Amgen Could Become A Real Contender In The Obesity Market (NASDAQ:AMGN)

Shares of Amgen (NASDAQ:AMGN) surged after the company reported first quarter results, but the gain was largely driven by management comments related to the phase 2 trial of the long-acting obesity candidate maridebart cafraglutide (which was previously called AMG133), or MariTide as it is conveniently called. No results were reported, but the comments about the interim look from the phase 2 trial sounded very bullish and the company is planning to rapidly advance a broad phase 3 program in obesity, type 2 diabetes and adjacent indications.

The results from the previous smaller phase 2 trial were encouraging and MariTide could become one of the first longer-acting obesity products with the potential to disrupt the dominance of Novo Nordisk (NVO) and Eli Lilly (LLY) later this decade.

I have previously written about Amgen and its improved outlook in August 2023 related to the Horizon Therapeutics acquisition, and I remain bullish on Amgen as one of the better run big pharma companies, independent of the success of the obesity pipeline, but with higher upside potential if the obesity pipeline is successful.

MariTide interim look comments and previous results

Below are the initial earnings call comments by CEO Robert Bradway that sparked the post-earnings rally:

Whereas we don’t normally comment on interim data, especially for our Phase II trial, we recognize there is significant interest in obesity in MariTide, so we’ll provide additional commentary today. The interim Phase II analysis for this study is complete, and we are very encouraged with the results that we’ve seen thus far and with the conduct of the trial. Following the interim analysis, I would say we’re confident in MariTide’s differentiated profile and believe it will address important unmet medical needs.

We are actively planning a broad Phase III program including obesity, obesity-related conditions and diabetes. Obviously, we expect to carefully complete our ongoing Phase II trial before then moving as swiftly as appropriate to establish the safety and efficacy of this potential medicine in Phase III trials. We’ve initiated activities as well to further expand manufacturing capacity with both clinical and commercial supply in mind.

And we do not need to just Bradway’s words to be bullish about MariTide. The previous phase 2 results the company reported looked promising and intriguing with three once-monthly doses of MariTide generating significant weight loss after three months of treatment, and the two higher doses demonstrating (largely) maintained weight loss up to four months following the last dose.

The two potentially differentiating factors are better convenience with monthly or even less frequent dosing versus once-weekly dosing for semaglutide, tirzepatide and other incretin candidates in development, and the other is the better off-treatment effect. As an example, below are the data from the trial of Novo Nordisk’s semaglutide (Wegovy/Ozempic) showing relatively rapid weight regain in the 48 weeks following the transition to placebo and with no signs of stopping.

The same effect is seen after patients transition from Eli Lilly’s tirzepatide (Zepbound/Mounjaro) to placebo.

Safety and tolerability are also important and EVP of R&D and Chief Scientific Officer James Bradner said “patient dropout has not been an issue” and the previous data, albeit from a small phase 2 trial, show similar gastrointestinal tolerability issues seen with semaglutide and tirzepatide.

The company said the trial is on track to complete this year with topline results in late 2024.

It is hard to make strong conclusions based on management comments, but there is previous supportive data to back these comments and the two combined provide reason to be optimistic about the upcoming 52-week data.

Separately, there was also bad news for the oral obesity candidate AMG786 – the company decided to stop developing this candidate and instead to focus on MariTide and other assets in preclinical development.

Long-term growth potential of Amgen’s obesity pipeline

One thing is certain – in a few years, the obesity market will look very different. The race for more significant weight reduction, the development of longer-acting treatment options, the push for improved body composition with higher reduction of fat mass and preservation of lean body mass are just a few of the areas where I believe we will see significant improvements in the following years. Weight regain following treatment cessation is also something to consider but I am not optimistic about this part, but that actually makes the bullish case for obesity drugs stronger as patients may need to be treated on a chronic basis, just as they are for conditions such as type 2 diabetes.

