What happened

In response to strong results from an important phase 2 clinical trial, shares of Madrigal Pharmaceuticals (NASDAQ:MDGL), a red-hot clinical-stage biotech, more than doubled in early morning trading on Thursday. As of 10:30 a.m. EDT shares were up 121%.

So what

Madrigal reported top-line results from its 36-week phase 2 clinical trial that was designed to test its lead compound MGL-3196 as a hopeful treatment for nonalcoholic steatohepatitis (NASH).

Rocket blasting off

Image source: Getty Images.

The key takeaway for investors is that MGL-3196 met the study's primary endpoint, which was defined as a statistical significance relative reduction of liver fat at week 36. What's more, many of the study's secondary endpoints were also reached.

Here's a quick summary of the results:

  • 70% of patients who showed a greater than 30% fat reduction at week 12 demonstrated a statistically significant reduction in their NAFLD activity score at week 36. That was a statistically significant result when compared to the 32% rate that was observed in the placebo group. 
  • 39% of those who responded to MGL-3196 at week 12 demonstrated NASH resolution at week 36. That was also far ahead of the 6% rate observed in the placebo group. 
  • Patients who used MGL-3196 also showed a statistically significant reduction in other areas such as low-density lipoprotein cholesterol, triglycerides, liver enzymes, and fibrosis biomarkers.
  • Liver fibrosis was reduced by at least 1 point in 29% of patients who used MGL-3196. That's better than the 23% rate that was observed in the placebo group.
  • Overall tolerability to the drug was "very good," though there was an uptick in the incidence of mild diarrhea in the group of patients who used MGL-3196.

Given the news, it isn't hard to figure out why shares are on fire today.

No what

While this announcement is certainly worth celebrating, it is also important for investors to remember that this data is from a phase 2 study. As we've seen before, strong phase 2 data doesn't always translate into solid phase 3 data. 

Having said that, this readout should go a long way toward giving investors confidence that MGL-3196 is the real deal. That's encouraging since some analyst believe that the NASH market could reach $35 billion in annual sales down the road.

Of course, Madrigal isn't the only company with a horse in the race to bring a successful treatment to market. Deep-pocketed biotechs such as Gilead Sciences and small caps like Intercept Pharmaceuticals are also working furiously to develop winning NASH drugs of their own. 

Then again, the market for NASH is expected to be so large that it could easily support multiple winners. From what we've seen thus far, MGL-3196 looks like it will be a winning drug. If the company can reproduce its fantastic phase 2 results in a larger phase 3 trial, then it wouldn't surprise me one bit to see this rocket-ship stock continue to soar.

Brian Feroldi has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Gilead Sciences. The Motley Fool has a disclosure policy.