Every huge drugmaker was once a much smaller drugmaker. We don't even have to go back too many years to see where Eli Lilly (LLY 2.03%) and Novo Nordisk (NVO +1.38%), currently the two biggest pharma companies on the planet, were only a fraction of their current sizes.
The main way small drugmakers become large is by launching successful new products. Madrigal Pharmaceuticals (MDGL +1.22%) should soon have its first taste of such success with the U.S. Food and Drug Administration (FDA) approving Rezdiffra for treating nonalcoholic steatohepatitis (NASH) last week. Is Madrigal stock a better buy than Eli Lilly and Novo Nordisk after its huge FDA win?
NASDAQ: MDGL
Key Data Points
Madrigal's magnificent milestone
The recent FDA approval for Madrigal is the first regulatory victory for the company. Madrigal founder Becky Taub began working with a small group of scientists more than 15 years ago to develop a treatment for NASH. Taub, who still serves as the company's Chief Medical Officer and president of research and development, said after the FDA announcement that she believes Rezdiffra "will change the treatment paradigm for NASH." She could be right.
NASH, also known as metabolic dysfunction-associated steatohepatitis, is a type of liver inflammation that's now an especially challenging healthcare problem around the world. It's on track to become the top cause of liver transplants in the U.S. NASH already ranks as one of the leading causes of liver-related deaths.
It's estimated that more than 115 million adults worldwide are affected by the disease. Around 1.5 million patients in the U.S. have been diagnosed with NASH. Until now, there was no approved treatment for the disease.
Madrigal is gearing up for a quick commercial launch of Rezdiffera. The newly approved drug should be available to patients in the U.S. beginning in April through specialty pharmacies.
How Madrigal compares with Lilly and Novo Nordisk
Comparing Madrigal with Lilly and Novo Nordisk isn't like comparing apples and oranges; it's more like comparing an apple orchard with an orange seed. Lilly's and Novo Nordisk's market cap tops $716 billion and $590 billion, respectively, versus around $4.4 billion for Madrigal.
Madrigal now has one approved product with Rezdiffra and no other pipeline candidates. Wall Street analysts are enthusiastic about Rezdiffra's prospects. However, it could take a while for the drug to really reach its stride. For example, Evercore ISI projects Rezdiffra could generate global annual sales of around $2.6 billion by 2030 and $5.5 billion at its peak.
Meanwhile, Lilly has six drugs on the market that rake in at least $1.6 billion in annual sales plus seven other products with annual sales in the hundreds of millions of dollars. That list doesn't include weight-loss drug Zepbound, which could become one of the best-selling drugs in the world over the next few years. It also doesn't factor in Lilly's pipeline that features 21 late-stage programs including Alzheimer's disease drug donanemab, another likely megablockbuster.
Novo Nordisk doesn't have as many blockbusters in its lineup as Lilly. It does, though, market more than a dozen drugs with sales of at least $100 million. Importantly, Novo Nordisk sells the world's top-selling type 2 diabetes drug, Ozempic, and weight-loss drug Wegovy, the company's biggest rising star. The big drugmaker's pipeline includes 12 late-stage programs. It also awaits regulatory approvals for two other drugs.
Interestingly, Lilly and Novo Nordisk could compete against Madrigal in a few years. Lilly is evaluating tirzepatide, marketed under the brand names Mounjaro for type 2 diabetes and Zepbound for weight loss, in a phase 2 study for treating NASH. Novo Nordisk has a late-stage study under way for semaglutide, marketed under the brand names Ozempic and Rybelsus for type 2 diabetes and Wegovy for weight loss, as a potential treatment for NASH.
Is Madrigal a better stock to buy than Lilly and Novo Nordisk?
That comparison of an apple orchard and an orange seed is favorable for Madrigal in one key way: Like an orange seed, Madrigal has significant growth potential. On a percentage basis, Madrigal's sales will almost certainly skyrocket much more than Lilly's and Novo Nordisk's will over the next several years.
Madrigal's shares trade at a little less than projected peak sales for Rezdiffra. For Lilly to have a similar price-to-sales multiple, its annual revenue would need to grow by roughly 21 times. Novo Nordisk's revenue would have to soar by nearly 27 times. Neither is likely to happen anytime soon.
So I think aggressive investors will find that Madrigal is indeed a better stock to buy than Lilly and Novo Nordisk. However, it also faces more risks than either of these huge drugmakers. More conservative investors, therefore, will be better off buying Lilly or Novo.
