Exploring Two Motivations for Purchasing Amgen Shares and One Notable Caution Point
Despite Amgen's (AMGN -0.21%) shares lagging behind the market's performance over the past 12 months, with a climb of 19.7% versus the market's notable gain of 35.6%, there are valid reasons to consider investing in its stock. Nevertheless, there's a potential risk that might affect the biotech sector's growth over the next few years.
Let's delve into two arguments for purchasing the stock and one reason for a slight approach of caution while making an investment.
Two reasons to purchase the stock: Amgen's cardiometabolic pipeline is flourishing and progressing
Amgen is eager to establish a presence in the current anti-obesity drug boom by introducing a drug to its portfolio. Currently, it has two projects under wraps, one in phase 2 clinical trials and the other in phase 1.
The drug in phase 2, dubbed MariTide, is reportedly performing well, with phase 3 trial planning well underway. We can anticipate mid-stage trial outcomes by the end of this year, which could serve as a significant catalyst for the stock.
During the third quarter, Amgen initiated an additional phase 2 program, investigating whether MariTide may also have potential in treating type 2 diabetes. This study follows in the footsteps of anti-obesity blockbusters manufactured by heavyweights such as Eli Lilly and Novo Nordisk.
Similarly, its second anti-obesity project, AMG 513, is in phase 1 trials at the moment. While details are scarce, if it follows the trend of existing weight loss therapies in development, it might be explored for treating type 2 diabetes in the future, expanding its market potential.
To sum up, Amgen is a leading biopharmaceutical company, boasting a wide pipeline and an extensive market presence. In the third quarter alone, it reported a robust $8.5 billion in revenue and $5.22 per share in diluted earnings.
However, the company only has five research and development (R&D) programs in clinical trials for cardiometabolic indications. The recent launch of two new projects highlights the company's commitment to vying for a share in the cardiometabolic market. For MariTide alone, the addressable market could reach $90 billion or more by 2031.
In other words, Amgen is signaling its interest in further cardiometabolic programs with substantial sales potential. Some of these projects will likely succeed, leading to a substantial growth driver for the company's earnings down the line.
Furthermore, Amgen's efforts in developing therapeutics for various disease areas, such as oncology, have served as the company's foundation for years.
One reason to tread with caution: Amgen will likely enter the market as a latecomer
Despite an optimistic prognosis for Amgen regarding its investments in developing new cardiometabolic medications for major indications like obesity and type 2 diabetes, potential investors should remain mindful of a significant consideration.
Amgen won't be the first biopharma company to introduce a weight loss drug, assuming it ever does. It won't even be the second or third entrant into the market. Instead, it will join the ranks of competitors who jumped on the bandwagon once the new class of drugs with widespread appeal became apparent.
This doesn't mean its foray into the market will falter, or that it won't generate substantial growth. What it does imply is that its likelihood of capturing a significant market share is limited with the current data at hand. To secure a large market share, its drug candidate would need to offer a notable improvement compared to existing products in at least one critical aspect.
Should you decide to invest in Amgen, note that the potential for significant growth in the near term due to its weight loss medications is limited. If the company maintains its investment in its pipeline, the stock can still provide a satisfactory return to investors over an extended period. Still, this isn't an ideal choice for those seeking rapid gains.
The first sentence: Given Amgen's robust cardiometabolic pipeline, with two projects in clinical trials and promising results, investing in its stock could potentialy yield high returns in the future.
The second sentence: While Amgen's entry into the market for weight loss drugs as a latecomer may limit its immediate growth potential, its extensive market presence and commitment to research and development can provide a stable investment opportunity over the long term.
