Will Amgen Stock Skyrocket Through FDA Trials?

Key Takeaways

• Amgen announced positive results from a phase I trial of its new obesity drug, AMG 133.
• After its earnings announcement and the trial results, Amgen stock rose more than 5%.
• Fewer than 10% of drugs move from phase I trials to full FDA approval.

Early data from a trial of Amgen’s new drug treatment for obesity shows promising results. In a press release, the company announced that participants in the trial lost up to 15% of their weight and that it plans to accelerate development of the drug.

In 2017, nearly 42% of American adults were obese, which means this drug should have a large potential market and provide real help to tens of millions of people in the United States alone. That leaves investors wondering whether these promising results will cause Amgen’s stock to rise. So far so good.

Background

Founded in Thousand Oaks, California in 1980, Amgen is one of the world’s largest biotechnology companies. The company has a market capitalization exceeding $150 billion and employs nearly 23,000 people.

Some of the company’s top products include Neulasta, an immunostimulatory drug for cancer patients, and Enbrel, a treatment for arthritis and autoimmune diseases.

Amgen has multiple drugs in the development and clinical trial phases, including its new obesity treatment and multiple drugs used for treating cancer.

Amgen’s New Obesity Drug

Amgen began developing a new obesity drug, AMG 133, before the COVID-19 pandemic, with clinical trials beginning in 2020. The drug is still in early stages of testing, so it is not clear whether it will be a successful treatment for obesity, though initial data certainly appears promising.

The drug functions by interacting with receptors in the human intestine. It can help encourage the body to produce insulin and reduce blood sugar levels. It is not entirely clear how similar drugs assist with weight loss but it is known that similar drugs can slow the movement of food into the intestine. That may leave patients feeling full for longer periods, curbing hunger.

Amgen’s first clinical trial of AMG 133 involved 110 volunteers. Some received a low dose of the drug, some received a high dose of the drug, and some received a placebo instead of AMG 133.

After 85 days, placebo recipients gained an average of 1% of their body weight. Those who received a low dose lost 7% of their weight. Those who received the high dosage lost 15% of their body weight.

During the study, Amgen closely monitored volunteers for health issues and noted that there were no major safety issues and that side effects were generally “mild and transient.”

These results are promising for the treatment, especially when compared to other weight-loss drugs.

In trials for Saxenda, another obesity drug, participants lost an average of 5% to 7% of their weight after 56 weeks, and those taking Wegovy lost 10% to 16% of their weight in 58 weeks.

Based on the results of the trial, Amgen has multiple ways to differentiate its drug from those already on the market. For example, it could market AMG 133 as an option for quicker weight loss or one that produces fewer side effects than alternatives.

In response to its earnings announcement and details about its trial results, Amgen stock rose 5.6%.

How do drug trials impact stock prices?

To most investors, it makes sense that a successful drug trial can cause a large increase in a company’s stock price. Pharmaceuticals are expensive to develop but can bring massive returns if and when they reach the market.

Historically, stock prices do move as you’d expect based on drug trial results. A study published in the Journal of the National Cancer Institute examined stock prices before and after study results for nearly 100 trials and FDA regulatory decisions.

When a clinical trial succeeded, stock prices increased by an average of 9.4%. Negative results produced a 4.5% decrease. Interestingly, stock prices also tended to increase prior to the announcement of positive results and hold steady or decline prior to the announcement of negative results.

However, this study looked at phase III clinical trials, those that come near the end of testing and shortly before successful drugs go to market. Early-phase tests offer much less certainty about a drug’s future. A treatment that looks promising in phase I could be found to have major problems in phase II or III.

In fact, only 9% of drugs that reach phase I trials eventually receive FDA approval and reach the market. That can limit the impact that these trials have on stock prices.

What can investors do?

Many investors choose to buy shares in pharmaceutical companies in advance of clinical trial results. For startups with only a single drug in development, this is a lot like investing in a coin flip. A successful trial can cause the stock to skyrocket, while a failure often leads to bankruptcy.

For larger, more established companies like Amgen, the impact of a single drug trial will be smaller but can still be significant, as seen by the stock’s gain of over 5% after results were announced.

If you’re interested in investing based on clinical trials, you can follow the news to learn about the different drugs that companies are developing and testing, then make investments based on that information. While the vast majority of drugs won’t make it to market, if you choose wisely, you might be able to earn a significant return.

Another option is to invest in a mutual fund or ETF focused on the healthcare or pharmaceutical industries. Diversifying your investment will reduce the impact of failed trials on your investment while still letting you benefit from the successful ones.

Bottom Line

Amgen’s announcement of earnings and positive results from a phase I trial of its obesity drug led to a spike in the company’s stock price. While few drugs move from phase I trials to FDA approval, it’s still a positive sign for a treatment that could help nearly half of Americans.

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