When a company's shares shoot up 82% in 12 months, investors clearly think it's a good time to be a shareholder -- and that's exactly what's happened to the stock of Madrigal Pharmaceuticals (MDGL 0.71%). Earlier this year, the up-and-coming biotech received approval of a pioneering liver-disease treatment. And from how things looks right now, there isn't much reason to expect this budding player's growth to taper off anytime soon.
In fact, the bull thesis for buying it is still looking quite good. Here are three reasons why it's a canny move to buy the stock.
1. Its first drug is rolling out quite efficiently
When it was approved in March 2024, Rezdiffra became the only medicine approved by the Food and Drug Administration (FDA) to treat metabolic-associated steatohepatitis (MASH), a disease that's characterized by fatty deposits on the liver, toughening and stiffening of liver tissue (fibrosis), and eventually scarring of the liver (cirrhosis).
Since then, Madrigal has been focused on getting more patients on treatment so that it can generate sales. In the third quarter, there were more than 6,800 patients taking Rezdiffra, which led to sales of $62.2 million. As the business had no revenue before the launch of the drug, that number should continue to grow at a rapid pace for at least the next couple of years.
By the middle of next year, the company should hear back from regulators in the E.U. regarding whether the medicine can be sold there. It's also actively working to network with specialist physicians who management thinks will be disproportionately important in terms of prescribing volume; so far, it's in touch with 40% of the doctors it's targeting during Rezdiffra's launch period.
That figure will likely keep climbing, and the ongoing success of the Rezdiffra rollout is a fair reason to consider buying the stock.
2. Efforts are underway to expand its addressable market
At launch, Madrigal set Rezdiffra's target market as the 315,000 or so patients in the U.S. who are already diagnosed with MASH, working with a specialist clinician, and who had moderate to advanced fibrosis of the liver. That makes sense, as that's the disease context where the drug was proven to work in its clinical trials. But, the total population of patients with MASH is much larger, with perhaps as many as 1.5 million people. And, with some additional research and development (R&D) work in the form of additional clinical trials, this biotech is keen on expanding its addressable market to capture a chunk of that larger group of patients, too.
In particular, there's a population of patients with more advanced liver scarring called compensated cirrhosis, who account for as many as 15% of all patients affected by MASH. In October, the company completed the enrollment process for a new clinical trial investigating whether Rezdiffra could help those patients. If it eventually got approval from regulators for treating that condition, it'd become the first drug to ever do so. That would give Madrigal access to a previously untouched segment of the market, not to mention potentially saving patients from needing a liver transplant.
And the possibility of being the only operator capable of treating MASH with cirrhosis is another reason to buy the stock.
3. It could be developing a difficult-to-replicate competitive advantage
As mentioned earlier, Madrigal is doing its best to engage with liver doctors so that they can prescribe Rezdiffra to their patients, many of whom have MASH with various stages of liver fibrosis or cirrhosis. It's unclear exactly how much those efforts are worth financially today, but since there aren't yet any other drugs approved to treat MASH yet, over the long term the company's network of providers could become a competitive advantage.
Having close relations with specialist doctors opens up a few doors. First, recruiting for clinical trials would get easier, as the clinicians would likely be informed in detail about upcoming trials and appreciate which of their patients might be eligible, making it an obvious move to refer them.
Second, while Madrigal won't be able to devote as many resources to physician outreach as bigger competitors that are likely to enter its market soon enough, like Novo Nordisk, it does have the advantage of being focused on drug development for MASH rather than merely having a couple of programs in the pipeline that aim to treat it among many other candidates and target indications.
So its ability to effectively engage with individual providers will likely remain higher, which could prompt them to be loyal and thus defend the biotech's market share in the face of other products becoming available.
Finally, if the doctors in its network want to do MASH research of their own, and many will, they may be able to forge a sponsorship agreement or collaboration with Madrigal. That could eventually benefit the business directly in the form of access to new programs for the pipeline, but it could also stimulate more demand for its medicine directly if investigators find helpful off-label uses or helpful combinations with other drugs.
And the possibility of competitive advantages is definitely another reason why it's worth considering buying this stock.
