MDGL - Madrigal Pharmaceuticals: Preparing For Resmetirom's Commercialization In 2024

2023-11-09 13:01:38 ET

Summary

• Madrigal Pharmaceuticals is more than 100% higher than a year ago, though the stock has been grinding constantly lower from it's high-water mark in late-April, sitting some 55% below that level.
• The company completed a $500 million stock offering to prepare for the potential launch of its NASH treatment product in 2024.
• The FDA granted priority review for the NASH treatment and assigned a PDUFA date of March 14, 2024.

Clinical-stage biopharmaceutical firm, Madrigal Pharmaceuticals, Inc. ( MDGL ) has gained 120.62% (YoY) with the stock trading 54.5% below its 42-week high of $322.67. Towards the end of September 2023, Madrigal announced an underwritten public offering pricing of 1.25 million shares of its common stock at $151.69 a share. It is now trading just 3% less than that price. The company completed the $500 million stock offering on October 3, 2023, as it prepares for the potential launch of its nonalcoholic steatohepatitis ((NASH)) treatment product called resmetirom in 2024.

Thesis

In my view, Madrigal Pharmaceuticals' is at an advantage against its competitors over the success of resmetirom and its potential approval by the FDA in 2024. I also believe the capital financing for its maiden product launch in such a short duration and at the recent market price of $150 is firstly a good sign from a clinical perspective. The FDA granted priority review for resmetirom and assigned March 14, 2024, as the Prescription Drug User Fee Act date (PDUFA) date. The agency gave this timeline after accepting Madrigal's new drug application (NDA) that would accelerate the drug's approval as a potential treatment for NASH patients with liver fibrosis.

Q3 2023 Financial Overview

Madrigal's cash position as of September 2023 stood at $232.4 million a 35.2% decline from $358.8 million recorded in December 2022. However, with the completion of the public offering that added $472 million in net cash proceeds, the cash position now stands at $704.4 million (into Q4 2023).

Operating expenses also grew 22.5% (YoY) in the three months ending in September 2023 to $98.5 million. It rose 26.4% (YoY) in the 9 months ending in September 2023 to $263.3 million. Continuation of phase 3 clinical trials also made research and development expenses grow 15.5% (YoY) in the 9 months ending on September 2023 to $201.7 million.

Madrigal Pharma also appointed Bill Sibold, as its CEO in September 2023 tasked with the mandate of taking resmetirom to commercialization. In his Q3 2023 financial report release, he stated ,

Over the last several months, the Madrigal team has made significant progress advancing key regulatory and commercial activities in preparation for a potential approval of resmetirom in March 2024. Our New Drug Application is supported by the largest and most advanced development program in NASH and our commercial strategy is grounded in resmetirom's profile as a liver-directed oral therapy that treats the underlying drivers of the disease. The $500 million financing we closed in October provides Madrigal with the resources necessary to execute a first-to-market launch of resmetirom in the U.S."

Positive Market Expectations

As it stands there is no approved treatment of non-alcoholic fatty liver disease (NAFLD) that includes NASH by the US FDA. While this is a field of active research, I believe Madrigal is making headway in launching the treatment. In late 2022, the company " announced positive topline results from its pivotal phase 3 MAESTRO-NASH clinical trial of resmetirom" that would be used for the treatment of underlying steatohepatitis and fibrosis resulting from the "progression of cirrhosis."

Recent data estimates the global market for non-alcoholic steatohepatitis treatment to reach $20 billion by 2029. It is expected to grow at a CAGR of 27.9% throughout the forecast period with FDA approvals of pipeline candidates viewed as potential catalysts. It is more interesting to see that Madrigal has a market capitalization of almost $3 billion despite having no revenues.

There was a bit of a shake-up in the industry after Madrigal's competitor, Akero Therapeutics, Inc. ( AKRO ) indicated that its lead drug candidate efruxifermin ((EFX)) missed the primary endpoint back in October 2023. It is down 64.4% (YoY) due to this outcome. The company's " ongoing phase 2b symmetry study on EFX" was intended to show how the drug lowered fibrosis "in patients with cirrhotic NASH or compensated F4 fibrosis.

