Madrigal Pharmaceuticals' (MDGL +1.69%) shares are down by 27% over the past year, while the S&P 500 is up by 26%. However, this poor performance hardly reflects the progress the biotech has made. Madrigal recently earned regulatory approval for Rezdiffra, a therapy for non-alcoholic steatohepatitis (NASH). Not only was Rezdiffra Madrigal's first product on the market, but it is also the first and only approved by the U.S. Food and Drug Administration (FDA) for NASH.
With this significant milestone in its back pocket, is Madrigal Pharmaceuticals a buy?
An important approval -- with an asterisk
NASH affects 1.5 million people in the U.S. It is caused by a dangerous buildup of fat in the liver that causes damage and scarring (also known as fibrosis). People who suffer from obesity and type 2 diabetes are at a higher risk of contracting NASH, but the disease often comes with no symptoms. In severe cases, NASH can lead to liver failure and death.
Obesity and diabetes are serious health problems -- that's why therapies like Wegovy and Ozempic have become so popular. Considering how widespread these conditions are, and that some predict things will only get worse, the prevalence of NASH could also be on the rise. That's why Rezdiffra's approval was so important.
It fills a large, unmet, and potentially growing need. Madrigal Pharmaceuticals will focus Rezdiffra's launch on roughly 315,000 NASH patients with moderate to advanced fibrosis who are being seen by specialists the biotech plans to target. The medicine will cost an average of $47,400 annually per patient.
Further, Rezdiffra's indication does not require that patients undertake a liver biopsy, a procedure many may have avoided. Rezdiffra is a once-daily oral pill patients can take from the comfort of home.
NASDAQ: MDGL
Key Data Points
According to Madrigal Pharmaceuticals CEO Bill Sibold, people on the treatment should take Rezdiffra until all signs of the disease are gone and all the potential contributing factors, such as obesity, are taken care of, which can take a while. However, there is a catch. Rezdiffra was granted accelerated approval by the FDA.
Rezdiffra must prove effective in a confirmatory study to get final approval. Regulators could pull it off the market if it fails to do so. Rezdiffra has so far shown effectiveness in multiple clinical trials, including a phase 3 study, although that doesn't guarantee success in the ongoing confirmatory study. That's a crucial reason for caution.
What's next for Madrigal Pharmaceuticals?
Madrigal Pharmaceuticals did not generate any revenue from Rezdiffra in the first quarter since it started shipping the medicine in April. Also, the company is unprofitable, as one would expect. It ended the period with a net loss of $147.5 million, much worse than the loss of $76.9 million reported in the year-ago period.
That likely reflects -- at least in part -- commercialization costs associated with its newly launched therapy. Analysts are excited about Rezdiffra. Some believe it could generate peak sales of $5.5 billion, not bad for a company that's worth only $4.5 billion. However, Rezdiffra won't reach that number for many years, and that's only if it passes its ongoing confirmatory study with flying colors. Another problem with Madrigal Pharmaceuticals is that it has no other drug on the market or in its pipeline.
If Rezdiffra was in a pipeline being developed to tackle a range of conditions, perhaps that wouldn't be such a problem. But Madrigal Pharmaceuticals is not running any clinical trials besides Rezdiffra's confirmatory study. Being a one-trick pony isn't so bad, provided the trick is great. Still, in my view, Madrigal Pharmaceuticals is a bit risky, especially considering many other companies are looking to launch competing NASH therapies.
I'd say the stock is worth considering, given its innovative potential in what was, until recently, a bit of a graveyard for investigational drugs. However, only aggressive investors should consider initiating a small position in this biotech stock.
