Amgen (AMGN -1.17%) is a top drugmaker whose shares have risen by more than 70% in five years, which is a bit shy of the S&P 500's 90% gain over that stretch. With some promising products in its pipeline, the future does looks encouraging. However, some investors might be concerned about the company's high debt load.
Here's where the business might go from here, and whether it's worth investing in Amgen today.
Amgen could have a top weight loss drug in its portfolio
The biggest product Amgen investors should be excited about is MariTide, a weight loss drug that could prove to be a thorn in the sides of both Novo Nordisk and Eli Lilly.
What makes the drug potentially more attractive than the injectables those companies offer is that it might not need to be taken on a weekly basis like those drugs do, and there are signs that people could be able to keep the weight off even after they stop using MariTide, which is a common drawback of using many similar drugs.
It's still only in phase 2 trials, but it likely won't take too long to find out if Amgen is sitting on a potential game changer in MariTide or not. Right now, the results look encouraging. If it comes to market, this could easily add billions in revenue for the business and be a huge catalyst for not only the company's top line but its share price as well.
Other growth catalysts may strengthen its financials
Even if it takes time for MariTide to come to market (assuming it obtains approval), the odds are that Amgen's financials will get a boost from other products anyway. The company recently obtained approval from the Food and Drug Administration for Imdelltra 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 also acquired ChemoCentryx for $3.7 billion and Horizon Therapeutics for $27.8 billion, These acquisitions have given it some promising assets in Tavneos (for vasculitis, an inflammation of lymph or blood vessels) and Tepezza (thyroid eye disease).
As the company grows those products while also developing its in-house pipeline, its already strong financials should become a lot better in the next five years. In 2023, the company reported $6.7 billion in profit on $28.2 billion in sales.
Amgen's debt should come down
A big concern for investors today is Amgen's debt. It has taken on a lot of debt in its purchase of Horizon and owed $64 billion as of the end of March. The company has only made a modest $600 million reduction since the start of the year.
But Amgen has been consistently generating free cash flow over the years. In 2023, it brought in $7.4 billion in free cash and its dividend payout amounted to $4.6 billion.
As Amgen's business grows and it generates more revenue from new products, its free cash should also improve, paving the way for the business to chip away at its debt. How much of a dent it can make in the debt is the big question.
But if it can continue to have a buffer of at least a couple of billion between its free cash and its dividend, I would expect that it might trim its debt down by at least $10 billion in five years.
By then, interest rates will likely be lower, and concerns about its debt levels might not be as high as they are today.
Should you buy Amgen's stock?
Amgen is trading at 15 times its estimated future profits and could make for a good growth stock to buy and hold. While its debt level is high and has been worrisome for investors, the growth potential for the business -- especially if MariTide obtains approval -- could more than make up for those worries. There is a bit of risk with the healthcare stock, but it shouldn't be enough to deter long-term investors.
Given the S&P 500's inflated levels right now and the potential for a correction in the future, I don't think it's a big leap to predict that Amgen will be a market-beating stock over the next five years given its growth outlook. This could be one of the best healthcare stocks to buy right now.