What’s Behind The 50% Rise In Amgen Stock?

Amgen stock (NASDAQ: AMGN) saw a 7% fall on Tuesday, November 12, after an update on the progress with its weight-loss drug — MariTide. An early-stage trial for the drug showed loss of bone density, which could be a potential safety risk. MariTide is an important experimental treatment for Amgen. Earlier this year, the company decided to scrap its obesity pill but move forward with an injection, and Amgen’s management seems satisfied with the results so far. The company is planning for a late-stage clinical trial of its weight-loss injection. Amgen’s injection could stand out despite rising competition in the weight-loss treatment market, given that the injection could help patients stop gaining weight even after they discontinue the treatment. ^[1]

Although the recent update didn’t bode well with the investors, we think that the fall appears to be stretched. The bone density loss is a known side effect of weight loss drugs, and it seems to be varying per the dosage for Amgen. Barring the recent decline, AMGN stock has fared well, with around 50% gains since early 2021, compared to roughly 30% growth for the broader S&P500 Healthcare index. This can primarily be attributed to:

1. a 13% rise in the company’s P/S ratio to 5.2x now, versus 4.6x in 2020;
2. a 22% rise in the company’s revenue from $25 billion to $31 billion over the same period; and
3. a 7% reduction in its share count thanks to $15 billion in share repurchases.

Amgen’s revenue growth is being driven by its relatively new drugs, including, Repatha, Evenity, Blincyto, and Tezspire, among others. The company’s acquisition of Horizon Therapeutics is also bolstering the top-line growth. Amgen launched a biosimilar — Amjevita — for AbbVie’s Humira, which is expected to contribute over $1 billion in annual sales. On the flip side, some of the company’s older drugs, such as Enbrel and Neulasta, are seeing a y-o-y decline in sales.

Amgen’s gross margin has declined from 75.8% in 2020 to 60.5% now. Looking at the company’s balance sheet, its total debt has increased meaningfully from $33 billion to $60 billion, while its cash in hand has declined from $11 billion to $9 billion over the same period. Given its debt as a percentage of equity of 38% and its cash as a percentage of assets of around 10%, we think Amgen looks reasonably placed from a financial risk perspective.

Does AMGN Stock Have Any Room For Growth?

AMGN stock is up 6% this year, underperforming the broader markets, with the S&P 500 index rising 26%. However, if we look at a slightly longer term, AMGN is one of a handful of stocks that have increased their value in each of the last three years. Still, that wasn’t enough for it to consistently beat the market. Returns for the stock were 2% in 2021, 20% in 2022, and 13% in 2023.
In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, is less volatile. And it has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.

Given the current uncertain macroeconomic environment around rate cuts and developments around the company’s pipeline, could AMGN face a similar situation as it did in 2021 and 2023 and underperform the S&P over the next 12 months — or will it see a strong jump? We think AMGN stock has a little room for growth. It trades at 5.2x revenues, versus the stock’s average P/S ratio of 4.9x over the last three years. We think a slight rise in valuation multiple for AMGN makes sense, given the potential of its pipeline, including the weight-loss injection – Maritide.

While AMGN stock looks like it has some room for growth, it is helpful to see how Amgen’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

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

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1. Amgen scraps experimental weight loss pill, moves forward with injection, Annika Kim Constantino, CNBC, May 2, 2024 [↩]