Action Madrigal: a powerful catalyst on the way (NASDAQ: MDGL)


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Pharmaceutical Madrigal

Opportunities rarely present themselves. When it’s raining gold, take out the bucket, not the thimble – Warren Buffett

In accordance with conventional wisdom, most traders and investors prefer to buy stocks in a bull market. Contrary to popular belief, I firmly believe that the best time to build wealth is to invest in a bear market. Now that’s easier said than done because you have to overcome your most powerful human emotion (ie fear).

That being said, I would like to come back to Madrigal Pharmaceuticals’ investment thesis. (NASDAQ: MDGL). As of 2H this year, Madrigal shares lost about 40% of the gains. After all, this stock is feeling the downward pressure in the Biotech Bear 2021 market. Interestingly, the fundamentals are intact. Plus, there’s a powerful data catalyst to potentially galvanize stocks to a new high next year. In this research, I will provide a fundamental update on Madrigal and provide my expectations on this Philip Fisher Growth Equity.

Stock of madrigalsFigure 1: Madrigal map (Source: Stock charts)

About the company

As usual, I will present a brief overview of the company for new investors. If you are familiar with the business, you should move on to the next section. Based in Conshohocken, Pa., Madrigal is focused on innovating and commercializing stellar medicine to address the unmet needs of heart and liver disease.

By performing a laser beam-centric approach, Madrigal only innovates two potent drugs for non-alcoholic steatohepatitis (i.e., NASH) and related conditions. As a jewel in the crown, resmetirom (i.e. Resme) is a thyroid hormone receptor beta (THR-B) designed to treat NASH. Because of the solid data I’m going to talk about, it is likely to become the first drug approved for this untapped market, NASH.

Madrigal Pharmaceuticals PipelineFigure 2: Therapeutic pipeline (Source: Madrigal)

Resme for NASH

As you can see, Resme is special because of its mechanism of action (i.e. MOA). As a B-THR activator, Resme works by increasing the liver’s basal metabolic rate to burn excess liver fat. By increasing the power of the organic fat-burning oven, Resme promotes the liver’s innate regenerative ability to heal itself from NASH.

Notably, there is no better time than now for Resme to enter the NASH market. As part of the spectrum of non-alcoholic fatty liver disease (NAFLD), NASH is very common. Statistics has shown that 25% of adults in the United States have NAFLD. Of that, 20% are advanced toward NASH (i.e. 5% of the total adult US population). With a growth of 58.64% CAGAR, the NASH market is expected to reach $ 180.09 billion by 2028. So it’s a no-brainer, it’s a gargantuan market.

Madrigal - Fatty liver diseaseFigure 3: Fatty liver disease (Source: American Liver Foundation)

Robust preliminary data

Back in November, Madrigal present stellar data from its phase 3 MAESTRO-NAFLD-1 at the 2021 meeting of the American Association for the Study of Liver Diseases (AASLD). Notably, the presentation reported the final reading of the 52-week open-label portion of the study that evaluated the therapeutic efficacy and safety of Resme in 171 patients with suspected NASH (as defined by non-invasive testing) .

From Figure 2 below, you can see that there was a sustained reduction in liver fat and liver volume as measured by imaging modalities (MRE and FibroScan). As supporting evidence for efficacy, Figure 3 also demonstrated a reduction in liver enzymes (i.e. AST, ALT, and GGT). As you can see, the more these enzymes are reduced, the greater the improvement in liver function. After all, a diseased or damaged liver would release more of these enzymes. Overall, the 100 mg of Resme per day is well tolerated. Delighted with the results, the CMO (Dr. Becky Taub) remark,

The complete 52-week open-label results of MAESTRO-NAFLD-1 presented at the Liver Meeting 2021 demonstrate Resme’s ability to potently reduce hepatic fat and liver volume in all subgroups of patients with NASH, including patients treated stably with anti-diabetic drugs such as GLP. -1 SGLT2 agonists and inhibitors. The reduction in liver volume may be explained in part by the reduction in liver fat, but is also likely due to other factors related to the mode of action of resmetirom, potentially including effects on inflammation. Consistent with previous studies, there was a low dropout rate due to side effects without changes in the central axis of thyroid hormones or bone mineral density.

