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Why Is Madrigal Pharmaceuticals, Inc. (MDGL) Among the Worst Performing Biotech Stocks in 2024?
We recently compiled a list of the 10 Worst Performing Biotech Stocks in 2024.In this article, we are going to take a look at where Madrigal Pharmaceuticals, Inc. (NASDAQ:MDGL) stands against the other biotech stocks.
Biotechnology Stocks: Navigating Volatility Amid Market Fluctuations and Industry Growth
Biotechnology stocks are among the most volatile in the market due to their high risk. The outcomes of FDA clinical trials and the effectiveness of their therapies in the real world might cause significant fluctuations in their pricing. The introduction of COVID-19 vaccinations in 2020 caused the biotech industry to soar to prominence. As Big Pharma started investing in acquisitions, investor interest increased in late 2023 and early 2024. But the enthusiasm faded, and for months, biotech stocks did not move. Few M&A transactions and initial public offerings (IPOs) broke the otherwise quiet period in the second quarter, which saw a steep fall in biopharma deal activity. Following a busy first quarter in which pharmaceutical companies finally began using their enormous cash reserves for acquisitions, there was a slowdown.
However, the reaction has been unexpectedly subdued, even though the industry was expecting a federal interest rate drop. The Federal Reserve lowered interest rates by half a percentage point earlier in September, which was a bigger drop than anticipated. Although it's a good step, Mizuho Securities analyst Jared Holz thinks it's unlikely that there will be a spike in fundraising, M&A transactions, or IPOs. A lot of biotech businesses have canceled programs and made large layoffs to save money in an attempt to survive in volatile markets. Although certain scientific projects may be revived as a result of the rate cut, Holz thinks it's hard to gauge the effect. However, since the rate decrease, small-cap stocks have had "a bit more momentum," the analyst noted, which is encouraging for the biotech industry.
Contrary to Holz's perspective, 2024 has started off strongly for the biotechnology sector due to a rise in mergers and acquisitions as well as anticipations of falling interest rates. Therefore, estimates suggest that the worldwide biotechnology market might increase at a compound annual growth rate (CAGR) of around 14% from 2024 to 2033, reaching an astonishing $5.7 trillion. The market for agricultural biotechnology is also expected to develop at a 7.9% compound annual growth rate (CAGR) and reach $232 billion by 2032.
Despite the recent mixed results, Morningstar strategist Karen Andersen believes that biotechnology has a lot of potential and space for growth. Here is what she said about the sector:
“We still see tailwinds for the industry going forward. Smaller-cap names are still targets for acquisitions by bigger biopharma firms, and a wave of acquisitions has continued since late last year, particularly focused on oncology and immunology. We think obesity acquisitions are likely going forward, as big biopharma can bring development and commercialization expertise to multiple programs in midstage trials at small biotechs. Second, on a more fundamental level, new technologies and launches in new therapeutic areas are poised to boost productivity and drive biotech performance.”
In view of this, let's take a look at some of the worst performing biotech stocks.
Our Methodology
For our methodology, we focused on stocks with a market capitalization exceeding $4 billion and evaluated their year-to-date (YTD) returns. We then identified stocks with poor YTD performance and ranked them according to their year-to-date returns, as of the close of October 22.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter's strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A scientist examining the results of a Phase III clinical trial for non-alcoholic steatohepatitis.
Madrigal Pharmaceuticals, Inc. (NASDAQ:MDGL) is a biopharmaceutical company focused on developing therapeutics for non-alcoholic steatohepatitis, also known as metabolic dysfunction-associated steatohepatitis. Its primary product, Rezdiffra (resmetirom), is an oral, liver-directed thyroid hormone receptor β-selective agonist. Madrigal targets patients with moderate to advanced liver fibrosis and generates revenue through the development and potential commercialization of its NASH treatments.
Rezdiffra (resmetirom) received FDA approval in March of this year and this milestone establishes it as the first and only FDA-approved medication for NASH, addressing a substantial market with millions of potential patients.
Madrigal Pharmaceuticals, Inc. (NASDAQ:MDGL) reported Q2 2024 net sales of $14.6 million, exceeding the consensus estimate of $4.6 million, primarily due to the successful launch of their drug Rezdiffra. The company posted an earnings per share of -$7.10, better than the expected -$7.52, indicating some financial efficiency improvement. Madrigal is working to achieve 80% coverage of commercial lives, which could enhance future Rezdiffra sales. However, the company faces challenges, including ongoing losses, anticipated increases in SG&A expenses, competitive pressure from GLP-1-based therapies, and lower-than-expected new prescriptions. Additionally, a trailing return on equity of -106.27% raises concerns about the efficient use of shareholder equity.
Overall MDGL ranks 10th on our list of the worst performing biotech stocks in 2024. While we acknowledge the potential of MDGL as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than MDGL but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
