Madrigal Pharmaceuticals Inc.

05/06/2026 | Press release | Distributed by Public on 05/06/2026 07:05

Quarterly Report for Quarter Ending March 31, 2026 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations.
The following Management's Discussion and Analysis of Financial Condition and Results of Operations should be read together with our unaudited consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q and our audited financial statements and accompanying notes for the year ended December 31, 2025 and the related Management's Discussion and Analysis of Financial Condition and Results of Operations, both of which are included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2025.
About Madrigal Pharmaceuticals, Inc.
Overview
We are a biopharmaceutical company focused on delivering novel therapeutics for metabolic dysfunction-associated steatohepatitis ("MASH"), a serious liver disease with high unmet medical need that can lead to cirrhosis, liver failure, liver cancer, need for liver transplantation and premature mortality. MASH was previously known as nonalcoholic steatohepatitis ("NASH"). MASH is the leading cause of liver transplantation in women, the second leading cause of all liver transplantation in the United States and the fastest-growing indication for liver transplantation in Europe. Our medication, Rezdiffra (resmetirom), is a once-daily, oral, liver-directed thyroid hormone receptor beta ("THR-β") agonist designed to target key underlying causes of MASH. In March 2024, Rezdiffra became the first therapy approved by the U.S. Food and Drug Administration ("FDA") for patients with MASH and was commercially available in the United States beginning in April 2024. Following receipt of conditional marketing authorization ("CMA") from the European Commission ("EC"), we launched Rezdiffra in Germany in September 2025. Rezdiffra was the first medication approved by both the FDA and EC for the treatment of adults with noncirrhotic MASH with moderate to advanced liver fibrosis (F2 to F3 fibrosis). We are also evaluating Rezdiffra in patients with compensated MASH cirrhosis (consistent with F4c fibrosis) in our MAESTRO-NASH OUTCOMES trial, that, if successful, could expand the eligible patient population for Rezdiffra.
In addition, we are advancing a focused pipeline to lead the evolution of MASH treatment for patients for decades to come. Through our business development efforts, we have acquired rights to MGL-2086, an oral glucagon-like peptide-1 ("GLP-1") receptor agonist, ervogastat, an oral diacylglycerol O-acyltransferase 2 ("DGAT-2") inhibitor, six small interfering RNA ("siRNA") programs and additional preclinical MASH candidates. We plan to evaluate these candidates with the goal of delivering best-in-disease therapies for the treatment of MASH. As we continue to build our pipeline, we will evaluate mechanisms that fit scientifically, strategically and commercially to enhance our leading position in MASH care.
Approval of Rezdiffra
The FDA's accelerated approval and the EC's conditional marketing authorization, as well as Rezdiffra's approved prescribing information, were supported by 52-week data from our Phase 3 MAESTRO-NASH trial in which both 100 mg and 80 mg doses of Rezdiffra demonstrated statistically significant improvement compared to placebo on (i) MASH resolution with no worsening of fibrosis and (ii) an improvement in fibrosis by at least one stage with no worsening of the nonalcoholic fatty liver disease ("NAFLD") activity score. MAESTRO-NASH remains ongoing as an outcomes trial where we are generating confirmatory outcomes data to 54-months that, if positive, is expected to verify a clinical benefit and support the full FDA approval of Rezdiffra to treat noncirrhotic MASH. We expect outcomes data from this trial in 2028. In addition, full FDA approval of Rezdiffra to treat noncirrhotic MASH could also be based on results from our Phase 3 MAESTRO-NASH OUTCOMES trial. In this trial, we are assessing progression to liver decompensation events in patients with compensated MASH cirrhosis treated with Rezdiffra versus placebo. A positive outcome in this trial is also expected to support the full FDA approval of Rezdiffra for noncirrhotic MASH, and expand the eligible patient population for Rezdiffra with an additional indication in patients with compensated MASH cirrhosis. We expect results from the MAESTRO-NASH OUTCOMES trial in 2027. We have agreed to submit results from these trials to the European Medicines Agency ("EMA") in support of full approval of Rezdiffra in the European Union.
