How High Will Madrigal Pharmaceuticals Go?

The FDA said yes to Madrigal Pharmaceuticals’ (MDGL) new drug, Rezdiffra, which led to its stock price shooting up but the momentum quickly subsided so what does the future hold?

As the biotechnology industry is once again bubbling with prominent mergers and acquisitions, accelerated FDA approvals, and breakthrough developments, now may be as good a time as any to focus on it.

The traction in the industry has propelled not only established names in the recent past but also several clinical-stage companies that are yet to report revenues.

Madrigal Pharmaceuticals, Inc. (NASDAQ:MDGL) is one such company that has reaped heightened investors’ interest lately.

Having been driven down to significant lows during February, it went on quite a spree and bounced strongly following the U.S. FDA’s green light for Rezdiffra, the first-ever medication for treating a serious form of liver disease known as Noncirrhotic Nonalcoholic Steatohepatitis (NASH).

Shares of Madrigal Pharmaceuticals jumped by more than 20% following FDA’s announcement on March 14. The bullish momentum has been remarkable with the stock rising by more than 60% over the past six months and trading above its 200-day moving average of $201.96 per share.

The company has also recently announced the availability of Rezdiffra, which will now finally enable it to generate revenues. So, with all the excitement building around the stock, is the recent pullback a buying opportunity?

Will Rezdiffra Drive Madrigal’s Growth?

Rezdiffra has been approved to treat patients diagnosed with NASH and also having moderate-to-advanced liver fibrosis.

In the later stages of nonalcoholic fatty liver disease, NASH can developed leading to liver inflammation, scarring, and dysfunction as primary consequences.

Most of the time, the illness is connected to other chronic conditions like obesity, high blood pressure, and diabetes.

NASH is appearing as one of the top health concerns in the U.S. because of the high mortality rates associated with it.

Rezdiffra is the result of 15 years of intense research, investments, and successful trial results. The drug got accelerated approval by the FDA following the Phase 3 data showing improvement in liver fibrosis and NASH resolution in noncirrhotic NASH patients.

Rezdiffra’s effectiveness in subsiding the risk of cirrhosis and liver failure is also under observation.

Earning tags like ‘Breakthrough Therapy,’ ‘Fast Track,’ and ‘Priority Review’ from the FDA for its discovery, Madrigal has beaten a number of established companies in the race having similar drug candidates in the trial stage.

Rezdiffra is an oral drug that does its job by activating thyroid hormone receptors that reduce fat accumulation in the liver. This month, the company made the drug available through specialty pharmacy networks.

The current exclusivity of the drug in the market is likely to help the company start generating revenues at a healthy pace.

The FDA release cited that about 6 million to 8 million U.S. people are diagnosed with NASH-related liver scarring, and the number is on the rise.

This estimate provides a significant addressable market for Rezdiffra at a time when it is the only medicine in the market to treat the NASH condition. The global nonalcoholic steatohepatitis treatment market is estimated to grow at a CAGR of 27.9% to reach $20 billion in 2029.

The market opportunity will most likely attract new players who are finding their way in while compelling larger companies with potential candidates to speed up their processes. Though this indicates aggressive competition, Madrigal should have a first-mover advantage. Evercore ISI analysts expect Rezdiffra to register peak annual sales of over $5 billion.

Is Share Dilution a Concern?    

While the stock surged on the approval news, the gains waned off a little after the company announced a public offering of shares set to raise $600 million to commercialize Rezdiffra and general corporate purposes.

The company’s cash, cash equivalents, and marketable securities were at $634.1 million at the end of the last fiscal, compared to $358.8 million recorded in 2022. The increase was mainly due to $472.0 million raised through a public offering of shares in October 2023.

The stock is currently valued at nearly $4.6 billion in market capitalization so it’s clear that investors appear to be valuing the stock based on its potential for future revenues and earnings.

Is Madrigal’s Valuation Reasonable?

As the company is set to generate revenues now, it trades 58.65x times forward sales. While the company’s breakthrough drug shows enough promise, it isn’t making revenues currently, and it remains to be seen how effectively the business takes off with the commercialization.

Analysts see significant scope for continued share price growth this year, largely due to the hype around Rezdiffra, and in particular its exclusivity. They expect the stock to appreciate by more than 70% to reach $394.54 per share.

How High Will Madrigal Pharmaceuticals Stock Go? 

The consensus view of analysts is that Madrigal Pharmaceuticals stock can rise to as high as $377 per share. The bullish skew extends to Buy ratings, which 8 of the 10 have assigned.

While there remain several uncertainties relating to its growth trajectory, Madrigal’s sales journey has formally kicked off, and because it is presently running in an unserved market, it looks certain for gains.

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