Move Over Eli Lilly: Amgen Could Be The Next Obesity Wonder Stock (NASDAQ:AMGN)

Eli Lilly (LLY) has been a phenomenal stock to own over the past couple of years. In early 2022, it was trading for about $230 per share, but today it trades for nearly $800. This huge run is largely due to the success of its obesity drug, “Zepbound”. Eli Lilly shares now trade with a whopping price to earnings ratio of around 60. Analysts expect Eli Lilly to earn about $12.47 per share, in 2024. For 2025, the earnings estimates are at $18.16, and for 2026 the estimates are at $23.60.

As the chart below shows, and as discussed above, Eli Lilly shares have had a huge run over the past few years:

The obesity market is expected to potentially grow to around $100 billion by 2030. That’s a huge market and it’s easy to see why investors are so excited about treating obesity. Since a drug is considered to be a blockbuster when it has $1 billion or more in annual revenues, the obesity market is big enough to create many blockbusters within this category alone. If I owned Eli Lilly shares now, I would be a seller. The stock has had a huge run, it is very richly valued and competition is coming. I think there are better stocks to buy and one in particular could be the next Eli Lilly in a sense, because it might also have a blockbuster obesity treatment coming. That company is Amgen (NASDAQ:AMGN) and in some ways (such as in terms of earnings power), Amgen already could be considered the equivalent of Eli Lilly right now or even superior. If Amgen’s obesity candidate makes it to market, then Amgen might not just be the next Eli Lilly, it could even be better. Let’s take a closer look.

The Chart

As the chart below shows, Amgen shares have been in an uptrend for the past several months. In February, this stock traded up to around the $325 level, but it has since experienced a pullback which I think is an ideal buying opportunity. This stock recently traded down to about $270, which is not far from the 200-day moving average of about $264 per share. If it gets to that $264 level, I would become a more aggressive buyer.

Amgen’s Obesity Candidate And More On The Pipeline

While Eli Lilly might be viewed as the leader by many when it comes to obesity treatment, this opportunity has not gone unnoticed and competition is coming from a number of companies. Amgen is developing an injectable treatment called MariTide (formerly AMG133) and it could be more beneficial for patients because it appears to help them keep the weight off even after they stop injections. Amgen is also testing this as a once a month injection which would be superior to the weekly injections that are required with other treatment options that are on the market now. Amgen is also working on an oral weight loss treatment, and this could be ideal for patients that do not tolerate injections. Amgen is expected to release phase 2 clinical trial updates on MariTide as well as phase one results on its obesity pill later this year. These results could be a major upside catalyst for the stock, if the results continue to show promise.

Amgen’s MariTide has shown promise and safety in early-stage trial data and it appears to be more effective in helping patients to keep the weight off when compared to other treatments that are on the market. This potential durability factor plus the possibility for the injection to be once a month, could help Amgen leapfrog many competitors. If MariTide and/or Amgen’s other obesity treatments like the pill taken orally make it to market, Amgen’s earnings and revenues could surge in the coming years, making it potentially even better than being “the next Eli Lilly”.

Amgen has a very robust pipeline and some of these candidates could also become blockbusters in terms of revenues in the future. “AIMOVIG” for pediatric migraines, “AMJEVITA” for inflammation, “LUMAKRAS” for colorectal and lung cancers, “OLPASIRAN” for cardiovascular disease, “TEZSPIRE” for severe asthma, are all in phase 3 trials, and this is just a partial list of the phase 3 candidates. In addition to this, there are numerous candidates that are in phase 2 and earlier stage clinical trials. There are so many candidates in Amgen’s pipeline it is too long to list—take a look here. As can be seen below, Amgen has a number of important potential pipeline milestones that are anticipated for 2024, including MariTide:

Let’s Compare “Zepbound” And “MariTide”

Zepbound: This treatment helped obese patients lose up to about 20.9% of their weight after 72 weeks (when taking the highest dosage which is 15 mg). Injections are taken weekly. In terms of more common adverse side effects, patients could experience: nausea, diarrhea, vomiting, abdominal pain, constipation, allergic reaction, injection site reactions, hair loss and heartburn, and there are more possible side effects. In terms of more serious but possibly less common side effects, Eli Lilly’s website says that Zepbound can cause tumors in the thyroid.

