going forward, but the pace of new enrollment ultimately will be dependent on our target study patients becoming comfortable initiating the protocol-prescribed biopsies during the pandemic. External factors that would help accelerate MAESTRO-NASH enrollment include new or emerging developments such as: declines in the number of new reported cases; actual (or perceived) reduced risks associated with potential surges in cases or “second-wave” developments in the U.S. and Europe; the easing of governmental restrictions; the emergence of widely-recognized effective therapeutics, therapeutic combinations or vaccines to combat and a sustained return to daily routines, including routine work and school schedules and medical procedure scheduling in the U.S. and Europe.

If the pandemic continues or worsens, patient recruitment and enrollment in our MAESTRO-NASH trial may be adversely affected, delayed or interrupted. In addition, patients may choose to withdraw from our studies or we may choose to or be required to pause enrollment and or patient dosing in our trial in order to preserve health resources and protect trial participants. It is unknown whether or how long pauses, delays or disruptions could occur or continue. Our ability to successfully complete MAESTRO-NASH enrollment and study objectives in the midst of the pandemic is subject to circumstances beyond our control and is subject to the enhanced risks and uncertainties that are described in our Risk Factors.