What happened

Shares of the nonviral liver disease specialist Madrigal Pharmaceuticals (MDGL -2.63%) plunged by as much as 12.8% during the early portion of Tuesday's trading session. The clinical-stage biotech's stock has since rebounded, but it was still down by 3.5% as of 12:30 p.m. ET Tuesday afternoon.

What's behind this sell-off? Ahead of the opening bell, Madrigal released its 2023 first-quarter earnings. Apparently, short-sellers were expecting the company to post a sizable net loss for the quarter, based on the stock's early trading behavior. While Madrigal did report a net loss of approximately $77 million for the three-month period, its cash position only dipped by roughly $29.3 million during the quarter due to an influx of cash via financing and option exercise activities.

So what

With $329.5 million in cash and cash equivalents at the end of the first quarter, Madrigal is on sound financial footing. It's true that the pre-commercial-stage biotech will likely have to start spending on building a sales force from scratch and ramping up inventory levels ahead of a possible launch for its drug candidate resmetirom as a treatment for nonalcoholic steatohepatitis (NASH). But a potential cash crunch doesn't seem likely within the next 12 months.

What does matter? The only issue that really matters in regard to Madrigal's core value proposition is the upcoming regulatory filing for resmetirom with the Food and Drug Administration (FDA).

Fortunately, the company didn't announce any delays or anticipated setbacks in its plan to file for the drug's approval in NASH on an accelerated basis later this quarter. So it's not surprising that bargain hunters stepped in to buy the dip when Madrigal's shares dropped by double digits this morning.

Now what

Is Madrigal stock still a buy? I think so. Resmetirom has a good chance of dominating the multibillion-dollar NASH market for at least a few years. Moreover, most big pharmas have huge holes in their product portfolios to fill right now. Hence, Madrigal also stands out as a top buyout target.