Madrigal Pharmaceuticals, Inc. (MDGL) Earnings Call Transcript & Summary

Hi, everyone. Welcome to the session of the 22nd Morgan Stanley Global Healthcare Conference. We're thrilled to have Madrigal with us represented by CEO, Bill Sibold. I'm. Judah Frommer, I'm one of the mid-cap biotech analysts here. Before we get started, Bill, I'm just going to read a quick disclaimer for important disclosures. Please see the Morgan Stanley research disclosure website at www.morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley sales representative. So with that bill, maybe we can start with a high-level intro for those who are less familiar with Madrigal.

Great. Well, Judah, thank you for having us at the conference. It's great to spend some time with you. So Madrigal, we're the leader in NASH/MASH globally, a company that has had a really impressive story. NASH is the #1 cause of transplant for women in the United States. And it's not for lack of trying that there haven't been products. There's been over 20 products that have failed trying to find a path and we were the first to break through. And this is a serious disease. As I said, #1 cause for liver transplants for women. You have patients that are this one to two steps away from becoming cirrhotic, which means that you really run out of options at that point. And we have a solution, which we think is a really good one with Rezdiffra, not only is it first, but it's got a product profile that is really kind of a holy grail when you look at it. So once-a-day pill, safe, well tolerated, effective. So we're really at the beginning here of creating a market for the future. And I think that what history has demonstrated is that the first movers in a space maintain a disproportionate share over years especially if you start off with a great product. So we're at the very beginning, we got approval in March. We've been out launching. I'm sure we'll talk a little bit more about those stats as we go on today. But we take our leadership position very seriously. That's where we're starting as leaders, but we intend to be leaders for years to come.

Okay. Great. That's a good intro. Now you've been at the company about a year now. So how has it tracked compared to your expectations? And where do you see Madrigal going 3 to 5 years from now?

So this is almost the 1-year anniversary date. So it's amazing how quickly that's gone. And it's been just quite a year. I think this is the greatest industry in the world. If we do our jobs right, we can transform, save lives all over the world. And one of the things that really drew me to Madrigal was there was an opportunity to do that. Huge unmet need. No one's ever been there before. So we really get to set the bar. And I think that's just -- it's a huge obligation, it's a huge honor to be able to do it. What attracted me here was a disease that is so serious that there's been nothing for it. And as I said earlier on, we do have a solution. And what we focused on initially was building from scratch, the team to put in place to be able to address this opportunity. And we have been pretty consistent from day one about saying what we were going to do, how we were going to do it and what were the results going to be. So just for instance, we said that the product would get accepted for a review. It got accepted for review, priority review. People said, you're going to have an AdCom. We said we're not going to have an Adcom. We didn't have an AdCom. Concern then moved to, are you going to have a biopsy in the label requirement, no biopsy requirement in the label? Well, then payers are going to require them. Payers aren't requiring them as part of the policy either. So step by step, we've been saying this is what's going to happen, and this is what's happened. So I feel very good about the last year because we've been extremely, I think, realistic about what we can expect and that realism is optimism because there's such great potential here. Now when you look 3 to 5 years out, let's say, 5 years out, I expect that people are going to look back and say that this was one of the best specialty launches over that time. I think you're going to see that we will be executing our launches in Europe and have success there. We'll be at a point where we're getting the results from our outcome study. So we'll have our 54-month readout from the 52-week MAESTRO-NASH study. So that will be a big milestone. We'll have our readout from the well-compensated cirrhosis study which is a potential to get into a population that's even at higher risk than the -- pardon me, that are F2/F3. F2/F3s have a 10 to 17x higher likelihood of a liver mortality whereas the F4 patients, in this case, it's even higher than that, it's 42x higher. So we'll have that readout. And we have been building a pipeline for us to really establish its leadership position in NASH. So I think there's a lot that's already happened in the first year and a lot more that we're expecting in the next 5-year period.

