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Earlier this year, Madrigal Pharmaceuticals (NASDAQ: MDGL) launched its first product, Rezdiffra. It wasn't just an important breakthrough for the mid-cap biotech; Rezdiffra became the first medicine approved by the U.S. Food and Drug Administration (FDA) for the treatment of non-alcoholic steatohepatitis (NASH).

These positive developments have helped jolt Madrigal's stock. The shares are up by almost 24% since the year started, while the S&P 500 has gained 14% as of this writing. Is Madrigal still a buy at current levels? Let's find out.

There is competition on the way

NASH is caused by a buildup of fat in the liver leading to scarring, also known as fibrosis or cirrhosis when it is particularly severe. Earning the first approval in this field is quite an accomplishment for Madrigal. That's especially the case since the FDA did not require that patients get a liver biopsy before being prescribed Rezdiffra, which makes the medicine more accessible.

However, there are a few things to keep an eye on.

First, Rezdiffra followed the accelerated approval pathway, meaning it will have to ace a post-marketing study to stay on the market. This regulatory route helps medicines that fill an unmet need reach patients faster, but Madrigal is still responsible for proving once and for all that Rezdiffra is effective.

Second, there are many drugmakers looking to challenge Madrigal in the NASH market. A non-exhaustive includes Eli Lilly, Novo Nordisk, Viking Therapeutics, 89bio, and Akero Pharmaceuticals. No wonder. The NASH market should skyrocket in the coming years, according to analysts' predictions.

Being first to market is an advantage, especially since none of these candidates look particularly close to launching their products. So, Madrigal can gain some market share in the meantime. However, one of the dangers is that competing medicines might report late-stage clinical trial results that show superior efficacy compared to Rezdiffra.

Or worse, Madrigal's new therapy might fail to prove effective in its post-marketing study.

What's next for Madrigal Pharmaceuticals?

Another problem for Madrigal is that the biotech has no other pipeline candidate. Relying on a single drug to drive performance is a dangerous position. Any perceived issue with Rezdiffra could sink Madrigal Pharmaceuticals' stock price. Still, for now, the drug is on the market and looks somewhat promising. Madrigal plans to target 315,000 NASH patients with the initial launch of the medicine, which will cost an average of $47,400 annually per person.

Analysts have fairly upbeat expectations for the medicine. Some predict it will generate peak sales of more than $5 billion. It will take years for Rezdiffra to get to those heights, though, if it does at all.

There is, however, another critical point to highlight. Madrigal developed and launched a medicine for a disease with a high unmet need where many pharmaceutical giants had tried and failed. That's no easy feat, and it speaks volumes about the team behind the successful launch of Rezdiffra. Investors should take that into account when considering whether to invest in Madrigal Pharmaceuticals.

Still, given the lack of a pipeline, the coming competition, the post-marketing study, and the potential pitfalls it presents, Madrigal Pharmaceuticals looks like a risky stock for now. Investors with an appetite for risk and who can handle volatility might consider initiating a small position in the stock. For everyone else, there are much better biotech companies out there.

Should you invest $1,000 in Madrigal Pharmaceuticals right now?

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Prosper Junior Bakiny has no position in any of the stocks mentioned. The Motley Fool recommends Novo Nordisk. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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