Madrigal Pharmaceuticals
Annual Report 2018

Plain-text annual report

Use these links to rapidly review the document Table of Contents INDEX TO CONSOLIDATED FINANCIAL STATEMENTSTable of ContentsUNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549FORM 10-KCommission file number: 001-33277MADRIGAL PHARMACEUTICALS, INC.(Exact name of registrant as specified in its charter)Delaware(State or other jurisdiction ofincorporation or organization) 04-3508648(I.R.S. EmployerIdentification No.)Four Tower Bridge200 Barr Harbor Drive, Suite 400West Conshohocken, Pennsylvania(Address of principal executive offices) 19428(Zip Code)Registrant's telephone number, including area code: (484) 380-9263 Securities registered pursuant to Section 12(b) of the Exchange Act:Title of each class Name of each exchange on which registeredCommon Stock, $0.0001 Par Value PerShare The NASDAQ Stock Market LLC Securities registered pursuant to Section 12(g) of the Exchange Act: None. Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ý No o Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes o No ý Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorterperiod that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during thepreceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý No o Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitiveproxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ý Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of"large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act. If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standardsprovided pursuant to Section 13(a) of the Exchange Act. o Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý The aggregate market value of the voting stock held by non-affiliates of the registrant based upon the closing sale price of the registrant's common stock on June 29, 2018 (the last business day of theregistrant's most recently completed second fiscal quarter), as reported on the Nasdaq Global Market, was $2,320,321,944.81. For purposes of this calculation, directors and executive officers of the registranthave been deemed affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes. As of February 21, 2019 the registrant had 15,417,064 shares of common stock outstanding.(Mark One) ý ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2018ORo TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from to Large accelerated filer ý Accelerated filer o Non-accelerated filer o Smaller reporting company oEmerging growth company oDOCUMENTS INCORPORATED BY REFERENCE Certain information required by Part III, Items 10-14 of this Form 10-K is incorporated by reference to the registrant's definitive Proxy Statement for the 2019 Annual Meeting of Stockholders to be filedwith the Securities and Exchange Commission pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this Form 10-K, provided that if such Proxy Statement is not filedwithin such period, such information will be included in an amendment to this Form 10-K to be filed within such 120-day period. Table of Contents Table of Contents Page PART I Item 1. Business 2 Item 1A. Risk Factors 23 Item 1B. Unresolved Staff Comments 49 Item 2. Properties 49 Item 3. Legal Proceedings 49 Item 4. Mine Safety Disclosures 49 PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of EquitySecurities 50 Item 6. Selected Financial Data 51 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 53 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 60 Item 8. Financial Statements and Supplementary Data 60 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 61 Item 9A. Controls and Procedures 61 Item 9B. Other Information 62 PART III Item 10. Directors, Executive Officers and Corporate Governance 63 Item 11. Executive Compensation 63 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 63 Item 13. Certain Relationships and Related Transactions, and Director Independence 63 Item 14. Principal Accountant Fees and Services 63 PART IV Item 15. Exhibits, Financial Statement Schedules 64 Item 16. Form 10-K Summary 68 Signatures 69 Table of Contents CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS This Annual Report on Form 10-K for the fiscal year ended December 31, 2018, includes "forward-looking statements" within the meaning of the federalsecurities laws, which statements are subject to considerable risks and uncertainties. These forward-looking statements are intended to qualify for the safeharbor from liability established by the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact are forward-looking statements. Forward-looking statements in this Annual Report can be identified by words such as "anticipates," "believes," "seeks," "estimates,""expects," "intends," "may," "plans," "potential," "predicts, "projects," "forecast," "goal," "continue," "should," "could," "will," "would," or other forms of thesewords or similar words or expressions or the negative expression thereof. In particular, forward-looking statements contained in this Annual Report relate to,among other things,•Anticipated or estimated future results, including the risks and uncertainties associated with our future operating performance and financialposition; •Market demand for and acceptance of our products; •Research, development and commercialization of new products; •Obtaining and maintaining regulatory approvals, including, but not limited to, potential regulatory delays or rejections; •Risks associated with meeting the objectives of clinical studies, including, but not limited to, delays or failures in enrollment, and theoccurrence of adverse safety events; •Risks related to our ability to accomplish our business development objectives and realize the anticipated benefit of any such transactions;and •Assumptions underlying any of the foregoing.We caution you that the foregoing list may not include all of the forward-looking statements made in this Annual Report. Forward-looking statements represent our management's current beliefs and assumptions based on information currently available. Forward-lookingstatements involve numerous known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to bematerially different from any future results, performance or achievements expressed or implied by the forward-looking statements. We discuss these risks anduncertainties in greater detail in the section entitled "Risk Factors" in Part I, Item 1A of this Annual Report, as well as in our other filings with the SEC. Youshould read this Annual Report, and the other documents that we file or have filed with the SEC, with the understanding that our actual future results may bematerially different from the results expressed or implied by these forward-looking statements. Moreover, we operate in an evolving environment. New risks and uncertainties emerge from time to time and it is not possible for our management topredict all risks and uncertainties, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, maycause actual future results to be materially different from those expressed or implied by any forward-looking statements. Except as required by applicable law or the rules of the NASDAQ Stock Market, or NASDAQ, we assume no obligation to update any forward-lookingstatements publicly, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if newinformation becomes available in the future. We qualify all of our forward-looking statements by these cautionary statements.1Table of Contents Item 1. Business References in this Annual Report on Form 10-K to Madrigal, the Company, we, our and us refer to Madrigal Pharmaceuticals, Inc. "Madrigal" is aregistered trademark of Madrigal Pharmaceuticals, Inc. in the U.S. and/or other countries. Other trademarks or service marks appearing in this report maybe trademarks or service marks of other owners.Executive Overview We are a clinical-stage biopharmaceutical company focused on the development and commercialization of innovative therapeutic candidates for thetreatment of cardiovascular, metabolic, and liver diseases. Our lead product candidate, MGL-3196, is a proprietary, liver-directed, selective thyroid hormonereceptor-ß, or THR-ß, agonist being developed as a once-daily oral pill that can potentially be used to treat a number of disease states with high unmetmedical need, including non-alcoholic steatohepatitis, or NASH. For NASH, we enrolled 125 patients in a Phase 2 clinical trial. We achieved the 12-weekprimary endpoint for this Phase 2 clinical trial and reported the results in December 2017, and we reported positive topline 36-week results at the conclusionof the Phase 2 clinical trial in May 2018. There is an extension study underway in a subset of the patients that completed the main 36-week study. We arealso developing MGL-3196 for dyslipidemia, which began with a study of a genetic dyslipidemia known as heterozygous familial hypercholesterolemia, orHeFH. We completed a Phase 2 clinical trial in 116 HeFH patients, and we reported the results in February 2018. In addition to the NASH and HeFH Phase 2clinical trials, MGL-3196 has also been studied in seven completed Phase 1 trials in a total of 198 subjects. MGL-3196 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 dosemass balance study, a single dose relative bioavailability study of tablet formulations versus capsule formulation, and a multiple dose drug interaction andfood effect study. Further, we have initiated a Phase 1 trial to study patients with varying degrees of hepatic impairment (including patients with mild,moderate and severe hepatic impairment). The following chart summarizes the status of our product candidate development programs for MGL-3196 and MGL-3745, a preclinical compoundwhich has similar thyroid receptor selectivity to MGL-3196 and is thus a potential backup compound for MGL-3196:2Table of ContentsKey DevelopmentsMGL-3196 Phase 2 Clinical Trial in NASH We successfully completed a Phase 2 clinical trial in NASH in 2018. In this clinical trial, MGL-3196 demonstrated statistical significance in the primaryendpoint (p<0.0001), the relative reduction of liver fat compared with baseline on magnetic resonance imaging-estimated proton density fat fraction, or MRI-PDFF, at 12-weeks which we reported in December 2017, and statistically significant results in multiple 36-week endpoints, including key secondaryendpoints, reduction and resolution of NASH on liver biopsy as set forth in the table below, which we reported in May 2018. MGL-3196 treated patients with greater than or equal to 30% fat reduction on MRI-PDFF at 12-weeks demonstrated a higher percentage of nonalcoholicfatty liver disease activity score, or NAS, reduction and NASH resolution. In patients with NASH resolution, 35% of MGL-3196 treated patients and noplacebo patients had a baseline NAS greater than or equal to five. In MGL-3196 patients with NASH resolution, fibrosis also resolved in 50% of such patientsand was decreased statistically significantly relative to all placebo patients. Further, 36-week results from our Phase 2 clinical trial in NASH showed:•Sustained, highly statistically significant (p<0.0001) reduction in liver fat compared with placebo on 36-week MRI-PDFF and mean relativefat reduction of 37% with MGL-3196 treated patients in contrast with 8.5% with placebo patients; •Sustained, statistically significant reductions (p<0.0001) in MGL-3196 compared to placebo treated patients in low-density lipoproteincholesterol (LDL-C) and apolipoprotein B (ApoB) of more than 20%, triglycerides (TG) of 36% and lipoprotein(a) of 37%; •Statistically significant reductions in liver enzymes (ALT, AST and GGT) relative to placebo (all p=0.002) and a 40% reduction in ALT inpatients with elevated baseline levels (p=0.01); •Statistically significant reductions in fibrosis biomarkers in MGL-3196 treated patients as compared with placebo patients; •On liver biopsy, fibrosis was reduced by at least one point in 23% of placebo patients and 29% of MGL-3196 treated patients; •Very good all subject tolerability: mostly mild and a few moderate adverse events, or AEs, which were balanced between drug treated patientsand placebo patients; and •An increase in incidence of a transient mild diarrhea at beginning of study, often a single episode, in MGL-3196 treated patients comparedwith placebo patients.3 MGL-3196 MGL-3196MRI-PDFFResponders(1) Placebo Number of patients with baseline and end-of-study liver biopsies(2) 73 46 34 > 2 Point Decrease in NAS 56% 70% 32% p=0.02 p=0.001 NASH Resolution 27% 39% 6% p=0.02 p=0.001 (1)MGL-3196 MRI-PDFF Responders = MGL-3196 treated patients with >=30% relative fat reduction on Week 12 MRI-PDFF (2)does not include one end-of-study liver biopsy that was inadequateTable of ContentsMGL-3196 Phase 2 Clinical Trial in HeFH In February 2018, we announced top-line results from our Phase 2 clinical trial in HeFH. In this trial, patients treated with MGL-3196 (placebo corrected)achieved highly significant (p< 0.0001) LDL-C lowering of 18.8%, and 21% LDL-C lowering in those patients receiving an optimal dose of MGL-3196.LDL-C lowering was 28.5% in patients treated with MGL-3196 as compared to placebo in a prespecified group of patients who did not tolerate high intensitystatin doses. Highly significant (p<0.0001) and numerically similar results were observed with ApoB. Highly significant (p<0.0001) TG (25-31%),apolipoprotein CIII (22.7%), and Lp(a) lowering (26-33%) were observed in all patients treated with MGL-3196 and certain prespecified subgroups,irrespective of statin treatment. MGL-3196 has been well-tolerated with mostly mild AEs and some moderate AEs, the numbers of which are balanced between placebo and drug-treatment groups. Fewer than seven percent of patients did not complete the study, and patients who discontinued for AEs, all mild to moderate, werebalanced between drug-treated and placebo patients. There were two serious AEs in the study, both considered unrelated to treatment, one in a placebo andone in a drug-treated patient.Lead Product Candidate—MGL-3196 Active thyroid hormone, known as T3, interacts with two nuclear receptors, THR-a, which is the predominant receptor expressed in most human tissues,including heart and bone, and THR-b, which has more restricted tissue expression, and is the predominant receptor responsible for metabolic actions in theliver, including both cholesterol- and TG-lowering. Selective activation of the THR-b receptor in liver tissue is believed to favorably affect cholesterol andlipoprotein levels via multiple mechanisms, which may be complementary to those of other lipid-lowering therapies such as statin drugs. We believe thatthese characteristics of THR-b activation by MGL-3196 will in turn lead to clinically meaningful reductions in LDL-C, and plasma and liver TGs. We believe that MGL-3196 is the first selective small molecule THR-b agonist compound. MGL-3196, along with other THR-b-selective smallmolecules, such as MGL-3745, a potential backup compound to MGL-3196, was discovered at Hoffmann-La Roche, or Roche, in Nutley, New Jersey, byutilizing a novel functional assay that, unlike a simple receptor binding assay, assessed the functional activity of compounds which interacted with thyroidhormone receptors. In a published study by us and Roche in the Journal of Medicinal Chemistry using this functional assay, MGL-3196 was shown to behighly selective for the THR-b receptor, with almost no effect on THR-a, unlike other compounds purported in published studies to be b-selective based onbinding affinity, but which were shown to equally activate THR-a and THR-b in the novel functional assay. We believe that the b-selectivity and liver-targeting properties of MGL-3196 are critically important for MGL-3196's beneficial metabolic actions in theliver, and enable avoidance of safety issues associated with THR-a activation by thyroid hormone and/or less selective THR agonists in tissues such as heartand bone. In a variety of preclinical animal model studies, MGL-3196 showed enhanced safety relative to T3 or other thyroid agonists. In animal models,MGL-3196 demonstrated cholesterol lowering, liver TG lowering, and reduction of markers of NASH-related liver inflammation and fibrosis at drug levelssimilar to those that lowered LDL-C in human clinical trials, providing data to support the advancement of MGL-3196 into NASH and FH clinical trials. Inchronic animal toxicology studies in dogs and rats, no effects on bone or cartilage histology were seen at any MGL-3196 dose in either species. We believe that MGL-3196 may be the first THR-agonist product candidate in development for NASH or dyslipidemia that selectively targets the THR-bpathway and has shown a lack of liver enzyme elevations in Phase 1 and 2 clinical studies as well as an absence of bone and cartilage histologic findings inchronic animal toxicology studies.4Table of ContentsMGL-3196 Clinical and Non-Clinical Development Program To date, we have completed a series of Phase 1 and 2 clinical studies, Phase 2-enabling preclinical good laboratory practice, or GLP, toxicology studies,and drug manufacturing studies to support further clinical development, including active pharmaceutical ingredient, or API, manufacturing and drug productdevelopment studies, drug metabolism studies, acute, subchronic and chronic animal toxicology studies, and other safety pharmacology and toxicologystudies. We have completed Phase 1 studies with MGL-3196 in a total of 198 subjects to evaluate the safety, tolerability, pharmacokinetics andpharmacodynamic effects of MGL-3196. Our Phase 1 studies included randomized, placebo-controlled, double-blind, single and 14-day multiple-doseescalation studies, drug-interaction studies with statins, a study using radiolabeled MGL-3196, a study of a tablet versus capsule formulation of MGL-3196,and a multiple dose drug interaction and food effect study. In Phase 1 studies, MGL-3196 appeared safe and was well-tolerated at all doses tested. The resultsof these studies suggest that MGL-3196 has pharmacokinetic properties suitable for once-daily oral dosing. Further, we have initiated a Phase 1 hepaticimpairment study which is currently ongoing. In the multiple ascending dose study, lipid parameters were assessed as initial markers of MGL-3196 pharmacodynamic activity (Atherosclerosis230:373-380, 2013). As illustrated in the figure below, daily doses of MGL-3196 ranging from 50 to 200 mg showed highly statistically significantreductions relative to placebo of up to 30% for LDL-C (range, p=.05-<0.0001), 28% for non-high-density lipoprotein cholesterol, or non-HDL-C (range,p =0.027-p<0.0001) and 24% for ApoB (range, p =0.008-0.0004), and statistical trends of up to 60% reduction in TG (range, p =0.13-0.016). The nearmaximal lipid effects were observed at a MGL-3196 dose of 80 mg once-daily. MGL-3196 was well-tolerated at all doses, with no dose-related adverse eventsor liver enzyme, electrocardiography or vital-sign changes. At the highest dose of MGL-3196 (200 mg), there was a reversible reduction of 20% in the levelof a precursor hormone to T3, free T4, which was significantly different from placebo (p < 0.0001) that may be explained by increased liver metabolism offree T4. There was no change in thyrotropin, a pituitary hormone that regulates the level and production of thyroid hormone by the thyroid gland or T3, orother evidence of central thyroid axis dysfunction at any dose of MGL-3196.5Table of Contents Change in Lipids After 14 Days Change from Baseline (CFB) by mean % CFB calculated for each individual subject 24 h after 14th dose; baseline value obtained just prior to first dose;ApoB, apolipoprotein B; Chol, total cholesterol; LDL-C, LDL cholesterol directly measured; Non-HDL-C, non-HDL cholesterol; TG, triglycerides (median%CFB). In the HeFH Phase 2 double-blind, placebo-controlled, multi-center clinical trial, 116 patients who were not at their LDL-C goal were randomized in a2:1 ratio to receive either MGL-3196 or placebo, in addition to their current cholesterol lowering regimen, which included approximately 75% taking highintensity statins (20/40 mg rosuvastatin or 80 mg atorvastatin), and about two-thirds of patients also taking ezetimibe. Compared to placebo, MGL-3196treated patients achieved highly significant (p< 0.0001) LDL-C lowering of 18.8%, and 21% LDL-C lowering in those on an optimal dose of MGL-3196.LDL-C lowering was 28.5% in MGL-3196 treated compared to placebo in a prespecified group of patients who did not tolerate high intensity statin doses.Highly significant (p<0.0001) and numerically similar results were observed with ApoB. Highly significant reductions (p<0.0001) in TG (25-31%),ApoCIII (22.7%) and Lp(a) (26-33%) were observed in all MGL-3196 treated patients and prespecified subgroups, irrespective of statin treatment. In the NASH Phase 2 double-blind, placebo-controlled, multi-center clinical trial, 125 patients 18 years of age and older with liver biopsy-confirmedNASH were randomized at approximately 25 clinical sites in the United States. Patients were randomized to receive either placebo (N=41) or MGL-3196(N=84). The starting dose in MGL-3196-treated patients was 80 mg once a day. The study employed an adaptive dosing design whereby, in a blindedfashion, the dose could be adjusted by small amounts (i.e. 20 mg up or down) or remain at 80 mg in each MGL-3196-treated patient based on apharmacokinetic analysis of drug level performed in each patient at 2 weeks. The primary endpoint of the study was the reduction of liver fat at 12 weekscompared with baseline (relative change), assessed by MRI-PDFF, with efficacy confirmed at the end of the trial (36 weeks) by repeat MRI-PDFF andconventional liver biopsy to examine histological evidence for the resolution of NASH. Other secondary endpoints included changes in clinically relevantbiomarkers at 12 and 36 weeks, improvement in fibrosis by at least one stage with no worsening of steatohepatitis, and safety and tolerability.6Table of Contents MGL-3196 demonstrated statistical significance (p<0.0001) in the primary endpoint, the relative reduction of liver fat on MRI-PDFF at 12 weeks. At 36weeks, statistically significant results were demonstrated in multiple histology endpoints including key secondary endpoints related to the reduction andresolution of NASH (see Table on page 3). At 36 weeks, MGL-3196 treated patients demonstrated sustained, statistically significant (p<0.0001) reductionscompared to placebo treated patients in LDL-C and ApoB of more than 20%, TGs of 36% and Lp(a) of 37%. In addition, MGL-3196 demonstratedstatistically significant reductions in liver enzymes (ALT, AST and GGT) relative to placebo (all p=0.002).Our Strategy Our goal is to become a leading biopharmaceutical company developing and commercializing innovative liver-directed, b-selective thyroid hormonereceptor agonists for the treatment of cardio-metabolic and liver disease, fibrosis and inflammation. A key element is building a multi-therapy NASH focusedcompany. To achieve our goal, we plan to:•Complete clinical development and seek regulatory approval of MGL-3196 in NASH. We successfully completed a Phase 2 clinical trial inNASH in 2018. NASH is a disease driven by the growing epidemic of obesity, with a significant unmet need for approved therapies that areeffective and well tolerated. We believe MGL-3196 is an excellent candidate for the chronic treatment of NASH due to its safety profile andfirst-in-class dual mechanism of action targeting fibrosis-generating cells. •Establish commercial capabilities to market MGL-3196 as a leading treatment for NASH. If approved, we may choose either to establish asales and marketing organization with technical expertise and supporting distribution capabilities to commercialize MGL-3196, or tocollaborate with one or more third parties to accomplish these tasks. Patients with NASH are primarily managed by a concentrated group ofliver specialists in the United States and Europe. We believe this will enable us to launch MGL-3196 in NASH in a cost-effective, targetedmanner. •Grow our pipeline through additional indications for MGL-3196 potentially including orphan indications. We believe that MGL-3196 hasthe potential to be an effective treatment for other disease indications that are rare diseases or may be designated rare diseases, includinghomozygous familial hypercholesterolemia, or HoFH and severe HeFH, and we may pursue orphan drug designation where possible.7Table of ContentsTarget IndicationsNonalcoholic Fatty Liver Disease and Nonalcoholic SteatohepatitisOverview and Market Opportunity NASH is a serious inflammatory form of nonalcoholic fatty liver disease, or NAFLD. NAFLD has become the most common liver disease in the UnitedStates and other developed countries and is characterized by an accumulation of fat in the liver with no other apparent causes. The rising worldwideprevalence of obesity-related disorders has contributed to a rapid increase in the global prevalence of NASH and NAFLD. In the United States, NAFLD isestimated to affect approximately 27% to 34% of the population, or an estimated 86 million to 108 million people, and approximately 10% to 20% of thosewill progress from NAFLD to NASH. Current estimates place NASH prevalence at approximately 9 million to 15 million people in the United States, or threepercent to five percent of the population, with similar prevalence in Europe and Asia. The prevalence of NASH is also increasing in developing regions dueto the adoption of a more sedentary lifestyle and a diet consisting of processed foods with high fat and fructose content. In addition to the accumulation of fat in the liver, NASH is characterized by inflammation and cellular damage with or without fibrosis, the first stage ofliver scarring, which may ultimately progress to cirrhosis. NASH is a severe condition that can lead to fibrosis and eventually progress to cirrhosis, portalhypertension, esophageal varices, ascites, liver cancer and liver failure. NASH is strongly associated with cardiovascular disease, or CVD, and the mostcommon cause of death in NASH patients is CVD. Progression to cirrhosis and other late-stage complications can occur within five to ten years after an initialNASH diagnosis. NASH patients with type-2 diabetes have a heightened risk of NASH disease progression. Once the disease advances beyond NASH to suchlife-threatening conditions as liver cancer and liver failure, then liver transplantation is the only treatment alternative. The Centers for Disease Control and Prevention projects the prevalence of obesity to increase from 34% of the United States population to 42% of theUnited States population by 2030. Driven by this epidemic of obesity, NASH is projected to become the leading cause of liver transplants by 2020. Given theextremely limited availability of organ donors and high transplant costs, NASH patients who require transplantation will place a significant economic burdenon the healthcare system. As such, there is a significant unmet medical need for well-tolerated oral treatments for NASH. Because there are currently notherapeutic products approved for the treatment of NASH, the market size is difficult to estimate. However, based on our analysis of multiple marketassessments, we estimate that the addressable NASH population is several million patients worldwide, and that NASH could become a multi-billion dollarmarket able to support multiple approved drug products.MGL-3196 in NASH We are developing MGL-3196 for NASH. Based on the scientific literature in human and animal studies, we believe that NASH livers in humansfrequently have a deficiency in THR-b activity that leads to features of NASH, including fatty liver, inflammation and fibrosis, and that treatment with MGL-3196 will replace this hormone deficiency and be an effective NASH treatment. We believe that MGL-3196 is an excellent candidate for the chronictreatment of NASH because of its safety and tolerability profile observed to date in healthy subjects, its effects in reducing cardiovascular risk factors such asLDL-C and TGs in early-stage clinical trials, and its multiple beneficial effects in animal models of NASH. CVD is the most common cause of death inpatients with NASH. We have completed multiple studies in animal models of metabolic diseases, dyslipidemia and NASH in which MGL-3196demonstrated a statistically significant reduction in liver TGs, insulin resistance, liver enzymes (which may be elevated in NASH), and markers ofinflammation and fibrosis (Figures). The figures below show the beneficial effects of MGL-3196 to reduce these parameters in NASH animal models. Webelieve that MGL-3196 will treat the underlying lipotoxicity that drives the inflammation and liver cell damage observed in NASH patients, and after theunderlying lipotoxicity is treated, NASH-related liver fibrosis will resolve as the liver regenerates.8Table of ContentsMGL-3196: Preclinical NASH Animal Model Study Upper panels: 24d study in 17 wk old DIO mice (po, qd) on high fat diet (HFD) 13 wks;lower panels: 24d study in 40 wk old DIO mice on HFD 35 wks MGL-3196 Preclinical NASH Animal Model Gene Expression Study 25 week study in DIO, lean control mice and HFD mice treated with 0.1 to 3 mg/kgMGL-3196 or Rosiglitazone (3mg/kg) 9Table of Contents "HFD", lane 1 means HFD gene expression normalized to mean Lean; Lanes (2-7) mean gene expression normalized to mean of DIO; "Rosi"(rosiglitazone, 3 mg/kg, 24 weeks); TIMP1 tissue inhibitor metalloproteinase; CTGF connective tissue growth factor; SMA smooth muscle actin; SAA serumamyloid A; CRP C-reactive protein; Red, higher expression; blue decreased expression.MGL-3196 NASH Phase 2 Clinical Plan In October 2016, we initiated a Phase 2 proof of concept clinical trial in patients with liver biopsy documented NASH, including those with type-2diabetes, dyslipidemia and hypertension. In the study we randomized 125 NASH patients 2:1, MGL-3196 or placebo QD in a double-blind, placebo-controlled, study of once-daily MGL-3196 versus placebo in patients with NASH, including those with type-2 diabetes. Patients continued treatment through36 weeks. The study was conducted in the United States. The primary endpoint was to evaluate the efficacy of MGL-3196 as measured by the reduction ofliver fat at 12 weeks, and the secondary endpoint was to evaluate the efficacy of MGL-3196 as measured by a reduction of NASH, which was assessed by liverbiopsy, at 36 weeks. Other secondary and exploratory endpoints included safety and tolerability, and effects on serum biomarkers at 12 and 36 weeks, lipidparameters, and biomarker measures of insulin sensitivity. We reached our top-line analysis of the primary endpoint in December 2017, and we reached ourtop-line analysis of the secondary endpoint (NASH assessment on liver biopsy) in May 2018. In September 2013, the American Association for the Study of Liver Disease and the FDA conducted a joint workshop focused on trial designs andendpoints in drug and diagnostic development for liver disease secondary to NAFLD, including NASH. In December 2014, the journal Hepatology acceptedfor publication a manuscript summarizing the workshop output, including potentially acceptable surrogate endpoints for clinical studies supporting theapproval of agents for NASH and liver fibrosis. We believe that our Phase 2 NASH study design incorporated surrogate secondary endpoints consistent withthe current FDA requirements for demonstration of efficacy in registrational trials. Following completion of our Phase 2 clinical trial of MGL-3196 in NASHpatients, we requested, and have had, an end of Phase 2 meeting with the FDA, and we expect to initiate a Phase 3 study in NASH before the end of the firstquarter of 2019. We cannot be certain what efficacy endpoints and other elements the FDA or other regulatory agencies would require for approval of MGL-3196 inNASH. However, currently there are ongoing Phase 3 clinical trials of compounds to treat NASH by other companies in which it is contemplated thataccelerated approval of the compounds under FDA subpart H, which provides for accelerated approval of certain new drug products that have been studiedfor their safety and effectiveness in treating serious or life-threatening illnesses and that provide meaningful therapeutic benefit to patients over existingtreatments, would be based on the surrogate endpoint of histological evidence of NASH resolution without the worsening of fibrosis. It is expected that thesetrials would continue after approval to confirm the long term clinical benefit of NASH resolution based on a reduction in patients progressing to cirrhosis andother liver related events.DyslipidemiaOverview and Market Opportunity Patients with NASH, and its more prevalent precursor, NAFLD, are at heightened cardiovascular risk. Patients suffering from these conditions die morefrequently from cardiovascular events than from their liver disease. Multiple factors contribute to this risk, including elevated levels of LDL-C and otheratherogenic lipoproteins. Excess liver fat itself is also a significant cardiovascular risk factor. Patients with NASH and NAFLD, however, may not undergo abiopsy to confirm a NASH diagnosis until they reach the more advanced stages of fibrosis (F2 - F4). A significant segment of this large group of patients alsosuffer from diabetes and metabolic syndrome, and have lipid levels that are above target10Table of Contentsdespite treatment with established therapies. These patients may benefit from therapy to lower their lipid levels in addition to excess liver fat, in order toreduce their cardiovascular risk. We believe our studies to date in patients with NASH and patients with HeFH, have demonstrated the pleiotropic activity of MGL-3196 and the potentialof the drug to reduce an array of atherogenic lipoproteins, including LDL-C, ApoB, TG, ApoCIII, and Lp(a). As a result, we intend to also focus ourdevelopment of MGL-3196 on patients with NAFLD and earlier stages of NASH fibrosis who have elevated lipid levels, and thus address patients across theentire NASH and NAFLD spectrum.MGL-3196 in Familial Hypercholesterolemia (FH) FH is a genetic disorder characterized by aggressive and early onset CVD. In people with FH, genetic mutations make the liver incapable of metabolizingor removing excess LDL-C, causing very high LDL-C levels in the blood. There are two forms of FH: HoFH, a less common condition where mutation isinherited from both parents, and HeFH, a more common condition where mutation is inherited from just one parent. The vast majority of the cholesterolcirculating in a person's body is produced by the liver. Cholesterol is a necessary component in the structure and function of human cells. Individuals withFH are unable to recycle this natural supply of cholesterol that their bodies are constantly producing. Therefore, the cholesterol levels of an individual withFH are exceedingly high. Over time, the elevated blood cholesterol can lead to blockages in the arteries of the heart and/or brain. The longer a personexperiences high LDL-C, the more likely he or she will be to experience a cardiovascular event (i.e., heart attack or stroke). In preclinical animal studies MGL-3196 lowered LDL-C in a variety of species as a monotherapy and also when dosed in combination with statins.MGL-3196 also showed the potential to lower Lp(a), a severely atherogenic particle that is frequently elevated in patients with FH. A previous THR agonist,eprotirome, demonstrated clinical proof of concept for the THR target in Phase 2 and Phase 3 FH clinical trials by significantly lowering LDL-C and Lp(a) inpatients with HeFH who were on standard treatments such as statins and ezetimibe. The development of eprotirome ceased during the Phase 3 FH trial due toliver toxicity observed in the trial as well as eprotirome-induced cartilage damage seen in chronic toxicology studies in dogs. Because of its high level ofTHR-b selectivity, its liver-targeting properties, and its absence of findings in chronic animal toxicology studies, we believe that MGL-3196 will avoid thetoxicity issues of previous THR agonist compounds and may be a beneficial treatment for FH patients.MGL-3196 FH Phase 2 Clinical Plan In February 2017, we initiated a Phase 2 clinical trial of MGL-3196 for the treatment of HeFH. In the study we randomized HeFH patients 2:1, MGL-3196or placebo QD in double-blind, placebo-controlled fashion. Patients continued treatment through 12 weeks. The study was conducted in Europe. In this12 week clinical trial, the primary endpoint was to evaluate the efficacy of MGL-3196 as measured by the percent reduction in LDL-C as compared withplacebo. Secondary endpoints included safety and tolerability, and evaluated the efficacy of MGL-3196 to reduce a variety of lipid parameters, includingnon-HDL-C, ApoB, TGs, Lp(a), apoA/B, and lipoprotein particles. In February 2018, we announced positive results from the 12 week Phase 2 clinical trial ofMGL-3196 for the treatment of HeFH. MGL-3196 treated patients achieved highly significant reductions in LDL-C, ApoB, TG, ApoCIII, and Lp(a) in allpatients and prespecified subgroups.Collaborations