Okay. That's great. So let's jump into Rezdiffra launch. And before we get into the tracked metrics that you pointed investors toward, can you walk us through epidemiology and the target population that you just touched on along with this concept of wiring the system that you've talked about?

Yes. So look, the epidemiology, there's 1.5 million diagnosed patients in the U.S. 525,000 or roughly 525,000 are F2/F3. And then in the 14,000 physician universe that we're calling on, there's about 315,000 patients. So that is a very good specialty market. If you look at a lot of specialty markets, they tend to be in that 300,000-plus range. And we've approached this as a specialty launch. So any way you do the math, it's a sizable market, and we think we're well positioned for it. And that's even before thinking about what would be the impact of GLP-1s that are driving diagnosis and that [ 315,000 ] becomes perhaps a multiple of that. So that's the area that we're focusing. We think that within that 315,000 and the 14,000, we focus on about 6,000 targets. So it's something which is highly addressable for us. The final part of that?

Wiring the system.

Oh, wiring the system. Look, so this is something, again, we've been clear about from the beginning. We're not dropping into a well-established market where it becomes a switching dynamic or you're just paying for certain levels of coverage and so forth. This is building something from scratch until we were approved in March, there had never been a prescription for NASH in the history of medicine. And that means that you have to take the time and make sure that you're working at different parts of the system. So with the physicians, although they know it's a serious disease, when you don't have a solution for something for a long time, it's nothing you forget about the patients, but it's not part of your day-to-day unless you're doing trials to have an intervention. So we're educating them on what are the NITs that you use, who's the right patient, et cetera. From an office staff perspective, it's really important because they're the ones that are helping create the pathway in a practice to pull a patient through, make sure that they're getting access to the product through prior authorizations, et cetera. The payers, obviously, we're having productive discussions with to make sure that we're establishing policies that patients can get through. And obviously, the patients as well, there's a lot of people that give up when they hear there's no treatment and trying to reidentify them and help them see that there is, again, a solution for their disease now. So we've been working through kind of all aspects of the wiring. And I feel as though we are making tremendous progress, we had said from the beginning that this is about a 12-month process to do. And in Q2, we announced that we're moving through that. So really optimistic about where we are, but it's hard work. It's day to day, you've got to identify the needs of that specific practice, that position and how we can help them and make sure that we're clearing the path for them. One thing I'll say is that our teams have spent a lot of time upfront in trying to help with patient identification. When you have the right patients that are identified upfront, it just helps the follow-on to ultimately prescription, and we can talk about that perhaps in a little bit as we talk about metrics at all.

Yes, that makes sense. Yes. So maybe you can just set the table for us regarding the key metrics you provided to give folks a sense of launch progress and then we can kind of go one by one.

Yes. So look, at the core of it, again, is this wiring the system, which we're well on the way through. But at the call, we talked about demand, so sales, $14.6 million, which I think is a very strong start to the launch. And number of patients on therapy greater than 2,000 and just maybe to spend a second there. Patients on drug, that is your ultimate measure. There's, of course, a funnel above that where there's many more patients that have a prescription and they're making their way through that. And so what we wanted to do is to come with the metric that is, we think, the one that really, at the end of the day counts, because that includes people that -- there could have been people that had started on drugs, stopped on drug, they wouldn't get counted if they had stopped. So it would be the most, I would say, rigorous standard to follow. I mean a lot of people are looking and trying to figure out what the top of the funnel looks like. I'll comment, for instance, if you look at NRx, there can be some double counting in there, and it may give an impression of a bigger number. That's why we're going with patients on drug, knowing now that the funnel, there's many more above that. Payer coverage is a big issue that you want to solve. And we have a goal of 80% of commercial lives covered by the end of the year. We announced at the quarter that it's greater than 50% which I think is a tremendous progress. And you look at kind of your breadth of prescribers, and we're talking about this 6,000 prescribers that we're looking at as targets and we had about 20% penetration into that, which is all very good. We compare all these stats to blockbuster and mega blockbuster launches and feel that we're progressing really well.

