The healthcare sector has seen mixed performance in the first few months of 2022, with some healthcare giants that pay dividends outperforming the market, while research and developmental companies lost significant ground. Investors were wary of developmental-stage drugmakers due to rising interest rates, which have been affecting the valuations of companies that don’t have FDA-approved drugs yet.
However, there have been some notable exceptions in the market, with Madrigal Pharmaceuticals and Viking Therapeutics seeing significant gains in the past three months. Both companies are clinical-stage biopharma stocks that may still be worth buying despite their recent success.
Madrigal Pharmaceuticals
Madrigal Pharmaceuticals has been one of the standout performers in the healthcare sector, with its shares rising thanks to a positive late-stage readout for its lead product candidate, resmetirom. Resmetirom is a liver-directed selective thyroid hormone receptor agonist for NASH, a subtype of nonalcoholic fatty liver disease with no FDA-approved therapies.
The incidence rates of NASH have been steadily climbing due to the rise in obesity, prediabetes, and diabetes globally, making the untapped The market for NASH drugs has the potential to reach an annual value of $30 billion to $50 billion by the close of this decade. Madrigal’s resmetirom has a first-mover advantage and may generate peak sales that exceed $8.5 billion, which could make the company a major player in the NASH market.
Madrigal’s current market cap is $5.2 billion, suggesting that the stock may be undervalued. This makes it an attractive investment opportunity for investors looking to enter the NASH market at a relatively low valuation. The company’s strong pipeline and focus on unmet medical needs may make it a solid long-term investment.
Viking Therapeutics
Viking Therapeutics has also seen a significant boost in its stock price thanks to Madrigal’s breakthrough in the NASH market. Viking is developing a selective thyroid hormone receptor agonist, VK2809, for NASH, and the stock has been benefiting from the increased interest in the NASH market.
VK2809 is currently in a phase 2b trial for biopsy-confirmed NASH patients, and Viking expects to release top-line data in Q2 2023. If the data is positive, VK2809 may generate over $1 billion in annual sales, even as a second or third NASH drug on the market. Viking may be a top buyout candidate for big pharma if VK2809 turns out to be a viable NASH candidate.
Viking has a market cap of $861 million, which may be undervalued given its potential in the NASH market. The company’s strong focus on NASH and other metabolic disorders, combined with its promising pipeline, may make it an attractive investment opportunity for investors looking to diversify their healthcare portfolio.
Why Are They Worth Buying?
Both Madrigal Pharmaceuticals and Viking Therapeutics have seen significant gains in recent months thanks to their focus on the NASH market. While their success is impressive, investors may be wondering if it’s too late to invest in these companies.
The truth is that there is still plenty of potential in the NASH market, and both companies have promising pipelines that could lead to future success. Madrigal’s resmetirom has a first-mover advantage, while Viking’s VK2809 may be a top buyout candidate for big pharma.
Investors looking for exposure to the NASH market may want to consider adding these stocks to their portfolios, but they should also be aware of the risks involved in investing in clinical-stage biopharma companies.
Risks and Challenges in Biopharma Investments
Biopharmaceutical companies, especially those in the clinical stage, face a multitude of risks and challenges that can impact their share prices. One of the most significant risks is the potential failure of their product candidates in clinical trials, which can result in substantial losses for investors. Clinical trials can also take longer and cost more than expected, which can lead to delays and increased expenses for companies.
Another challenge that biopharma companies face is the regulatory approval process. Even if a company’s product candidate shows promise in clinical trials, it may not be approved by regulatory agencies such as the FDA, which can significantly impact the company’s revenue potential. Furthermore, regulatory agencies may require additional studies or impose restrictions on the use of the drug, which can further delay or limit the product’s commercialization.
Investors should also be aware of the competitive landscape in the biopharma industry. Companies developing similar products may compete for the same market, which can impact a company’s market share and revenue potential. Moreover, larger pharmaceutical companies may have more resources and established market positions, making it challenging for smaller companies to compete effectively.
Despite the risks and challenges, the NASH market’s potential for growth and the promising outlook for Madrigal Pharmaceuticals and Viking Therapeutics make these two stocks worth considering for investors seeking exposure to the biopharma industry. With resmetirom’s first-mover advantage and the potential for VK2809 to become a top buyout candidate, these stocks have the potential to generate significant returns for investors. However, investors should conduct their own research and consult with their financial advisors to determine whether these stocks are appropriate for their investment objectives and risk tolerance.