After a Huge Drug Approval, Is This Healthcare Stock a Buy?

The approval of a key medicine can quickly boost a healthcare stock. That can offer investors confidence in a company's ability to launch products and provide a new revenue stream. This reduces risk for smaller biotechs.

Madrigal Pharmaceuticals (NASDAQ: MDGL) has been rising recently. One of the company's medications received FDA expedited approval in March. The stock is gained 10% this year, but not much. Do investors neglect this healthcare stock, or is it a hot buy?

Green light for Rezdiffra The FDA awarded fast clearance for the first treatment for liver scarring from noncirrhotic nonalcoholic steatohepatitis (NASH), or fatty liver disease, on March 14. The medicine may help 6–8 million NASH patients with moderate or severe scarring. Rezdiffra's 54-month trial continues. Under the accelerated approval process, the FDA can approve a medicine before full standard approval, especially in cases like NASH with a substantial unmet medical need.

Rezdiffra has a chance to tackle a developing issue. According to analysts, the medicine might reach $5.5 billion in peak sales. It might earn $2.6 billion by 2030. Those are big numbers for a company with no sales last year.

Why aren't Madrigal Pharmaceuticals investors more optimistic? Big approvals are big for healthcare companies, especially those without income. After the news, Madrigal Pharmaceuticals stock rose to slightly under $300, but a stock offering ended the rally.

To commercialize Rezdiffra and pay general company operations and research & development, Madrigal announced a $600 million fundraising campaign. Rezdiffra may provide revenue in the future, but it doesn't fix the company's problems.

Madrigal spent $324 million on daily operations last year. With $634 million in cash and marketable securities, it ended the year. Without a main revenue engine, the corporation will need to raise money.

Another reason investors may be avoiding this industry is its potential competition. Novo Nordisk's Wegovy and Eli Lilly's Zepbound, popular weight-loss medicines, are being tested for NASH treatment. If they're approved to treat NASH, Rezdiffra's potential may suffer.

Is Madrigal Pharmaceuticals stock buy? Biotech stock Madrigal Pharmaceuticals has a market cap over $5 billion. Its trading price is about 2 times analysts' 2030 revenue projections. This looks costly given its distance. Rezdiffra should be discounted significantly due to the time it will take to generate significant income and the business's risk of long-term capital burn.

It's impossible to recommend Madrigal Pharmaeuticals' stock given its market value. Investors should avoid the healthcare stock since its shares may have peaked.

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