The first commercial drug from Madrigal Pharmaceuticals (MDGL -2.48%) made a big splash in 2024 when the Food and Drug Administration (FDA) approved Madrigal's Rezdiffra as the first drug in the U.S. to treat metabolic dysfunction-associated steatohepatitis (MASH), a severe form of fatty liver disease.
The pharmaceutical stock is down more than 7% this year, but institutional investors are still high on the company. Baker Brothers Advisors owns 2.14 million shares, while the Janus Henderson Group owns 2.1 million, and RTW Investments owns 1.99 million shares of Madrigal. Institutional investors hold more than 95% of the company's float.
Is there something those investors are seeing that retail investors are missing? Let's find out.
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Madrigal seems to be holding off the competition
Last year, the FDA granted accelerated approval to Novo Nordisk's (NVO -1.23%) Wegovy to treat adult MASH patients with moderate-to-advanced fibrosis who don't have cirrhosis. The broader metabolic landscape is shifting rapidly toward GLP-1s, GIP/GLP-1 dual agonists, and THR-β competitors. There's a concern that Rezdiffra could face pricing pressure or lose long-term market share as more multi-indication obesity/MASH treatments hit the market.
Rezdiffra and Wegovy are approved in similar MASH patient populations, though they have fundamentally different mechanisms of action. Rezdiffra is a thyroid beta receptor agonist that directly targets the liver. Wegovy indirectly resolves steatohepatitis and reduces liver scarring by targeting the upstream metabolic drivers of the disease.
Sales of Rezdiffra continue to rise, even with new competition. In the second quarter, the therapy had $364.3 million in sales, up 71%, year over year. Roughly 49,000 patients are taking the medication, more than twice as many as in the same quarter a year ago.
The increase in competition from Wegovy doesn't seem to be a major problem for Madrigal, especially considering that the population with MASH, the leading cause of chronic liver disease, is expected to grow considerably. One study reported in the Journal of the American Medical Association (JAMA) stated that the MASH population is expected to grow from 33.7% in 2020 to 41.4% by 2050, representing 122 million adults in the U.S. by that time.
NASDAQ: MDGL
Key Data Points
The company is a potential takeover target
One thing that could set the stock's price soaring is a takeover attempt by a larger pharmaceutical company.
Madrigal's combination of a differentiated asset in Rezdiffra, strong cash reserves ($838.9 million as of the second quarter), and a pipeline in development makes it an attractive target for larger pharmaceutical firms seeking to enter the metabolic liver disease space. The global research and development (R&D) landscape is increasingly characterized by partnerships and acquisitions, as companies seek to fast-track access to novel therapies, a mindset that continues to accelerate biotech M&A across the healthcare sector.
Rezdiffra's U.S. patent protection until 2045 and its 2025 approval in the European Union provide a durable competitive moat. A takeover would allow a larger firm to capitalize on Rezdiffra's commercial momentum while mitigating the risks of in-house R&D. With Madrigal's cash reserves and manageable debt, the acquisition cost could be relatively attractive compared to developing a similar asset from scratch.
A risk that may be worth taking
Madrigal has a drug with blockbuster potential, but a relatively small pipeline of mostly early-stage candidates. The other concern is that the company is losing money. In the second quarter, it reported an earnings per share (EPS) loss of $1.99, compared with $1.50 in the same quarter a year ago.
However, the MASH population is so large that Rezdiffra's sales could easily double or triple this year, particularly if it gains any additional indications. The average analyst price target for Madrigal is $678.06, more than $140 higher than its current price. There are plenty of pharmaceutical companies facing patent cliffs on their lead therapies, making Madrigal an attractive buyout target. This stock is definitely for those investors who can afford to be patient for a payout that may be years down the line.
