While Madrigal Pharmaceuticals' (MDGL -0.54%) shares have gained only about 5% in the past 12 months, things are looking up for the midcap biotech. With its triumphant entry into an unserved market thanks to the approval of its latest medicine, Madrigal can now start to report sales for the first time.
Let's take a beat and assess how important this accomplishment is, and how it could benefit investors moving forward.
This breakthrough could pay off for years
On March 14, the Food and Drug Administration (FDA) signed off on Madrigal's therapy called Rezdiffra, which is the first approved drug that treats metabolic dysfunction-associated steatohepatitis (MASH), a liver-scarring disease formerly known as non-alcoholic steatohepatitis (NASH).
The medicine was approved on an accelerated basis, so it's clear that regulators have a good measure of confidence in its efficacy. Approximately 1.5 million people in the U.S. have MASH, and the company can treat somewhere in the ballpark of 315,000 with the approval it currently has. Rezdiffra will start its commercial launch in April, and unless the ongoing confirmatory clinical trials deliver unexpectedly abysmal data, its early approval will likely be expanded into a full approval soon enough. And that's the main reason why this stock is worth buying.
As Madrigal is now the only player in the market for MASH therapies with an approved product, it will have no problem establishing a defensible market share. Rezdiffra is a pill taken once per day, and it does not feature highly risky or otherwise extreme side effects, nor is it contraindicated to take alongside any other medications. Furthermore, it doesn't require a liver biopsy for patients to qualify for treatment, so there are not too many barriers to starting treatment. Therefore, the risk of problems that would hamper the drug's rollout or adoption is minimal.
There are also a few opportunities for Madrigal to perform further research and development (R&D) with Rezdiffra to expand its set of approved indications. Currently, it's only approved to treat MASH with stage 2 or 3 liver fibrosis; more severe fibrosis, cirrhosis, and less severe forms of fatty liver disease are not approved. But with a handful of clinical trials over the next few years, at least some of those limitations could be addressed, thereby expanding the therapy's addressable market and resulting in more revenue.
On that note, Wall Street analysts are decidedly enthusiastic about the biotech's top line. This year, their average sales target for Madrigal is $86 million, but in 2025, they're predicting it brings in $379 million. And that's bullish for the stock.
Competitors will still show up sooner or later
Overall, it makes sense to pick up a few shares of Madrigal right now before it starts to realize sales revenue. But it won't be gobbling up the market on its own forever. MASH is a popular target for drug developers large and small, and despite a handful of late-stage failures that have thinned the herd, competitors are still on the way.
In particular, heavyweights like Novo Nordisk could be a problem eventually. It has one MASH program in phase 3, another totally different one in phase 2, and a trio of phase 1 projects. Metabolic illnesses like MASH are its specialty, and it has access to a deep portfolio of options for testing combination therapies that may ultimately be more effective than what Madrigal is offering today. Viking Therapeutics is also pursuing a therapy for MASH, which is in phase 2b clinical trials.
This means that over the long term, Madrigal's rate of growth may slow as it faces more competition. But that's a concern to be thinking about a few years from now. For now, this biotech is on a tear, and its growth journey has officially begun, which is why its stock is an attractive purchase.
