It's not often that a biotech wins when a big pharma stumbles, but Madrigal Pharmaceuticals (MDGL +1.38%) is now in a better place than before because of a setback at Danish drug giant Novo Nordisk (NVO 1.00%). The two cardiometabolic drug developers will avoid direct competition for the time being, and now, any head-to-head match up in the future could favor Madrigal a bit more than before.
But is the biotech still a buy? Let's clarify the question by looking at what just happened and why it matters.
NASDAQ: MDGL
Key Data Points
This next-gen program failed to pass muster
In its second-quarter earnings update for investors, Novo Nordisk disclosed a surprising failure. One of its programs, a unique investigational therapy for metabolic-associated steatohepatitis (MASH, formerly known as NASH), would be terminated immediately. The corresponding phase 1 clinical trial has already been halted well before its completion, and, by the looks of it, there are not any plans to try to revive the program at a later date.
This news comes as a bit of a shock. Senior leaders had publicly expressed optimism about the program as recently as March. Developing new MASH drugs remains a priority for the company's research and development (R&D) activities.
Nonetheless, the other programs in Novo's pipeline of MASH candidates differ from the canceled program, as they only aim to utilize one mechanism of action, whereas the canceled program targeted two different mechanisms, neither of which are utilized among biopharmas developing similar medicines. The synthesis of this information is that the loss of the program isn't directly replaceable by any of its others.
All of the above would be music to Madrigal Pharmaceuticals' ears, if it had any. The biotech's only commercialized medicine is its therapy for MASH, which is called Rezdiffra. Importantly, Rezdiffra is currently the only approved drug for the condition anywhere.
Rezdiffra only brought in $14.6 million in sales in Q2, but that isn't very surprising because it just launched in mid-April of this year. Only roughly 2,000 patients have started treatment. For now, Madrigal's primary focus is on a subset of the population, which is around 315,000 patients in the U.S., so it has plenty of market to penetrate. By the middle of next year, the company aims to commercialize the drug in the E.U., significantly expanding its addressable market in the process.
NYSE: NVO
Key Data Points
There will be other competitors
News of a particularly powerful player beating a retreat with one of its early stage programs is notable. MASH is a notoriously difficult disease to develop medicines for treating it. Many have failed where Madrigal succeeded, and every additional month of uncontested presence in the market is a victory.
Still, Madrigal is going to face competition for Rezdiffra eventually, whether it's from one of Novo Nordisk's other attempts or from another competitor. The odds are high that a big pharma player will be able to bring far more resources to bear on marketing, manufacturing, and distribution. Madrigal will need to fight for its market share.
Nonetheless, consider the investing thesis for Madrigal to be a bit stronger for the medium-term. Though it can't directly profit from Novo's setback, it effectively learned a valuable lesson, namely that the approach Novo chose was less promising than it appeared to be. Furthermore, it won't need to worry about that program in particular being more effective than Rezdiffra and stealing its market share.
For a one-disease specialist biotech, these subtler factors matter, and Madrigal looks to have caught a break for the moment.
