Why Amgen's Weight Loss Result Is a Win for Eli Lilly

Shares of Amgen (NASDAQ: AMGN) recently ticked lower despite a very positive-sounding press release regarding its weight management candidate. According to the giant drugmaker, treatment with an anti-obesity candidate called MariTide helped patients reduce their weight by up to 20% after 52 weeks.

On the surface, 20% weight loss after 52 weeks for a monthly injection is commendable. Unfortunately, the reported benefit probably isn't strong enough to consider the still-experimental treatment a potential market leader.

Amgen's anti-obesity program might not be firing on all cylinders, but that doesn't necessarily make it a bad investment. Here's a look under the hood to see if now is a good time to buy, sell, or hold the biotech stock.

MariTide underwhelms in phase 2

On Monday, Nov. 26, Amgen announced top-line results from a phase 2 trial with MariTide. This is a glucose-like peptide-1 (GLP-1) agonist that also inhibits glucose-dependent insulinotropic polypeptide (GIP) receptors.

A differentiated mode of action has encouraged many analysts to watch MariTide closely. Zepbound is an increasingly popular weight-loss option from Eli Lilly (NYSE: LLY) that acts on both GLP-1 and GIP receptors. Analysts had hoped that inhibiting GIP instead of activating it would differentiate MariTide, but this doesn't appear to be the case.

In the Surmount-1 trial, non-diabetic patients with obesity who received Zepbound reduced their weight by 22.5% compared to the placebo group after 72 weeks. Amgen stock slipped following its announcement because the company announced a weight reduction of up to about 20% after 52 weeks of treatment with MariTide in a phase 2 trial.

Amgen didn't clarify whether the average weight reduction of up to about 20% was a placebo-adjusted figure. It most likely referred to total weight loss, which means the candidate probably isn't any more effective than Lilly's Zepbound.

More than MariTide

MariTide probably won't become the world's top weight-management drug, but that's not a huge problem for Amgen. In the third quarter, 10 of the company's products grew sales by a double-digit percentage year over year.

Thanks to the recent acquisition of Horizon Therapeutics, Amgen grew Q3 product sales by 24% year over year. Even if we ignore recent additions from Horizon, Q3 sales marched 8% higher.

The rare disease drugs Amgen acquired could drive growth for the company even if MariTide fizzles out. For example, around 100,000 Americans have thyroid eye disease, but less than 10% of these patients are on Amgen's new thyroid eye disease drug, Tepezza.

Despite a currently small share of the thyroid eye market, Q3 Tepezza sales already reached $488 million.

Krystexxa is a blockbuster gout treatment that Amgen acquired from Horizon. It's become standard care for chronic gout patients, with third-quarter sales that rose to $310 million.

In addition to the drugs it sells now, Amgen could have heaps more growth drivers down the road. At the moment, it's testing 23 different molecules in phase 3 clinical trials.

Buy, sell, or hold?

Shares of Amgen have fallen by about 7% in 2024 despite significant growth. As a result, the stock is trading at a very reasonable valuation.

At recent prices, you can scoop up shares of Amgen for 13.7 times the midpoint of management's earnings guidance range for 2024. That's a low multiple to pay for a drugmaker that grew total sales by 25% over the past three years.

If MariTide's upcoming phase 3 trial fails to excite investors, they'll still get to hang on to the dividends they receive. Amgen offers a 3.3% yield at recent prices, and the company is known for rapidly increasing its payout.

Last December, Amgen raised its dividend payout for the 12th consecutive year, and it wasn't an insignificant gain. The company has raised its dividend payout by more than 40% since 2021.

If you've been holding Amgen stock, lackluster MariTide results are not a reason to sell. With plenty of growth drivers that could keep pushing its needle forward, Amgen could be a good stock to buy now.

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Cory Renauer has no position in any of the stocks mentioned. The Motley Fool recommends Amgen. The Motley Fool has a disclosure policy.