VIA Pharmaceuticals, Inc., or VIA, entered into a research, development and commercialization agreement, or the Roche Agreement, with Roche, onDecember 18, 2008. We subsequently assumed all of VIA's rights in, to and under, and all of VIA's obligations under, the Roche Agreement pursuant to11Table of Contentsan asset purchase agreement, dated September 14, 2011. Pursuant to the terms of the Roche Agreement, we, as successor-in-interest to VIA, assumed control ofall development and commercialization of MGL-3196 and will hold exclusive worldwide rights for all potential indications. Under the Roche Agreement,Roche exclusively licensed certain patent rights and know-how relating to MGL-3196 in exchange for consideration consisting of an upfront payment,milestone payments, the remainder of which total $10 million and are tied to future commencement of Phase 3 clinical trials and regulatory approval in theUnited States and Europe of MGL-3196 or any derivative product, and single-digit royalty payments based on net sales of MGL-3196 and any derivativeproducts, subject to certain reductions. In 2011, we commenced Phase 1 clinical trials and subsequently paid Roche a related milestone payment. In October2016, we commenced a Phase 2 study in NASH and subsequently paid Roche a related milestone payment. Except as described above, we have not achievedany additional product development or regulatory milestones under the Roche Agreement and have generated no net sales of products developed from MGL-3196. Pursuant to the Roche Agreement, we must use commercially reasonable efforts to conduct clinical and commercial development programs for productscontaining MGL-3196. If we determine that it is not reasonable to continue clinical trials or other development of MGL-3196, we may elect to cease furtherdevelopment and Roche may terminate the license. If we determine not to pursue the development or commercialization of MGL-3196 in certainjurisdictions, including the United States, Roche may terminate the license for such territories. The Roche Agreement will expire, unless earlier terminatedpursuant to other provisions of the agreement, on the last to occur of (i) the expiration of the last valid claim of a licensed patent covering the manufacture,use or sale of products containing MGL-3196, or (ii) ten years after the first sale of a product containing MGL-3196.Competition The development and commercialization of new drugs is highly competitive. We will face competition with respect to all product candidates we maydevelop or commercialize in the future from pharmaceutical and biotechnology companies worldwide. The key factors affecting the success of any approvedproduct will be its efficacy, safety profile, drug interactions, method of administration, pricing, reimbursement and level of promotional activity relative tothose of competing drugs. Our potential competitors may have substantially greater financial, technical, and personnel resources than us. In addition, many of these competitorshave significantly greater commercial infrastructures. Our ability to compete successfully will depend largely on our ability to leverage our collectiveexperience in drug discovery, development and commercialization to:•discover and develop medicines that are differentiated from other products in the market, •obtain patent and/or proprietary protection for our products and technologies; •obtain required regulatory approvals; •obtain a commercial partner; •commercialize our drugs, if approved; and •attract and retain high-quality research, development and commercial personnel. There are currently no therapeutic products approved for the treatment of NASH. There are several commercially available products that are currentlyused off-label for NASH, such as vitamin E, an antioxidant, insulin sensitizers, such as pioglitazone, anti-hyperlipidemic agents, such as gemfibrozil,pentoxifylline, ursodiol and others. In addition, there are numerous drugs in development for the treatment of NASH. We are aware of several companies thathave product candidates in clinical development for the treatment of NASH, including Intercept Pharmaceuticals, Inc., Gilead Sciences, Inc., GalectinTherapeutics, Inc., Allergan plc / Tobira Pharmaceuticals, Inc., Galmed Medical12Table of ContentsResearch Ltd., Genfit Corp., Cirius Therapeutics, Novartis AG, Novo Nordisk A/S, Takeda, Immuron Ltd., Shire plc, Boehringer Ingelheim GmbH, Bristol-Myers Squibb, Pfizer, Inc., Sanofi S.A., NGM Biopharmaceutical, and Conatus Pharmaceuticals Inc., and there are other companies with candidates in earlierstages of development. Given MGL-3196's actions on the underlying biological pathways across the spectrum of early to late stages of NASH, its CVbeneficial effects, and its complementary mechanism to other therapies, we believe that MGL-3196 has the potential to be used alone or in combination withsome of these potential NASH products. There are several marketed products, both generic and proprietary, available for the treatment of HoFH and HeFH. We believe that MGL-3196 has thepotential to be used in combination with several of these products. Available marketed products include: various statins, Merck's ezetimibe, Aegerion'slomitapide, Ionis' mipomersen, Amgen's evolocumab and Sanofi/Regeneron's alirocumab. In addition, there are multiple drugs in development for thetreatment of FH, including Gemphire's gemcabene, Merck's anacetrapib, Esperion's ETC-1002, and drugs at an earlier stage of development. Given MGL-3196's pleoitropic lipid-lowering actions, its complementary mechanism to statins and other lipid-lowering drugs, and its potential for lowering Lp(a), webelieve that MGL-3196 has the potential to be used in combination with the standard of care to treat patients with HoFH and HeFH.Sales and Marketing Because we are focused on discovery and development of our product candidates, we currently have no sales, marketing or distribution capabilities inorder to commercialize any approved product candidates. If our product candidates are approved, we intend either to establish a sales and marketingorganization with technical expertise and supporting distribution capabilities to commercialize our products, or to outsource this function to a third party.Manufacturing We do not own or operate, and currently have no plans to establish, any manufacturing facilities. We currently rely, and expect to rely, on third-partycontract manufacturers, or CMOs, for the manufacture of any product candidates that we may develop for larger-scale preclinical and clinical testing, as wellas for commercial quantities of any drug candidates that are approved.Research and Development Research and development expenses primarily consist of costs associated with our research activities, including the preclinical and clinical developmentof our product candidates. Our research and development expenses were $25.4 million for the year ended December 31, 2018, $24.4 million for the yearended December 31, 2017, and $15.9 million for year ended December 31, 2016. The increase in research and development expenses was primarily due to theadvancement of clinical programs to Phase 2 studies, further API manufacturing studies and the continuation of preclinical studies. We expect research anddevelopment expenses to increase over time as we advance our clinical and preclinical development programs for MGL-3196.Intellectual Property We will be able to protect our technology and products from unauthorized use by third parties only to the extent we are covered by valid and enforceablepatents or such knowledge is effectively maintained as trade secrets. Patents and other proprietary rights are thus an essential element of our business. We alsorely on trade secrets, know-how, continuing technological innovation and licensing opportunities to develop and maintain our competitive position. Our success will depend in part on our ability to obtain and maintain patent and other proprietary protection for our current and future productcandidates, technology and know-how, to operate without13Table of Contentsinfringing on the proprietary rights of others, and to prevent others from infringing our proprietary rights. We seek to protect our proprietary position by,among other methods, filing United States and foreign patent applications related to our proprietary technology, and maintaining the confidentiality ofinventions and improvements that are important to the development of our business. We own or co-own: two United States and seven foreign issued patents and allowed patent applications; and two United States and 26 foreign pendingpatent applications, each of which relates to composition-of-matter of MGL-3196, including certain dosage forms, and its use in the treatment of key diseaseindications. Our current patent portfolio covers the United States and certain other jurisdictions worldwide. In addition, pursuant to the Roche Agreement,Roche granted us an exclusive license to certain United States and foreign patents and patent applications owned by Roche and Roche know-how relating toMGL-3196. The Roche Agreement imposes various diligence, milestone payment, royalty payment, insurance, indemnification, and other obligations on us. Issued United States patents directed to MGL-3196, including certain dosage forms, have statutory expiration dates between 2026 and 2033, excludingany patent term extensions that might be available following the grant of marketing authorizations. Issued patents outside of the United States directed toMGL-3196, including certain dosage forms, have statutory expiration dates between 2026 and 2033. We have pending patent applications for MGL-3196that, if issued, would be expected to expire in the United States and in countries outside of the United States between 2026 and 2033, excluding any patentterm adjustment that might be available following the grant of the patent and any patent term extensions that might be available following the grant ofmarketing authorizations. Our trademarks are protected under the common law and/or by registration in the United States and other countries. We seek to protect our proprietaryprocesses, in part, by confidentiality agreements and invention assignment agreements with our personnel, including consultants and commercial partners.These agreements are designed to protect our proprietary information.Orphan Drug Designation Some of MGL-3196's target disease indications are rare diseases or may be designated rare diseases, including HoFH and severe HeFH, and we plan topursue orphan drug designation where possible. If granted, each such designation might provide for regulatory exclusivity for seven years in the UnitedStates and ten years in the EU from the date of product approval for individual indications.Government RegulationGovernment Regulation and Product Approval Government authorities in the United States, at the federal, state and local level, and other countries extensively regulate, among other things, theresearch, development, testing, manufacture, quality control, approval, labeling, packaging, storage, record-keeping, promotion, advertising, distribution,marketing and export and import of products such as those we are developing. A new drug must be approved by the FDA through the new drug application,or NDA, process before it may be legally marketed in the United States, and must be approved by foreign regulatory authorities via various procedures beforeit can be marketed in the applicable country. The animal and other non-clinical data and the results of human clinical trials performed under anInvestigational New Drug application, or IND, and under similar foreign applications will become part of the NDA.14Table of ContentsUnited States Drug Development Process In the United States, the FDA regulates drugs under the Federal Food, Drug, and Cosmetic Act, or FDCA, and implementing regulations. The process ofobtaining regulatory approvals and the subsequent compliance with appropriate federal, state, local, and foreign statutes and regulations require theexpenditure of substantial time and financial resources. Failure to comply with the applicable United States requirements at any time during the productdevelopment process, approval process or after approval, may subject an applicant to administrative or judicial sanctions. These sanctions could include,among other things, the FDA's refusal to approve pending applications, withdrawal of an approval, a clinical hold, warning letters and other types ofenforcement-related letters, requesting product recalls, product seizures, changes to the conditions surrounding marketing approval such as labeling changesor changes to a Risk Evaluation and Mitigations Strategies, or REMS, program, total or partial suspension of production or distribution, injunctions, fines,refusals of government contracts, debarment, restitution, disgorgement of profits, or civil or criminal investigations and penalties. Any agency or judicialenforcement action could have a material adverse effect on us. The process required by the FDA before a drug or biologic may be marketed in the UnitedStates generally involves the following:•completion of preclinical laboratory tests, animal studies and formulation studies according to GLP or other applicable regulations; •submission to the FDA of an IND which must become effective before human clinical trials may begin; •performance of adequate and well-controlled human clinical trials according to Good Clinical Practices, or GCP, to establish the safety andefficacy of the proposed drug for its intended use; •submission to the FDA of an NDA; •completion of registration batches and validation of the manufacturing process to show ability to consistently produce quality batches ofproduct; •satisfactory completion of a FDA inspection of the manufacturing facility or facilities at which the drug is produced to assess compliance withcurrent good manufacturing practice, or cGMP, to assure that the facilities, methods and controls are adequate to preserve the drug's identity,strength, quality and purity; and •FDA review and approval of the NDA. Once a pharmaceutical candidate is identified for development, it enters the preclinical testing stage. Preclinical tests include laboratory evaluations ofproduct chemistry, toxicity and formulation, as well as animal studies, to assess the safety and quality of the product. Animal studies must be performed incompliance with FDA's GLP regulations and the U.S. Department of Agriculture's Animal Welfare Act. An IND sponsor must submit the results of thepreclinical tests, together with manufacturing information and analytical data, to the FDA as part of the IND. The sponsor will also include a protocoldetailing, among other things, the objectives of the first phase of the clinical trial, the parameters to be used in monitoring safety, and the effectivenesscriteria to be evaluated, if the first phase lends itself to an efficacy evaluation. Some preclinical testing may continue even after the IND is submitted. TheIND automatically becomes effective 30 days after receipt by the FDA, unless the FDA, within the 30-day time period, places the clinical trial on a clinicalhold or a partial clinical hold. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical trial can begin. Clinicalholds also may be imposed by the FDA at any time before or during studies due to safety concerns or non-compliance, or other reasons. All clinical trials must be conducted under the supervision of one or more qualified investigators in accordance with good clinical practice regulations.They must be conducted under protocols detailing15Table of Contentsthe objectives of the trial, dosing procedures, subject selection and exclusion criteria and the safety and effectiveness criteria to be evaluated. Each protocolmust be submitted to the FDA as part of the IND, and progress reports detailing the results of the clinical trials must be submitted at least annually. Inaddition, timely safety reports must be submitted to the FDA and the investigators for serious and unexpected adverse events or animal test results thatsuggest a significant risk to human subjects. An institutional review board, or IRB, at each institution participating in the clinical trial must review andapprove each protocol before a clinical trial commences at that institution and must also approve the information regarding the trial and the consent form thatmust be provided to each trial subject or his or her legal representative, monitor the study until completed and otherwise comply with IRB regulations.Foreign studies conducted under an IND must meet the same requirements that apply to studies being conducted in the U.S. Data from a foreign study notconducted under an IND may be submitted in support of an NDA if the study was conducted in accordance with GCP and the FDA is able to validate the data. Human clinical trials are typically conducted in three sequential phases that may overlap or be combined:•Phase 1: The product candidate is initially introduced into healthy human subjects and tested for safety, dosage tolerance, absorption,metabolism, distribution and excretion. In the case of some products for severe or life-threatening diseases, such as cancer, especially when theproduct may be too inherently toxic to ethically administer to healthy volunteers, the initial human testing is often conducted in patients withthe target diseases. •Phase 2: This phase involves studies in a limited patient population to identify possible adverse effects and safety risks, to preliminarilyevaluate the efficacy of the product for specific targeted diseases and to determine dosage tolerance and optimal dosage. •Phase 3: This phase involves trials undertaken to further evaluate dosage, clinical efficacy and safety in an expanded patient population atgeographically dispersed clinical study sites. These studies are intended to establish the overall risk-benefit ratio of the product candidate andprovide, if appropriate, an adequate basis for product approval and product labeling. The FDA or the sponsor may suspend or terminate a clinical trial at any time on various grounds, including a finding that the research subjects or patientsare being exposed to an unacceptable health risk. Similarly, an IRB can suspend or terminate approval of a clinical trial at its institution if the clinical trial isnot being conducted in accordance with the IRB's requirements or if the drug has been associated with unexpected serious harm to patients. Phase 1, Phase 2,and Phase 3 testing may not be completed successfully within any specified period, if at all. Further, success in either preclinical studies or early-stageclinical trials does not assure success in later-stage clinical trials. Sponsors of all controlled clinical trials, except for Phase 1 trials, are required to submitcertain clinical trial information for inclusion in the public clinical trial registry and results data bank maintained by the National Institutes of Health, whichare publicly available at http://clinicaltrials.gov. During the development of a new drug, sponsors are given opportunities to meet with the FDA at certain points. These points may be prior to submissionof an IND, at the end of Phase 2, and before an NDA is submitted. Meetings at other times may be requested. These meetings can provide an opportunity forthe sponsor to share information about the data gathered to date, for the FDA to provide advice, and for the sponsor and FDA to reach agreement on the nextphase of development. Sponsors typically use the end of Phase 2 meeting to discuss their Phase 2 clinical results and present their plans for the pivotalPhase 3 clinical trial that they believe will support approval of the new drug. Concurrent with clinical trials, companies usually complete additional animal studies and must also develop additional information about the chemistryand physical characteristics of the drug and finalize a process for manufacturing the product in commercial quantities in accordance with cGMP16Table of Contentsrequirements. The manufacturing process must be capable of consistently producing quality batches of the product candidate and, among other things, themanufacturer must develop methods for testing the identity, strength, quality and purity of the final drug. Additionally, appropriate packaging must beselected and tested and stability studies must be conducted to demonstrate that the product candidate does not undergo unacceptable deterioration over itsshelf life.United States Review and Approval Processes The results of product development, preclinical studies and clinical trials, along with descriptions of the manufacturing process, analytical testsconducted on the chemistry of the drug, proposed labeling, and other relevant information are submitted to the FDA as part of an NDA requesting approval tomarket the product. The submission of an NDA is subject to the payment of user fees; a waiver of such fees may be obtained under certain limitedcircumstances. The FDA conducts a preliminary review of all NDAs submitted to ensure that they are sufficiently complete for substantive review before itaccepts them for filing. The FDA may request additional information rather than accept an NDA for filing. In this event, the NDA must be resubmitted withthe additional information. The resubmitted application also is subject to review before the FDA accepts it for filing. Once the submission is accepted forfiling, the FDA begins an in-depth substantive review. The FDA may refer the NDA to an advisory committee for review, evaluation and recommendation asto whether the application should be approved and under what conditions. The FDA is not bound by the recommendation of an advisory committee, but itgenerally follows such recommendations. The approval process is lengthy and often difficult, and the FDA may refuse to approve an NDA if the applicableregulatory criteria are not satisfied or may require additional clinical or other data and information. Even if such data and information are submitted, the FDAmay ultimately decide that the NDA does not satisfy the regulatory criteria for approval. Data obtained from clinical trials are not always conclusive, and theFDA may interpret data differently than we interpret the same data. The FDA may issue a complete response letter, which generally outlines the deficienciesin the submission and may require additional clinical or other data or impose other conditions that must be met in order to secure final approval of the NDA,or an approval letter following satisfactory completion of all aspects of the review process. The FDA reviews an NDA to determine, among other things,whether a product is safe and effective for its intended use and whether its manufacturing is cGMP-compliant to assure and preserve the product's identity,strength, quality and purity. Before approving an NDA, the FDA will inspect the facility or facilities where the product is manufactured. In addition, the FDAoften will conduct a bioresearch monitoring inspection of the clinical trial sites involved in conducting pivotal studies to ensure data integrity andcompliance with applicable GCP requirements. NDAs receive either standard or priority review. A drug representing a significant improvement in treatment, prevention or diagnosis of disease mayreceive priority review. Priority review for an NDA for a new molecular entity will be six months from the date that the NDA is filed. The FDA has ten monthsin which to complete its initial review of a standard new molecular entity NDA. The FDA does not always meet its goal dates and in certain circumstances thegoal date may be extended. In addition, products studied for their safety and effectiveness in treating serious or life-threatening illnesses and which providemeaningful therapeutic benefit over existing treatments, may receive accelerated approval. In that situation, the product may be approved on the basis ofadequate and well-controlled clinical trials establishing that the drug product has an effect on a surrogate endpoint that is reasonably likely to predictclinical benefit or on the basis of an effect on a clinical endpoint that can be measured earlier than irreversible morbidity or mortality, or IMM, that isreasonably likely to predict an effect on IMM or other clinical benefit. As a condition of approval, the FDA may require that a sponsor of a drug receivingaccelerated approval perform adequate and well-controlled post-marketing clinical trials. Priority review and accelerated approval do not change thestandards for approval, but may expedite the approval process.17Table of Contents If a product receives regulatory approval, the approval may be significantly limited to specific diseases, dosages or patient populations, or theindications for use may otherwise be limited, which could restrict the commercial value of the product. In addition, the FDA may require a sponsor to conductPhase 4 testing which involves clinical trials designed to further assess a drug's safety and effectiveness after NDA approval, and may require testing andsurveillance programs to monitor the safety of approved products which have been commercialized. The Food and Drug Administration Safety and Innovation Act, or FDASIA, which was enacted in 2012, made permanent the Pediatric Research EquityAct, or PREA, which requires a sponsor to conduct pediatric studies for most drugs and biologics, for a new active ingredient, new indication, new dosageform, new dosing regimen or new route of administration. Under PREA, original NDAs and supplements thereto must contain a pediatric assessment unlessthe sponsor has received a deferral or waiver. The required assessment must assess the safety and effectiveness of the product for the claimed indications in allrelevant pediatric subpopulations and support dosing and administration for each pediatric subpopulation for which the product is safe and effective. Thesponsor or FDA may request a deferral of pediatric studies for some or all of the pediatric subpopulations. A deferral may be granted for several reasons,including a finding that the drug or biologic is ready for approval for use in adults before pediatric studies are complete or that additional safety oreffectiveness data needs to be collected before the pediatric studies begin. After April 2013, the FDA must send a non-compliance letter to any sponsor thatfails to submit the required assessment, keep a deferral current or fails to submit a request for approval of a pediatric formulation.Patent Term Restoration and Marketing Exclusivity Depending upon the timing, duration and specifics of FDA approval of our product candidates, some of our United States patents may be eligible forlimited patent term extension under the Drug Price Competition and Patent Term Restoration Act of 1984, referred to as the Hatch-Waxman Amendments.The Hatch-Waxman Amendments permit a patent restoration term of up to five years as compensation for patent term lost during product development andthe FDA regulatory review process. However, patent term restoration cannot extend the remaining term of a patent beyond a total of 14 years from theproduct's approval date. The patent term restoration period is generally one-half the time between the effective date of an IND, and the submission date of anNDA, plus the time between the submission date of an NDA and the approval of that application, except that the period is reduced by any time during whichthe applicant failed to exercise due diligence. Only one patent applicable to an approved drug is eligible for the extension, and the extension must be appliedfor prior to expiration of the patent and within 60 days of approval. The United States Patent and Trademark Office, in consultation with the FDA, reviewsand approves the application for any patent term extension or restoration. Pediatric exclusivity is another type of marketing exclusivity available in the United States. The FDASIA made permanent the Best Pharmaceuticals forChildren Act, or BPCA, which provides for an additional six months of marketing exclusivity if a sponsor conducts clinical trials in children in response to awritten request from the FDA, or a Written Request. If the Written Request does not include studies in neonates, the FDA is required to include its rationalefor not requesting those studies. The FDA may request studies on approved or unapproved indications in separate Written Requests. The issuance of a WrittenRequest does not require the sponsor to undertake the described studies.Orphan Drug Designation Under the Orphan Drug Act, the FDA may grant orphan drug designation to a drug or biological product intended to treat a rare disease or condition,which is generally a disease or condition that affects fewer than 200,000 individuals in the United States, or more than 200,000 individuals in the18Table of ContentsUnited States and for which there is no reasonable expectation that the cost of developing and making available in the United States a drug for this type ofdisease or condition will be recovered from sales in the United States for that drug. Orphan drug designation must be requested before submitting an NDA.After the FDA grants orphan drug designation, the identity of the therapeutic agent and its potential orphan use are disclosed publicly by the FDA. Orphandrug designation does not convey any advantage in or shorten the duration of the regulatory review and approval process. If a product that has orphan drugdesignation subsequently receives the first FDA approval for the disease for which it has such designation, the product is entitled to orphan productexclusivity, which means that the FDA may not approve any other applications to market the same drug for the same indication, except in very limitedcircumstances, for seven years. Orphan drug exclusivity, however, also could block the approval of one of our product candidates for seven years if acompetitor obtains approval of the same drug as defined by the FDA or if our product candidate is determined to be contained within the competitor's productfor the same indication or disease. The FDA also administers a clinical research grants program, whereby researchers may compete for funding to conduct clinical trials to support theapproval of drugs, biologics, medical devices, and medical foods for rare diseases and conditions. A product does not have to be designated as an orphandrug to be eligible for the grant program. An application for an orphan grant should propose one discrete clinical study to facilitate FDA approval of theproduct for a rare disease or condition. The study may address an unapproved new product or an unapproved new use for a product already on the market.Fast Track Designation and Accelerated Approval The FDA is required to facilitate the development, and expedite the review, of drugs that are intended for the treatment of a serious or life-threateningdisease or condition for which there is no effective treatment and which demonstrate the potential to address unmet medical needs for such a disease orcondition. Under the fast track program, the sponsor of a new drug candidate may request that the FDA designate the drug candidate for a specific indicationas a fast track drug concurrent with, or after, the filing of the IND for the drug candidate. The FDA must determine if the drug candidate qualifies for fast trackdesignation within 60 days of receipt of the sponsor's request. Under the fast track program, the FDA may designate a drug for fast-track status if it is intended to treat a serious or life-threatening illness andnonclinical or clinical data demonstrate the potential to address an unmet medical need. Similarly, the agency may designate a drug for accelerated approvalif it treats a serious condition and generally provides meaningful therapeutic benefit to patients over existing treatments based upon a surrogate endpoint thatis reasonably likely to predict clinical benefit, or on a clinical endpoint that can be measured earlier than IMM, that is reasonably likely to predict an effecton IMM or other clinical benefit, taking into account the severity, rarity, or prevalence of the condition and the availability or lack of alternative treatments. In clinical trials, a surrogate endpoint is a measurement of laboratory or clinical signs of a disease or condition that substitutes for a direct measurementof how a patient feels, functions, or survives. Surrogate endpoints can often be measured more easily or more rapidly than clinical endpoints. A drugcandidate approved on this basis is subject to rigorous post-marketing compliance requirements, including the completion of Phase 4 or post-approvalclinical trials to confirm the effect on the clinical endpoint. Failure to conduct required post-approval studies, or confirm a clinical benefit during post-marketing studies, will allow the FDA to withdraw the drug from the market on an expedited basis. All promotional materials for drug candidates approvedunder accelerated regulations are subject to prior review by the FDA. In FDASIA, Congress encouraged the FDA to utilize innovative and flexible approaches to the assessment of products under accelerated approval. Thelaw required the FDA to issue related draft19Table of Contentsguidance within a year after the law's enactment and also promulgate confirming regulatory changes. In May 2014, the FDA published a Guidance forIndustry entitled, "Expedited Programs for Serious Conditions-Drugs and Biologics" which provides guidance on FDA programs that are intended tofacilitate and expedite development and review of new drugs as well as threshold criteria generally applicable to concluding that a drug is a candidate forthese expedited development and review programs. In addition to the Fast Track, accelerated approval and priority review programs discussed above, theFDA also provided guidance on a new program for Breakthrough Therapy designation. A request for Breakthrough Therapy designation should be submittedconcurrently with, or as an amendment to an IND. The FDA has already granted this designation to over 30 new drugs and has approved several.Post-Approval Requirements Once an approval is granted, products are subject to continuing regulation by the FDA. The FDA may withdraw the approval if, among other things,compliance with regulatory standards is not maintained or if safety or efficacy problems occur after the product reaches the market. Later discovery ofpreviously unknown problems with a product may result in restrictions on the product or even complete withdrawal of the product from the market. If newsafety issues are identified following approval, the FDA may require the NDA sponsor to take certain measures, such as revising the approved labeling toreflect the new safety information, conducting post-market studies or clinical trials to assess the new safety information, and/or implementing or changing aREMS Program to mitigate newly-identified risks. After approval, some types of changes to the approved product, such as adding new indications,manufacturing changes and additional labeling claims, are subject to further FDA review and approval. Drug manufacturers and other entities involved in themanufacture and distribution of approved drugs are required to register their establishments with the FDA and certain state agencies, and are subject toperiodic unannounced inspections by the FDA and certain state agencies for compliance with cGMP and other laws and regulations. We rely, and expect tocontinue to rely, on third parties for the production of clinical and commercial quantities of our product candidates. Future inspections by the FDA and otherregulatory agencies may identify compliance issues at the facilities of our contract manufacturers that may disrupt production or distribution, or requiresubstantial resources to correct. Any drug products manufactured or distributed by us pursuant to FDA approvals are subject to continuing regulation by the FDA, including, amongother things, record-keeping requirements, reporting of adverse experiences with the drug, providing the FDA with updated safety and efficacy information,drug sampling and distribution requirements, complying with certain electronic records and signature requirements, and complying with FDA promotion andadvertising requirements. The FDA strictly regulates labeling, advertising, promotion and other types of information on products that are placed on themarket. Drugs may be promoted only for the approved indications and in accordance with the provisions of the approved label. From time to time, legislation is drafted, introduced and passed in Congress that could significantly change the statutory provisions governing theapproval, manufacturing and marketing of products regulated by the FDA. In addition to new legislation, FDA regulations and guidance are often revised orinterpreted by the agency in ways that may significantly affect our business and our products. It is impossible to predict whether further legislative changeswill be enacted, or FDA regulations, guidance or interpretations