While giving his remark, Akero's CEO stated,

We set a high bar with the primary endpoint after only 36 weeks of treatment. Viewing these data in their totality, including a fibrosis improvement trend, reports of regression from cirrhosis to stage two fibrosis, statistically significant rates of NASH resolution, and statistically significant and sustained reductions in markers of liver injury and fibrosis after 36 weeks, we believe EFX has the potential to show additional improvements for patients after the long-term follow-up period is complete at Week 96."

A total of 182 patients were enrolled in the clinical trial while receiving EFX doses of 28mg, 50mg and placebo. Akero's primary endpoint after the dosage (in the symmetry study) was to ascertain the patients that "achieved ? 1 stage improvement in fibrosis with no worsening of NASH at week 36." So, at the end of the 36-week period, Akero's study produced statistically insignificant results. It indicated positive results in only 22% of patients administered with 28mg of EFX, 24% of those given 50mg and 14% in the placebo cohort.

Related Studies and how it will likely affect the market

The results for Akero (despite being in F4 or compensated fibrosis) are crucial to MDGL since Akero's lead product EFX, a differentiated FC-FG21 fusion protein was expected to also produce dominant outcomes in F4. In essence, the Phase 2b symmetry study included the Fc-FG21 EFX in patients with F4 due to NASH. EFX is intended to be administered in a once-weekly subcutaneous dosage to allow regular body metabolism while resmetirom is a once-daily dosage.

In my view, with more time now needed to ascertain the effectiveness of EFX, it is only natural for scientists to turn to Madrigal's resmetirom (if it is approved) as a substitute for the once-weekly EFX with the once-daily dosage resmetirom. Additionally, clinical trials have indicated successful results in the treatment of F2 and F3 (that both show significant fibrosis without cirrhosis). Results from MDGL's phase 3 study on evaluating the effectiveness of the safety level of resmetirom in NASH and fibrosis patients (MAESTRO-NASH) had positive revelations in regard to F2 and F3. According to the study, there were significant "improvements in fibrosis and NASH resolutions across all key subgroups including baseline fibrosis stage (F2 or F3), NAS (<6, ?6), type 2 diabetes status, age (<65 years, ?65 years), and sex."

To another level, I believe MDGL's stock price has been under pressure from market conditions that placed prominence in GLP-1 receptor agonist medicine used in the treatment of F2 fibrosis and potential FGFs for compensated fibrosis (F4), almost squeezing out resmetirom. Some of the approved GLP-1 receptor agonists for type-2 diabetes treatment in the US " include exenatide (administered twice daily), liraglutide and lixisenatide (administered once daily), and the once-weekly agents exenatide extended-release, albiglutide, and dulaglutide."

Further, research also shows that while GLP-receptor agonists can lower the progression of hepatic fibrosis, there exists no evidence on its efficacy in "improving pre-existing liver fibrosis in NAFLD patients." With EFX we are also looking at a potential reaction of antibodies (after administration) against the FG21 fusion protein (especially on long-term administration). We must also remember that Akero has extended the study period from 36 weeks to 96 weeks. In the MAESTRO-NASH study, MDGL has continued to evaluate its trial subjects numbering about 1,750 enrolled in its 52-week treatment regimen for up to 54 months. While making the NDA acceptance announcement, MDGL noted that the clinical trial had achieved two main primary endpoints , " resolution of NASH and reduction of liver fibrosis."

Having these two outcomes in mind, it will be vital for MDGL to focus on the outcomes of its resmetirom (in compensated cirrhosis) rather than simply measuring fibrosis. According to me, Akero needed more time to ascertain the full reversal of cirrhosis and not just fibrosis which would have taken the 36-week period in question. While MDGL's 52-week clinical study is ongoing, it has been established that resmetirom attained meaningful impacts on "both primary liver biopsy endpoints, likely to benefit NASH patients."

