Madrigal: End Of 2022 NASH Data For Multi-Billion Dollar Market (NASDAQ:MDGL)

Madrigal Pharmaceuticals (NASDAQ:MDGL) is a great speculative biotech play to look into. That’s because it has a major catalyst, which is expected before the end of 2022. This involves the release of results from an ongoing phase 3 study known as MAESTRO-NASH, which is using resmetirom in patients with biopsy-confirmed NASH. Results from this late-stage study are on track to be released in Q4 of 2022. This trial carries a major risk, but one thing I would like to note is that there is a second phase 3 study which provided some proof of concept for using resmetirom for NASH, known as MAESTRO-NAFLD-1. I think it’s a good thing that Madrigal Pharmaceuticals has another late-stage study like this, because it gives a glimpse into the mechanism of action of a thyroid hormone receptor beta agonist. Not only that, but there is a third late-stage study which is known as MAESTRO-NASH Outcomes. This is an expanded study, which holds potential to support full approval of resmetirom for noncirrhotic NASH patients, potentially accelerating the timeline to full approval. It could also serve as a means to expand the label of resmetirom to include NASH patients with compensated cirrhosis as well.

Important NASH Study To Advance Towards Potential FDA Approval

As I noted directly above, MAESTRO-NASH is going to have a data release in Q4 of 2022. This is a randomized, double-blind, placebo-controlled phase 3 study using resmetirom in patients with liver biopsy-confirmed NASH. It is expected to recruit up to 900 patients with NASH based on biopsies done. Patients are being randomized 1:1:1 to receive the following doses:

• 80 mg once-daily resmetirom
• 100 mg once-daily resmetirom
• Once-daily placebo

After about 52-weeks of treatment, these patients will have a second biopsy done. The dual primary surrogate endpoints are as follows:

• NASH resolution with ≥2-point reduction in NAS (NAFLD Activity Score)
• No worsening of fibrosis or a 1-point decrease in fibrosis with no worsening of NASH

I believe that the most important thing to note is that either of these surrogate primary endpoints can be achieved for this trial to be successful. Proof of concept with Resmetirom had been established in the prior phase 3 MAESTRO NAFLD-1 study. The secondary endpoint was met with statistical significance when it came to MRI-PDFF. Nearly half of the patients in the higher dose 100 mg arm achieved a PDFF (proton density fat fraction) reduction of 50%. Where the risk lies with resmetirom is that it will be important to see if liver fat reduction achieved with it, translates to improved liver biopsy data in the soon to be released NASH results in Q4 of 2022 from the MAESTRO-NASH study.

As long as either of the two primary surrogate endpoints are met with the final biopsy being done, then it will allow Madrigal Pharmaceuticals to file for FDA Accelerated Approval of resmetirom for this non-cirrhotic NASH population under a possible subpart H Submission to the FDA. Either of the two surrogate primary endpoints that need to be met are:

• NASH resolution with at least a 2-point reduction in NAS (NASH Activity Score) , and with no worsening of fibrosis
• or one point decrease in fibrosis with no worsening of NASH

It is important to note that this will only allow Madrigal Pharmaceuticals to obtain Accelerated Approval. In order to move resmetirom from Accelerated Approval to full approval, it must eventually be successful in the MAESTRO-NASH Outcomes study. However, should this late-stage study be successful, it would also achieve another positive development. That is, it would allow the biotech to expand the label of resmetirom to treat well-compensated NASH cirrhosis patients as well. Before the Q4 2022 readout of the MAESTRO-NASH study in Q4 of 2022, there is a much closer catalyst to look forward to. It is expected that additional data from the MAESTRO-NAFLD-1 study is to be released at the upcoming AASLD Liver Meeting in November of 2022. This will likely include prior data already released from this phase 3 study, plus updated data as patients were evaluated for a longer period of time. Lastly, there is another biotech by the name of Viking Therapeutics (VKTX), which has a drug known as VK2809 that uses a similar mechanism of action as resmetirom. It is currently running a phase 2b study known as VOYAGE, which is treating patients with NASH and fibrosis. It expects to complete enrollment of this study in Q4 of 2022 and should have results out by the 1st half of 2023. My point here is that if resmetirom succeeds in the MAESTRO-NASH study for Madrigal Pharmaceuticals, that would also be a positive for Viking Therapeutics as well since it has a drug with a similar mechanism of action. The major downside for Viking is that it is still years behind Madrigal, because it would then still need to run a phase 3 study after completion of its phase 2b. Of course, that is if it succeeds with respect to the primary endpoint in this mid-stage study.

