What happened
Shares of the clinical-stage drugmaker Madrigal Pharmaceuticals (MDGL -0.54%) were up by 6.2% on elevated volume as of 12:16 p.m. ET Wednesday. The biotech appears to be benefiting from two key tailwinds.
First, a Food and Drug Administration (FDA) panel voted overwhelmingly last Friday against approving Intercept Pharmaceuticals' (ICPT) candidate, obeticholic acid, for treating pre-cirrhotic fibrosis due to nonalcoholic steatohepatitis (NASH). So Madrigal might not face any competition in NASH treatments for a few years if the FDA ultimately approves its candidate, resmetirom, either later this year or in early 2024.
And second, Madrigal also appears to be getting a boost from an ongoing "oasis effect" among growth stocks. Investors have been piling into known winners during the second quarter of 2023, presumably due to the remote possibility of a U.S. debt default in early June, along with the very real possibility of a global economic downturn later this year. Madrigal's stock is definitely a proven winner, with the shares up by an astonishing 350% over the prior 12 months.
So what
Even though Intecept's NASH offering didn't pose much of a competitive threat to resmetirom due to its considerably narrower target market, investors haven't been willing to accept even minimal risk when it comes to early commercial-stage biotech companies of late. So, with this latent threat likely sidelined, it's not surprising to see Madrigal's shares tick higher.
Now what
Is Madrigal's stock still a buy? If you're willing to accept some near-term volatility, it could indeed be worth buying and holding for the long term. The key reason is that the NASH market has been estimated to be worth no less than $20 billion a year in sales, and another estimate puts this figure closer to $50 billion.
Barring a black-swan type of event, Madrigal probably will be the first to market for NASH with resmetirom.
