Madrigal Pharmaceuticals (MDGL)

Investment Analysis Clubs Saul’s Investing Discussions
1

I originally picked up a starter position in Madgrical (MDGL) based on a few comments in Ryshab’s eom review. It sounded like an underappreciated company that warranted a closer look.

Madrigal has a singular focus on Metabolic dysfunction-associated steatohepatitis (MASH), which involves liver inflammation and damage from fat buildup. Stages are:

F0: No fibrosis; simple fat accumulation without scarring, fully reversible.
​F1: Mild portal fibrosis without septa; early scarring, often reversible with lifestyle changes.
​F2: Portal fibrosis with few septa; moderate scarring, still largely reversible.
​F3: Numerous septa without cirrhosis; advanced fibrosis, critical intervention point to prevent progression.
F4 (advanced stage): Cirrhosis; severe, irreversible scarring that distorts liver structure, risking failure, cancer, or transplant.

Their signature drug is resmetirom (brand name Rezdiffra). A few key points that make it appealing:

  1. First mover advantage. Granted accelerated approval on March 14, 2024, for noncirrhotic MASH with moderate-to-advanced fibrosis (F2-F3).

  2. Simple to use oral drug. Patients are much more likely to continue treatment as compared with injectables.

  3. Extremely effective liver-directed medicine that delivers consistent efficacy across F2F3 fibrosis, BMI, genetic makeup, and patient subtypes.

  4. TAM is greenfield. Competition is about 2+ years behind:

    • Akero Therapeutics’ efruxifermin. Injectable. Topline data for Phase 3 in 2027/28.
    • Sagimet Biosciences’ denifanstat starts Phase 3 in late 2025 so about 2+ years away.
    • Inventiva’s lanifibranor, data expected in 2026/27

  5. Pipeline:

    • In Phase 3 trials for F4c, with data expected in 2027
    • In pre-clinical for resmetirom / GLP-1 (MGL-2086) combination

I found the following comment from their last earnings call to be insightful regarding the future evolution of MASH treatment:

“We see clear parallels between MASH and other large chronic disease markets like IBD, rheumatoid arthritis, and psoriasis. Each of these evolved into multi-billion-dollar categories through continuous innovation driven by new mechanisms and tailored treatment regimens that address diverse patient needs. We believe MASH will follow that same path. Today, this market is still in its early stages, essentially where those categories were two decades ago, but with one important difference: Rezdiffra’s profile. As an effective, liver-directed, well-tolerated oral medicine, it far surpasses that of the other first-to-market products in those diseases. We believe this gives us a durable advantage and a unique opportunity to lead and shape the market’s evolution, first with Rezdiffra and next with the pipeline we are building.

Total Addressable Market (USA only)

29,500 As of Q3, the number patients on Rezdiffra
315,000 Madrigal’s target market based on 14,000 specialists seeing F2/F3 patients
525,000 Diagnosed F2-F3 patients
1.5M NASH/MASH diagnoses
8.4M U.S. adults potentially qualifying via non-invasive tests

So tons of room to grow. Also note that with respect to the 315,000 target market, that they have signed up 10,000 prescribers already.

Revenue and Earnings Growth

Revenue growth continues to be strong QoQ, and earnings have even become positive if you exclude SBC and the $117 million one-time cost for the MGL-2086 global licensing deal.
Total Rev. Revenue Prf / Loss
(Millions) QoQ exc. License
2Q24 $14.64 ($127.57)
3Q24 $62.18 324.8% ($89.06)
4Q24 $103.30 66.1% ($41.72)
1Q25 $137.30 32.9% ($52.27)
2Q25 $211.80 54.3% ($17.08)
3Q25 $287.27 35.6% $29.11

I’m going to continue studying this one and potentially add to become a mid-sized position.

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2

I wanted to take a look at the long-term bull case and do a ballpark valuation.

Madrigal are currently at an annualised revenue run-rate of $1B. Various analysts projections are in the $3-5B range for dates from 2028 to 2031, however the analysts are always playing catch-up so I don’t consider these numbers very useful.

Instead I looked at Madrigal’s vision of MASH becoming a major disease category similar to IBD, Rheumatoid Arthritis, and Psoriasis, each of grew to $20B+ in global sales over several decades. Slide 7 of their 3Q presentation illustrates.

https://ir.madrigalpharma.com/static-files/53eb38ca-4220-47e3-a18a-15d95723198b

These three disease categories each grew at an average rate of $0.8-1.2B per annum over 20+ years. Probably steeper at the beginning and slower at the end, following an S-curve.

For MASH I’ll assume $20B in global sales in around 20 years, but for the bull case just look at the mid-point of the S-curve, i.e. $10B in 10 years. This aligns with Saul’s methodology which focuses on the accelerating portion of the S-curve before growth begins to slow.

Past share count growth is as follows. Growth seems to have moderated this year.

Share Count Growth QoQ YoY
3Q 25 22,482,502 1.2% 3.4%
2Q 25 22,207,017 0.5% 3.8%
1Q 25 22,091,304 0.7% 10.4%
4Q 24 21,929,425 0.8% 11.0%
3Q 24 21,745,929 1.6% 10.0%
2Q 24 21,402,646 7.0% 16.9%
1Q 24 20,001,569 1.2% 10.0%
4Q 23 19,760,842 0.0% 14.6%
3Q23 19,760,842 7.9% 15.5%
2Q23 18,310,952 0.7% 7.1%
1Q23 18,187,924 5.5% 6.3%
4Q22 17,237,517 0.8%
3Q22 17,103,395 0.0%
2Q22 17,103,395 0.0%
1Q22 17,103,395

I’m going to assume another 1.2% growth in 4Q and then 5% per year after that. That gives us a share count of 37,061,086 in 2035. Companies in this category usually have an Operating Margin of 20-30% so I’ll take the midpoint here. P/E I don’t think is unrealistic for a firm still in the steep part of the S-curve.

Revenue (Billions) 10
Operating Margin 25%
EPS 67.46
P/E 25
Share Price 1686.40
Current Price 501.68
CAGR 12.9%

So the question is, is a bet of this magnitude worth only a 13% return? Probably not.

However the company is still growing 30%+ QoQ and 300%+ YoY. They could exceed this bull case if things go well. I’m going to keep a medium size position and keep monitoring.

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