changed or what the impact of such changes, if any, may be.Foreign Regulation In addition to regulations in the United States, we will be subject to a variety of foreign regulations governing clinical trials and commercial sales anddistribution of its products. Whether or not we obtain FDA approval for a product, we must obtain approval by the comparable regulatory20Table of Contentsauthorities of foreign countries or economic areas, such as the 28-member European Union, before we may commence clinical trials or market products inthose countries or areas. The approval process and requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement varygreatly from place to place, and the time may be longer or shorter than that required for FDA approval. Under EU regulatory systems, a company may submit marketing authorization applications either under a centralized or decentralized procedure. Thecentralized procedure, which is compulsory for medicinal products produced by biotechnology or those medicinal products containing new activesubstances for specific indications such as the treatment of AIDS, cancer, neurodegenerative disorders, diabetes, viral diseases and designated orphanmedicines, and optional for other medicines which are highly innovative. Under the centralized procedure, a marketing application is submitted to the EMAwhere it will be evaluated by the Committee for Medicinal Products for Human Use and a favorable opinion typically results in the grant by the EuropeanCommission of a single marketing authorization that is valid for all EU member states within 67 days of receipt of the opinion. The initial marketingauthorization is valid for five years, but once renewed is usually valid for an unlimited period. The decentralized procedure provides for approval by one ormore "concerned" member states based on an assessment of an application performed by one member state, known as the "reference" member state. Under thedecentralized approval procedure, an applicant submits an application, or dossier, and related materials to the reference member state and concerned memberstates. The reference member state prepares a draft assessment and drafts of the related materials within 120 days after receipt of a valid application. Within90 days of receiving the reference member state's assessment report, each concerned member state must decide whether to approve the assessment report andrelated materials. If a member state does not recognize the marketing authorization, the disputed points are eventually referred to the European Commission,whose decision is binding on all member states. When conducting clinical trials in the EU, we must adhere to the provisions of the EU Clinical Trials Directive and the laws and regulations of the EUMember States implementing them. These provisions require, among other things, that the prior authorization of an Ethics Committee and the submissionand approval of a clinical trial authorization application be obtained in each Member State before commencing a clinical trial in that Member State. As in the United States, it may be possible in foreign countries to obtain a period of market and/or data exclusivity that would have the effect ofpostponing the entry into the marketplace of a competitor's generic product. For example, in the EU, if any of our products receive marketing approval in theEuropean Economic Area, or EEA, which is comprised of the 28 member states of the EU plus Norway, Iceland and Liechtenstein, we expect that we willbenefit from eight years of data exclusivity and an additional two years of marketing exclusivity. An additional one-year extension of marketing exclusivityis possible if during the data exclusivity period we obtain an authorization for one or more new therapeutic indications that is deemed to bring a significantclinical benefit compared to existing therapies. The data exclusivity period begins on the date of the product's first marketing authorization in the EU andprevents biosimilars from relying on the holder of the marketing authorization for the reference biological medicine's pharmacological, toxicological andclinical data for a period of eight years. After eight years, a biosimilar product application may be submitted and the sponsoring companies may rely on themarketing authorization holder's data. However, a biosimilar medicine cannot launch until 2 years later (or a total of ten years after the first marketingauthorization in the EU of the innovator product), or 3 years later (or a total of eleven years after the first marketing authorization in the EU of the innovatorproduct) if the marketing authorization holder obtains marketing authorization for a new indication with significant clinical benefit within the eight yeardata exclusivity period. As in the United States, a sponsor may apply for designation of a product as an orphan drug for the treatment of a specific indication in the EU before theapplication for marketing authorization is21Table of Contentsmade. Orphan drugs in Europe enjoy economic and marketing benefits, including up to ten years of market exclusivity for the approved indication unlessanother applicant can show that its product is safer, more effective or otherwise clinically superior to the orphan-designated product.Reimbursement Significant uncertainty exists regarding the coverage and reimbursement status of products approved by the FDA and other government authorities. Inthe United States, sales of any products for which we may receive regulatory approval for commercial sale will depend in significant part on the availabilityand adequacy of coverage and reimbursement from third-party payors. Third-party payors include government authorities, managed care providers, privatehealth insurers and other organizations. The process for determining whether a payor will provide coverage for a product may be separate from the process forsetting the reimbursement rate that the payor will pay for the product. Third-party payors may limit coverage to specific products on an approved list whichmight not include all of the FDA-approved products for a particular indication. Moreover, a payor's decision to provide coverage for a product does not implythat an adequate reimbursement rate will be approved. Adequate third-party reimbursement may not be available to enable us to maintain price levelssufficient to realize an appropriate return on our investment in product development. Third-party payors are increasingly challenging the prices charged for, examining the medical necessity of, and assessing the cost-effectiveness ofmedical products and services, in addition to their safety and efficacy. In order to obtain coverage and reimbursement for any product that might be approvedfor sale, we may need to conduct expensive pharmacoeconomic studies in order to demonstrate the medical necessity and cost-effectiveness of any products,in addition to the costs required to obtain regulatory approvals. Our drug candidates may not be considered medically necessary or cost-effective. If third-party payors do not consider a product to be cost-effective compared to other available therapies, they may not cover the product after approval as a benefitunder their plans or, if they do, the level of payment may not be sufficient to allow a company to sell its products at a profit. The U.S. government and state legislatures have shown significant interest in implementing cost containment programs to limit the growth ofgovernment-paid health care costs, including price controls, restrictions on reimbursement and requirements for substitution of generic products for brandedprescription drugs. For example, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability ReconciliationAct, or collectively, ACA, contains provisions that may reduce the profitability of drug products, including, for example, increased rebates for drugsreimbursed by Medicaid programs, extension of Medicaid rebates to Medicaid managed care plans, mandatory discounts for certain Medicare Part Dbeneficiaries and annual fees based on pharmaceutical companies' share of sales to federal health care programs. Adoption of government controls andmeasures, and tightening of restrictive policies in jurisdictions with existing controls and measures, could limit payments for pharmaceuticals. The marketability of any products for which we receive regulatory approval for commercial sale may suffer if the government and third-party payors failto provide adequate coverage and reimbursement. In addition, an increasing emphasis on cost containment measures in the United States has increased andwe expect will continue to increase the pressure on pharmaceutical pricing. Coverage policies and third-party reimbursement rates may change at any time.Even if favorable coverage and reimbursement status is attained for one or more products for which we receive regulatory approval, less favorable coveragepolicies and reimbursement rates may be implemented in the future. In addition, in some foreign countries, the proposed pricing for a drug must be approved before it may be lawfully marketed. The requirements governingdrug pricing vary widely from country to country. For example, the EU provides options for its member states to restrict the range of medicinal22Table of Contentsproducts for which their national health insurance systems provide reimbursement and to control the prices of medicinal products for human use. A memberstate may approve a specific price for the medicinal product or it may instead adopt a system of direct or indirect controls on the profitability of the companyplacing the medicinal product on the market. There can be no assurance that any country that has price controls or reimbursement limitations forpharmaceutical products will allow favorable reimbursement and pricing arrangements for any of our products. Historically, products launched in the EU donot follow price structures of the United States and generally tend to be significantly lowerEmployees As of February 21, 2019, we had seventeen full-time employees, including twelve engaged in research, development, and regulatory activities, and fivein executive, general and administrative functions, and multiple part-time consultants.General Information We were incorporated in Delaware in September 2011. Our principal executive offices are located at 200 Barr Harbor Drive, Suite 400, WestConshohocken, PA 19428. Our Internet website address is www.madrigalpharma.com. No portion of our website is incorporated by reference into this AnnualReport on Form 10-K. We advise you to read this Annual Report on Form 10-K in conjunction with other reports and documents that we file from time to time with the SEC. Inparticular, please read our definitive proxy statement, which will be filed with the SEC in connection with our 2019 annual meeting of stockholders, ourquarterly reports on Form 10-Q and any current reports on Form 8-K that we may file from time to time. You may obtain copies of these reports after the dateof this annual report directly from us or from the SEC at its website at www.sec.gov. We make our periodic and current reports available on our internetwebsite, free of charge, as soon as reasonably practicable after such material is electronically filed with, or furnished to, the SEC. Item 1A. Risk Factors You should carefully consider the risks described below, together with all of the other information included in or incorporated by reference into thisreport, before making an investment decision. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertaintiesnot presently known to us or that we do not currently believe are important to an investor may also harm our business. If any of the events, contingencies,circumstances or conditions described in the following risks actually occur, our business, financial condition or our results of operations could be seriouslyharmed. If that happens, the trading price of our common stock could decline and you may lose part or all of the value of any of our shares held by you.Risks Related to Our BusinessWe have limited operating history, we have incurred significant operating losses since inception and we expect to incur significant operating losses for theforeseeable future. We may never become profitable or, if achieved, be able to sustain profitability. We have incurred significant operating losses since our inception and expect to incur significant losses for the foreseeable future as we continue ourclinical trial and development programs for MGL-3196 and other future product candidates. As of December 31, 2018, we had an accumulated deficit ofapproximately $139.3 million. Losses have principally resulted from costs incurred in our preclinical and clinical trials, research and development programsand from our general and administrative expenses. As of December 31, 2018, we had cash, cash equivalents and marketable securities of approximately$483.7 million. In the future, we intend to continue to conduct research and23Table of Contentsdevelopment, clinical testing, regulatory compliance and, if MGL-3196 or other future product candidates are approved, sales and marketing activities that,together with anticipated general and administrative expenses, will likely result in us incurring further significant losses for the foreseeable future. We currently generate no revenue from product sales, and we may never be able to commercialize MGL-3196 or other future product candidates. We donot currently have the required approvals to market MGL-3196 or any other future product candidates, and we may never receive them. We may not beprofitable even if we or any of our future development partners succeed in commercializing any of our product candidates. Because of the numerous risks anduncertainties associated with developing and commercializing our product candidates, we are unable to predict the extent of any future losses or when wewill become profitable, if at all.Our business depends on the success of MGL-3196, which is still in clinical development and has not completed a pivotal trial. If we are unable to obtainregulatory approval for and successfully commercialize MGL-3196, or we experience significant delays in doing so, our business will be materiallyharmed. To date, the sole focus of our product development has been MGL-3196, a liver-directed selective thyroid hormone receptor beta agonist for potentialuse in non-alcoholic steatohepatitis, or NASH, and familial hypercholesterolemia, or FH. Successful continued development and ultimate regulatory approvalof MGL-3196 for NASH or dyslipidemia is critical to the future success of our business. We have invested, and will continue to invest, a significant portion ofour time and financial resources in the clinical development of MGL-3196. We will need to raise sufficient funds to successfully complete our clinicaldevelopment program for MGL-3196 in NASH and dyslipidemia. The future regulatory and commercial success of MGL-3196 is subject to a number of risks,including the following:•we may not have sufficient financial and other resources to complete the necessary clinical trials for MGL-3196, including, but not limited to,our planned registrational clinical trials to obtain drug approval; •the mechanism of action of MGL-3196 is complex and we do not know the degree to which it will translate into a therapeutic benefit, if any, inNASH, dyslipidemia or any other indication, and we do not know the degree to which the complex mechanism of action may contribute tolong term safety issues or adverse events, if any, when MGL-3196 is taken for prolonged periods such as in the treatment of NASH,dyslipidemia or any other indication; •we may not be able to obtain adequate evidence from clinical trials of efficacy and safety for MGL-3196 in NASH, dyslipidemia or any otherindication; •we do not know the degree to which MGL-3196 will be accepted as a therapy by physicians, patients and payors, even if approved; •in our clinical programs for MGL-3196, we may experience variability in patients, adjustments to clinical trial procedures and the need foradditional clinical trial sites, which could delay our clinical trial progress; •the results of our clinical trials may not meet the level of statistical or clinical significance required by the FDA or comparable foreignregulatory bodies for marketing approval; •patients in our clinical trials may die or suffer other adverse effects for reasons that may or may not be related to MGL-3196, which could delayor prevent further clinical development; •the standards implemented by clinical or regulatory agencies may change at any time; •we cannot be certain what efficacy endpoints FDA or foreign clinical or regulatory agencies may require in a Phase 3 clinical trial of NASH ordyslipidemia or for approval of our product24Table of Contentscandidates; we also cannot be certain if we will be able to gain accelerated approval of any of our product candidates based on surrogateendpoints;•the FDA or foreign clinical or regulatory agencies will likely require efficacy endpoints for Phase 3 clinical trials for the treatment of NASH ordyslipidemia that differ from the endpoints of our current Phase 2 trials and the results of our Phase 3 clinical trials may not be as favorable asthe results we have observed to date in our current trials; •other differences in the design of our planned Phase 3 clinical trials of the treatment of NASH, including the use of a new tablet formulation ofMGL-3196 and the inclusion of patients with more advanced NASH, could cause the results of our Phase 3 trials to be less favorable than theresults we observed in our Phase 2 trials in NASH; •if we obtain accelerated approval of a product candidate based on a surrogate endpoint, we will likely be required to conduct a post-approvalclinical outcomes trial to confirm the clinical benefit of the product candidate and if the post-approval trial is not successful we may not beable to continue marketing the product; •we cannot be certain of the number and type of clinical trials and non-clinical studies that FDA or other regulatory agencies will require inorder to approve MGL-3196 for NASH or dyslipidemia; •if approved for NASH, MGL-3196 will likely compete with the off-label use of currently marketed products and other therapies indevelopment that may reach approval for NASH prior to MGL-3196; •if approved for dyslipidemia, MGL-3196 will likely compete with currently approved and marketed products and other therapies indevelopment that may reach approval for dyslipidemia prior to MGL-3196; and •we may not be able to obtain, maintain or enforce our patents and other intellectual property rights. Of the large number of drugs in development in the pharmaceutical industry, only a small percentage results in the submission of a new drug application,or NDA, to the FDA and even fewer are approved for commercialization. Furthermore, even if we do receive regulatory approval to market MGL-3196, anysuch approval may be subject to limitations on the indicated uses or patient populations for which we may market the products. Accordingly, even if we areable to obtain the requisite financing to continue to fund our development programs, we may be unable to successfully develop or commercialize MGL-3196. If we or any of our future development partners are unable to develop, or obtain regulatory approval for, or, if approved, successfully commercializeMGL-3196, we may not be able to generate sufficient revenue to continue our business.Clinical trials are very expensive, time-consuming and difficult to design and implement and involve uncertain outcomes. Furthermore, the results ofpreclinical studies and early clinical trials are not always predictive of future results. Any product candidate that we advance into clinical trials, includingMGL-3196, may not have favorable results in later clinical trials or receive regulatory approval. Drug development has inherent risk. We will be required to demonstrate through adequate and well-controlled clinical trials that our product candidatesare safe and effective, with a favorable benefit-risk profile, for use in our target indications before we can seek regulatory approvals for its commercial sale.Clinical studies are expensive, difficult to design and implement, can take many years to complete and are uncertain as to outcome. Delay or failure can occurat any stage of development, including after commencement of any of our clinical trials. In addition, success in early clinical trials does not mean that laterclinical trials will be successful, because later-stage clinical trials may be25Table of Contentsconducted in broader patient populations and involve different study designs. For instance, our Phase 1 results and our Phase 2 primary endpoint results inNASH may not be predictive of any future Phase 2 results or of results in any Phase 3 clinical trial in NASH. Furthermore, our future trials will need todemonstrate sufficient safety and efficacy in significantly larger patient populations for approval by regulatory authorities. Companies frequently suffersignificant setbacks in advanced clinical trials, even after earlier clinical trials have shown promising results, and we cannot be certain that we will not facesimilar setbacks. Moreover, preclinical and clinical data are often susceptible to varying interpretations and analyses, and many companies that havebelieved their product candidates performed satisfactorily in preclinical studies and clinical trials have nonetheless failed to obtain marketing approval oftheir products. In addition, only a small percentage of drugs under development result in the submission of an NDA to the FDA and even fewer are approvedfor commercialization. We cannot be certain that any of our ongoing or future clinical trials will be successful, and any safety concerns observed in any one of our clinical trialsin our targeted indications could limit the prospects for regulatory approval of our product candidates in those and other indications.Because MGL-3196 has not yet received regulatory approval for any indication, it is difficult to predict the time and cost of development and our ability tosuccessfully complete clinical development and obtain the necessary regulatory approvals for commercialization. MGL-3196 has not yet received regulatory approval for the treatment of NASH, dyslipidemia or any other indication, and unexpected problems mayarise that could cause us to delay, suspend or terminate our development efforts in any or all indications. Further, MGL-3196 has not yet demonstratedefficacy in patients with NASH or dyslipidemia, and the long-term safety consequences of a liver-directed thyroid hormone receptor beta agonist are notknown. Regulatory approval of new product candidates such as MGL-3196 can be more expensive and take longer than approval for candidates for thetreatment of more well-understood diseases with previously approved products.If clinical trials or regulatory approval processes for our product candidates are prolonged, delayed or suspended, we may be unable to commercialize ourproduct candidates on a timely basis, which would require us to incur additional costs and delay our receipt of any revenue from potential product sales. We cannot predict whether we will encounter problems with any of our completed, ongoing or planned clinical trials that will cause us or any regulatoryauthority to delay, suspend, or terminate those clinical trials or delay the analysis of data derived from them. A number of events, including any of thefollowing, could delay or impede completely the completion of our ongoing and planned clinical trials and negatively affect our ability to obtain regulatoryapproval for, and to market and sell, a particular product candidate:•conditions imposed on us by the FDA or other regulatory authorities regarding the scope or design of our clinical trials; •insufficient supply of our product candidates or other materials necessary to conduct and complete our clinical trials; •slow enrollment and retention rate of subjects in our clinical trials; and •serious and unexpected drug-related side effects related to the product candidate being tested. Commercialization of our product candidates may be delayed by the imposition of additional conditions on our clinical trials by the FDA or any otherapplicable foreign regulatory authority or the requirement of additional supportive studies by the FDA or such foreign regulatory authority.26 Table of Contents We do not know whether our clinical trials will begin as planned, will need to be restructured, will enroll an adequate number of patients on time, or willbe completed on schedule, if at all. Delays in the initiation, enrollment or completion of our clinical trials will result in increased development costs for ourproduct candidates, and our financial resources may be insufficient to fund any incremental costs. In addition, if our clinical trials are delayed, ourcompetitors may be able to bring products to market before we do and the commercial viability of our product candidates could be limited.If we inadvertently fail to comply with foreign regulatory requirements governing human clinical trials and marketing approval for drugs, we could beprevented from selling our drug candidates in foreign markets, which may adversely affect our operating results and financial condition. The requirements governing the conduct of clinical trials, product licensing, pricing, and reimbursement for marketing our drug candidates outside theUnited States vary greatly from country to country and may require additional testing. We expect that our future clinical development of our drug candidateswill involve a number of clinical trials in foreign jurisdictions, particularly in Europe. We have no experience in obtaining foreign regulatory approvals. Thetime required to obtain approvals outside the United States may differ from that required to obtain FDA approval. We may not obtain foreign regulatoryapprovals on a timely basis, if at all. Approval by the FDA does not guarantee approval by regulatory authorities in other countries, and approval by oneforeign regulatory authority does not ensure approval by regulatory authorities in other countries or by the FDA. Failure to comply with these regulatoryrequirements or obtain required approvals could impair our ability to develop foreign markets for our drug candidates and may have a material adverse effecton our results of operations and financial condition.We depend on enrollment of patients in our clinical trials for our product candidates. If we encounter difficulties enrolling patients in our clinical trials,our clinical development activities could be delayed or otherwise adversely affected. Identifying and qualifying patients to participate in clinical trials of our product candidates is critical to our success. We may not be able to initiate,continue, or complete clinical trials required by the FDA or foreign regulatory agencies for MGL-3196 if we are unable to locate and enroll a sufficientnumber of eligible patients to participate in these clinical trials. We expect our Phase 3 clinical trials of MGL-3196 will require that we enroll significantlymore patients than were enrolled in our Phase 2 trials. Patient enrollment, a significant factor in the timing to conduct and complete clinical trials, is affectedby many factors, including the size and nature of the patient population, the proximity of patients to clinical sites, the eligibility criteria for the trial, thedesign of the clinical trial, competing clinical trials, and clinicians' and patients' perceptions as to the potential advantages and disadvantages of the productcandidate being studied in relation to other available therapies, including any new drugs that may be approved for the indications we are investigating. Forinstance, we are aware that other companies conducting clinical trials in NASH patients have had delays in recruiting patients for their trials. In the proposedclinical trials, patient willingness to undergo a liver biopsy in our NASH trials, and identification of patients willing to participate in our dyslipidemia trials,are also risk factors. Potential patients for MGL-3196 may not be adequately diagnosed or identified with the diseases which we are targeting or may not meetthe entry criteria for our studies. The FDA typically requires sponsors of lipid-lowering product candidates to conduct drug-drug interaction studies with statins because statins may haveincreased safety risks when administered together with other drug therapies that affect their pharmacokinetic profile. We have completed two Phase 1 clinicaldrug interaction studies of MGL-3196 and statins in 39 normal healthy volunteers, which showed MGL-3196 to have a favorable safety profile and to bewell-tolerated. We have completed a Phase 2 clinical trial in NASH including patients taking low dose statins. We have also completed a Phase 2 clinical trialin HeFH including patients taking high dose statins. In general, drug27Table of Contentsinteractions between MGL-3196 and statins and any other drug that might result in adverse events could delay development in later clinical trials. We will be required to identify and enroll a sufficient number of patients for each of our planned clinical trials of MGL-3196 for NASH and dyslipidemiaindications, respectively. We also may encounter difficulties in identifying and enrolling NASH patients and dyslipidemia patients with a stage of diseaseappropriate for our future clinical trials. We may not be able to initiate or continue clinical trials if we are unable to locate a sufficient number of eligiblepatients to participate in the clinical trials required by the FDA or other foreign regulatory agencies. In addition, the process of finding and diagnosingpatients may prove costly. Our inability to enroll a sufficient number of patients for any of our clinical trials would result in significant delays or may requireus to abandon one or more clinical trials.Any product candidate in our current or future clinical trials may cause unacceptable adverse events or side effects or have other properties that may delayor prevent its regulatory approval or commercialization or limit its commercial potential. Unacceptable adverse events or undesirable side effects caused by any of our product candidates in current or future clinical trials could cause us orregulatory authorities to interrupt, delay or halt clinical trials and could result in the denial of regulatory approval by the FDA or other regulatory authoritiesfor any or all targeted indications and markets. This in turn could prevent us from completing development of or commercializing the affected productcandidate and generating revenue from its sale. If any of our product candidates cause unacceptable adverse events in clinical trials, we may not be able toobtain regulatory approval or commercialize such product candidate. Occurrence of serious treatment-related side effects could impede subject recruitment and clinical trial enrollment or the ability of enrolled patients tocomplete the trial, require us to halt the clinical trial, and prevent receipt of regulatory approval from the FDA. They could also adversely affect physician orpatient acceptance of our product candidates or result in potential product liability claims. Any of these occurrences may harm our business, financialcondition and prospects significantly.Our product candidates will remain subject to ongoing regulatory review even if they receive marketing approval, and if we fail to comply with continuingregulations, we could lose these approvals and the sale of any approved commercial products could be suspended. Even if we receive regulatory approval to market a particular product candidate, the manufacturing, labeling, packaging, distribution, adverse eventreporting, storage, advertising, promotion, sampling, and record keeping related to the product will remain subject to extensive regulatory requirements.These requirements include submissions of safety and other post-marketing information and reports, registration, as well as continued compliance withcGMP, regulations and GCPs, for any clinical trials that we conduct post-approval, all of which may result in significant expense and limit our ability tocommercialize such products. In addition, any regulatory approvals that we receive for our product candidates may also be subject to limitations on theapproved indicated uses for which the product may be marketed or to the conditions of approval, or contain requirements for potentially costly post-marketing testing, including Phase 4 clinical trials, and surveillance to monitor the safety and efficacy of the product candidate. The FDA may also require aREMS Program as a condition of approval of our product candidates, which could include requirements for a medication guide, physician communicationplans or additional elements to ensure safe use, such as restricted distribution methods, patient registries and other risk minimization tools. If we fail to comply with the regulatory requirements of the FDA and other applicable domestic and foreign regulatory authorities, or previouslyunknown problems with any approved product,28Table of Contentsmanufacturer, or manufacturing process are discovered, we could be subject to administrative or judicially imposed sanctions, including:•restrictions on the products, manufacturers, or manufacturing processes; •warning letters or untitled letters; •civil or criminal penalties; •fines; •injunctions; •product seizures or detentions; •pressure to initiate voluntary product recalls; •suspension or withdrawal of regulatory approvals; and •refusal to approve pending applications for marketing approval of new products or supplements to approved applications. If any of these events occurs, our ability to sell such products may be impaired, and we may incur substantial additional expense to comply withregulatory requirements, which could adversely affect our business, financial condition and results of operations.We operate in a highly competitive and rapidly changing industry, and our product candidates may become obsolete. We are engaged in a rapidly evolving field. Competition from other pharmaceutical companies, biotechnology companies and research and academicinstitutions is intense and likely to increase. Many of those companies and institutions have substantially greater financial, technical and human resourcesthan us. Those companies and institutions also have substantially greater experience in developing products, conducting clinical trials, obtaining regulatoryapproval and in manufacturing and marketing pharmaceutical products. Our competitors may succeed in obtaining regulatory approval for their productsmore rapidly than we do. Competitors have developed or are in the process of developing technologies that are, or in the future may be, the basis forcompetitive products. Some of these competitive products may have an entirely different approach or means of accomplishing the desired therapeutic effectthan products being developed by us. Our competitors may succeed in developing products that are more effective and/or cost competitive than those we aredeveloping, or that would render our product candidates less competitive or even obsolete. In addition, one or more of our competitors may achieve productcommercialization or patent protection earlier than we may, which could materially adversely affect our business.If the FDA or other applicable regulatory authorities approve generic products that compete with any of our or any of our partners' product candidates,the sales of our product candidates would be adversely affected. Once an NDA or marketing authorization application outside the United States is approved, the product covered thereby becomes a "listed drug" thatcan, in turn, be cited by potential competitors in support of approval of an abbreviated new drug application in the United States. Agency regulations andother applicable regulations and policies provide incentives to manufacturers to create modified, non-infringing versions of a drug to facilitate the approvalof an abbreviated new drug application or other application for generic substitutes in the United States and in nearly every pharmaceutical market around theworld. These manufacturers might only be required to conduct a relatively inexpensive study to show that their product has the same active ingredient(s),dosage form, strength, route of administration and conditions of use, or labeling, as our product and that the generic product is bioequivalent to our product,meaning it is absorbed in the body at the same rate and to the same29Table of Contentsextent as our product. These generic equivalents, which must meet the same quality standards as branded pharmaceuticals, would be significantly less costlythan our product to bring to market, and companies that produce generic equivalents are generally able to offer their products at lower prices. Thus, after theintroduction of a generic competitor, a significant percentage of the sales