With shares of Madrigal Pharmaceuticals (MDGL -1.12%) up by 220% over the last three years, it’s easy to see why investors might get the idea that there isn’t much upside left with this biotech stock. Without much in the way of media buzz, its future accomplishments, assuming there are any, might not even get noticed by the market — so the argument goes.
But is it actually too late to buy this stock, or is there still an opportunity? Taking a look at what Madrigal is planning to do over the next couple of quarters will clarify the issue.
Is all of the good news already priced in?
In April of this year, Madrigal started to ship doses of its first medicine to attain regulatory approval. That drug, Rezdiffra, treats metabolic-associated steatohepatitis (MASH, formerly known as NASH), and is currently the only approved medicine for the condition.
While Yale Medicine estimates that the addressable patient population for Rezdiffra could be as large as 8 million people in the U.S. alone, Madrigal sees its initial target market as the subset of 315,000 patients who have been diagnosed with MASH with moderate to advanced liver fibrosis, and who are already working with specialized doctors.
The company is conducting further research and development (R&D) work in clinical trials to potentially expand the addressable population of its therapy. As a result, it has possible stock-moving catalysts lined up in the form of data readouts and clinical trial outcomes through at least early 2028. This is a major point in favor of the case that it’s not too late to buy shares, as there’s still a lot of information about the economic value of its therapy that remains to be uncovered.
Furthermore, it’s very likely that the biotech will be able to grow considerably as it penetrates its market over the next few years. That’s especially true given that it had no revenue to speak of as of the first quarter. There’s considerable uncertainty about how rapidly Rezdiffra’s revenue will ramp up despite the company’s efforts to build out the best commercialization team possible.
On average, Wall Street analysts anticipate that Madrigal will bring in $80.7 million in revenue this year, and $364 million in 2025. That means by the end of the decade Rezdiffra could potentially reach blockbuster drug status, generating more than $1 billion in sales per year. But it’s also possible that other drug developers will succeed in launching their MASH medicines in a way that hampers Madrigal’s efforts to claim market share.
Either way, it’s difficult to argue that it’s too late to buy this stock when there are catalysts lined up for years, and major questions about how successful its flagship drug will be.
Be wary of the risks that lie in wait
Madrigal is not necessarily a must-buy stock, even if there’s still a window of opportunity to start a new position and have a good chance at seeing a decent gain. The issue of competition is a prickly one as MASH is a popular target to chase for many biopharma businesses.
Another increasingly pressing factor is that there may now be medicines on the market that are capable of preventing less severe liver conditions from developing into MASH. As the risk of developing MASH is highly correlated with conditions like type 2 diabetes and obesity, multifunctional drugs that treat both diabetes and obesity, like Ozempic from Novo Nordisk or Mounjaro from Eli Lilly, could crimp Madrigal’s market share severely.
Those therapies are already incredibly popular, and demand for them is likely nowhere near its peak. In the long run, it’s not unreasonable to expect that population-level exposure to risk factors for MASH will decrease. But it’s unclear how much that trend will affect the patients the biotech is looking to treat in the near term.
Also, it’s possible that testing of Rezdiffra will be able to expand its addressable market into new niches that are still untouched. So there’s no dealbreaker here, at least not yet.
Therefore, if you’re looking for a growth pick to hold for the next few years (and perhaps a bit longer if conditions permit), it’s not too late to buy Madrigal Pharmaceuticals, nor is it a bad idea. Just be aware that the longer you hold your shares, the more you’ll need to pay attention to the risks outlined here, as they’ll become more likely to damage Madrigal’s bottom line over time.