Market Opportunity for Rezdiffra in MASH
MASH is a more advanced form of metabolic dysfunction-associated steatotic liver disease ("MASLD"). MASLD has become the most common liver disease in the United States and other developed countries and is characterized by an accumulation of fat in the liver with no other apparent causes. MASH can progress to cirrhosis or liver failure, can require liver transplantation and can also result in liver cancer. Patients with MASH, especially those with more advanced metabolic risk factors (hypertension, concomitant type 2 diabetes), are at increased risk for adverse cardiovascular events and increased morbidity and mortality. In addition, MASH patients with moderate to advanced fibrosis (consistent with fibrosis stages F2 and F3) have a 10-to-17 times higher risk of liver-related mortality. MASH is also an independent driver of cardiovascular disease, which is the leading cause of mortality for patients.
Based on published epidemiology data and an analysis of medical claims using ICD-10 disease diagnosis codes as of 2023, we estimate that 315,000 patients diagnosed with MASH with moderate to advanced fibrosis (stages F2 to F3) were under the care of specialist prescribers which we are targeting during the launch of Rezdiffra in the U.S. Through 2025, we estimate that the number of patients under specialist care in the U.S. has grown nearly 50% to approximately 460,000 patients with moderate to advanced fibrosis, and as disease awareness improves and disease prevalence increases, we expect the number of identified MASH patients with moderate to advanced fibrosis eligible for treatment to grow significantly going forward. In addition, we estimate that approximately 370,000 patients with MASH with moderate to advanced fibrosis are currently diagnosed and under the care of specialists across Europe.
With a growing body of real-world supportive data, we continue to educate healthcare providers and patients on the risks of MASH and the potential clinical benefits and appropriate use of Rezdiffra. During our first six quarters of launch in the United States, we focused our efforts on hepatologists and gastroenterologists. Beginning in the fourth quarter of 2025, we expanded our field team to further target select endocrinologists that provide care to MASH patients. We are also supporting the creation of care pathways for patients at physician offices, driving breadth and depth of Rezdiffra prescribers and engaging with payers to support patient access to therapy.
Beyond Germany, we expect to launch Rezdiffra on a country-by-country basis in Europe dependent on multiple factors, including the completion of reimbursement procedures and regulatory approval where required. In addition, we may enter into distribution agreements with third parties to distribute Rezdiffra in smaller European countries and in other jurisdictions globally.
Key Developments
In January 2026, we announced the expansion of our pipeline with an exclusive global license with Pfizer Inc. (the "Pfizer License Agreement") for ervogastat, an oral DGAT-2 inhibitor. DGAT-2 inhibitors work by blocking the final step in triglyceride assembly and storage, resulting in lower hepatic triglycerides, reduced lipotoxic fat and decreased inflammation. In the fourth quarter of 2026, we plan to initiate a drug-to-drug interaction study with resmetirom and consult with the FDA on the design of a Phase 2 combination trial.
In February 2026, we announced an exclusive global license agreement (the "Ribocure License Agreement") with Suzhou Ribo Life Science Co. Ltd. and Ribocure Pharmaceuticals AB (together, "Ribocure") for six novel siRNA programs designed to silence certain genes implicated in MASH disease progression. By pairing the precision of gene-silencing with Rezdiffra, we are exploring whether reducing drivers of disease at the genetic level can complement Rezdiffra's therapeutic effects. Preclinical development activities have commenced.
In May 2026, we announced an exclusive global license agreement (the "Arrowhead License Agreement") with Arrowhead Pharmaceuticals Inc. ("Arrowhead") for ARO-PNPLA3, a clinical-stage siRNA asset targeting a mutation in the patatin-like phospholipase domain-containing protein 3 (PNPLA3) gene, a genetically validated driver of MASH. ARO-PNPLA3 is a GalNac-conjugated siRNA designed to reduce expression of PNPLA3. Mutations in the PNPLA3 gene have been shown to disrupt the liver's ability to properly process fat. This leads to increased fat accumulation in hepatocytes, and is strongly associated with MASH progression and a high risk of developing hepatocellular carcinoma (HCC). The results of two Phase 1 trials suggested that a single dose of ARO-PNPLA3 reduced liver fat content in homozygous carriers of the PNPLA3 I148M variant, providing proof-of-concept for ARO-PNPLA3 as a precision-medicine approach in this patient population. We will consult with the FDA on design of a Phase 2 combination trial with Rezdiffra.
