On Tuesday morning, JMP Securities placed a $40 price target on Madrigal Pharmaceuticals (NASDAQ:MDGL). I discussed MDGL in the article on VKTX, last Friday. MDGL has a drug (MGL-3196) that also works via agonistic effects on thyroid beta receptors. On comparison, as I noted on Friday, MGL-3196's data has shown it to be inferior to VKTX's VK2809 thus far (Dr. David Bautz wrote about this previously).
- Madrigal Pharmaceuticals was previously a private company, which completed a reverse merger w/ Synta Pharma (SNTA). Company name was changed to Madrigal Pharma (NASDAQ:MDGL).
- 11.5 million shares outstanding
- Roughly $3.40 per share in cash
- Management sees current cash lasting through 2017, as R&D expenses r/t development of MGL-3196 are increasing
The $40 target on MDGL values it at just over $400 million. MDGL's value is heavily weighted on the success of MGL-3196 (their only drug in development). JMP analyst Liisa Bayko projected eventual sales of >$2.5 billion for MGL-3196 in U.S. and E.U. NASH patients. She used a probability-of-success rate of 20%; and noted that when she increased it to 60%, her target price increased to $116 per share, or $1.3 billion on MDGL. She also noted that it's highly likely a deal is made in the event of positive phase two data on MGL-3196.
In VKTX terms, that would translate to $20/share, solely to VK2809, or $67 per share at the 60% POS rate. That is before any value is ascribed to VKTX's remaining pipeline, notably their leading candidate, VK5211. I speculated on Friday that VK5211 alone may be worth $10+/share. Adding up these numbers, it is easy to see just how undervalued VKTX shares appear. VKTX closed on Friday at $1.19, or roughly $24 million in market capitalization.
In my previous article I listed a few different scenarios, with differing levels of prospective VKTX dilution. Even fully diluted, to just over 40 million shares outstanding, that would still equate to a price of $10 per share, again, only valuing VK2809 (assuming it's worth at least as much as MGL-3196, at the 20% POS rate). Again, with zero value to VK5211, or any other drugs in the VKTX pipeline.
Both companies will need to raise additional funds, and both companies are likely banking on partnering with large pharma for development (assuming future data continues to look good), or outright acquisition. Given this info, the market still seems to be heavily discounting VKTX's entire pipeline, to virtually zero, despite at least one VKTX candidate showing superior data thus far to a "400 million-dollar" competitor.
Disclosure: I am/we are long VKTX.