Description

Madrigal is worth $375 a share after the very likely chance that its NASH drug gets approved this year or early 2024. Given there is no treatment for NASH, the excellent phase 3 results, the accelerated application with the FDA will most likely get approved. 

Madrigal Pharmaceuticals, Inc. is a clinical-stage biopharmaceutical company that focuses on the development of innovative therapies for the treatment of metabolic and liver diseases. The company was founded in 2011 and is headquartered in West Conshohocken, Pennsylvania, USA.

Nonalcoholic steatohepatitis (NASH) is a type of liver disease that is associated with the buildup of fat in the liver, inflammation, and liver cell damage. The exact size of the NASH market is difficult to determine as it is a relatively new and evolving field, and there are still many uncertainties regarding the prevalence, diagnosis, and treatment of the disease.  There are 50 million people in the U.S. and Europe who have NASH. You can learn more about Nash on this fantastic web site. https://www.nashexplored.com/

However, according to a report by Grand View Research, the global NASH market size was valued at USD 1.07 billion in 2020 and is expected to grow at a compound annual growth rate (CAGR) of 52.8% from 2021 to 2028. This growth is primarily driven by the increasing prevalence of NASH, growing awareness and diagnosis rates, and the emergence of new and innovative therapies for the disease.

Madrigal Pharmaceuticals is focused on developing treatments for NASH. One of the company's most promising drug candidates, Resmetirom, has shown positive results in phase 3 clinical trials for the treatment of non-cirrhotic NASH with liver fibrosis. However, the company is also exploring the potential of Resmetirom in other indications, including compensated NASH cirrhosis.

According to Madrigal, there are an estimated two million patients with NASH cirrhosis in the U.S., with approximately 85% of them considered to be compensated. This means that these patients have not yet experienced liver failure, but are at risk of developing more severe symptoms. If Resmetirom is approved for use in this indication, it could significantly increase the company's addressable market, potentially doubling or even tripling it.

In clinical trials, Resemeritron has shown promising results in reducing liver fat, inflammation, and fibrosis, which are key hallmarks of NASH. The drug has also demonstrated a good safety profile and tolerability in patients.   Madrigal Pharmaceuticals has recently made waves in the pharmaceutical industry by becoming the first company to produce highly promising Phase 3 data for the treatment of nonalcoholic steatohepatitis (NASH), a chronic and progressive liver disease. In their clinical trial, Madrigal's drug resmetirom demonstrated significant improvements in liver histology, liver fat content, and serum biomarkers, surpassing expectations and highlighting the drug's potential to become a significant player in the NASH market.

On Dec 39 2023, Madrigal announced positive results of its phase 3 clinical trials. 

Madrigal Pharmaceuticals conducted a 52-week Phase 3 study called MAESTRO-NASH, which involved over 950 patients who underwent serial liver biopsy. The study found that resmetirom, a drug administered orally in daily doses of 80 mg and 100 mg, achieved both primary endpoints and potentially clinically meaningful effects compared to the placebo.

The drug demonstrated a significant improvement in NASH resolution (ballooning of 0, inflammation of 0-1) and a ≥2-point NAS reduction with no worsening of fibrosis, achieving a p-value of less than 0.0001 at both doses. Additionally, the drug showed a fibrosis improvement of at least one stage with no worsening of NAS, achieving a p-value of 0.0002 and less than 0.0001 at 80 and 100 mg, respectively.

Furthermore, resmetirom showed a potentially clinically meaningful reduction in LDL cholesterol, which was a key secondary endpoint, achieving a p-value of less than 0.0001. The drug also demonstrated positive effects on NASH biomarkers and imaging.

The MAESTRO-NASH study found that resmetirom was safe and well-tolerated, consistent with the overall safety profile observed in Phase 3 MAESTRO trials, thus expanding the large safety database. Based on these findings, Madrigal Pharmaceuticals intends to file a new drug application to seek accelerated approval of resmetirom for the treatment of non-cirrhotic NASH with liver fibrosis.