Basis of Presentation
Product Revenue, Net
In March 2024, the FDA approved Rezdiffra for the treatment of noncirrhotic MASH with moderate to advanced liver fibrosis (consistent with stages F2 to F3 fibrosis). We began generating revenue from sales of Rezdiffra in the United States in April 2024. In addition, we launched Rezdiffra in Germany in September 2025. Revenue is recorded net of variable consideration, which includes prompt pay discounts, returns, chargebacks, rebates, and co-payment assistance.
Cost of Sales
Cost of sales includes the cost of manufacturing and distribution of inventory related to sales of Rezdiffra, including salaries, benefits and stock-based compensation expense for employees dedicated to the production of Rezdiffra. We expect cost of sales to increase in the future, as manufacturing costs incurred prior to regulatory approval were expensed to research and development rather than capitalized as inventory, as approval was considered uncertain. Cost of sales also includes royalties payable to F. Hoffmann-La Roche AG ("Roche") based on net sales of Rezdiffra. Each
quarterly period, we estimate our total royalty obligation for the full year and recognize our cost of sales at an even rate over the year, based on an estimated blended royalty rate.
Research and Development Expenses
Research and development expenses primarily consist of costs associated with our research activities, including the clinical development of our product candidates. We expense our research and development expenses as incurred. We contract with clinical research organizations to manage our clinical trials under agreed upon budgets for each trial, with oversight by our clinical program managers. We account for nonrefundable advance payments for goods and services that will be used in future research and development activities as expenses when the service has been performed or when the goods have been received. Manufacturing expense includes costs associated with drug formulation development and clinical drug production. We do not track employee and facility related research and development costs by project, as we typically use our employee and infrastructure resources across multiple research 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, paid to our employees engaged in research and development activities;
•external expenses paid to clinical trial sites, contract research organizations, laboratories, database software and consultants that conduct clinical trials;
•expenses related to development and the production of non-clinical and clinical trial supplies, including fees paid to contract manufacturers;
•expenses related to preclinical activities;
•expenses related to compliance with drug development regulatory requirements;
•other allocated expenses, which include direct and allocated expenses for depreciation of equipment and other supplies; and
•certain upfront and milestone payments payable pursuant to our license agreements.
We expect to continue to incur substantial expenses related to our development activities for the foreseeable future as we conduct our clinical trial programs, manufacturing and toxicology studies. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later stage clinical trials, additional drug manufacturing requirements, and later stage toxicology studies such as carcinogenicity studies. The process of conducting preclinical studies and clinical trials necessary to obtain regulatory approval is costly and time consuming. The probability of success for each product candidate is affected by numerous factors, including preclinical data, clinical data, competition, manufacturing capability and commercial viability.
Completion dates and costs for our clinical development programs as well as our research program can vary significantly for any future product 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 the development of product candidates at this time. We expect that we will make determinations as to which programs and product candidates to pursue and how much funding to direct to each program and product candidate on an ongoing basis in response to the scientific success of research, results of ongoing and future clinical trials, potential collaborative agreements with respect to programs or potential product candidates and ongoing assessments as to each product candidate's commercial potential.
Selling, General and Administrative Expenses
Selling, general and administrative expenses consist primarily of salaries, benefits and stock-based compensation expenses, paid to employees engaged in selling, general and administrative activities, management costs, costs associated with commercial activities, costs associated with obtaining and maintaining our patent portfolio, commercial and marketing activities, professional fees for accounting, auditing, consulting and legal services, and allocated overhead expenses.
We expect that our selling, general and administrative expenses will increase in the future as we expand our operating activities, continue commercialization efforts, including extending operations into new geographies (if approved), maintain and expand our patent portfolio and incur additional costs associated with being a public company and maintaining compliance with exchange listing and U.S. Securities and Exchange Commission ("SEC") requirements.
Interest Income
Interest income consists primarily of interest and dividend income earned on cash equivalents and marketable securities.
Interest Expense
Interest expense consists primarily of interest accrued on principal balances outstanding under our Financing Agreement (as amended from time to time, the "Financing Agreement") with the guarantors thereunder, certain funds managed by Blue Owl Capital Corporation, as the lenders (the "Lenders"), and LSI Financing LLC, as the administrative agent for the Lenders (the "Administrative Agent").
