Madrigal: A Basic Overview

Sep. 26, 2019 12:48 PM ETMadrigal Pharmaceuticals, Inc. (MDGL)6 Comments6 Likes

Summary

  • Madrigal is one of the more prominent NASH-targeted biopharma companies today.
  • It has done things exactly right, and in 2-3 years, it should see huge success.
  • Current lows create a buy opportunity.
  • Looking for more stock ideas like this one? Get them exclusively at The Total Pharma Tracker. Get started today »

Last year, when we compared Madrigal Pharmaceuticals (NASDAQ:MDGL) to Viking Therapeutics (VKTX), one of the points we raised was that MDGL had a market cap of $4.4bn, while VKTX was just $700mn. That gap, however, is vastly reduced now - not because of any uptick with VKTX, but because MDGL has become way more affordable, at just $1.5bn, while VKTX is not $500mn. So, the difference is now 3x, while it was more than 6x earlier.

There have been significant developments since then, which put the company in a position where its lead candidate, MGL-3196 (resmetirom) could become the preferred treatment option for non-alcoholic steatohepatitis ('NASH) and dyslipidemias. For the uninitiated, Madrigal is a clinical-stage biopharmaceutical company developing therapeutics to target a specific thyroid hormone pathway in the liver. The company "recognized that greater selectivity for thyroid hormone receptor ('THR)-β and liver targeting may overcome challenges faced by the lack of selectivity of older compounds and deliver the full therapeutic potential of THR-β agonism," which can be applied to a wide range of fatty liver and cardio-metabolic diseases with high unmet medical need. NASH is a serious liver disease with no approved treatments. It affects more than 15 million Americans and is mostly associated with metabolic disorders like diabetes and obesity.

MGL-3196 may be the first therapy in development that has the potential to address the root causes of the underlying disease process in NASH. The company believes that MGL-3196 is "a first-in-class, orally-administered, small-molecule, liver-directed, THR-β selective agonist." In phase 2 clinical trials in NASH and heterozygous familial hypercholesterolemia ('HeFH) concluded in 2018, primary and key secondary endpoints were achieved. A sensitive, non-invasive imaging test showed statistically significant reduction of liver fat. Liver biopsy showed lowering of multiple atherogenic lipids including LDL-cholesterol and triglycerides, and resolution of NASH. MGL-3196 also "demonstrated the potential for a broad array of therapeutically beneficial effects, improving components of both metabolic syndrome, such as insulin resistance and dyslipidemia, and fatty liver disease, including lipotoxicity and inflammation."

Catalyst

Madrigal initiated a multinational, double-blind, placebo-controlled phase 3 trial on 3/28/2019 for MGL-3196 in NASH. The trial is being conducted in the U.S. and the rest of the world at more than 150 sites with an estimated 2,000 patients, having NASH with stage 2 or 3 fibrosis confirmed by liver biopsy. They will be randomized 1:1:1 to receive a single oral daily dose of placebo, resmetirom 80 mg or resmetirom 100 mg. Filing for subpart H-accelerated approval will be done based on a second liver biopsy in the first 900 patients at week 52. The primary endpoint will be the percent of patients achieving NASH resolution evident in the week 52 liver biopsy, after treatment with either dose of resmetirom as compared with placebo. Topline data could be expected in 2H-2020, while estimated primary completion date is 1H-2021.

Madrigal has planned to initiate "a second phase 3 clinical program in a broader segment of patients with dyslipidemia, including potentially patients with earlier stages of fatty liver disease who, like the later stage NASH patients, are at high risk of cardiovascular disease."

Source: company SEC filing 10-K.

"THR-β selectivity also enhances the safety profile of MGL-3196, compared to non-selective agents. MGL-3196 has shown no suppression of the central thyroid axis, no THR-α effects on heart rate or bone, and no elevation of liver enzymes. These characteristics make MGL-3196 among the most promising molecules in development in this therapeutic area."

Past trial data

The phase 2 clinical trial of MGL-3196 for NASH was a randomized, double-blind, placebo-controlled, multi-center study of 125 patients, 18 years or older, with liver biopsy-confirmed NASH at approximately 25 clinical sites in the U.S. Patients received either a single daily oral dose of resmetirom or placebo in a 2:1 ratio. The trial achieved statistically significant results in the primary and key secondary endpoints.

This was the critical, biopsy-confirmed NASH trial. Besides this, a non-invasive extension study evaluating 80mg and 100mg resmetirom using MRI-PDFF, and biomarker measurements were also completed successfully.

