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

Good morning, everyone. We've made it to our last day of our London Healthcare Conference. It has been absolute pleasure seeing everyone, and it's great to see also just the atmosphere in the room. My name is Akash Tewari. I'm a pharma and biotech analyst here at Jefferies. I have the pleasure of hosting the Madrigal management team. Bill, why don't I hand it off to you for some intro remarks, and we'll get started.

Well, first of all, thank you for having us here. It's a real pleasure to be here, and it's an exciting year for us, an exciting time at Madrigal. As I think about the opportunity here, it's hard for me to find or think or even refer back to anything that's as great an opportunity as this. It really starts with the high unmet need that exists in the market. Patients have been searching for a solution for years. It's not from a lack of trying. Industries failed over 20 times to find a product, and Madrigal was successful in doing so with Rezdiffra. We put together a team, which is an outstanding team, best team I've ever worked with, hand selected, handpicked. And now we're in the next phase, which is launching. Objectively, it's an outstanding launch. And we're also building a pipeline. We've started that this year with an Oral GLP-1 that will look to create a fixed-dose combo to make Rezdiffra even better. Maybe we can talk a little bit more about that today. And we secured IP out to 2045 with Rezdiffra. So we're really at the beginning, less than 10% of patients of the initially identified patient populations being treated right now. We see this disease category growing for decades, just like big areas like RA, cirrhosis, IBD, where after 15 -- 20-plus years, they're over $20 billion categories with over 15 products in the space. We have two products approved right now. And in 2024, sales were under $200 million total. So you look at that and you start to draw a line of what is possible here, there's a lot possible. And we're starting off with a great profile of a product that is, we believe, going to be the leading product for a long time, but we're not going to be satisfied with that, and we will extend our leadership pipeline. So great quarter, great year-to-date, great future ahead.

Great. That is a great story. Now, Bill, every time I talk to you, it's clear you're very results focused. And even from the beginning, you're like, look, we're looking at this group of specialty launches, this rate of adoption. And you always refer even intra-quarter, we're tracking ahead of our expectations. I want to think more high level. And you look at Rezdiffra as this foundational therapy for the treatment of MASH. You're previously at Sanofi. Even now, when we think about DUPIXENT in atopic dermatitis, I think the biologic penetration rate is around 10%. You're already at kind of 10% with your identified -- the early identified group for MASH. When you think about -- forget other products entering and your combo approach too, where does that adoption rate go as we enter into the next decade with just Rezdiffra, right? How much does a "foundational therapy" for MASH get in terms of penetration in that initial kind of 315,000 -- 350,000 patients in the U.S.

Yes. So maybe just to frame it a little bit as well. So when we launched, we started with what's the diagnosed patient population within the United States. So looking at claims databases, et cetera, it was 1.5 million patients. F2, F3, which is our indication, was about 525,000. Now we weren't going to be calling on everybody because some of these patients could be in primary care or specialties that we're not focusing on. When you looked at the 14,000 prescribers that were our targets, that took that 525,000 down to 315-- 315,000. So just to make sure that it's framed. Now that's diagnosed. That's not prevalent. So that's an important concept here. So when you say how far can we get into the 315,000 with the 315,000 we're around 10% now. Lots of room to growth. We've built our future kind of forecast, if you will, based upon penetration into just the 315,000, and we see a path to peak just in that 315,000. Other side of the story, diagnosis rate is about 10% right now. So there's lots of room for growth here. That's why there's -- you hear differences in what other companies that have recently launched Novo, are talking about a prevalent population of 22 million people in the United States. We're talking about 315,000. So there's a lot more of growth that can happen just with diagnosis and treatment. Now how far do we get into that? Well, I mean, look, I think that you always have to look to other markets to see where do you land from a peak penetration. Something like Hep C, although there's a single test and you have a cure, you're only about 50% treated of the population. Things like multiple sclerosis, it's more up in the 80% to 90% and then you're down with cirrhosis down in the 25% range. IBD, 35%, 40%. So there's somewhere in that range that you end up with total penetration into approachable patients that you're going to end up as a category. Does this end more in the 50%, 65? Or does it end more in the 35%? I think we still have a little bit more time to figure that out. I think the 315,000 will be well penetrated.