Other Expense, Net
Other expense, net consists primarily of realized and unrealized gains and losses on foreign currency transactions.
Critical Accounting Policies and Estimates
Our management's discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue, and expenses and the disclosure of contingent assets and liabilities at the date of the financial statements. On an ongoing basis, we evaluate our estimates and judgments, including those related to gross to net expenses, inventory valuation, accrued research and development expenses and stock-based compensation expenses. We base our estimates on historical experience, known trends and events, and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ materially from these estimates under different assumptions or conditions. There have been no material changes in our critical accounting policies and significant judgments and estimates as compared to those disclosed in "Part II, Item 7-Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2025 filed with the SEC on February 19, 2026. Refer to Note 2 to the unaudited condensed consolidated financial statements in this Quarterly Report on Form 10-Q for details of accounting policies over revenue and inventory.
Results of Operations
Three Months Ended March 31, 2026 and 2025
The following table provides comparative unaudited results of operations for the three months ended March 31, 2026 and 2025 (in thousands):
Three Months Ended
March 31,
2026 2025 $ Change % Change
Product revenue, net $ 311,337 $ 137,250 $ 174,087 127 %
Operating expenses:
Cost of sales
26,847 4,513 22,334 495 %
Research and development 108,692 44,172 64,520 146 %
Selling, general and administrative 268,521 167,876 100,645 60 %
Total operating expenses 404,060 216,561 187,499 87 %
Loss from operations (92,723) (79,311) (13,412) 17 %
Interest income 8,243 9,370 (1,127) (12) %
Interest expense (7,819) (3,297) (4,522) 137 %
Other expense, net (2,092) - (2,092) 100 %
Net loss $ (94,391) $ (73,238) $ (21,153) 29 %
Product Revenue, net
We recorded $311.3 million of product revenue, net for the three months ended March 31, 2026, compared to $137.3 million in the corresponding period in 2025. The increase was driven by increased demand for Rezdiffra in the United States in 2026.
Cost of Sales
Cost of sales were incurred as a result of sales of Rezdiffra and includes non-cash stock-based compensation expense for employees dedicated to the production of Rezdiffra. For the three months ended March 31, 2026, we recorded $26.8 million of cost of sales compared to $4.5 million in the corresponding period in 2025. The increase in cost of sales was primarily driven by an increase in royalties payable to Roche as a result of an increase in net sales of Rezdiffra in 2026.
Research and Development Expenses
The following table represents our research and development expenses for the three months ended March 31, 2026 and 2025 (in thousands):
Three Months Ended
March 31,
2026 2025 $ Change % Change
Compensation and benefit-related expenses
$ 15,097 $ 9,035 $ 6,062 67 %
Stock-based compensation
7,865 5,215 2,650 51 %
Professional fees and other external expenses
84,547 28,797 55,750 194 %
Facility related and other internal expenses(1)
1,183 1,125 58 5 %
Total
$ 108,692 $ 44,172 $ 64,520 146 %
(1) Facility and other internal expenses includes occupancy, information technology, and other internal costs.
Our research and development expenses were $108.7 million for the three months ended March 31, 2026, compared to $44.2 million in the corresponding period in 2025. Research and development expenses include non-cash stock-based compensation expense associated with employees engaged in research and development activities. Research and development expenses increased by $64.5 million in the 2026 period, primarily due to one-time upfront payments of $54.3 million related to business development transactions during the three months ended March 31, 2026 and an $8.7 million increase in compensation and benefit-related expenses and stock-based compensation expense as a result of increased headcount in connection with pipeline expansion activities.
Selling, General and Administrative Expenses
The following table represents our selling, general and administrative expenses for the three months ended March 31, 2026 and 2025 (in thousands):
Three Months Ended March 31,
2026 2025
$ Change
% Change
Compensation and benefit-related expenses
$ 83,605 $ 48,361 $ 35,244 73 %
Stock-based compensation
26,057 15,716 10,341 66 %
Professional fees and other external expenses
131,252 88,014 43,238 49 %
Facility related and other internal expenses(1)
27,607 15,785 11,822 75 %
Total
$ 268,521 $ 167,876 $ 100,645 60 %
(1) Facility and other internal expenses includes occupancy, information technology, and other internal costs.