Results in table form follows:

Dual Primary Endpoints (52 Weeks) and Key Secondary Endpoint (24 weeks)

All biopsies were read independently by two central pathologists. Each pathologist's scores showed a similar statistically significant magnitude of response at both doses for both liver biopsy endpoints. Biopsy endpoints were achieved independent of baseline fibrosis stage or diabetes status, including similar statistical significance and magnitude of effect at both doses in subgroups of F2, F3, and F2/F3 patients. Other secondary liver biopsy endpoints that were achieved at both doses include ≥2 point reduction in NAS with no worsening of fibrosis, ≥2 point reduction in NAS with ≥1-stage improvement in fibrosis, NASH resolution (with ≥2 point reduction in NAS) with ≥1-stage improvement in fibrosis, and a 2-stage reduction in fibrosis without worsening of NAS.

What makes Madrigal's success all the more impressive is the fact that other pharmaceutical companies have been struggling to develop effective treatments for NASH for decades. Many companies have invested heavily in NASH research and development, yet have been unable to produce Phase 3 data that meets the necessary endpoints. This makes Madrigal's achievement all the more significant, as they have successfully hit a target that many other competitors have missed for years. As the first company to achieve such impressive results in a Phase 3 clinical trial, Madrigal is well-positioned to become a leader in the NASH market, with the potential to help millions of patients suffering from this debilitating and complex disease.

Madrigal is applying for accelerated approval with the FDA. 

NASH is a complex disease that involves several underlying factors, such as insulin resistance, inflammation, and lipid metabolism dysfunction. As a result, experts believe that a combination therapy approach that targets these underlying factors may be more effective than using a single drug.

Based on my research on expert networks, it appears that Madrigal's drug, resmetirom, has the potential to become a primary drug in the treatment of NASH. The drug has shown promising results in clinical trials, achieving both primary endpoints and demonstrating potentially clinically meaningful effects. Additionally, resmetirom was found to be safe and well-tolerated, expanding the large safety database for the drug.

Furthermore, it is likely that resmetirom will be used as part of a combination therapy with other injected drugs. Similar to how statins and metformin are used to treat high cholesterol and diabetes, respectively, combination therapies for NASH may involve a combination of drugs that target different aspects of the disease. This approach has shown promising results in clinical trials, with some studies demonstrating a significant improvement in liver histology and reduction in liver fat.

Overall, Madrigal's approach to NASH treatment aligns with the current understanding of the disease and the need for a combination therapy approach. If resmetirom is approved for the treatment of NASH, it has the potential to become a key drug in combination therapies, helping to address the significant unmet medical needs of patients with this complex disease.

NASH (nonalcoholic steatohepatitis) is a growing concern among healthcare providers as there is currently no FDA-approved treatment for the condition. According to recent studies, NASH affects approximately 3% to 12% of the adult population in the United States and is expected to become the leading cause of liver transplantations in the next decade. Therefore, there is a clear need for a safe and effective treatment option for NASH.  

Resmeritron's safety profile appears to be strong, which is a critical factor for FDA approval. Resmeritron's phase 3 clinical trial results suggest that it is both safe and effective in reducing liver fat and inflammation, which are key factors in treating NASH.

Given these factors, it is reasonable to believe that Resmeritron's drug could receive FDA approval either this year or early 2024.

Often times, it is best to buy biotech stocks after the drug gets approved and much of the risk eliminated.  This is true if the drug is truly innovative, new and addressing ahuge market, like what Amgen and Gilead did in the past. 

Madrigal Pharmaceuticals, like Gilead and Amgen before them, is a biopharmaceutical company that is seeking to develop innovative therapies for unmet medical needs. The company's focus on the development of a potential treatment for non-alcoholic steatohepatitis (NASH) is similar to how Gilead and Amgen also focused on specific disease areas when developing their blockbuster drugs.

Amgen's first blockbuster drug was Epogen, a medication used to stimulate red blood cell production in patients with anemia. This drug was a game-changer in the field of anemia treatment, and its success helped propel Amgen to become one of the largest biotechnology companies in the world. Similarly, Gilead's drugs for HIV and Hepatitis B and C were revolutionary in the field of antiviral therapies, offering a significant improvement in patient outcomes and transforming the landscape of treatment options for these diseases. The approval and success of these drugs helped establish Gilead as a leading player in the biopharmaceutical industry.

Madrigal Pharmaceuticals is following a similar path with its focus on NASH, which is a disease area with significant unmet medical needs and no approved therapies. If the company's drug, resmetirom, is approved for the treatment of NASH, it has the potential to be a blockbuster drug, similar to Epogen and Gilead's drugs. It is important to note, however, that drug development is a complex and challenging process, and success is not guaranteed. Nevertheless, Madrigal's approach and focus on a specific disease area demonstrate similarities to the strategies that have been employed by successful biopharmaceutical companies in the past.

