Madrigal Soars 144% On NASH Results, Is There Room To Run Higher?
Summary
- Madrigal Pharmaceuticals soars on positive phase 2 NASH results.
- Stock climbed as MGL-3196 achieved primary endpoint of study, and also displayed statistically significant improvements in liver-biopsy endpoints.
- The NASH space is crowded with a host of competitors, which means that if MGL-3196 is ultimately approved it won't be a guaranteed slam dunk on sales.
- With ability to move on to a phase 3 study it is likely that Madrigal Pharmaceuticals will need to raise more cash soon, with a cash raise possible as soon as a few days.
- The NASH market is expected to reach between $20 billion to $30 billion in the coming years, providing an opportunity for multiple players.
Recently, Madrigal Pharmaceuticals (NASDAQ:MDGL) announced that it had met both liver biopsy based endpoints for its phase 2 non-alcoholic steatohepatitis (NASH) study. This opens up the opportunity for the company to move on to a phase 3 study with more patients to confirm its findings. Seeing as it was able to hit both endpoints I believe that it becomes a good biotech to own. For that reason, I believe that Madrigal Pharmaceuticals is a good buy.
Phase 2 Data
The phase 2 study recruited 125 biopsy-proven NASH patients. Patients in the study were treated with either MGL-3196 or placebo. It was shown that this study met on the primary endpoint, which was looking for relative reduction of liver fat on magnetic resonance imaging-estimated proton density fat fraction ((MRI-PDFF)) at 12 Weeks. The liver fat reduction was 36.3% at 12 weeks. The new liver-biopsy based data proves that MGL-3196 is a strong drug for NASH. First, MGL-3196 treated patients achieved a statistically significant improvement compared to placebo for the two point reduction in NAS (NAFLD activity score) on biopsy. This was with 56% of patients responding, achieving a greater than or equal to 2 point decrease in NAS score. The second liver-biopsy endpoint was successful as well. This was where those treated with MGL-3196 achieved a statistically significant resolution of NASH on biopsy compared to placebo. Overall these results are good. The only thing I'm cautious about from the results is the fibrosis improvement. It was shown that those treated with MGL-3196 obtained a fibrosis reduction of 29% compared to 23% for those on placebo. That makes a fibrosis reduction difference of 6% which is not much for a NASH fibrosis drug. Therefore, it is important to track fibrosis reduction should MGL-3196 pass its phase 3 and be ultimately approved by the FDA.
Competitors In NASH
This phase 2 data for Madrigal was phenomenal, which is why I think it will do well in a phase 3 trial. The other side of the trade is that Intercept Pharmaceuticals (ICPT) and Genfit (OTCPK:GNFTF) are further along with phase 3 trials, which are expected to read out NASH results by 2019/2020. Intercept has a good drug with Ocaliva, however, it suffers from toxicity issues when Doctors prescribe higher than necessary dosing. On the flip side, Ocaliva has shown a greater difference in fibrosis reduction for NASH in its phase 2 FLINT trial compared to MGL-3196. What do I mean by that? Well, as you can see above MGL-3196 obtained a fibrosis reduction in NASH patients of 29% compared to 23% for those on placebo creating a difference of only 6%. If you look at Ocaliva from the FLINT trial, from Intercept Pharmaceuticals, it had a fibrosis reduction of 35% compared to 19% of those NASH patients on placebo. It is just something to keep in mind. I still believe that MGL-3196 will eventually be approved. The question that should be asked is how well will it do compared to other competitors in the same space with better fibrosis reductions? That will be key, because NASH causes fibrosis (scarring) of the liver. Fibrosis eventually turns into cirrhosis of the liver, which can eventually lead to liver failure. That's why, in my opinion, a drug that will have the most impact on NASH will be one that shows a major reduction in fibrosis. The good news is that the NASH market is expected to reach between $20 to $30 billion in the coming years. It is a large market for plenty of players in this space. The other endpoints are important as well, but in a competitive market such as NASH, fibrosis reduction will make the difference in terms of more sales. This is just an important factor to keep in mind.
Financials
As of March 31, 2018 Madrigal Pharmaceuticals has cash and cash equivalents of $182.8 million. It stated in its 10-Q SEC filing that it would have sufficient cash for one year from its filing. That means it would have needed to dilute towards the end of 2018. However, now that it has received positive results from its phase 2 study NASH study it will need to raise cash sooner. Matter of fact a cash raise could come any day now. That's because it will need to raise more cash in anticipation of being able to fund a phase 3 study, which will be expensive to run. There is a possibility that a cash raise could be avoided, if it can find a partner to foot the bill. Considering the positive results observed in its phase 2 NASH study, I think it will be easy for it to find a partner if it chooses to go that route.
Conclusion
The positive phase 2 results are good in that Madrigal Pharmaceuticals will be able to move on to a phase 3 study. It's drug MGL-3196 was shown to improve clinical outcomes on two liver-biopsy endpoints, which bodes well for the future of this clinical candidate. The risk here is that there are a flood of competitors in the NASH fibrosis space. Especially, two of them Intercept Pharmaceuticals and Genfit which are already in phase 3 studies. In addition, another risk is the phase 3 study itself. These results were good but a phase 3 study for NASH will likely recruit up to 1,000 or more patients. That means it is possible that the final data may not come out as good as the phase 2 data for MGL-3196. I think that Madrigal is in good shape with its NASH data, and that's why I believe it's a strong buy.
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