Right. Understood.

And I think we'll be -- going really back to your question, the profile really matters and having a once-a-day pill that's effective safe, well tolerated. I always refer to it as kind of the Holy Grail profile. That's always what we've been looking for in the industry. Give me a once-a-day pill, give me something that's easy. It's easy to remember, easy to take. That puts us in an outstanding place to be the foundational therapy.

I can't help, but also notice any of the ranges you just gave would imply Rezdiffra is not, let's say, a -- it would imply Rezdiffra is a $5 billion to $10 billion opportunity within MASH, maybe even higher, obviously, the TAM can grow. Like how do you kind of conceptually see about this product? Because I think -- again, I think on the investor side, we're focused on next year's numbers and the near term. You have until 2045 if you have IP. So you have time to really develop this market. And I think you certainly look at it from a long-term perspective. So what -- when you think about the long-term opportunity here for Rezdiffra, what's the right ballpark? Frame that out for me.

Yes. That's something that I'm not going to frame out specifically for you today.

But would you agree with the range-- okay actually...

I would agree that's what consensus says that peak is in the -- anywhere from $5 billion to $10 billion. When I say I agree, I'm only saying factually, that's what consensus say. I'm not saying I agree with where that is. I think there's still a lot of unknowns here about how the market unfolds. But any way that you cut it, there is a path to this being a big product. And I think the thing that this industry, companies that are successful, you can point to the fact that they have a big product that they've built around. Now a lot of companies have pipelines looking for a big product. We have a big product now. We can thoughtfully and strategically build a pipeline, which is going to sustain our leadership in MASH. We're the leader right now. Our goal is to be a leader for decades. And you are going to need a pipeline for that. We've got a great asset to start with those. So yes, can it be a big product? It's going to be a big product.

Understood. Now you mentioned something on the Q3 call, and I actually gave a similar question to Lilly at breakfast this morning. What's the incentive to look at -- now that obesity is getting recognized in of itself as a disease, and I think that's quite important. I think when you looked at Lilly and Novo, the entire strategy in terms of penetrating into the Medicare population "through the backdoor" was through getting the secondary indications on label. Now with the TrumpRx announcement, you're able to get adoption because of obesity in of itself. You made a comment on the Q3 call that kind of stood out to me. You said, Novo's launched. We think they're out there, and -- but we're not actually seeing them that much. That was really surprising to me. What are you actually seeing on the ground level as semaglutide entered the market? And what do you think about the endocrinologists versus the hepatologists, where do you feel like you're actually seeing their sales force on the ground level?

Yes. I mean, look, you have to remember that is a product with multiple indications, multiple audiences, so multiple priorities within the company. We have a single asset in a single indication, and it makes our focus just very clear from the beginning. They've got a lot of -- they've got a lot that they have to cover. So when we launched the next day we were out, we were ready to go from a communication with the community, engaging with the community and really educating about Rezdiffra. For them, it's part of a mass of things that they have. So I think that perhaps I can't speak for what Novo has done, how they've done it, but their presence wasn't immediate that we could see. I think that they are -- we just came off AASLD, great meeting for us. I kind of use the term, we were ubiquitous at the meeting. We are everywhere from a data perspective, from a presence perspective and so forth. But -- and Novo was certainly there with Wegovy. But it just -- it's not like a product that is dedicated for a single disease with a company focused on that single disease and so you really can't compare. It's more of a primary care product in general, where it's trying to be to a lot of different people where we're very focused on the specialists. So we've seen them, I think, that they're 3 months plus 4 months after approval now. But yes, I mean, our focus has stayed with the HEPs GIs. You're, I think, referring to a little bit of endocrinology that we've started to expand into. And that was really a pull rather than a push from us. We had a lot of endocrinologists calling saying, we're seeing a lot of MASH patients, and we would like to learn more about Rezdiffra. So we've gone out and built a separate team to focus on that. It ends up being a couple of thousand physicians that are the real targets. And remember, all these patients that are in an endocrinologist office have probably been exposed to a GLP-1. So clearly, a GLP-1 by itself wasn't providing the solution for them and they're still MASH patients.

