2 Reasons to Buy Amgen Stock, and 1 Reason to Be Cautious

While Amgen's (NASDAQ: AMGN) shares have underperformed the market over the past 12 months, climbing 19.7% compared to the market's unusually large gain of 35.6%, there's no shortage of reasons to buy its stock. Still, there is a risk that could rain on the biotech's parade a bit over the next couple of years.

Let's examine two reasons why the stock is worth buying, and one reason why it makes sense to be just a little bit cautious with an investment.

Two reasons to buy the stock: Its cardiometabolic pipeline is shaping up and moving forward

Amgen is keen to launch a drug to give it some exposure to the anti-obesity drug gold rush that's going on right now. It has two disclosed programs, one of which is in phase 2 clinical trials, and the other of which is in phase 1.

Per management, its candidate in phase 2, called MariTide, is going swimmingly, and planning for a phase 3 trial is already underway. There should be a data readout of the mid-stage trials sometime before the end of this year, which could be a major catalyst for the stock.

In Q3, it also initiated an additional phase 2 program investigating whether MariTide might be useful to treat type 2 diabetes as well, much like the blockbuster anti-obesity medicines made by Eli Lilly and Novo Nordisk.

Then there's its other anti-obesity program, AMG 513, which is in phase 1 trials currently. There aren't many publicly disclosed details about it yet. But if it's anything like the other weight loss therapies in development and on the market right now, there's a chance it could also be investigated for treating type 2 diabetes someday. So it could target two markets, which is why it's another reason to buy the stock.

In short, Amgen is a massive biopharma, with dozens of pipeline programs and a huge portfolio of products on the market. In the third quarter alone, its top line was $8.5 billion, and it reported $5.22 in diluted earnings per share (EPS).

But it only has five research and development (R&D) programs in clinical trials right now for indications in cardiometabolic medicine. The fact that two of those programs were launched in the last quarter suggests that management is quite serious about competing in the cardiometabolic market. For MariTide alone, its addressable market could be as large as $90 billion or more by 2031.

In other words, Amgen has likely tipped its hand. More cardiometabolic programs with massive sales potential are almost certainly forthcoming in its pipeline. Some of them will probably succeed eventually, which implies that its earnings should get a big new driver sometime down the line.

And that's before even considering all of its other work in developing programs for indications in oncology and other disease areas, which have been its bread and butter for a long time.

One reason to be cautious: It's destined to be a latecomer

Despite the very positive setup facing Amgen as a result of its ongoing and future investments in developing new cardiometabolic medicines for big-ticket indications like obesity and type 2 diabetes, there is still a big reason to be slightly cautious with an investment.

It won't be the first biopharma company to launch a weight loss drug, assuming it ever does. Nor will it be the second entrant to the market, nor the third. It won't be one of the first movers, it'll be one of the herd of competitors that jumped on the bandwagon after it was obvious that there was a new class of drugs with mass appeal.

That doesn't imply its bid to compete will fail, or that it won't drive plenty of growth. What it means is that its chances of seizing a massive market share are minimal, at least in the absence of convincing evidence showing that its candidate is dramatically better than the existing products in at least one relevant dimension.

So if you do choose to invest, understand that there isn't much potential for gargantuan growth in the near term as a result of its anti-obesity medicines. If the company continues to invest in its pipeline, and it will, the stock could still deliver a good return to investors over time. But this isn't a pick if you're eager to get rich quick.

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Alex Carchidi has no position in any of the stocks mentioned. The Motley Fool recommends Amgen and Novo Nordisk. The Motley Fool has a disclosure policy.