Is Madrigal Pharmaceuticals a Millionaire Maker?


Its revenue ramp-up is just starting, and its market looks lucrative.

Madrigal Pharmaceuticals (MDGL -1.93%) is at a moment of great opportunity, and there’s a decent chance that its shareholders will feel good about their investments over the next few years. After commercializing its first medicine, which treats a condition no other medicines can currently treat, the next step will be for it to chow down on as much of its target market as possible before other players show up.

With such a favorable setup, could it be the case that an investment in it made today would lead to building wealth on the scale of $1 million? It’s not as unlikely as it sounds, so let’s look at the details.

There’s a path to big growth here

For Madrigal to make an investor who bought the stock today into a millionaire, several things would need to happen in conjunction.

First, the value of the stock would need to go up by a vast amount over the next decade or two, likely on the order of 10 to 20 times. Second, the investor would need to have committed sufficient capital for that multiplicative growth to yield at least $1 million. In the case of the stock rising by 10X, it’d take a starting investment of $100,000, which is far more than most investors have, and far more than most are willing to commit to a single somewhat risky investment.

But beyond the math is a question of strategy.

For Madrigal to expand its market cap from where it is now, around $5.8 billion, to a market cap of $58 billion or higher, the only route that’s visible today is via selling massive amounts of its medicine Rezdiffra.

Rezdiffra is the only approved medicine to treat metabolic-associated steatohepatitis (MASH, formerly called NASH), and the biotech is already engaged in post-approval research and development (R&D) work to expand the drug’s indications to treat more severe presentations of the disease. Attaining a larger addressable market for Rezdiffra, and perhaps also commercializing additional drugs targeting the same market or adjacent ones, would also be key to delivering outsized growth.

By some estimates, the global market for MASH drugs could eventually be worth between $12 billion and $35 billion annually. Let’s assume for the purposes of this assessment that Madrigal’s aspiring competitors, including Novo Nordisk, Eli Lilly, and Viking Therapeutics, to name just a few, all strike out with their attempts at developing medicines for MASH. Let’s also assume that the market’s eventual size is $20 billion, on the lower-middle end of the range.

In such a situation, nearly all of the annual value of the market would be going right to Madrigal. The average biotech company’s price-to-sales (P/S) multiple is 6.3. So Madrigal’s market cap would be in the ballpark of $126 billion. Per our napkin math earlier, that’d make it possible for an investment of well under $100,000 to grow to reach a size of $1 million.

In fact, under those conditions, an initial purchase of around $48,260 would do the trick. That’s still a much larger sum than most investors can or should bring to bear on a single biotech stock, but it’s not completely out of reach with the help of some dedicated dollar-cost averaging over a few years.

Don’t count your eggs before they hatch

Now, let’s evaluate the assumptions we made to see how realistic they are.

In the U.S. alone, there are at least 1.5 million people diagnosed with MASH. It’s a serious disease that often progresses to cirrhosis and liver failure; half of all patients with MASH have their disease progress each year, and 80% of those who progress end up with cirrhosis.

In other words, MASH is a public health problem that is economically damaging, and thus is quite valuable to solve. So a market for MASH therapies that’s worth $20 billion annually is not too hard to believe at all.

As mentioned before, Madrigal’s product is the only medicine that can actually treat the root causes of MASH. It’s credible that it will secure a very large slice of the market over the coming years. And, as MASH is a notoriously difficult target to develop drugs to treat, with many companies failing at multiple attempts, it could be the case that its competitors can’t immediately contest the market with candidates of their own.

But heavyweights like Eli Lilly and Novo Nordisk won’t let a failure or two stop them from chasing such a lucrative prize in the long run. And that means Madrigal will eventually need to share the market, preventing it from capturing the full value. At some point, it’s also possible that its R&D efforts fail to keep its products one step ahead of other players in terms of efficacy. Then it might be relegated to holding a small slice of the pie.

Thus, while it’s faintly possible that Madrigal will see the stars align and enable its shareholders to become millionaires with relatively small initial investments, it isn’t something anyone should count on.

Nonetheless, if you’re looking for a decent biotech stock play to hold over the next few years, before competitors are likely to have time to enter its market and start picking up steam, it could still be a favorable stock to buy today.



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