Amgen Faces Stock Decline Over Weight-Loss Drug Update

Shares of Amgen Inc. (NASDAQ: AMGN) dropped 7% on Tuesday, November 12, following news from its early-stage trial of the weight-loss drug MariTide. The trial indicated a decrease in bone density, raising safety concerns. MariTide represents an essential step forward for Amgen after the company chose to abandon an obesity pill earlier this year in favor of an injection. Amgen’s management remains optimistic about the ongoing results and is moving toward a late-stage clinical trial for the injection, which might help prevent weight gain after treatment is stopped, setting it apart in a crowded market.

Despite the negative trial news, some investors may view the stock decline as an overreaction. Loss of bone density is a known side effect associated with many weight-loss drugs and appears to vary depending on the dosage. AMGN stock has seen significant gains, around 50%, since early 2021, especially when compared to the approximately 30% growth of the S&P 500 Healthcare index. Key factors for this performance include:

1. 13% rise in the company’s P/S ratio to 5.2x, up from 4.6x in 2020;
2. 22% increase in revenue from $25 billion to $31 billion during the same timeline;
3. 7% reduction in share count due to $15 billion in stock buybacks.

Driving Forces Behind Revenue Growth

Amgen’s revenue growth has been fueled by newer drugs such as Repatha, Evenity, Blincyto, and Tezspire. Additionally, the acquisition of Horizon Therapeutics has contributed to the company’s increasing revenues. The recent launch of the biosimilar Amjevita, aimed at competing directly with AbbVie’s Humira, is projected to generate over $1 billion in sales annually. However, some older medications like Enbrel and Neulasta are experiencing year-over-year sales declines.

In terms of profitability, Amgen’s gross margin has decreased from 75.8% in 2020 to the current 60.5%. The company’s balance sheet shows that total debt has increased significantly from $33 billion to $60 billion. Meanwhile, cash reserves have dropped from $11 billion to $9 billion. Given the current debt-to-equity ratio of 38% and cash ratio of approximately 10%, Amgen appears to be in a manageable financial situation.

Potential for Future Growth

Despite being up 6% this year, AMGN has underperformed compared to the broader S&P 500, which has seen a 26% rise. Over a longer period, however, AMGN has managed to increase its value consistently for three years. Returns for AMGN have been modest at 2% in 2021, 20% in 2022, and 13% in 2023.

In comparison, the Trefis High Quality (HQ) Portfolio, comprised of 30 selected stocks, has consistently outperformed the S&P 500, showcasing lower volatility and more stable returns.

As the market navigates an uncertain economic landscape with potential rate adjustments, questions remain regarding AMGN’s trajectory over the next year. Will it face another period of underperformance like in 2021 and 2023, or could it see significant gains? The current price-to-sales ratio of 5.2x suggests some potential for growth, slightly above the historical average of 4.9x over the past three years. The promising capabilities of the pipeline, including the weight-loss injection MariTide, add to this optimism.

While AMGN shows some prospects for growth, it’s beneficial to assess how Amgen’s peers perform regarding relevant financial metrics. More comprehensive comparisons with industry competitors can be accessed at Peer Comparisons.

[1] Returns as of 11/13/2024
[2] Cumulative total returns since the end of 2016

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