of any branded product are typically lost to the generic product. Accordingly,competition from generic equivalents to our product or any of our partners' future products, if any, would materially adversely affect our future revenue,profitability and cash flows and substantially limit our ability to obtain a return on the investments we have made and expect to make in our or any of ourpartners' product candidates, including MGL-3196. Competition that our or any of our partners' products may face from generic versions of our products could materially and adversely impact our futurerevenue, profitability and cash flows and substantially limit our ability to obtain a return on the investments we have made in those product candidates.If physicians and patients do not accept our future products or if the market for indications for which any product candidate is approved is smaller thanexpected, we may be unable to generate significant revenue, if any. Even if any of our product candidates obtain regulatory approval, they may not gain market acceptance among physicians, patients, and third-partypayers. Efforts to educate the medical community and third-party payers on the benefits of our product candidates may require significant resources and maynot be successful. If any of our product candidates do not achieve an adequate level of acceptance, we may not generate significant product revenue or anyprofits from operations. Physicians may decide not to recommend its treatments for a variety of reasons including:•timing of market introduction of competitive products; •demonstration of clinical safety and efficacy compared to other products; •cost-effectiveness; •limited or no coverage by third-party payers; •convenience and ease of administration; •prevalence and severity of adverse side effects; •restrictions in the label of the drug; •other potential advantages of alternative treatment methods; and •ineffective marketing and distribution support of its products. If any of our product candidates are approved, but fail to achieve market acceptance or such market is smaller than anticipated, we may not be able togenerate significant revenue and our business would suffer.As we evolve from a company that is primarily involved in clinical development to a company that is also involved in commercialization, we mayencounter difficulties in expanding our operations successfully. As we advance our product candidates through clinical trials, we will need to expand our development, regulatory, manufacturing, and marketing andsales capabilities and may need to further contract with third parties to provide these capabilities. As our operations expand, we likely will need to manageadditional relationships with such third parties, as well as additional collaborators, distributors, marketers and suppliers.30Table of Contents Maintaining third party relationships for these purposes will impose significant added responsibilities on members of our management and otherpersonnel. We must be able to effectively manage our development efforts, recruit and train sales and marketing personnel, effectively manage ourparticipation in the clinical trials in which our product candidates are involved and improve our managerial, development, operational and finance systems,all of which may impose a strain on our administrative and operational infrastructure. If we enter into arrangements with third parties to perform sales, marketing or distribution services, any product revenues that we receive, or theprofitability of these product revenues to us, are likely to be lower than if we were to market and sell any products that we develop without the involvementof these third parties. In addition, we may not be successful in entering into arrangements with third parties to sell and market our products or in doing so onterms that are favorable to us. We likely will have little control over such third parties, and any of them may fail to devote the necessary resources andattention to sell and market our products effectively. If we do not establish sales and marketing capabilities successfully, either on our own or incollaboration with third parties, we will not be successful in commercializing our products.The uncertainty associated with pharmaceutical reimbursement and related matters may adversely affect our business. Market acceptance and sales of any one or more of our product candidates will depend on reimbursement policies and may be affected by futurehealthcare reform measures in the United States and in foreign jurisdictions. Government authorities and third-party payers, such as private health insurersand health maintenance organizations, decide which drugs they will cover and establish payment levels. We cannot be certain that reimbursement will beavailable for any of our product candidates. Also, we cannot be certain that reimbursement policies will not reduce the demand for, or the price paid for, ourproducts. If reimbursement is not available or is available on a limited basis, we may not be able to successfully commercialize any product candidates thatwe develop. In the United States, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, also called the Medicare Modernization Act, orMMA, changed the way Medicare covers and pays for pharmaceutical products. The legislation established Medicare Part D, which expanded Medicarecoverage for outpatient prescription drug purchases by the elderly but provided authority for limiting the number of drugs that will be covered in anytherapeutic class. The MMA also introduced a new reimbursement methodology based on average sales prices for physician-administered drugs. TheUnited States and several foreign jurisdictions are considering, or have already enacted, a number of legislative and regulatory proposals to change thehealthcare system in ways that could affect our ability to sell our products profitably. Among policy makers and payers in the United States and elsewhere,there is significant interest in promoting changes in healthcare systems with the stated goals of containing healthcare costs, improving quality and/orexpanding access to healthcare. In the United States, the pharmaceutical industry has been a particular focus of these efforts and has been significantlyaffected by major legislative initiatives. We expect to experience pricing pressures in connection with the sale of any products that we develop due to thetrend toward managed healthcare, the increasing influence of health maintenance organizations, and additional legislative proposals. In March 2010, the Patient Protection and Affordable Care Act, or ACA, became law in the United States. The goal of ACA is to reduce the cost ofhealthcare and substantially change the way healthcare is financed by both government and private insurers. While we cannot predict what impact on federalreimbursement policies this legislation will have in general or on our business specifically, the ACA may result in downward pressure on pharmaceuticalreimbursement, which could negatively affect market acceptance of, and the price we may charge for, any products we develop that receives regulatoryapproval. We also cannot predict the impact of ACA on us as many of the ACA reforms31Table of Contentsrequire the promulgation of detailed regulations implementing the statutory provisions, which have not yet been fully implemented.If any product liability lawsuits are successfully brought against us or any of our collaborative partners, we may incur substantial liabilities and may berequired to limit commercialization of our product candidates. We face an inherent risk of product liability lawsuits related to the testing of our product candidates in seriously ill patients and will face an even greaterrisk if product candidates are approved by regulatory authorities and introduced commercially. Product liability claims may be brought against us or ourpartners by participants enrolled in our clinical trials, patients, healthcare providers or others using, administering or selling any of our future approvedproducts. If we cannot successfully defend ourselves against any such claims, we may incur substantial liabilities. Regardless of merit or eventual outcome,liability claims may result in:•decreased demand for any of our future approved products; •injury to our reputation; •withdrawal of clinical trial participants; •termination of clinical trial sites or entire trial programs; •significant litigation costs; •substantial monetary awards to or costly settlements with patients or other claimants; •product recalls or a change in the indications for which products may be used; •loss of revenue; •diversion of management and scientific resources from our business operations; and •the inability to commercialize our product candidates. If any of our product candidates are approved for commercial sale, we will be highly dependent upon consumer perceptions of us and the safety andquality of our products. We could be adversely affected if we are subject to negative publicity. We could also be adversely affected if any of our products orany similar products distributed by other companies prove to be, or are asserted to be, harmful to patients. Also, because of our dependence upon consumerperceptions, any adverse publicity associated with illness or other adverse effects resulting from patients' use or misuse of our products or any similarproducts distributed by other companies could have a material adverse impact on our results of operations. We do not currently hold product liability insurance coverage. Prior to commercialization of our product candidates, we will need to purchase insurancecoverage. As a result, we may be unable to maintain or obtain sufficient insurance at a reasonable cost to protect us against losses that could have a materialadverse effect on our business. These liabilities could prevent or interfere with our product development and commercialization efforts. A successful productliability claim or series of claims brought against us, particularly if judgments exceed our insurance coverage, could decrease our cash resources andadversely affect our business, financial condition and results of operations.Our employees, contractors, vendors and partners may engage in misconduct or other improper activities, including noncompliance with regulatorystandards and requirements and insider trading. We are exposed to the risk of fraud or other misconduct by our employees, contractors, vendors or partners. Misconduct by these parties could includefailures to comply with FDA regulations, to provide accurate information to the FDA, to comply with federal and state healthcare fraud and abuse laws andregulations, to report financial information or data timely, completely or accurately, or to disclose32Table of Contentsunauthorized activities to us. In particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws andregulations intended to prevent fraud, misconduct, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit awide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. Third-partymisconduct could also involve the improper use of information obtained in the course of clinical trials, which could result in regulatory sanctions and seriousharm to our reputation. We have adopted a Code of Business Conduct and Ethics, but it is not always possible to identify and deter misconduct, and theprecautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us fromgovernmental investigations or other actions or lawsuits stemming from a failure to comply with these laws or regulations. If any such actions are institutedagainst us resulting from this misconduct and we are not successful in defending ourselves or asserting our rights, those actions could have a significantimpact on our business, including the imposition of significant fines or other sanctions.We enter into various contracts in the normal course of our business in which we indemnify the other party to the contract. In the event we have to performunder these indemnification provisions, it could have a material adverse effect on our business, financial condition and results of operations. In the normal course of business, we periodically enter into academic, commercial, service, collaboration, licensing, consulting and other agreements thatcontain indemnification provisions. With respect to our academic and other research agreements, we typically indemnify the institution and related partiesfrom losses arising from claims relating to the products, processes or services made, used, sold or performed pursuant to the agreements for which we havesecured licenses, and from claims arising from our or our potential sublicensees' exercise of rights under the agreements. With respect to our commercialagreements, we indemnify our vendors from any third-party product liability claims that could result from the production, use or consumption of the product,as well as for alleged infringements of any patent or other intellectual property right by a third party. Should our obligation under an indemnification provision exceed applicable insurance coverage or if we are denied insurance coverage, our business,financial condition and results of operations could be adversely affected. Similarly, if we are relying on a collaborator to indemnify us and the collaborator isdenied insurance coverage or the indemnification obligation exceeds the applicable insurance coverage, and if the collaborator does not have other assetsavailable to indemnify us, our business, financial condition and results of operations could be adversely affected.If we fail to develop and commercialize other product candidates, we may be unable to grow our business. Although the development and commercialization of MGL-3196 is our primary focus, as part of our longer-term growth strategy, we plan to evaluate thedevelopment and commercialization of other therapies related to thyroid hormone, orphan and other diseases. We will evaluate internal opportunities fromour compound libraries, and also may choose to in-license or acquire other product candidates as well as commercial products to treat patients suffering fromthyroid hormone, orphan or other disorders with high unmet medical needs and limited treatment options. These other product candidates may requireadditional, time-consuming development efforts prior to commercial sale, including preclinical studies, clinical trials and approval by the FDA and/orapplicable foreign regulatory authorities. All product candidates are prone to the risks of failure that are inherent in pharmaceutical product development,including the possibility that the product candidate will not be shown to be sufficiently safe and effective for approval by regulatory authorities. In addition,we cannot assure you that any such products that are approved will be manufactured or produced economically, be successfully commercialized, be widelyaccepted in the marketplace, or be more effective than other commercially available alternatives.33Table of ContentsIf we lose key management personnel, or if we fail to recruit additional highly skilled personnel, our ability to identify, develop and commercializeproducts will be impaired. We are highly dependent on principal members of our management team, including our Chief Executive Officer, Paul A. Friedman, M.D., and our ChiefMedical Officer and Executive Vice President, Research and Development, Rebecca Taub, M.D. These executives each have significant pharmaceuticalindustry experience. The loss of any member of our management team or scientific staff, including Drs. Friedman and Taub, would impair our ability toidentify, develop and market new products. Our management and other employees may voluntarily terminate their employment with us at any time. The lossof the services of these or other key personnel, or the inability to attract and retain additional qualified personnel, could result in delays to development orapproval, loss of sales and diversion of management resources. In addition, we depend on our ability to attract and retain other highly skilled personnel.Competition for qualified personnel is intense, and the process of hiring and integrating such qualified personnel is often lengthy. We may be unable torecruit such personnel on a timely basis, if at all, which would negatively impact our development and commercialization programs. Additionally, we do not currently maintain "key person" life insurance on the lives of our executives or any of our employees. This lack of insurancemeans that we may not receive adequate compensation for the loss of the services of these individuals.We currently have no marketing, sales or distribution infrastructure with respect to our product candidates. If we are unable to develop our sales,marketing and distribution capabilities on our own or through collaborations with marketing partners, we will not be successful in commercializing ourproduct candidates. We currently have no marketing, sales or distribution capabilities and have limited sales or marketing experience within our organization. If our productcandidate, MGL-3196, is approved, we intend either to establish a sales and marketing organization with technical expertise and supporting distributioncapabilities to commercialize MGL-3196, or to outsource this function to a third party. Either of these options would be expensive and time-consuming.Some or all of these costs may be incurred in advance of any approval of MGL-3196. In addition, we may not be able to hire a sales force in the United Statesthat is sufficient in size or has adequate expertise in the medical markets that we intend to target. Any failure or delay in the development of our internalsales, marketing and distribution capabilities would adversely affect the commercialization of MGL-3196 and other future product candidates. With respect to our existing and future product candidates, we may choose to collaborate with third parties that have direct sales forces and establisheddistribution systems, either to augment our own sales force and distribution systems or as an alternative to our own sales force and distribution systems. Tothe extent that we enter into co-promotion or other licensing arrangements, our product revenue may be lower than if we directly marketed or sold anyapproved products. In addition, any revenue we receive will depend in whole or in part upon the efforts of these third parties, which may not be successfuland are generally not within our control. If we are unable to enter into these arrangements on acceptable terms or at all, we may not be able to successfullycommercialize any approved products. If we are not successful in commercializing any approved products, either on our own or through collaborations withone or more third parties, our future product revenue will suffer and we may incur significant additional losses.Even if we obtain FDA approval of MGL-3196 or any other future product candidate, we may never obtain approval or commercialize our productsoutside of the United States, which would limit our ability to realize their full market potential. In order to market any products outside of the United States, we must establish and comply with numerous and varying regulatory requirements of othercountries regarding clinical trial design, safety34Table of Contentsand efficacy. Clinical trials conducted in one country may not be accepted by regulatory authorities in other countries, and regulatory approval in onecountry does not mean that regulatory approval will be obtained in any other country. Approval procedures vary among countries and can involve additionalproduct testing and validation and additional administrative review periods. Seeking foreign regulatory approvals could result in significant delays,difficulties and costs for us and may require additional preclinical studies or clinical trials, which would be costly and time consuming. Regulatoryrequirements can vary widely from country to country and could delay or prevent the introduction of our products in those countries. Satisfying these andother regulatory requirements is costly, time consuming, uncertain and subject to unanticipated delays. In addition, our failure to obtain regulatory approvalin any country may delay or have negative effects on the process for regulatory approval in other countries. We do not have any product candidates approvedfor sale in any jurisdiction, including international markets, and we do not have experience in obtaining regulatory approval in international markets. If we orour partners fail to comply with regulatory requirements in international markets or to obtain and maintain required approvals, our target market will bereduced and our ability to realize the full market potential of our products will be harmed.If we do not obtain protection under the Hatch-Waxman Amendments and similar foreign legislation by extending the term of patents covering each of ourproduct candidates, our business may be materially harmed. Depending upon the timing, duration and conditions of FDA marketing approval of our product candidates, one or more of our United States patents maybe eligible for limited patent term extension under Hatch-Waxman Amendments. The Hatch-Waxman Amendments permit a patent term extension of up tofive years for a patent covering an approved product as compensation for effective patent term lost during product development and the FDA regulatoryreview process. However, we may not receive an extension if we fail to apply within applicable deadlines, fail to apply prior to expiration of relevant patentsor otherwise fail to satisfy applicable requirements. Moreover, the length of the extension could be less than we request. If we are unable to obtain patent termextension or the term of any such extension is less than we request, the period during which we can enforce our patent rights for that product may not extendbeyond the current patent expiration dates and our competitors may obtain approval to market competing products sooner. As a result, our revenue could bepotentially materially reduced. Further, if this occurs, our competitors may take advantage of our investment in development and trials by referencing ourclinical and preclinical data and launch their product earlier than might otherwise be the case.We may fail to obtain orphan drug designations from the FDA for our product candidates, as applicable, and even if we obtain such designations, we maybe unable to maintain the benefits associated with orphan drug designation, including the potential for market exclusivity. Our strategy includes filing for orphan drug designation where available for our product candidates. Under the Orphan Drug Act, the FDA may grantorphan drug designation to a drug or biologic intended to treat a rare disease or condition, which is defined as one occurring in a patient population of fewerthan 200,000 in the United States, or a patient population greater than 200,000 in the United States where there is no reasonable expectation that the cost ofdeveloping the drug or biologic will be recovered from sales in the United States. In the United States, orphan drug designation entitles a party to financialincentives such as opportunities for grant funding towards clinical trial costs, tax advantages and user-fee waivers. In addition, if a product that has orphandrug designation subsequently receives the first FDA approval for the disease for which it has such designation, the product is entitled to orphan drugexclusivity, which means that the FDA may not approve any other applications, including a full NDA, to market the same drug or biologic for the sameindication for seven years, except in limited circumstances, such as a showing of clinical superiority to35Table of Contentsthe product with orphan drug exclusivity or where the manufacturer is unable to assure sufficient product quantity. We have not obtained orphan designation for any product candidates to date, although we believe some of the potential indications of our productcandidates could qualify for orphan drug designation and the related benefits if approved for such indications and we may file for orphan drug designationwith respect to such indications. Even if we obtain such designations, we may not be the first to obtain regulatory approval of a product candidate for theorphan-designated indication due to the uncertainties associated with developing pharmaceutical products. In addition, exclusive marketing rights in theUnited States may be limited if we seek approval for an indication broader than the orphan-designated indication or may be lost if the FDA later determinesthat the request for designation was materially defective or if we are unable to assure sufficient quantities of the product to meet the needs of patients with theorphan-designated disease or condition. Further, even if we obtain orphan drug designation exclusivity for a product, that exclusivity may not effectivelyprotect the product from competition because different drugs with different active moieties may be approved for the same condition, and only the firstapplicant to receive approval will receive the benefits of marketing exclusivity. Even after an orphan-designated product is approved, the FDA cansubsequently approve a later drug with the same active moiety for the same condition if the FDA concludes that the later drug is clinically superior if it isshown to be safer, more effective or makes a major contribution to patient care. Orphan drug designation neither shortens the development time or regulatoryreview time of a drug, nor gives the drug any advantage in the regulatory review or approval process. In addition, while we may seek orphan drug designationfor our product candidates, we may never receive such designations. Failure to obtain an orphan drug designation for our product candidates may have amaterial adverse effect on our business, results of operations and financial condition.If we or our partners market products in a manner that violates fraud and abuse and other healthcare laws, or if we or our partners violate governmentprice reporting laws, we or our partners may be subject to administrative civil and/or criminal penalties. Although we do not currently have any products on the market, if we obtain FDA approval for our product candidates, and begin commercializing thoseproducts in the United States, our operations may be directly, or indirectly through our prescribers, customers and third-party payors, subject to various U.S.federal and state healthcare laws and regulations. These laws include, among others, the U.S. federal Anti-Kickback Statute and the U.S. federal civil andcriminal false claims laws. At such time, if ever, as we or any of our partners market any of our future approved products, it is possible that some of ourbusiness activities and/or our partners could be subject to challenge under one or more of these laws. Federal false claims, false statements and civil monetary penalties laws prohibit, among others, any person from knowingly presenting, or causing to bepresented, a false claim for payment to the federal government or knowingly making, or causing to be made, a false statement to get a false claim paid. Thefederal healthcare program Anti-Kickback Statute prohibits, among other things, knowingly and willfully offering, paying, soliciting or receivingremuneration to induce, or in return for, purchasing, leasing, ordering or arranging for the purchase, lease or order of any healthcare item or servicereimbursable under Medicare, Medicaid or other federally financed healthcare programs. This statute has been interpreted to apply to arrangements betweenpharmaceutical manufacturers, on the one hand, and prescribers, purchasers and formulary managers, on the other. Although there are several statutoryexceptions and regulatory safe harbors protecting certain common activities from prosecution, the exceptions and safe harbors are drawn narrowly, andpractices that involve remuneration intended to induce prescribing, purchasing or recommending may be subject to scrutiny if they do not qualify for anexception or safe harbor.36Table of Contents In addition, we and/or our partners may be subject to patient data privacy and security regulation, including the Health Insurance Portability andAccountability Act of 1996, as amended by the Health Information Technology for Economic and Clinical Health Act, and their respective implementingregulations, which impose specified requirements relating to the privacy, security and transmission of individually identifiable health information. Most states also have statutes or regulations similar to these federal laws, which may apply to items such as pharmaceutical products and servicesreimbursed by private insurers. We and/or our partners may be subject to administrative, civil and criminal sanctions for violations of any of these federal andstate laws. Pharmaceutical and other healthcare companies have been prosecuted under these laws for a variety of promotional and marketing activities, suchas: providing free trips, free goods, sham consulting fees and grants and other monetary benefits to prescribers; reporting to pricing services inflated averagewholesale prices that were then used by federal programs to set reimbursement rates; engaging in off-label promotion; and submitting inflated best priceinformation to the Medicaid Rebate Program to reduce liability for Medicaid rebates. Ensuring that our internal operations and future business arrangements with third parties comply with applicable healthcare laws and regulations willinvolve substantial costs. It is possible that governmental authorities will conclude that our business practices do not comply with current or future statutes,regulations, agency guidance or case law involving applicable fraud and abuse or other healthcare laws and regulations.If the third parties on which we rely for the conduct of our clinical trials and results do not perform our clinical trial activities in accordance with goodclinical practices and related regulatory requirements, we may be unable to obtain regulatory approval for or commercialize our product candidates. We use third-party service providers to conduct and/or oversee the clinical trials of our product candidates and expect to continue to do so for theforeseeable future. We rely heavily on these parties for successful execution of our clinical trials. Nonetheless, we are responsible for confirming that each ofour clinical trials is conducted in accordance with FDA requirements and our general investigational plan and protocol. The FDA requires us and our third-party service providers to comply with regulations and standards, commonly referred to as good clinical practices, orGCP, for conducting, recording and reporting the results of clinical trials to assure that data and reported results are credible and accurate, and that the trialparticipants are adequately protected. Our reliance on third parties that we do not control does not relieve us of these responsibilities and requirements. Thirdparties may not complete activities on schedule or may not conduct our clinical trials in accordance with regulatory or GCP requirements or the respectivetrial plans and protocols. In addition, third parties may not be able to repeat their past successes in clinical trials. The failure of these third parties to carry outtheir obligations could delay or prevent the development, approval and commercialization of our product candidates or result in enforcement action againstus. If our relationship with these third-party providers terminates, we may not be able to enter into arrangements with alternative providers or do so oncommercially reasonable terms. Switching or adding additional third-party providers involves substantial cost and requires management time and focus, andcould delay development and commercialization of our product candidates. Though we intend to carefully manage our relationships with our third-partyproviders, there can be no assurance that we will not encounter challenges or delays in the future or that these delays or challenges will not have a negativeimpact on our business and financial condition.37Table of ContentsWe have relied on, and expect to continue to rely on, third-party manufacturers to produce our product candidates. We do not own or operate manufacturing facilities for the production of clinical or commercial quantities of our product candidates, and we lack theresources and the capabilities to do so. As a result, we currently rely, and expect to rely for the foreseeable future, on third-party manufacturers to supply ourproduct candidates. Reliance on third-party manufacturers entails risks to which we would not be subject if we manufactured our product candidates orproducts ourselves. For example, if we do not maintain our key manufacturing relationships, we may fail to find replacement manufacturers or develop ourown manufacturing capabilities, which could delay or impair our ability to obtain regulatory approval for our products and substantially increase our costs ordeplete profit margins, if any. If we do find replacement manufacturers, we may not be able to enter into agreements with them on terms and conditionsfavorable to us and there could be a substantial delay before new facilities could be qualified and registered with the FDA and other foreign regulatoryauthorities. The FDA and other foreign regulatory authorities require manufacturers to register manufacturing facilities. The FDA and corresponding foreignregulators also inspect these facilities to confirm compliance with current good manufacturing practices, or cGMPs. Contract manufacturers may facemanufacturing or quality control problems causing drug substance production and shipment delays or a situation where the contractor may not be able tomaintain compliance with the applicable cGMP requirements. Any failure to comply with cGMP requirements or other FDA, European Medicines Agency, orEMA, and comparable foreign regulatory requirements could adversely affect our clinical research activities and our ability to develop our productcandidates and market our products following approval. Our current and anticipated future dependence upon others for the manufacture of our product candidates may adversely affect our future profit marginsand our ability to develop our product candidates and commercialize any products that receive regulatory approval on a timely basis.Our internal computer systems, or those of our third-party collaborators, service providers, contractors or consultants, may fail or suffer security breaches,which could result in a material disruption of our development programs and have a material adverse effect on our reputation, business, financialcondition or results of operations. Our internal computer systems and those of our current or future third-party collaborators, service providers, contractors and consultants are vulnerable todamage from computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. Attacks on informationtechnology systems are increasing in their frequency, levels of persistence, sophistication and intensity, and they are being conducted by increasinglysophisticated and organized groups and individuals with a wide range of motives and expertise. In addition to extracting sensitive information, such attackscould include the deployment of harmful malware, ransomware, denial-of-service attacks, social engineering and other means to affect service reliability andthreaten the confidentiality, integrity and availability of information. The prevalent use of mobile devices also increases the risk of data security incidents.While we have not experienced any material system failure, accident or security breach to date, if such an event were to occur and cause interruptions in ouroperations or the operations of third-party collaborators, service providers, contractors and consultants, it could result in a material disruption of ourdevelopment programs and significant reputational, financial, legal, regulatory, business or operational harm. For example, the loss of clinical trial data forour product candidates could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. To theextent that any disruption or security breach results in a loss of or damage to our data or applications or other data or applications relating to our technologyor product candidates, or inappropriate disclosure of confidential or proprietary information, we could incur liabilities and the further development of ourproduct candidates could be delayed. In addition,38Table of Contentsour liability insurance may not be sufficient in type or amount to cover us against claims related to security breaches, cyberattacks and other related breaches. Any failure or perceived failure by us or any third-party collaborators, service providers, contractors or consultants to comply with our privacy,confidentiality, data security or similar obligations to third parties, or any data security incidents or other security breaches that result in the unauthorizedaccess, release or transfer of sensitive