Our selling, general and administrative expenses were $268.5 million for the three months ended March 31, 2026, compared to $167.9 million in the corresponding period in 2025. Selling, general and administrative expenses includes non-cash stock-based compensation expense. Selling, general and administrative expenses increased by $100.6 million in the 2026 period, primarily due to a $43.2 million increase in professional fees and other external expenses as a result of continued investment in commercial activities for Rezdiffra, including direct-to-consumer (DTC) marketing efforts, and a $45.6 million increase in compensation and benefit-related expenses and stock-based compensation expense primarily due to headcount for the endocrinology field force expansion that began in the fourth quarter of 2025.
Interest Income
Our net interest income was $8.2 million for the three months ended March 31, 2026, compared to $9.4 million in the corresponding period in 2025. The decrease in interest income was primarily due to lower interest rates compared to the corresponding period in 2025.
Interest Expense
Our interest expense was $7.8 million for the three months ended March 31, 2026, compared to $3.3 million in the corresponding period in 2025. The increase of $4.5 million was primarily the result of a higher average outstanding principal balance after entering into the Financing Agreement.
Other Expense, Net
Other expense, net consists primarily of realized and unrealized gains and losses on foreign currency transactions.
Macroeconomic Events
Changes in, and uncertainties related to, global trade or other economic policies, including tariffs, pricing policies or other restrictions imposed by the United States government or governments of other nations, may have an adverse effect on us, our partners and the pharmaceutical industry as a whole. Based on our current manufacturing locations, supply chain operations and inventory, we believe that the current tariff policies will not have a material impact on our business, results of operations or financial condition. Our U.S. commercial and clinical supply of resmetirom is currently manufactured in the United States. In addition, we have engaged a European manufacturer to produce our commercial supply of drug product for European commercialization. Additional changes to the policies of the United States or other nations that affect the geopolitical landscape or global trade, economy or market conditions, and other direct or indirect impacts of such policies, are uncertain and unpredictable, and could, in the future, have an adverse effect on our business, results of operations or financial condition.
Liquidity and Capital Resources
As of March 31, 2026, we had cash, cash equivalents, restricted cash, and marketable securities totaling $817.9 million compared to $988.6 million as of December 31, 2025. We have historically funded our operations primarily through proceeds from sales of our capital stock and debt financings. In July 2025, we entered into a senior secured credit
facility that provides up to $500.0 million. See Note 8 "Long Term Debt" for additional details. We began receiving revenue from sales of Rezdiffra following the receipt of accelerated FDA approval in March 2024 and CMA from the EC in August 2025.
Until we are able to generate sufficient revenue from Rezdiffra and any other future approved products, we anticipate that we will continue to incur losses. While our rate of cash usage will likely increase in the future, in particular to support our product development and clinical trial efforts, our commercialization efforts and geographic expansion activities and our business development goals, we believe our available cash resources are sufficient to fund our operations past one year from the issuance of the financial statements contained herein. Our future long-term liquidity requirements will be substantial and will depend on many factors, including our ability to effectively commercialize Rezdiffra, our decisions regarding future geographic expansion, the conduct of any future preclinical studies and clinical trials, our entry into any strategic transactions, our ability to maintain compliance with the liquidity covenant in the Financing Agreement and potential milestone payments payable pursuant to our license agreements. To meet future long-term liquidity requirements, we may need to raise additional capital to fund our operations through equity or debt financings, collaborations, partnerships or other strategic transactions. Additional capital, if needed, may not be available on terms acceptable to us, or at all. If adequate funds are not available, or if the terms of potential funding sources are unfavorable, this could have a material adverse effect on our business, results of operations and financial condition. We have the ability to delay certain commercial activities, geographic expansion activities and certain research activities and related clinical expenses, if necessary, due to liquidity concerns until a date when those concerns are relieved.
At-the-Market Sales Agreement
In May 2024, we entered into a Sales Agreement (the "Sales Agreement") with Cowen and Company, LLC, an affiliate of TD Securities (USA) LLC ("Cowen"), replacing and superseding our prior sales agreement. We are authorized to issue and sell up to $300.0 million of shares of our common stock under the Sales Agreement. Sales of our common stock, if any, under the Sales Agreement will be made by any method that is deemed to be an "at the market" offering as defined in Rule 415(a)(4) of the Securities Act of 1933, as amended. We have no obligation to sell any common stock and may at any time suspend offers under the Sales Agreement or terminate the Sales Agreement pursuant to its terms.
