Madrigal Pharmaceuticals signs $250 million five-year term facility

By William Gullotti

Buffalo, N.Y., May 9 – Madrigal Pharmaceuticals, Inc. and subsidiary Canticle Pharmaceuticals, Inc. entered a $250 million loan and security agreement on Monday with Hercules Capital, Inc. as administrative and collateral agent, according to an 8-K filing with the Securities and Exchange Commission.

The term facility is broken up into four tranches, the first of which totaled $50 million and was drawn at closing.

At the company’s option, the following two tranches will become available on a delayed basis. The second $50 million tranche becomes available at the earlier of June 30, 2023 and 90 days following the company’s achievement of its third-phase clinical milestone. The third tranche totals $75 million, which becomes available at the earlier of June 30, 2024 and 90 days following the company’s achievement of its approval milestone with the FDA.

The fourth and final tranche also totals $75 million and becomes available at the administrative agent’s sole discretion until the date that principal payments are required to commence.

Madrigal is obligated to make interest-only monthly payments until Nov. 1, 2024. Mandatory repayment of principal may be extended to May 1, 2025 upon achieving the clinical milestone, to May 1, 2026 upon achieving the approval milestone and to May 3, 2027 if the company achieves a certain revenue milestone and maintains its financial covenants.

The loans bear variable interest at the greater of the Prime rate as reported in the Wall Street Journal plus 395 basis points and 7.45%. Interest upon closing was set at 7.95%.

The term loan is scheduled to mature June 1, 2026 but may be extended for an additional year upon achieving the aforementioned approval milestone.

The company is permitted to prepay the loan prior to maturity but will be subject to a prepayment fee based upon the outstanding principal balance. The fee is 2% for the first 12 months following closing, stepping down to 1.5% for the following 12 months and to 0.5% for the next following 12 months. The prepayment fee will be eliminated after 36 months.

The loan includes affirmative and restrictive covenants which commence Jan. 1, 2023. The covenants include maintaining a minimum of $35 million of cash, cash equivalents and liquid funds, which may decrease in certain circumstances if the company achieves both the approval milestone and a revenue milestone.

The revenue covenant may commence on or after financial reporting comes due for the quarter ending Sept. 30, 2024. The covenant, as observed monthly, will be waived at any time in which the company maintains (i) a certain level of cash, cash equivalents and liquid funds relative to outstanding Hercules debt or (ii) a market capitalization of at least $1.2 billion. The revenue covenant, as and when effective on or after November 2024, would require the company to maintain a minimum amount of trailing three-month net product revenue.

The facility is guaranteed by substantially all of the company’s assets except for intellectual property.

A $325,000 facility fee was paid at closing. The remaining tranches, if drawn, will be subject to a 0.5% fee of the principal.

In connection with the facility, Madrigal issued warrants to its lenders to acquire common shares at $67.12 per share. The number of shares into which the warrants are exercisable equals 2% of each tranche as disbursed and may be exercised through the earlier of the seventh anniversary of closing and the consummation of certain acquisition transactions by the company.

At closing, the warrants connected to the initial $50 million tranche became exercisable into 14,899 shares of Madrigal common stock.

Pennsylvania-based Madrigal Pharmaceuticals is a clinical-stage biopharmaceutical company pursuing novel therapeutics for non-alcoholic steatohepatitis (NASH), a liver disease with high unmet medical need.

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