Future possibilities for Madrigal and Resmetirom

There have been numerous attempts by big pharmaceutical companies to develop NASH drugs. AKRO's EFX has been threatened by long-term efficacy concerns meaning MDGL's resmetirom may likely have the market to itself (all factors constant including the emergence of generic equivalents). To put it into perspective, I believe AKRO's phase 3 clinical NASH data may be released sometime in 2027. Afterwards, the BLA application may likely be submitted to the FDA in about 8 months with the FDA having to respond in approximately the same amount of time. According to me, EFX may come online in 2029 leaving out resmetirom with at least 5 years of market dominance (if the approval happens in 2024).

Even more interesting is the fact that the FDA towards the end of Q2 2023 denied the "approval of obeticholic acid as a potential treatment for pre-cirrhotic fibrosis due to NASH." In the complete response letter ((CRL)) on the new drug application (NDA) to the FDA it cited lower placebo results on "improvement in fibrosis and worsening NASH" (while acknowledging the superior results of the 25mg OCA results). The FDA required companies to have "successful completion of the long-term outcomes phase of the regenerative trial" (at a minimum) which OCA failed to show.

Potential Treatment Market Price

In Q1 2023, an evidence report had priced resmetirom at $39,400 and obeticholic acid (before it was discontinued) at $25,200 per year.

It will be vital to note that NAFLD is recorded as the "most common chronic liver condition in the US." Approximately 25% of US adults have NAFLD with 20% of this population having NASH. Most adults in the overall NAFLD category have reported "simply fatty liver cases" attributed to genetic conditions.

The number may be lower since we are considering F2 and F3 patients (portal fibrosis with few or no septa that may not require resmetirom) together with F4 (cirrhosis). I believe, future research is essential to establish if resmetirom may be necessary to prevent a patient with F2 fibrosis from slipping to F3 fibrosis (with few septa). In this case, resmetirom (if approved) will be used to treat cases as little as F2. If approved, MDGL will reach a positive cash-flow status in less than a year (taking into consideration that one patient is being treated with about $39,000).

Risk and Valuation

MDGL's success at the moment depends upon a positive resolution by the FDA to be delivered on its PDUFA date on March 14, 2024.

I also believe that from Akero's clinical studies, NASH outcomes are predominantly long-term trials. The company extended its phase 2b Symmetry study from 36 weeks to 96 weeks with more than 200 patients. However, this is a small number considering MDGL (in its MAESTRO-NASH) clinical study enrolled about 1,750 patients) in its 52-week treatment duration expected to end by Q4 2023. I believe, MDGL's outcomes will be positive considering it has more patients than Akero while covering longer initial clinical trials.

MDGL recorded a 22.12% (QoQ) reduction in its cash position in Q3 2023 to $232.4 million. In the 12 months trailing to September 2023, MDGL used up $302.8 million in operations and $74 million in CapEx. However, it recorded a $379.5 million cash injection from financing over the same period that brought its net change in cash to $2.7 million. With the $500 million equity infusion recently closed in October 2023, it means, MDGL has sufficient capital to run its operations including commercialization, research and development up to 2025. Additionally, MDGL's total debt balance stands at $116.6 million which is lower than the current cash position.

In regards to the valuation, MDGL's forward price-to-book ratio stands at 19.03 against the industry average of 2.38 (a difference of almost 700%). This metric shows MDGL is overvalued. However, IF the company received a positive outcome on its March 14, 2024, PDUFA date, as I expect it will, I believe the stock will see robust upside.

Bottom Line

MDGL stands at an advantage ahead of its peers with resmetirom likely headed for approval in 2024. If approved by the FDA, resmetirom will be the only recognized treatment for NASH and related liver diseases. The company also has adequate capital to complete its R&D as well as prepare for commercialization later in 2024. Throughout the clinical trials, resmetirom has displayed a significant reversal in fibrosis and a reduction of inflammatory responses among patients. It will be vital to maintain a safety profile especially in support of long-term usage in order to secure approval as a NASH treatment therapy. For these reasons, I recommend a hold rating for the stock.

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