We did not make any sales under the Sales Agreement during the three months ended March 31, 2026 or 2025. As of March 31, 2026, $300.0 million remained available for sale under the Sales Agreement and our related prospectus supplement.
Credit Facilities
Hercules Loan Facility
In May 2022 we entered into a $250.0 million senior secured loan facility with Hercules Capital, Inc. (the "Hercules Loan Facility"). Interest on the Hercules Loan Facility was the greater of (i) the prime rate plus 2.45% and (ii) 8.25%. The Hercules Loan Facility included an end-of-term charge of 5.35% of the aggregate principal amount, which was accounted for in the loan discount.
On July 17, 2025, we used the proceeds received from the Financing Agreement to repay all outstanding obligations under the Hercules Loan Facility, totaling $121.7 million, and upon such repayment, terminated the Hercules Loan Facility. The amount we repaid included $115.0 million of outstanding indebtedness plus accrued and unpaid interest as of the repayment date and exit fees. As a result of the termination, all credit commitments under the Hercules Loan Facility were terminated and all security interests and guarantees in connection with the Hercules Loan Facility were released. The repayment resulted in a $2.8 million loss on extinguishment of debt, primarily due to the write off of unamortized debt issuance costs.
Financing Agreement
On July 17, 2025 (the "Closing Date"), we entered into the Financing Agreement with the Lenders and the Administrative Agent. Under the Financing Agreement, the Lenders have committed up to $500.0 million in senior secured credit facilities, consisting of (a) the initial term loan in an aggregate principal amount equal to $350.0 million (the "Initial Term Loan") and (b) delayed draw term loans in an aggregate principal amount not to exceed $150.0 million (the "Delayed Draw Term Loans"). In addition, the Financing Agreement includes uncommitted Incremental Term Loans in an aggregate principal amount not to exceed $250.0 million (the "Incremental Term Loans"), subject to the satisfaction of certain terms and conditions set forth in the Financing Agreement. The Initial Term Loan was funded on the Closing Date. Delayed Draw Term Loans are available at our election from time to time until December 31, 2027. Incremental Term Loans are
available at our and the Lenders' mutual consent from time to time. The proceeds from the Financing Agreement are expected to primarily support our business development activities.
Any outstanding principal on the Term Loans will bear interest at a rate per annum on the basis of a 360-day year equal to the sum of (i) the three-month forward-looking term secured overnight financing rate administered by the Federal Reserve Bank of New York (subject to a 1.0% per annum floor) plus (ii) 4.75%. Accrued interest is payable (i) quarterly following the funding of the Initial Term Loan on the Closing Date, (ii) on any date of prepayment or repayment of the Term Loans and (iii) at maturity. The outstanding balance of the Term Loans, if not repaid sooner, shall be due and payable in full on July 17, 2030.
We may prepay the Term Loans at any time (in whole or in part) and may be required to make mandatory prepayments upon the occurrence of certain customary prepayment events. In certain instances and during certain time periods, these prepayments will be subject to customary prepayment fees. If the Term Loans are prepaid on or prior to the one-year anniversary of the original issuance date, we must pay a make-whole amount equal to the greater of (i) 3.00% of the Term Loans being prepaid at such time and (ii) the present value of all remaining interest payments on the amount repaid through the one-year anniversary of the original issuance of such Term Loans, calculated using a discount rate. Thereafter, the amount of any such prepayment fee may vary, but the maximum amount that may be due with any such prepayment would be an amount equal to 3.00% of the Term Loans being prepaid at such time, with such prepayment fee stepping down on each anniversary of the original issuance of such Term Loans.
The Financing Agreement contains affirmative covenants and negative covenants applicable to us and our subsidiaries that are customary for financings of this type. We and the Guarantors (as defined below) are also required to maintain a minimum unrestricted cash balance of $100.0 million at all times. The Financing Agreement also includes representations, warranties, indemnities and events of default that are customary for financings of this type, including an event of default relating to us experiencing a change of control. Upon the occurrence of an event of default, the Lenders may, among other things, accelerate our obligations under the Financing Agreement. Our obligations under the Financing Agreement are and will be guaranteed by certain of our existing and future direct and indirect subsidiaries, subject to certain exceptions (such subsidiaries, collectively, the "Guarantors").