Efficacy

The relative reduction of liver fat on MRI-PDFF (magnetic resonance imaging-estimated proton density fat fraction) at 12-weeks was 36.3% from baseline in all 78 patients treated with resmetirom; was 42.0% from baseline in 40 o/of 78 patients treated with higher dose of resmetirom; and median reduction of liver fat in 38 patients treated with placebo was 9.6%. 75% of patients treated with high dose of resmetirom showed liver fat reduction of 30% or more. The results were statistically significant for both resmetirom treated groups with p-value<0.0001.

The mean relative reduction in liver fat, sustained at 36 weeks measured by MRI-PDFF, was 37% for resmetirom treated patients vs. 8.9% for placebo (p<0.001). The percentage of patients with a two-point improvement in NAS ('NAFLD activity score) was higher for resmetirom treated patients with 56% of 73 patients vs. 32% of 34 placebo treated patients (p=0.02). NASH resolution (NR) with at least a two-point reduction in NAS was observed in 27% of resmetirom treated patients vs. 6% of placebo treated patients (p=0.02). Of the resmetirom treated patients who showed 30% or more fat reduction at Week 12 MRI-PDFF, 70% showed 2-point improvement in NAS versus placebo (p=0.001) and 39% showed 2-point improvement in NR versus placebo (p=0.001). This demonstrates a strong relationship between early reduction in liver fat on MRI-PDFF at week 12 and NASH improvement on liver biopsy at Week 36. Of the patients with NASH resolution, 35% of resmetirom treated patients started out with more advanced NASH (baseline NAS ≥ 5) versus no placebo treated patients.

Resmetirom treated patients also showed sustained reduction of fibrosis biomarkers at week 36. Also, fibrosis resolved in 50% of the resmetirom treated patients with NASH resolution. Fibrosis reduction was statistically significant relative to placebo treated patients. Reduction in liver enzymes was statistically significant in the resmetirom treated patients vs. placebo treated patients, with longer treatment duration corresponding to higher reduction. Statistically significant normalization of alanine transaminase ('ALT) was seen in more resmetirom treated patients compared to placebo treated patients. Statistically significant reductions in low-density lipoprotein cholesterol ('LDL-C), triglycerides, ApoB and lipoprotein(A) observed at week 12 were also sustained at week 36.

Safety

Resmetirom was well tolerated in this phase 2 trial with mostly mild and a few moderate adverse events ('AEs). The AEs were balanced between resmetirom treated and placebo patients. In the resmetirom treated patients, a single episode of increase in incidence of softer stools was often observed, but only at the start of treatment.

Discussion

This was the most important and successful phase 2 trial conducted in biopsy-confirmed NASH patients. The trial was, basically, a great success. Not only was there statistically significant fat reduction and resolution of fibrosis, but there was also manageable and normalised ALT, showing that the drug was safe and tolerable.

Trial in HeFH

Madrigal also completed a 12-week, phase 2 trial of resmetirom in heterozygous familial hypercholesterolemia ('HeFH) patients on maximal statin therapy. Data showed that the primary endpoint of improvement in the reduction of LDL-C in resmetirom treated patients compared to placebo was statistically significant.

Resmetirom treated patients (placebo corrected) achieved 18.8% lowering of LDL-C (p<0.0001), while those on optimal dose of resmetirom achieved 21% lowering of LDL-C. In a pre-specified group of patients with no tolerance to high intensity statin doses, resmetirom treated patients achieved 28.5% lowering of LDL-C compared to placebo treated patients. Statistically significant reduction was achieved in "triglycerides, apolipoprotein B (ApoB), and lipoprotein(A) (Lp(A), a highly atherogenic lipid particle commonly elevated in HeFH patients and not adequately controlled by existing therapies." Mostly mild and some moderate AEs were balanced between resmetirom treated and placebo treated patients.

The case for Dyslipidemia

"Patients with NASH, and its more prevalent precursor, Non-Alcoholic Fatty Liver Disease ('NAFLD), are at heightened cardiovascular risk." It has been observed that patients suffering from NAFLD and NASH die more often from cardiovascular events than from their liver disease. Elevated levels of LDL-C and excess liver fat contribute to cardiovascular risks. Many of these patients also may suffer from diabetes and metabolic syndrome, and have abnormal lipid levels. Any therapy to lower lipid levels, including excess liver fat, may benefit such patients.

