Some events are so pivotal for a company that they cause everything to change. The company's world instantly becomes brighter -- or darker.
Madrigal Pharmaceuticals (MDGL -0.54%) just experienced such an event. Last Thursday, the company won U.S. Food and Drug (FDA) approval for the first drug targeting the multibillion-dollar market for nonalcoholic steatohepatitis (NASH). Is Madrigal stock now a screaming buy?
Madrigal's milestone approval
Investors have known for months that an FDA approval decision was coming on Madrigal's resmetirom as a treatment for NASH. In September, the agency set a PDUFA date for March 14. Madrigal was optimistic it would win approval, gearing up for an anticipated commercial launch.
But until the FDA's decision was announced, there was plenty of anxiety. All worries evaporated last week, as resmetirom became the first, and so far only, drug approved to treat patients with NASH who have moderate to advanced liver fibrosis. Madrigal Pharmaceuticals CEO Bill Sibold said, "This is a historic moment for the NASH field and represents the best of what our industry is capable of."
The approval was especially sweet for Becky Taub, founder and chief medical officer of Madrigal. Taub and a small team of scientists began working on a treatment for NASH more than 15 years ago. She thanked the patients who participated in clinical trials for resmetirom for making the FDA's accelerated approval possible.
A massive market
Madrigal will market its newly approved drug in the U.S. under the brand name Rezdiffra. The company expects the drug to become available to patients in April. The FDA won't require a liver biopsy for diagnosis before prescribing the drug, which should increase adoption.
NASH, also known as metabolic dysfunction-associated steatohepatitis, is an advanced type of nonalcoholic fatty liver disease. It's a leading cause of liver-related deaths. Treating NASH patients has become increasingly costly for health systems around the world. The number of NASH cases in the U.S. and seven other large countries is projected to reach 98 million by 2030.
As you might imagine, there's a massive potential market for treating NASH. Just how big the potential is, though, depends on whom you ask. Global market size estimates range from the tens of billions of dollars to $100 billion or more, according to IQVIA.
One reason these estimates vary so much is that NASH can be difficult to diagnose. It's often described as having few or no symptoms. Because NASH is frequently accompanied by other conditions such as cardiovascular disease, obesity, and type 2 diabetes, diagnosing the disease can be even more challenging.
Is Madrigal Pharmaceuticals stock a screaming buy?
Since Madrigal's Rezdiffra will have this massive market all to itself, you might think the stock would be a screaming buy. There are some complicating factors, though.
The aforementioned issues with diagnosing NASH could cause Rezdiffra's sales ramp-up to take some time. Securing reimbursement from payers and educating doctors won't happen overnight, either.
Also, Rezdiffra might not be the only approved NASH drug for long. Novo Nordisk is evaluating semaglutide, the drug marketed under the brand names Ozempic and Rybelsus for type 2 diabetes and Wegovy for weight loss, in a late-stage study targeting NASH. Inventiva, Galmed Pharmaceuticals, and PharmaKing also have experimental NASH drugs in late-stage testing. Several companies have NASH programs in phase 2 clinical studies, including 89bio, Galectin Therapeutics, Sagimet Biosciences, Terns Pharmaceuticals, and Viking Therapeutics.
Still, though, Madrigal should have a big winner on its hands. Evercore ISI projects that Rezdiffra could achieve peak annual sales of $5.5 billion globally, with around $2.6 billion by 2030. The company's market cap currently stands at close to $5.7 billion, reflecting a low multiple of future sales.
I think the biotech stock has plenty of room to run. Whether or not you want to scream about Madrigal, the stock looks like a good one to buy for aggressive investors.