On July 17, 2025, concurrently with the entry into the Financing Agreement, we, the Guarantors and the Administrative Agent entered into a Pledge and Security Agreement. As security for our obligations under the Financing Agreement, we and the Guarantors granted to the Administrative Agent, for the benefit of the Lenders and secured parties, a continuing first priority security interest in substantially all of our and the Guarantors' assets (including all equity interests owned or hereafter acquired by us and the Guarantors), subject to certain customary exceptions. On September 4, 2025, the parties amended the Financing Agreement to add certain of our subsidiaries as Guarantors.
As of March 31, 2026, the outstanding principal amount under the Financing Agreement was $350.0 million. The interest rate during the three months ended March 31, 2026 was 8.42%. Interest expense was $7.8 million and $3.3 million for the three months ended March 31, 2026 and 2025, respectively. As of March 31, 2026, we were in compliance with all loan covenants and provisions.
Cash Flows
The following table provides a summary of our net cash flow activity (in thousands):
Three Months Ended March 31,
2026 2025
Net cash used in operating activities $ (167,435) $ (88,891)
Net cash provided by investing activities $ 192,191 $ 163,878
Net cash provided by financing activities $ 2,329 $ 8,640
Operating Activities
Net cash used in operating activities was $167.4 million for the three months ended March 31, 2026, compared to $88.9 million for the corresponding period in 2025. The use of cash in these periods resulted primarily from our losses from operations, driven by commercialization efforts, including purchases of API, one-time upfront payments related to business development transactions and higher annual incentive bonus payouts, partially offset by cash receipts from sales of Rezdiffra, as adjusted for non-cash charges for stock-based compensation, and changes in our working capital accounts.
Investing Activities
Net cash provided by investing activities was $192.2 million for the three months ended March 31, 2026, compared to net cash provided by investing activities of $163.9 million for the corresponding period in 2025. Net cash provided by investing activities for the three months ended March 31, 2026 primarily consisted of $353.9 million from sales and maturities of marketable securities, partially offset by $157.8 million of purchases of marketable securities for our investment portfolio and $3.8 million of purchases of property and equipment. Net cash provided by investing activities for the corresponding period in 2025 primarily consisted of $294.7 million from sales and maturities of marketable securities, partially offset by $130.8 million of purchases of marketable securities in our investment portfolio.
Financing Activities
Net cash provided by financing activities was $2.3 million for the three months ended March 31, 2026, compared to $8.6 million for the corresponding period in 2025. Net cash provided by financing activities for the three months ended March 31, 2026 consisted of $2.3 million from the exercise of stock options. Net cash provided by financing activities for the corresponding period in 2025 consisted of $8.6 million from the exercise of stock options.
Contractual Obligations and Commercial Commitments
In 2019, we entered into an operating lease for office space in certain premises located in West Conshohocken, Pennsylvania (the "Office Lease"), which was further amended by four amendments entered into from 2019 to May 2023. In August 2023, we entered into the Fifth Amendment to the Office Lease (the "Fifth Lease Amendment") pursuant to which the term of the Office Lease was extended through November 2026. As a result of the Fifth Lease Amendment, an incremental $1.6 million right-of-use asset and lease liability were recorded during the year ended December 31, 2023. In 2024, we entered into the Sixth, Seventh, Eighth, and Ninth Amendments to the Office Lease, leasing additional office space available in the same premises under the Office Lease, which resulted in an incremental $1.3 million right-of-use asset and lease liability recorded.
In April 2025, we entered into an operating lease for additional office space in West Conshohocken, Pennsylvania. The lease commenced in May 2025 and resulted in a $4.0 million right-of-use asset and lease liability. In March 2026, we entered into an amendment to this lease, which modified the lease term and payment schedule. As a result, the right-of-use asset and lease liability balances were remeasured, resulting in balances of $4.0 million and $4.6 million as of March 31, 2026, respectively.