information, including personally identifiable information, may result in governmental investigations, enforcementactions, regulatory fines, litigation or public statements against us, could cause third parties to lose trust in us or could result in claims by third partiesasserting that we have breached our privacy, confidentiality, data security or similar obligations, any of which could have a material adverse effect on ourreputation, business, financial condition or results of operations. Moreover, data security incidents and other security breaches can be difficult to detect, andany delay in identifying them may lead to increased harm. While we have implemented data security measures intended to protect our informationtechnology systems and infrastructure, there can be no assurance that such measures will successfully prevent service interruptions or data security incidents.Risks Relating to Our Intellectual PropertyOur rights to develop and commercialize our product candidates are subject in part to the terms and conditions of a license to MGL-3196 granted to us byRoche. We entered into a Research, Development and Commercialization Agreement, or the Roche Agreement, with Hoffmann-La Roche, or Roche, onDecember 18, 2008. Pursuant to the terms of the Roche Agreement, we assumed control of all development and commercialization of MGL-3196 and holdexclusive worldwide rights for all potential indications. Under the Roche Agreement, Roche exclusively licensed certain patent rights and know-how relatingto MGL-3196 in exchange for consideration consisting of an upfront payment, milestone payments tied to the achievement of product development andregulatory milestones, and royalty payments based on net sales of products containing MGL-3196 or another licensed product, subject to certain reductions.We must use commercially reasonable efforts to conduct clinical and commercial development programs for products containing MGL-3196. If we determinethat it is not reasonable to continue clinical trials or other development of MGL-3196, we may elect to cease further development and Roche may terminatethe license. If we determine not to pursue the development or commercialization of MGL-3196 in certain jurisdictions, including the United States, Rochemay terminate the license for such territories. The Roche Agreement will expire, unless earlier terminated pursuant to other provisions thereof, on the last tooccur of (i) the expiration of the last valid claim of a licensed patent covering the manufacture, use or sale of products containing MGL-3196, or (ii) ten yearsafter the first sale of a product containing MGL-3196. Under the Roche Agreement, Roche controls prosecution of the licensed patent rights, although we have a right to comment. We do not have, nor have we had, any material disputes with Roche regarding the Roche Agreement. However, if there is any future dispute between usand Roche regarding the parties' rights under the Roche Agreement, our ability to develop and commercialize MGL-3196, or any other product candidatecovered by the Roche Agreement, may be materially harmed. Any uncured, material breach under the Roche Agreement could result in our loss of exclusiverights to MGL-3196 and may lead to a complete termination of the Roche Agreement and force us to cease product development efforts for MGL-3196.39Table of ContentsWe may fail to comply with any of our obligations under agreements pursuant to which we license rights or technology, which could result in the loss ofrights or technology that are material to our business. We may enter into license agreements from time to time. Licensing of intellectual property is important to our business and involves complex legal,business and scientific issues. Disputes may arise regarding intellectual property subject to a license agreement, including but not limited to:•the scope of rights granted under the license agreement and other interpretation-related issues; •the extent to which our technology and processes infringe on intellectual property of the licensor that is not subject to the licensingagreement; •the sublicensing of patent and other rights; •our diligence obligations under the license agreement and what activities satisfy those diligence obligations; •the ownership of inventions and know-how resulting from the joint creation or use of intellectual property by us and our licensors andcollaborators; and •the priority of invention of patented technology. If disputes over intellectual property and other rights that we have licensed or acquired from third parties prevent or impair our ability to maintain ourcurrent licensing arrangements on acceptable terms, we may be unable to successfully develop and commercialize the affected product candidates.Our success depends on our ability to protect our intellectual property and our proprietary technologies. Our success depends on our ability to protect our intellectual property and our proprietary technologies. Our commercial success depends in part on ourability to obtain and maintain patent protection and trade secret protection for our product candidates, proprietary technologies, and their uses, as well as ourability to operate without infringing upon the proprietary rights of others. We can provide no assurance that our patent applications or those of our licensors will result in additional patents being issued or that issued patents willafford sufficient protection against competitors with similar technologies, nor can we provide any assurance that the patents issued will not be infringed,designed around or invalidated by third parties. Even issued patents may later be found unenforceable or may be modified or revoked in proceedingsinstituted by third parties before various patent offices or in courts. The degree of future protection for our proprietary rights is uncertain. Only limitedprotection may be available and may not adequately protect our rights or permit us to gain or keep any competitive advantage. This failure to properlyprotect the intellectual property rights relating to our product candidates could have a material adverse effect on our financial condition and results ofoperations. Composition-of-matter patents on the biological or chemical active pharmaceutical ingredients are generally considered to offer the strongestprotection of intellectual property and provide the broadest scope of patent protection for pharmaceutical products, as such patents provide protectionwithout regard to any method of use or any method of manufacturing. While we have licensed rights to issued composition-of-matter patents in the UnitedStates and other jurisdictions for MGL-3196, we cannot be certain that the claims in issued composition-of-matter patents will not be found invalid orunenforceable if challenged. We cannot be certain that the claims in owned and licensed patent applications covering our product candidates will beconsidered patentable by the United States Patent and Trademark Office, or USPTO, and valid by courts in the United States or by the patent offices andcourts in foreign jurisdictions. Even if we owned and licensed patent applications covering our product candidates, the patents may not be enforced againstcompetitors. For example, a formulation patent will not be enforced against those making and marketing a product that has the same active pharmaceuticalingredient in a different formulation that is not claimed in the formulation patent. Method-of-use patents protect the use of a product for the specified methodor for treatment of40Table of Contentsa particular indication. This type of patent may not be enforced against competitors making and marketing a product that has the same active pharmaceuticalingredient but is used for a method not claimed in the patent. Moreover, even if competitors do not actively promote their product for our targetedindications, physicians may prescribe these products "off-label." Although off-label prescriptions may infringe or contribute to the infringement of method-of-use patents, the practice is common and such infringement is difficult to prevent or prosecute. Our licensed composition-of-matter patent licensed from Roche for MGL-3196 is expected to expire in the United States in 2026. Our co-owned patentsand pending patent applications that cover our particular solid form, dosage, method of manufacturing, and uses of MGL-3196 to treat various indications areexpected to expire in 2033. While patent term adjustments or patent term extensions could result in later expiration dates for each of these patents, there canbe no assurances that we will receive any patent adjustments or patent term extensions. The patent application process and patent maintenance andenforcement are subject to numerous risks and uncertainties, and there can be no assurance that we or any of our future development partners will besuccessful in protecting our product candidates by obtaining and defending patents. These risks and uncertainties include the following:•the USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment andother provisions during the patent process and after a patent has issued. There are situations in which noncompliance can result inabandonment or lapse of a patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. In suchan event, competitors might be able to enter the market earlier than would otherwise have been the case; •patent applications may not result in any patents being issued; •patents may be challenged, invalidated, modified, revoked, circumvented, found to be unenforceable or otherwise may not provide anycompetitive advantage; •we and our licensor(s) may not have been the first to make the inventions covered by pending patent applications or issued patents; •we and our licensor(s) may not have been the first to file patent applications for our product candidates or the compositions developed, or fortheir uses; •others may independently develop identical, similar or alternative products or compositions and uses thereof; •we and our licensor(s)' disclosures in patent applications may not be sufficient to meet the statutory requirements for patentability; •others may design around our owned and licensed patent claims to produce competitive products which fall outside of the scope of thepatents; •others may identify prior art or other bases which could invalidate our or licensor(s)' patents; •our competitors might conduct research and development activities in the United States and other countries that provide a safe harbor frompatent infringement claims for certain research and development activities, as well as in countries where us and our licensor(s) do not havepatent rights, and then use the information learned from such activities to develop competitive products for sale in major commercial markets; •there may be significant pressure on the United States government and international governmental bodies to limit the scope of patentprotection both inside and outside the United States for disease treatments that prove successful, as a matter of public policy regardingworldwide health concerns; and41Table of Contents•countries other than the United States may have patent laws less favorable to patentees than those upheld by United States courts, allowingforeign competitors a better opportunity to create, develop and market competing product candidates. In addition, we rely on the protection of our trade secrets and proprietary know-how. Although we have taken steps to protect our trade secrets andunpatented know-how, including entering into confidentiality agreements with third parties, and confidential information and inventions agreements withemployees, consultants and advisors, we cannot provide any assurances that any of these parties would not breach the agreements to disclose any proprietaryinformation, including trade secrets, and we may not be able to obtain adequate remedies for such breaches. Further, third parties may still obtain thisinformation by other means, such as breaches of our physical or computer security systems. Enforcing a claim that a party illegally disclosed ormisappropriated a trade secret is difficult, expensive and time-consuming, and the outcome is unpredictable. Moreover, third parties may come upon this orsimilar information lawfully and independently. We would have no right to prevent them, or those to whom they communicate it, from using that technologyor information to compete with us. Further, intellectual property rights have limitations and do not necessarily address all potential threats to our competitiveposition. If any of these events occurs or if we otherwise lose protection for our trade secrets or proprietary know-how, our business may be harmed.Recent patent reform legislation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement ordefense of our issued patents. On September 16, 2011, the Leahy-Smith America Invents Act, or the Leahy-Smith Act, was signed into law. The Leahy-Smith Act includes a number ofsignificant changes to U.S. patent law. These include provisions that affect the way patent applications will be prosecuted and may also affect patentlitigation. In particular, under the Leahy-Smith Act, the United States transitioned in March 2013 to a "first inventor to file" system in which the first inventorto file a patent application will be entitled to the patent. Third parties are allowed to submit prior art before the issuance of a patent by the USPTO, and apatent may become subject to post-grant proceedings including opposition, derivation, reexamination, inter partes review or interference proceedingschallenging our patent rights or the patent rights of others. An adverse determination in any such submission, proceeding or litigation could reduce the scopeor enforceability of, or invalidate, our patent rights, which could adversely affect our competitive position.Claims by third parties that we infringe their proprietary rights may result in liability for damages or prevent or delay our developmental andcommercialization efforts. The biotechnology industry has been characterized by frequent litigation regarding patent and other intellectual property rights. Numerous U.S. andforeign issued patents and pending patent applications, which are owned by third parties, exist in the fields in which we are developing product candidates.As the biotechnology industry expands and more patents are issued, the risk increases that our product candidates may be subject to claims of infringement ofthe patent rights of third parties. Because patent applications are maintained in secrecy until the application is published, we may be unaware of third partypatents that may be infringed by commercialization of MGL-3196 or our other product candidates. Moreover, because patent applications can take manyyears to issue, there may be currently-pending patent applications that may later result in issued patents that our product candidates may infringe. In addition,identification of third party patent rights that may be relevant to our technology is difficult because patent searching is imperfect due to differences interminology among patents, incomplete databases and the difficulty in assessing the meaning of patent claims. Any claims of patent infringement asserted bythird parties would be time consuming and could likely:•result in costly litigation;42Table of Contents•divert the time and attention of our technical personnel and management; •cause development delays; •prevent us from commercializing MGL-3196 for NASH or dyslipidemia or our other product candidates until the asserted patent expires or isheld finally invalid or not infringed in a court of law; •require us to develop non-infringing technology, which may not be possible on a cost-effective basis; or •require us to enter into royalty or licensing agreements. Although no third party has asserted a claim of patent infringement against us as of the filing date of this report, others may hold proprietary rights thatcould prevent MGL-3196 or our other product candidates from being marketed. Any patent-related legal action against us claiming damages and seeking toenjoin commercial activities relating to our product candidate or processes could subject us to potential liability for damages and require us to obtain alicense to continue to manufacture or market MGL-3196 or our other product candidates. We cannot predict whether we would prevail in any such actions orthat any license required under any of these patents would be made available on commercially acceptable terms, if at all. In addition, we cannot be sure thatwe could redesign our product candidate or processes to avoid infringement, if necessary. Accordingly, an adverse determination in a judicial oradministrative proceeding, or the failure to obtain necessary licenses, could prevent us from developing and commercializing MGL-3196 or our otherproduct candidates, which could harm our business, financial condition and operating results. Moreover, we may be subject to a third party preissuance submission of prior art to the USPTO or in addition to interference proceedings, may becomeinvolved in opposition, derivation, reexamination, inter partes review, post-grant review or other post-grant proceedings challenging our patent rights or thepatent rights of others. An adverse determination in any such submission, proceeding or litigation could reduce the scope of, or invalidate, our patent rights,allow third parties to commercialize our technology or products and compete directly with us, without payment to us, or result in our inability to manufactureor commercialize products without infringing third party patent rights. In addition, if the breadth or strength of protection provided by our patents and patentapplications is threatened, it could dissuade companies from collaborating with us to license, develop or commercialize current or future product candidatesWe may be involved in lawsuits to protect or enforce our patents or the patents of our licensors, which could be expensive, time consuming, andunsuccessful. Further, our issued patents could be found invalid or unenforceable if challenged in court. If we or any of our future development partners were to initiate legal proceedings against a third party to enforce a patent directed at one of our productcandidates, or one of our future product candidates, the defendant could counterclaim that our patent is invalid and/or unenforceable. In patent litigation inthe United States, defendant counterclaims alleging invalidity and/or unenforceability are commonplace. Grounds for a validity challenge could be analleged failure to meet any of several statutory requirements, including lack of novelty, obviousness, non-enablement or insufficient written description.Grounds for an unenforceability assertion could be an allegation that someone connected with prosecution of the patent withheld relevant information fromthe USPTO or made a misleading statement during prosecution. Third parties may also raise similar claims before the USPTO, even outside the context oflitigation. The outcome following legal assertions of invalidity and unenforceability is unpredictable. With respect to the validity question, for example, wecannot be certain that there is no invalidating prior art of which we and the patent examiner were unaware during prosecution. If a defendant were to prevailon a legal assertion of invalidity and/or unenforceability, we43Table of Contentswould lose at least part, and perhaps all, of the patent protection on such product candidate. Such a loss of patent protection would have a material adverseimpact on our business Interference proceedings provoked by third parties or brought by us or declared by the USPTO may be necessary to determine the priority of inventionswith respect to our patents or patent applications or those of our licensors. An unfavorable outcome could require us to cease using the related technology orto attempt to license rights to it from the prevailing party. Our business could be harmed if the prevailing party does not offer us a license on commerciallyreasonable terms. Our defense of litigation or interference proceedings may fail and, even if successful, may result in substantial costs and distract ourmanagement and other employees. In addition, the uncertainties associated with litigation could have a material adverse effect on our ability to raise thefunds necessary to continue our clinical trials, continue our research programs, license necessary technology from third parties, or enter into developmentpartnerships that would help us bring our product candidates to market. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of ourconfidential information could be compromised by disclosure during this type of litigation. There could also be public announcements of the results ofhearings, motions, or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it could have amaterial adverse effect on the price of our common stock.We may not be successful in obtaining or maintaining necessary rights to our product candidates through acquisitions and in-licenses. We currently have rights to the intellectual property, through licenses from third parties and under patents that we own or co-own, to develop our productcandidates. Because our programs may require the use of proprietary rights held by third parties, the growth of our business may depend in part on our abilityto acquire, in-license, or use these proprietary rights. For example, our product candidates may require specific formulations to work effectively andefficiently and the rights to these formulations may be held by others. We may be unable to acquire or in-license any compositions, methods of use,processes, or other third party intellectual property rights from third parties that we identify as necessary for our product candidates. The licensing andacquisition of third party intellectual property rights is a competitive area, and a number of more established companies are also pursuing strategies to licenseor acquire third party intellectual property rights that we may consider attractive. These established companies may have a competitive advantage over usdue to their size, cash resources, and greater clinical development and commercialization capabilities. In addition, companies that perceive us to be acompetitor may be unwilling to assign or license rights to us. We also may be unable to license or acquire third party intellectual property rights on terms thatwould allow us to make an appropriate return on our investment. We may collaborate with U.S. and foreign academic institutions and industry collaborators to accelerate our preclinical or clinical research. Typically,these institutions provide us with an option to negotiate a license to any of the institution's rights in technology resulting from the collaboration. Regardlessof such option, we may be unable to negotiate a license within the specified timeframe or under terms that are acceptable to us. If we are unable to do so, theinstitution may offer the intellectual property rights to other parties, potentially blocking our ability to pursue our program. If we are unable to successfully obtain rights to required third party intellectual property rights or maintain the existing intellectual property rights wehave, we may have to abandon development of that program and our business and financial condition could suffer.44Table of ContentsOur reliance on third parties requires us to share our trade secrets, which increases the possibility that a competitor will discover them or that our tradesecrets will be misappropriated or disclosed. Because we rely on third parties to research and develop and to manufacture our product candidates, we must, at times, share trade secrets with them. Weseek to protect our proprietary technology in part by entering into confidentiality agreements and, if applicable, material transfer agreements, consultingagreements or other similar agreements with our advisors, employees, third party contractors and consultants prior to beginning research or disclosingproprietary information. These agreements typically limit the rights of the third parties to use or disclose our confidential information, including our tradesecrets. Despite the contractual provisions employed when working with third parties, the need to share trade secrets and other confidential informationincreases the risk that such trade secrets become known by our competitors, are inadvertently incorporated into the technology of others, or are disclosed orused in violation of these agreements. Any of these could impair our competitive position. In addition, these agreements typically restrict the ability of our advisors, employees, third party contractors and consultants to publish data potentiallyrelating to our trade secrets, although our agreements may contain certain limited publication rights. For example, any academic institution that we maycollaborate with in the future will usually expect to be granted rights to publish data arising out of such collaboration, provided that we are notified inadvance and given the opportunity to delay publication for a limited time period in order for us to secure patent protection of intellectual property rightsarising from the collaboration, in addition to the opportunity to remove confidential or trade secret information from any such publication. In the future wemay also conduct joint research and development programs that may require us to share trade secrets under the terms of our research and development orsimilar agreements. Despite our efforts to protect our trade secrets, our competitors may discover our trade secrets, either through breach of our agreementswith third parties, independent development or publication of information by any of our third party collaborators. A competitor's discovery of our tradesecrets would impair our competitive position and have an adverse impact on our business.If our trademarks and trade names are not adequately protected, then we may not be able to build name recognition in our markets of interest and ourbusiness may be adversely affected. Our registered or unregistered trademarks or trade names may be challenged, infringed, circumvented or declared generic or determined to be infringingon other marks. We may not be able to protect our rights to these trademarks and trade names, which we need to build name recognition among potentialpartners or customers in our markets of interest. At times, competitors may adopt trade names or trademarks similar to ours, thereby impeding our ability tobuild brand identity and possibly leading to market confusion. In addition, there could be potential trade name or trademark infringement claims brought byowners of other registered trademarks or trademarks that incorporate variations of our registered or unregistered trademarks or trade names. Over the longterm, if we are unable to establish name recognition based on our trademarks and trade names, then we may not be able to compete effectively and ourbusiness may be adversely affected. Our efforts to enforce or protect our proprietary rights related to trademarks, trade secrets, domain names, copyrights orother intellectual property may be ineffective and could result in substantial costs and diversion of resources and could adversely impact our financialcondition or results of operations.We may not be able to protect our intellectual property rights throughout the world. While we have licensed from Roche issued composition-of-matter patents directed at MGL-3196 in the United States and other countries, filing,prosecuting and defending patents on MGL-3196 in all countries throughout the world would be prohibitively expensive, and our intellectual propertyrights in some countries outside the United States can be less extensive than those in the United States. In45Table of Contentsaddition, the laws of some foreign countries may not protect intellectual property rights to the same extent as federal and state laws in the United States.Consequently, we may not be able to prevent third parties from practicing their inventions in all countries outside the United States, or from selling orimporting products made using our inventions in and into the United States or other jurisdictions. Competitors may use our technologies in jurisdictionswhere we have not obtained patent protection to develop their own products and, further, may export otherwise infringing products to territories where wehave patent protection but enforcement is not as strong as that in the United States. These products may compete with MGL-3196, and our patents or otherintellectual property rights may not be effective or sufficient to prevent them from competing. Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legalsystems of certain countries, particularly certain developing countries, do not favor the enforcement of patents and other intellectual property protection,particularly those relating to biopharmaceuticals, which could make it difficult for us to stop the infringement of our patents or marketing of competingproducts in violation of our proprietary rights generally. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs anddivert our efforts and attention from other aspects of our business, could put our patents at risk of being invalidated or interpreted narrowly and our patentapplications at risk of not issuing, and could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate, and thedamages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, our efforts to enforce our intellectual property rights aroundthe world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license.Risks Related to Our Financial Position and Need for CapitalIf we fail to obtain the capital necessary to fund all of our planned operations, we may be unable to successfully develop and commercialize MGL-3196and other future product candidates. Although we believe that our existing cash and cash equivalents will be sufficient to fund our current operations through at least the next 12 months, wemay require additional working capital in order to complete the remaining clinical development for MGL-3196 and our other product candidates throughpotential regulatory approval and through potential commercialization of these product candidates. We expect our spending levels to increase in connectionwith our clinical trials of MGL-3196 as well as other corporate activities. The amount and timing of any expenditure needed to implement our developmentand commercialization programs will depend on numerous factors, including:•the type, number, scope, progress, expansion costs, results of and timing of our future clinical trials or the need for additional clinical trials ofMGL-3196 for NASH and dyslipidemia or any of our other product candidates which we are pursuing or may choose to pursue in the future; •the costs of obtaining, maintaining and enforcing our patents and other intellectual property rights; •the costs and timing of obtaining regulatory approval for MGL-3196 for NASH and dyslipidemia and any of our other product candidates; •the costs and timing of obtaining or maintaining manufacturing for MGL-3196 for NASH and dyslipidemia and any of our other productcandidates, including commercial manufacturing if any product candidate is approved; •the costs and timing of establishing sales, marketing and reimbursement capabilities and enhanced internal controls over financial reporting;46Table of Contents•the terms and timing of establishing and maintaining collaborations, license agreements and other partnerships; •costs associated with any new product candidates that we may develop, in-license or acquire; •the effect of competing technological and market developments; and •the costs associated with operating as a public company. Some of these factors are outside of our control. Our existing capital resources may not be sufficient to enable us to fund the completion of all plannedclinical trials and commercialization objectives for our product candidates. As a result, we may need to raise substantial additional funds in the future. We have not sold any products, and we do not expect to sell or derive revenue from any product sales for the foreseeable future. We may seek additionalfunding through future debt and equity financings, as well as potential additional collaborations or strategic partnerships with other companies or throughnon-dilutive financings. Additional funding may not be available to us on acceptable terms or at all. In addition, the terms of any financing may adverselyaffect the holdings or the rights of our stockholders. In addition, the issuance of additional shares by us, or the possibility of such issuance, may cause themarket price of our shares to decline. If we are unable to obtain additional funding on a timely basis, we may be unable to complete planned clinical trials for MGL-3196 for NASH anddyslipidemia and any of our other product candidates, and we may be required to significantly curtail some or all of our activities. We also could be requiredto seek funds through arrangements with collaborative partners or otherwise that may require us to relinquish rights to our product candidates or otherwiseagree to terms unfavorable to us.Our ability to use net operating loss and tax credit carryforwards and certain built-in losses to reduce future tax payments may be limited by provisions ofthe Internal Revenue Code. Our net operating losses have been fully offset by a valuation allowance due to uncertainties surrounding our ability to realize these tax benefits. UnderSection 382 of the Internal Revenue Code of 1986, as amended, if a corporation undergoes an "ownership change" (generally defined as a greater than 50%change (by value) in its equity ownership over a three year period), the corporation's ability to use its pre-change net operating loss carryforwards and otherpre-change tax attributes to offset its post-change income may be limited. Similar rules may apply under state tax laws. We have not performed a detailedanalysis to determine whether an ownership change under Section 382 of the Code, or similar state provisions, has previously occurred. As a result, if we earnnet taxable income, our ability to use our pre-change net operating loss carryforwards to offset U.S. federal taxable income may become subject to limitations,which could potentially result in increased future tax liability to us and may be substantial.Risks Relating to Ownership of Our Common StockThe price of our common stock has been, and may continue to be, volatile. Historically, the market price of our common stock has fluctuated over a wide range, and it is likely that the price of our common stock will continue tobe volatile in the future. The market price of our common stock could be impacted due to a variety of factors, including, in addition to global and industry-wide events:•the losses we may incur; •developments in patent or other proprietary rights owned or licensed by us, our collaborative partners or our competitors;47Table of Contents•public concern as to the safety and efficacy of products developed by us or others; and •litigation. In addition, due to one or more of the foregoing factors in one or more future quarters, our results of operations may fall below the expectations ofsecurities analysts and investors. In that event, the market price of our common stock could materially decline.A small number of our stockholders own a substantial amount of our outstanding common stock and may be deemed to have substantial control over us;therefore, your ability to influence corporate matters may be limited. Certain stockholders affiliated and associated with our officers and directors collectively own approximately 39.1% of our outstanding common stock asof December 31, 2018 and acting together, may have the ability to substantially affect matters submitted to our stockholders for approval. This concentrationof ownership may have the effect of delaying, deferring or preventing a strategic transaction, even if such a transaction would benefit other stockholders.Anti-takeover provisions in our charter documents and under Delaware law could make an acquisition of our company, which may be beneficial to ourstockholders, more difficult and may prevent attempts by our stockholders to replace or remove our current management. Provisions in our charter and bylaws may delay or prevent a merger, acquisition or other change of control that stockholders may consider favorable,including transactions in which you might otherwise receive a premium for your shares. These provisions include a classified board of directors. In addition,we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which prohibits, with some exceptions, stockholders owning inexcess of 15% of our outstanding voting stock from merging or combining with us. Although we believe these provisions together provide for an opportunityto receive higher bids by requiring potential acquirers to negotiate with our board of directors, they would apply even if the offer may be consideredbeneficial by some