MariTide (AMG133): In early stage trials, and according to a study published by Nature Metabolism, this treatment saw patients losing 14.5% of their body weight in just 12 weeks. This is a once a month injection. The most common treatment-adverse events were nausea and vomiting which were generally mild and resolved within 48 hours. No clinically meaningful changes in blood pressure were observed. Patients who received a single shot of the highest dose (420 milligrams) of MariTide still lost up to 8.2% of their body weight after 92 days, which (according to the authors of the study) suggests a single injection has a prolonged weight loss effect. In another group that participated in the study, multiple doses of the drug were given and patients still retained an 11.2% weight reduction, even five months after receiving the last dose. Again, this suggests that MariTide has prolonged weight loss benefits, along with the benefit of a once-a-month injection.

Earnings Estimates And The Balance Sheet

Analysts expect Amgen to earn $19.62 per share on revenues of about $33 billion. For 2025, estimates are at $21.11 on revenues of around $34 billion and earnings are expected to rise to $22.23 with revenues coming in at nearly $35 billion for 2026. If you look at the earnings estimates for Eli Lilly, you can see that Amgen is expected to earn much more this year, but by 2026, both companies could be earning around $22 to $23 per share. Yet, there is an incredible disparity in the share price with Eli Lilly trading for nearly $800, and Amgen trading for a little more than one third of that share price, at just about $280. I understand that Eli Lilly is growing faster right now, but the fact that it will likely take about two years for Eli Lilly to catch up to what Amgen is earning is significant. But, I also think it is clear that Amgen’s earnings and revenue estimates do not seem to include much (if any) potential revenue growth that could come if its obesity treatment is successful. Based on this, Amgen’s earnings estimate could be too conservative.

As for the balance sheet, Amgen has around $65.42 billion in debt and nearly $11 billion in cash. I’d rather Amgen had less debt, but at the same time I am not concerned with the balance sheet.

The Dividend

Amgen currently pays a dividend of $2.25 per share on a quarterly basis, and this totals $9 per share annually. The dividend has grown significantly over the years and could continue to do so. In 2014, the quarterly dividend was just 61 cents per share, so in the past ten years the dividend has roughly quadrupled. With an earnings estimate of more than $20 per share, a $9 per share in total annual dividends is a safe payout ratio and it leaves plenty of room for more dividend increases. Amgen typically announces a dividend increase each year, right around December.

On March 6, 2024, Amgen announced a second quarter dividend of $2.25 per share would be paid on June 7, to shareholders of record on May 17, 2024.

Potential Downside Risks

As with any company that does drug development, there are major risks for clinical failures. In addition, there is the risk of some type of litigation in the future if patients develop unforeseen health complications from taking a drug. This sector also has major regulatory risks, and election year risks from politicians promising to attack drug prices. Additional risks include generic competition when drugs go off-patent.

In Summary

Amgen’s valuation looks very compelling, especially when compared to Eli Lilly. Amgen offers a dividend yield of about 3.2% and it has a strong record of increasing the dividend each year. Trading at just about 14 times earnings, Amgen shares appear undervalued, especially if it has some success in the obesity market. I think Amgen is a buy at current levels, and I plan to buy more aggressively if it trades down to the $264 level, which is right around the 200-day moving average (which is typically a strong support level).

AI is another reason I like Amgen and the biotech and pharma sector right now. It’s too early to yield results, but the use of AI in the future could speed up drug discovery and lead to breakthroughs, as well as reduce the time and expense it takes to bring a treatment to market. The other factor I like is that Amgen has such a strong portfolio of existing products as well as a promising pipeline. Because of this, Amgen’s stock is not going to crash if there is a clinical failure, and yet a significant clinical success with a treatment candidate like MariTide could significantly boost the share price. In my view this stock has an excellent risk to reward ratio.

No guarantees or representations are made. Hawkinvest is not a registered investment advisor and does not provide specific investment advice. The information is for informational purposes only. You should always consult a financial advisor.