US Pricing Pressure And European Payers Will Erode Margins

Key Takeaways

• Heavy dependence on a single asset and aggressive market competition threaten both revenue growth and long-term market share.
  
• Expansion into Europe and persistent high expenses are likely to strain margins and hinder profitability due to pricing pressures and limited pipeline diversity.
  
• Strong U.S. sales momentum, patent protection, European expansion, pipeline innovation, and real-world data position Madrigal for substantial long-term revenue and market growth.

Catalysts

A biopharmaceutical company, focuses on delivering novel therapeutics for metabolic dysfunction-associated steatohepatitis (MASH) in the United States.

• Accelerating downward pricing pressure from both U.S. and international payers is likely to intensify as government and private insurers scrutinize and negotiate reimbursement for NASH therapies, especially with new alternatives entering the market, leading to lower net revenue per patient and compressing long-term revenue growth.
  
• The expansion into Europe exposes Madrigal to nationalized payer systems that have a history of enforcing significant price concessions and restricting access through strict reimbursement criteria and prior authorization, which will likely prevent the company from achieving the same pricing and margin structure seen in the U.S., directly impacting net margins and future earnings.
  
• Heavy reliance on Rezdiffra as a single asset means future performance is acutely vulnerable to either disappointing long-term outcomes in ongoing trials or faster-than-expected adoption of alternative mechanisms like GLP-1s or next-generation triple agonists, which could erode market share and stall top-line growth.
  
• Long-term demographic risk is intensifying, as population growth in key markets is set to plateau or decline, constraining the available patient pool for chronic MASH therapies and capping addressable market expansion, thereby ultimately limiting sustainable revenue growth beyond initial launch trajectories.
  
• High operating expenses, including surging SG&A and robust ongoing R&D investment without a diversified pipeline, mean that Madrigal may face persistently negative or thin net margins, especially if gross-to-net discounts rise faster than expected or if further capital raises are needed, leading to dilution and weaker earnings per share over time.

Madrigal Pharmaceuticals Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Madrigal Pharmaceuticals compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Madrigal Pharmaceuticals's revenue will grow by 56.4% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from -54.7% today to 20.2% in 3 years time.
• The bearish analysts expect earnings to reach $398.7 million (and earnings per share of $12.75) by about August 2028, up from $-281.9 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 21.9x on those 2028 earnings, up from -33.6x today. This future PE is greater than the current PE for the US Biotechs industry at 15.3x.
• Analysts expect the number of shares outstanding to grow by 2.19% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.78%, as per the Simply Wall St company report.

Madrigal Pharmaceuticals Future Earnings Per Share Growth

Risks

• Sustained strong U.S. launch trajectory for Rezdiffra, with annualized net sales exceeding $800 million and rapid quarter-over-quarter growth, signals rising demand and may drive long-term revenue growth.
  
• Newly issued U.S. patent for Rezdiffra offers protection until February 2045, significantly extending the window for exclusive sales and recurring revenue streams, which can support profit expansion and defend net margins for decades.
  
• International expansion beginning with Europe, where Rezdiffra is expected to be the first approved treatment for MASH and is already included as a first-line therapy in guidelines, could substantially expand Madrigal's addressable market and topline.
  
• Pipeline development, including the acquisition of global rights to develop a differentiated oral GLP-1 for combination with Rezdiffra, positions Madrigal to benefit from long-term trends toward combination therapies and supports future multi-asset revenue streams.
  
• Real-world clinical data and ongoing large trials in F4c MASH cirrhosis suggest significant potential to address additional patient segments, including sicker and under-treated populations, potentially doubling the market opportunity and underpinning long-term earnings growth.

Valuation

• The assumed bearish price target for Madrigal Pharmaceuticals is $311.98, which represents two standard deviations below the consensus price target of $461.43. This valuation is based on what can be assumed as the expectations of Madrigal Pharmaceuticals's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $567.0, and the most bearish reporting a price target of just $266.0.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $2.0 billion, earnings will come to $398.7 million, and it would be trading on a PE ratio of 21.9x, assuming you use a discount rate of 6.8%.
  
• Given the current share price of $424.86, the bearish analyst price target of $311.98 is 36.2% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.