Financials

According to the 10-Q SEC Filing, Madrigal Pharmaceuticals had cash, cash equivalents and marketable securities of $211.8 million as of June 30, 2022. The reason for the current cash on hand is because of the company raising cash through equity financings and other measures over the years. In addition, it is also because of a tranche of loan money it received based on a deal made this year. That is, the company entered into a Loan and Security Agreement with Hercules Capital, Inc. and other several banks and financial institutions in May 2022. It allows up to an aggregate of up to $250 million in term loans, which are available in four tranches. The first tranche of $50 million was drawn upon closing and the rest of the tranches are reliant on specific milestones being met. They are as follows:

• Second tranche of $50 million – achieving results of phase 3 MAESTRO-NASH study in Q4 of 2022
• Third tranche of $75 million – achieving FDA approval of resmetirom for NASH
• Fourth tranche of $75 million at Hercules’ sole discretion

Despite these being in place, it is noted by Madrigal that it believes it has sufficient cash to fund its operations past one year from the issuance of the 10-Q SEC Filing. It also states that it may use other means to raise cash such as using debt or equity financings. Another possibility would be if it could develop a partnership for resmetirom for the treatment of patients with NASH.

Risks To Business

There are several risks that investors should be aware of before investing in Madrigal Pharmaceuticals. The biggest risk of all would be with respect to the upcoming Q4 2022 data readout of MAESTRO-NASH. If neither of the two surrogate primary endpoints are met, then that would not allow the company to move forward to file a New Drug Application (NDA) to the FDA for regulatory approval of resmetirom for non-cirrhotic NASH patients. A second risk to consider would be with respect to an FDA review. Should one of the two primary surrogate endpoints be met in the MAESTRO-NASH study, there is no guarantee that Madrigal will receive Accelerated Approval of resmetirom from the FDA. A third risk to consider is that even if it gets past both study completion and an FDA Accelerated Approval for resmetirom, it must successfully complete the MAESTRO-NASH Outcomes study to convert the drug to full FDA approval thereafter. A fourth risk to consider would be the release of updated results from MAESTRO-NAFLD study at the upcoming AASLD Liver Meeting in November. There is no guarantee that these updated results, to be presented at this medical conference, will end up being positive. The final risk to consider would be with respect to the financials. That’s because it only has enough cash for past one year from the date of the 10-Q SEC Filing, which means that it will likely have to incorporate additional measures to raise cash. Not only that, but the term loan developed with Hercules Capital is reliant on certain milestones being met. If such milestones are not met, then Madrigal would not be entitled to receive these tranches as noted above. In that case, it would have to find other ways to raise cash like debt or an equity financing.

Conclusion

The final conclusion is that Madrigal Pharmaceuticals is a great speculative biotech play to look into. It has two upcoming catalysts for investors to look forward to. The first catalyst would be the upcoming updated data from the MAESTRO-NAFLD-1 study using resmetirom for the treatment of NASH patients at the AASLD Liver Meeting November 4 – 8th of 2022. The second catalyst would be topline results from the phase 3 MAESTRO-NASH study using resmetirom for the treatment of patients with NASH. However, this is going to be the more important catalyst, because it will determine whether or not Madrigal would be able to file for FDA Accelerated Approval of resmetirom for this patient population. This study is also important, because it will give a look at liver biopsy data, which will really show whether or not this drug actually works in treating these patients. With proof of concept established with the use of resmetirom in NASH in the MAESTRO-NAFLD-1 study, plus two catalysts expected before the end of 2022, these are the reasons why I believe that Madrigal Pharmaceuticals is a greats speculative biotech play to look into.