stockholders.Future sales and issuances of our common stock or rights to purchase common stock could result in additional dilution of the percentage ownership of ourstockholders and could cause our share price to fall. We expect that significant additional capital will be needed in the future to continue our planned operations. To the extent we raise additional capital byissuing equity securities, our stockholders may experience substantial dilution. We may sell common stock, convertible securities or other equity securitiesin one or more transactions at prices and in a manner we determine from time to time. If we sell common stock, convertible securities or other equity securitiesin more than one transaction, investors may be materially diluted by subsequent sales. Such sales may also result in material dilution to our existingstockholders, and new investors could gain rights superior to our existing stockholders.Sales of a significant number of shares of our common stock in the public markets or significant short sales of our common stock, or the perception thatsuch sales could occur, could depress the market price of our common stock and impair our ability to raise capital. As of December 31, 2018, there were 1,969,797 shares of Series A Convertible Preferred stock outstanding, all of which are readily convertible intocommon stock at the option of the holders. In addition, there are an additional 1,132,618 shares of our common stock issuable upon the exercise ofoutstanding stock options. Sales of a substantial number of shares of our common stock or other equity-related securities in the public markets, could depressthe market price of our common stock. If there are significant sales or short sales of our stock, the price decline that could result from this activity may causethe share price to decline further, which, in turn, may cause long holders of the common stock to sell their shares, thereby contributing to sales of commonstock in the market. Such48Table of Contentssales also may impair our ability to raise capital through the sale of additional shares in the future at a time and price that our management deems acceptable,if at all.We do not anticipate paying cash dividends on our common stock, and accordingly, stockholders must rely on stock appreciation for any return on theirinvestment. We have never declared or paid any cash dividend on our common stock and do not anticipate paying cash dividends on our common stock in thefuture. As a result, the only return to stockholders will be appreciation in the price of our common stock, which may never occur. Investors seeking cashdividends should not invest in our common stock. Item 1B. Unresolved Staff Comments None. Item 2. Properties We lease our approximately 2,500 square-foot corporate headquarters facility located in West Conshohocken, Pennsylvania. We believe our facility isadequate for our current needs. Our lease expires in June 2019. We plan to acquire additional space as our business continues to grow. We continue toevaluate our facility requirements and believe that appropriate space will be available to accommodate our future needs. Item 3. Legal Proceedings We are currently not a party to any material legal proceedings. Item 4. Mine Safety Disclosures Not applicable.49Table of Contents PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchase of Equity Securities. Market Information The term "Private Madrigal" refers to Madrigal Pharmaceuticals, Inc. prior to the consummation of the Merger. Our common stock has traded on the Nasdaq stock market under the symbol "MDGL" since July 25, 2016, the trading date following the consummationof our merger with Private Madrigal. Prior to July 25, 2016, our common stock was traded on the Nasdaq stock market under the symbol "SNTA."Holders As of February 14, 2018, there were approximately 24 holders of record of our common stock. This number does not include "street name" or beneficialholders, whose shares are held of record by banks, brokers, financial institutions and other nominees. In addition, we had two holders of record who ownedshares of our Series A Convertible Preferred Stock.Dividends We have not paid any cash dividends on our common stock. We currently intend to retain all available funds and any future earnings to fund thedevelopment and expansion of our business, and we do not anticipate paying any cash dividends in the foreseeable future. Any future determination to paycash dividends will be at the discretion of our board of directors and will depend on our financial condition, results of operations, contractual restrictions,capital requirements, and other factors that our board of directors deems relevant.Stock Performance Graph The graph set forth below compares the cumulative total stockholder return on our common stock between January 1, 2014 and December 31, 2018, withthe cumulative total return of (a) the Nasdaq Biotechnology Index and (b) the Nasdaq Composite Index, over the same period. This graph assumes theinvestment of $100 on January 1, 2014 in our common stock, the Nasdaq Biotechnology Index and the Nasdaq Composite Index and assumes thereinvestment of dividends, if any. The vertical line on July 21, 2016 notes the date of the Merger.50Table of Contents The comparisons shown in the graph below are based upon historical data. We caution that the stock price performance shown in the graph below is notnecessarily indicative of, nor is it intended to forecast, the potential future performance of our common stock. The above Stock Performance Graph and related information shall not be deemed to be "soliciting material" or to be "filed" with the Securities andExchange Commission, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933 or SecuritiesExchange Act of 1934, each as amended, except to the extent that we specifically request that such information be treated as soliciting material orspecifically incorporate it by reference into a filing.Equity Compensation Plan Information Information about our equity compensation plans is incorporated herein by reference to Item 12 of Part III of this Annual Report on Form 10-K. Item 6. Selected Financial Data The statements of operations data for the years ended December 31, 2018, 2017 and 2016 and the balance sheet data as of December 31, 2018 and2017 have been derived from our audited financial statements included elsewhere in this Annual Report on Form 10-K. The statements of operations datafor the year ended December 31, 2015 and 2014 and the balance sheet data as of December 31, 2016, 2015 and 2014 have been derived from our auditedfinancial statements not included in this Annual Report on Form 10-K. The following selected financial data should be read in conjunction with our"Management's51Table of ContentsDiscussion and Analysis of Financial Condition and Results of Operations" and financial statements and related notes to those statements includedelsewhere in this Annual Report on Form 10-K. 52 Years Ended December 31, 2018 2017 2016 2015 2014 (in thousands, except per share amounts) Consolidated Statements of Operations Data: Revenues: Total revenues $— $— $— $— $— Operating expenses: Research and development 25,389 24,390 15,933 2,427 778 General and administrative 15,293 7,672 9,290 806 548 Total operating expenses 40,682 32,062 25,223 3,233 1,326 Loss from operations (40,682) (32,062) (25,223) (3,233) (1,326)Interest income (expense), net 7,671 558 (1,165) (3,612) (3,166)Other income 200 350 — — — Net loss $(32,811)$(31,154)$(26,388)$(6,845)$(4,492)Net loss per common share: Basic and diluted net loss per common share $(2.22)$(2.54)$(5.07)$(40.03)$(26.98)Basic and diluted weighted average number ofcommon shares outstanding 14,796,712 12,244,939 5,204,644 171,012 166,469 Years Ended December 31, 2018 2017 2016 2015 2014 (in thousands) Consolidated Balance Sheet Data: Cash, cash equivalents and marketable securities $483,718 $191,527 $40,500 $306 $148 Total assets 485,428 192,313 41,210 364 194 Total liabilities 8,444 10,054 4,800 49,277 42,263 Accumulated deficit (139,272) (106,461) (75,307) (48,920) (42,075)Total stockholders' equity (deficit) $476,984 $182,259 $36,410 $(48,913)$(42,069)Table of Contents Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. The Risk Factors in Part I, Item 1A and disclosures under "Cautionary Note Regarding Forward-Looking Statements" within this Annual Report onForm 10-K, the audited financial statements and accompanying notes, included elsewhere in this Annual Report on Form 10-K, and this Management'sDiscussion and Analysis of Financial Condition and Results of Operations should be read together. In addition to historical information, this discussionand analysis contains forward-looking statements within the meaning of Section 27A of the Securities Act, and Section 21E of the Exchange Act. Operatingresults are not necessarily indicative of results that may occur for the full fiscal year or any other future period. The term "Synta" refers to SyntaPharmaceuticals Corp. prior to the consummation of the Merger described herein. Unless otherwise indicated, references to the terms "Madrigal," the"Company," "we," "our" and "us" refer to Private Madrigal prior to the consummation of the Merger described herein and Madrigal Pharmaceuticals, Inc.(formerly known as Synta Pharmaceuticals Corp.) upon the consummation of the Merger described herein.Overview We are a clinical-stage biopharmaceutical company focused on the development and commercialization of innovative therapeutic candidates for thetreatment of cardiovascular, metabolic, and liver diseases. Our lead product candidate, MGL-3196, is a proprietary, liver-directed, selective thyroid hormonereceptor-ß, or THR-ß, agonist being developed as a once-daily oral pill that can potentially be used to treat a number of disease states with high unmetmedical need, including non-alcoholic steatohepatitis, or NASH. For NASH, we enrolled 125 patients in a Phase 2 clinical trial. We achieved the 12-weekprimary endpoint for this Phase 2 clinical trial and reported the results in December 2017, and we reported positive topline 36-week results at the conclusionof the Phase 2 clinical trial in May 2018. We have an ongoing 36-week, open-label extension study in 31 participating NASH patients from the Phase 2clinical trial, which includes 14 patients who received placebo in the main study. We are also developing MGL-3196 for dyslipidemia, which began with astudy of a genetic dyslipidemia known as heterozygous familial hypercholesterolemia, or HeFH. We enrolled 116 patients and completed a Phase 2 clinicaltrial in HeFH patients, and we reported the results in February 2018. In addition to the NASH and HeFH Phase 2 clinical trials, MGL-3196 has also beenstudied in seven completed Phase 1 trials in a total of 198 subjects. MGL-3196 appeared to be safe and was well-tolerated in these trials, which included asingle ascending dose trial, a multiple ascending dose trial, two drug interaction trials with statins, a multiple dose mass balance study, a single dose relativebioavailability study of tablet formulations versus capsule formulation, and a multiple dose drug interaction and food effect study.Key DevelopmentsClinical Trials In October 2016, we initiated a Phase 2 clinical trial in NASH ([NCT02912260] at www.ClinicalTrials.gov). The randomized, double-blind, placebo-controlled, multi-center Phase 2 study enrolled 125 patients 18 years of age and older with biopsy-confirmed NASH. Patients were randomized to receiveeither placebo or MGL-3196, twice as many receiving MGL-3196 as placebo. Efficacy was confirmed at the end of the trial (36 weeks) by repeat MagneticResonance Imaging—Proton Density Fat Fraction, or MRI-PDFF, and conventional liver biopsy to examine histological evidence for the resolution of NASH.Recent published data show a high correlation of reduction of liver fat measured by MRI-PDFF to NASH scoring on liver biopsy. Other secondary endpointsincluded changes in clinically relevant biomarkers at 12 and 36 weeks, improvement in fibrosis by at least one stage with no worsening of steatohepatitis,and safety and tolerability. We reached our top-line analysis of the primary endpoint in December 2017, and we reached our top-line analysis of53Table of Contentsmultiple 36-week endpoints, including key secondary endpoints, reduction and resolution of NASH on liver biopsy, in May 2018. In February 2017, we initiated a Phase 2 clinical trial in HeFH ([NCT03038022] at www.ClinicalTrials.gov). The 12-week, randomized, double-blind,placebo-controlled, multi-center Phase 2 clinical trial enrolled 116 patients with HeFH in several European countries. Patients were randomized in a 2:1 ratioto receive either MGL-3196 or placebo, in addition to their current drug regimen (including high dose statins and/or ezetimibe). The primary endpoint of thestudy was reduction of LDL cholesterol, with secondary endpoints including reductions in TGs, Lp(a), and ApoB, as well as safety. Lp(a) is a severelyatherogenic lipid particle, commonly elevated in familial hypercholesterolemia patients, the levels of which are not adequately reduced by existing lipidlowering therapies. THR-b agonism is one of the few therapeutic approaches that can substantially lower Lp(a). In February 2018, we announced positiveresults from the 12 week Phase 2 clinical trial in HeFH.Reverse Merger On July 22, 2016, Synta completed its business combination with Private Madrigal in accordance with the terms of an Agreement and Plan of Merger andReorganization, dated as of April 13, 2016, or the Merger Agreement. Pursuant to the Merger Agreement, Synta formed a wholly-owned subsidiary thatmerged with and into Private Madrigal, with Private Madrigal surviving the merger and becoming a wholly-owned subsidiary of Synta, or the Merger. Inconnection with, and prior to the consummation of, the Merger, Synta effected a 1-for-35 reverse stock split of its common stock, or the Reverse Stock Split,and, following the Merger, changed its name to "Madrigal Pharmaceuticals, Inc." All shares and per share amounts have been retrospectively adjusted to giveeffect to the Reverse Stock Split, except as otherwise disclosed. Following the consummation of the Merger, our business became the business conducted byPrivate Madrigal prior to the consummation of the Merger.Basis of PresentationResearch and Development Expenses Research and development expenses primarily consist of costs associated with our research activities, including the preclinical and clinical developmentof our product candidates. We expense our research and development expenses as incurred. We contract with clinical research organizations to manage ourclinical trials under agreed upon budgets for each study, with oversight by our clinical program managers. We account for nonrefundable advance paymentsfor goods and services that will be used in future research and development activities as expenses when the service has been performed or when the goodshave been received. Manufacturing expense includes costs associated with drug formulation development and clinical drug production. We do not trackemployee and facility related research and development costs by project, as we typically use our employee and infrastructure resources across multipleresearch and development programs. We believe that the allocation of such costs would be arbitrary and not be meaningful. Our research and development expenses consist primarily of:•salaries and related expense, including stock-based compensation; •external expenses paid to clinical trial sites, contract research organizations, laboratories, database software and consultants that conductclinical trials; •expenses related to development and the production of nonclinical and clinical trial supplies, including fees paid to contract manufacturers; •expenses related to preclinical studies; •expenses related to compliance with drug development regulatory requirements; and •other allocated expenses, which include direct and allocated expenses for depreciation of equipment and other supplies.54Table of Contents We expect to continue to incur substantial expenses related to our development activities for the foreseeable future as we conduct our clinical studiesprograms, manufacturing and toxicology studies. Product candidates in later stages of clinical development generally have higher development costs thanthose in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials, additional drug manufacturingrequirements, and later stage toxicology studies such as carcinogenicity studies. Our research and development expenses have increased year over year ineach of 2016, 2017, and 2018 and we expect that our research and development expenses will increase substantially in the future. The process of conductingpreclinical studies and clinical trials necessary to obtain regulatory approval is costly and time consuming. The probability of success for each productcandidate is affected by numerous factors, including preclinical data, clinical data, competition, manufacturing capability and commercial viability.Accordingly, we may never succeed in achieving marketing approval for any of our product candidates Completion dates and costs for our clinical development programs as well as our research program can vary significantly for each current and futureproduct candidate and are difficult to predict. As a result, we cannot estimate with any degree of certainty the costs we will incur in connection with thedevelopment of our product candidates at this point in time. We expect that we will make determinations as to which programs and product candidates topursue and how much funding to direct to each program and product candidate on an ongoing basis in response to the scientific success of early researchprograms, results of ongoing and future clinical trials, our ability to enter into collaborative agreements with respect to programs or potential productcandidates, as well as ongoing assessments as to each current or future product candidate's commercial potential.General and Administrative Expenses General and administrative expenses consist primarily of salaries, benefits and stock-based compensation expenses for employees, management costs,costs associated with obtaining and maintaining our patent portfolio, professional fees for accounting, auditing, consulting and legal services, and allocatedoverhead expenses. We expect that our general and administrative expenses may increase in the future as we expand our operating activities, maintain and expand our patentportfolio and incur additional costs associated with being a public company and maintaining compliance with exchange listing and SEC requirements. Weexpect these potential increases will likely include management costs, legal fees, accounting fees, directors' and officers' liability insurance premiums andexpenses 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 beenprepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reportedamounts of assets and liabilities, and expenses and the disclosure of contingent assets and liabilities at the date of the financial statements. On an ongoingbasis, we evaluate our estimates and judgments, including those related to accrued research and development expenses. We base our estimates on historicalexperience, known trends and events, and various other factors that are believed to be reasonable under the circumstances, the results of which form the basisfor making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ materiallyfrom these estimates under different assumptions or conditions.Research and Development Costs Research and development costs are expensed as incurred. Research and development costs are comprised of costs incurred in performing research anddevelopment activities, including internal costs55Table of Contents(including stock-based compensation), costs for consultants, and other costs associated with our preclinical and clinical programs. In particular, we haveconducted safety studies in animals, optimized and implemented API manufacturing, and conducted Phase 1 and 2 clinical trials, all of which are consideredresearch and development expenditures.Stock-Based Compensation We recognize stock-based compensation expense based on the grant date fair value of stock options granted to employees, officers and directors. We usethe Black-Scholes option pricing model, with an estimated forfeiture rate, to determine the grant date fair value as our management believes it is the mostappropriate valuation method for its option grants. The Black-Scholes model requires inputs for risk-free interest rate, dividend yield, volatility and expectedlives of the options. Certain of the employee stock options granted by us are structured to qualify as incentive stock options, or ISOs. Under current tax regulations, we do notreceive a tax deduction for the issuance, exercise or disposition of ISOs if the employee meets certain holding requirements. If the employee does not meetthe holding requirements, a disqualifying disposition occurs, at which time we may receive a tax deduction. We do not record tax benefits related to ISOsunless and until a disqualifying disposition is reported. In the event of a disqualifying disposition, the entire tax benefit is recorded as a reduction of incometax expense. 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 morelikely than not it will realize the related deferred tax assets.Results of OperationsComparison of the Years Ended December 31, 2018 and 2017Revenue We did not generate any revenue during the years ended December 31, 2018 and 2017, respectively.Operating Expenses The following table provides comparative results of our operating expenses for the years ended December 31, 2018 and 2017 (in thousands):Research and Development Expense Our research and development expenses were $25.4 million for the year ended December 31, 2018 compared to $24.4 million for the year endedDecember 31, 2017. Research and development expenses increased by $1.0 million in the 2018 period due primarily to an increase in non-cash stockcompensation from stock option awards partially offset by a decrease related to our Phase 2 clinical trials due to the completion of treatment in 2018. Weexpect our research and development expenses to56 Year EndedDecember 31, 2018 to 2017Change 2018 2017 $ % Research and Development Expenses $25,389 $24,390 999 4%General and Administrative Expenses 15,293 7,672 7,621 99%Interest Expense (Income) (7,671) (558) 7,113 1275%Other Income (200) (350) (150) (43)% $32,811 $31,154 1,657 5%Table of Contentsincrease over the next several years as we advance our clinical and preclinical development programs for MGL-3196 and as we increase our research anddevelopment efforts in connection therewith.General and Administrative Expense Our general and administrative expenses were $15.3 million for the year ended December 31, 2018 compared to $7.7 million for the year endedDecember 31, 2017. General and administrative expenses increased by $7.6 million in the 2018 period due primarily to an increase in non-cash stockcompensation from stock option awards. We expect our general and administrative expenses to increase over the next several years as we advance our clinicaland preclinical development programs for MGL-3196 and continue operating as a public company, both of which will likely result in an increase in ourheadcount, consulting services, and certain overhead needed to support those efforts.Interest Expense (Income) Our interest income was $7.7 million for the year ended December 31, 2018 compared to $0.6 million of interest expense for the year endedDecember 31, 2017. The increase in interest income was due primarily to a higher average principal balance in our investment account in 2018 and increasedinterest rates.Comparison of the Years Ended December 31, 2017 and 2016Revenue We did not generate any revenue during the years ended December 31, 2017 and 2016, respectively.Operating Expenses The following table provides comparative results of our operating expenses for the years ended December 31, 2017 and 2016 (in thousands):Research and Development Expense Our research and development expenses were $24.4 million for the year ended December 31, 2017 compared to $15.9 million for the year endedDecember 31, 2016. Research and development expenses increased by $8.5 million in the 2017 period due primarily to the expenses incurred to conduct andsupport the two Phase 2 studies for MGL-3196, which commenced in the fourth quarter of 2016 and the first quarter of 2017, respectively. Our increasedresearch and development expenses include an $8.5 million increase in contract research organization costs directly associated with the two Phase 2 studies.These increases were partially offset by lower stock based compensation expense in 2017, due to the expense incurred in 2016 from the Change in ControlBonus Plan resulting from the Merger. We expect our research and development expenses to increase over time as we advance our clinical and preclinicaldevelopment.57 Year EndedDecember 31, 2017 to 2016Change 2017 2016 $ % Research and Development Expenses $24,390 $15,933 8,457 53%General and Administrative Expenses 7,672 9,290 (1,618) (17)%Interest Expense (Income) (558) 1,165 1,723 (148)%Other Income (350) — 350 100% $31,154 $26,388 4,766 18%Table of ContentsGeneral and Administrative Expense Our general and administrative expenses were $7.7 million for the year ended December 31, 2017 compared to $9.3 million for the year endedDecember 31, 2016. General and administrative expenses decreased by $1.6 million in the 2017 period due primarily to expenses incurred in 2016 from theMerger, including $0.6 million from the Change in Control Bonus Plan related to the Merger and $2.1 million in other costs associated with the Merger.These Merger costs were partially offset by increases in 2017 from increased compensation expense and expenses related to operating as a public company.We believe that our general and administrative expenses may increase over time as we advance our clinical and preclinical development programs for MGL-3196 and continue operating as a public company, both of which will likely result in an increase in our headcount, consulting services, and certain overheadneeded to support those efforts.Interest Expense (Income) Our interest income was $0.6 million for the year ended December 31, 2017 compared to $1.2 million of interest expense for the year endedDecember 31, 2016. The change in interest expense (income) was due primarily to the conversion of all outstanding promissory notes to equity upon theconsummation of the Merger in 2016, and a higher average principal balance in our investment account in 2017.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, theissuance 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 tosalaries and benefits for our employees, including clinical, scientific, operational, financial and management personnel, and external research anddevelopment expenses, such as clinical trials and preclinical activity related to our product candidates. As of December 31, 2018, we had cash, cash equivalents and marketable securities totaling $483.7 million compared to $191.5 million as ofDecember 31, 2017, with the increase primarily attributable to our completion of an underwritten public offering of our common stock in June 2018, in which1,079,580 shares of our common stock were sold at a public offering price of $305.00 per share. Net proceeds after deducting underwriting discounts andcommissions and other estimated offering expenses, were appropriately $311.8 million. Our cash and investment balances are held in a variety of interestbearing instruments, including obligations of U.S. government agencies, U.S. Treasury debt securities, corporate debt securities and money market funds.Cash in excess of immediate requirements is invested in accordance with our investment policy with a view toward capital preservation and liquidity. We anticipate continuing to incur operating losses for the foreseeable future. While our rate of cash usage may increase in the future, in particular tosupport our product development and clinical trial efforts, we believe our available cash resources as of December 31, 2018 will be sufficient to fund ouroperations past one year from the issuance of the financial statements contained herein. Future capital requirements will be substantial and will depend onmany factors. To meet future capital requirements, we will need to raise additional capital to fund our operations through equity or debt financing. Weregularly consider fundraising opportunities and may decide, from time to time, to raise capital based on various factors, including market conditions and ourplans 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 potentialfunding sources are unfavorable, our business and our ability to develop our product candidates would be harmed. Furthermore, any sales of additionalequity securities may result in dilution to our stockholders, and any debt financing may include covenants that restrict our business.58Table of ContentsCash Flows The following table summarizes our net cash flow activity (in thousands):Operating Activities Net cash used in operating activities was $25.5 million, $22.3 million, and $17.6 million for the years ended December 31, 2018, 2017 and 2016,respectively. The use of cash in these periods resulted primarily from our losses from operations, as adjusted for non-cash charges for stock-basedcompensation, and changes in our working capital accounts.Investing Activities Net cash used in investing activities was $380.1 million for the year ended December 31, 2018 and consisted primarily of $614.4 million of purchases ofmarketable securities for our investment portfolio, partially offset by $234.3 million from sales and maturities of marketable securities. Net cash used in investing activities was $22.0 million for the year ended December 31, 2017 and consisted primarily of $70.2 million of purchases ofmarketable securities for our investment portfolio, partially offset by $48.3 million from sales and maturities of marketable securities. Net cash provided by investing activities was $22.0 million for the year ended December 31, 2016 and consisted primarily of $5.8 million in cashprovided from the Merger, and a net increase of $15.4 million from the sales and maturities in our investment portfolio.Financing Activities Net cash provided by financing activities was $314.3 million for the year ended December 31, 2018 and consisted primarily consisted of sales of ourcommon stock in the June 2018 Registered Offering and the exercise of stock options. Net cash provided by financing activities was $173.8 million for the year ended December 31, 2017 and consisted primarily of net proceeds from sales ofour common stock under the October 2015 Sales Agreement, sales of our common stock and our preferred stock in the June 2017 Offering, and sales of ourcommon stock in the December 2017 Registered Offering. Net cash provided by financing activities was $14.5 million for the year ended December 31, 2016 and consisted primarily of net proceeds from theissuance of related party convertible notes and net proceeds from the sale of our common stock under the October 2015 Sales Agreement.59 Year Ended December 31, 2018 2017 2016 Net cash used in operating activities $(25,507)$(22,317)$(17,608)Net cash (used in) provided by investing activities (380,076) (22,006) 21,993 Net cash provided by financing activities 314,335 173,805 14,454 Net (decrease) increase in cash and cash equivalents $(91,248)$129,482 $18,839 Table of ContentsContractual Obligations and Commercial Commitments As of December 31, 2018, we had contractual obligations and commercial commitments as follows (in thousands): Operating leases relates to our corporate headquarters facility located in West Conshohocken, Pennsylvania.Off-Balance Sheet Arrangements We do not have any off balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K.Recent Accounting Pronouncements Refer to Note 2, "Summary of Significant Accounting Policies," in the accompanying notes to the consolidated financial statements for a discussion ofrecent accounting pronouncements. Item 7A. Quantitative and Qualitative Disclosures About Market Risk. Interest Rate Risk Our exposure to market risk is confined to our cash, cash equivalents and marketable securities. We regularly review our investments and monitor thefinancial markets. We invest in high-quality financial instruments, primarily money market funds, U.S. government and agency securities, government-sponsored bond obligations and certain other corporate debt securities, with the effective duration of the portfolio less than twelve months and no securitywith an effective duration in excess of twenty-four months, which we believe are subject to limited credit risk. We currently do not hedge interest rateexposure. Due to the short-term duration of our investment portfolio and the low risk profile of our investments, we believe that an immediate 10% change ininterest rates would not have a material effect on the fair market value of our portfolio. We do not believe that we have any material exposure to interest raterisk or changes in credit ratings arising from our investments.Capital Market Risk We currently have no product revenues and depend on funds raised through other sources. One source of funding is through future debt or equityofferings. Our ability to raise funds in this manner depends upon, among other things, capital market forces affecting our stock price.Inflation Risk Inflation has not had a material effect on our business, financial condition or results of operations during the years ended December 31, 2018, 2017 or2016. Item 8. Financial Statements and Supplementary Data. The information required by this Item 8 is referred to in Item 15, listed in the Index to Financial Statements as a part of this Annual Report on Form 10-K,and is incorporated herein by this reference.60 Payments Due by Period Contractual Obligations Total Less Than1 Year 1 - 3 Years 4 - 5 Years More Than5 Years Operating Leases 110 110 — — — Total contractual Obligations $110 $110 $— $— $— Table of Contents Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. None. Item 9A. Controls and Procedures. Disclosure Controls and Procedures We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) that are designed to providereasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act 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 ourmanagement, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. Under the supervision of our principal executive officer and principal financial officer, we evaluated the effectiveness of our disclosure controls andprocedures as of the end of the period covered by this Report. Based on that evaluation, our principal executive officer and principal financial officer haveconcluded that our disclosure controls and procedures were effective at the reasonable assurance level as of December 31, 2018.Limitations on the Effectiveness of Controls and Procedures In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how welldesigned and operated, can provide only reasonable, not absolute, assurance of achieving the desired control objectives. In addition, the design of disclosurecontrols and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefitsof possible controls and procedures relative to their costs. The design of any disclosure controls and procedures also is based in part upon certain assumptionsabout the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential futureconditions.Management's Report On Internal Control Over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and15d-15(f) under the Exchange Act) for our company. Internal control over financial reporting is a process designed to provide reasonable assurance regardingthe reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. This process includes thosepolicies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositionsof our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance withGAAP, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (iii) providereasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effecton our financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projectionsof any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that thedegree of compliance with the policies or procedures may deteriorate. Our management, including our principal executive officer and our principal financial officer, assessed the effectiveness of our internal control overfinancial reporting as of December 31, 2018. In making this assessment, our management used the criteria set forth in the "Internal Control—61Table of ContentsIntegrated Framework" issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework). Based on its assessment underthat framework, our management concluded that our internal control over financial reporting was effective as of December 31, 2018. PricewaterhouseCoopers LLP, an independent registered public accounting firm, has audited the effectiveness of our internal control over financialreporting as of December 31, 2018, as stated in its report, which is included herein.Changes in Internal Control Over Financial Reporting There have been no changes in our internal control over financial reporting during the quarter ended December 31, 2018 that have materially affected, orare reasonably likely to materially affect our internal control over financial reporting. Item 9B. Other Information. None.62Table of Contents PART III Certain information required by Part III is omitted from this Annual Report on Form 10-K because we intend to file our definitive Proxy Statement for ournext Annual Meeting of Stockholders, pursuant to Regulation 14A of the Securities Exchange Act of 1934, as amended, or the 2019 Proxy Statement, nolater than April 30, 2019, and certain information to be included in the 2019 Proxy Statement is incorporated herein by reference. Item 10. Directors, Executive Officers and Corporate Governance. The information required by this item concerning our directors, executive officers, Section 16 compliance and corporate governance matters isincorporated by reference in our 2019 Proxy Statement. Item 11. Executive Compensation. The information required by this item regarding executive compensation is incorporated by reference in our 2019 Proxy Statement. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. The information required by this item regarding security ownership of certain beneficial owners and management is incorporated by reference in our2019 Proxy Statement. Item 13. Certain Relationships and Related Transactions, and Director Independence. The information required by this item regarding certain relationships and related transactions is incorporated by reference in our 2019 Proxy Statement. Item 14. Principal Accountant Fees and Services The information required by this item regarding principal accounting fees and services is incorporated by reference in our 2019 Proxy Statement.63Table of Contents PART IV The following is a list of exhibits filed as part of, or incorporated by reference into, this Annual Report on Form 10-K.64Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULESItem 15(a) The following documents are filed as part of, or incorporated by reference into, this AnnualReport on Form 10-K:Item 15(a)(1) and (2) The Consolidated Financial Statements beginning on page F-1 are filed as part of this AnnualReport on Form 10-K. Other financial statement schedules have been omitted because theinformation required to be presented in them is not applicable or is shown in the financialstatements or related notes.Item 15(a)(3) We have filed, or incorporated into this Annual Report on Form 10-K by reference, theexhibits listed on the accompanying Exhibit Index.Item 15(b) See Item 15(a)(3) above.Item 15(c) See Item 15(a)(2) above.ExhibitNumber ExhibitDescription FiledHerewith IncorporatedbyReferencehereinfrom Form orSchedule FilingDate SEC File /RegistrationNumber1.1 Underwriting Agreement, dated December 18, 2017, by andbetween the Registrant and Goldman Sachs & Co. LLC asRepresentative of the Underwriters set forth therein. Form 8-K(Exhibit 1.1) 12/21/17 001-33277 1.1 Underwriting Agreement, dated June 6, 2018, by and betweenthe Registrant, Goldman Sachs & Co. LLC as Representative ofthe Underwriters set forth therein, and the selling stockholdersof the Registrant named therein. Form 8-K(Exhibit 1.1) 06/08/18 001-33277 2.1 Agreement and Plan of Merger and Reorganization, datedApril 13, 2016, by and among Synta Pharmaceuticals Corp.,the Registrant and Saffron Merger Sub, Inc. DEFA14A;Form 8-K(Exhibit 2.1) 04/14/16 001-33277 3.1 Restated Certificate of Incorporation of the Registrant. Form 10-K(Exhibit 3.1) 03/31/17 001-33277 3.2 Certificate of Designation of Preferences, Rights andLimitations of Series A Convertible Preferred Stock. Form 8-K(Exhibit 3.1) 06/21/17 001-33277Table of Contents65ExhibitNumber ExhibitDescription FiledHerewith Incorporated byReference hereinfrom Form orSchedule FilingDate SEC File /RegistrationNumber3.3 Bylaws of the Registrant, as amended April 13, 2016. DEFA14A;Form 8-K(Exhibit 3.1) 04/14/16 001-33277 Equity Agreements 10.1 Sales Agreement, dated October 16, 2015, by and betweenthe Registrant and Cowen and Company, LLC. Form 8-K(Exhibit 10.1) 10/16/15 001-33277 10.2 Securities Purchase Agreement, dated June 20, 2017, by andamong the Registrant and the investors party thereto,including the Registration Rights Agreement attached asExhibit B thereto. Form 8-K(Exhibit 10.1) 06/21/17 001-33277 Agreements with Respect to Collaborations, Licenses, Research and Development 10.3† Research, Development and Commercialization Agreement,dated December 18, 2008, by and between Hoffmann-LaRoche, Inc., F. Hoffmann-La Roche Ltd and the Registrant. Form 10-Q(Exhibit 10.5) 11/14/16 001-33277 Equity Compensation Plans 10.4* Amended and Restated 2006 Stock Plan. Form 8-K(Exhibit 10.1) 06/21/10 001-33277 10.5* Form of Incentive Stock Option Agreement under 2006 StockPlan. Form S-1/A(Exhibit 10.2(a)) 01/23/07 333-138894 10.6* Form of Nonqualified Stock Option Agreement under 2006Stock Plan. Form S-1/A(Exhibit 10.2(b)) 01/23/07 333-138894 10.7* Form of Restricted Stock Agreement under 2006 Stock Plan. Form S-1/A(Exhibit 10.2(c)) 01/23/07 333-138894 10.8* Form of Nonqualified Stock Option Agreement for Directorsunder 2006 Stock Plan. Form S-1/A(Exhibit 10.2(d)) 01/23/07 333-138894 10.9* Form of Restricted Stock Agreement for Non-EmployeeDirectors under 2006 Stock Plan. Form S-1/A(Exhibit 10.2(e)) 01/23/07 333-138894 10.10* Amended 2015 Stock Plan Form 8-K(Exhibit 10.1) 07/05/17 001-33277 Table of Contents66ExhibitNumber ExhibitDescription FiledHerewith Incorporated byReference hereinfrom Form orSchedule FilingDate SEC File /RegistrationNumber10.11* Form of Incentive Stock Option Agreement under Amended2015 Stock Plan. Form 10-K(Exhibit 10.10) 03/31/17 001-33277 10.12* Form of Nonqualified Stock Option Agreement underAmended 2015 Stock Plan. Form 10-K(Exhibit 10.11) 03/31/17 001-33277 10.13* Form of Restricted Stock Agreement under Amended 2015Stock Plan. Form 10-K(Exhibit 10.12) 03/31/17 001-33277 10.14* Form of Nonqualified Stock Option Agreement for Directorsunder Amended 2015 Stock Plan. Form 10-K(Exhibit 10.13) 03/31/17 001-33277 10.15* Form of Restricted Stock Unit Agreement under Amended2015 Stock Plan. Form 10-Q(Exhibit 10.1) 05/10/16 001-33277 Agreements with Executive Officers and Directors 10.16* Non-Qualified Stock Option Agreement, dated February 27,2008, by and between the Registrant and Keith R. Gollust. Form 10-K(Exhibit 10.4) 03/20/08 001-33277 10.20* Letter Agreement, dated November 24, 2014, between SyntaPharmaceuticals Corp. and Marc R. Schneebaum Form 8-K(Exhibit 10.3) 12/04/14 001-33277 10.23* Severance and Change of Control Agreement, datedNovember 24, 2014, between Synta Pharmaceuticals Corp.and Marc R. Schneebaum. Form 8-K(Exhibit 10.4) 12/04/14 001-33277 10.24* Form of Indemnification Agreement between the Registrantand certain directors and executive officers. Form 8-K(Exhibit 10.2) 07/22/16 001-33277 10.25* Non-Qualified Stock Option Agreement (outside of theAmended and Restated 2006 Stock Plan), dated December 8,2014, between the Registrant and Marc Schneebaum. Form 10-K(Exhibit 10.46) 03/12/15 001-33277 Table of Contents67ExhibitNumber ExhibitDescription FiledHerewith Incorporated byReference hereinfrom Form orSchedule FilingDate SEC File /RegistrationNumber10.26* Letter Agreement, dated April 13, 2016, by and between theCompany and Paul A. Friedman, M.D. Form 8-K(Exhibit 10.3) 07/22/16 001-33277 10.27* Letter Agreement, dated April 13, 2016, by and between theCompany and Rebecca Taub, M.D. Form 8-K(Exhibit 10.4) 07/22/16 001-33277 21.1 List of Subsidiaries. X 23.1 Consent of PricewaterhouseCoopers LLP, IndependentRegistered Public Accounting Firm. X 31.1 Certification of Principal Executive Officer required byRule 13a-14(a) or Rule 15d-14(a) of the Securities ExchangeAct of 1934, as adopted pursuant to Section 302 of theSarbanes-Oxley Act of 2002. X 31.2 Certification of Principal Financial Officer pursuant toRule 13a-14(a) or Rule 15d-14(a) of the Securities ExchangeAct of 1934, as adopted pursuant to Section 302 of theSarbanes-Oxley Act of 2002. X 32.1** Certifications of Principal Executive Officer and PrincipalFinancial Officer pursuant to 18 U.S.C. Section 1350, asadopted pursuant to Section 906 of the Sarbanes-Oxley Act of2002. X 101.INS XBRL Instance Document. X 101.SCH XBRL Taxonomy Extension Schema Document. X 101.CAL XBRL Taxonomy Extension Calculation LinkbaseDocument. X 101.DEF XBRL Taxonomy Extension Definition Linkbase Document. X 101.LAB XBRL Taxonomy Extension Label Linkbase Document. X Table of Contents Item 16. Form 10-K Summary. None.68ExhibitNumber ExhibitDescription FiledHerewith Incorporated byReference hereinfrom Form orSchedule FilingDate SEC File /RegistrationNumber101.PRE XBRL Taxonomy Extension Presentation LinkbaseDocument. X *Indicates a management contract, compensatory plan or arrangement. **The certifications attached as Exhibit 32.1 that accompany this Annual Report on Form 10-K are not deemed filed with the SEC andare not to be incorporated by reference into any filing of the registrant under the Securities Act of 1933, as amended, or the SecuritiesExchange Act of 1934, as amended, whether made before or after the date of this Annual Report on Form 10-K, regardless of anygeneral incorporation language contained in any filing. †Confidential portions of these documents have been filed separately with the Securities and Exchange Commission pursuant to arequest for confidential treatment.Table of Contents SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this Report to besigned on its behalf by the undersigned thereunto duly authorized. POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each individual whose signature appears below hereby constitutes and appoints Paul A. Friedman,M.D. and Marc R. Schneebaum, and each or either of them, acting individually, as his or her true and lawful attorney-in-fact and agent, with full power ofsubstitution and resubstitution for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments to this Report,and to file the same, with all exhibits thereto and other documents in connection therewith, with the SEC, granting unto said attorney-in-fact and agent, andeach of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully forall intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or any of them, ortheir or his or her substitutes, may lawfully do or cause to be done or by virtue hereof. Pursuant to the requirements of the Exchange Act, as amended, this Report has been signed below by the following persons on behalf of the registrantand in the capacities and on the dates indicated.69 MADRIGAL PHARMACEUTICALS INC.Date: February 27, 2019 By: /s/ PAUL A. FRIEDMAN, M.D.Paul A. Friedman, M.D.Chief Executive Officer(Principal Executive Officer)Signatures Title Date /s/ PAUL A. FRIEDMAN, M.D.Paul A. Friedman, M.D. Chairman of the Board of Directors and ChiefExecutive Officer (Principal Executive Officer) February 27, 2019/s/ MARC R. SCHNEEBAUMMarc R. Schneebaum Senior Vice President and Chief FinancialOfficer (Principal Accounting and FinancialOfficer) February 27, 2019/s/ REBECCA TAUB, M.D.Rebecca Taub, M.D. Director February 27, 2019/s/ FRED B. CRAVES, PH.D.Fred B. Craves, Ph.D. Director February 27, 2019Table of Contents70Signatures Title Date /s/ KENNETH M. BATEKenneth M. Bate Director February 27, 2019/s/ KEITH R. GOLLUSTKeith R. Gollust Director February 27, 2019/s/ DAVID MILLIGAN, PH.D.David Milligan, Ph.D. Director February 27, 2019/s/ RICHARD S. LEVY, M.D.Richard S. Levy, M.D. Director February 27, 2019Table of Contents INDEX TO CONSOLIDATED FINANCIAL STATEMENTS F-1 Page Report of Independent Registered Public Accounting Firm F-2 Consolidated Financial Statements: Consolidated Balance Sheets F-4 Consolidated Statements of Operations F-5 Consolidated Statements of Comprehensive Loss F-6 Consolidated Statements of Stockholders' Equity F-7 Consolidated Statements of Cash Flows F-8 Notes to Consolidated Financial Statements F-9 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders ofMadrigal Pharmaceuticals, Inc.Opinions on the Financial Statements and Internal Control over Financial Reporting We have audited the accompanying consolidated balance sheets of Madrigal Pharmaceuticals, Inc. and its subsidiaries (the "Company") as ofDecember 31, 2018 and 2017, and the related consolidated statements of operations, of comprehensive loss, of stockholders' equity and of cash flows for eachof the three years in the period ended December 31, 2018, including the related notes (collectively referred to as the "consolidated financial statements"). Wealso have audited the Company's internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as ofDecember 31, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018 inconformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all materialrespects, effective internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control—Integrated Framework(2013) issued by the COSO.Basis for Opinions The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financialreporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management's Report on Internal Control OverFinancial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company's consolidated financial statements and on theCompany's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company AccountingOversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities lawsand the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtainreasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whethereffective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidatedfinancial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a testbasis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principlesused and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit ofinternal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a materialweakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also includedperforming such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.F-2Table of ContentsDefinition and Limitations of Internal Control over Financial Reporting A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financialreporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internalcontrol over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately andfairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary topermit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the companyare being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regardingprevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financialstatements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluationof effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree ofcompliance with the policies or procedures may deteriorate./s/ PricewaterhouseCoopers LLPPhiladelphia, PennsylvaniaFebruary 27, 2019We have served as the Company's auditor since 2016.F-3Table of Contents MADRIGAL PHARMACEUTICALS, INC. Consolidated Balance Sheets (in thousands, except share and per share amounts) See accompanying notes to consolidated financial statements.F-4 December 31,2018 December 31,2017 Assets Current assets: Cash and cash equivalents $57,379 $148,627 Marketable securities 426,339 42,900 Prepaid expenses and other current assets 1,483 485 Total current assets 485,201 192,012 Property and equipment, net 227 301 Total assets $485,428 $192,313 Liabilities and Stockholders' Equity Current liabilities: Accounts payable $2,487 $1,929 Accrued expenses 5,957 8,125 Total current liabilities 8,444 10,054 Total liabilities 8,444 10,054 Stockholders' equity: Preferred stock, par value $0.0001 per share authorized: 5,000,000 shares at December 31,2018 and December 31, 2017; 1,969,797 shares issued and outstanding at December 31,2018 and December 31, 2017 — — Common stock, par value $0.0001 per share authorized: 200,000,000 at December 31,2018 and December 31, 2017; 15,409,023 and 14,227,634 shares issued andoutstanding at December 31, 2018 and December 31, 2017, respectively 2 1 Additional paid-in-capital 616,573 288,750 Accumulated other comprehensive loss (319) (31)Accumulated deficit (139,272) (106,461)Total stockholders' equity 476,984 182,259 Total liabilities and stockholders' equity $485,428 $192,313 Table of Contents MADRIGAL PHARMACEUTICALS, INC. Consolidated Statements of Operations (in thousands, except share and per share amounts) See accompanying notes to consolidated financial statements.F-5 Years Ended December 31, 2018 2017 2016 Revenues: Total revenues $— $— $— Operating expenses: Research and development 25,389 24,390 15,933 General and administrative 15,293 7,672 9,290 Total operating expenses 40,682 32,062 25,223 Loss from operations (40,682) (32,062) (25,223)Interest expense — — (1,213)Interest income 7,671 558 48 Other income 200 350 — Net loss $(32,811)$(31,154)$(26,388)Net loss per common share: Basic and diluted net loss per common share $(2.22)$(2.54)$(5.07)Basic and diluted weighted average number of common shares outstanding 14,796,712 12,244,939 5,204,644 Table of Contents MADRIGAL PHARMACEUTICALS, INC. Consolidated Statements of Comprehensive Loss (in thousands, except share and per share amounts) See accompanying notes to consolidated financial statements.F-6 Years Ended December 31, 2018 2017 2016 Net Loss $(32,811)$(31,154)$(26,388)Other comprehensive income (loss): Unrealized gain (loss) on available-for-sale securities (288) (56) 25 Comprehensive loss $(33,099)$(31,210)$(26,363)Table of Contents MADRIGAL PHARMACEUTICALS, INC. Consolidated Statements of Stockholders' Equity (in thousands, except share and per share amounts) See accompanying notes to consolidated financial statements.F-7 Preferred stock Common stock Accumulatedothercomprehensiveincome (loss) Additionalpaid-inCapital Accumulateddeficit Totalstockholders'equity Shares Amount Shares Amount Balance at December 31, 2015 — $— 176,158 $— $6 $— $(48,919)$(48,913)Related party debt restructuring — — — — 11,224 — — 11,224 Conversion of convertible notes andrelated accrued interest tocommon stock — — 7,087,186 1 47,592 — — 47,593 Retirement of restricted stock — — (9,689) — — — — — Acquisition of Synta — — 4,029,138 — 38,236 — — 38,236 Issuance of shares to financialadvisors in connection withMerger — — 79,101 — 750 — — 750 Issuance of restricted commonshares — — 208,255 — — — — — Issuance of common shares inequity offerings, net oftransaction costs — — 381,717 — 5,954 — — 5,954 Compensation expense related tostock options for services — — — — 7,929 — — 7,929 Unrealized loss on marketablesecurities — — — — — 25 — 25 Net loss — — — — — — (26,388) (26,388)Balance at December 31, 2016 — $— 11,951,866 $1 $111,691 $25 $(75,307)$36,410 Issuance of common and preferredshares in equity offerings, net oftransaction costs 1,969,797 — 2,275,768 — 173,805 — — 173,805 Compensation expense related tostock options for services — — — — 3,254 — — 3,254 Unrealized loss on marketablesecurities — — — — — (56) — (56)Net loss — — — — — — (31,154) (31,154)Balance at December 31, 2017 1,969,797 $— 14,227,634 $1 $288,750 $(31)$(106,461)$182,259 Issuance of common shares inequity offering, excluding torelated parties, net of transactioncosts — — 1,079,580 1 311,824 — — 311,825 Sale of common shares to relatedparties and exercise of commonstock options, net of transactioncosts — — 101,809 — 2,510 — — 2,510 Compensation expense related tostock options for services — — — — 13,489 — — 13,489 Unrealized loss on marketablesecurities — — — — — (288) — (288)Net loss — — — — — — (32,811) (32,811)Balance at December 31, 2018 1,969,797 $— 15,409,023 $2 $616,573 $(319)$(139,272)$476,984 Table of Contents MADRIGAL PHARMACEUTICALS, INC. Consolidated Statements of Cash Flows (in thousands, except share and per share amounts) See accompanying notes to consolidated financial statements.F-8 Years Ended December 31, 2018 2017 2016 Cash flows from operating activities: Net loss $(32,811)$(31,154)$(26,388)Adjustments to reconcile net loss to net cash used in operating activities: PIK interest expense on convertible promissory notes payable—related parties — — 1,207 Stock-based compensation expense 13,489 3,254 7,929 Other share based compensation — — 750 Depreciation and amortization expense 96 77 — Changes in operating assets and liabilities: Accounts receivable—related parties — — 7 Prepaid expenses and other current assets (998) 502 1,290 Accounts payable 558 917 (128)Accrued expense (2,168) 4,087 (2,281)Accrued interest, net of interest received on maturity of investments (3,673) — — Accrued interest—related party — — 6 Net cash used in operating activities (25,507) (22,317) (17,608)Cash flows from investing activities: Cash received from merger transaction — — 5,849 Purchases of marketable securities (614,358) (70,211) (10,697)Sales and maturities of marketable securities 234,304 48,330 26,063 Purchases of property and equipment, net of disposals (22) (125) (3)Net proceeds from the sale of property, equipment and other assets — — 698 Release of restricted cash — — 83 Net cash provided by (used in) investing activities (380,076) (22,006) 21,993 Cash flows from financing activities: Proceeds from issuances of stock, excluding related parties, net of transactioncosts 311,825 173,805 5,954 Proceeds from the sale of related party stock and exercise of common stockoptions, net of transaction costs 2,510 — — Proceeds from convertible notes—related parties — — 8,500 Net cash provided by financing activities 314,335 173,805 14,454 Net increase (decrease) in cash and cash equivalents (91,248) 129,482 18,839 Cash and cash equivalents at beginning of period 148,627 19,145 306 Cash and cash equivalents at end of period $57,379 $148,627 $19,145 Supplemental disclosure of cash flow information: Exchange of related party advances payable for convertible notes — — 500 Related party debt restructuring — — 13,680 Purchases of property and equipment in accounts payable at period end — 250 — Table of Contents MADRIGAL PHARMACEUTICALS, INC. Notes to Consolidated Financial Statements 1. Organization, Business and Basis of PresentationOrganization 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, is beingadvanced for non-alcoholic steatohepatitis ("NASH"), a liver disease that commonly affects people with metabolic diseases such as obesity and diabetes, andindications in dyslipidemia, potentially including genetic dyslipidemias such as familial hypercholesterolemia ("FH"). The Company initiated a Phase 2study of MGL-3196 in NASH in October 2016. In February 2017, the Company initiated a Phase 2 study of MGL-3196 in patients with HeterozygousFamilial Hypercholesterolemia ("HeFH"). Both Phase 2 studies were fully enrolled in 2017, the HeFH study was completed in February 2018, and theNASH study was completed in May 2018. Madrigal was originally incorporated as a private company ("Private Madrigal") on August 19, 2011 and commenced operations in September 2011. OnJuly 22, 2016, Private Madrigal completed a reverse merger (the "Merger") into Synta Pharmaceuticals Corp. ("Synta") (see Note 3). Upon the consummationof the Merger, the historical financial statements of Private Madrigal became the Company's historical financial statements. Accordingly, the historicalfinancial statements of Private Madrigal are included in the comparative prior periods. The Company, or Madrigal, as used in the accompanying notes to theconsolidated financial statements, refers to Private Madrigal prior to the completion of the Merger and Public Madrigal subsequent to the completion of theMerger.2. Summary of Significant Accounting PoliciesPrinciple of Consolidation The consolidated financial statements include the financial statements of the Company and its wholly owned subsidiaries. All significant intercompanybalances and transactions 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 reportedamounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenuesand expenses during the reporting periods. The Company bases its estimates on historical experience and various other assumptions that managementbelieves to be reasonable under the circumstances. Changes in estimates are recorded in the period in which they become known. Actual results could differfrom those estimates.Cash and Cash Equivalents The Company considers all highly liquid investments with original maturities of three months or less at the date of purchase to be cash equivalents. TheCompany 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 notenter into investments for trading or speculative purposes. The Company's cash is deposited in highly rated financial institutions in the United States. TheCompany invests in money market funds and high-grade, short-term commercial paper and corporate bonds, which management believes are subject tominimal credit and market risk.F-9Table of ContentsMADRIGAL PHARMACEUTICALS, INC.Notes to Consolidated Financial Statements (Continued)2. Summary of Significant Accounting Policies (Continued)Marketable Securities Marketable securities consist of investments in high-grade corporate obligations, and government and government agency obligations that are classifiedas 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 Companyincludes such amortization and accretion as a component of interest income, net. Realized gains and losses and declines in value, if any, that the Companyjudges 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 costbasis. During the years ended December 31, 2018, 2017 and 2016, the Company determined it did not have any securities that were other-than-temporarilyimpaired. Marketable securities are stated at fair value, including accrued interest, with their unrealized gains and losses included as a component of accumulatedother comprehensive income or loss, which is a separate component of stockholders' equity. The fair value of these securities is based on quoted prices andobservable inputs on a recurring basis. Realized gains and losses are determined on the specific identification method. During the years ended December 31,2018, 2017 and 2016, 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 anorderly 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 orliabilities 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 assetor 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 fairvalue measurement. The Company measures the fair value of its marketable securities by taking into consideration valuations obtained from third-partypricing sources. The pricing services utilize industry standard valuation models, including both income and market based approaches, for which allsignificant inputs are observable, either directly or indirectly, to estimate fair value. These inputs include reported trades of and broker-dealer quotes on thesame or similar securities, issuer credit spreads, benchmark securities and other observable inputs.F-10Table of ContentsMADRIGAL PHARMACEUTICALS, INC.Notes to Consolidated Financial Statements (Continued)2. Summary of Significant Accounting Policies (Continued)As of December 31, 2018 and 2017, the Company's financial assets valued based on Level 1 inputs consisted of cash and cash equivalents in a money marketfund and its financial assets valued based on Level 2 inputs consisted of high-grade corporate bonds and commercial paper. During the years endedDecember 31, 2018, 2017 and 2016, the Company did not have any transfers of financials assets between Levels 1 and 2. As of December 31, 2018 and 2017,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 anddevelopment activities, including internal costs (including stock-based compensation), costs for consultants, and other costs associated with the Company'spreclinical and clinical programs. In particular, Madrigal has conducted safety studies in animals, optimized and implemented the API manufacturing, andconducted Phase 1 & 2 clinical trials, all of which are considered research and development expenditures.Patents Costs to secure and defend patents are expensed as incurred and are classified as general and administrative expense in the Company's statements ofoperations. Patent expenses were approximately $226 thousand, $176 thousand and $242 thousand for the years ended December 31, 2018, 2017 and 2016,respectively.Stock-Based Compensation The Company recognizes stock-based compensation expense based on the grant date fair value of stock options granted to employees, officers anddirectors. The Company uses the Black-Scholes option pricing model to determine the grant date fair value as management believes it is the most appropriatevaluation method for its option grants. The Black-Scholes model requires inputs for risk-free interest rate, dividend yield, expected volatility and expectedlives of the options. The expected lives for options granted represent the period of time that options granted are expected to be outstanding. The Companyuses the simplified method for determining the expected lives of options. Expected volatility is based upon an industry estimate. The risk-free rate for periodswithin 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 ratebased 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 theemployee does not meet the holding requirements, a disqualifying disposition occurs, at which time the Company may receive a tax deduction. TheCompany does not record tax benefits related to ISOs unless and until a disqualifying disposition is reported. In the event of a disqualifying disposition, theentire tax benefit is recorded as a reduction of income tax expense. The Company has not recognized any income tax benefit for its share-based compensationarrangements due to the fact that the Company does not believe it is more likely than not it will realize the related deferred tax assets.F-11Table of ContentsMADRIGAL PHARMACEUTICALS, INC.Notes to Consolidated Financial Statements (Continued)2. Summary of Significant Accounting Policies (Continued)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 expectedfuture tax consequences of temporary differences between the Company's financial statement carrying amounts and the tax basis of assets and liabilities usingenacted tax rates expected to be in effect in the years in which the differences are expected to reverse. The Company currently maintains a 100% valuationallowance 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 fromnon-owner sources. Changes in unrealized gains and losses on marketable securities represent the only difference between the Company's net loss andcomprehensive 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 thathas been issued but is not yet vested. Diluted net loss per common share is computed using the weighted average number of common shares outstanding andthe weighted average dilutive potential common shares outstanding using the treasury stock method. However, for the years ended December 31, 2018, 2017and 2016, diluted net loss per share is the same as basic net loss per share as the inclusion of weighted average shares of unvested restricted common stockand common stock issuable upon the exercise of stock options 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 beanti-dilutive:Recent Accounting Pronouncements In June 2018, The Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2018-07, "Improvements toNonemployee Share-Based Payment Accounting" to simplify the accounting for share-based payment transactions with non-employees of the Company. Theguidance within this accounting standard update generally requires that share-based payment transactions for acquiring goods or services from non-employees of the Company be accounted for under the same guidance and model as all other share-based payment transactions, including employees of theCompany. For public business entities, ASU 2018-07 is effective for annual and interim reporting periods beginning after December 15, 2018, with earlyadoption permitted. The Company elected to early adopt the guidance within this accounting standard update in the second quarter of 2018. There was nosignificant impact from the adoption.F-12 As of December 31, 2018 2017 2016 Common stock options 1,132,618 976,777 784,011 Unvested restricted common stock 52,063 104,127 157,262 Preferred stock 1,969,797 1,969,797 — Table of ContentsMADRIGAL PHARMACEUTICALS, INC.Notes to Consolidated Financial Statements (Continued)2. Summary of Significant Accounting Policies (Continued) In May 2017, the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update ("ASU") No. 2017-09, "Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting," to provide clarity and reduce both diversity in practice, and cost and complexitywhen a change is made to the terms or conditions of a share-based payment award. For public business entities, ASU 2017-09 is effective for annual andinterim reporting periods beginning after December 15, 2017, with early adoption permitted. The update should be applied prospectively to an awardmodified on or after the adoption date. There was no significant impact from the adoption. In March 2016, the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update ("ASU") No. 2016-09, "Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting," which was designed to simplify several aspects of theaccounting for share-based payment transactions, including, among other things, guidance related to accounting for income taxes, modification of the criteriafor classification of awards as either equity awards or liability awards where an employer withholds shares from an employee's share-based award for taxwithholding purposes, and classification on the statement of cash flows of cash payments to a tax authority by an employer that withholds shares from anemployee's award for tax withholding purposes. The amendments in this ASU are effective for annual periods beginning after December 15, 2016, and interimperiods within those annual periods. The Company adopted ASU No. 2016-09 effective January 1, 2017. There was no significant impact from the adoptionof ASU No. 2016-09 because the Company currently maintains a 100% valuation allowance on its deferred tax assets. In August 2016, the FASB issued ASU No. 2016-15, "Statement of Cash Flows (Topic 230): Clarification of Certain Cash Receipts and Cash Payments."The objective of ASU No. 2016-15 is to eliminate the diversity in practice related to the classification of certain cash receipts and payments in the statementof cash flows, by adding or clarifying guidance on eight specific cash flow issues. For public business entities, ASU 2016-15 is effective for annual andinterim reporting periods beginning after December 15, 2017, with early adoption permitted. ASU 2015-16 provides that the amendments in the updateshould be applied retrospectively to all periods presented, unless deemed impracticable, in which case, prospective application is permitted. There was nosignificant impact from the adoption. In January 2016, the FASB issued ASU No. 2016-01, "Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of FinancialAssets and Financial Liabilities," which amends the guidance in U.S. generally accepted accounting principles on the classification and measurement offinancial instruments. Changes to the current guidance primarily affect the accounting for equity investments, financial liabilities under the fair value option,and the presentation and disclosure requirements for financial instruments. In addition, the ASU clarifies guidance related to the valuation allowanceassessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities. The amendments in this ASU areeffective for fiscal years and interim periods beginning after December 15, 2017, and are to be adopted by means of a cumulative-effect adjustment to thebalance sheet at the beginning of the first reporting period in which the guidance is effective. Early adoption is not permitted except for the provision torecord fair value changes for financial liabilities under the fair value option resulting from instrument-specific credit risk in other comprehensive income.There was no significant impact from the adoption.F-13 Table of ContentsMADRIGAL PHARMACEUTICALS, INC.Notes to Consolidated Financial Statements (Continued)3. Reverse Merger On July 22, 2016, the Company, Synta and Saffron Merger Sub, Inc., a wholly-owned subsidiary of Synta ("Merger Sub"), completed their mergertransaction pursuant to which Merger Sub merged with and into the Company with the Company becoming a wholly-owned subsidiary of Synta and thesurviving corporation of the merger. Each outstanding share of private Madrigal common stock was converted into 0.1593 shares of common stock of thepost-merger combined company. As a result, Synta issued 7.3 million shares of common stock to the stockholders of private Madrigal in exchange forcommon shares of private Madrigal. For accounting purposes, the Company is considered to be acquiring Synta in the merger. The Company was determinedto be the accounting acquirer based upon the terms of the Merger Agreement and other factors including: (i) Madrigal security holders own approximately64% of the voting interests of the combined company immediately following the closing of the merger; (ii) directors appointed by Madrigal hold a majorityof board seats in the combined company; and (iii) Madrigal management hold a majority of the key positions in the management of the combined company.As the accounting acquirer, the Company's assets and liabilities continue to be recorded at their historical carrying amounts and the historical operations thatwill be reflected in the financial statements will be those of the Company. Immediately prior to the closing of the merger, Synta completed a one-for-35 reverse stock split. Following the reverse stock split and the merger, thepost-merger combined company had approximately 11.3 million shares outstanding and the former stockholders of the Company owned approximately 64%of the outstanding capital stock of the post-merger combined company. The impact of the recapitalization of the Company has been retroactively applied toall periods presented. Upon the closing of the merger transaction, the Company incurred an expense for a success fee of $750 thousand in cash, plus settled $750 thousand forboth parties in shares of the post-merger combined company's common stock with a third party financial advisor.Purchase Price Pursuant to the Merger Agreement, Synta issued to Madrigal stockholders a number of shares of Synta common stock representing approximately 64% ofthe outstanding shares of common stock of the combined company. The purchase price, which represents the consideration transferred to Synta stockholdersin the reverse merger is calculated based on the number of shares of common stock of the combined company that Synta stockholders will own as of theclosing of the merger, which consists of the following:F-14Number of shares of the combined company to be owned by Synta stockholders(1) 4,032,734 Multiplied by the fair value of Synta common stock(2) $9.48 Purchase price (in thousands) $38,236 (1)Represents the number of shares of common stock of the combined company that Synta stockholders owned as of the closingof the merger pursuant to the Merger Agreement, including restricted stock awards and common stock underlying outstandingrestricted stock units attributed to pre-combination services rendered by certain Synta employees and directors. This amount iscalculated as 3,937,309 shares of Synta common stock outstanding as of July 22, 2016, including unvested restricted commonstock, plus 95,425 shares of Synta common stock issuable pursuant to restricted stock units, net of taxTable of ContentsMADRIGAL PHARMACEUTICALS, INC.Notes to Consolidated Financial Statements (Continued)3. Reverse Merger (Continued) Under the acquisition method of accounting, the total purchase price is allocated to the acquired tangible and intangible assets and assumed liabilities ofSynta based on their estimated fair values as of the merger closing date. The excess of the purchase price over the fair value of assets acquired and liabilitiesassumed, if any, is allocated to goodwill. The allocation of the purchase price to the acquired assets and liabilities assumed of Synta based on the fair valuesas of July 22, 2016 is as follows, including measurement period adjustments since the fair values presented in the Company's Form 10-Q for the quarter endedSeptember 30, 2016 (in thousands): The Company's measurement period adjustments were complete as of December 31, 2016. As a result of the measurement period adjustments recordedabove, there was no gain or losses on the disposed tangible or intangible assets.Convertible Promissory Notes-Related Parties Immediately prior to the consummation of the merger, the September 14, 2011, September 16, 2011 and March 1, 2016 (amended and restated April 13,2016) convertible note issuances outstanding totaling $47.6 million on July 22, including accrued but unpaid interest, were converted into 7.1 million sharesof common stock on a post-split basis of the Company pursuant to their respective amended and restated terms (see Note 6).Bonus Plan Awards Pursuant to the terms of the Change in Control Bonus Plan, the participants therein received 0.6 million shares of common stock of the Company fromcertain former stockholders of the CompanyF-15withholdings, that vested immediately upon closing of the merger. The number of shares of common stock Synta issued toMadrigal stockholders was 7,253,655, calculated pursuant to the terms of the Merger Agreement based on Synta's commonstock outstanding as of July 22, 2016.