Understood. I think the point you mentioned is quite important. You look at the market and then you adopt a sales force and a team around that, not kind of vice versa, you have a primary care product like sema and then you're adopting it to MASH. You've talked about a specialty launch and white glove service. And that also, I think, is starting to have an impact from what we're hearing on adherence rates and adoption. In fact, we did a KOL call where we're seeing adoption rates in some of these specialty hepatology clinics as high as 80%, at least on a rolling basis right now. So where -- first of all, where is the adherence for your team right now? How come it may have been actually surprisingly gone out of the gate. What are you doing in terms of white glove service? And then also talk to us about how you're getting patients both into the funnel, but actually getting a script in 2025, where it may have also been medical exemption.

Okay. There's a lot there. So please follow up with specific questions about it. I want to make sure that I get everything. I mean, look, it's not as easy as writing a prescription and having it filled in the United States, right? You have prior authorizations that are required everywhere along the way, you can be losing patients just from prescription to actually fulfillment. So when I talk about white glove service, it's important that we educate practices, educate the patients, provide support for the patients in a number of different ways, utilize technology, et cetera, to try to get people on. And that's specialty -- you do that with all specialty products. And if you're -- if you can do it well, it obviously makes a big difference. If you've got a product for millions and millions of people, it's harder to do that, right? It's just you don't have the ability to have each patient be the focus of what you're trying to do and have teams built around it. So that's a big differentiation. And the reason it matters is these are specialist writing products. They don't like having to navigate the system to have a patient get on drug. They have to build staff. That means they're -- it's taking away from patient care. So the easier that we can make it for them, the better it is. Now the profile is already easy with a once-a-day pill. Can we match that with the service that we provide so that you write a prescription and you're certain that someone is going to help you get that patient to ultimately being on therapy. And that's what we've worked on, and we think that we've done a really good job with it. Now from a persistence perspective, what we've talked about is Rezdiffra. Now we have patients coming through the 1-year mark, but it's still not a huge sample because of the uptake curve that you have. And we say that it's like a well-tolerated oral and benchmarks for well-tolerated orals are about 60% to 70% being on product after a year. Now there have been reports and even at AASLD posters in the real world that showed that persistency at 12 months was closer to 90% for some people. So how do you reconcile the two? Well, we've got good visibility to patients across all channels, et cetera. And that's where we say well-tolerated oral. It's very encouraging, though, to see that in whether it be an institution that published data or other real-world evidence that suggested it can be higher so that we will put our services towards how do we try to move to an even better persistency. But the reason that we have very strong persistency, I think, goes back to the profile of the product. We are hearing that physicians are reporting that patients are tolerating the product, that they're seeing results as early as 6 months, certainly by 12 months and that the thing that -- you never know how a product is going to behave in the real world. One of the more surprising things, even though we had data on quality of life that was -- has been published post the trial, physicians, some are saying patients just come and report feeling better. And it's not like they can point to their liver and say, "my liver is feeling better". Whether it's hope or something, they know that they're doing something for a very serious disease and perhaps that's leading to it. It's something we'll explore some more, but it's actually really encouraging when you hear that.