Madrigal's trials in patients with NASH and patients with HeFH showed resmetirom's "pleiotropic activity," which included "reducing the levels of several atherogenic lipids; LDL-C, ApoB, triglycerides, ApoCIII, and Lp(A), liver fat and also hs-CRP, all of which are correlated with increased cardiovascular risk." The company plans to extend the development of resmetirom to address the unmet medical needs of the entire spectrum of NASH and NAFLD patients. "A Phase 3 study is under design to treat the prevalent mixed dyslipidemias, while improving the fatty liver phenotype, in this population."

Financials/Execution

In June 2018, Madrigal issued and sold 983,607 shares at a public offer price of $305 per share of its common stock for gross proceeds of $300 million. At that same time, stockholders of the company, including certain of its executive officers and directors and affiliates thereof, sold 363,625 shares along with the company issued shares. In the past 52 weeks Madrigal stock has reached a low of $82.39 and touched a high of $232.40. Presently the stock is moving between $90 to $100. Market consensus one-year estimate is $187.50. 6.28 million shares float out of a total outstanding of 15.43 million shares, while insiders hold 11.33%, and institutions hold. The past one year saw only insider purchases and no insider sales.

Trade Date

Ticker

Insider Name

Insider Title

Trade Type

Price

Qty

Owned

ΔOwn

Value

2018-11-20

MDGL

Friedman Paul A

CEO

P - Purchase

$117.88

+4,000

161,128

+3%

+$471,520

2018-11-19

MDGL

Friedman Paul A

CEO

P - Purchase

$124.00

+4,000

157,128

+3%

+$496,000

2018-11-19

MDGL

Craves Fred B

Dir, 10%

P - Purchase

$124.69

+2,000

298,067

+1%

+$249,387

(Table source: openinsider.com)

115 institutions including 17 hedge funds held 9.525 million shares, increasing 1.52% over the previous quarter, as summarized from 13F filings as of 6/30/2019.

The company's current assets at the end of the last 4 quarters respectively

Period Ending

6/30/2019

3/31/2019

12/31/2018

9/30/2018

Cash And Cash Equivalents (MN)

72.508

47.493

57.379

38.046

Short Term Investments (MN)

393.888

430.332

426.339

450.492

Total Current Assets (MN)

468.785

478.390

485.201

489.305

Cash burn for FY-2018 was $40.682mn, for FY-2017 was $32.062mn and for FY-2016 was 22.523mn, of which research and development ('R&D) expenses were $25.389mn, $24.390mn, and $15.933mn, respectively. The company expects R&D expenses to increase further in the coming years, but assets seem to be sufficient to carry the company up to the commercialization of the lead candidate resmetirom.

In July 2016, Madrigal merged with Synta Pharmaceuticals Corp., and in the process, the stockholder base was changed substantially. The new company began to focus exclusively on developing Madrigal's "therapeutic candidates for the treatment of cardiovascular, metabolic and liver diseases," while ceasing development of Synta's oncology drug candidates.

Intellectual Property

Madrigal owns or co-owns: two U.S. and seven foreign issued patents and allowed patent applications, and 2 U.S. and 26 foreign pending patent applications, all of which relate to MGL-3196, and have statutory expiration dates between 2026 and 2033. Madrigal licensed MGL-3196 from Roche (OTCQX:RHHBY) in 2008 and has worldwide rights with composition-of-matter protection until 2026. Under the agreement with Roche, Madrigal will develop and commercialize MGL-3196, with exclusive worldwide rights for all potential indications. In exchange, Roche received an upfront payment, milestone payments subject to future commencement of clinical trials and regulatory approval of MGL-3196 or any derivative product in the U.S. and Europe, and single-digit royalty payments based on net sales of MGL-3196 and any derivative products, subject to certain reductions. Milestone payments related to trials have been paid but no sales are generated yet. The agreement with Roche, unless terminated pursuant to other provisions of the agreement, will remain in force until either "the expiration of the last valid claim of a licensed patent covering the manufacture, use or sale of products containing MGL-3196," or "ten years after the first sale of a product containing MGL-3196."

The company intends to pursue Orphan Drug Designation for some of MGL-3196's target disease indications which are rare diseases or maybe designated rare diseases, including HoFH and severe HeFH.