(2)The fair value of Synta common stock used in determining the purchase price was $9.48, which was derived from the $0.2709per share closing price of Synta common stock on July 21, 2016, the current price at the time of the closing, adjusted for the 1-for-35 reverse stock split. July 22, 2016 Measurementperiodadjustments July 22 2016(As adjusted) Cash, cash equivalents and marketable securities $42,611 $42,611 Prepaid expenses and other currents assets 1,715 1,715 Property and equipment, net 482 65 547 Accounts payable, accrued expenses and other liabilities (7,019) (7,019)Term loans and capital lease obligations (18) (18)In-process research and development 150 250 400 Goodwill 315 (315) — Net assets acquired $38,236 $38,236 Table of ContentsMADRIGAL PHARMACEUTICALS, INC.Notes to Consolidated Financial Statements (Continued)3. Reverse Merger (Continued)in connection with the merger, which represented 7.87% of Madrigal's common shares outstanding at the time of the merger. The Company recorded$5.4 million in stock compensation associated with the transaction (see Note 9).Stock Based Compensation Following the consummation of the merger, the Company issued a combined 208,255 shares of restricted common stock and 557,386 stock options topurchase shares of common stock to the new Chief Executive Officer, Chief Medical Officer and Executive Vice President, Research and Development, andChief Financial Officer and Senior Vice President.4. Liquidity and Uncertainties The Company is subject to risks common to development stage companies in the Bio-Pharmaceutical industry including, but not limited to, uncertaintyof 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 andcommercialization, and compliance with the U.S. Food and Drug Administration and other government regulations. The Company has incurred losses since inception, including approximately $32.8 million for the year ended December 31, 2018, resulting in anaccumulated deficit of approximately $139.3 million and $106.5 million as of December 31, 2018 and 2017, respectively. Management expects to incurlosses for the foreseeable future. To date, the Company has funded its operations primarily through the issuance of convertible debt (see Note 6), the proceedsfrom the Merger on July 22, 2016 (see Note 3), and proceeds from sales of the Company's common and Series A Convertible Preferred Stock (see Note 8). The Company believes that its cash, cash equivalents and marketable securities at December 31, 2018 will be sufficient to fund operations past one yearfrom the issuance of these financial statements. To meet its future capital needs, the Company intends to raise additional capital through debt or equityfinancings, collaborations, partnerships or other strategic transactions. However, there can be no assurance that the Company will be able to complete anysuch transactions on acceptable terms or otherwise. The inability of the Company to obtain sufficient funds on acceptable terms when needed could have amaterial adverse effect on the Company's business, results of operations and financial condition. The Company has the ability to delay certain researchactivities and related clinical expenses if necessary due to liquidity concerns until a date in which those concerns are relieved.F-16Table of ContentsMADRIGAL PHARMACEUTICALS, INC.Notes to Consolidated Financial Statements (Continued)5. Cash, Cash Equivalents and Marketable Securities A summary of cash, cash equivalents and available-for-sale marketable securities held by the Company as of December 31, 2018, 2017 and 2016 is asfollows (in thousands): F-17 December 31, 2018 Cost Unrealizedgains Unrealizedlosses Fairvalue Cash and cash equivalents: Cash (Level 1) $2,004 $— $— $2,004 Money market funds (Level 1) 43,401 — — 43,401 Corporate debt securities due within 3 months of date of purchase(Level 2) 11,974 — — 11,974 Total cash and cash equivalents 57,379 — — 57,379 Marketable securities: Corporate debt securities due within 1 year of date of purchase(Level 2) 426,658 14 (333) 426,339 Total cash, cash equivalents and marketable securities $484,037 $14 $(333)$483,718 December 31, 2017 Cost Unrealizedgains Unrealizedlosses Fairvalue Cash and cash equivalents: Cash (Level 1) $2,725 $— $— $2,725 Money market funds (Level 1) 145,902 — — 145,902 Corporate debt securities due within 3 months of date of purchase(Level 2) — — — — Total cash and cash equivalents 148,627 — — 148,627 Marketable securities: Corporate debt securities due within 1 year of date of purchase(Level 2) 42,931 — (31) 42,900 Total cash, cash equivalents and marketable securities $191,558 $— $(31)$191,527 Table of ContentsMADRIGAL PHARMACEUTICALS, INC.Notes to Consolidated Financial Statements (Continued)5. Cash, Cash Equivalents and Marketable Securities (Continued)6. Convertible Promissory Notes—Related Parties Prior to the Merger, the Company was financed via issuances of convertible promissory notes, designated as "the September 14, 2011 Notes", "theSeptember 16, 2011 Notes", and "the March 1, 2016 Notes", respectively (collectively "the Notes"). The Notes accrued interest at 8% per annum,compounded monthly, and were collateralized by all assets of the Company. Effective April 13, 2016, in connection with execution of the Merger Agreement, the Notes were amended and restated, primarily to provide formandatory conversion upon completion of the Merger. On that same date, the lenders collectively waived all accrued and unpaid interest under all of theconvertible notes. The total accrued and waived interest amounted to $13.7 million. The lenders also agreed that no additional interest on these notes wouldbe accrued through the date on which the Merger was consummated or terminated. Also on April 13, 2016, the Company reduced the convertible notespayable by the waived accrued interest less $2.5 million of accrued interest for the period April 14, 2016 through the maturity date of December 31, 2016, asrequired under Troubled Debt Restructuring accounting guidance. The net waived interest of $11.2 million was recorded as an increase in Additional Paid inCapital ("APIC") at the time of the amendment, as the notes were held by related parties. The remaining $2.5 million of accrued interest was recorded as anincrease in APIC upon conversion at the Merger. During the period March 1, 2016 through the Merger, the lenders provided convertible promissory note financing of $8.5 million in cash. Additionally,on April 13, 2016, one of the lenders exchanged $0.5 million of Advances Payable for an equal amount of convertible promissory notes.7. Advances Payable—Related Party On June 29, 2015 and July 30, 2015 a related party agreed to advance the Company a total of $500 thousand to be used for working capitalrequirements. The advances accrued interest at a rate of four percent (4%) per annum compounded annually. On April 13, 2016, these advances wereexchanged for $500 thousand in convertible promissory notes payable and all accrued interest was waived (see Note 6).F-18 December 31, 2016 Cost Unrealizedgains Unrealizedlosses Fairvalue Cash and cash equivalents: Cash (Level 1) $5,651 $— $— $5,651 Money market funds (Level 1) 13,494 — — 13,494 Corporate debt securities due within 3 months of date of purchase(Level 2) — — — — Total cash and cash equivalents 19,145 — — 19,145 Marketable securities: Corporate debt securities due within 1 year of date of purchase (Level 2) 21,330 25 — 21,355 Total cash, cash equivalents and marketable securities $40,475 $25 $— $40,500 Table of ContentsMADRIGAL PHARMACEUTICALS, INC.Notes to Consolidated Financial Statements (Continued)8. Stockholders' Equity (Deficit)Common Stock Each common stockholder is entitled to one vote for each share of common stock held. The common stock will vote together with all other classes andseries of stock of the Company as a single class on all actions to be taken by the Company's stockholders. Each share of common stock is entitled to receivedividends, 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.June 2018 Registered Offering of Common Stock In June 2018, the Company entered into an underwriting agreement with Goldman Sachs & Co. LLC, as representative of the several underwriters namedtherein (the "June 2018 Underwriters"), relating to an underwritten public offering (the "June 2018 Offering") of 1,079,580 shares of the Company's commonstock, including 95,973 shares of the Company's common stock purchased by the June 2018 Underwriters pursuant to a 30-day option to purchase suchadditional shares granted therein, at a public offering price of $305.00 per share. The June 2018 Offering resulted in gross proceeds to the Company ofapproximately $329.3 million, and net proceeds to the Company of approximately $311.8 million, after deducting the June 2018 Underwriters' discount andother offering costs. The June 2018 Offering closed on June 11, 2018.December 2017 Registered Offering of Common Stock In December 2017, the Company entered into an underwriting agreement (the "Underwriting Agreement") with Goldman Sachs & Co. LLC, asrepresentative of the several underwriters named therein (the "Underwriters"), relating to an underwritten public offering (the "December 2017 Offering") of1,731,929 shares of the Company's common stock, including 225,904 shares of the Company's common stock purchased by the Underwriters pursuant to a30-day option to purchase such additional shares granted therein, at a public offering price of $83.00 per share. The December 2017 Offering resulted in grossproceeds to the Company of approximately $143.8 million, and net proceeds to the Company of approximately $135.7 million, after deducting theUnderwriters' discount and other estimated offering expenses payable by the Company. The December 2017 Offering closed on December 21, 2017.June 2017 Private Placement Offering and Series A Convertible Preferred Stock In June 2017, the Company entered into a Securities Purchase Agreement (the "Purchase Agreement)" with a group of institutional accredited investors,who were existing, non-controlling stockholders of the Company, pursuant to which the Company sold securities to the Investors in a private placementtransaction (the "June 2017 Offering"). Under the terms of the Purchase Agreement, the Company sold 328,300 shares of its common stock at a price of$15.23 per share, and 1,969,797 shares of its Series A Convertible Preferred Stock (the "Series A Preferred Stock") at a price of $15.23 per share. The June2017 Offering resulted in gross proceeds to the Company of approximately $35.0 million, and net proceeds to the Company of approximately $34.9 million.The June 2017 Offering closed on June 23, 2017.F-19Table of ContentsMADRIGAL PHARMACEUTICALS, INC.Notes to Consolidated Financial Statements (Continued)8. Stockholders' Equity (Deficit) (Continued) 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 toadjustment as provided in the Purchase Agreement. The terms of the Series A Preferred Stock are set forth 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.Each share of the Series A Preferred Stock is convertible into shares of Common Stock at any time at the holder's option. Upon any liquidation, dissolution orwinding-up of the Company, whether voluntary or involuntary, after the satisfaction in full of the debts of the Company and the payment of any liquidationpreference 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 theSeries 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 ofthe 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 Stockwill 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 theCommon Stock) equal to the dividend payable on each share of the Common Stock, on an as-converted basis.At-The-Market Issuance Sales Agreement In October 2015, the Company entered into an at-the-market issuance sales agreement (the "October 2015 Sales Agreement"), with Cowen andCompany, LLC ("Cowen"), pursuant to which the Company may issue and sell shares of its common stock, having an aggregate offering price of up to$100 million, from time to time, at the Company's option, through Cowen as its sales agent. Sales of common stock through Cowen may be made by anymethod that is deemed an "at-the-market" offering as defined in Rule 415 promulgated under the Securities Act of 1933, as amended, including by means ofordinary brokers' transactions at market prices, in block transactions or as otherwise agreed by the Company and Cowen. Subject to the terms and conditionsof the October 2015 Sales Agreement, Cowen will use commercially reasonable efforts consistent with its normal trading and sales practices to sell thecommon stock based upon the Company's instructions (including any price, time or size limits or other customary parameters or conditions the Companymay impose). The Company is not obligated to make any sales of its common stock under the October 2015 Sales Agreement. Any shares sold will be soldpursuant to an effective shelf registration statement on Form S-3 (file no. 333-206135). The Company will pay Cowen a commission of up to 3% of the grossproceeds. The October 2015 Sales Agreement may be terminated by the Company at any time upon 10 days' notice. As of December 31, 2018, 597,256 shares have been sold under the October 2015 Sales Agreement for an aggregate of approximately $9.6 million ingross proceeds. Net proceeds to the Company were approximately $9.4 million after deducting commissions and other transactions costs. Of those sharessold, no shares were sold in 2018 and 215,539 shares were sold in 2017 for an aggregate of approximately $3.5 million in gross proceeds, and $3.4 million innet proceeds. Approximately $90.4 million remained reserved under the Company's shelf registration statement and the applicable prospectus supplement forpossible future issuance under the October 2015 Sales Agreement.9. Stock-based Compensation In June 2015, upon obtaining stockholder approval at its annual shareholder meeting, the Company implemented its new 2015 Stock Plan. The 2015Stock Plan replaced the 2006 Stock PlanF-20Table of ContentsMADRIGAL PHARMACEUTICALS, INC.Notes to Consolidated Financial Statements (Continued)9. Stock-based Compensation (Continued)which was terminated upon adoption of the 2015 Stock Plan. Shares of common stock reserved for outstanding awards under the 2006 Stock Plan that lapseor are cancelled will be added back to the share reserve available for future awards under the 2015 Stock Plan. The 2015 Stock Plan provides for the grant ofincentive stock options, non-statutory stock options, restricted stock and other stock-based compensation awards to employees, officers, directors andconsultants of the Company. The administration of the 2015 Stock Plan is under the general supervision of the compensation committee of the board ofdirectors. The exercise price of the stock options is determined by the compensation committee of the board of directors, provided that incentive stockoptions are granted with an exercise price not less than fair market value of the common stock on the date of grant and expire no later than ten years from thedate the option is granted. As of December 31, 2018, the Company had options outstanding to purchase 1,132,618 shares of its common stock, whichincludes options outstanding under its 2006 Stock Plan that was terminated in June 2015. As of December 31, 2018, 1,200,845 shares were available forfuture issuance. The following table summarizes stock option activity during the twelve months ended December 31, 2018: The total cash received by the Company as a result of stock option exercises was $2.1 million in the year ended December 31, 2018 and $0.0 in each ofthe years ended December 31, 2017 and 2016. The total intrinsic value of options exercised was $18.8 million in the year ended December 31, 2018. Theweighted-average grant date fair values, based on the Black-Scholes option model, of options granted during the year ended December 31, 2018, 2017 and2016 was $137.49, $13.30 and $7.50, respectively.Restricted Common Stock The Company's share-based compensation plan provides for awards of restricted shares of common stock to employees, officers, directors and consultantsto the Company. Restricted stock awards are subject to forfeiture if employment or service terminates during the prescribed retention period. Restricted sharesvest over the service period.F-21 Shares Weightedaverageexerciseprice Weightedaverageremainingcontractuallife (years) Aggregateintrinsicvalue(in thousands) Outstanding at January 1, 2018 976,777 $11.97 Options granted 266,400 174.13 Options exercised (101,809) 20.95 Options cancelled (8,750) 113.81 Outstanding at December 31, 2018 1,132,618 $48.52 8.01 $89,086 Exercisable at December 31, 2018 623,657 $12.31 7.59 $63,221 Table of ContentsMADRIGAL PHARMACEUTICALS, INC.Notes to Consolidated Financial Statements (Continued)9. Stock-based Compensation (Continued) The following table summarizes unvested restricted share activity during the year ended December 31, 2018:Stock-Based Compensation Expense Stock-based compensation expense during the years ended December 31, 2018, 2017 and 2016 was as follows (in thousands): Unrecognized stock-based compensation expense as of December 31, 2018 was as follows (in thousands):F-22 Shares Weightedaverageexerciseprice Outstanding at January 1, 2018 104,127 $9.45 Vested (52,064) 9.45 Outstanding at December 31, 2018 52,063 $9.45 Years Ended December 31, 2018 2017 2016 Stock-based compensation expense by type of award: Stock options $12,997 $2,662 $1,782 Restricted stock 492 592 736 Change in control bonus plan (see note 3) — — 5,411 Total stock-based compensation expense $13,489 $3,254 $7,929 Effect of stock-based compensation expense by line item: Research and development $3,707 $883 $5,387 General and administrative 9,782 2,371 2,542 Total stock-based compensation expense included in net loss $13,489 $3,254 $7,929 Unrecognizedstockcompensationexpense Weightedaverageremainingperiod(in years) Stock options $23,646 2.40 Restricted stock 272 0.55 Total $23,918 2.38  Table of ContentsMADRIGAL PHARMACEUTICALS, INC.Notes to Consolidated Financial Statements (Continued)10. Related Party TransactionsRelated Party Financing For the years ended December 31, 2018, 2017 and 2016, the Company incurred approximately $0.0, $0.0 and $1.2 million, respectively of interestexpense to related party lenders which was subsequently waived (see Note 6). This debt was converted to equity at the time of the Merger.Consulting Agreement The Company had a consulting agreement with its former Chief Executive Officer ("CEO"), who is also a stockholder of the Company. The consultingagreement automatically renewed monthly unless terminated. The consulting agreement could be terminated upon fifteen (15) day notice by the Company orthe CEO. The consultant was paid $0 for the years ended December 31, 2018 and 2017, respectively, and $93 thousand for the year ended December 31,2016. On July 22, 2016, this consulting agreement was replaced by an employment agreement for the position of Chief Medical Officer ("CMO") upon thecompletion of the Merger (see Note 3).11. Commitments and Contingencies The Company has a Research, Development and Commercialization Agreement with Hoffmann-La Roche ("Roche") which grants the Company a soleand 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, the remainder of which total $10 million and are earned by the commencement of Phase 3clinical trials as well as future regulatory approval in the United States and Europe of a product developed from MGL-3916. A single-digit royalty paymentrange is based on net sales of products developed from MGL-3196, subject to certain reductions. In October 2016 the Company commenced a Phase 2 studyin Non-Alcoholic Steatohepatitis (NASH), which triggered a milestone payment under the agreement. Except as described above, the Company has notachieved any additional product development or regulatory milestones to date and has no Licensed Product sales for the years ended December 31, 2018,2017 and 2016. During 2018, the Company has entered into several customary contractual arrangements and letters of intent in preparation for and in support of thePhase 2 and 3 clinical trials.12. Income Taxes At December 31, 2018, the Company had federal net operating loss ("NOL") carryforwards of approximately $54.6 million and state operating losscarryforwards of approximately $43.3 million, available to reduce future taxable income, which expire between 2031 and 2037. The Company has unusedfederal research and development carryforwards of approximately $3.3 million which will begin to expire in 2031. The Internal Revenue Code ("IRC") limits the amounts of NOL carryforwards that a Company may use in any one year in the event of certain cumulativechanges in ownership over a three-year period as described in Section 382 of the IRC. Such change in ownership could limit the Company's utilization of theNOL, and could be triggered by subsequent sales of securities by the Company or stockholders. The deferred tax asset related to the NOL reflected on thefinancial statements could be affected by this limitation. Although a formal analysis has not been completed, the Company hasF-23Table of ContentsMADRIGAL PHARMACEUTICALS, INC.Notes to Consolidated Financial Statements (Continued)12. Income Taxes (Continued)determined that an ownership change likely occurred for Madrigal during the year ended December 31, 2017. The net operating losses are expected to besubject to an annual limitation; however, none of these NOLs is expected to expire before becoming available to reduce future taxable income. The Company has analyzed the tax effect of the merger and concluded that an ownership change did take place for IRC 382 purposes. Based on thevalue of the business, Synta's federal net operating losses and R&D credits are no longer available to be used by the Company. Further, the Company hasconcluded that the transaction did not trigger an ownership change for Madrigal. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion of the deferred tax assetswill not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in whichthose temporary differences become deductible. As there is no assurance of future taxable income, a full valuation allowance has been established to offsetthe deferred tax assets. The valuation allowance increased $17.5 million for the year ended December 31, 2018. Changes in the deferred tax asset will berecorded as an income tax benefit or expense on the accompanying consolidated statements of operations. Entities are also required to evaluate, measure, recognize and disclose any uncertain income tax provisions taken on their income tax returns. TheCompany has analyzed its tax positions and has concluded that as of December 31, 2018 there were no uncertain positions. The 2012 through 2017 taxreturns are open to review by the IRS and state taxing authorities. Interest and penalties, if any, as they relate to income taxes assessed, are included in theincome tax provision. There was no income tax related interest and penalties included in the income tax provision for 2018.F-24Table of ContentsMADRIGAL PHARMACEUTICALS, INC.Notes to Consolidated Financial Statements (Continued)12. Income Taxes (Continued) Temporary differences that give rise to deferred tax assets and liabilities are as follows (in thousands): Differences between the effective income tax rate and the US statutory rate were as follows (in thousands):F-25 For the years ended December 31, 2018 2017 2016 Deferred Tax Liabilities Stock Compensation $— $— $270 Unrealized Gains on Investments — — 13 Total Deferred Tax Liabilities $— $— $283 Deferred Tax Assets Charitable Contributions $13 $4 $4 Accrued Expenses 498 421 — Intangibles 477 579 997 Stock Compensation 4,395 605 — Property, Plant & Equipment 9 — — Unrealized Loss on Investment 92 9 — Net Operating Losses 14,851 9,229 12,749 Capitalized R&D 15,108 8,671 4,226 R&D Credit 3,505 1,901 846 Total deferred tax assets before valuation allowance 38,948 21,419 18,822 Valuation Allowance (38,948) (21,419) (18,539)Total deferred tax assets — — 283 Net deferred tax assets $— $— $— For the years endedDecember 31, 2018 2017 2016 Tax benefit at U.S. federal statutory rate (6,890)$(10,592)$(8,972)Non-deductible interest expenses — — 410 Stock based compensation (3,415) 138 407 Transaction Costs — — 256 Effect of tax reform, change in federal tax rate — 9,260 — Other Nondeductible Expenses — 1 1 State income taxes benefit before valuation allowance, net of federalbenefit (5,460) (704) (1,491)Increase in domestic valuation allowance 17,529 2,880 9,750 Research and development credit (1,604) (825) (390)Other adjustments (160) (158) 29 Income tax expense (benefit) $— $— $— Table of ContentsMADRIGAL PHARMACEUTICALS, INC.Notes to Consolidated Financial Statements (Continued)13. Quarterly Financial Data (unaudited) The following tables present a summary of quarterly results of operations for 2018 and 2017 (in thousands, except shares and per share data): F-26 Three months ended March 31,2018 June 30,2018 September 30,2018 December 31,2018 Revenues: Total revenues $— $— $— $— Operating expenses: Research and development 5,198 5,109 6,211 8,871 General and administrative 1,871 2,717 5,122 5,583 Total operating expenses 7,069 7,826 11,333 14,454 Loss from operations (7,069) (7,826) (11,333) (14,454)Interest expense — — — — Interest income 705 1,166 2,821 2,979 Other income — 200 — — Net loss $(6,364)$(6,460)$(8,512)$(11,475)Net loss per common share: Basic and diluted net loss per common share $(0.45)$(0.45)$(0.56)$(0.75)Basic and diluted weighted average number of commonshares outstanding 14,127,868 14,383,720 15,307,872 15,348,358 Three months ended March 31,2017 June 30,2017 September 30,2017 December 31,2017 Revenues: Total revenues $— $— $— $— Operating expenses: Research and development 4,380 6,816 6,682 6,512 General and administrative 1,695 1,623 1,955 2,399 Total operating expenses 6,075 8,439 8,637 8,911 Loss from operations (6,075) (8,439) (8,637) (8,911)Interest expense — — — — Interest income 76 92 174 216 Other income — — 100 250 Net loss $(5,999)$(8,347)$(8,363)$(8,445)Net loss per common share: Basic and diluted net loss per common share $(0.50)$(0.69)$(0.68)$(0.67)Basic and diluted weighted average number of commonshares outstanding 11,955,739 12,039,005 12,378,622 12,597,864 QuickLinks -- Click here to rapidly navigate through this document Exhibit 21.1 SUBSIDIARIES OF MADRIGAL PHARMACEUTICALS, INC. Synta Securities Corp., a Massachusetts securities corporationSynta Limited Incorporated, a United Kingdom companySynta Pharmaceuticals (Bermuda) Ltd., a Bermuda companyCanticle Pharmaceuticals, Inc., a Delaware corporationQuickLinksExhibit 21.1SUBSIDIARIES OF MADRIGAL PHARMACEUTICALS, INC.QuickLinks -- Click here to rapidly navigate through this document Exhibit 23.1 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (Nos. 333-225434, 333-219304) and Form S-8(Nos. 333-141903, 333-152824, 333-173862, 333-181117, 333-187243, 333-194477, 333-202680, 333-206128, 333-212615, 333-224503) of MadrigalPharmaceuticals, Inc. of our report dated February 27, 2019 relating to the financial statements and the effectiveness of internal control over financialreporting, which appears in this Form 10-K./s/ PricewaterhouseCoopers LLPPhiladelphia, PennsylvaniaFebruary 27, 2019QuickLinksExhibit 23.1CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMQuickLinks -- Click here to rapidly navigate through this document Exhibit 31.1 CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TOSECURITIES EXCHANGE ACT RULES 13A-14(a) AND 15D-14(a)AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Paul A. Friedman, M.D., certify that:1.I have reviewed this Annual Report on Form 10-K of Madrigal Pharmaceuticals, Inc.; 2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport; 3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4.The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: (a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, toensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within thoseentities, particularly during the period in which this report is being prepared; (b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles; (c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d)Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recentfiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely tomaterially affect, the registrant's internal control over financial reporting; and 5.The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internalcontrol over financial reporting./s/ PAUL A. FRIEDMAN, M.D.Paul A. Friedman, M.D.Chief Executive Officer and Chairman of the Board (Principal ExecutiveOfficer)Date: February 27, 2019 QuickLinksExhibit 31.1CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO SECURITIES EXCHANGE ACT RULES 13A-14(a) AND 15D-14(a) ASADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002QuickLinks -- Click here to rapidly navigate through this document Exhibit 31.2 CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TOSECURITIES EXCHANGE ACT RULES 13A-14(A) AND 15D-14(A)AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Marc R. Schneebaum, certify that:1.I have reviewed this Annual Report on Form 10-K of Madrigal Pharmaceuticals, Inc.; 2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport; 3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4.The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: (a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, toensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within thoseentities, particularly during the period in which this report is being prepared; (b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles; (c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d)Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recentfiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely tomaterially affect, the registrant's internal control over financial reporting; and 5.The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internalcontrol over financial reporting./s/ MARC R. SCHNEEBAUMMarc R. SchneebaumSenior Vice President and Chief Financial Officer (Principal FinancialOfficer)Date: February 27, 2019 QuickLinksExhibit 31.2CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO SECURITIES EXCHANGE ACT RULES 13A-14(A) AND 15D-14(A) ASADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002QuickLinks -- Click here to rapidly navigate through this document Exhibit 32.1 CERTIFICATIONS PURSUANT TO 18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TO SECTION 906OF THE SARBANES-OXLEY ACT OF 2002 Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section 1350 of Chapter 63 of Title 18 of the United States Code(18 U.S.C. Section 1350)), each of the undersigned officers of Madrigal Pharmaceuticals, Inc., a Delaware corporation (the "Company"), does hereby certify,to such officer's knowledge, that: The Annual Report on Form 10-K for the fiscal year ended December 31, 2018 (the "Form 10-K") of the Company fully complies with the requirements ofSection 13(a) or 15(d) of the Securities Exchange Act of 1934, and the information contained in the Form 10-K fairly presents, in all material respects, thefinancial condition and results of operations of the Company. A signed original of this written statement required by Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, and Section 1350 ofChapter 63 of Title 18 of the United States Code (18 U.S.C. Section 1350), has been provided to the Company and will be retained by the Company andfurnished to the Securities and Exchange Commission or its staff upon request. These certifications accompany the Form 10-K, are not deemed filed with theSecurities and Exchange Commission, and are not to be incorporated by reference into any filing of the Company under the Securities Act of 1933, asamended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Form 10-K), irrespective of any generalincorporation language contained in such filing.Dated: February 27, 2019 /s/ PAUL A. FRIEDMAN, M.D.Paul A. Friedman, M.D.Chief Executive Officer and Chairman of the Board(Principal Executive Officer)Dated: February 27, 2019 /s/ MARC R. SCHNEEBAUMMarc R. SchneebaumSenior Vice President and Chief Financial Officer(Principal Accounting and Financial Officer)QuickLinksExhibit 32.1CERTIFICATIONS PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

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