2023-03-30 11:16:20 ET
Summary
- Madrigal's share price rocketed >350% in December last year after positive data from a Phase 3 study of lead drug Resmetirom in NASH.
- NASH is a massive market opportunity - close to 50m people in the US and Europe are estimated to have the disease.
- Resmetirom's data looks good enough to secure an accelerated approval.
- Rival Intercept Pharmaceuticals' Ocaliva has an FDA decision date upcoming in June for its NASH candidate - and an FDA Adcomm scheduled for May.
- Resmetirom looks a slightly better drug than Ocaliva based on study data, safety, and price - capable of driving annual revenues in the multi-billions. The competition is fierce but approval could drive 50-100% upside in my view.
Investment Overview
In December last year I published my last note on Pennsylvania based biotech Madrigal Pharmaceuticals (MDGL) - a company that has long been seen as a potential winner of the "NASH Dash" - the race to be the first company to secure an approval for a drug targeting nonalcoholic steatohepatitis.
It's a race that has involved hundreds of biotechs and several major pharmaceutical companies over the years, with the prize being a patient population of >20m, and a market opportunity that easily runs into the double digit billions.
After releasing promising data from a Phase 2 study of its candidate Resmetirom in May 2018, Madrigal's share price rocketed to a value of $280, having traded at just $17 a few months prior.
I first covered Madrigal in February 2012, giving the company a "Buy" recommendation, but after waiting for over four years for Phase 3 MAESTRO Study data, investors had grown impatient, and the share price had fallen to $62.
In my December update I noted that data promised for Q422 was expected any day, cautioned that the market was speculating that the data was likely negative given the delays announcing it, but also reminded investors that:
Madrigal still has everything to play for, and could still reward shareholders with triple-digit percentage gains on positive data.
Days later, the data finally arrived, and it was positive - MAESTRO met both of its dual primary endpoints and the share price took flight once again, reaching a value of $290 - up >350% overnight.
What Did The Data Show?
In a recent investor presentation , Madrigal summarised data from the >950 patient study as follows:
Madrigal summarises Phase 3 MAESTRO data (Investor Presentation)
As well as meeting its dual primary endpoints (according to Madrigal founder Dr. Rebecca Taub speaking at an Oppenheimer virtual conference meeting either endpoint would have been considered a success), the study met key secondary endpoints also. These are described in Madrigal's investor presentation as follows:
?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.
Madrigal was also able to reveal that Resmetirom "safe and well tolerated at both the 80mg and 100mg doses", with the prevalence of serious adverse events ("SAEs") being broadly comparable to placebo.
Although the rate of discontinuations in the 100mg arm was 7.7%, compared to 3.7% in the placebo arm, and more cases of diarrhea and nausea were reported in the Resmetirom arm, as shown below, the differences are not significant enough to derail a push for approval.
Patients also showed statistically significant reductions in liver enzymes compared to placebo, and Madrigal also reveals that:
Reductions in atherogenic lipids and lipoproteins, fibrosis biomarkers and imaging tests (MRI-PDFF, CAP and liver stiffness measures) were observed in Resmetirom treatment arms as compared with placebo.
By any measure then, the study can be called a success. Although that does not necessarily guarantee that Resmetirom is a certainty to be the first drug to win a full regulatory approval.
Path To Approval in US and Europe
Armed with the MAESTRO Phase 3 data, Madrigal has said it will file for an accelerated approval of Resmetirom to treat patients with "significant fibrosis". According to the National Institutes of Health:
The stages of NASH-associated fibrosis range from absent (stage F0) to cirrhosis (stage 4), with stages F2-F4 considered to be clinically significant and stages F3-F4 considered to be advanced fibrosis
Madrigal's target patient population will initially be categories F-2 to F-3, the investor presentation suggests. Back in 2018, the FDA issued some draft guidance on NASH drug development, with data required for an accelerated approval under subpart H regulations summarised by Madrigal (in its 2022 10K submission) as follows:
Resolution of steatohepatitis on overall histopathological reading and no worsening of liver fibrosis;
Or
Improvement in liver fibrosis greater than or equal to one stage and no worsening of steatohepatitis;
Or
Both resolution of steatohepatitis and improvement in fibrosis.