Okay. Great. So maybe we'll double click on a couple of those, starting with patients. Can you give us a little more specific detail on the second quarter performance relative to what you expected? And you mentioned on drug paid versus free. Anything you can share on that as well?

Yes. Look, I would say it's -- we're tracking as expected, right? I think this greater than 2,000 in such a short period of time is a really, really good stat to put up and obviously, that's something that we're steadily adding to every day, every week, every month, so the number gets bigger. As you add more prescribers, they add patients, the former prescribers are prescribing more that you get this growth in that number. We had very few free drug patients at the first quarter of launch. And that's has a lot to do. The performance has a lot to do with that patient selection that we have the teams focused on. It does no good for a physician to write a prescription and not have success in the end. And if you provide the right description of the patient and you know what the payers are requiring and that's in the noninvasive test that the practices are learning how to use on a scale, then you're just going to have a better experience because patients will flow through. And one of the things that we did see was the time from prescription to getting on drug. We had talked about, for the first six months, it's probably being closer to 60 days. We saw red of the gates, it was closer to 30 days, which, again, I think, has to do with the hard work of the team, how our patient support team is working and the prework and the work that we continue to do with the payers. So not a lot of free drug. I think it has to go -- it all goes back to this really strong focus on patient selection and the execution of our team.

Okay. Got it. And maybe we could just spend a minute on inventory levels. How did that land in Q2 relative to Q1? And how is it trending?

So Q2, it was a primarily a demand quarter, little inventory.

Got it. So just touching on the physicians, you're about 20% penetrated of the 6,000 target that you mentioned. So can you talk about the mix of docs, GIs versus hepatologists? Are you seeing faster uptake in one group versus the other?

Yes. So the 6,000 is made up of heps and GIs from a sheer number perspective, mostly GIs. There's less than 1,000 hepatologists in the U.S. There's -- the rest are GIs, some endocrinology -- endocrinologists in there as well. When you think about kind of the relative pace, the hepatologists, a lot of them -- the liver is their specialty. That is it. They know it better than anyone else. Many have been trialists as well. So they're even familiar with the product. So you do see it's a little quicker for them to be able to hit the ground running with the prescription because they know it already. For the gastroenterologists, they're very interested as well. It just takes just a little bit longer because they're now trying to put a disease into their practice that isn't the primary disease that they treat. They have a heavy focus towards scoping and they have their staff organized from a staffing perspective and just from a pathway perspective to support that. So adding NASH now into that equation, it just takes some time. There's the interest is there. Sometimes they have to add new staff or retrain the staff that's there and just think about their pathway. So there's certainly many more gastroenterologists. We're seeing really good progress there and we're seeing the same with hepatology though maybe a little bit quicker.

Okay. Great. And on payers, like you said, you were greater than 50% penetrated as of Q2. So since then, we have seen one of the large PBMs now covers Rezdiffra. So can you talk about where you are with your payer coverage in general currently?

So that's correct. One of the large PBMs made a policy decision that's in line with standard of care. So that's the trend that we've seen across all the payers. So it is greater than the 50% and growing. We feel really comfortable with achieving the very aggressive, I would say, objective of 80% by the end of the year. We've set high bars for ourselves along the way here, which I think is really important. We're not -- we don't think of things on a quarter-by-quarter as much as we think about what's the potential of this product and how can we get there. So when we start to do our comparisons, as I said, it's the subset of blockbusters and mega blockbusters. Now regarding Medicare, that's more of a January impact when that coverage opens up. We're still getting Medicare patients through and that has a lot to do with the payers acknowledgment, this is a really serious disease and with the selection of the patients upfront and Medicaid, we have it in the 50 states. I think the final piece on what these policies look like is less than 5% require a biopsy. And remember, that was one of the question marks was, well, your label doesn't say, but the payer is going to demand it. And we had said there will be outliers that potentially require it. And what we're seeing is outliers are doing that. But for the most part, this is a two standard of care, which is very optimistic.

