Major market indexes such as the S&P 500 declined in the first few months of the year, but have since rebounded significantly. In contrast, biotech giant Amgen (AMGN 0.17%) started the year strong, but has not maintained that momentum. Over the past six months, Amgen's shares have declined by 9%. The drugmaker is facing some issues, including upcoming patent cliffs.
Even so, there remain strong reasons to invest in Amgen and hold on to its shares for the long haul. Let's consider four of them.
1. A promising weight management drug
Amgen lost patent protection for Prolia, a medicine for bone health, earlier this year. In the next few years, it will encounter other patent cliffs, including that of the cancer drug Krypolis and the immunosuppressant Otezla. The loss of exclusivity for these therapies will impact top-line growth, but as every drugmaker knows, the best way to overcome this challenge is to develop newer drugs.
Amgen is working on that project. One of its more promising candidates is MariTide, an investigational weight management medicine. The anti-obesity market remains the hottest, fastest-growing therapeutic area in the pharmaceutical industry.
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While this market is dominated by the likes of Eli Lilly and Novo Nordisk, which also have the most promising pipeline candidates in the niche, MariTide appears to be one of the most promising mid-stage candidates. The medicine resulted in a mean weight loss of up to 20% over 52 weeks, with no plateau observed. Importantly, MariTide is administered subcutaneously once a month, whereas the current weight management leaders are taken weekly.
A monthly medicine could attract a decent number of patients even with lower efficacy, thanks to its more favorable dosing schedule. According to some projections, MariTide could generate sales of up to $3.7 billion by 2030. So it could be a significant growth driver for Amgen in the next decade, helping the company overcome the loss of patent exclusivity for some of its current medicines.
2. Other exciting therapies in development
While MariTide might be the most promising candidate Amgen has, the company's pipeline is deep beyond this single product. The biotech leader boasts a few dozen ongoing programs, at least a handful of which should lead to new approvals and contribute to its overcoming patent cliffs.
In June, Amgen announced that bemarituzumab, an investigational cancer medicine, succeeded in a phase 3 study. In the trial, when paired with chemotherapy in patients with metastatic gastric cancer and a FGFR2b protein overexpression, it significantly improved overall survival compared to chemotherapy alone. This medicine could potentially earn approval by 2027.
It's also worth noting that Amgen has newer products whose sales are expected to drive meaningful top-line growth as well. Last year, it earned approval for Imdelltra, a medicine for lung cancer. Other treatments haven't been on the market for that long, and should help drive top-line growth for years to come; these include Tezspire for asthma and Uplizna for neuromyelitis optica spectrum disorders (rare diseases that cause vision and hearing problems).
Amgen's deep pipeline and relatively recent launches will support its efforts to get around upcoming patent cliffs.
3. A strong dividend track record
Amgen generates strong financial results, which enable it to maintain its excellent dividend program. The company initiated its first payout in 2011, and has increased the dividend every year since; in the past decade alone, Amgen's dividend has grown by 201.3%.
The company's forward yield is now a juicy 3.5%, much higher than the S&P 500's average of 1.3%. Furthermore, Amgen has a cash payout ratio of 46.5%, which affords it ample room to increase its dividend even further without issue.
Investing in solid dividend stocks can help navigate the uncertain economic environment we face. Regular payouts can help smooth out market losses and boost returns amid a volatile market. Amgen is a pick worth considering for these reasons.
4. Reasonably valued shares
Last but not least, Amgen's shares look fairly valued at current levels. The company's recent forward price-to-earnings ratio of 12.6 is much lower than the average for the healthcare industry, which is currently 16.4.
The market may be factoring in upcoming patent losses -- fair enough. However, if you're willing to hold the stock beyond the next five years, you might want to jump at this opportunity. Amgen may struggle in the next couple of years due to patent cliffs. But once new launches take effect and older products fade into irrelevance, revenue and earnings growth should stabilize, allowing the company to deliver excellent returns over the next decade.