Madrigal Pharmaceuticals - Open Part of Phase 3 MAESTRO-NAFLD

Figure 4: Open part of Phase 3 MAESTRO-NAFLD-1 (Source: Madrigal)

Upcoming catalysts

Now, critics can argue that the results of the open aspects of MAESTRO-NAFLD-1 are not as significant. In other words, the open-ended aspect subjected the study to potential bias. Due to the merits of his MOA, I respond that Resme is a great drug that will prove itself next year.

In Q1 2022, Madrigal is projected to report additional first-line data from the “blind arm” of the aforementioned study. With most likely positive results, Resme is poised to allay the doubts of the investment community. Better yet, the company will also release additional data for MAESTRO-NASH in the third quarter.

Based on my integrated system of forecast, I assigned a 70% (i.e. strongly favorable) probability of posting positive data. My rationale stems from my intuition, years of forecasting experience, Resme’s MOA, and past data publication as we mentioned. Put simply, you can anticipate two powerful data catalysts next year that are likely to move the needle on this title. And if it is positive, you can expect Madrigal to file an NDA for expedited approval sometime in 2H 2022.

Madrigal - MAESTRO-NAFLD-1

Figure 5: Catalyst events (Source: Madrigal)

Financial evaluation

Just as you would get an annual medical check-up for your well-being, it is important to check the financial health of your inventory. For example, your health is affected by “blood flow” because the viability of your stock depends on “cash flow”. With this in mind, I will analyze the 3Q 2021 report on results for the period ended September 30.

Like other pre-market biotech companies, Madrigal has yet to generate revenue. Therefore, you need to focus on other meaningful metrics. On that note, there was $ 54.8 million in research and development (R&D) compared to $ 53.2 million for the same period a year earlier. I welcome the trend of increasing R&D because the capital invested today can turn into successful profits tomorrow. After all, you have to plant a tree to enjoy its fruit.

Additionally, there were net losses of $ 63.1 million ($ 3.79 per share) versus $ 57.9 million ($ 3.75 per share) for the same comparison. On a per share basis, net income depreciated slightly by 1.0%. This makes sense since R&D spending is a bit higher this quarter.

Madrigal Pharmaceuticals FinancesFigure 6: Key financial indicators (Source: Madrigal)

Regarding the balance sheet, there was $ 299.1 million in cash, equivalents and investments. Compared to quarterly operating expenses of $ 63.1 million, there is expected to be sufficient capital to fund operations through 4Q 2022. For similar biotech companies, the cash position is essentially adequate. I generally want to see a business have at least four quarter-track cash.

On balance, you should check if Madrigal is a serial diluter. A business that is serially diluted will render your investment virtually worthless. Since the outstanding shares have gone from 15.4 million to 16.6 million, my calculations show an annual dilution of 7.7%. At this rate, Madrigal easily crossed my 30% threshold for a profitable investment.

Potential risks

Since investment research is an imperfect science, there are always risks associated with an investment, no matter how strong. At this point in its growth cycle, the most important concern for Madrigal is whether the next data report for MAESTRO-NAFLD-1 and MAESTRO-NASH will produce positive results. As I am optimistic about the results, I assigned the corresponding risk of 35% negative results.

If the clinical binary fails, you can expect your stock to drop by 70% and vice versa. The higher magnitude of the depreciation is due to the fact that the entire Madrigal pipeline is tied to the success of Resme. That aside, there are fears that Madrigal is growing too aggressively and thus faces a potential cash flow constraint.


Overall I maintain my strong buy recommendation on Madrigal but have upgraded the star rating to 5/5. As Madrigal Pharmaceuticals harnesses the therapeutic power of Resme, the company is poised to make NASH history. There is currently no approved drug to treat this silent killer. Considering the sheer size of the $ 180 billion market, any drug first approved in this niche would have a high probability of becoming a blockbuster. After all, there is no other choice. From a MOA and disease context perspective, there is currently no other drug in development that can outweigh Resme. Early data from the open arm of MAESTRO-NAFLD-1 was strong.

Going forward, you can anticipate solid data for the blind arm as early as next January. In the third trimester, there are data from MAESTRO-NASH. If positive, you are likely to profit from a robust rally that you expected from this fairness


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