These appear to match up well with Madrigal's study endpoints, and further confirmation that Resmetirom would make a viable commercial product was provided by the Institute for Clinical and Economic Review ("ICER"), which compared Resmetirom to Intercept Pharmaceuticals ( ICPT ) once-rejected (in 2020) NASH therapy Ocaliva in terms of economic benefit, and concluded:
The cost-effectiveness of both drugs will depend on their price though, notably, at our placeholder price, Resmetirom would appear to be cost saving. If the price of OCA is not substantially reduced from the price of the approved (lower) doses used for PBC, it will not meet typical cost-effectiveness thresholds.
The placeholder price attributed to Resmetirom was $19k, versus $85k for Ocaliva, so perhaps it is not surprising that of the two therapies, which appear to have a comparable effect on patients, Resmetirom came out on top. Regarding the effectiveness of Resmetirom, ICER stated:
In patients with NASH and fibrosis, resmetirom appears to reduce progression, promote regression of fibrosis, and lead to resolutions of NASH compared with placebo. There is uncertainty about the long-term importance and benefit of these changes, but we assess that it is likely that resmetirom will reduce progression to cirrhosis, and thus improve certain patient-important outcomes, over the long-term.
In a Q422 and FY22 earnings release circulated in February, Madrigal founder Dr. Rebecca Taub stated:
We remain on track to file our NDA for resmetirom in the first half of 2023. The filing will be supported by positive Phase 3 biopsy results, a standalone Phase 3 safety study, and two ongoing outcomes studies designed to verify clinical benefit following accelerated approval
To summarise, the path to approval looks to be relatively smooth for Madrigal, even if some doubts persist about how effective Resmetirom can be over the long term in helping prevent patients from developing liver cirrhosis, or worse.
Intercept has already had its New Drug Application ("NDA") accepted by the FDA for a second shot at an approval for Ocaliva, based on Phase 3 data showing 22% of patients using the drug achieve at least one stage of liver fibrosis improvement with no worsening of NASH, versus 9.6% of patients on placebo.
The decision date has been set for June 22nd, although this could be subject to change, and there are also doubts around the safety profile of Ocaliva - although the drug is already approved to treat primary biliary cholangitis.
The FDA has recently announced that it will convene an Advisory Committee meeting to discuss Ocaliva's potential approval - experts from the Gastrointestinal Drugs Advisory Committee will likely conduct a vote on whether to approve it, although the final decision belongs to the FDA and the agency does not have to follow the recommendation of its AdComm.
Resmetirom arguably has a superior safety and efficacy profile to Ocaliva - which has also failed a study in patients compensated NASH cirrhosis - an area Madrigal is also looking to target with Resmetirom.
Madrigal's Market Opportunity With Resmetirom
Madrigal's research indicates that the prevalence of people with NASH in the US and other key markets in Europe is ~49.6m, 19.1m of whom have NASH with significant fibrosis - Madrigal's target with Resmetirom.
Madrigal says that 85% of physicians it has surveyed view the drug as offering a "high clinical utility", and that 75% of patients would be "very to extremely" likely to try Resmetirom - if cost was not an issue. Madrigal also says that 90% of healthcare payers surveyed viewed the drug "favourably".
As shown above, however, Madrigal's initial target is "only" 1m patients in the US who have been identified and ICD-10 disease coded i.e. their medical costs are likely to be reimbursable, which is important given that liver biopsies used to identify patients with NASH can be painful, expensive, and potentially damaging to health.
NASH drug developers are desperately seeking biomarkers that could help patients be diagnosed with the disease without a biopsy, thus likely significantly increasing the addressable patients population.
Nevertheless, a placeholder price of $19k for Resmetirom implies a market opportunity of ~$19bn, so there are few concerns on that score. Madrigal raised ~$300m last year on the back of the MAESTRO study results, equipping it with a near term cash position of >$350m, although net loss in 2022 was $295m, so shareholders may have to swallow further dilutive fundraisings going forward.
