If you're willing to be patient, biotech stocks can offer significant upside, even if you only invest a relatively small amount, like $1,000. In that vein, Madrigal Pharmaceuticals (NASDAQ: MDGL) has a lot to offer. Between its recently launched new drug and being the first in its market, it has a long runway for growth. Here's why it's worth an investment today, provided that you're willing to hold on to your shares for at least a few years.
Madrigal makes a medicine called Rezdiffra, which is currently the only approved treatment for metabolic-associated steatohepatitis (MASH, formerly known as NASH) in patients with moderate to advanced fibrosis (scarring) of the liver. Right now, its target market comprises the roughly 315,000 patients in the U.S. with MASH who are already diagnosed and in the care of specialists, but its addressable market could one day be as large as the entire population of 1.5 million people in the U.S. who have some form of MASH.
Since its approval in mid-March of 2024, sales of Rezdiffra are increasing expediciously, reaching $62.2 million in Q3, the drug's first full quarter on the market. A mere year ago, Madrigal had no revenue at all, and it's likely that its revenue will continue to rise for at least a couple of years as its commercial rollout continues.
Right now, more than 6,800 patients are taking the treatment. The company hopes to get the drug approved for sale in the E.U. sometime in the second half of 2025, which will be a major catalyst for further growth.
The next hurdle to clear is for it to become profitable as its growth accelerates. In the third quarter, its operating expenses were $178.5 million, and it reported cash, equivalents, restricted cash, and short-term investments worth $1 billion. In other words, it has plenty of time to reach profitability before it would need to raise additional capital. And that's a solid set of reasons to consider investing $1,000 in the stock.
Madrigal probably won't be the only competitor in the market for MASH drugs forever. But one of the most powerful aspiring entrants, Novo Nordisk, may not be as intimidating for the biotech as it once was. Novo's molecule semaglutide (commonly known by the trade names Ozempic and Wegovy) is already marketed to treat cardiometabolic illnesses like type 2 diabetes and obesity, both of which are illnesses commonly present in patients with MASH.
Per the recently published results of a phase 3 clinical trial investigating semaglutide's helpfulness in treating MASH, its efficacy is fairly similar to that of Rezdiffra, albeit likely slightly better. But as Madrigal's management is quick to point out, semaglutide is not something that patients find easy to take, so Rezdiffra may have an edge in tolerability over the long term.
Novo will take a bit longer in getting its therapy approved to treat MASH, and even longer to get approval for key expanded indications like cirrhosis with MASH that Madrigal could potentially get relatively soon. So there are no signs that semaglutide will devour so much market share as to slow Rezdiffra's growth in any meaningful way, at least for now.
Nor is it guaranteed that other aspiring competitors like Eli Lilly will fare significantly better. If anything, it looks like Madrigal will be able to find a home in the market even when it's among giants.
Therefore, it is very likely that as it continues to penetrate its market, this biotech stock will continue to post a fast rate of growth. And that's another reason to buy its stock and hold it for the next five years or more.
Before you buy stock in Madrigal Pharmaceuticals, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Madrigal Pharmaceuticals wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $904,692!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.
See the 10 stocks »
*Stock Advisor returns as of November 4, 2024
Alex Carchidi has no position in any of the stocks mentioned. The Motley Fool recommends Novo Nordisk. The Motley Fool has a disclosure policy.