Down 12.3% at One Point in a Single Trading Session, Is Amgen Stock Still a Buy?

The market didn't appreciate Amgen's (NASDAQ: AMGN) latest clinical data update, with the biopharma's shares falling more than 12% at one point on Nov. 26 from the previous day's close, though they recovered to close just 4.7% down for the day.

And, with shares of certain direct competitors, such as Eli Lilly (NYSE: LLY), rising, the prevailing assumption seems to be that one company's stumble is another's gain. But is the market's reaction appropriate, or is this a good opportunity to buy the dip?

Let's take a closer look at the situation to determine if this stock is still worth buying.

The picture is far from being grim here

Amgen is looking to compete in the all-important market for anti-obesity medicines, facing off against the reigning champions, Eli Lilly and Novo Nordisk (NYSE: NVO). Those two companies have blockbuster weight loss drugs on the market that you've probably heard of -- Lilly makes Zepbound, and Novo makes Wegovy. Both medicines are formulated as weekly injections.

Over the course of 52 weeks of treatment, Zepbound helps patients lose on average 24% of their mass, whereas Wegovy has been shown in clinical trials to lead to a 14% reduction in mass. But patients tend to defect from treatment at high rates as a result of the difficult gastrointestinal side effects associated with both. Some estimates contend that discontinuation rates of these drugs are on the order of 50% after one year of treatment for obesity, though it's important to note that the issue is far from settled scientifically; other estimates specify discontinuation rates of anywhere from roughly 7% to 17%.

So, Amgen has an opening to develop a drug that would beat the incumbents if its candidate excels in (at least) one of three areas: efficacy in causing weight loss, convenience in dosing, or tolerability (side effects).

Per the results reported by Amgen, its program called MariTide, which just completed its phase 2 clinical trials, led to patients experiencing weight loss of 20% of their mass on average over the course of a year. Only 8% of patients discontinued treatment as a result of gastrointestinal side effects, and effects like nausea reduced significantly after the first dose. Phase 3 clinical trials of the candidate will soon commence.

At a glance, it's easy to see why the market reacted so negatively. MariTide isn't dramatically more effective than the competition, and, viewing its tolerability data as conservatively as possible, it's comparable to the discontinuation rate data the other candidates produced in rigorous investigations. Still, it has a distinct advantage in convenience, as it only requires monthly dosing rather than weekly dosing.

The market isn't entirely off base

For investors trying to figure out whether to buy Amgen's stock, there's one question that cuts to the core of the issue with regard to MariTide. Could MariTide one day steal market share from the likes of Wegovy and Zepbound, given its somewhat mediocre mid-stage data?

The answer to that question is unambiguously yes, for three reasons.

First, Amgen has an entire phase 3 trial ahead to calibrate the dosing and timing of doses for MariTide. With the data it has in hand, it'll doubtlessly set out to investigate the ideal patient demographics in which the candidate is the most effective and the most tolerable.

Second, current weight loss medicines target patients diagnosed with obesity, and not those who may not necessarily be obese but, nonetheless, fall within the overweight category. That's because for drug companies, the trade-off right now between developing a drug that patients can tolerate for extended periods, versus a magic drug that quickly addresses obesity, despite potential side effects, falls firmly in the latter category.

Still, weight-loss drugs addressing obesity won't remain the only competitive market. People are eventually going to need more tolerable and more convenient interventions that are suitable for weight maintenance, or weight loss in cases other than obesity. MariTide could potentially fill that niche.

Finally, everyone's bodies react differently to medicines. Patients who found Zepbound or Wegovy to be too uncomfortable to stay on, or ineffective for their needs, will need an alternative, and MariTide could be that alternative if it's commercialized one day.

Therefore, with the above in mind, Amgen's stock is still worth buying on the dip. There's no guarantee that MariTide will be a blockbuster drug or a stunning success, but given the market's falling out with the stock, it's very likely that the candidate's potential positive impact on the company's finances is being undervalued.

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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.