Market

NAFLD is estimated to affect approximately 27% to 34% of the population in the U.S., or an estimated 86 million to 108 million people. Approximately 10% to 20% of those will progress from NAFLD to NASH. Current (2018) estimates put NASH prevalence at approximately 3% to 5% of the population in the U.S. or 9 million to 15 million people. Prevalence in Europe and Asia is similar. NASH is increasingly prevalent in developing regions due to the increasing adoption of a sedentary lifestyle and increasing consumption of processed foods containing fructose and high fat content.

"In addition to the accumulation of fat in the liver, NASH is characterized by inflammation and cellular damage with or without fibrosis, the first stage of liver scarring, which may ultimately progress to cirrhosis. NASH is a severe condition that can lead to fibrosis and eventually progress to cirrhosis, portal hypertension, esophageal varices, ascites, liver cancer, and liver failure. NASH is strongly associated with cardiovascular disease, or CVD, and the most common cause of death in NASH patients is CVD. Progression to cirrhosis and other late-stage complications can occur within five to ten years after an initial NASH diagnosis. NASH patients with type-2 diabetes have a heightened risk of NASH disease progression. Once the disease advances beyond NASH to such life-threatening conditions as liver cancer and liver failure, then liver transplantation is the only treatment alternative."

According to the Centers for Disease Control and Prevention projects, the prevalence of obesity in the U.S. is projected to increase from 34% of the population to 42% of the population by 2030. With such levels of obesity, NASH is expected to become the leading cause of liver transplants by 2020. The limited availability of organ donors and high transplant costs creates a significant unmet medical need for effective and safe oral treatments for NASH. It's difficult to estimate the market size because no therapeutic products are currently approved for the treatment of NASH. Based on multiple market assessments, Madrigal estimates that the addressable worldwide NASH population is several million patients translating to a multi-billion dollar market that can support multiple approved drug products.

Competition

Phase 3 clinical trials of compounds to treat NASH are currently ongoing at other companies. It's understood that accelerated approval of the compounds is possible under FDA subpart H. This means that approval of some of these critical drugs could be based on surrogate endpoints of histological evidence of NASH resolution, and post-approval trials could confirm long term clinical benefits.

In our previous article, we compared MDGL with Viking. We must be clear that Viking is yet to begin any trial in biopsy-confirmed NASH -currently, the only data they have is from a NAFLD trial. Both molecules are similar in so far they are both THR-β selective agonists, and the NAFLD trials are highly competitive between the two drugs. However, clearly, Viking is at least two years behind Madrigal in terms of clinical development in NASH, which is a big deal. In my previous article, I overestimated Viking's progress.

An excellent recent article has discussed NASH competition in detail. We all know the story. Intercept with its obeticholic acid is in the lead, however, this drug has safety issues which may dampen its market prospects. Despite that, as the first drug to enter this vast market, OCA will certainly have some traction. Genfit (GNFT) drug elafibranor is another major contender, with a phase 3 trial running. There are more than 50 companies running trials in NASH or NAFLD. If I were to list the contenders by time to market, I believe MDGL will come at third or fourth, with Viking closely following. That is the situation right now.

Risks

A previous article by one of Seeking Alpha's better biotech analysts, one whose opinion I respect, discovered a number of issues with MDGL's phase 2 trial. The one that especially struck me was that according to the author, baseline characteristics "differed too much" between drug and placebo. Going through the list, which immediately followed, I was surprised by that "allegation."

Source: author via Madrigal

You should look at the percentage data, not the numbers because the drug cohort has over twice the number of subjects than the placebo cohort. As you can see, in some areas, one cohort does better, and in the other, the other - however, there are really few "major" percentage differences, which, given the small patient numbers, should be defined as differences higher than 10%. That would be about one patient.

On the other hand, I also deplore statements like the following from another author in a science-focused article - "What can I say, I love Madrigal Pharmaceuticals. You can review my synopsis and rundown of the company here." The author goes on to say he is bearish VKTX but doesn't convince.

The reason I'm giving these two contrasting authors is simply to urge neutrality when covering a stock - easy enough to say, often very hard to do - but a good ideal nevertheless.

Opinion

How should I say this? In any NASH portfolio of 4-5 NASH stocks, MDGL should have a prominent place. The stock is trading quite near its 52-week lows, The company has gone through dilutions in the past but now has enough cash to last until phase 3 is done and regulatory stage is well underway. People interested in the NASH market should consider MDGL for their portfolio.

Thanks for reading. The Total Pharma Tracker is offering a double discount for October. REITs-focused income investors with an interest in biopharma will find this interesting. 


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