And I am still calling it the obesity pipeline, but it is turning out to be much more than obesity. The GLP-1 agonists such as semaglutide, the “double G” agonists (GLP-1/GIP) such as tirzepatide are already being used for the treatment of type 2 diabetes, semaglutide was recently approved for the reduction in the risk of cardiovascular adverse events, and the two products have generated positive data in other indications such as knee osteoarthritis, heart failure with preserved ejection fraction, and obstructive sleep apnea. Prevention of Alzheimer’s disease is the next potential market with Novo Nordisk planning a phase 3 program.

However, obesity is by far the largest market for these drugs and Novo Nordisk’s presentation slide, as disappointing as it is in terms of the overall health of the global population, shows how large of a market obesity really is and how many patients are on Novo Nordisk incretin drugs – just one million out of 813 million and Novo Nordisk estimates this number will exceed 1.2 billion by 2030.

So, the pie is more than large enough to support several products and for several big pharma companies to profit from the increasing number of products in the following years.

Now, it is easy to throw numbers around, but I believe this market will be by far the largest in the world in terms of dollar value in the 2030s and that, if MariTide’s data live up to expectations, Amgen could generate $20 billion+ in annual sales in 7-8 years from obesity, type 2 diabetes and adjacent indications. And that is even assuming there is real competition on price and that the average net price per patient per year is significantly below what Novo Nordisk and Eli Lilly are commanding today.

To put this into perspective, the current Street estimates are for Amgen’s revenues to rise from $33 billion this year only to $35.1 billion in 2033. I believe this shows that, until the Q1 2024 earnings report, there was little to no value assigned to Amgen’s obesity pipeline. And even with modest or no success of the obesity pipeline, I believe these estimates are very low and that Amgen will show stronger top and bottom-line growth than the market is expecting today.

And coming back to the evolution of the obesity market, I do believe Amgen will need to come up with more than just MariTide and that it should be combined with some of the lean body mass-preserving candidates that are emerging or that will emerge in the following quarters and years, be it by partnering with some small-cap biotech companies, or even larger ones like Regeneron (REGN), by in-licensing or acquiring these candidates or smaller biotech companies developing such treatment options.

Alternatively, Amgen could just develop MariTide in combination with these products when they reach the market without economic participation, but that would result in lower economics and reduced price control as it will not be able to set the price of the other product in this combination. Please see my February article on Regeneron for additional details about the muscle-preserving part of the obesity market.

Q1 2024 results – no major surprises

If there were no obesity pipeline updates today, I doubt Amgen’s price would change significantly after the first quarter report. Revenues were in-line at $7.45 billion, a 22% YoY increase driven primarily by the addition of $914 million in revenues from last year’s acquisition of Horizon Therapeutics. EPS was $3.96 and this was $0.05 ahead of analyst expectations.

Tepezza net sales grew 5% YoY to $424 million, finally reversing the negative trend of several quarters of YoY declines and, at least in the near-term, addressing the concern about Amgen overpaying for Horizon to get an asset with declining net sales.

The key growth products performed well:

• Repatha grew 33% YoY to $517 million and despite continued price pressure.
• Prolia was up 8% YoY to $999 million.
• Evenity and Blincyto grew 35% and 26% compared to the same quarter last year to $342 million and $244 million, respectively.
• Krystexxa grew 26% YoY to $235 million.
• Tezspire remains in rapid growth mode with 80% YoY growth to $173 million.

The strong performance of these products was partially offset by the YoY declines of Enbrel (2%), Aranesp (2%), Nplate (12%), Neulasta (53%), and some other smaller products.

Amgen slightly increased the full-year revenue guidance range from $33.4-33.8 billion to $33.5-33.8 billion and the non-GAAP EPS guidance range from $18.90-20.20 to $19.00-20.30.

Conclusion

Amgen’s relatively uneventful commercial update was eclipsed by management’s comments about MariTide’s phase 2 trial in obesity patients. I still see Amgen as well-positioned to deliver long-term value even in the absence of significant success of the obesity pipeline, and if the results turn out to be as good as they sound, Amgen could become a real contender in the rapidly expanding and rapidly evolving obesity market and smaller but also significant adjacent markets. This could result in greater value creation than is expected of Amgen today as upside from obesity is not yet included in long-term revenue or profit estimates.