Theoretically at least, the market opportunity still looks attractive for investors prepared to be patient - some analysts have speculated that peak sales of Resmetirom could reach ~$5bn in the US, and $1.5bn in Europe, and given Resmetirom a 90% chance of being approved. Others have set a figure of ~$9bn. Madrigal itself says it does not expect to market and sell Resmetirom itself in Europe, and is actively seeking a partner for the region.
These figures may depend on whether Madrigal can win label expansions for Resmetirom, for example, in compensated NASH Cirrhosis - Madrigal has initiated a MAESTRO-NASH OUTCOMES study that will "noninvasively measure progression to liver decompensation events in approximately 700 patients with compensated NASH cirrhosis". The primary endpoint will be:
The incidence of composite liver-related outcome events, including all-cause mortality, liver transplant, hepatic decompensation (ascites, hepatic encephalopathy, gastroesophageal variceal hemorrhage), and confirmed increase of Model for End-Stage Liver Disease ((MELD)) score from <12 to ?15 due to progression of NASH cirrhosis.
Madrigal believes that "of the estimated two million patients with NASH cirrhosis in the U.S., 85% are believed to be compensated", so it seems there is an opportunity for the company to double or triple its addressable market with an approval in this indication.
Competitive Threats Faced by Madrigal's Resmetirom
Based on all of the above it is not hard to understand why shares soared by >350% back in December. Resmetirom apparently works, works better than its closest rival for approval Ocaliva, is much less expensive, and is safer, and has a good chance of approval in compensated NASH Cirrhosis - a field where Ocaliva failed its clinical study.
It's important to remember however that Ocaliva is far from the only rival drug to Resmetirom. Resmetirom has a relatively unique mechanism, being the "first thyroid hormone receptor agonist in development for NASH that selectively targets the THR-ß pathway. A statement in Madrigals' 2022 10k submission states:
We believe that the ß-selectivity and liver-targeting properties of resmetirom are critically important for resmetirom's beneficial metabolic actions in the liver, and enable avoidance of safety issues associated with THR-? activation by thyroid hormone and/or less selective THR agonists in tissues such as heart and bone.
The drug was initially developed by Dr. Taub while she was working at the Swiss Pharma giant Roche, but although it may not have rivals with a similar mechanism of action ("MoA"), there are plenty of other candidates participating in the 'NASH Dash". Madrigal names several in its 10K:
Intercept Pharmaceuticals ( ICPT ), Gilead Sciences ( GILD ), Galectin Therapeutics ( GALT ), Galmed Medical Research ( GLMD ), Cirius Therapeutics, Novartis AG ( NVS ), Novo Nordisk (NVO), Takeda ( TAK ), Inventiva, Boehringer Ingelheim GmbH, Bristol-Myers Squibb ( BMY ), Pfizer ( PFE ), Merck & Co ( MRK ), Lilly ( LLY ), Genentech, Sanofi S.A. ( SNY ), NGM Biopharmaceuticals ( NGM ), Viking Therapeutics ( VKTX ), Akero Therapeutics ( AKRO ), Enanta Pharmaceuticals ( ENTA ), 89Bio ( ETNB ), Axcella ( AXLA ), Can-Fite, Hepion, NorthSea, Terns, Zydus Cadila and MedImmune LLC, Altimmune ( ALT ), Poxel, Ascletis Pharma
It is a formidable list that contains many of the world's largest pharmaceutical companies as well as agile biotechs - it is interesting to note, for example, the confidence of e.g. Akero Therapeutics which has recently completed a Phase 2b study of its FGF21 inhibitor Efruxifermin, and compares it against other therapies in an investor presentation as follows:
Akero Therapeutics NASH drugs results comparison (Akero presentation)
Of course, in its own presentation it is hardly surprising that Akero is promoting the superiority of its own drug, and it is rarely a good idea to compare study results - Madrigal will argue its study was more robust and stringent than the others, doubtless.