Okay. Great. That's a pretty comprehensive launch overview. So maybe we can turn to Europe, and you've decided to kind of go it on your own in Europe. So can you walk through why you're planning to do that versus going with a partner how you're thinking about spend and return on investment in Europe?

So look, if you look at blockbuster products, they still derive a good amount of their value from outside of the United States. When we're looking at making decisions, all decisions at the company, we're looking out into the future 3 to 5 years. And we don't want to project out 3 to 5 years or end up 3 to 5 years out and say, "Gee, we should have done A, B or C." So when we look ahead to that period of time, and what we think the contribution can be from Europe, we think it's the right decision for us to do it. Now what does that mean? Well, first of all, we've got experts that have launched many products in Europe before. I've done -- all my launches have been global launches and other people on the team, same thing. So it's not unfamiliar territory to us. But what we will do is we will be very thoughtful about the way we launch. We don't have to launch everywhere and everywhere at once. So we will approach it systematically, we'll go where value is recognized and we'll do it on our terms with very high standards to say that we want positive returns within 2 to 3 years. So this is not just an open up spend and hope something happens. This is we're going to gauge things appropriately, but we think that we're the right company to do it. And as time unfolds as we are out 3 years, as we are out 5 years, as our scale has grown, as the product has grown bigger, it's something that we'll be able to handle now, there's other reasons for Europe as well. We had about 125 trial sites in Europe and about 1/3 of the patients came from Europe. Now those are typically strong prognosticators of receipt in a country. Certainly, at EASL we saw it as well, not only from talking with physicians, but EASL leadership put out their guidelines. And I think they did really an exceptional job. They were incredibly evidence based, and they were 1 year-plus probably in advance of approval of the product where they put Rezdiffra in as the first-line therapy. So there's high anticipation there. We've got the practical issues of having to navigate reimbursement. But again, we think that we have the team and we'll put together people on the ground that actually have the expertise to do that. So that's why we're going there. And final piece is, look, this is an unencumbered asset. I don't think everyone always appreciates this. We have a single-digit royalty to Roche. That's it. There aren't many companies that are at this stage that haven't traded away big portions of the value of a product, why would we trade away the value of the product today if we're capable of doing it and building additional value for the future.

Okay. That makes sense. Turning back to the U.S. and expectations there. How do you think about sales expectations for this year and in 2025 and maybe what peak potential could be? And maybe mixed into that answer, can you remind us of what your IP position is, where you expect it to be going forward and how that factors into peak sales on?

That's a lot of different pieces in there. So if I missed something...

I'll remind you.

I'm sure, remind me and bringing me back. So let me start with kind of two ends. First is Q2. I think when you look at the $14.6 million with greater than 2,000 patients on drug, I think it's a great start. Doing the math on what I told you with number of patients, and that's even before any kind of positive GLP-1 effect. It's a big specialty market. We've got a great profile. We've talked about this being a blockbuster product, we believe that wholeheartedly. It's kind of what happens in between. We thought after the first full quarter Q2 that there might be some drifting up with consensus. There has been some for '24, and we feel comfortable with that. Looking at '25, we're still really working through '25 but I think it's in a reasonable place for right now. As we get closer to '25, as we have additional quarters, we'll be able to comment a little bit more on that. From an IP perspective, we feel like we're in a really good spot. We have the patent term extension 5 years that we would apply to either the composition of matter or Form 1 polymorph. Form 1 polymorph is a 2033 with 5 years, that gets you to '38. Our approach has been to aggressively pursue additional IP, which we've done, and we had an Orange Book-listed dosing patent recently. And so we are even more confident now that the [ PPE ] would be assigned to the Form 1, which gets us to '38. We're also looking at additional IP that can push it beyond '38. So from day one, the approach has been how do we make it the strongest IP that we can. So it's not only working on existing IP, but generating new IP and I think the team has done a wonderful job. I feel really confident about our position.

