Madrigal: Next Steps After ‘Wow’ Data In NASH (NASDAQ:MDGL)

I have been bullish on Madrigal (NASDAQ:MDGL) since 2018. I purchased MDGL stock in September 2019, put that up on TPT for our members, and over the years, I averaged down my buy price.

Yesterday (Monday), MDGL nearly quadrupled over a single trading day after it produced positive topline phase 3 data from the MAESTRO-NASH trial, becoming the first NASH player to have positive data from biopsied NASH patients. That is HUGE because NASH, a vast and diverse market, is also untapped, and no proper treatment option, approved or otherwise, exists.

2022, a most depressing year in biopharma, ended with a great New Year gift. Indeed, this is the second gift after Axsome (AXSM), another of my top long-term picks, more than doubled overnight recently. Here’s wishing 2023 will be enormously better!

Coming to the data: resmetirom is Madrigal’s only product candidate. Resmetirom, once known as MGL-3196, is a once-daily, oral, thyroid hormone receptor (THR) β-selective agonist designed to treat the underlying cause of NASH, or nonalcoholic steatohepatitis. NASH is a more advanced form of nonalcoholic fatty liver disease (NAFLD), which affects some 20% of people globally. In the U.S., it is a pandemic more dangerous than Covid-19, where it affects more than 30% Americans.

Thyroid hormones play a central role in regulating levels of serum cholesterol, triglycerides, and buildup of liver fat. This is done through the activation of hepatocytic β-receptors. When patients develop NASH, their THR-β receptor activity diminishes. Nonselective drugs do not help, because it is important to not activate the THR-α receptor, which has activity outside the liver, in the heart and bone. This was the logic behind the development of resmetirom, a highly THR-β selective agonist. Resmetirom uptakes only in the liver, avoiding any non-hepatic tissue. This function is responsible for its safety profile.

In a phase 2 trial,resmetirom demonstrated a ≥30% reduction of liver fat, which led to NASH resolution and liver fibrosis reduction as measured by liver biopsy. Data also showed that resmetirom was able to lower LDL-C, Apo B, TGL and lipoprotein (A), which have implications for reducing cardiovascular risk, a key concern with NASH patients. Resmetirom was studied in over 2000 patients and has been shown to be generally safe and well-tolerated. The MAESTRO-NAFLD phase 3 study, which top-lined earlier in the year, showed that in non-biopsied NAFLD patients, the molecule was able to achieve statistically significant improvements in key measures of liver and cardiovascular health. Then we had the MAESTRO-NASH trial in biopsied NASH patients, which is the most important trial that’s ever been run in NASH patients.

MAESTRO-NASH was a placebo controlled double blinded liver biopsy study that examined the effects of resmetirom 80mg and 100mg versus placebo in over 1000 patients in the US and EU with >90% (F1B, F2, F3), where F1B-F4 is a classification system for NASH. A key inclusion criteria of the over 2000 patients worldwide in this 54-week study was the finding of NASH on liver biopsy with NAS≥4 in these patients. Patient fibrosis stage distribution was: 1A (up to 3%) 1B, total F1 up to 15%; F3, at least 50%, the rest were F2. That means, this was a population of moderate to severely ill NASH patients.

The dual primary endpoints were: a) Resolution of NASH at Week 52 with at least 2 point reduction in NAS with no worsening of fibrosis OR b) reduction in fibrosis stage by 1-point with no worsening of NAS. As I discussed before, the trial would have been considered successful if it met any one of these two endpoints. Resmetirom met both these endpoints with outstanding statistical significance, see below:

Indeed, we haven’t seen such outstanding data from too many molecules in recent times. There was marginal dose-dependent improvement in the 80mg and 100mg arms, which gives the company some leeway in terms of safety. That means, since there’s not a huge difference between the two doses, a patient can take the smaller dose if there’s a tolerability problem, and still expect results. On the other hand, dose dependency is always a hallmark of a working molecule, which we have here.