Financial Forecasts

The potential market for Madrigal's drug Resmetirom is initially limited to around one million patients in the US who have been identified and ICD-10 disease coded, making their medical costs reimbursable. This is significant as liver biopsies, which are currently used to identify NASH patients, can be painful, expensive, and potentially harmful. However, NASH drug developers are actively searching for biomarkers that could enable the diagnosis of the disease without a biopsy, potentially expanding the patient population significantly.

Despite the limited initial market, the potential market opportunity for Resmetirom is substantial, with a projected market size of approximately $19 billion based on a placeholder annual treatment price of $19,000. This has led some analysts to speculate that peak sales of Resmetirom could reach $5 billion in the US and $1.5 billion in Europe, with a 90% chance of approval. Madrigal itself is seeking a partner to market and sell Resmetirom in Europe.

To further expand the market opportunity for Resmetirom, Madrigal is initiating a MAESTRO-NASH OUTCOMES study, which will measure the drug's effects on approximately 700 patients with compensated NASH cirrhosis. If successful, this could lead to label expansions for Resmetirom, which could significantly increase its market potential. Despite the company's net loss of $295 million in 2022, Madrigal raised $300 million last year and has a near-term cash position of over $350 million, suggesting that it is well-funded to continue its research and development efforts. Overall, Resmetirom has the potential to be a key drug in the treatment of NASH, with significant market potential for investors who are willing to be patient.

The typical bank of the envelope analysis is biotech companies are valued at 5 times peak sales.  The potential for Madrigal to generate peak sales of $2.5bn and the use of a price to sales ratio of ~5x suggest that the company's market cap could exceed $10bn. This indicates that there may be significant upside potential for investors, especially if Resmetirom is subsequently approved for compensated NASH cirrhosis. In such a scenario, Madrigal's addressable market could double or even triple, further boosting the company's sales potential.

Moreover, the possibility of Madrigal being acquired by a larger pharmaceutical company is not far-fetched. The commercial potential of Resmetirom could be highly attractive to a large player in the industry, and the drug's unique profile as the first NASH drug to show great Phase 3 data could make it even more valuable. Given that Resmetirom could generate blockbuster sales for a decade or more, an acquisition could make strategic sense for a pharmaceutical company looking to expand its portfolio in the NASH market. Thus, Madrigal's potential as an acquisition target further adds to the potential upside for investors.

My forecast model.  At $6.8B, 18m shares , the stock is $380 per share.  FWIW, SVB Securities estimates Madrigal's peak sales at $2.5B which is twice as much as my 2026 forecasts. The company has $360 milllion in cash, $49m in debt.  

Analysts' consensus, Competition, Recent Stock Price Action

After conducting extensive research on analysts covering the NASH sector, I have concluded that the top experts in this area are from Evercore and Goldman Sachs. These analysts have a deep understanding of the market dynamics, clinical trials, and drug development landscape in the NASH space. According to their latest reports, Evercore has set a price target of $325 for NASH-related stocks, while Goldman Sachs has a higher target of $375.

NASH drug resaerch is notoriously littered with so many losers.  Many had successful phase 2 results only to have frustrating phase 3 results.  The reasons for this are varied and complex. First, biopsy results can be subjective, which means that the diagnosis and progression of the disease can be difficult to accurately assess. Second, patient behavior plays a significant role in the development and management of NASH. Factors such as exercise, medication compliance, and lifestyle choices can all impact the progression of the disease. Third, like other diseases such as HIV and Hepatitis, finding an effective treatment for NASH can be a long and challenging process.

Below is an example of the companies in the graveyard trying to find a treatment for NASH (cirrhosis)

This makes Madrigal Pharmaceutical's achievement even more outstanding.   They deserve a lot of credit for being the first company to achieve successful phase 3 results for the treatment of NASH. This achievement is noteworthy and has resulted in a significant increase in the company's stock price. The fact that the stock went up by 350% on the day of the phase 3 results is a super positive sign and the recent correction offers a buy the dip opportunity. 

Catalyst

Approval of Nash drug this year or early 2024.  Acquisition by a big pharmaceutical at 5 times peak sales estimate.