Where will Amgen be in five years?

Amgen (AMGN 0.89%) It is a top pharmaceutical company whose stock price has risen more than 70% in 5 years. S&P 500There is a 90% gain compared to that section. The future looks encouraging, with some promising products in the pipeline. However, some investors may be concerned about the company’s high debt load.

Here’s where the business could go from here, and whether it’s worth investing in Amgen now.

Amgen may have the best weight loss drug in its portfolio.

The biggest product Amgen investors have to look forward to is MariTide, a weight-loss drug that could be a thorn in the side for both sides. novo nordisk and ellie lily.

What makes this drug potentially more attractive than the injectables offered by this company is that it doesn’t need to be taken weekly like the pills, and there are signs that it may help you maintain weight even after you stop using it. MariTide, a common drawback of using many similar drugs.

Although it’s still only in Phase 2 testing, it won’t take long for Amgen to find out whether it’s sitting on a potential game-changer for MariTide. Current results are encouraging. If brought to market, this could easily add billions of dollars in revenue to the business and could be a huge catalyst for not only the company’s sales but also its stock price.

Other growth catalysts could strengthen finances

Even if MariTide takes time to get to market (assuming it gets approval), it’s likely that Amgen’s finances will improve with its other products anyway. The company recently obtained approval from the Food and Drug Administration (FDA) for Imdelltra, a treatment for advanced small cell lung cancer. It’s a blockbuster drug that analysts believe could generate up to $2 billion in revenue at its peak.

In recent years, Amgen has acquired ChemoCentryx for $3.7 billion and Horizon Therapeutics for $27.8 billion. These acquisitions have resulted in the acquisition of promising assets in Tavneos (vasculitis, lymphatic or vascular inflammation) and Tepezza (thyroid eye disease).

Its already strong financial position should get even better over the next five years as the company grows its products while developing its internal pipeline. In 2023, the company reported profits of $6.7 billion on revenue of $28.2 billion.

Amgen’s debt must be reduced

A big concern for investors today is Amgen’s debt. When it acquired Horizon, it took on a lot of debt, and as of the end of March, the amount owed was $64 billion. The company has only cut a modest $600 million since the beginning of the year.

However, Amgen has consistently generated free cash flow for several years. In 2023, it generated $7.4 billion in free cash and paid dividends of $4.6 billion.

As Amgen’s business grows and new products generate more revenue, free cash will also improve, paving the way for the business to pay down debt. The big question is how much debt can be reduced.

However, if it can continue to build a buffer of at least $2 billion between free cash and dividends, it could reduce its debt by at least $10 billion within five years.

By then, interest rates are likely to be lower and concerns about debt levels may not be as high as they are now.

Should you buy Amgen stock?

Amgen is trading at 15 times expected future earnings and could be a good growth stock to buy and hold. While debt levels are high and worrisome for investors, the growth potential of the business could more than offset those concerns, especially if MariTide gets approval. There is some risk in healthcare stocks, but not enough to deter long-term investors.

Given the current level of inflation in the S&P 500 and the potential for a correction in the future, I don’t think it’s a huge leap to predict that Amgen will be a market-leading stock over the next five years given its growth prospects. This could be one of the best healthcare stocks to buy right now.