Nevertheless, the sheer number of competitors to Resmetirom does raise the question as to what kind of long-term market share may be in play for the drug. Novo Nordisk's Semaglutide and Eli Lilly's Tirzepatide may constitute major threats, for example.
Semaglutide is already approved in Weight loss and Diabetes, under the brand names Ozempic and Wegovy respectively, whilst Tirzepatide is approved in diabetes as Mounjaro and is close to securing approval in weight loss. Both drugs are Glucagon-like peptide 1 (GLP-1) agonists and both could be approved in NASH and in late stage studies in that indication.
Madrigal estimates that "approximately 6% of ICD-10 coded patients with NASH in the U.S. are currently being treated with GLP-1 agonists for any indication".
Although Madrigal believes that Resmetirom could potentially be used in combo with a GLP-1 agonist, there may be a danger that the two Pharma giants Novo Nordisk and Eli Lilly, whose semaglutide and tirzepatide respectively are expected to become all-time best-selling drugs - could simply blow away Resmetirom in a battle for market share, using their far greater marketing resources, and being more recognised brands, potentially with better clinical data.
This would be my biggest concern for Madrigal - although the company may conceivably have a first-mover advantage in a massive market if Ocaliva is not approved and Resmetirom is, would it be able to survive and thrive in such a competitive field where most of the world's largest pharmaceuticals are determined to launch drugs?
Another intriguing question is why Madrigal has not emerged as an M&A target for a larger pharmaceutical? A likely buyer for example could be Pfizer, cash rich after the success of its COVID vaccine and antiviral, or Merck or Gilead, both of which have a presence in diabetes that could easily branch into NASH. It may be that these giants believe they have drugs in development capable of upstaging Resmetirom.
Conclusion - A Tough Call To Make On A One-Drug Company - It May Be Wise To Wait For Ocaliva's AdComm
Would I go out and buy Madrigal shares tomorrow? One argument runs that if a company is in possession of a drug that is a near-certainty for approval in an untapped market where the peak sales expectation is anything from $2.5bn to $10bn, then Madrigal remains significantly undervalued at a market cap of $4.3bn.
If we use a price to sales ratio of ~5x as a rule of thumb, if Madrigal is capable of generating peak sales of $2.5bn then its market cap should exceed >$10bn at least, meaning there is ~130% upside in play, and significantly more if the NASH market truly opens up and Resmetirom is subsequently approved in compensated NASH cirrhosis.
Then we could consider the prospect of Madrigal being acquired - surely a large Pharma would consider paying double-digit billions for a drug such as Resmetirom, which could generate blockbuster (>$1bn per annum) for a decade or more, by a conservative estimate.
These are the arguments supporting a "Buy" verdict on Madrigal. Even though it may be tough for an investor to buy a stock that jumped >350% a matter of months ago - logic suggests an approval in 2023 or 2024 could drive 50% more upside at least, with triple-digit gains a not unreasonable assumption to make either.
There are however several reasons why a risk averse investor would wish to steer clear of Resmetirom. The company's funds could be exhausted in less than 18 months. Resmetirom is not yet formally approved. The company has no commercial experience, and the NASH market, albeit promising, remains an unknown quantity. Resmetirom has numerous rivals at late stages of development, including two of the most hyped drugs ever in Semaglutide and Tirzepatide.
Given the pros and cons, my proposed solution would be to wait and see what happens when Ocaliva's AdComm takes place on May 19th 2023. That ought to provide a clearer picture on the FDA's willingness to approve a NASH drug, its verdict on Ocaliva, and criteria around an approval.
The FDA will circulate detailed notes ahead of the meeting itself. Once this meeting has taken place, my feeling is we will have a clearer picture of the agency's stance on the "NASH Dash". After waiting four long years for pivotal Resmetirom data, waiting a few more months for additional clarity, and potentially capitalising on further downward share price drift may be the right strategy.
For further details see:
Madrigal Pharmaceuticals: Odds Shortening On NASH Drug Approval