Madrigal Pharmaceuticals Stock Is Up 200% In One Day, Here's Why

Key Points

• Madrigal Pharmaceuticals released the results of the long-awaited NASH trial. 
• The results are positive and may lead to accelerated approval. 
• Short-interest remains high and is helping to drive the action. 

If you want to know why Madrigal Pharmaceuticals (NASDAQ: MDGL) is up 200% in one day, it's because the company released the results of a late-stage trial for one of its compounds. The compound, resmetirom, is intended for treating liver ailments and has been found to be effective in treating non-alcoholic steatohepatitis and liver fibrosis.

This is important because the NASH market is growing at a 50% CAGR and is expected to top $21.5 billion by 2025. What this means for Madrigal Pharmaceuticals investors is a soon-to-be exploited revenue stream, and this compound is being tested for at least four indications. 

The Results Are In For Madrigal Pharmaceuticals 

Madrigal Pharmaceuticals released results from the MAESTRO-NASH trial that will lead to an application for accelerated FDA approval of resmetirom. The trial shows that patients on the 80mg and 100mg programs showed significant improvement compared to the control group in all aspects of the test. 

In the core MAESTRO-NASD portion of the trial, patients on resmetirom for 52 weeks showed a 26% and 30% improvement in their conditions versus 10% for the control group. Regarding liver fibrosis, the results are 24% and 26% improvement compared to only 14% for the control group.

Regarding lower LDL cholesterol, the treatment lowered cholesterol by 12% and 16% compared to a 1% increase for the control group. Regarding tolerance, the test groups showed high tolerance levels and side effects in line with the placebo group—nothing terrible about those results. 

Madrigal Pharmaceuticals is a clinical-stage biopharma company that has, until now, produced no revenue. The company's partnership with Hoffman-La Roche and the efficacy of resmetirom promise to change all that; however, next year should be much different. As it is, the analysts expect about $42 million in revenue next year, which may be a gross underestimation given the news. In this light, inventors might expect to see analyst activity pick up in this stock and were already warming to the name. 

There are four analysts with current ratings on Madrigal Pharmaceuticals, and they have the stock pegged, pre-release, at a Moderate Buy. The latest comes from H.C. Wainright, which rates the stock a Buy. The price target has been coming down over the past year, but the consensus is at $154, which is well below the post-release price action. 

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Short-Interest Drives Action In Madrigal Pharmaceuticals 

The short interest has as much to do with the meteoric rise of Madrigal Pharmaceuticals as anything else. Short interest was running above 25% ahead of the trial results and is a significant factor in the post-release rally, which can be seen in the volume. The days-to-cover was over 7.5, but that may not matter with volume already more than 5X the average daily volume just 1 hour after the start of trading. At this pace, the short positions should be closed out by the end of the day. 

Looking at the chart, there are some significant gains for investors at the current levels. However, new investors should expect some volatility as old investors take money off the table and short-sellers reposition themselves. So while the news is good, it does not guarantee the stock's price should be anywhere but where it is now.