By the way, I think we talked about this last night. You guys have talked about impacts on mitochondrial function and kind of turnover there. So it would be interesting. Mardi, I want to get you involved in this because you start thinking about next year, the moving parts and then also potentially adherence improving. And it's a bit complicated. Let's start off with just on the gross to net side. The joke, I think, with some investors is, well, Madrigal is telling me that we're going to get into the high 30s on gross to net. I'll believe it when I see it because I was expecting this 500 basis point decline in the back half of '25 and I'm pretty sure my gross to net just improved quarter-over-quarter. Now it doesn't seem like you're joking for next year. So talk to me about the -- why there was maybe error bars in terms of gross to net in 2025, but there's more certainty in 2026. And then how should we model it in terms of the time course of the year?

Going forward, yes. Thanks, Akash. Yes. No, we weren't joking about gross to net. There's a lot of estimates and projection on gross to net, particularly in the early parts of the launch. And in 2025, what we had said is that we're beginning our contracting with commercial payers in the April time frame. But what actually happened, which -- so we were forecasting a step-up in gross to net throughout the year in between that 20% to 30% range. But what happened was most of the payers actually waited for a market event or the approval of Novo in MASH. So it's just the impact of the commercial contracting was later than we anticipated. No way to know that in front of that. So it's just -- we were trying to estimate. But now the contracting is real. So we have contracts and starting in the fourth quarter of 2025 and then moving into 2026. So we've been very clear about what we believe the impact is in 2026, starting on January 1, 2026. So we believe the gross to net impact will be in the high 30s throughout the year in 2026. And that really -- the step-up, our 0 to contract, remember, we've taken a very disciplined approach to gross to net and haven't contracted to date, right? So we're seeing the effect now. But that 0 to contracting in 2026, we will feel that throughout the whole year. Now that's on the commercial side. We also have a little bit of the Medicare contracting in 2026 as well. And you'll see that step up a little bit more, not the 0 to contracting step, but a little bit more into 2027 to take care of the Medicare contracting. So that's -- yes, there's a little more reality to the gross to net going forward. So we believe it's high 30s in 2026.

And just remind us the split in terms of Medicare, Medicaid, commercial. And also just now we have like Medicare Part D reform. I know that was a big topic. So talk about maybe the change on gross to net from Q4 to Q1 on the Medicare population because I know that's a little tricky.

It's a little tricky, but less tricky than it used to be with the reform. There's a $2,000 cap for patients of what they pay. So we will always see a little bit of impact in Q1. In fact, we'll always have the Q1 effect more broadly besides the Medicare Part D. So when we go into Q1, just an aside, you see revenues kind of flat to down typically with the analogs, and we're going to be right in that boat, too, because not only will we have the contracting impact, but we'll also have the Q1 effect. But anyway, more to your question on the business mix, split is 50% to 55% commercial payers and then 30% to 35% Medicare and the rest of Medicaid and government. And they're staying pretty steady.

And maybe just lastly, just before David -- I have F4C question for you. One of the things that you've heard throughout 2025, and Tina gets this all the time is, are there inventory changes? The patient adds are consistent. I can't understand why revenues are growing where they are. And I think help us understand the number you give in patient adds are net. And you think about what's maybe not getting captured. And I mean, maybe to what Bill just alluded to, how do we improve our conversion rate and our adherence. Talk to me about what happened in 2025 and then going into next year.

Yes. So inventory stays pretty steady. We say 2 to 4 weeks. And every quarter, we pretty much have said the same thing that they've been demand quarters. So inventory stays pretty steady. With the patient adds, we give a very conservative number. So last quarter, we said over 29,500 patients that we've had and steadily adding patients, but those are net patients, meaning at the end of the quarter, how many patients are on Rezdiffra. So throughout the quarter, because we have adherence rates that we've discussed, you may see patients come on, you may see patients come off, but we give you the net number. So there is some fluctuations throughout the quarter that need to be accounted for.

And maybe just when we say conservative, it is the most conservative way to do it. You have some companies that just say we added X new patients, but we take the net, as Mardi said. So it's a leaky bucket, right? You're adding to the top and then you have people discontinuing. That's why persistence becomes so important. So you have to work both sides of it, drive more into the top of the funnel and preserve as many in that are appropriate to stay in.

