Madrigal: our fat(ty liver) bet delivers

What happened

The FDA released its final verdict: Approved!

One of the major catalysts this year, as outlined in our outlook, was the FDA decision on Madrigal Pharmaceuticals's drug Resmetirom. It was approved yesterday.

The good news is that the best conditions are lined up for commercial success: no cumbersome diagnostic needed, no safety warning.

Madrigal announced a Wholesale price at a cost-effective price for the healthcare system

The announced price of $47,400 is in line with the price range of $39,600 – $50,100 the Institute for Clinical and Economic Review (ICER) computed as a cost-effective price. It means that insurances are likely to get on board quickly and physicians to prescribe without second thoughts.  

Impact on our Investment Case

NASH is both prevalent and deadly

NASH, which stands for Non-Alcoholic SteatoHepatitis, is a condition in which excess fat is stored inside liver cells, making it harder for the liver to function until it stops working altogether. It is one of the most prevalent diseases plaguing humans and prevalence in adults is around 6% worldwide. More worryingly, this figure is expected to rise to ~10% (a growth of ~60%) by 2030. NASH is on course to be the n°1 cause of liver transplant.

Obesity, diabetes, and NASH are the unholy trinity of metabolic diseases. In a vicious circle, obesity is the leading risk factor for diabetes, which in turn is the leading risk factor for NASH, which in turn is a main comorbidity of obesity. With millions of patients with no therapeutic solution once reaching an irreversible stage, a NASH diagnosis is the equivalent of a death sentence. Madrigal is the first to provide an efficacious cure.

Unfortunately, NASH is a "silent" killer. It can advance for a long time before any appearance of the symptoms. A problem that had caused patient recruitment in clinical trials to be more challenging than expected. 

In the U.S. alone, 15 million people are unknowingly affected by NASH, of which only 1.5mn are diagnosed, and 500k are eligible for Resmetirom.

Not alone in the race, but leading by a mile

Madrigal is not alone in the race for NASH. But competitors with solid assets are not so numerous and Madrigal has put the bar relatively high. Here is an excerpt of a few names to follow:

• Akero, which released good data for the stage before NASH;
• Inventiva, with a differentiated mechanism of action currently in phase 3;
• Viking Therapeutics, which has the same mechanism of action and would further validate Madrigal hypothesis;
• Eli Lilly and Novo Nordisk pursuing a different path, based on the GLP-1 class, but all the latest data were not so good.

A >$30bn cemetery of blockbusters

NASH is a cemetery of potential blockbusters. Few diseases have known so many clinical trial failures. Even though there is no drug on the market, the opportunity is estimated at ~$25-35bn in 2030, a juicy market for Pharmas and nothing short of a miracle for patients. Madrigal's stock reaction in December 2022 to the MAESTRO-NASH study data shows how valuable their asset is, and now that it has been granted access to the market, the path to growth is open.

2025-2026 Subsequent Madrigal's study could expand the market further for diagnosed patients

Madrigal is running another study, MAESTRO-NASH Outcomes (Compensated Cirrhosis), currently in phase 3, whose results are due sometimes in 2025/26. In case of success it would lead to adding the "compensated cirrhosis" label, and translate into making another 15% of patients eligible for treatment.

Is GLP-1 a real competitor? 

The seminal data published by Novo Nordisk (part of the portfolio) last August worried the whole metabolic space: what if the Ozempic/Wegovy could be the magic bullet to all obesity-related diseases? Even Madrigal, who had just published its breakthrough phase 3 results suffered significantly.

Nevertheless, we kept Madrigal as a top position, as we believe that in the NASH space, GLP-1 lacks sufficient results to be considered as a competitor to Resmetirom:

• A few years prior, Novo Nordisk failed a Phase 2 study on GLP-1 only for fibrosis improvement in NASH patients.
• ~20% of patients within the Madrigal study were already on GLP-1 but have not shown to improve significantly better.

In our view, GLP-1, as discussed with KOLs, is more likely to become a combo drug for NASH: Madrigal's drug would mitigate NASH impact, and GLP-1s mitigate other cardiovascular and renal dysfunctions in obese patients.

An Atonra long-dated story

We have been following the stock since the data published in Phase 2 in 2019, as they were too good not to pass. It was the first drug ever to show improvement of the fibrosis of the liver, the leading mechanism to liver failure in NASH. As the company is a single-asset biotech, risk management was crucial and we waited near the end of Phase 3 before entering the position in June 2022.

Following its December result publication, it climbed to the top of the portfolio and has remained there as the investment thesis is unfolding as expected: Madrigal can reach ~$5bn peak sales, implying a potential valuation of ~$15bn or 3x current market cap (based on the average buyout ratio of 3.1x estimated peak sales observed in 2023 deals). 

Our Takeaway

Madrigal is the embodiment of why we invest in healthcare, giving a company the means to change patients' lives. On top of that, the reasonable price tag and large patient population are opening a $30bn market for grabs.

Madrigal has been one of our top positions since early 2022 and offers more catalysts looking forward: two Phase 3 studies are ongoing, which should read out within 18-24 months and increase by 15% to 30% Madrigal's addressable market.

Beyond the stock specific impact, significant approvals like this one tend to lift entire sectors (in this case, liver disease-related stocks), and boost interest from generalist investors for the biotech industry.