You got everything. So moving on to what is obviously a hot topic across the conference. So how do you think about the impact of GLP-1s on this market, if semaglutide hits in Phase III and they get approval in NASH, how do you expect that to change market dynamics? And I'll layer one more on top. How does route of administration in this disease that leads to the answer here?

So I mean, I think we start with the problem we're trying to solve, right? These patients are F2/F3, they're one to two steps away from cirrhosis. You've heard about the 14 to 17x higher likelihood of a liver-related mortality. 19,000 patients in the Optum database that were diagnosed as NASH, but not with cirrhosis. Within 3 years, 17% converted to decompensated cirrhosis. So game over, you have lost. Physicians have lost, patients have lost even more. That's the patient. You can't predict who's going to be a rapid progressor. Time is not your friend. So here's your choice. I've got a patient that walks in. I've got a product if semi hits which is doing a 72-week trial, so 18 months, almost 1.5 years to show an effect, and I'm working against the odds of what could happen. That would be okay if it was something that people stayed on, but we know what the discontinuation rates look like we're up at 6 months Blue Cross Blue Shield analysis of 125-or-so thousand patients show that about 60% of people were off. So practically, are you going to be on that product to recognize the effect regardless of what their data shows because that's under a well-controlled trial or you've got something which has hit on both endpoints. The efficacy is not in dispute and by the way, is a once-a-day pill. That's well tolerated. Now the reality is that the market can support both of those things. And the reality is, is that by virtue of having an oral GLP-1 in -- or pardon me, GLP-1 against an oral is you're going to have to satisfy the needs of what they're going to be looking for from a market potential perspective. 315,000 patients isn't so interesting for a GLP-1. If you do any kind of math looking at kind of what expected gross to net is, even times the whole population, it's not that big, right? You saw what [ Eli Lilly ] did to raise their expectations in 1 year, a [ $3 billion ] raise. So this isn't going to be so interesting to them. It's going to require going after more of that 110 million obese patients and trying to find as many of them that have some NASH and making sure that they understand that they have it and driving them in for care. So when I think about how the world evolves, one is very much that it stays to the 315,000 and we've positioned ourselves as a specialty product. The other is that you have the GLP-1s that drive considerable market expansion, even if everyone were on a GLP-1, we know based on those stats that many fall off and we're there as the product to be used. So we do, we spend time thinking about what's the better reality. And the reality is for us is that both are fine. And so we're highly anticipating what the news is. No one -- we don't have any greater insights than anyone does as a guess as does it show significant on fibrosis or not, I guess we'll find out in November sometime. But from my perspective, we're in a win-win situation here.

Okay, that makes sense. Just a housekeeping in order, if anyone does have questions in the room. This is my last couple of questions. So feel free to raise your hand. Maybe we can round it out with capital allocation, business development. How do you think about this for Madrigal over the next several years? And should we expect a transaction in the near term? Or are you really just focused on the launch?

Well, look, the focus is the launch right now. And it's a big lift anytime you're building a new market. So that is the focus. However, we have also said we're not here just for a short-term win. We're trying to build a company. And to build a company, we're going to have a pipeline, right? Now it's very much to me, it's going to be opportunity dependent. I think a lot of companies make a mistake thinking that there's safety and progress just by having a pipeline. And a lot of times, if you don't have the right pipeline, it does you know good it just sucks up resource. So we will be extremely disciplined in any decisions that we make about extending the pipeline. Now remember, we have kind of our own internal development program still going, and we have a couple of readouts that will be happening over the next number of years, which we're excited about as well. So it's not as though we don't have anything else that's coming, and we have life cycle management that we'll be doing, too. But we'll be very disciplined about how we're investing, where we're investing, and anything we do will be supporting launch or that future expectations that we have of maintained leadership.

Okay. That's great. Any questions in the room? All right. I think with that, we'll wrap up. But thank you very much for joining us.

Well, thanks for having us. And as I said, we're really excited about the opportunity. After 12 months, I'm only more excited than I was when I got here. So I look forward to updating you along the way.

Great. Good luck.

Thanks.