Understood. Maybe, Bill, when you think about -- you got to 10,000 prescribers, you're expanding that over time. And then you said we're at a point where we're up a nice base. Now it's more about having maybe a doctor, that wrote the first 2 or 3 prescriptions Rezdiffra, now suddenly accelerating. When you think about accelerating net patient adds, it doesn't seem like that's what you're talking about for 2026. You've consistently said steady growth. So when we do think about an acceleration on patient adds, especially now that you've gotten access secured at parity or better with Wegovy, when does that patient acceleration story start to play? Is it a 2027, 2028 -- longer-term effect? Or could that actually happen next year?

Well, I mean, look, I think steadily adding is what we've been doing. As you have a bigger base of patients, that's part of the bucket can get leakier over time, right? If you have more patients that have been on over a year, you have more that are leaving, so you've got to work that much harder to add to the top. So that really does get you to this steadily adding. I mean our intent is, and it has been from the beginning, we talked about wiring the system. The reason why we talked about wiring the system was so that you could take the patient flow through for many years. And it's -- you have to wire the system structurally. That's from a reimbursement perspective typically. But on each practice, so of the 10,000 prescribers, there's a bunch of them that have one prescription. So they are just at the beginning of their journey, and we've got to help them. So when you get everything turned on and fully running, so to speak, and when that is, that can take a long time. But there's enough prescribers, there's enough patients and there's enough adoption on an individual prescriber basis that we see this long term steadily adding patients, regardless of whether there's a competitor around or not. Do you want to do the F4C?

Yes. So I'll phrase it this way. Very hard for us to do diligence on this because we don't know what liver events are in that population. I think Gilead data back in 2018, but this is really difficult to model. There's been a noticeable change in confidence from your team about your likelihood of hitting in this population. And it seems like it's not just the trial design. It seems like it's your open-label data. What did you present at AASLD that we really should be paying attention to? And what should you think about patient enrollment and how you design this trial that might be different from your peers?

Yes, really important question, Akash. So the ongoing study is MAESTRO Outcomes. So that's our F4C study that's designed as a prototypical outcomes trial. So it runs until a particular number of events is accrued and then you unblind the data and you evaluate the effect size and determine whether or not you're successful. So it runs to a certain number of events. So the reason why we've gotten more confident about F4C is the open-label experience that we showed first at EASL in 122 patients, open-label trials, no placebo control, but where we saw very significant decreases in liver stiffness measurements as well as a variety of other biomarkers that are correlated to outcomes in patients with F4C. And you're right, I mean, the historical data gives us a range of event accrual in the 5% to 10% per year annually. And what we're seeing in MAESTRO Outcomes is an accrual events that we would have expected. So we expect the trial to deliver in 2027. And our confidence is really based on that open-label experience and all of the positive effects we see in that population.

And maybe just the last point on this. Talk to me about the importance of baseline platelet counts in terms of event rates and also your confidence in the study.

Yes, right. So that's the key differentiator here, right? So events accrue in patients with F4C when they're kind of right on the cusp of decompensation. And the way you evaluate that in patients with cirrhosis is a combination of liver stiffness measurement and platelet count. Those are the Baveno criteria. So patients with low platelets between 70,000 and 100,000, for example, have splenomegaly usually. And so those are the folks who sequester place platelets in their spleen and therefore, have low peripheral platelet counts. So those are the people who have portal hypertension and are more likely to decompensate. Our study enrolls patients with platelet counts between 70,000 and 100,000, whereas the other F4C studies that are ongoing right now limit to 100,000 platelets and greater. So it's a different population that's less severe. Ours is kind of more severe.

Understood. With that, we'll call it. And we have a cardiometabolic panel coming up. So we'll -- thanks so much, everyone. Appreciate it.