Shares of relatively small biotech companies often soar when they get positive news from regulators, and that's exactly what Madrigal Pharmaceuticals (MDGL -0.54%) and Bluebird Bio (BLUE 1.13%) are awaiting. Both companies expect to land major approvals in the coming months, which could jolt their share prices.
However, while short-term pops are great, investors will want to know whether these biotechs can perform well over the long run. So regardless of their near-term potential, are Madrigal Pharmaceuticals and Bluebird Bio likely to deliver outsized returns over the next five years and beyond?
1. Madrigal Pharmaceuticals
Madrigal Pharmaceuticals is a clinical-stage biotech that may have made a significant breakthrough. It could beat much larger peers in the industry and become the first to launch an approved therapy for non-alcoholic steatohepatitis (NASH). This is a condition caused by the abnormal accumulation of fat in patients' livers, which leads to scarring and other problems.
Obesity is one of the main risk factors. Madrigal submitted an application for resmetirom, its potential NASH therapy, to the Food and Drug Administration (FDA) for review in July. The regulator should decide whether to approve the medicine by March 14. It goes without saying that for a clinical-stage company, finally bringing a product to market is a bit of a game-changer. But unlike many small biotechs, Madrigal did not target a rare disease with a tiny patient population.
The NASH market's potential is massive. While projections vary, analysts at Vantage Market Research forecast that the NASH treatment space will be worth $108.4 billion by 2030. Sales of resmetirom could grow rapidly if it earns FDA approval next year, as expected. It delivered solid results in mid- and late-stage clinical trials.
However, that alone doesn't make Madrigal Pharmaceuticals shares a slam dunk. First, there is always the risk that some unforeseen regulatory setback (including a manufacturing or labeling problem) will delay the approval of resmetirom. If such an event occurs, Madrigal's shares will likely plunge.
Second, even if that doesn't happen, several other companies should bring NASH treatments to market not too long after Madrigal does. Larger drugmakers benefit from having more funds, established collaborations with other healthcare industry players, and large numbers of sales representatives. These are all advantages when it comes time to launch a product, giving them faster ramp-ups and broader reaches than smaller players like Madrigal.
How does Madrigal's financial situation look? Not too bad. It ended the third quarter with $232.4 million in cash and equivalents on the books, compared to $358.8 million as of the end of 2022. Since then, however, it has conducted a secondary stock offering that brought in net proceeds of $472 million.
Still, Madrigal's market capitalization of about $4 billion looks a bit high for a clinical-stage biotech, even one this promising. It might be worth considering nibbling on the stock, but investors should be advised that even with a major catalyst on the way, the road ahead could be a bumpy one for shareholders in this biotech.
2. Bluebird Bio
Bluebird Bio is a small-cap gene-editing specialist with two products on the market. The first is Zynteglo, which treats the rare blood disease beta-thalassemia. The second is Skysona, a therapy for cerebral adrenoleukodystrophy, a rare neurodegenerative disease. Bluebird Bio could be about to expand its lineup. The FDA is currently considering lovo-cel for approval.
Lovo-cel could earn the green light as a treatment for patients with sickle cell disease, another rare blood disorder, as early as this month. That approval would mean a lot for Bluebird Bio. While Zynteglo and Skysona have a combined target market of at most 1,540 patients in the U.S., lovo-cel's would be more than 10 times that at around 20,000.
Further, Bluebird Bio has set the list price for Zynteglo at $2.8 million per treatment course, and priced Skysona at $3 million. We don't know yet how much it will charge for lovo-cel (assuming it's approved), but one thing is for sure: It will be well above $1 million for the one-time therapy. In other words, the market opportunity for Bluebird Bio could be massive, so its shares may jump following the approval of the gene-editing therapy. But does that make Bluebird Bio a buy?
Consider a few things. The company will almost certainly have to share this market from the start with exa-cel, a competing gene-editing treatment for sickle cell disease (which also targets beta-thalassemia). Exa-cel was developed by the team of Vertex Pharmaceuticals and CRISPR Therapeutics. It has yet to earn the green light in the U.S., but it recently won approval in the U.K. as Casgevy.
It's difficult to know how this battle will shape up, and it's especially challenging for Bluebird Bio, a small-cap biotech that is consistently unprofitable. The company could end up delivering above-average returns if it can capture a decent share of the sickle cell disease market, but if it can't, Bluebird Bio's shares won't likely be worth much in five years. Interested investors should remember that before initiating a (hopefully small) position in this biotech stock.
