On Friday, B.Riley adjusted its stance on Madrigal Pharmaceuticals (NASDAQ:MDGL), raising the stock from a Sell to a Neutral rating and significantly increasing the price target to $270 from the previous $155. This adjustment follows the U.S. Food and Drug Administration's (FDA) approval of Madrigal's drug Rezdiffra (resmetirom) for the treatment of non-alcoholic steatohepatitis (NASH) with moderate to advanced liver scarring.
The FDA's approval was notably positive, as it did not require a liver biopsy for starting or monitoring treatment and set limited monitoring requirements for on-target liabilities. The approved label allows for the use of Rezdiffra in treating NASH with fibrosis stages F2 to F3, based on improvements in NASH and fibrosis. This decision was supported by independent statistical analyses conducted by the FDA, which confirmed the drug's efficacy.
Rezdiffra's common side effects include diarrhea and nausea. The FDA's label also advises caution in relation to hepatotoxicity, drug-induced liver injury (DILI), and gallbladder-related events, although no black box warning was issued. It further recommends against using the drug in patients with decompensated cirrhosis or worsening liver function during therapy.
The analyst noted that the set price of $47,000 per patient per year (PPY) for Rezdiffra is at the high end of cost-effectiveness ranges for anti-fibrotic NASH drugs, which might present commercial challenges such as prior authorization requirements at launch. This is particularly relevant given the absence of established non-invasive test (NIT) enabled treatment guidelines and the presence of less expensive weight loss drugs in the market.
Looking ahead, Madrigal is expected to raise over $500 million, leading to an estimated enterprise value of over $7 billion. This valuation leaves limited room for significant upside from current levels, even considering a post-market close equity move of more than 20%. The future sales potential for Rezdiffra, estimated at $2.5 billion at peak global sales, will depend on the availability of liver outcomes data, the progress of mid-stage therapeutics for NASH, and the patent life of Rezdiffra.
InvestingPro Insights
Amidst the recent FDA approval of Madrigal Pharmaceuticals' Rezdiffra and the subsequent rating upgrade by B.Riley, investors are closely monitoring MDGL's financial health and market performance. According to InvestingPro data, Madrigal has a market capitalization of approximately $4.85 billion USD. Despite the optimism surrounding the drug's approval, the company's P/E ratio sits at a negative -12.33, reflecting investor concerns about its profitability, particularly as the company's net income is expected to drop this year.
InvestingPro Tips highlight that Madrigal holds more cash than debt, which could provide some financial flexibility in its operations moving forward. However, analysts have revised their earnings downwards for the upcoming period, which may signal caution for potential investors. Notably, the stock has experienced a significant price uptick over the last six months, with a 38.48% return, suggesting a positive market reaction to recent developments, although the company's stock price often moves in the opposite direction of the market.
For investors looking to delve deeper into Madrigal's financials and market prospects, there are additional InvestingPro Tips available, providing further insights into the company's performance and expectations. Interested readers can find more comprehensive analysis, including tips on gross profit margins and liquidity issues, by visiting https://www.investing.com/pro/MDGL. For those considering an InvestingPro subscription, use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, unlocking access to a wealth of expert financial analysis and tips.
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