Summary
- The biopsy readout for the pivotal MAESTRO-NASH study on lead product candidate resmetirom is slated for Q4.
- Many expect a successful trial based on positive Phase 2 data.
- Those results don’t really back up management’s confidence of acing the Phase 3 study’s dual endpoints.
Madrigal Pharmaceuticals ( MDGL ) is a $1.2 billion market cap clinical-stage biotech pursuing novel therapeutics for nonalcoholic steatohepatitis (or NASH). NASH is a form of nonalcoholic fatty liver disease (NAFLD) in which inflammation and hepatocyte damage are present, in addition to the fatty liver. A late-breaking article reports that NAFLD was associated with an increased risk of all-cause (+32% higher) , cardiovascular disease-related (+22%) and liver cancer-related (+67%) mortality compared to those without the disease. The FDA's Accelerated Approval Program allows for earlier approval of drugs that fill a serious and unmet medical need like NAFLD/NASH based on surrogate endpoints that are thought to predict clinical benefit. However, the previous Phase 2 outcomes may not readily translate into hitting the necessary surrogate thresholds.
According to the Agency's "Noncirrhotic Nonalcoholic Steatohepatitis With Liver Fibrosis" 2018 draft guidance , such approval may be secured by demonstrating improvements with ANY ONE of the following liver histological endpoints:
- Resolution of steatohepatitis on overall histopathological reading and no worsening of liver fibrosis on NASH Clinical Research Network (or CRN) fibrosis score. Resolution of steatohepatitis is defined as absent fatty liver disease or isolated or simple steatosis without steatohepatitis and a NASH CRN activity score (NAS) score of 0-1 for inflammation, 0 for ballooning, and any value for steatosis [NASH-EP]
- Improvement in liver fibrosis greater than or equal to one stage (NASH CRN fibrosis score) and no worsening of steatohepatitis (defined as no increase in NAS for ballooning, inflammation, or steatosis) [Fibrosis-EP]
- Both resolution of steatohepatitis and improvement in fibrosis (as defined above)
MAESTRO-NASH is one of the three Phase 3 trials currently evaluating the safety and efficacy of resmetirom for the treatment of NASH. Its dual primary surrogate primary endpoints (PEPs) on biopsy are NASH-EP with ?2-point reduction in NAS, OR Fibrosis-EP. To meet the Lobular inflammation score of 1 , there have to be fewer than two or more inflammatory cells such as lymphocytes, neutrophils, eosinophils, etc. per 200x field. To meet Ballooning score of 0, there have to no ballooned (injured) or apoptotic (dead) hepatocytes per field. To fail either is to fail NASH-EP.
The Phase 2 double-blind, randomized, controlled trial (or RCT) enrolled 125 adult patients with a diagnosis suggestive of NASH. The PEP was percent relative change from baseline in hepatic fat fraction by MRI-proton density fat fraction (PDFF) at 12 weeks, which was significantly in favor of resmetirom compared to placebo ( -32.9% vs -10.4%, p<0.0001 ). A useful result with many clinically beneficial implications, but not one the FDA requires.
Unfortunately, there was no difference with the placebo control group on the key secondary endpoints of 2-point reduction in NAS with at least 1-point reduction in ballooning or inflammation (Table 1); or on Fibrosis-EP. Resmetirom did have a significantly higher percentage of patients achieving NASH-EP and with at least a 2-point reduction in NAS. On the other hand, a very recent network meta-analysis deemed resmetirom's 27% higher chance for NASH-EP may not be different from placebo. The 95% confidence intervals of 0.56 and 2.90 relative risk includes 1 (equal chance) and thus non-significant.
Table 1. Key secondary endpoints of MGL-3196-05
Proportions of patients with: | Placebo | Resmetirom | p-value |
1-point reduction in fibrosis without worsening of NAS on liver biopsy [Fibrosis-EP] | 23.5 | 28.8 | 0.65 |
?2-point NAS reduction, with ? 1 point reduction in ballooning or inflammation | 32.4 | 50.7 | 0.096 |
NASH Resolution (without fibrosis increase) [NASH-EP], with ?2 point reduction in NAS | 6.5 | 24.7 | 0.032 |
That said, the trial was plagued by a high placebo response, particularly at one test site, but this is a danger in any NASH trial. There is a further risk of the Hawthorne effect, by which patients selected for RCTs fare better just by participation, because the awareness of being observed and social desirability may lead them to make positive changes in behavior such as diet and exercise , which are known to reduce NASH and fibrosis. Of course both placebo and treatment groups could benefit, but higher placebo scores would lower the treatment effect.
As of June 30, 2022, Madrigal had cash and equivalents of $211.8 million . The bulk of their expenses come from research and development, which for the past two quarters were $58.5 million and $47.9 million . R&D is expected to increase sequentially due to additional clinical trials; the company initiated the MAESTRO-NASH Outcomes Phase 3 study on August 31. General and administrative expenses could be in the low teens (millions) due to higher head count, so is reasonable to expect less than $70 million left in the tank at year's end. Therefore, despite management's claims that their funds are sufficient for 12 months , lasting to Q1 2023 without further financing is pushing it. If MAESTRO-NASH fails, and as resmetirom represents their entire pipeline, Madrigal is likely finished and won't be able to fund the Phase 3 for the other indication in cirrhotic NASH patients.
Should MAESTRO-NASH hit one of the EPs, and odds are slightly in favor of NASH-Ep, it would be first on the market as early as next year. The prevalence of NAFLD in the U.S. was modeled to be 26.3% in 2016 , or 85.2 million, of whom, 20% would have NASH, but only 20% of those classified as at least F3 on the fibrosis score. That makes 3.4 million the total addressable market of high-risk patients based on the population tested in NASH clinical trials. If sold at $50/pill, it would be a blockbuster if 55,000 patients are on it annually. As the only option, resmetirom could corner half the market in the first 2-3 years before any rival is approved.
In conclusion, the readout is a binary event. It might be too risky for some investors. Longs and option traders should consider the risks of volatility after the announcement and on succeeding days and hedge accordingly. A positive result somewhat de-risks a Madrigal investment but also brings not only profit-taking but also the probability that the company could secure financing with secondary offerings which dilute the share price. After that, prospects are much rosier. Madrigal has no sales infrastructure, but partners should be easy to come by, and acquisition would also be on the table, given resmetirom's vast potential and no competition.
For further details see:
Madrigal Pharmaceuticals Forecast: Not So Clear