Resmetirom was almost equal to placebo in terms of its safety profile. SAEs were similar across every arm, and except in one metric, the 80mg and 100mg arms performed similarly. This one metric was study discontinuation rates in the 100mg arm, which was almost 3x that in the 80mg arm. Until we have more granularity on the reasons for the study discontinuations – and since this was a blinded trial, of course – we have to conclude that the 80mg dose will be the most likely approved dose.

Note closely that this was subpart H data, which means this is data that can be used for accelerated approval. The 2 more weeks of outcomes study is ongoing.

In a filing last year, Becky Taub, M.D., Chief Medical Officer and President of Research & Development of Madrigal, stated:

“While we expect to achieve both endpoints, dual primaries allow for a successful outcome of the study that can be filed for subpart H approval if either the NASH resolution or one point fibrosis reduction liver biopsy endpoint is met.”

As a recent 8-K states:

In the first half of 2023, Madrigal Pharmaceuticals intends to file a new drug application seeking Subpart H accelerated approval of resmetirom.

Sometimes by the end of 2023, resmetirom, if all goes well, will be conditionally approved by the FDA for NASH patients. The exact label and potential label expansions in well-compensated NASH cirrhosis patients is to be determined later, however, the MAESTRO label was non-cirrhotic Nash with moderate-to-advanced fibrosis, which will be the likely label. The outcomes study required for full approval is ongoing, and will read out in August 2025.

What happens next for Madrigal?

With this achievement, MDGL becomes a top buyout candidate for 2023. Some people think Viking Therapeutics (VKTX) may be a more likely candidate, because it has a similar candidate and a much lower market cap. However, VKTX2809 is at least 4 years and a phase 3 trial away from approval, probably even longer. The market cap difference of around $3.5bn does not justify that delay, especially since VKTX is nowhere near as de-risked as MDGL is today.

Major NASH players that have failed or are far from the NASH market are Gilead (GILD), Novo Nordisk (NVO), AstraZeneca (AZN), Novartis (NVS), and so on. Any of these would find a buyout or even partnering with MDGL immensely beneficial. MDGL is at $4bn now. Even if someone pays $8bn for it today, that amount can be recouped in a year or less, if Evercore ISI’s market estimate is to be believed. Not this year, when it is starting out, but eventually, a year of sales revenue will be more than double the current market cap.

Should Madrigal sell?

I definitely don’t want them to sell at anything less than 5-7 years’ of projected revenue estimates, which is Huge with a capital H. According to a source:

1. Wall Street estimated that this untapped drug market could generate annual sales in excess of $35 billion per year.

Since resmetirom is going to be the only approved drug for a few years (ignore ocaliva), it will get 10% of this market, at the least. Projected 5-year sales estimate could be nearly $20bn. Why should MDGL sell itself for a measly $10bn?

However, MDGL has no prior expertise in commercialization. A quick and decisive entry to the world market is essential to capture the first mover advantage, especially because, once the market has been opened up by MDGL, a lot of new players – some with even better therapies – will be coming. I think MDGL has 5-7 years of the market all to itself. So they need a partner, but with strong terms. I am thinking, big pharma may please throw in a few billion dollars upfront, 3x that amount in regulatory and sales milestones, and mid-single-digit royalties, and we will consider that. MAESTRO-NASH has been that good.

Or we could just get a bunch of sales and marketing experts and a few billion dollars in credit, and go it ourselves. If the management team doesn’t mess this up, this is the most lucrative option for shareholders. Indeed, nearly no amount of M&A money can justify this market and those results.

On another note, Madrigal Pharmaceuticals, Inc. has about $153mn in cash reserves as of the last quarter. That is nowhere near enough. I think they will either: a) announce an approximately $400mn secondary offering, which is about one-tenth of their current market cap and will not be a problem, but will be adequate for their current cash needs; b) get into a partnership, but that will take some time, which they do have; or c) get a loan. I don’t think cash will be a problem for them, and all things considered, I prefer the offering at these prices. It gives me an opportunity to get more Madrigal Pharmaceuticals, Inc. shares at a slightly lower price.

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