What happened

Madrigal Pharmaceuticals (NASDAQ:MDGL) stock has fallen by as much as 11.1% today on higher-than-normal volume. The culprit?

Madrigal CEO Paul Friedman stated in an interview late last week that the company is entertaining potential takeover offers, but that "no deals are imminent."

A blackboard chart showing a positive trend turn negative.

Image source: Getty Images.

Madrigal had reportedly put itself up for sale last month after posting stellar phase 2 results for its experimental nonalcoholic steatohepatitis (NASH) drug MGL-3196. Now that a buyout may take longer than expected, day traders and speculators alike seem to be heading for the exits. As of 2:37 p.m. EDT, shares were down 9.3%.  

So what

Madrigal's stock gained a jaw-dropping 1,800% over the past 12 months, thanks to MGL-3196's strong midstage results in NASH and the potential for a quick buyout offer at a hefty premium. With the company set to take a go-it-alone approach regarding MGL-3196's future development, however, this red-hot biotech stock may cool off in a big way going forward.

Madrigal's shares have already shed a whopping 21% of their value since announcing MGL-3196's top-line results roughly two months ago, and this downward trend appears to be accelerating based on today's action.   

Now what

The fact that Madrigal's management is playing hardball with potential suitors isn't necessarily a bad thing, however. After a recent capital raise, the company has more than enough cash to advance MGL-3196 into a late-stage trial. Madrigal's drug is also largely de-risked from a development standpoint and it should have a distinct competitive advantage over most of the field based on its outstanding phase 2 results. So, if anything, Madrigal's asking price in a buyout scenario may only go up from here.

The take-home point is that Madrigal is firmly in the catbird seat from a negotiating standpoint. There's no reason to take a lowball offer right now simply to assuage speculators and day traders. As such, it might be worthwhile to start building a long-term-oriented position in this top biotech while its shares remain well below their 52-week highs.

George Budwell has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.