Those who had the foresight to invest in Summit Therapeutics (SMMT 8.62%) and Madrigal Pharmaceuticals (MDGL 2.58%) three years ago are sitting pretty right now. Both companies have soared over this period, with the former skyrocketing 2,280% and the latter gaining 631%. These two rising stars in the biotech industry have experienced significant clinical and regulatory progress, which has fueled their growth engines.
Even with these recent performances, Summit and Madrigal could have plenty more upside potential, so it's not too late to invest in them. Here's why.
Image source: Getty Images.
1. Summit Therapeutics
There is a class of drugs known as checkpoint inhibitors that has been hugely successful, especially in treating many different forms of cancer. This group includes Keytruda, which, until recently, was the world's best-selling medicine. Checkpoint inhibitors remain the standard of care across many different types of cancer. However, a newer category of drugs, known as bispecific antibodies, could prove even more effective and potentially surpass them. Many have already been approved, but one in particular, called ivonescimab, looks highly promising.
This is the medicine that Summit Therapeutics is developing after licensing it from its creator, China-based biopharma Akeso. Ivonescimab proved more effective than Keytruda in a phase 3 study in patients with non-small cell lung cancer and a PD-L1 protein overexpression. That clinical trial was run in China and can't be used to support approval by the U.S Food and Drug Administration (FDA). Even so, it was a huge milestone, and ivonescimab is now undergoing phase 3 studies in the U.S. in lung cancer and colorectal cancer -- the two leading causes of cancer death in the world.
NASDAQ: SMMT
Key Data Points
That should only be the first wave -- Summit plans to target more indications. What's the commercial opportunity? Some analysts project worldwide sales of $4.4 billion by 2030 and peak sales of $53 billion. That's not unreasonable considering this medicine could be more effective in some niches than Keytruda, which generated $29.5 billion in revenue last year and still has a couple of years before its patent cliff in the U.S.
Speaking of which, ivonescimab won't lose patent exclusivity in the country until 2039, so Summit Therapeutics still has many years ahead to milk this cow for all it's worth. The company's market cap is currently $13.8 billion -- it has actually slightly declined this year. The company's shares may not move much in the right direction until it releases data from late-stage studies and moves forward with regulatory submissions. Positive developments along those lines could jolt the stock.
In my view, that valuation understates Ivonescimab's potential to transform Summit into a major player in one of the largest therapeutic areas in the pharmaceutical industry, even with the risk of potential clinical setbacks. That's why there could be significant upside left for the stock.
2. Madrigal Pharmaceuticals
Last year, Madrigal Pharmaceuticals received FDA approval for Rezdiffra, a medicine for metabolic dysfunction-associated steatohepatitis (MASH). That was a significant breakthrough, as it became the first medication to obtain approval as a treatment for this disease. There is a massive unmet need in MASH; the condition is linked to obesity and affects millions of patients in the U.S. alone.
Since its launch, Rezdiffra has made steady commercial progress. In the third quarter, Madrigal's single approved product generated revenue of $287.3 million, representing a 35% quarter-over-quarter increase and a significant 362% rise compared to the year-ago period. And as of Sept. 30, there were 29,500 patients on Rezdiffra.
That's a solid number for a product that launched in mid-2024, but it's still a small fraction of its total addressable market. Madrigal is targeting 315,000 patients with moderate to severe fibrosis (scarring of the liver) who are currently under the care of specialists, so it hasn't even reached 10% of this total yet. That's only the U.S. opportunity. The company is expanding its reach and recently earned approval for the medicine in Europe.
NASDAQ: MDGL
Key Data Points
Furthermore, Madrigal Pharmaceuticals is seeking label expansions, including for the treatment of MASH patients with cirrhosis (the most severe stage of liver scarring). The company also added an oral GLP-1 medicine to its pipeline through a licensing agreement. Madrigal is seeking to combine this candidate with Rezdiffra and seek multiple pathway options to treat MASH.
True, it will likely encounter competition: Novo Nordisk's Wegovy recently earned approval in MASH. And Madrigal is still under accelerated approval, meaning it must pass confirmatory clinical trials or it could be taken off the market.
However, the rapid uptake for Rezdiffra suggests physicians -- who wouldn't prescribe a medicine without good reason, even with FDA approval -- believe it's effective. And given the large addressable market in MASH, competition from Wegovy won't sink Rezdiffra's prospects.
Because Rezdiffra should be under patent protection until 2045 in the U.S., there could be a lot more market-beating potential for Madrigal Pharmaceuticals.