In September 2025, we entered into an operating lease for office space in Waltham, Massachusetts. The commencement date had not occurred as of March 31, 2026. Upon lease commencement, we expect to make total lease payments of $9.9 million over an 84-month lease term. As of March 31, 2026, we recorded a $1.2 million prepaid lease payment related to approved change orders, which will be included in the measurement of the right-of-use asset upon commencement.
In February 2026, we entered into an operating lease for office space in Baar, Switzerland. The lease commenced on March 1, 2026 and has a term of 24 months. As a result, we recognized a right-of-use asset and corresponding lease liability of approximately $1.4 million upon commencement.
In May 2022, we entered into the $250.0 million Hercules Loan Facility. On July 17, 2025, we entered into the Financing Agreement and used the proceeds to repay all outstanding obligations under the Hercules Loan Facility, totaling $121.7 million, and upon such repayment, terminated the Hercules Loan Facility. The amount we repaid included $115.0 million of outstanding indebtedness plus accrued and unpaid interest as of the repayment date and exit fees. The Initial Term Loan of $350.0 million under the Financing Agreement was funded on July 17, 2025. Accrued interest under the Financing Agreement is payable quarterly, on any date of prepayment or repayment of the term loans outstanding thereunder and at maturity. We are not required to repay any principal amounts outstanding under the Financing Agreement until maturity in July 2030, subject to certain prepayment events set forth in the Financing Agreement. See Note 8 "Long Term Debt" to the unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for additional information regarding the Financing Agreement.
Pursuant to the Research, Development and Commercialization Agreement with Roche (as amended, the "Roche Agreement"), Roche granted us a sole and exclusive license to develop, use, sell, offer for sale and import any Licensed Product (as defined in the Roche Agreement). We received FDA approval for Rezdiffra in March 2024 and EC approval for Rezdiffra in August 2025. A tiered single-digit royalty is payable to Roche on net sales of Rezdiffra, subject to certain reductions.
In July 2025, we entered into the CSPC License Agreement with CSPC for MGL-2086 (formerly known as SYH2086), a preclinical oral small molecule GLP-1 receptor agonist. Pursuant to the CSPC License Agreement, CSPC has granted us an exclusive global license to develop, manufacture, and commercialize MGL-2086. The transaction closed in September 2025. We paid CSPC an upfront payment of $120.0 million in October 2025. CSPC is eligible to receive up to $2.0 billion in development, regulatory and commercial milestone payments, as well as royalties on net sales ranging from mid-single digits to low-double digits.
In December 2025, we entered into the Pfizer License Agreement with Pfizer Inc. ("Pfizer") to develop, manufacture and commercialize ervogastat, a Phase 2 oral DGAT-2 inhibitor, and two additional early-stage MASH assets. We paid Pfizer an upfront payment of $50.0 million in December 2025. In addition, Pfizer is eligible to receive up to $70.0 million in development and regulatory milestone payments related to ervogastat and low-double digit royalties on net sales of ervogastat. Pfizer is eligible to receive additional development, regulatory and commercial milestone payments and royalty payments on net sales of the two licensed early stage assets.
In February 2026, we entered into the Ribocure License Agreement granting us exclusive global rights to develop, manufacture and commercialize six siRNA programs. Pursuant to the Ribocure License Agreement, we paid Ribocure an upfront payment of $60.0 million. In addition, Ribocure is eligible to receive up to $4.4 billion in development, regulatory and commercial milestone payments across all programs, as well as royalties on net sales ranging from mid-single digits to low-double digits.
In May 2026, we entered into the Arrowhead License Agreement with Arrowhead granting us an exclusive global license to ARO-PNPLA3. Pursuant to the Arrowhead License Agreement, we will pay Arrowhead an upfront payment of $25.0 million. In addition, Arrowhead is eligible to receive up to $975.0 million in development, regulatory and commercial milestone payments, as well as royalties on net sales ranging from high-single digits to the mid-teens.
We have entered into customary contractual agreements in support of the Phase 3 clinical trials and in connection with manufacturing Rezdiffra. As of March 31, 2026, we had approximately $222.9 million of obligations under these agreements related to active pharmaceutical ingredient, which is expected to be paid through December 2029.
Except as noted above, no significant changes to contractual obligations and commitments occurred during the three months ended March 31, 2026, as compared to those disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2025 filed with the SEC on February 19, 2026.
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